Archives: 07/2011

Commerce Clause Abuse, Non-Obamacare Division

The federal government is currently engaged in a misguided attempt to use a noneconomic statute – the Endangered Species Act – to regulate under its Commerce Clause authority a noneconomic activity, the potential “take” of the noncommercial, wholly intrastate delta smelt.  Acting under this purported authority, the U.S. Fish and Wildlife Service issued an opinion in 2008 that requires a reduction of critical water deliveries in California for the alleged benefit of the threatened delta smelt species.  The delta smelt-based water cutbacks have resulted in substantial hardship to farmers and other water users in Southern California and the San Joaquin Valley.  

In 2009, the Pacific Legal Foundation filed a lawsuit contending that regulation of the delta smelt is not a valid exercise of the Commerce Clause.  The district court and the Ninth Circuit Court of Appeals disagreed.  Cato joined Chapman University’s Center for Constitutional Jurisprudence and former attorney general Edwin Meese in filing a brief that supports PLF’s request for Supreme Court review.  

We argue that the Court should take this case in order to delineate the constitutional distinction between federal and state power and protect the states’ exclusive police power to regulate and advance the health, safety, and welfare of the people.  Specifically, our brief argues: (1) that the federal government’s regulation of a wholly intrastate, noncommercial species exceeds Congress’s powers under the Commerce Clause; (2) the expansive application of the ESA to the delta smelt, because it is noncommercial species that doesn’t travel across state lines, intrudes on the core police powers reserved to the states; and (3) that the Supreme Court should repudiate the aggregation principle of Wickard v. Filburn (the 1942 wheat-farming case central to the Obamacare litigation).  Striking down the expanded interpretation of the ESA at issue here is not enough. 

If left untouched, the Ninth Circuit decision opens the door to unlimited and abusive assertions of power by an assortment of federal agencies.  The Court needs to reinforce and rebuild the limits of the Commerce Clause and to reign in a federal government that continues to believe that the Constitution sets no bounds on its power. 

The name of the case is Stewart & Jasper Orchards v. Salazar.  The Supreme Court will decide this fall whether to hear it.

Debunking the Left’s Tax Burden Deception

I testified yesterday before the Joint Economic Committee about budget process reform. As part of the Q&A session after the testimony, one of the Democratic members made a big deal about the fact that federal tax revenues today are “only” consuming about 15 percent of GDP. And since the long-run average is about 18 percent of GDP, we are all supposed to conclude that a substantial tax hike is needed as part of what President Obama calls a “balanced approach” to red ink.

But it’s not just statist politicians making this argument. After making fun of his assertion that Obama is a conservative, I was hoping to ignore Bruce Bartlett for a while, but I noticed that he has a piece on the New York Times website also implying that America’s fiscal problems are the result of federal tax revenues dropping far below the long-run average of 18 percent of GDP.

In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P. But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943. Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era.

To be fair, both the politician at the JEC hearing and Bruce are correct in claiming that tax revenues this year are considerably below the historical average.

But they are both being a bit deceptive, either deliberately or accidentally, in that they fail to show the CBO forecast for the rest of the decade. But I understand why they cherry-picked data. The chart below shows, rather remarkably, that tax revenues (the fuschia line) are expected to be back at the long-run average (the blue line) in just three years. And that’s even if the Bush tax cuts are made permanent and the alternative minimum tax is frozen.

It’s also worth noting the black line, which shows how the tax burden will climb if the Bush tax cuts expire (and also if millions of new taxpayers are swept into the AMT). In that “current law” scenario, the tax burden jumps considerably above the long-run average in just two years. Keep in mind, though, that government forecasters assume that higher tax rates have no adverse impact on economic performance, so it’s quite likely that neither tax revenues nor GDP would match the forecast.

Cuccinelli Corrects an Injustice

Virginia Attorney General Kenneth Cuccinelli reviewed the evidence and concluded that one Thomas Haynesworth had been wrongly imprisoned–so he persuaded Governor Robert McDonnell to grant him parole.  Not a full vindication, because Haynesworth still has a felony record, but freedom.  Remarkably, Cuccinelli went still further and added Haynesworth to his staff while promising to work to clear his name and wipe his record clean.   David Keene has the full story here.

Close My Post Office

The USPS is proposing to close 3,700 post office locations across the country, as mail volume falls and the agency is losing billions of dollars.

Kudos to Postmaster Patrick Donahoe for cutting costs, but he missed at least one location. He should add to his list one of the two offices in my neighborhood, which are only a mile apart.

For its story today, the Washington Post went looking for citizens who would complain about the reform, and they found some. One lady in Chevy Chase, Maryland, groused that the post office near her is “part of the culture of the town.” Boy, does that town’s culture ever need help if a sterile government office plays a key role!

