Archives: 06/2011

Interstate Compacts and Do-It-Yourself Federalism

With the federal government’s growing assertion of power over the states – Obamacare is just the highest-profile example –  state legislators regularly contact me for advice on how to push back while remaining constitutionally faithful.  What can they do in areas like health care, immigration, drug decriminalization, and firearm regulation?

One innovative solution is interstate compacts: states can actually create binding federal law by joining together in a sort of multi-state contract.  Typically they need Congress’s (but not the president’s) consent, but the Supreme Court has held that when the compacts don’t implicate challenges to federal power, they don’t even need that.

For example, Texas is now considering joining a Medicaid/Medicare compact established by Georgia and Oklahoma.  Many states are considering a Health Care Freedom Act compact, which use preexisting congressional consent for criminal-justice-cooperation compacts to mutually enforce state laws prohibiting the forced purchase of health insurance.

I discussed these innovative policy solutions – on which the law is untested – in a recent podcast.  More broadly, however, there are plenty of things states (and of course their citizens!) ought to be considering if they want to reestablish the dual – actually tripartite, adding individuals – sovereignty at the heart of Constitution’s structural protections of liberty.  (For more on that point, see part IV of Cato’s most recent Obamacare brief and part III of Justice Kennedy’s opinion in Bond v. United States.)

To that end, our friends at the Goldwater Institute recently released a major new report called “Federalism-Do-It-Yourself: 10 Ways for States to Check and Balance Washington.” The report outlines 10 legal tools that  states can use to stand up to federal overreach, without resorting to so-called nullification (states can’t simply declare federal law void). The report includes a number of examples of how these tools have been used in isolated cases and recommends that states embrace them in a clear strategy to start holding the federal government to its constitutional role. From Goldwater’s press release, some of the tools include:

Reinvigorate the Reserved Powers of the States

Remember the REAL ID Act, the federal government’s attempt to create a national identification card through state driver’s licenses? REAL ID never was carried out because 14 states refused to comply. The Supreme Court has ruled the 10th Amendment prevents the federal government from “commandeering” or forcing state officials to implement federal policies. In “Federalism DIY,” author Nick Dranias writes there are many other areas where the federal government has fooled states into helping to carry out federal mandates when they don’t have to.

Strategic Legislation Plus Litigation

The U.S. Supreme Court has recognized that states can grant more freedom and civil rights to their residents than what’s protected in the Constitution. And states can use this power to thwart federal efforts to impose new mandates on people. For example, 28 states are challenging President Obama’s health care law in two lawsuits out of Virginia and Florida. Both lawsuits won the first round before U.S. district judges and now are on appeal. Both judges ruled the states could challenge the federal law only because many states have adopted the Health Care Freedom Act, which protects a person’s right to choose his own doctors and not buy government-controlled health insurance. To date, no lawsuit against Obamacare without a state government as a plaintiff has a single victory.

Coordination with Local Governments

Laws creating many federal agencies, such as the Bureau of Land Management, include a standard but little-known provision requiring these agencies to “coordinate” proposed new rules with local governments. This means the agency must sit down with a local government and honestly attempt to craft a rule that doesn’t conflict with existing local policies. If the federal agency fails to do so, a court can block the new rule. Three counties in Utah used the right to coordination to stop the BLM from releasing diseased wild horses onto public ranch lands.

There’s a lot of good stuff in there, so kudos to Nick Dranias and Goldwater for creating this federalism toolkit.

Sunlight Before Signing: Is President Obama Throwing It Under the Bus?

President Obama went to Puerto Rico two weeks ago. If you missed it, that might be because the trip was so brief—a mere four hours. Observing how the president “SEAL-Team-Sixed” it, Jon Stewart speculated that the president was not motivated by love of the island or a campaign promise to revisit it, but by courting Puerto Rican voters in important electoral states. It could be all of the above, of course.

It all reminded me of the president’s “Sunlight Before Signing” promise to post bills Congress sends him online for five days before signing them.

