Federal Court Declares ObamaCare’s Individual Mandate Unconstitutional
ObamaCare has always hung by an absurdity. ObamaCare supporters claim that the Constitution’s words “Congress shall have the Power…To regulate Commerce…among the several States” somehow give Congress the power to compel Americans to engage in commerce. This ruling exposes that absurdity, and exposes as desperate political spin the Obama administration’s claims that these lawsuits are frivolous.
This ruling’s shortcoming is that it did not overturn the entire law. Anyone familiar with ObamaCare knows that Congress would not have approved any of its major provisions absent the individual mandate. The compulsion contained in the individual mandate was the main reason that most Democrats voted in favor of the law. Yet the law still passed Congress by the narrowest of all margins — by one vote, in the dead of night, on Christmas Eve — and required Herculean legislative maneuvering to overcome nine months of solid public opposition. The fact that Congress did not provide for a “severability clause” indicates that lawmakers viewed the law as one measure.
Despite that shortcoming, this ruling threatens not just the individual mandate, but the entire edifice of ObamaCare. The centerpiece of ObamaCare is a three-legged stool, comprised of the individual mandate, the government price controls that compress health insurance premiums, and the massive new subsidies to help Americans comply with the mandate. Knock out any of those three legs, and whole endeavor falls.
Moreover, the individual mandate is not the law’s only unconstitutional provision.
These lawsuits and the continuing legislative debate over ObamaCare are about more than health care. They are about whether the United States has a government of specifically enumerated powers, or whether the Constitution grants the federal government the power to do whatever the politicians please, subject only to a few specifically enumerated restraints. This ruling has pulled America back from that precipice.
Filed under: Cato Publications; General; Government and Politics; Health Care
Obama Adopts Cato Pay Proposal
The Obama administration is supporting a two-year freeze on federal pay. I haven’t seen the details yet, but this appears to be a good start at getting excessive government pay under control.
I’ve been calling for a pay freeze since an op-ed in the Washington Post in 2006. Since then, average federal pay has continued to soar far above average private pay, which has finally prompted policymakers to take note.
The Obama proposal would apparently save $28 billion over five years. Hopefully, that will be the first of many budget savings that the administration and Republicans in Congress can work on together in coming months. I’ve described other ways to tackle the government’s overspending problem here.
The next step to reform federal worker compensation should be to pare back overly generous benefit packages — for example, by eliminating defined-benefit pension plans, which come on top of the defined-contribution pensions that federal workers enjoy.
Another step would be to call in an outside human resources firm to audit the federal pay methodology, particularly the mysterious formula used to calculate the federal “pay gap,” which purports to show that federal workers are grossly underpaid.
See this essay on overpaid federal workers for details on reforming federal pay.
Ban Spending Earmarks, But Not Tariff Cuts
Republican leaders in Congress announced Monday that they are all on board to ban spending “earmarks” when the newly elected Congress convenes in January. That is all to the good. While not a large share of the federal budget, the designation of tax dollars to fund specific pet projects in member districts has come to symbolize out-of-control spending in Washington.
Those same leaders should clarify that the earmark ban applies only to spending projects—not to the kind of tariff suspensions including in a recent miscellaneous tariff bill.
The U.S. Manufacturing Enhancement Act approved by Congress in July suspended tariffs on hundreds of imported items of special interest to U.S. manufacturers. House Republican leaders made the mistake earlier this year of including such tariff suspensions in an earmark ban they announced in March.
The overly broad definition of an earmark boxed the leadership into opposing a perfectly sensible trade bill. Despite the half-hearted opposition of the GOP leadership, the U.S. Manufacturing Enhancement Act passed overwhelmingly in the House on July 21, by a margin of 378-43, with Republicans supporting it by a 3-1 margin.
Most members of Congress already understood what the Cato Institute pointed out in a September 2010 study recommending reform of future miscellaneous tariff bills—that tariff cuts are not the same as spending earmarks. Here is what I wrote in the study about the difference between tariff cuts and the kind of spending earmarks that has angered voters:
Spending-bill earmarks distribute tax dollars not for any public purpose authorized under the U.S. Constitution, but rather to benefit a certain special interest or a specific city or district. They grant favors to a small group of beneficiaries at the public’s expense. In contrast, a tariff suspension repeals a narrow tax that falls disproportionately and unfairly on a small group of producers. Instead of granting a favor at the public’s expense, a tariff suspension relieves individual producers of a burden that falls on them and nobody else. Unlike a spending earmark, a tariff suspension creates no new claim on public resources. It does not expand the scope or size of government.
