Archive for September, 2011
Military Spending Discussion Set for Next Week
The so-called Supercommittee only kicked off yesterday but already one of its members, Sen. Jon Kyl (R-AZ), has threatened to quit if military spending is included in the search for savings.
[Kyl] told GOP leaders, “I’m off the committee” if further military cuts would be on the table.
“We’re not going there,” Kyl said sternly,…“Defense has given enough already.”
Such comments reflect a general lack of knowledge about the actual size of the U.S.military budget relative to the rest of the world, and an inattention to the growth of that spending over the past 10-12 years. And, contrary to what Senator Kyl and others claim, the military’s budget still hasn’t been cut. We will spend more in 2011, in inflation-adjusted dollars, than at any time since World War II.
And that really is the point. Why are we spending so much? Because we ask our military to do too much. We should place fewer demands on our troops and recognize that our spending and our foreign policy discourages other countries from doing more. Declaring military spending off limits before the Supercommittee even begins its work reveals a shocking unwillingness to reconsider the roles and missions that drive military spending.
I will stress that theme next Tuesday, September 13th, during a panel discussion moderated by Major Garrett of National Journal that will address DoD spending over the past 10 years, and also consider a path forward within an environment of fiscal austerity. Other speakers include Janne Nolan with the American Security Project, Foreign Policy’s Josh Rogin, Larry Korb from the Center for American Progress, Loren Thompson of the Lexington Institute, and Truman National Security Project Vice President Michael Breen The event will take place at the Capitol Visitors Center at 2:00 PM. It is open to the public, but space is limited. To learn more and to register, visit here.
Senator Kyl notwithstanding, I hope that the rest of the Supercommittee will take their obligations seriously. The federal government is capable of getting its fiscal house in order, but the politicians can’t afford to postpone the hard decisions any longer. It simply isn’t realistic to believe that we can reduce total federal spending while declaring more than 50 percent of the discretionary budget to be off limits.
Defending Foreign Countries Costs Money
Rep. Adam Smith
America’s military budget includes funds used to pay for defense of the United States as well as funds extracted from Americans to fund the defense of an array of client states across the world. Don’t believe me? Listen to Rep. Adam Smith (D-Wash), discussing U.S. military strength in the context of Asia:
We should be strong enough to defend our interests and the interests of other countries in the region.
In this view, how strong should actual countries in the region be? Do they have to do anything to defend their interests? Or will we just do it for them, come what may? If the latter, is this smart?
One Expensive New Job Forward, Two Existing Jobs Back
As the president was pitching his jobs plan last night, his current policies were hard at work discouraging job creation and incentivizing layoffs.
One of innumerable such policies concerns the treatment of imported raw materials and other intermediate goods that are subject to antidumping or countervailing duty measures, but needed by U.S. producers to make their final products. It almost defies comprehension that, in a modern, interdependent economy characterized by transnational supply chains and cross-border investment, over 80 percent of all U.S. antidumping and countervailing duty measures are imposed on these ingredients of U.S. production. This policy drives up the cost of production for downstream U.S. industries, making it more difficult for them to compete in the United States and abroad, curtailing profits, investment, and hiring.
However, under the U.S. Foreign Trade Zones program, some of the costs inflicted on downstream, import-consuming firms can be mitigated. (Of course, the program wouldn’t be necessary if U.S. duties were recognized as just another cost of production and set, optimally, at zero.) Among the aims of the FTZ program is to encourage manufacturing activity in the United States (and to discourage manufacturers from shuttering domestic operations and moving offshore as a result of the burden of paying U.S. customs duties).
FTZs are usually manufacturing plants or facilities physically located within the United States, but considered outside U.S. territory for the purpose of customs duty payment. Goods that enter FTZs are not subject to customs duties (including antidumping or countervailing duties) until they leave the zone and are formally entered into the commerce of the United States. If those goods are used as inputs to a further manufacturing process, the rate of duty applicable to the final product is assessed. If the goods are exported from a FTZ, with or without further processing, no duties are imposed because the product never officially “entered” the United States.
With respect to products made from materials and components subject to AD or CVD duties, the standing regulations require FTZ operators to get advance approval from the Foreign Trade Zones Board if the intention is to sell those final products in the United States. That requirement does not apply when the final product is going to be exported from the FTZ, which provides some incentive to downstream U.S. firms to keep production in the United States by operating as a FTZ.
Obama’s Job Speech Full of Bad Ideas
I note on National Review today that President Obama’s “jobs” package is full of bad ideas, including:
- A temporary payroll tax cut. This is not a tax cut at all because the president would “pay for it” with tax hikes later on. And if it’s temporary, it won’t encourage businesses to hire additional workers anyway.
