Week in Review: Bailout Bonuses, Marijuana and Eminent Domain Abuse
House Approves 90 Percent ‘Bonus Tax’
Sparked by outrage over the bonus checks paid out to AIG executives, the House approved a measure Thursday that would impose a 90 percent tax on employee bonuses for companies that receive more than $5 billion in federal bailout funds.
Chris Edwards, Cato’s director of tax policy studies, says the outrage over AIG is misplaced:
While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion — an amount 7,200 times greater than the $165 million of AIG retention bonuses.
So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.
Cato executive vice president David Boaz says this type of selective taxation is a form of tyranny:
The rule of law requires that like people be treated alike and that people know what the law is so that they can plan their lives in accord with the law. In this case, a law is being passed to impose taxes on a particular, politically unpopular group. That is a tyrannical abuse of Congress’s powers.
On a related note, Cato senior fellow Richard W. Rahn defended the use of tax havens in a recent Wall Street Journal op-ed, saying the practice will only become more prevalent as taxes increase in the United States:
U.S. companies are being forced to move elsewhere to remain internationally competitive because we have one of the world’s highest corporate tax rates. And many economists, including Nobel Laureate Robert Lucas, have argued that the single best thing we can do to improve economic performance and job creation is to eliminate multiple taxes on capital gains, interest and dividends. Income is already taxed once, before it is invested, whether here or abroad; taxing it a second time as a capital gain only discourages investment and growth.
Obama to Stop Raids on State Marijuana Distributors
Attorney General Eric Holder announced this week that the president would end federal raids on medical marijuana dispensaries that were common under the Bush administration.
It’s about time, says Tim Lynch, director of Cato’s Project on Criminal Justice:
The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.
The Cato Institute hosted a forum Tuesday in which panelists debated the politics and science of medical marijuana. In a Cato daily podcast, Dr. Donald Abrams explains the promise of marijuana as medicine.
Cato Links
• A new video tells the troubling story of Susette Kelo, whose legal battle with the city of New London, Conn., brought about one of the most controversial Supreme Court rulings in many years. The court ruled that Kelo’s home and the homes of her neighbors could be taken by the government and given over to a private developer based on the mere prospect that the new use for her property could generate more tax revenue or jobs. As it happens, the space where Kelo’s house and others once stood is still an empty dustbowl generating zero economic impact for the town.
• Daniel J. Ikenson, associate director of Cato’s Center for Trade Policy Studies, explains why the recent news about increasing protectionism will be short-lived.
• Writing in the Huffington Post, Cato foreign plicy analyst Malou Innocent says Americans should ignore Dick Cheney’s recent attempt to burnish the Bush administration’s tarnished legacy.
• Reserve your spot at Cato University 2009: “Economic Crisis, War, and the Rise of the State.”
Selective Taxation Is Tyranny
The House of Representatives has passed a 90 percent tax on the bonuses paid to AIG employees, seemingly forgetting President Obama’s admonition “that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment.”
Everybody’s angry. But anger doesn’t make good law. And there are real questions about both the wisdom and the legality of such legislation. Bloggers like Conor Clarke, Megan McArdle, and Eugene Volokh have asked if the bonus tax is legal or constitutional. And thank goodness for bloggers who ask the questions that members of Congress and print journalists seem to ignore!
The bloggers wonder if after-the-fact taxes on specific people violate the constitutional ban on bills of attainder and ex post facto laws. (Ex post facto = after the fact.) Good questions indeed. But they should go further and ask, Are laws like this tyrannical? Ex post facto legislation isn’t just bad because it’s unconstitutional. It’s unconstitutional because it’s bad. (Nate Silver did raise these broader questions, arguing that the bonus tax bill was like the congressional intervention into the Terri Schiavo case: quite possibly legal and constitutional, but “it represented a gross overreach of the chamber’s authority, and ultimately undermined, at least a little bit, the rule of law.”)
Harvard law professor Laurence Tribe tells Conor Clarke, “It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge. …The fact that the individuals subject to the tax in its retroactive application would in principle be readily identifiable would not suffice to doom the tax either from a bill of attainder perspective or from a due process perspective.”
Which led liberal blogger Kevin Drum to this conclusion:
it looks like the answer here is simple: even though the purpose of this tax would pretty clearly be punitive with extreme prejudice, we need to carefully pretend that it’s not. And we need to make sure the legislative history shows that it’s not (it should be “manifestly regulatory and fiscal” Tribe says).