After the president’s dismal start with the promise at the beginning of his term, I speculated once or twice that he would focus on fulfilling campaign promises like Sunlight Before Signing after the mid-term election, when focus turned back to the presidential election coming up in 2012.

Well, the mid-term is behind us, and thoughts are turning to the next presidential election. Has that renewed the White House’s focus on Sunlight Before Signing?

No!

Of the twenty bills sent him by the 112th Congress so far, President Obama has posted only eight online for five days—under half. In fact, the poor numbers so far this year drive his overall tally down to exactly 50 percent compliance (counting in his favor the emergency bill that didn’t require posting). Fifty percent is a threshold he topped with some good Sunlight Before Signing compliance in December.

Number of Bills Emergency Bills Bills Posted Five Days
2009 124 0 6
2010 258 1 186
2011 20 0 8
Overall 402 1 200

As I’ve explored before, the bills that get sunlight lean toward the unimportant—post office renamings, Smithsonian appointments, and such—though a few substantive bills have gotten five days of exposure.

One can only speculate about the thinking in the White House, but there are two likely possibilities:

  1. It may not have crossed anyone’s mind that this clearly stated, measurable promise will have a bearing on the election. But the president’s low compliance with a transparency promise may hand his Republican challenger an issue.
  2. If it has come up, the president and his political advisers may have determined that Sunlight Before Signing is not a big enough issue compared to other political priorities. Getting legislation signed and off the table comes first. Sunlight Before Signing goes under the bus.

We’ll continue to follow the Sunlight Before Signing promise here, calling it the way we see it. It’s up to the president’s challengers and America to decide if this transparency promise is important, or if it’s roadkill.

Public Law Date Presented Date Signed Posted [(Linked)]? Posted Five Days?
P.L. 112-1, To provide for an additional temporary extension of programs under the Small Business Act and the Small Business Investment Act of 1958, and for other purposes 1/28/2011 1/31/2009 [1/28/2009] No
P.L. 112-2, A bill to designate the United States courthouse under construction at 98 West First Street, Yuma, Arizona, as the “John M. Roll United States Courthouse” 2/11/2009 2/17/2009 [2/11/2009] Yes
P.L. 112-3, The FISA Sunsets Extension Act of 2011 2/23/2009 2/25/2009 [2/23/2011 No
P.L. 112-4, The Further Continuing Appropriations Amendments, 2011 3/2/2011 3/2/2011 [3/2/2011] No
P.L. 112-5, The Surface Transportation Extension Act of 2011 3/3/2011 3/4/2011 No No
P.L. 112-6, The Additional Continuing Appropriations Amendments, 2011 3/17/2011 3/18/2011 No No
P.L. 112-7, The Airport and Airway Extension Act of 2011 3/30/2011 3/31/2011 3/30/2011 No
P.L. 112-8, The Department of Defense and Further Additional Continuing Appropriations Act, 2011 4/9/2011 4/9/2011 No No
P.L. 112-9, The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 4/6/2011 4/14/2011 [4/7/2011] Yes
P.L. 112-10, The Department of Defense and Full-Year Continuing Appropriations Act, 2011 4/15/2011 4/15/2011 [4/14/2011] No
P.L. 112-11, A bill to designate the Federal building and United States courthouse located at 217 West King Street, Martinsburg, West Virginia, as the “W. Craig Broadwater Federal Building and United States Courthouse” 4/14/2011 4/25/2011 [4/14/2011] Yes
P.L. 112-12, A joint resolution providing for the appointment of Stephen M. Case as a citizen regent of the Board of Regents of the Smithsonian Institution 4/14/2011 4/25/2011 [4/14/2011] Yes
P.L. 112-13, To amend the Ronald Reagan Centennial Commission Act to extend the termination date for the Commission, and for other purposes 5/2/2011 5/12/2011 [5/2/2011] Yes
P.L. 112-14, The PATRIOT Sunsets Extension Act of 2011 5/26/2011 5/26/2011 No No
P.L. 112-15, To designate the facility of the United States Postal Service located at 12781 Sir Francis Drake Boulevard in Inverness, California, as the “Specialist Jake Robert Velloza Post Office” 5/26/2011 5/31/2011 [5/26/2011] Yes
P.L. 112-16, The Airport and Airway Extension Act of 2011, Part II 5/26/2011 5/31/2011 [5/26/2011] Yes
P.L. 112-17, The Small Business Additional Temporary Extension Act of 2011 6/1/2011 6/1/2011 [6/1/2011] No
P.L. 112-18, The Intelligence Authorization Act for Fiscal Year 2011 6/1/2011 6/8/2011 [6/1/2011] Yes
P.L. 112-19, A joint resolution providing for the reappointment of Shirley Ann Jackson as a citizen regent of the Board of Regents of the Smithsonian Institution 6/21/2011 6/24/2011 [6/21/2011] No
P.L. 112-20, A joint resolution providing for the reappointment of Robert P. Kogod as a citizen regent of the Board of Regents of the Smithsonian Institution 6/21/2011 6/24/2011 [6/21/2011] No