- More federal infrastructure. When the federal government spends on infrastructure, it often misallocates the funds. The list of federal infrastructure boondoggles and cost overruns is endless — in public housing, dam-building, Corps of Engineers projects, bridges to nowhere, high-speed rail, etc. Instead, what we need is higher-quality infrastructure spending financed and built by the private sector. We need private airports, private air-traffic control, and private toll highways.
- A federal infrastructure bank. Such a financial scheme would reduce transparency in federal spending, which would go directly against a key Obama promise of increased budget transparency.
- Federal jobs training programs. Since the 1960s, federal jobs-training programs simply haven’t worked.
- New business tax credits. New tax credits for hiring will distort business decisionmaking and, by making the tax code more complicated, such credits would encourage more tax cheating. They would be the exact sort of tax loophole that Obama claims to hate.
- Crony capitalism. When Obama talks about “government and business working side-by-side,” it sounds to me like an invitation to corruption.
- Extending unemployment insurance. Such subsidies would help keep the unemployment rate high.
Rather than all this big-government micromanagement, federal policymakers should pursue a large and clean corporate tax rate cut. Obama did talk vaguely about corporate-tax reform tonight, but I’ll believe that when I see it.
Obama’s Economic Policy: From Tragedy to Farce
Herman Cain probably had the best reaction to the President’s speech: “We waited 30 months for this?”
My reaction yesterday was mixed. In some sense, I was almost embarrassed for the President. He demanded a speech to a joint session of Congress and then produced a list of recycled (regurgitated might be a better word) Keynesian gimmicks.
But I was also angry. Tens of millions of Americans are suffering, but Obama is unwilling to admit big government isn’t working. I don’t know whether it’s because of ideological blindness or short-term politics, but it’s a tragedy that ordinary people are hurting because of his mistakes.
The Wall Street Journal this morning offered a similar response, but said it in a nicer way.
This is not to say that Mr. Obama hasn’t made any intellectual progress across his 32 months in office. He now admits the damage that overregulation can do, though he can’t do much to stop it without repealing his own legislative achievements. He now acts as if he believes that taxes matter to investment and hiring, at least for the next year. And he now sees the wisdom of fiscal discipline, albeit starting only in 2013. Yet the underlying theory and practice of the familiar ideas that the President proposed last night are those of the government conjurer. More targeted, temporary tax cuts; more spending now with promises of restraint later; the fifth (or is it sixth?) plan to reduce housing foreclosures; and more public works spending, though this time we’re told the projects really will be shovel-ready.
And let’s also note that Obama had the gall to demand that Congress immediately enact his plan – even though he hasn’t actually produced anything on paper!
And then, for the cherry on the ice cream sundae, he says he wants the so-called supercommittee to impose a bunch of class-warfare taxes to finance his latest scheme.
What began as tragedy has now become farce.
If you didn’t see it when I posted it a month or so ago, here’s the video I did last year when Obama was proposing a second faux stimulus. Now that he’s on his fourth of fifth jobs-bill/stimulus/growth-package/whatever, it’s worth another look.
Though I must confess that I made a mistake when I put together this video. I mistakenly assumed the economy would have at least managed to get back to a semi-decent level of growth. More confirmation that economists are lousy forecasters.
For Jobs, Cut the Corporate Tax Rate
As we wait for President Obama’s big “jobs” speech tonight, here are a few thoughts.
The way to think about jobs is to think first about investment. Workers are expensive, so businesses don’t hire them willy nilly. Instead, businesses seeking new markets build factories and buy machines. Then they hire the number of workers they need to run the new machines and maximize their profits.
If President Obama wants more hiring, he should make it more profitable for businesses to invest in the United States. The simplest and most direct way to do that would be to chop America’s uniquely high corporate tax rate of 40 percent, which includes the 35 percent federal rate and the average state rate. That reform could be combined with cuts to federal spending—such as business subsidies–so as not to increase the deficit.
A corporate rate cut makes political sense for Obama because it would be both pro-business and pro-labor. The nonpartisan Joint Committee on Taxation ran two macroeconomic models in 2005 and found that a corporate rate cut would “provide incentives for increased investment in corporate capital. Over time, this increased investment results in more goods and services and higher total output. It also results in higher labor productivity, leading to increased wages and employment.”
How big a rate cut do we need? According to KPMG, the global average corporate tax rate fell over the last decade from 32 percent to just 25 percent. Thus, cutting our rate by at least 15 percentage points would match the global average, and it would be bold stroke by Obama to get the economy booming again before the upcoming election
Senator Reid Comes Clean
After much back-and-forth on sequencing and strategy [subscription required], and many fine words from both sides about how the long-pending trade agreements with Panama, Colombia and South Korea are a bipartisan priority (President Obama’s failure to send the agreements for a vote notwithstanding), Senate Majority Leader Harry Reid (D-Nev.) finally laid all his cards cleanly on the table yesterday.
