Archive for June, 2009
So-Called Stimulus Could Lead to $50 Billion of Fraud
MarketWatch reports that experts are predicting about $50 billion of fraud will result from the $787 billion pork-barrel spending bill approved by Congress earlier this year. That’s a huge amount of fraud being financed with borrowed money, but there is a silver lining to this dark cloud. Using basic math, that means only $737 billion of the so-called stimulus can be classified as waste:
Swindlers, con men, and thieves could siphon off as much as $50 billion of the government’s planned stimulus package as the money begins flooding the economy in coming months, according to David Williams, who runs Deloitte Financial Services Advisory and counsels clients on fraud prevention.
…Earlier this month, FBI Director Robert Mueller warned the nation to brace for a potential crime wave involving fraud and corruption related to the economic stimulus package. “These funds are inherently vulnerable to bribery, fraud, conflicts of interest, and collusion. There is an old adage, that where there is money to be made, fraud is not far behind, like bees to honey,” Mueller said.
IRS Wants Worker Cell Phones to Be Taxable
With about 100,000 employees (more than the CIA and FBI combined), the IRS has plenty of people who daydream about new ways of taking money from taxpayers. The latest scheme to emanate from the tax bureaucracy is to classify employer-provided cell phones as a taxable fringe benefit.
To be fair, non-pecuniary forms of compensation should be treated the same as cash income, but a bit of common sense should apply. What happens with cell phone plans with unlimited minutes, meaning that a business is not paying extra for personal calls? And if the IRS does go down this path, why harrass individuals when it would be much easier to simply make a portion of cell phone costs non-deductible for companies? It almost seems as if the IRS wants to instigate a tax revolt.
The Wall Street Journal reports:
The Internal Revenue Service proposed employers assign 25% of an employee’s annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax….
The IRS move, which is spurring efforts by the wireless industry and others to kill the idea, would mark a stricter enforcement of an existing rule that classifies employer-provided cellphones as a taxable benefit, rather than a 24-hour-a-day work tool. Under a 1989 law, workers who use company-provided mobile phones for personal calls are supposed to count the value of those calls as income and pay federal income taxes accordingly. But businesses and workers have long ignored the requirement, prompting the IRS to consider steps the agency said would make it easier for businesses and workers to comply.
…Wireless companies also argue the IRS rule is outdated. Rates have declined so dramatically in the past decade — with night and weekend calls free under many plans — that it makes little sense for the IRS to assess employee benefits by nickels and dimes. “This is a regulation from a bygone time, dating back to the infancy of the cellphone business, and it is in desperate need of updating,” said Howard Woolley, a senior vice president with Verizon Wireless, a venture of Verizon Communications Inc. and Vodafone Group PLC.
There Really Is Nothing that Congress Won’t Make the Federal Government’s Business…
. . . including a “performance standard” for breast pumps.
NEA and Compliant Dems Rolling Back Voucher Programs
The D.C. school voucher program has received a lot of attention in recent months since Congress and President Obama issued its death warrant. Obama has put funding for the children currently in the program in his proposed budget, but this has no force of law and the program as it stands will still end after this year.
Despite a general trend toward increasing bipartisanship on the issue, killing school choice remains a top priority for the powerful and largely Democratic teachers unions, and therefore many in the ranks of the Democratic Party’s leadership.
Now the Milwaukee voucher program, the intensely studied and successful private school choice program that crystallized the national school choice movement nearly two decades ago, is in mortal danger.
The new Democratic majority in Wisconsin has set about reducing the amount of the voucher, adding onerous regulations to participating school, and now is looking to directly reduce the number of children allowed a choice in education.
From the AP:
[Assembly] Democrats voted Thursday night in a closed door meeting to lower the cap on the program from 22,500 to 19,500 over the next two years. The current lid was agreed to in 2006 by Gov. Jim Doyle and Republican lawmakers…
The enrollment change was added to the state budget that will be debated by the Assembly on Friday. It must also pass the Senate and be signed by Doyle to become law.
The Co-op Cop-out
Faced with rising opposition to a so-called “public option” in health care reform, some Democrats are floating the idea of establishing health insurance “co-operatives” as an alternative. Opponents of a government takeover of the health care system should not be fooled.