Including tariff suspensions in the moratorium is not a matter of curbing the power of lobbyists. There is a world of difference between lobbying for a $500,000 government grant for a project with narrow benefits, and lobbying to remove a $500,000 tax bill that only a handful of enterprises are required to pay. The former seeks an expansion of the government’s power and influence, the latter a reduction. Republicans who rightly complain about the growth of the federal government should be the first to embrace the suspension and repeal of hundreds of nuisance taxes distorting the economy and burdening American producers.
The new Congress may soon consider another miscellaneous tariff bill to further reduce discriminatory tariffs that impose real costs on U.S. companies trying to compete in global markets. Republican leaders should join with their Democratic counterparts in the new Congress to clarify that suspending or repealing unfair tariffs should not be banned but should be vigorously pursued.
New Paper on the Generalized System of Preferences
I have a new paper out today on the Generalized System of Preferences, the program by which the U.S. government allows certain imports from most developing countries to enter the U.S. market duty-free. The program has benefits: some producers in some poor countries are able to sell more than they otherwise would in the U.S. market, and U.S. consumers benefit to the tune of hundreds of millions of dollars a year because of the tariff exemptions.
But the GSP still represents managed trade, and poorly managed at that. The program is designed so certain goods in which poorer countries tend to have a comparative advantage — textiles, for example — are excluded from the program, mainly because of the influence of the U.S. textile lobby. There are limits on how much of a particular product a beneficiary country can export duty-free, which means that truly efficient and competitve exporters are shut out. The very existence of the program has proved a stumbling block to (superior, if not first-best) multilateral trade liberalization, because GSP beneficiary countries don’t want reductions in general tariffs to erode their preferential access.
With the GSP expiring at the end of the year (more here on possible vehicles for its passage [$]), it is a good time for Congress to consider radically changing this program. The best way to secure an open, prosperous world economy is to allow trade to flow freely across borders. If that is a bridge too far for politicians, they should at least consider some of the other reforms I suggest to make the GSP more open to more products, and to reduce the interference these programs impose on voluntary, peaceful exchange. Opening the U.S. market on a permanent and non-discriminatory basis should be the ultimate goal.
Stopping the ‘Culture of Spending’
Sen. Mitch McConnell’s quick reversal on the subject of earmarks was a surprise, but that quick, largely symbolic win against profligate spending certainly won’t translate into a more permanent movement without sustained effort. Shortly after McConnell made his speech supporting a “moratorium” on earmarks, I spoke with Matt Kibbe of Freedomworks about turning the enthusiasm for smaller government into that enduring force. He said understanding public choice gives lawmakers a better shot at turning popular anger at government into reductions in its size and scope. Freedomworks recently held orientation sessions for freshmen members of Congress. A primer in public choice was on the agenda.
Cato’s Government Failure: A Primer in Public Choice is a good place to start to understand the mechanics of government dealmaking.
Obama’s Fiscal Commission: The Good and Bad
The co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform released a draft report yesterday on how to reduce federal budget deficits.
Despite the liberal savaging the report is taking as some sort of conservative plot, its proposals are really center-left in orientation. That said, there is some good stuff in the report, which will be useful for incoming Republicans looking to tackle the budget mess.
Good Ideas and Positive Directions
The report provides a menu of possible spending cuts for incoming Republican members of Congress to consider, particularly Tea Party members, who proposed to cut the budget during their campaigns.
The report proposes to reduce spending from 25 percent of GDP currently to 21 percent over the long run. That’s a good start, but we need to pursue deeper cuts, as discussed on www.downsizinggovernment.org. After all, federal spending was just 18 percent of GDP in President Clinton’s last two years in office.
I like that the report suggests a broad array of budget cuts, including defense, nondefense, and entitlement programs. Everything needs to be cut, including programs traditionally defended by both liberals and conservatives.
The report proposes to cut $200 billion from discretionary spending by 2015 from Obama’s proposed spending that year of $1,309 billion. That’s a 15 percent cut. However, the word “cut” needs to be qualified because discretionary outlays were $1,041 billion in the pre-stimulus year of 2007, and they were just $615 billion in the pre-Bush year of 2000.
The report recommends an array of Medicare and Social Security cuts. That’s great, but the report doesn’t include the fundamental structural reforms—such as Social Security individual accounts and Medicare vouchers—that are needed to reduce costs and provide benefits to the broader economy, such as boosting savings and improving health care quality.
The direction of the proposed tax reforms is positive. The co-chairs propose to reduce or repeal narrow deductions and other special tax benefits, while reducing marginal tax rates. The idea to treat capital gains and dividends as ordinary income, however, reveals a faulty understanding of the proper tax treatment of capital.
The report proposes to cut the corporate tax rate from 35 percent to 26 percent, while moving to territorial treatment for foreign investment. It suggests making “America the best place to start and run a business and create jobs.” That’s a laudable goal, but to fulfill it we need to bring the rate down to, say, 15 percent.