A deal reached in August seemed to imply that the House would merely have to put Trade Adjustment Assistance to a vote before passage of the trade agreements, but yesterday Senator Reid said that the Senate would not vote on the trade agreements unless and until the House PASSES (not merely “considers”, as the Republican House leadership was always careful to specify) an extenstion of Trade Adjustment Assistance. (By the way, just to clarify, the stimulus-enhanced version of TAA is the main issue here. The basic TAA program has been running without authorization since the start of the year, when OMB ruled that it could continue unauthorized, so long as it was funded. So while the entire program “needs” reauthorization, the 2009 version is the most urgent priority for TAA advocates and their political supporters.)
So there you have it, folks, with all the niceties stripped away: If TAA doesn’t pass, then Harry Reid will ensure the trade agreements won’t even see the Senate floor. Pay the bribe, or pay the price.
Job Creation, Obama-style
I guess the Labor Department didn’t get the memo on trying to create jobs, rather than destroy them. As reported by the Wall Street Journal, the Labor Department is investigating several home builders for treating their contractors as…contractors. Anyone with the slightest understanding of the construction industry knows that much of the relationships are between contractors and subcontractors, rather than employees and employer, largely because the projects regularly change.
But from Obama’s perspective, and that of his union allies, such treatment makes unionizing construction workers all that much harder. Without such unionization, construction wages might fall. Obviously that’s the last thing anyone would want when you have about 2 million unemployed construction workers. If wages fell, a few more of them might actually get hired. Someone in this Administration really needs to learn how the basics of supply and demand work, in the labor market and elsewhere.
My favorite part of the story is the union representative complaining about home builders trying to lower costs. She states that home builders need to stop pressuring subcontractors to “go cheaper” on costs: “It’s pretty clear that there’s an enormous pressure to rush to the bottom in terms of keeping costs down.” Maybe if houses were even cheaper, then not eveyone would have had to get such a large mortgage to buy a house and we could have avoided the financial crisis altogether. But then when it comes between choosing to make one of life’s basic necessities – shelter – cheaper or helping to line the pockets of special interests, this Administration sadly continues to prefer the later.
Fourth Circuit Dismisses Virginia’s Obamacare Suit; Time for Supreme Court to Act
The Fourth Circuit’s rulings today in no way affect any other case and should only speed up the Supreme Court’s ultimate consideration of the issues raised in all these challenges.
The dismissal of Virginia’s lawsuit on standing grounds merely removes one particular plaintiff from consideration, even as 26 states and numerous non-state plaintiffs remain in separate suits. Similarly, the dismissal of Liberty University’s lawsuit, while interesting in that it marks the first-ever finding that the individual mandate is a tax (not for constitutional purposes, but statutorily in a way that cannot be challenged before it’s enforced), doesn’t change the jurisprudential calculus because there was already a split between the Sixth and Eleventh Circuits on the mandate’s constitutionality.
All of the constitutional issues attending the individual mandate have now been exhaustively ruled upon by three federal appellate courts in four separate cases. While the D.C. Circuit will hear argument in yet another suit later this month, there’s no reason for the Supreme Court to delay its review.
As President Obama unveils yet another plan to stimulate job creation, it’s time to finally end the uncertainty over the fate of his most economically damaging piece of legislation.
Progressivism on the Ropes
George Will strikes at the heart of modern liberalism this morning with his discussion of David Bernstein’s new book, Rehabilitating Lochner: Defending Individual Rights against Progressive Reform, co-published by Cato and the University of Chicago Press. As Will concludes:
Long execrated by most law professors, Lochner is the liberals’ least favorite decision because its premises pose a threat to their aspiration, which is to provide an emancipation proclamation for regulatory government. The rehabilitation of Lochner is another step in the disarmament of such thinking.
That gets it exactly right. In fact, this new book by Bernstein, a Cato adjunct scholar, is the fourth in a series of books Cato has lately published, all of which are aimed at disarming those who’ve given us the modern redistributive and regulatory state.
Start with Richard Epstein’s How Progressives Rewrote the Constitution and you’ll see the roots of modern “constitutional law” – not to be confused with the Constitution itself – in the thinking of the Progressives, 30 and more years before the New Deal Court instituted that “law.” As Epstein writes: the Progressives “were determined that their vision of the managed economy should take precedence in all areas of life. Although they purported to have great sophistication on economic and social matters, their understanding was primitive. The Progressives and their modern defenders have to live with the stark truth that the noblest innovations of the Progressive Era were its greatest failures.”