New Era of Unlimited Federal Power
The House has passed a measure imposing a special punitive tax of 90% on certain employee compensation in response to the AIG scandal. As others have noted, this raises serious constitutional issues. Article I, Section 9, Clause 3 says simply and directly: “No Bill of Attainder or ex post facto Law shall be passed.” The congressional bill being considered in response to the AIG bonuses seems to violate both those prohibitions at least in spirit.
The Constitution’s Framers apparently considered (page 154) this clause to be very important in guarding against legislative tyranny, and James Madison noted in Federalist 44:
Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation.
Aside from the dangers to liberty from overzealous members of Congress, there are issues of priorities here. While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion–an amount 7,200 times greater than the $165 million of AIG retention bonuses.
So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.
Obama’s First Signing Statement
President Obama issued his first signing statement last week. While approving the $410 billion omnibus appropriations bill, he reserved the right to reinterpret, evade, or ignore a number of the bill’s provisions. To some conservatives, that smelled like vindication; and some liberals found it fishy. Who’s right? Both, to some extent.
During the Bush years, “signing statements” came to stand for a much broader set of issues than the practice itself. After President Bush used one to basically announce that, veto-proof majority or no, he didn’t have to follow the McCain Detainee Treatment Act, “signing statements” in the public mind became shorthand for the Bush theory that the president is sole constitutional “decider” on all matters related to national security—in much the same way that the PATRIOT Act became shorthand for overzealousness in homeland security. The obnoxiousness of each—open defiance in the signing statement case, the dopey Orwellianism of the acronym with PATRIOT—made them symbols, even though neither represented the worst abuses in the fight against terrorism.
But what really matters is the underlying constitutional theory, not the particular quasi-legislative device it’s reflected in. Which is worse: openly announcing that you’re not going to obey new congressional restrictions on torture—as Bush did with the 2006 McCain Amendment—or secretly violating the old ones for years? The latter, clearly. At least a signing statement puts you on notice.
On the campaign trail in 2008, Obama, unlike McCain, never promised to end the practice of signing statements entirely. Obama’s position was more nuanced. When it comes to signing statements, some nuance is appropriate. I don’t agree with the ABA’s blanket condemnation of the practice. As the Congressional Research Service has pointed out, despite the Supreme Court’s 1983 repudiation of the legislative veto, Congress continues to smuggle legislative vetoes into omnibus spending bills. One could argue that the president’s only recourse is to veto the bill–and more vetoes of spending bills would surely be welcome. But it seems to me that in such cases, issuing a signing statement is a venial sin at worst. There’s a vast difference between that sort of signing statement and one that asserts that the president cannot be bound by a law barring torture.
Most of the objections Obama lodged in his signing statement fall well short of the Bush-Cheney end of the spectrum. But there’s at least one that looks particularly dodgy:
Ed. Feds to Reinvent Wheel, Ignoring Pi
Education secretary Arne Duncan testified before Congress today on the president’s 2010 budget for the Department of Education. One of the first things he said was this:
We also plan to work very hard at scaling up success in our education system. Under our 2010 budget, the Department would continue to use the Innovation Fund created by the Recovery Act to identify and replicate successful models and strategies that raise student achievement. We know that there are many school systems and non-profit organizations across the country with demonstrated track records of success in raising student achievement, and our 2010 request would help bring their success to scale.
Duncan and President Obama are so, so right to focus on this challenge. Sadly, their efforts will so, so utterly fail, just as those of all their predecessors. Here’s why:
For a long time, observers of U.S. public schooling have wrung their hands over a pernicious problem: there are many isolated and transitory examples of excellence within the system (think “Stand and Deliver“), but efforts to scale these models up on a lasting, nationwide basis have always failed.
One early and notorious example was the federal Follow Through experiment of the late 1960s and early ’70s. At a cost of over a billion dollars, it demonstrated that one instruction method, “Distar,” clearly outperformed 21 others. Distar was #1 not just overall, but in each of the subcategories of reading, arithmetic, spelling and language. It placed a close second in promoting advanced conceptual skills, and was even the most effective at boosting students’ self-esteem and responsibility toward their work. Nothing else came close.
Obama First Dem President to Support Vouchers
Through his press secretary Robert Gibbs, president Obama has declared that he will reverse congressional Democrats’ phase-out of the DC Opportunity Scholarships program. The scholarships make private schooling affordable for 1,700 poor DC children, most of whom would be forced back into the District’s broken public school system if it were to end.
However — yes, there’s always a however — there’s every indication that president Obama will do the minimum necessary to keep the program going at its current size, and will not help to expand it.