The report’s goal of reducing the damaging buildup of federal debt is laudable. Government overspending is the nation’s primary fiscal problem, but spending financed by debt creates an array of problems that are additionally troubling.
Bad Ideas and Shortcomings
The report proposes to raise taxes by $1 trillion over the next decade. But the federal budget crisis is caused by overspending not undertaxing. The election results showed that most Americans understand that, but the message hasn’t penetrated the beltway yet.
The report’s discretionary spending cuts are timid. For example, farm subsidies are cut by just $3 billion, just a fraction of their annual cost of about $20 billion. Farm prices and farm incomes are at high levels these days, so now would be a good time to repeal farm subsidies completely.
The report characterizes tax deductions and exemptions as “spending in the tax code.” That is becoming common parlance in Washington, but it is incorrect. Yes, the mortgage interest deduction and other narrow benefits distort the economy and ought to be abolished, but they also reduce the flow of revenues to Washington, which is a good thing.
The report makes faulty and naïve arguments often heard from centrists about government “investments.” While we need to cut spending, we also need to “invest in education, infrastructure, and high-value R&D” the report says. But why does the federal government need to be involved in education? Why can’t we privatize infrastructure investment? If certain R&D is so “high-value,” wouldn’t the private sector do it?
Along the same lines, the report calls for the creation of a “Cut-and-Invest Committee” to move spending from “outdated” programs to “high-priority long-term investments.” That’s just naïve. The government will never be an efficient allocator of resources, and that’s why we need to shrink it, not just make it run better.
Finally, the commission should have placed more emphasis on fundamental restructuring of government, and not just spending trims. This is true with the entitlement proposals. But also with areas such as infrastructure spending—we don’t need higher gas taxes and government spending for infrastructure, we need privatization.
Boehner Endorses More Medicare Spending: Meet the New Boss, Same as the Old Boss?
While flipping through the radio on my way to pick my son up from school yesterday afternoon, I was dumbfounded to hear Congressman John Boehner talk about repealing Obama’s Medicare cuts on Sean Hannity’s show.
I wasn’t shocked that Boehner was referring to non-existent cuts (Medicare spending is projected to jump from $519 billion in 2010 to $677 billion in 2015 according to the Congressional Budget Office). I’ve been dealing with Washington’s dishonest definition of “spending cuts” for decades, so I’m hardly fazed by that type of routine inaccuracy.
But I was amazed that the presumptive future Speaker of the House went on a supposedly conservative talk radio show and said that increasing Medicare spending would be on the agenda of a GOP-controlled Congress. (I wondered if I somehow misinterpreted what was being said, but David Frum heard the same thing)
To be fair, Boehner also said that he wanted to repeal ObamaCare, so it would be unfair to claim that the interview was all Bush-style, big-government conservatism. But it is not a positive sign that Boehner is talking about more spending before he’s even had a chance to pick out the drapes for his new office.
The Bogus Charge of ‘Shipping Jobs Overseas’
In the final push before Election Day, President Obama has been traveling the country criticizing Republicans for favoring tax breaks for U.S. companies that supposedly ship U.S. jobs overseas. It’s a bogus charge that I dismantle in an op-ed in this morning’s New York Post:
The charge sounds logical: Under the US corporate tax code, US-based companies aren’t taxed on profits that their affiliates abroad earn until those profits are returned here. Supposedly, this “tax break” gives firms an incentive to create jobs overseas rather than at home, so any candidate who doesn’t want to impose higher taxes on those foreign operations is guilty of “shipping jobs overseas.”
In fact, American companies have quite valid reasons beyond any tax advantage to establish overseas affiliates: That’s how they reach foreign customers with US-branded goods and services.
Those affiliates allow US companies to sell services that can only be delivered where the customer lives (such as fast food and retail) or to customize their products, such as automobiles, to better reflect the taste of customers in foreign markets.
I go on to point out that close to 90 percent of what U.S.-owned affiliates produce abroad is sold abroad; that those foreign affiliates are now the primary way U.S. companies reach global consumers with U.S.-branded goods and services; and that the more jobs they create in their affiliates abroad, the more they create in their parent operations in the United States. If Congress raises taxes on those foreign operations, it will only force U.S. companies to cede market share to their German and Japanese (and French and Korean) competitors.
I unpack the issue at greater length in a Free Trade Bulletin published last year, and on pages 99-104 of my recent Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization.
The Court Tackles a Hard Case: Implications for ObamaCare?