Then go to Tim Sandefur’s The Right to Earn a Living: Economic Freedom and the Law and you’ll see what Progressivism has wrought in the way of impediments to economic freedom. Sandefur traces the natural and common law origins of the fundamental right to earn a living and shows, through modern cases, some of which he himself has litigated, how this right has been thoroughly compromised by the Progressive thinking George Will excoriates this morning.
Finally, to sink your teeth into a detailed history and analysis of the right to freedom of contract, you can do no better than to read David Mayer’s new book Liberty of Contract: Rediscovering a Lost Constitutional Right. The book shatters myths that scholars have created about the Progressive Era, including the notion that the Court was reading a “laissez-faire” ideology into the Constitution – as Justice Oliver Wendell Holmes asserted in his Lochner dissent.
And before I forget it, you’ll find these themes throughout the new Cato Supreme Court Review, due out next Thursday. Read all of this and you’ll be well armed to disarm the Progressive thinking that today is increasingly on the ropes, and rightly so.
Latest ObamaCare Glitch Enables States to Block New Entitlement Spending
Investors Business Daily reports on the latest glitch found in ObamaCare‘s 2,000-plus pages:
Because of a quirk in ObamaCare, people who buy health insurance through a federally run exchange may not be eligible for premium subsidies.
Government-created exchanges are places for individuals to shop and purchase health insurance. ObamaCare will require individuals and families to buy insurance, starting in 2014.
Those with incomes at 100% to 400% of the federal poverty level will be eligible for taxpayer funded subsidies — a tax credit to help pay for the premium.
It turns out that the legislation isn’t so clear, the latest example of what analysts predicted would be a stream of surprises from the mammoth health law.
Section 1311 of ObamaCare instructs state governments to set up an exchange. If a state refuses, Section 1321 lets the federal government establish an exchange in the state.
Yet ObamaCare states that the tax credit is available to people who are enrolled in an “an exchange established by the state under (Section) 1311.” It makes no mention of people enrolled in federal exchanges being eligible for the tax credit.
“There is this technical problem in the law,” said James Blumstein, a professor at Vanderbilt Law School. “I don’t see how you get around that.”
I guess the folks who chanted, “Read the bill!” seem a little less crazy now.
Regrettably, the IRS has tried to “get around” the clear meaning of the law. In a proposed rule, the IRS writes that taxpayers will be eligible for ObamaCare’s “tax credits” — which are more government spending than – if they are enrolled in a health plan “established under section 1311 or 1321” [emphasis added]. But that’s not what the law says. As I told IBD:
“Congress did not delegate this discretion to the IRS,” Cannon said. “Congress created a tax credit for A, and the IRS is saying it applies to A and B. If the IRS offers this tax credit to federally run exchanges, the IRS will be assuming powers the Constitution vests only in Congress to alter the tax code and spend money.”
Citizens have until October 31 to share with the IRS their thoughts about the agency’s overly broad interpretation of its powers (see here).
More broadly, this bug feature means that states can block ObamaCare’s new entitlement spending, and possibly the entire law, just by refusing to create an Exchange:
“The whole structure of the law collapses without a state-run exchange,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute. “That forces Congress to either repeal ObamaCare or significantly alter it.”
Yesterday, Rep. Michael Burgess (R-Texas) helpfully suggested that the so-called “Super Committee” should meet its target of $1.5 trillion in spending reductions by cutting ObamaCare’s new entitlement spending:
The Select Committee is getting to work, and I encourage both parties, all 12 members, to put the Affordable Care Act on the table, alongside other entitlements in need of reform…The easiest money to save is money you haven’t yet spent…This new select committee could easily achieve almost their entire target of reducing the nation’s deficit, and…almost every dollar would come from benefits that do not yet exist.
The wonderful thing about this newly discovered feature of ObamaCare is that states don’t have to wait for Congress to act. They can reduce federal spending simply by not creating a health insurance Exchange.
‘Biggest Crackdown Ever’ Shows Medicare’s Anti-Fraud Efforts Are a Fraud
The Obama administration somehow continues to garner positive coverage for arresting (alleged) Medicare fraudsters who bilk the program for, say $295 million. See this CBS News report:
Combating fraud is a good thing, but $295 million is chicken feed compared to the $100 billion or so that Medicare and Medicaid lose to fraudulent and other improper payments each year.
Instead of merely parroting the government’s press releases on its anti-fraud efforts, it would be nice to see some media outlet examine why Medicare and Medicaid fraud is so prevalent, so persistent, and why politicians have no incentive to do anything serious to combat it. They could start with this article and this video:
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