Archives: 01/2010

Homebuyer Tax Credit Complications

Most people would agree with Chris Edwards that the federal tax code is insanely complicated. The IRS Commissioner doesn’t do his own taxes, the Treasury secretary and other Washington policy experts haven’t paid what is owed, and the already overwhelmed IRS would be given an expanded role under the Democrat’s health care legislation.

A key problem is that the social engineers on Capitol Hill have run amok. Recently, they have been enamored with home-buying tax credits, and CNN.com notes how it is further overwhelming the IRS bureaucracy:

On Thursday, CNNMoney revealed that buyers who purchased their properties after Nov. 6 were unable to claim the refund because the Internal Revenue Service had yet to release a new form and instructions. But on Friday, the IRS finally posted the new form 5405.

Claiming the credit now requires sending paperwork to the IRS – no e-filing allowed:

And these new buyers can no longer file electronically. They have to mail in paper forms, including the new 5405, whether they are amending their 2008 taxes or claiming it on the 2009 taxes that are being filed this spring. That is going to dramatically slow refunds, but taxpayers can’t blame the IRS. Instead, it’s people scamming the system who are at fault. For example, in October tax preparer James Otto Price III was the first person convicted of this crime. He falsely claimed the credit for 15 clients. So buyers must now file documentation with their taxes – including proof of residency, a signed mortgage statement and drivers license – which the e-file system is not equipped to handle.

The original homebuyer tax credit, which became available in April 2008, generated a nightmare of fraud. In one case, the credit was claimed by a four-year-old. Even IRS employees filed “illegal or inappropriate” claims for the credit. As a result, when Congress extended and expanded the credit in November, the IRS began requiring extra documentation.

Thus, micromanagement through the tax code is a bureaucratic Catch-22. If the IRS streamlines the paperwork, tax breaks get riddled with fraud and abuse. If it tries to cut down on the fraud and abuse, taxpayers and federal workers get bogged down in a pile of wasteful paperwork.

The solution to the problem is for the government to get out of the social engineering business. Federal attempts to foster homeownership are a perfect example of why such attempted engineering can ultimately cause more harm than good. The homebuyer tax credit should be allowed to expire at the end of April, and the federal tax subsidies for homeownership should be ended.

Vermont’s Education Spending

I happened to catch the January 7 State of the State speech by Gov. Jim Douglas of Vermont on C-SPAN. It was a sober and serious presentation that laid out the facts about higher taxes and excessive spending, which are problems in just about every state.

Douglas on excessive education staffing Vermont:

Since 1997, school staffing levels have increased by 23 percent, while our student population has decreased by 11.5 percent. The number of teacher’s aides has gone up 43 percent. The number of support staff has gone up 48 percent. For every four fewer students a new teacher, teacher’s aide or staff person was hired. There are 11 students for every teacher – the lowest ratio in the country – and a staggering five students for every adult in our schools. With personnel costs accounting for 80 percent of total school spending, it’s no wonder that our K-12 system is among the most expensive in the nation at $14,000 per student per year.

Current staffing and compensation levels cannot be maintained as the student count continues to decline. If we simply move from our current 11 to 1 student/teacher ratio to 13 to 1, we would still have one of the lowest ratios in the country, while saving as much as $100 million. If we want to make education costs sustainable, we must return balance to classrooms. I propose that over four years we bring our statewide student/teacher ratio to affordable levels.

Douglas on excessive education bureaucracy:

Our school governance structures are a vestige of the 19th century and, like our unsustainable personnel costs, must be reformed. We have 290 separate school districts –- one for every 312 students –- 63 different supervisory bodies and a State Board of Education. That’s a total of 354 different education governing bodies for a state with only 251 towns.

Douglas on education financing:

At the root of our education funding challenge is a system that’s substantially eroding local control. Each year the connection between your school budget vote and your property tax bill becomes more and more distant… our education funding regime has grown into an unmanageable maze of exemptions, deductions, prebates, rebates, cost-shifts and hidden funding sources. Overlapping rings of complexity keep all but a few experts from understanding the many moving pieces. This is not good tax policy, not good government, and, if you ask most Vermonters, not good for much of anything. It’s time to pull back the curtains and let the sun shine in on how education is funded. Transparency – Who is paying? What are we paying for? What are the results?

Douglas on excessive education regulations:

Currently, Vermont schools are prohibited by law from accessing out-of-state distance learning programs … If a school sought to provide a new Chinese program for this student, or even a group of students, they would have to hire a new teacher with the expertise – a costly step. Allowing students to access approved distance learning programs from around the country is a simple, affordable change we can make to improve quality.

Excessive staffing, complex bureaucracy, complex financing, and excessive regulation are problems in government education systems across the country. There is no better time than today, when states have large budget gaps, to tackle these chronic problems. 

So kudos to Douglas. His speech was a contrast to that of Colorado’s Gov. Bill Ritter, who followed him on C-SPAN uttering the usual lofty but vacuous speech we expect of most politicians. 

