Why Not Use Conjoint Analysis To Determine Citizen Preferences?

I recently participated in a couple of online surveys that used conjoint analysis techniques to determine my preferences as a consumer.  Conjoint analysis is a statistical technique used to determine what combination of features or attributes people prefer and how those attributes influence people’s decision making.

So, for example, one of the recent surveys I answered dealt with choices a company could make about new products they could offer – which would I be more likely to buy at what price? The other survey I participated in was about transportation services, and which services I would value at what cost. The questions got harder. As I made choices, I was shown packages of products and services that I valued more and more similarly, or where the costs got closer to what I was willing to pay. Still, I had to choose, and that gave the survey sponsors more information about what I valued.

These surveys and my memories of other conjoint analysis surveys I’ve taken in the past on employee benefits and other topics got me thinking about use of this technique to address many of our nation’s problems.

Do we really know what choices our citizens would make, how they weigh various options? Why don't we ask?

Conservatives assume everyone would rather pay lower taxes and have less government intrusion in their lives. Liberals assume everyone wants more even income distribution and a higher level of subsidized or free government benefits. But has anyone ever asked the citizenry what they want? And been willing to deal with the responses?

Obviously, we would all like to get more for less, the most goods and services for the least payment. And ideally, we would all like to live on a generous dole without having to lift a finger to work nor to pay a dime for our comfortable leisure.

But we know that is not an option. So which, among the many realistic options our society could choose, would you prefer?

Should we leave our federal government spending at its current level and raise taxes to cover it, or should we reduce federal spending and keep taxes the same? Or reduce spending further and reduce taxes as well?

Then let’s talk about income redistribution. How much should a billionaire pay in taxes? How much a millionaire? Someone making $250,000? Or $50,000? Or $20,000?  What is raised by each of these levels of taxation? What does that mean for spending? Are you satisfied with that level of spending? If not, whose taxes would you raise by how much in order to cover the level of spending you desire?

The technology exists today with conjoint analysis to put a variety of baskets of government goods and services and taxes and regulations in front of people and ask which they prefer. With a conjoint analysis survey, as I indicated above, the choices get progressively harder, as people are asked to differentiate between things they value more and more equally.

But at the end of the survey, you would have a pretty good idea of what our citizens really want. There would be a range of what people want, but you’d know where some consensus might be found. Wouldn’t that help our hidebound politicians on both sides of the aisle?

The issues of government taxation and spending are complex. But so are the issues we address in our daily lives. Only the dollars are smaller in our households than in our government. Maybe we should treat our citizenry as responsible adults and let them have a voice.

What is stopping our lawmakers and think tanks from asking what people want? The fact that they don’t want to know, because then they would have to try to address the citizenry, rather than satisfy their own predilections.

Would you like to make your choices known?

More Perspectives on Health Care Reform

Last week we heard the Supreme Court’s decision on the Affordable Care Act (ACA). I admit to being one of the more than 800,000 people following the SCOTUSblog live coverage of the justices reading their opinions and the follow-up commentary by politicians and pundits.  SCOTUSblog did a phenomenal job of posting accurate information in real time, and I highly recommend this site to anyone interested in the Supreme Court.

In April 2012, right after the arguments before the Supreme Court in the ACA case, I posted on my many perspectives on health care reform – attorney, former benefit plan administrator, corporate executive, consumer, and conservative. All those perspectives came into play again this week as I followed the coverage of the Supreme Court decision.


1. Limits on the Commerce Clause; No Limits on Taxes – Does the “Tax” Label Matter?

In my earlier post, I said that as a conservative I wanted the Commerce Clause to be limited.  Well, five justices of the Supreme Court limited it.  But the ACA survives anyway under the taxing power of Congress.

I always believed that Congress could have passed health care reform using its taxing power, but in 2009-2010 the President Obama and the Democrats in Congress specifically said the ACA’s penalty for not purchasing health insurance was not a tax.  Turns out it was.

This weekend, I argued with supporters of the ACA whether this mischaracterization of the penalty as "not a tax" matters. The President’s supporters claim that, because both the House and Senate properly passed the statute and the President duly signed it into law, it doesn’t matter what label was put on the penalty. But I firmly believe – as do other conservatives I have talked to – that some Democrats who voted for the ACA would not have done so if the penalty had been labeled a tax. In my opinion, labels do matter, because they impact the political process.


2. Uniform Benefit Plan Laws Unlikely

I said in my April post that as a benefit plan administrator, I believe uniform national laws are a huge simplifier for multi-state employers. Although the ACA is a national law, the Supreme Court decision does nothing to help businesses with simplicity.

I have listened to what benefit plan consultants like Aon Hewitt  and Towers Watson are telling their clients about compliance with the ACA. They say that, although the Supreme Court’s decision does mean that employers need to move forward with compliance, the devil will be in the regulatory details.  This 2,700 page act has already spawned more than 12,000 pages of regulations, and reams more regulations will be published before we really know what the law entails.