The Supreme Court hears oral argument today in an important pre-emption case, Bruesewitz v. Wyeth, which asks whether the National Vaccine Injury Compensation Act of 1986 pre-empts state law “design defect” suits brought against vaccine manufacturers. I’ve discussed this complex case more fully in an op-ed at the Daily Caller, but in a nutshell, Congress passed the Act to address the risks inherent in vaccinations through a federal no-fault ”Vaccine Court” rather than through the vagaries of state tort law. It did so because the inability to make vaccines entirely safe, plus uncertainty surrounding causation, coupled with the penchant of state juries to discount those issues in favor of sympathetic plaintiffs, had rendered most manufacturers unwilling to produce needed vaccines at reasonable costs.
In drafting the statute, however, Congress left things unclear, to put it charitably. Thus, the Court will have to make sense of this language:
No vaccine manufacturer shall be liable in a civil action for damages arising from a vaccine-related injury or death associated with the administration of a vaccine… if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warnings.
Although the Act allows victims to sue over manufacturing defects, conduct that would subject a manufacturer to punitive damages, and a manufacturer’s failure to exercise due care, nowhere does it define “unavoidable”—and there’s the nub of the matter. In the case before the Court, a three-judge Third Circuit panel decided unanimously for Wyeth, as did the district court. But in another case five months earlier, a nine-member Georgia Supreme Court, facing similar facts, decided unanimously for the plaintiff.
And behind it all is the question whether Congress should have pre-empted state law in the first place. It probably should have here, but that’s a close call. And the implications for ObamaCare are not absent in this case, which could be a portent of the complex and uncertain litigation that lies ahead if the scheme is not repealed. As I say at the outset of my post, hard cases make bad law, but bad law too makes hard cases, and this is one. Does anyone think that ObamaCare is anything but bad law? We’ll know once we figure out “what’s in it,” as the lady said.
While You Were Watching the Race to the Top…
…President Obama and Congress were doling out tens-of-billions of dollars to the education status quo while doing little of meaningful, reform-y substance. Now we see the payoff: President Obama has gotten bipartisan accolades for supposedly being a different kind of Democrat on education — one willing to take on teacher unions – while he’s fully kept union allegiances.
Reports the Washington Post about National Education Association plans to spend $15 million on largely Dem-friendly, midterm-election advertisements:
Karen M. White, the NEA’s political director, said the 3.2 million-member union is in sync with Obama more often than not. As an example, she pointed to his support for a $10 billion education funding bill that the Democratic-led Congress passed in August over Republican opposition.
“That education jobs bill got so many of our members engaged,” White said. “It was a turning point for us.”
She played down controversy over Obama’s school reform agenda as “bumps in the road,” adding, “we share the same goals as this administration.”
It really wasn’t hard to see the politics at play here: Talk a lot about reform, expend riches to protect the status quo, win good will from all sides. And heck, who gets hurt? Only taxpayers and students, that’s all.
Let’s Regulate Barney Frank’s Pay
“Rep. Barney Frank, chairman of the House Financial Services Committee, said Tuesday that he will hold a hearing this fall to examine whether regulators are being tough enough in curbing pay practices at Wall Street firms that can lead to excessively risky practices,” writes Zachary Goldfarb in the Washington Post.
Hmmm. “Pay practices that can lead to excessively risky practices.” Since Barney Frank entered Congress, federal spending has risen from $590 billion in 1980 to $3.7 trillion this year. (U.S. Budget, Historical Tables, Table 1.1) The annual deficit has risen from $74 billion to $1.5 trillion. Gross federal debt rose from $909 billion to $13.8 trillion — and to over $15 trillion next year. (Table 7.1) And all this without a major war or depression during those 30 years.
Maybe we should adjust pay practices for members of Congress to give them an incentive to avoid risky, unaffordable, out-of-control borrowing and spending.
Grigori Rasputin Bailout
Sending billions of federal taxpayer dollars to teachers and other public school employees is the bailout that just won’t die. It’s been sliced, shot up in a firefight between Democrats, and even had a battle with food stamps, but it just can’t be killed!
Now, let’s be clear: This is not some wonderful crusade all about helping ”the children.” It is pure political evil, a naked ploy to appease teachers’ unions and other public school employees that Democrats need motivated for the mid-term elections. It has to be, because the data are crystal clear: We’ve been adding staff by the truckload for decades without improving achievement one bit. Since 1970 (see the charts below) public school employment has increased 10 times faster than enrollment, while test scores have stagnated.
But suppose there were some rational reason to believe that we need to keep staffing levels sky-high despite getting no value for it. Lots of teachers’ jobs could be saved without a bailout if unions would just accept pay concessions like millions of the Americans who fund their salaries. But all too often, they won’t.
Sadly, this is all just part of the one education race that Washington is always running, and it absolutely isn’t to the top. It is the incessant race to buy votes. And guess what? Despite its reputation even among some conservatives, the Obama administration, just like Congress, is running this race at record speeds.
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