This is nevertheless a crucial milestone. There is finally a major national Democratic leader who is beginning to catch up to his state-level peers. Democrats all around the country have been supporting and signing small education tax credit programs because they realize that these programs are win-win: good for their constituents and good for their long-term political futures.
The old guard of the Democratic party — typified by congressional leaders — still imagines that school choice is bad for them. They still think that they can roll back time to a period when the public school monopoly was inviolate. That time has passed. Real educational freedom is spreading — slowly — around the country. That is not going to stop.
The last Democrats to be found jamming their fingers into the dike, hoping to stop the flight to educational freedom, will find their political careers swept away when that dike finally crumbles.
No Wonder the GOP Has No Credibility on Spending
You would think Barack Obama’s tsunami of federal spending would provide an easy target for Republicans. But they apparently haven’t learned the right lessons after two successive electoral debacles.
Earmarks don’t account for a lot of money in Washington terms. You know, just a few billion dollars out of trillions or quadrillions or whatever we are now up to — it’s so easy to lose track!
Nevertheless, earmarks are a powerful symbol. So trust the “stupid party” to muff its chance. Reports Politico:
Bashing Democrats on the day President Obama signed the $410 billion omnibus spending bill was the easy part for Republican leaders Wednesday.
But getting Rep. John Boehner and Sen. Mitch McConnell on the same page on earmarks will be a lot tougher.
At a joint press conference designed to present a united Republican front against Democratic spending habits, McConnell (R-Ky.) and Boehner (R-Ohio) appeared to diverge on earmark reform.
“I think the president missed a golden opportunity to really fulfill his campaign commitment to not sign bills that have a lot of wasteful spending and are overburdened with earmarks,” Boehner said. “If you look at the earmark reforms that he proposed, the question I have is, ‘Where’s the beef?”
McConnell declined to answer the question about earmarks, and instead criticized the president’s contention that the omnibus bill was simply last year’s unfinished business.
“Let me tell what was not last year’s business was plussing the bill up 8 percent, which is twice the rate of inflation,” McConnell said. “This bill is not last year’s business. … It further illustrates my point that when you add up the stimulus and the omnibus, the spending in the first 50 days of the administration [comes] at a rate of $1 billion an hour.”
Republicans have tried to come up with a unified earmark reform plan, but have struggled as GOP appropriators are reluctant to sign on. McConnell is on the Senate Appropriations Committee and has called for earmark reforms, but he and many lawmakers defend Congress’ constitutional right to direct spending.
In the omnibus bill, McConnell secured some $75 million worth of earmarks, while Boehner, a long-time critic of earmarks, did not. Boehner says Congress should freeze earmarks for the rest of the year, saying it leads to wasteful and potentially corrupting Washington spending.
Of course, Democrats have taken not. In signing the latest spending bill President Barack Obama landed a nice blow against GOP hypocrisy:
And I also find it ironic that some of those who rail most loudly against this bill because of earmarks actually inserted earmarks of their own and will tout them in their own states and their own districts.
If Congress can’t take a vow of poverty on distributing pork when the nation faces a $1.3 trillion budget deficit and trillions more in deficits over the coming years, then it isn’t likely ever to be more responsible with the public’s money.
Republicans, Democrats, and Appropriators…and Pork
I’m sympathetic to the oft-repeated saying that there are really three parties in Washington: Republicans, Democrats, and Appropriators. This situation is likely to be demonstrated this evening when Republican members of the Senate Appropriations Committee provide enough votes for Democratic Sen. Harry Reid to close off debate and proceed to final passage of the pork-laden $410 billion fy2009 omnibus appropriations bill.
Greasing the skids for bigger government will be almost $8 billion in earmarks contained in the bill. Fox News is pointing out that almost all of the Republican Senators expected or likely to support the Democratic measure stand to deliver quite a bit of pork to constituents and special interests. Not coincidentally, all of the senators named, except Sen. Snowe of Maine, are appropriators. As a matter of fact, if you look at the top 20 senators (both parties) in terms of dollars of earmarks secured for this bill, 15 are appropriators.
Bottom line: Appropriators love spending and they particularly love pork. Sen. Snowe just likes the government spending other people’s money.
**Update: Cloture was invoked on a 62-35 vote and the legislation subsequently passed by voice vote. Every single Democratic member of the Senate Appropriation Committee voted for cloture. Republican appropriators Sens. Cochran, Specter, Bond, Shelby, Alexander, and Murkowski voted yes; Sens. McConnell, Gregg, Bennett, Hutchison, Brownback, Collins, and Voinovich voted no. Thus, without the support of these Republican appropriators, the bill would have been effectively killed. Of the top 20 recipients of earmarks in the bill, only 2 — Sens. Inhofe and McConnell — voted no.
