Archives: January, 2010

Michigan Court Inexplicably Tosses Suit, Endorses Forcible Enlistment of Day-Care Workers into the State Government

When lawyers and other commentators say that a court did not properly explain its decision, it’s typically for hyperbolic effect. But, in a bizarre move, a court in the failed great state of Michigan has dismissed an economic liberty case brought by our friends at the Mackinac Center Legal Foundation for reasons the court quite literally did not explain.  The court simply denied the plaintiffs’ complaint and that was that.

Home-based day care owners Sherry Loar, Michelle Berry, and Paulette Silverson have all been taxed by the Michigan Department of Human Services because, according to the state, they are somehow employees of the state and (further!) must pay union dues.  because this baseless assertion comes directly from the state DHS, an executive department, among the significant constitutional objections to the case presents separation of power problems.  (Ok, I haven’t studied the Michigan Constitution, but I assume they separate their powers there.)  Enough ridiculous laws are passed by state legislatures – more than 40,000 last year alone – we don’t need state executive agencies getting into the act.

Yet, the Michigan Court of Appeals has nothing at all to say about the case.

Inexplicable – and unpardonable.

Private Sector Guts and Growth

The Wall Street Journal has an article today for people who think that we need government to thrust itself into the economy because major projects, like energy and technology projects, are too big or risky for private businesses. The article focuses on Chevron’s offshore oil development:

Chevron is leasing the Clear Leader, which floats in 4,300 feet of water in the Gulf of Mexico, to drill for oil through nearly five miles of rock. Big Oil never wanted to be here, in 4,300 feet of water far out in the Gulf of Mexico, drilling through nearly five miles of rock…

It is an expensive way to look for oil. Chevron Corp. is paying nearly $500,000 a day to the owner of the Clear Leader, one of the world’s newest and most powerful drilling rigs. The new well off the coast of Louisiana will connect to a huge platform floating nearby, which cost Chevron $650 million to build. The first phase of this oil-exploration project took more than 10 years and cost $2.7 billion – with no guarantee it would pay off….

“This is technology capable of going to the moon,” says Robin West, chairman of consulting firm PFC Energy, involving “extraordinary uncertainty, immense levels of information processing, staggering amounts of capital.” …

“What has enabled us to do that is technology,” says David Rainey, BP’s head of exploration for the Gulf of Mexico. “We have been pushing the limits of seismic-imaging technology and drilling technology.”…

The push into deeper water hasn’t always been smooth sailing. Offshore projects are expensive, time-consuming and prone to failure. Chevron boasts of a 45% exploration overall success rate in recent years, a remarkable run by industry standards, but one that also means the company has spent billions on projects that haven’t panned out.”

Bravo for gutsy and aggressive American capitalism! Chevron is taking huge investment risks, making remarkable technological advances, creating jobs, and finding new energy supplies to keep our homes bright and warm.

Political leaders in Washington should be encouraging such private business activities to pull the nation out of its slump. So rather than trying to hike taxes on multinational corporations and oil companies – as the Obama administration proposed in its budget last year – policymakers ought to be cutting corporate tax rates and making other pro-investment changes in federal tax and regulatory policies.

When Do We Go to War in Yemen?

That is the question posed at the National Journal’s National Security experts blog.

My response:

We shouldn’t even be contemplating war in Yemen, but we should also understand that the proposed expansion of security assistance to the government there is likely to pay only meager dividends.

Steven Metz gets at the nub of this problem in his two thoughtful posts (here and here). We have an unreliable ally. We have minimal capacity for making them more reliable. Neither of these observations are unique to Yemen. The same could be said of many other countries. Accordingly, we should concentrate our limited resources in a proactive and strategic – as opposed to a reactive and haphazard – way. 

Contrast that with Jim Carafano’s invocation of a new “axis of evil” and the implication that we have no choice but to deepen our involvement in Yemen (and Saudi Arabia and Somalia) while continuing to fight in Afghanistan and Pakistan. Oh, and let’s not forget that there are still about 110,000 U.S. troops in Iraq.

To wit: “Sorry we have to fight on so many fronts….but it beats battling them on the Tarmac in Detroit.”

Sorry, but that just doesn’t fly. 