And different states and different employers will choose different paths to compliance.  Some states will expand Medicaid, others will not.  Some will develop their own healthcare exchanges, others will not.

Some employers will continue to offer group healthcare insurance, others will work with healthcare exchanges in states that adopt the exchanges, and some employers will decide that paying penalties is less costly than providing insurance to their employees. Also, some employers may decide to re-structure their workforces to reduce the number of full-time employees who must be covered.

Change in the employee benefit arena will continue for many years to come, and plan administrators will be dealing with the upheaval for at least a decade.


3. Equitable Taxation of Health Care Expenditures and De-Linking Health Care from Employment

The Supreme Court decision, of course, did nothing to fix the inequities between employer-provided healthcare insurance (premiums paid with pre-tax dollars, and employer contributions not taxed) and individual healthcare insurance (all costs paid with after-tax dollars).  I remain of the opinion that healthcare insurance should be totally separated from employment, and there is no movement in that direction. But at the very least, the tax treatment of employer-provided and individually purchased insurance should be the same.

Republicans have said their version of healthcare reform -- after Obamacare is repealed -- would equalize tax treatment of healthcare insurance.  Whether they will get the opportunity to repeal the ACA and pass  their own legislation won’t be determined until after the November election.


4. Tax Increases Coming; Premium Increases Also Likely

As a result of the ACA, higher income taxpayers face additional taxes, quite apart from the debate over whether the Bush tax rate decreases should be extended.

The Medicare tax on salary and self-employment earnings on individuals making more than $200,000 and couples making more than $250,000 in salary and/or self-employment income will pay an extra .9% above the 1.45% we all pay now.

In addition, starting in 2013, individuals making more than $200,000 in adjusted gross income and couples making more than $250,000 will be hit with an additional 3.8% "Medicare contribution tax."

Furthermore, everyone’s flexible spending account deductions for healthcare expenditures will be limited to $2,500 per year, limiting a very popular tax shield.

As a result of these changes, expect a flurry of tax-planning activity before January 1, 2013, arrives.

In addition to these tax increases, it is still likely that health care expenses in the form of premiums and medical products and services will consume an ever greater percentage of family and government budgets. Contrary to President Obama’s promise, the ACA does not adequately bend the cost curve. In my opinion, individuals will need to take more responsibility for their life choices and health care decisions before health care costs can be controlled.


5. It’s Still Not Over 

Many more lawsuits will be fought before we know the full ramifications of the ACA -- already litigation is pending over religious exemptions from contraceptives. Other mandated benefit issues will arise, as will disputes over eligibility for subsidies, state and federal arguments over Medicaid, what providers of medical services and devices should be paid, and a host of other issues.

And I still believe, as I did in April when I wrote my earlier post, that there will be amendments to the ACA before it goes into effect, or when the consequences of the act become too onerous.  The 2,700 pages enacted in March 2010 will not remain inviolate, no matter what happens in the November election.

What do you think? 

Tax Reform Desperately Needed To Reduce Complexity

I finished my federal and state tax returns this past week and got them mailed – always a huge relief.  I do my family’s taxes myself; I figure anyone with a law degree should be able to handle this task of citizenship.

But every year it gets harder.  The Internal Revenue Code is now 3.8 million words.  The instruction book for Form 1040 alone is 189 pages.

This year my federal and state returns, with all of their supporting worksheets, created a 297 page PDF file.  This level of complexity is preposterous.

What bothers me the most is that year in and year out my household pays approximately 20% of our adjusted gross income in federal taxes.  Some years it’s 19%, some years it’s as high as 22%.  But it’s always in that range, no matter how variable our income or deductions.

Why can’t I pay a flat tax rate of 20% or thereabouts?  I’d give up some of my deductions to reduce the complexity of our tax returns.

We need tax reform desperately in the United States.  Here are a few of the reasons:

• Only 53% of Americans pay any federal income tax.  Yes, I know there are payroll taxes, but more Americans should share in the burden of paying income tax.  Maybe then they would care more about who represents them in Congress.
• The Alternative Minimum Tax hits more and more middle-class Americans every year, despite annual “fixes.”  (The AMT was the Warren Buffett tax of 1969.)
• Our current tax code skews the economy.  For example, the mortgage deduction pushes people into home ownership and contributed to the 2008 recession.  The differing taxation levels on bond interest, stock dividends and capital gains incentivizes behavior based on factors other than the value of the investment.
• Neither the current Obama nor Republican tax reform proposals address the ballooning deficit in a serious and detailed way.  We are not adequately funding our growing entitlement morass.

I believe in a progressive federal income tax system. But I don’t believe it needs to be this complex.  No one – not even Mitt Romney nor Warren Buffett, and I am certainly not in their league – should have to fill out 297 pages of worksheets and forms to file a tax return.

Are you chafing about filing your tax returns? 

Here are two posts I recommend – one from Smart Money on “10 Things I Hate About Tax Day,” and the other a calmer, more philosophical approach at Janet Sunderland’s blog, Spiritual Crossroads, entitled “Taxing the Brain.”