A “co-op” can be defined as a business owned and controlled by its workers and the people who use its services, in this case presumably the people whom it insures. In that sense, government provision of some sort of legal framework or seed money to help establish health insurance co-ops seems relatively harmless but also relatively pointless. The U.S. already has some 1,300 insurance companies. Adding a few more would accomplish…what?
It is suggested that the “co-ops” would be nonprofits, and therefore would offer better service and lower costs. But many insurance companies, including “mutual” insurers and many “Blues,” are already nonprofit companies. Furthermore, states already have the power to charter co-ops, including health insurance co-ops. In fact, health care co-ops already exist. Health Partners, Inc. in Minneapolis has 660,000 members and provides health care, health insurance, and HMO coverage. The Group Health Cooperative in Seattle provides health coverage for 10 percent of Washington State residents.
If the new co-ops operate under the same rules as other nonprofit insurers, why bother?
And there’s the rub. Supporters of government-run health care have no intention of letting the co-ops be independent enterprises. In fact, Sen. Charles Schumer (D-NY) makes it clear, for example, that the co-op’s officers and directors would be appointed by the president and Congress. He insists that there be a single national co-op. And Congress would set the rules under which it operates. As Sen. Max Baucus (D-MT) says, “It’s got to be written in a way that accomplishes the objectives of a public option.”
If a “co-op” is run by the federal government under rules imposed by the federal government with funding provided by the federal government, that is government-run health insurance by another name.
An Uneven Playing Field
Cato’s tax experts, Chris Edwards and Dan Mitchell, have written extensively on international tax competition. Their research shows that countries can help attract investment and spur economic growth by lowering their tax rates.
Could countries employ this same strategy to make their sports teams better?
Real Madrid, one of the most popular and successful soccer teams in the world, recently purchased the rights to two of the sport’s top players. They acquired Kaka, who was named the world’s best soccer player in 2007, from Italian powerhouse, AC Milan. And they lured Cristiano Ronaldo, the world’s top player in 2008, away from Manchester United, the reigning champions of the English Premier League.
There are a number of reasons why Kaka and Ronaldo are moving to Spain, but it’s pretty clear that taxes played a significant role. That’s because in 2005, Spain passed a tax break for foreign workers, including soccer players. This gives Spanish teams a huge advantage in bidding wars with teams from higher-tax countries like Italy and England. To make matters worse, England recently raised its top income tax rate.
“The new tax rate in England is going to make things much harder for English clubs,” noted Jonathan Barnett, a leading sports agent whose clients include Glen Johnson, Ashley Cole and Peter Crouch. “It will hinder the [English] Premier League and help the Spanish league because Spain has big tax discounts for footballers, so there’s an enormous advantage to go there. Someone like Ronaldo could be offered the same money at Real Madrid but be 25% better off.”
Similarly, a frustrated executive from AC Milan blames Kaka’s departure on the Italian tax system: “I repeat, this is all a matter of different types of taxation. If we were a Spanish club, we would have saved €40 million.”
Policymakers and soccer fans alike should take note.
Bachus Plan a Good Start toward Ending Bailouts
Today Congressman Spencer Bachus, along with several of the Republican members of the House Financial Services Committee, offered a plan for reforming our financial system and ending future government bailouts of the financial sector
At the heart of the financial crisis has been the Federal Reserve’s willingness to invoke its powers under Paragraph 13-3 of the Federal Reserve Act to bail out firms like Bear Stearns and AIG — all without a single vote from Congress or any form of public debate. Almost 10 months after the initial AIG bailout by the Fed, there is still no plan for resolving that firm, and no strategy for recovering the taxpayers investment.
While some might pretend that the Fed puts no taxpayer funds at risk under the use its 13-3 powers, it is the American taxpayer who ultimately stands behind any Federal Reserve actions. In focusing on 13-3, the Bachus proposal rightly targets the largest, and least accountable, source of the bailouts. The Bachus proposal would require the Treasury secretary to approve any 13-3 actions and allow Congress the ability to disapprove such actions. While a complete repeal of 13-3 would be preferred, the presented reforms are a step in the right direction.
Another feature of the Bachus plan is to require large, non-financial firms to be resolved under the bankruptcy code, and not under a regime of continuing bailouts or political manipulation. Despite whatever flaws it may have, the bankruptcy process is one that is separated from politics. As we have witnessed in the recent government restructuring of U.S. auto companies, allowing Washington to resolve firms is an invitation for violating contracts and rewarding political constituencies.