While impeding al Qaeda’s ability to carry out major terrorist attacks has and will entail multiple fronts in many countries, it is not obvious how this fight should be conducted, nor is it obvious that the fronts in Yemen and Somalia and Saudi Arabia (or Afghanistan and Pakistan, even) are instrumental to success or failure. Safe havens exist in many places, including stable democratic countries. Are we really committed to preventing any country from providing a safe haven? Does the concept of a physical safe haven even make sense in the virtual world of globalized communications and the Internet?

Leaving aside the dubious safe haven argument, Carfano’s either/or proposition (fight them there or fight them here) is equally flawed. We should think of security in layers. A man from Nigeria who trained in Yemen and attempted to detonate his underwear bomb in Detroit was thwarted by his own incompetence and the alertness of the airliner’s passengers. Too close for comfort, to be sure, and we have since learned of numerous points along the way where his travels could have been interdicted. But what we’ve learned about this failed attack doesn’t confirm that our only option is to focus on the one layer (Yemen = terrorist training ground) at the expense of the other layers. An equally compelling case could be made for ignoring Yemen, per se, and focusing on other means of interdicting terrorists that are not so heavily dependent upon unwilling and duplicitous allies, or that burden our overtaxed military with an open-ended mission in yet another failed state.

State Budgets and Employee Compensation

Today, Cato released a report on employee compensation in state and local governments. As states struggle to balance their budgets in coming months, they should look to find savings in employee compensation, which represents half of all state and local spending.

The particular issue of excessive state pensions is being probed by newspapers across the nation. Over at Reason, Nick Gillespie discusses the problem in his home state of Ohio. That state’s newspapers teamed up to pen a series of articles on government pensions, which are representative of the growing pension problems in many states.

There has been a parallel series of articles across the nation on “pay-to-play” state pension scandals. These scandals involve Wall Street firms bribing public officials to get a slice of the government’s financial business. There is pay-to-play corruption in California and pay-to-play corruption in New York and many other places.

The solution to both of these problems is the same: moving the nation’s 20 million state and local workers from defined-benefit to defined-contribution pension plans. That way, governments wouldn’t have to hold giant pools of pension investments, the benefit structure of government workers would be more transparent, and policymakers could more easily cut compensation to balance state budgets.

H&R Block and the IRS: An Unholy Alliance to Ransack Taxpayers

The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on “regulatory capture,” which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets. A perfect (and distasteful) example of this can be found in today’s Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market. The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice has repeatedly shown such rules are designed to benefit insiders rather than consumers.

Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals – such as CPAs, tax lawyers, and enrolled agents – were unable to figure out how to correctly fill out a hypothetical family’s tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?

Tuesday Links

  • Afghanistan: A war we cannot afford. “Democrats say raise taxes. Republicans say no worries. The best policy would be to scale back America’s international commitments.”

The Start of Interstate Carbon Tariffs?

Not content with waiting for federal legislation on the matter, it seems that Minnesota has introduced a “carbon fee” of $4-$34 per ton of carbon dioxide emissions on energy produced –mainly using coal – in North Dakota.  The fee is scheduled to go into effect in 2012. (see here)

North Dakota plans to challenge the new tax, which it rightly says will discourage the purchase of North Dakota power (that is, indeed, the whole point of the tariff). I’m no constitutional scholar, but Article 1, section 10 of the Constitution says that “No State shall, without the consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection laws…” so the Minnesota tariff appears to be unconstitutional (for whatever that’s worth these days…), at least unless and until Congress gives its consent for it. 

On the one hand, the current political make-up of Congress would suggest that such consent might, disappointingly, be given. On the other, the cap-and-trade bill has stalled in Congress despite the wishes of the majority leadership and the administration, suggesting that the desire to regulate energy and greenhouse gas emissions is lacking crucial support.

In related news, another body supportive of carbon tariffs, the French government, has seen its plans thwarted recently after the Constitutional Court there struck down the proposed carbon tax as unconstitutional.  President Sarkozy had intented to extend the carbon tax EU-wide so as to prevent adverse competitiveness effects on French industry, thus giving the EU the incentive to apply a trade bloc-wide tariff on imports from less regulated countries. So the setback in France is good news for those of us concerned about the damage that carbon tariffs would do.

HT: Scott Lincicome