London keeps global edge as top transport finance hub

Tower Bridge on the Thames River is seen from The View gallery at the Shard, western Europe's tallest building, in London January 9, 2013.

Credit: Reuters/Luke Macgregor

By Jonathan Saul

LONDON | Fri Mar 15, 2013 11:27am EDT

LONDON (Reuters) - London remains the top financing centre for the global transport industry, although it faces stiff competition from New York and capitals in Asia Pacific as companies seek to tap more funding sources, a survey showed on Friday.

Some 37 per cent of respondents from the global aviation, rail and shipping sectors ranked London as the key financial centre for transport, followed by New York at 14 percent and Singapore at 7 percent, the survey by international law firm Norton Rose found.

"London and New York remain key financial centres for the transport industry but are looking over their shoulders at Asia which is growing in importance," said Harry Theochari, global head of transport at Norton Rose.

Of those canvassed, 43 percent from the rail industry said London was most favoured as a financing hub, followed by 40 percent in the shipping sector and 31 percent in aviation.

The annual survey by Norton Rose, now in its fourth year, is one of the transport sector's leading barometers of market conditions, especially for the shipping community.

While London has a 300-year history as a leading finance, insurance and legal centre for the shipping industry, the survey said companies were looking at alternatives due to tough trading conditions, exemplified by a warning last month from Frontline (FRO.OL), one of the world's biggest tanker operators.

Frontline said it may miss bond repayments due in 2015 and be forced to restructure again if the market's depression continues.

"A dramatic reduction in the availability of debt finance in the London market means that shipping is increasingly turning to structured finance and private equity," Theochari said.

"This gives New York a distinct advantage, as it has the largest capital markets in the world and far greater access to private equity than any other global financial centre."

The survey canvassed views from 1,006 participants from a range of companies involved in transport including financiers, ship owners and operators, manufacturers, builders and industry advisors. Those polled comprised 383 from the aviation sector, 314 from rail and 309 from shipping. (Editing by David Holmes)

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A Proposal to Finance Long-Term Care Services through Medicare with an Income Tax Surcharge

A Proposal to Finance Long-Term Care Services through Medicare with an Income Tax SurchargeRichard W. Johnson, Leonard E. Burman

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

The text below is an excerpt from the complete document. Read the full report in PDF format.

We propose a new system of financing long-term care services in the United States. Our plan expands Medicare to cover comprehensive long-term care services, including home care and custodial nursing home care. Beneficiaries would share in the cost of services through deductibles and copayments, but the program would include stop loss coverage and special protections for low-income adults. By providing long-term care insurance that actually protects the assets of older adults, our proposal would eliminate the disincentive to save inherent in the means-tested Medicaid system. Our plan would also remove the bias in the current system for institutional care, enabling more persons with disabilities to remain at home where most prefer to live. We propose to finance this expansion of Medicare benefits with a surcharge on federal income taxes. Unlike the regressive payroll tax that finances Medicare’s hospitalization coverage, the surcharge we propose would not increase tax burdens for low-income individuals or families. All of the revenue generated by the tax would be dedicated to a special Medicare trust fund that would finance future long-term care services.

The financing of long-term care services for elderly adults is a critical public policy issue. As baby boomers age, the number of older Americans will soar over the next few decades. Between 2000 and 2040, the population aged 65 and older will almost double, to 77.2 million, while the population aged 85 and older will more than triple, to 14.3 million (U.S. Census Bureau 2000). Despite recent improvements in health at older ages (Manton and Gu 2001; Freedman et al. 2004), many elderly Americans will continue to need assistance with basic personal care. The Congressional Budget Office (1999, 2004) estimates that the number of Americans aged 65 and older with long-term care needs will increase from 8.8 million in 2000 to at least 12.1 million in 2040.

The family has traditionally been an important provider of care to the frail elderly. Most older persons with disabilities live in the community, not in nursing homes (Feder, Komisar, and Niefeld 2000), and receive care from spouses and adult children (Johnson and Wiener 2006). The availability of informal care is a critical factor in enabling frail elders to live independently in the community (LoSasso and Johnson 2002). However, it is unlikely that family caregivers alone can meet the expected rise in long-term care needs. Women are much more likely than men to provide care to their parents (Mui 1995), but many are being forced to reduce the amount of time they devote to caregiving activities as more and more women enter the labor force. And declining fertility rates may limit the number of adult children who will be available to provide care to their parents in the future. As a result, an increasing number of older adults may rely on paid helpers in the next few decades, either at home or in institutions, to meet their long-term care needs.