Hillary’s Shock Doctrine
Hillary Rodham Clinton, the secretary of state who no doubt thinks of herself as “fourth in the line of succession,” tells a European audience how the Obama administration will pass an agenda that Americans have previously rejected: “Never waste a good crisis … Don’t waste it when it can have a very positive impact on climate change and energy security.”
As I’ve written several times, governments throughout the decades have taken advantage of wars and economic crises to expand their size, scope, and power. Bob Higgs wrote about “Crisis and Leviathan” long before Naomi Klein called it “The Shock Doctrine.”
But the striking thing about the Obama administration is that they openly acknowledge that’s what they’re doing — using a crisis to ram through their entire policy agenda while people are in a state of panic. Projects like national health insurance, raising the price of energy, and subsidizing more schooling — the three prongs of President Obama’s speech to Congress — have nothing to do with solving the current economic crisis. But the administration is trying to push them all through as “stimulus” measures. And they keep proclaiming their strategy.
First it was Rahm Emanuel: “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before.” Then Joe Biden: “Opportunity presents itself in the middle of a crisis.” Not to mention Paul Krugman and Arianna Huffington. And now Hillary.
Not since George Bush the elder told the media that his campaign theme was “Message: I care” has a president been so open about his political strategy. But these people are displaying a contempt for the voters. They’re telling us that we’re so dumb, we’ll go along with a sweeping agenda of economic and social change because we’re in a state of shock. They may be right.
But voters and members of Congress should remember Bill Niskanen’s sobering analysis of previous laws passed in a panic.
Corruption Rewarded in Government
In Downsizing the Federal Government, I discussed some of the corruption surrounding former Senator Ted Stevens:
Another example of abuse engineered by Senator Stevens involves Alaska Native Corporations. Because of rule changes slipped in by Stevens, these shadowy businesses based in his state are allowed to circumvent normal federal procurement rules and win no-bid contracts. The result of such loopholes is that taxpayers do not get value for their money. For example, in 2002 a half billion dollar contract for scanning machines at U.S. border crossings was given to a native corporation with little experience in the technology, instead of established leaders in the field who were not allowed to bid.
The Washington Post did a good job of bringing the scandal of ANCs to light a few years ago. Did the spotlight on ANCs and connections to disgraced Senator Stevens convince Congress to move ahead with reforms? Hardly. From Government Executive today:
In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned a record $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000 … ANCs earned two-thirds of the $24 billion they accumulated in prime contracts since fiscal 2000 through the Small Business Administration’s 8(a) Business Development program … Federal acquisition specialists said the data shows that the program, which was designed to help small and disadvantaged companies, has been undermined by a system that rewards companies that earn hundreds of millions in annual revenue.
In the story, Steven Schooner, of George Washington University, summed up the scam well: “The ANC program, as currently implemented, is a blunt instrument that distorts the procurement system, injects well-founded cynicism into the process, and reinforces the belief that government procurement is more about allocating political spoils than ensuring that the government receives value for taxpayer money.”
President Obama has promised procurement reform. He could start be eliminating ANCs and other forms of procurement favoritism.
FutureGen: Economic and Political Decisions
People who support expanded federal intervention into areas such as energy and health care naively assume that policymakers can make economically rational and efficient decisions to allocate resources. They cannot, as a Washington Post story today on FutureGen illustrates.
The story describes the political battle over the location of a $1.8 billion ”clean coal” plant. I don’t know where the most efficient place to site such a plant is, or if such a plant makes any sense in the first place. But the story illustrates that as soon as such decisions are moved from the private sector to the political arena, millions of dollars are spent to lobby the decisionmakers, and members of Congress are hopelessly biased in favor of home-state spending regardless of what might be best for the national economy as a whole.
President Obama has promised to ramp up spending on such green projects. So get ready for some huge political fights over the big-dollar spoils, and get ready for some monsterous energy boondoggles.
Cato Scholars Address Obama’s First Speech to Congress
President Barack Obama’s first address to Congress laid out a laundry list of new spending contained within the stimulus legislation and provided hints as to what will be contained in the budget – a so-called “blueprint for America’s future” – he’ll submit to the legislature. Cato Institute scholars Chris Edwards, Jim Harper, Gene Healy, Neal McCluskey, David Rittgers, John Samples and Michael D. Tanner offer their analyses of the President’s non-State-of-the-Union Address.
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