Dirty Deal Done Not So Dirt Cheap

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee,  Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.

Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.  This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):

“[C]ustoms fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!

…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.”  They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]

Raising customs user fees for fiscal purposes may even go against U.S. law (subparagraph 9B of 19 U.S.C. chapter 1 ss58c).

It’s unclear how far this draft will advance at the “mock mark-up,” scheduled for Thursday afternoon in the Senate Finance Committee, as the ranking member of that committee, Sen. Orrin Hatch (R-UT), is one of the leading critics of trade adjustment assistance.  Senator Hatch has already sent out a press release opposing the inclusion of the TAA renewal in the Korea FTA implementing bill:

This highly-partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade.  TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

Senate Minority Leader Mitch McConnell (R-KY) is also apparently critical of the decision to include the TAA renewal in the Korea legislation, preferring instead to consider it only in exchange for something new, i.e.,  a deal on fast track (or trade promotion) authority for further trade deals. As the American Enterprise Institute’s Phil Levy points out, “It is problematic to “buy” the [existing] FTAs with an expanded version of TAA, since those were already “purchased” as part of a May 10, 2007 deal.” [link added] The Republican House leadership is also keen to separate TAA from the FTA implementing bills, in contrast to the opinion and efforts of their colleague Representative Camp.  So the fight is far from over.

If you are interested in hearing more about the trade deals, and how TAA renewal fits in with their passage, Senator Hatch will be speaking at an event at the American Enterprise Institute on Thursday (just hours before the mock mark-up is scheduled to begin). Howard Rosen of the Peterson Institute for International Economics and yours truly will be debating the merits of TAA after Senator Hatch has spoken. More information on the event, including access to the streaming video, here.

*UPDATE: Contrary to what I suggested in my orginal post, Chairman Camp did not in fact join an announcement with the White House and Chairman Baucus about the trade deal Tuesday. He did issue a statement Tuesday evening indicating that although he finds it “regrettable that the White House has insisted on Trade Adjustment Assistance in return for passage of these job-creating agreements,” he has “been willing to work with the White House to find a bipartisan path forward on TAA in order to secure passage of the trade agreements.” So it appears he has agreed to the deal broadly, even if he was not formally part of the announcement, and is still reviewing the details. Chairman Camp’s full statement is available here.

Chained CPI: A Stealth Tax Increase

As we close in on congressional votes to increase the federal debt limit, negotiators are coming up with all kinds of ideas to hike taxes. (Suspiciously, they haven’t revealed very many spending cut ideas so far).

One idea being discussed is to raise revenue by reducing the indexing of parameters in the income tax code. Currently, tax brackets and other features of the tax code are indexed to the Consumer Price Index (CPI). It is widely recognized that the CPI overestimates inflation for various reasons, as discussed here.

The Bureau of Labor Statistics has developed a more accurate (and lower) measure of inflation, called chained CPI. If the tax code was indexed to chained CPI instead of CPI, the government would receive an automatic tax increase relative to current law every year until the end of time.