Despite the growing importance of formal long-term care services in the United States, there are significant problems with the way in which they are now financed. Most nursing home costs are paid by the public sector today. Although this is clearly a boon for frail elderly Americans, the availability of public funds for long-term care services discourages individuals from preparing for their own long-term care needs when they are young and healthy. Medicaid eligibility rules impose a nearly 100 percent tax on income and assets for nursing home residents. This implicit tax may be an important factor behind the alarmingly low savings rate for middle-class Americans. The current system also favors institutional care over home- and community-based services, which are not as heavily subsidized as nursing home services.

Private insurance is available for long-term care expenses, but coverage rates are very low. Adults may be reluctant to purchase long-term care policies because Medicaid will pay for expenses that exceed their financial resources. Other problems with the private market for long-term care insurance include benefits that often turn out to be inadequate to cover future expenses, high load factors, large year-to-year premium increases and resultant high nonrenewal rates, and serious adverse selection problems.

To remedy the problems with the current system, we propose expanding Medicare to cover comprehensive long-term care services, including home care and custodial nursing home care. Beneficiaries would share in the cost of services through deductibles and copayments, but the program would include stop loss coverage and special protections for low-income adults. By providing long-term care insurance that actually protects the assets of older adults, our proposal would eliminate the disincentive to save inherent in the means-tested Medicaid system. Our plan would also remove the bias in the current system in favor of institutional care, enabling more persons with disabilities to remain at home where most prefer to live. We propose to finance this expansion of Medicare benefits with a surcharge on federal income taxes. Unlike the regressive payroll tax that finances Medicare’s hospitalization coverage, the surcharge we propose would not increase tax burdens for low-income individuals or families. All of the revenue generated by the tax would be dedicated to a special Medicare trust fund that would finance future long-term care services.

(End of excerpt. The complete report is available in PDF format.)

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A Blueprint for Tax Reform and Health Reform : Before the Senate Committee on Finance

A Blueprint for Tax Reform and Health ReformLeonard E. Burman

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

In this testimony Burman outlines a plan for tax reform that would maintain progressivity, raise enough revenues to finance the government, and dovetail with plans to provide universal access to health insurance. It would combine a value-added tax (VAT) dedicated to pay for a new universal health insurance voucher with a vastly simplified and much flatter income tax. With a new financing source for health care, income tax rates could be cut sharply—the top rates could be cut to 25 percent or less. The health care voucher would also offset the inherent regressivity of a VAT. And, under the simplified system, most Americans would not have to file income tax returns.

The text below is an excerpt from the complete document.
Read the full written testimony in PDF format.

Chairman Baucus, Ranking Member Grassley, and members of the committee: Thank you for inviting me to testify on tax reform.

It is a great honor to speak to you on this topic. The last great tax reform effort lured me to Washington away from academia to work for the Treasury Department in 1985. I remember when Chairman Packwood rescued reform from the abyss with his “27-percent solution”—a top rate so low it caught the public’s attention and sustained momentum for what became the Tax Reform Act of 1986. The creativity and bipartisanship of this committee were key elements in the success of the 1986 Act.

In the mid-1980s, the tax system desperately needed fixing. Tax shelters were rampant, with investment decisions often motivated solely by the tax savings they could produce, rather than their underlying economics, which were often dubious. The public had lost confidence in the fairness of the tax system.

If anything, the need for tax reform is even greater now for at least four reasons. First, under current law most of the tax cuts enacted since 2000 are set to expire at the end of 2010 and the code will revert to that of 2000. In theory, this will trigger what tax cut advocates are already calling the largest tax increase in history, but extending the tax cuts seems fiscally reckless. Second, the baby boomers are beginning to retire and the costs of providing their Social Security and medical care will strain available federal revenues. Third, under current law, the reach of the individual alternative minimum tax (AMT), a pointlessly complicated and unfair element of the current code, is scheduled to mushroom, hitting 32 million taxpayers by 2010, up from 4 million in 2007. Were that to happen the middle class would scream in protest, but making up for the hundreds of billions of dollars in revenue that the AMT is projected to produce will be a huge challenge. Finally, there is growing public dissatisfaction with our federal tax system which is complex, riddled with loopholes, and widely perceived to be unfair. It is hard to see how these challenges can be tackled without a major tax reform.

Although tax reform is always a long shot, there are reasons for optimism. Politicians in both parties—and even current presidential candidates—understand that the current situation is unsustainable. A new president who had campaigned on a platform of working in a bipartisan way to advance objectives that matter to both parties may be willing to stake political capital on advancing tax reform. And the fact that both sides acknowledge that this is a “change election” bodes well for the next president’s willingness to take political risks.

