Archives: 05/2006

Tax Cut Facts

Congress has just passed a $70 billion tax cut, which extends the Bush dividend and capital gains reductions until 2010. The legislation also provides many taxpayers a further year of relief from the dreaded Alternative Minimum Tax.

Another huge tax cut, right? The Washington Post on May 11 editorialized that the bill would blow “a hole in the federal budget.”

Actually, this tax cut just extends prior cuts and has only a tiny impact on the budget. This bill: 

  • reduces federal revenues over the next five years by just 0.5 percent.
  • represents a small fraction of the budget impact of recent spending increases. This tax cut bill is $70 billion over five years, or just $14 billion per year. Compare that to the increase in total federal spending this year of about $240 billion or more.

Note that the $70 billion estimate is an official ”static” score. In reality, investor tax cuts don’t lose the government that much money because of dynamic feedback effects. As an illustration, consider the capital gains tax cuts of 2003. In 2002, the government received $58 billion in capital gains tax receipts. Congress then cut the capital gains tax rate from 20% to 15%. The result? Annual capital gains realizations have almost doubled and capital gains tax receipts have increased substantially—to about $81 billion by 2006. (See Congressional Budget Office, Budget Outlook, January 2006, p. 92).

NSA: Keeping One’s Eye on the Constitutional Ball

Followers of Cato’s Constitutional Studies department know that my colleague Bob Levy and I have a respectful disagreement over the constitutionality of recently revealed NSA surveillance practices. Consider this the latest installment in that discussion….

In an earlier Cato@Liberty post, Bob finds it “ominous” that the NSA might be “monitoring the content of wholly domestic calls.” But he adds, “When communications from and to a US person in the US are monitored, that’s domestic surveillance, no matter whether the party on the other end is inside or outside of the US (original emphasis).”

I have to disagree. Perhaps Bob thinks that the monitoring of international calls, as we would normally call them (one party outside the United States), is also ominous, because he next says, “Since Bush believes that warrantless domestic surveillance is permissible regardless of FISA’s contrary provisions, we shouldn’t be surprised if the NSA has much more data (including content) than USA Today has uncovered.”

This focus on domestic/nondomestic, pressed by the Bush critics, comes from the language of FISA—and points to yet another problem with the statute. After all, the calls we want most to monitor are those that go to and come from al-Qaeda sleeper-cells in the United States. Insofar as FISA burdens that “domestic” surveillance, it frustrates the very purpose of surveillance.
 
In Nov. 2002, the FISA Court of Review cut through that distinction when it spoke of the president’s “inherent authority to conduct warrantless searches [leaving it open whether inside or outside the United States] to obtain foreign intelligence information,” adding that the “appropriate distinction” to be drawn in balancing the government’s interest against individual privacy interests is between “ordinary crimes and foreign intelligence crimes.” Unlike with the former, where punishment and deterrence are the main purposes, the government’s concern with foreign intelligence crimes, the court said, “is overwhelmingly to stop or frustrate the immediate criminal activity.” It can hardly do that effectively if it has to run to court for a warrant at every turn—nor did the court hold that it had to since that issue was not before the court.
 
The deeper issue with FISA, however, is the constitutional separation-of-powers question: whether Congress has the authority to restrict an inherent power of the president. How can Congress, by mere statute, restrict an inherent power of a co-equal branch of government that has been exercised, with no objection, by every president since George Washington? Congress, by mere statute, can no more restrict the inherent power of a president—or a court, or a state, for that matter—than it can restrict the constitutional rights of an individual. If a line is to be drawn between the power of the president and the rights of the people, it is for the courts to do it. And if the courts will not or cannot do so (because of standing or other such problems), then the matter is ultimately political, not legal.

Caution: Supply and Demand at Work

According to a report released yesterday by the International Energy Agency, high oil prices are forcing analysts to make sweeping cuts in their forecasts regarding energy demand and substantially revise upward their forecasts regarding energy supply.  Apparently, producers and consumers aren’t the mindless economic zombies that politicians would have us believe.