Switching to chained CPI is a very bad idea for two reasons:

  • It would create a large tax increase over the long run. And it would be an invisible annual tax increase on families and voters because there would be no obvious changes in their tax forms.
  • It would be an anti-growth tax increase because it would push families into higher tax brackets more quickly over time, subjecting them to higher marginal tax rates. The chained CPI proposal is essentially a proposal to increase marginal tax rates slowly and steadily over time.

Some economists may argue that the chained CPI proposal is a good idea because the tax code would more accurately reflect inflation, and it would. However, the tax code already contains a bias that pushes families into higher tax brackets over time, which is called “real bracket creep.” Real growth in the economy steadily moves taxpayers into higher rate brackets since the tax code is indexed for inflation but not real growth. The discussion in the Congressional Budget Office’s new long-range budget outlook implies that this will be an important force in raising federal revenues as a share of GDP in coming decades.

So I’ve got a better idea than indexing the tax code to chained CPI: indexing the tax code to nominal GDP growth. That would adjust for the effects of both inflation and real economic growth on tax code parameters, and it would prevent stealth tax rate increases under our graduated income tax system.

Are Corporations People When They Make Video Games?

I note that I’m not hearing many critics of Citizens United decrying yesterday’s very welcome Supreme Court ruling, in which the majority held unconstitutional a California statute prohibiting the sale or rental of violent video games to minors. Perhaps that’s just because they’re concerned with corporate influence on elections as a policy matter, and not so much about Grand Theft Auto, but as a matter of First Amendment interpretation, it seems as though the elements that supposedly made Citizens United a travesty are present here.

As the conservative Justice Alito notes in dissent, for example, the statute at issue here does not prohibit anyone from creating, possessing, freely loaning, or playing violent video games: It regulates only their rental and sale. In other words: Money isn’t speech! The majority opinion—authored by Scalia, but joined by the Court’s most liberal justices—roundly rejects the relevance of that distinction, which “would make permissible the prohibition of printing or selling books—though not the writing of them. Whether government regulation applies to creating, distributing, or consuming speech makes no difference.” While, of course, money isn’t speech, the majority here understands that when the effect and purpose of a regulation is to restrict expression, the First Amendment is not some hollow formalism, and also limits regulation that functions by targeting enabling transactions rather than the speech directly.

None of the justices seem to make much of the obvious fact that the great majority of popular video games—and probably just about all of the ones exhibiting the level of graphical sophistication and realism at issue here—are produced, marketed, and sold by (uh oh) corporations. In fact, the passage quoted above focuses entirely on acts (“creating, distributing, or consuming”) rather than particular actors, just as the First Amendment itself prohibits government interference with speech not with this or that type of speaker. The Court simply observes that because the statute “imposes a restriction on the content of protected speech, it is invalid unless California can demonstrate that it passes strict scrutiny.” In dissent, Justice Thomas argues that the games are not “protected speech” in the context of the statute, because the Founders would have considered all speech directed at minors unprotected (a premise whose chilling implications the majority is quick to point out). Justice Breyer allows that video games—including violent ones—are indeed “protected speech,” but argues that studies linking them to violence are enough to give the state a “compelling interest” in limiting their dissemination. What nobody suggests, even in passing, is that video games might cease to be “protected speech” if the statute were limited to games manufactured and sold by corporations—which, in practice, is pretty much all the games we’re talking about.

Someone who welcomed this decision as a victory for free speech, but nevertheless supports regulation of independent political expenditures, can always take Breyer’s route: Maybe God of War III is not really harmful enough to make its prohibition a compelling state interest, but the degradation of democracy by corporate influence is a serious enough problem that its regulation survives “strict scrutiny,” overriding ordinary First Amendment protection even in the domain of political speech normally regarded as its core. That is not a position I find plausible, but it is at least coherent. The position I doubt can be made coherent is one according to which a prohibition of a commercial transaction instrumental to corporate-produced speech (and intended precisely to curtail that speech) should not even trigger First Amendment protections when the speech expresses a political opinion, whereas the same prohibition is unconstitutional if the speech is about Kratos impaling a minotaur on his Blades of Chaos. Though if that’s the form political expression has to take to enjoy constitutional protection, I look forward to the impending release of Palinfamous 2 and Barack Band III.