Anyway, my neighborhood lost its “culture” when the Borders book store closed last weekend. But that’s life; things change. Maybe a cool new café will open up in the Chevy Chase post office location. I don’t know why people take for granted the huge dynamism we have in arts, society, and the business world, yet they want the government to be a fossilized dinosaur.

Donahoe is trying to cut post office costs, but he does need to expand his horizons to consider more fundamental reforms. On Larry Kudlow’s TV show last night, I pointed to privatized European post offices and expanding postal competition as a good model for the United States, but Donahoe was dismissive. Meanwhile, Susan Collins, who oversees the USPS in the Senate, is even grumbling about Donahoe’s limited reforms.

Will we have to wait until mail volume plummets another 20 percent for U.S. policymakers to get serious about postal reforms?

For more information, see www.downsizinggovernment.org/usps.

NYT Magazine: ‘Surprising…How Willingly’ Medicaid Officials Enable Fraud

The New York Times Magazine has a lengthy (and not entirely unflattering) feature on James O’Keefe, founder of Project Veritas.  Here’s what the profile says about Project Veritas’s ongoing string of Medicaid-fraud sting videos:

It isn’t exactly a secret that some Medicaid money winds up in unqualified hands, but it was surprising to see how willingly minor officials turned a blind eye and, in some cases, even offered advice on how to game the system.

Actually, it’s not just minor officials.  And when one understands Medicaid, it’s not surprising either.

‘What Would Jesus Cut?’ — Debt Ceiling Version

Encouraging President Obama to play Robin Hood—as if he needed encouragement—a group of religious leaders met with the president at the White House last week where they admonished him “to protect Medicaid, food stamps, aid to poor women with infant children, international development aid and other programs specifically targeted to the poor,” the Washington Post reports. Led by the progressive evangelical group Sojourners, and joined by other Christian organizations from across the political spectrum, these are the folks about whom I wrote in the Wall Street Journal last April after they ran ads with the headline, “What Would Jesus Cut?”

Now that they’re using not simply the budget debates but the debt ceiling battle to promote their agenda, two points are worth noting. First, we need to remember that “helping the poor” is what got us into our recent mess to begin with: the Community Reinvestment Act, which promoted mortgages for people who couldn’t afford them; the Fed’s inordinately low interest rates, which gave further encouragement; Freddie and Fanny—all leading to the housing bubble that precipitated the Great Recession.

Second, the implicit message—made explicit with Obama’s obsession over “corporate jets”—is that if we can’t cut spending, we’ve got to raise taxes on the rich. Never mind that the top 1 percent pay more in federal income taxes than the bottom 95 percent. Far more telling, federal tax revenues, AEI’s Philip I. Levy reports, “have steadfastly remained at or below 20 percent of GDP for decades, through periods of high marginal tax rates and low.” Tax the rich into poverty, you won’t solve the problem, which is rooted in spending. But you will feel better—if equality is your aim. That too, over the longer haul, is what got us into this mess. There’s nothing wrong with inequality: it’s what lifts a thousand boats, including those of the people the Sojourners want to help.

Boehner Plan Doesn’t Cut Spending

House Speaker John Boehner is scrambling to revise his budget plan after the CBO found that it would only cut spending by $850 billion, not the $1.2 trillion promised.

However, the Boehner plan doesn’t actually cut spending at all. The chart shows the discretionary spending caps in the Boehner plan. Spending increases every year—from $1.043 trillion in 2012 to $1.234 trillion in 2021. (This category of spending excludes the costs of wars in Iraq and Afghanistan).

The “cuts” in the Boehner plan are only cuts from the CBO baseline, which is an imaginary path of future spending designed as a planning tool for Congress. Boehner can propose to spend any amount in any future year he wants, and in this plan he choose to have a steadily rising spending path.

The Boehner plan also doesn’t cut spending in a more fundamental way. It doesn’t lay out any particular programs or agencies to terminate. I’m in favor of spending caps as a secondary enforcement mechanism, but actual cuts have to come first. A caps-only plan like Boehner’s just kicks the can down the road. At best, it simply nudges future legislators to actually cut something specific.

Why doesn’t the House leadership propose real cuts? They’ve certainly got the resources and expertise to do the job. A single senator – Tom Coburn – produced a 620-page report last week detailing hundreds of programs to cut and terminate. Coburn and his staff read through thousands of articles and reports on the real-world performance of federal programs, and they made a good case for each particular cut they proposed.

Republican leaders can’t hide behind baselines forever. If they really want a smaller government as they keep claiming, they’ve got to target particular programs and agencies and begin a national debate about terminating them.