The Bachus plan also addresses the two institutions at the center of our mortgage crisis: Fannie Mae and Freddie Mac. Their model of private profits and public losses has become an expensive one, with little public benefit. Any reform proposal that does not deal with Fannie and Freddie does not merit being called reform. The Bachus plan would rightly begin phasing out the privileged status of Fannie and Freddie.
This Is Not from The Onion, but the UN
“Cuba recognized in the UN Human Rights Council”
The HRC’s press release states that:
Cuba had withstood many tests, and continued to uphold the principles of objectivity, impartiality and independence in pursuance of the realisation of human rights. Cuba was and remained a good example of the respect for human rights, including economic, social and cultural rights. The Universal Periodic Review of Cuba clearly reflected the progress made by Cuba and the Cuban people in the protection and promotion of human rights, and showed the constructive and responsive answer of Cuba to the situation of human rights. Cuba was the victim of an unjust embargo, but despite this obstacle, it was very active in the field of human rights.
Obama Congratulates Correa
The White House announced today that President Obama called Ecuadorian President Rafael Correa to congratulate him on his recent re-election and “to commend the people of Ecuador for their commitment to democracy.”
I’ve lauded Obama before for avoiding picking fights with Latin American populist leaders such as Correa. But I think that trying to befriend them sends the wrong signal to defenders of democratic institutions throughout the region. After all, a year ago Correa confessed that he wasn’t a democrat if that represented allowing the opposition to participate in the debate for a new constitution. More recently, he stated (in Spanish) that he preferred “a thousand times” to be a friend of Fidel Castro and Hugo Chávez than be an ally of the United States.
Obama should pick his friends in Latin America more carefully.
Who’s Running the American Economy Now?
Who’s the top dog in American business these days? Washington, says the Washington Post:
That’s one of the main themes of this week’s Capital Connection conference put on by the Mid-Atlantic Venture Association. . . . This time, policy wonks and government insiders will also be there.
Reed E. Hundt, former Federal Communications Commission chairman, and Tommy G. Thompson, former Health and Human Services secretary, will be speaking, as will VentureBeat blog author Matt Marshall and GigaOm author Om Malik, two well-known technology bloggers. Washington hasn’t been a frequent stop for them in the past.
It’s just one more sign of the region’s growing clout in the business and technology world. This is where stimulus dollars are doled out, where the economic recovery is taking shape, and where regulations — many of which directly affect businesses — are being crafted and rewritten. Of course, lawyers and lobbyists are getting a great deal of business helping folks find ways to tap into stimulus money. . . .
Companies familiar with the Beltway culture are well-positioned to benefit from the government’s increased role in nearly every sector. . . .
The conference, which is open to the public for the first time, demonstrates the growing nexus between the business community and the government, said Julia Spicer, MAVA’s executive director.
“The spread between the two worlds has tightened a bit,” she said. “The economy is the real focal point” of the conference, “and the government has a definite role in that.”
Beyond Irony, Part II
In a previous post, I noted the irony of taking advice from Karl Rove on how to fight big government. It appears that Rove is not alone in having a battlefield conversion. According to the Wall Street Journal, the Chamber of Commerce is planning to spend $100 million as part of a “Campaign for Free Enterprise.” This sounds great, and I hope it helps, but is it rude of me to point out that this is the same organization that endorsed the bailout last year and the so-called stimulus this year?
Senate Hearings on Prison Reform
The Senate Judiciary Committee is holding hearings today on Sen. Jim Webb’s (D-VA) bill to create a National Criminal Justice Commission. Senator Webb is a long-time student of what has gone wrong with American criminal justice.
The bill provides for an 18-month review of the nation’s criminal justice system and recommendations for reform. I plan to attend, and the proceedings will be available on video here. Click here to read The Sentencing Project’s endorsement of the legislation.
My colleague Tim Lynch recently published a book on crime and punishment, In the Name of Justice. Notable authors such as Court of Appeals Judges Alex Kozinski and Richard Posner, Professor James Q. Wilson, and veteran defense attorney and law professor Harvey Silverglate weigh in on how the American criminal justice system has deviated from its moral foundations.
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