Did They Learn Correlation and Causation in College?

It looks like Peter Thiel won’t be unopposed advising kids to stay out of college

Thanks to a new report from Georgetown University economist Anthony Carnevale, and a David Leonhardt column based on Carnevale’s study, over the last few days the college-for-all crowd has been striking back. But they seem to have missed something in their own college training: correlation does not equal causation.

Carnevale, Leonhardt, and others’ argument is basically that there are big, positive returns on a college degree. It’s something, frankly, that’s not generally in dispute. I say “generally,” because while on average college grads make a lot more than people without a degree, there’s a lot more to the story than averages. Indeed, there are at least three major problems with making averages the basis for a universal-college offensive, problems that Andrew Gillen recently laid out in a terrific blog post. I won’t reinvent the wheel by going into them all (read Andrew’s post) but I’ll summarize them: (1) There are huge throngs of people who attempt college and never finish, a giant population ignored when you just look at completers; (2) at least part of the college wage premium is simply a function of a degree signaling something about the intelligence, work habits, etc. that graduates already possessed; and (3) there are some majors and degrees that confer no great wage premium and are in about as much demand as Betamax or gangrene.

What is most concerning about the Carnevale report, however, is how the report and its fans make the very basic mistake of conflating correlation with causation in implying that the roughly one-third of bachelor’s holders in jobs not requiring degrees are much better workers thanks to their BAs. They base that conclusion on degree-holders in non-degree jobs earning appreciably more than workers with only high-school diplomas. Heck, a graphic to go with Leanohardt’s column trumpets that dishwashers with college degrees make a lot more than dishwashers without them, a data point seized on by the Fordham Institute’s Peter Meyer to attack anyone who dares say college isn’t the best option for everyone.

Once the dishwasher example comes up, is there any way to escape the causation/correlation problem? Any way to not at least seriously contemplate that it isn’t what someone learned in college that makes him or her a better dishwasher, but that someone able to graduate college will tend to be more punctual and reliable? Heck, even if you believed that the proverbial underwater basket weaving major existed, it would be very hard to conclude that the skills one would need to make the finest submerged wickerwork would be useful for getting dinner plates spotless, even though that often occurs underwater.

And many of the public service jobs cited in the graphic, such as firefighters? At least from what we know about teachers, government employee pay scales often give salary bumps for degrees, but degrees don’t necessarily have any bearing on job effectiveness.

People like Carnevale and Leonhardt are right to guard against efforts, especially by public-school employees, to actively push kids away from college, in particular if that’s driven by students’ class or race. But shoving everyone into ivy walls? Based on what we know, that’s equally unjustifiable.

Republicans Getting Rich off ObamaCare

Here we have the spectacle of a former Republican Health and Human Services secretary getting rich by helping states implement ObamaCare. Leavitt Partners (among other consultants) is helping states create the law’s health insurance “Exchanges.” Or the non-ObamaCare-compliant health insurance Exchanges that will by law become ObamaCare-compliant Exchanges.  Via Politico:

More than $300 million in exchange grants has already flowed into the states since the Affordable Care Act passed. That number will grow exponentially in the coming months, as states move from the initial steps of passing exchange legislation to the more lucrative task of setting them up.

For health consultants and information technology vendors, it’s already shaping up to be a gold mine…

The opportunity is, seemingly, everywhere. Even in states that have used executive orders and heated rhetoric to push back against implementation of the reform law, vendors still see possible contracts.

“There is a group that feels as though they don’t want to be associated with the Affordable Care Act,” said Leavitt Partners CEO Michael Leavitt, who was Health and Human Services secretary under President George W. Bush. “Privately, though, it’s clear that several of those are planning behind the scenes, because they don’t want to have a federal exchange.”

These Exchanges—there is no such thing as a state-run Exchange—are the government bureaucracies that will make health insurance more expensive, induce employers to drop coverage, entrench ObamaCare, and dole out hundreds billions of debt-financed government subsidies to insurance companies.