The Snowe Non-Option

Jonathan Chait thinks that if Scott Brown becomes the 41st vote against President Obama’s health plan, supporters could “Go back to Olympia Snowe” to secure the necessary 60th vote.  After all, “Her substantive demands have been met.”

Perhaps Chait forgets that Sen. Snowe (R-ME) – along with Sen. Susan Collins (R-ME), and every other Senate Republican – voted to declare an individual mandate unconstitutional.  During the floor debate, Sen. John Ensign (R-NV) took the unusual step of raising a constitutional point of order against the bill’s individual mandate.  According to the presiding officer:

The question is on agreeing to the constitutional point of order made by the Senator from Nevada, Mr. ENSIGN, that the amendment violates Article I, Section 8 of the Constitution, and the Fifth Amendment.

Snowe’s “aye” vote makes it hard for her to support any bill that includes an individual mandate.  If she were to vote for an individual mandate after declaring that such a law would violate the Constitution, Snowe could reasonably be accused of violating the oath she swore to the Constitution upon joining the Senate.

Yet Democrats are unlikely to support any bill that does not include an individual mandate.  As President Obama told a joint session of Congress, his plan “only works” if lawmakers force everyone to purchase government-designed health insurance.

Racial Politics and the Supreme Court

Lauren Collins has a long and interesting profile of Justice Sonia Sotomayor in the January 11 New Yorker. It’s full of heartwarming stories about her hard-working parents, her dedication to education, her warmth to friends and law clerks, and so on. Though it does include this vignette that seems to corroborate controversial claims that she was “a bully on the bench”:

In early December, during oral arguments for United Student Aid Funds Inc. v. Espinosa, Sotomayor cut off a lawyer as he attempted to answer a question posed by Justice Ginsburg. “Counsel, may I interrupt for just one moment, because I—there is something needling at me that I do need an answer to,” Sotomayor said. According to Law.com, which reported on the incident in a story headlined “Sotomayor Collides with Ginsburg During Questioning,” Justice Stephen Breyer turned to Sotomayor as though to intervene. Before he could, Ginsburg shot back, “And I’d like him to answer the question that I asked him first.”

But what really struck me in the article, and what appears to be new reporting, was this discussion of the explicitly racial politics that led up to her nomination. Maybe I’m just naive, and certainly I wasn’t under the impression that race, religion, gender, and other such factors are absent in the selection of our nine most trusted judges. But this really seems like the way you put together a balanced ticket in a political campaign, not the way you choose a wise justice:

Democrats’ Voracious Search for New Tax Revenue

Last year I tried to compile a list of all the taxes President Obama and his allies were maneuvering to impose. But each week brings new ideas. Just recently we’ve heard about a bank tax, applying the Medicare tax to capital gains and other “passive” or “unearned” income, raising the Medicare tax rate, raising or broadening the capital gains tax, an income tax “surtax,” a tax on tanning – and of course the tax on private health insurance to pay for the expansion of government insurance has moved to the top of the list.

And all of these on top of these ideas proposed or publicly floated by President Obama and his aides and allies:

Back in July the Wall Street Journal reported:

President Barack Obama’s health-care plan is in jeopardy because of serious concerns that costs will spin out of control. As much as anyone, it’s White House budget director Peter Orszag’s job to save it…

After his TV appearances, he went straight to the Senate Finance Committee, where he spent three hours with committee aides brainstorming about how to pay for the trillion-dollar legislation. At one point, they flipped through the tax code, looking for ideas.

Flipping through the tax code, looking for ideas on how to relieve us of more of our money. That’s a great visual of Obama’s Washington. President Obama and his allies look at the vast abundance in America, and all they see is wealth that they don’t yet control. It annoys them. They could do so much good with that money. How dare bankers and businesses, farmers and entrepreneurs, widows and foundations hold tight to their wealth, when government has so many plans to fund? “Let’s go and get it from those who’ve got it,” they cry, in the immortal words of Sen. Barbara Mikulski.

But perhaps Thomas Jefferson’s words are even more immortal and equally applicable: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance.”

LaHood Eliminates Cost-Efficiency Rules

Last week, Secretary of Transportation Ray LaHood announced that federal transit grants would now focus on “livability.” Buried beneath this rhetoric is LaHood’s decision to eliminate the only efforts anyone ever made to make sure transit money isn’t wasted on urban monuments that contribute little to transportation.

Back in 2005, then-Transportation Secretary Mary Peters stunned the transit world when she adopted a “cost-effictiveness” rule for federal transit grants to new rail projects. In order to qualify, transit agencies had to receive a “medium” cost-effectiveness rating from the FTA, meaning they had to cost less than about $24 for every hour they would save transportation users (either by providing faster service to transit riders or by reducing congestion to auto drivers). This wasn’t much of a requirement: a true cost-efficiency calculation would rank projects, but under Peters’ a project that cost $0.50 per hour saved would be ranked the same as one that cost $23.50 per hour. But any projects that went over the $24 threshold (which was indexed to inflation – by 2009 it was up to $24.50) were ruled out.