Who knew this crazy invisible hand thing might be legit?

Energy Policy Hooch

It what might be the quote of the week, Bob Dinneen, president of the Renewable Fuels Association, warned the House Energy & Commerce Committee yesterday in an open hearing that removing the U.S. tarriff on Brazilian ethanol would send “a very negative signal to our marketplace.”

So there you have it.  According to the loony-fuels lobby, positive signals to the market = trade barriers and negative signals to the market = uninhibited global trade.  Say this stuff enough times and you too might be able to work for the renewable energy business.

Kiddie Mac

Pop Quiz:

“Kiddie Mac” is:

     A. America’s next great hip-hop star

     B. a cheesy new dish from Kraft

     C. a youth-oriented computer by Apple

     D. a foolish idea floating around the halls of Congress

I assume most people identified the correct answer. Kiddie Mac is in fact, the informal title of a the proposed Children’s Development Commission—a federal agency that would provide loan guarantees for child daycare centers. The ridiculousness of this proposal speaks for itself. Yet, Rep. Carolyn Maloney recently introduced a bill to create Kiddie Mac, and has done so repeatedly since 1999. 

With Supporters Like This….

In today’s Washington Post, columnist E.J. Dionne becomes the latest liberal to endorse Massachusetts Governor Mitt Romney’s health care reform legislation. The plan has also been endorsed by Sens. Ted Kennedy, John Kerry, and Hillary Clinton.  

Since Governor Romney and the Heritage Foundation (which helped to write the bill) keep insisting that it is “free market” reform, one has to wonder about their strange new bedfellows.

While much of the attention has been focused on the legislation’s unprecedented individual mandate requiring all Massachusetts residents to purchase health insurance, the heart of the reform is the creation of a new state entity, the Connector, to manage the state’s individual and small group markets. The Connector is a form of managed competition similar to the failed Clinton health reform of 1993. It would create an artificial marketplace where individuals could purchase a limited number of “approved” and regulated products. This is not a free-market reform. As University of Chicago Law Professor Richard Epstein says, managed competition is “an oxymoron. One can either have managed health care or competition in health care services. It is not possible to have both simultaneously.”

Liberals must also love the bill’s massive subsidies. Subsidies would be available for those with incomes ranging from $30,480 for a single individual to as much as $130,389 for a married couple with seven children. A typical married couple with two children would qualify for a subsidy if their income is below $58,500. Subsidies at this level will extend dependence on government well into the middle class.

This bill is a pretty clear example of big government conservatism on the march. No wonder the Left is so happy.

They Don’t Call It Taxachusetts for Nothing

In the Boston Herald, I wrote that Gov. Mitt Romney’s new health reform law includes “not just [an] individual mandate but also some hefty tax increases.” Romney’s secretary of health and human services, Tim Murphy, responded with a letter to the Herald claiming that “the law includes no new taxes to accomplish its objectives.” 

Oh, really?

  • The individual mandate is itself a tax on Massachusetts residents. Their freedom to choose not to purchase health insurance has been replaced by a tax equal to half the price of a typical insurance policy. 
  • The $295 per-employee levy on employers who do not offer coverage is another tax. 
  • There is a mandate (i.e., a tax) on employers that they set up what is called a Section 125 plan. (This is necessary to participate in the “connector.”)
  • If an employer has an uninsured worker who runs up a huge hospital bill, the employer must pay a tax of up to 100% of hospital charges in excess of $50k. 
  • The law includes a “slacker mandate” (another tax) that requires insurers to cover dependents up to the age of 25. That tax gets passed on to everyone through higher premiums. 

I have personally expressed to Murphy admiration about what the connector attempts to do. However, the connector tries to remedy a federal problem (the federal tax treatment of health insurance) at the state level.  Massachusetts might as well try to reform the FDA

Thus even the “good” part of this legislation is a costly distraction from real health care reform.