(End of excerpt. The entire testimony is available in PDF format.)

The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders.

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Taking a Checkup on the Nation's Health Care Tax Policy: a Prognosis : Statement of Leonard E. Burman before the United States Senate Committee on Finance

Leonard E. Burman

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This testimony is available in its entirety in the Portable Document Format (PDF).

The text below is a portion of the complete document.

Chairman Grassley, Ranking Member Baucus, and Members of the Committee:

Thank you for inviting me to share my views on the state of tax policy with respect to health care in the United States.

This hearing is extremely timely. Over 45 million Americans under age 65—the overwhelming majority of them in working families—lack health insurance. They are less likely to obtain important preventive screenings while healthy, and they receive lower-quality care when sick.1 And, the public ultimately shoulders the burden of paying for the medical treatment of those lacking insurance, through either higher taxes or higher health care costs.

The tax system has played an important role in the evolution of the market for health care, and tax reform will inevitably be a part of the solution to the market's problems. Tax subsidies for health insurance and health care will reduce federal income and payroll tax revenues by over $200 billion in fiscal year 2007. Almost all of that revenue loss is attributable to the exclusion from income and payroll taxes of employer contributions to employer-sponsored health insurance. Thus, it is no surprise that most Americans under age 65 get their insurance at work. What may be surprising, however, is that even with such huge subsidies, more and more people are becoming uninsured, especially the young, those with low incomes, and those who work for small firms.

Some observers have suggested that the tax subsidies are a significant part of the problem. The subsidies encourage people to get insurance at work, stifling the individual nongroup market, and they encourage employers to provide overly generous insurance since the cost is subsidized. What's more, the subsidy is upside down—aiding most the high-income families that would probably purchase insurance under any scenario, and providing little aid to those of modest means.

Some, such as former Council of Economic Advisers chairman R. Glenn Hubbard and colleagues, have suggested that the best option would be to eliminate the employer exclusion altogether and let the market come up with cost-effective ways to supply health insurance to the public. But, in an unfettered free market, health insurance is likely to be too expensive for four reasons. First, the very act of having insurance increases utilization. People spend more when someone else is writing the check, but this causes insurance to be more expensive than it might be (a phenomenon known as moral hazard). Second, insurance is most attractive to people who expect to benefit most from it—such as those with chronic conditions and people who plan to have children. Because insurers can only imperfectly match premiums to expected utilization, they have to assume that purchasers have higher costs than the population average. That means that healthy people get a relatively bad deal from insurance—unless they can align themselves with a large group. (This feature of insurance is called adverse selection.) Third, the existence of free—even if inadequate—emergency health care for those with low incomes serves as a deterrent for purchasing health insurance, both because the free care provides a safety net and because uncompensated care raises the cost of care for those with insurance. Finally, healthy people—especially in the non-group market—can only imperfectly insure against the costs of developing chronic illnesses, because premiums for non-group health insurance increase over time for sick people.

Subsidizing individuals who get insurance at work mitigates some of these problems and exacerbates others. On the one hand, encouraging individuals to get insurance at work reduces the problem of adverse selection, because people choose employment for reasons unrelated to health status, and also offers those who work for large firms a kind of renewable insurance. But this pooling works less well for small employers whose costs may be heavily influenced by the poor health status of one or several employees. On the other hand, the tax subsidies encourage over-use of medical services because people don't face the true costs of insurance. And, as noted, the current tax subsidies are poorly targeted. The value of a tax exclusion grows with income and is worth little or nothing to those with low incomes, even though they are most likely to be deterred by the cost of insurance.

On balance, despite its failings, the current employer-based system supplies health insurance coverage to almost 70 percent of American workers under age 65. Reform should build upon that coverage base instead of eroding it. Simplistic market-based solutions, though appealing, are likely to come up short. Market reforms that ignore adverse selection, for example, or the fact that a growing fraction of Americans simply cannot afford to pay for health care and meet other basic needs are bound to fail. The best option is to retarget existing subsidies, guarantee that low-income people can afford adequate insurance and that affordable health insurance exists either at work or in a reformed nongroup market, without encouraging excessive spending. And the best option might be one that works outside the tax system.

In the rest of my testimony, I summarize the latest data on who has health insurance and who doesn't, outline the various tax subsidies that exist for health insurance, examine how those subsidies affect the market for health insurance and employment, and briefly comment on some reform options.

Notes from this section

1 Hadley (2003) estimates that mortality declines by 4.5 to 7.0 percent for people when they gain health insurance.

Note: This testimony is available in its entirety in the Portable Document Format (PDF).

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