After unsuccessfully protesting this rule, transit agencies responded in one of four ways. Those close to the $24 threshold cooked their books to either slightly reduce the cost or slightly increase the amount of time the project was supposed to save. Those that were hopelessly far away from the $24 threshold, but had powerful representatives in Congress, obtained exemptions from the rule. These included BART to San Jose, the Dulles rail line, and Portland’s WES commuter train. Those that didn’t have the political clout either shelved their projects or, in a few cases such as the Albuquerque Rail Runner commuter train, tried to fund them without federal support.

In 2007, when Congress created a fund for “small starts,” Peters imposed another rule that transit agencies would have to show that streetcars were more cost-effective than buses. This led to further protests because the the money was “supposed to be for streetcars” – the provision had been written by Earl Blumenauer, who represents Portland, the city that started the modern streetcar movement. But everyone knew streetcars would never be as cost-efficient as buses. This meant that, except for Portland, virtually every agency that had wanted to waste federal money on streetcars shelved their plans.

Until now. LaHood’s announcement means that cost is no longer an issue. If your project promotes “livability” (which almost by definition means anything that isn’t a new road) or “economic development” (meaning it will be accompanied by subsidies to transit-oriented developments), LaHood will consider funding it, no matter how much money it wastes.

Many transit agencies are elated. Cities from Boise to Minneapolis to Houston now see that their wacko projects that defy common sense now have a chance of getting funded.

The bad news for transit agencies is that this doesn’t mean there will be any more money for transit. Instead, there will be more competition for the same pot of money. Not to worry: House Democrats plan to open the floodgates to more transit spending as soon as they can get federal transportation funding reauthorized. This means taxpayers can expect to see more of their money wasted and commuters can expect congestion to get worse as more of their gas taxes are funneled into inane rail projects.

Israel, the United States, and the Danger of War with Iran

Steve Hynd at Newshoggers looks at Heritage’s recent work on Iran and observes that it sure seems like they’re prepared for war.  James Phillips says the Israelis may attack Iran but we shouldn’t try to stop them.  Phillips notes uncritically Israeli PM Binyamin Netanyahu’s characterization of the Iranian state as a “a messianic apocalyptic cult” and points out that while the United States “has the advantage of being geographically further away from Iran than Israel and thus less vulnerable to an Iranian nuclear attack … it must be sensitive to its ally’s security perspective.”

Therefore we should accede to an Israeli preventive strike and prepare for the consequences.  What’s odd about Phillips’ piece is that he doesn’t seem to think that the United States should provide its own view as to when an attack would be smart and when it would not be.  Instead, we should just toss the keys to the Israelis and buckle up: “Wash­ington should not seek to block Israel from taking what it considers to be necessary action against an existential threat. The United States does not have the power to guarantee that Israel would not be attacked by a nuclear Iran in the future, so it should not betray the trust of a democratic ally by tying its hands now.”  This is a pretty high standard.  It’s very difficult to guarantee a third party won’t do something in the future.  If that’s the standard we’re using to determine when we allow ourselves to be sucked into wars, we’re in for a lot of wars.  Moreover, I’m clear on the logic of starting a war, but why wouldn’t we, as the larger power in the relationship, want to determine the timeline on which the attack occurs?  Why just defer to Tel Aviv?

Ariel Cohen

Hynd also points to an accompanying piece by Ariel Cohen that calls on the U.S. to extend nuclear deterrence over Israel, Egypt, and Saudi Arabia, and to “deploy a visible deterrent, including overwhelming nuclear forces near Iran, on surface ships, aircraft, or permanent bases … designed to hold at risk the facilities that Iran would need to launch a strategic attack, thereby making any such attack by Iran likely to fail.”  Interestingly in a passage he attributes to personal meetings with Vladimir Putin and Sergei Lavrov, he says the Russian leadership sees Iran as a “regional superpower” and doesn’t want to go to war with them.

Cohen also says bombing is better than non-bombing because of the “existential threat” a nuclear Iran would pose to Israel, as well as Cohen’s worry that by not bombing “the U.S. would send a message to other countries that nuclear weapons are the trump card that can force U.S. and Israeli acquiescence.”  But they sort of are that sort of trump card, right?  Presumably that’s why the Iranians and the North Koreans appear to have been so enthusiastic about getting some.  Ultimately, says Cohen, the U.S. should drop the pretense of UN sanctions against Iran and opt instead for a sanctions coalition of the willing.  We should also apply unilateral sanctions against Russia for refusing to join the Iran sanctions coalition, and we should station nuclear weapons in the Middle East.

This is getting a bit too long for a blog post already, so I’ll just point to the study I produced on the “should we bomb Iran?” question back in 2006 for those with interest.  The basic outline of the argument holds up reasonably well, I think, so my thoughts are mostly contained in it.  While the Heritage scholars point out that the Obama administration is unlikely to be terribly enthusiastic about bombing Iran, it’s an interesting counterfactual to think about what things might look like if John McCain had won the presidency.  Imagine the Sarah Palin speeches.