Archives: 01/2012

Against Forced Unionization of Independent Workers

Over the past decade, more than a dozen states have forced independent contractors who are paid through Medicaid to join public-sector unions.In 2003, Illinois unionized home healthcare workers and imbued the Service Employees International Union with the right to collect compulsory fees from the workers’ paychecks. Democracy is thus being turned on its head: the elected representatives for the people of Illinois have chosen a sub-representative for some of the people and given that sub-representative a taxing power.

In so doing, they have severely impaired home healthcare workers’ First Amendment right of association and the right to petition the government for a redress of grievances. Without limits on government’s ability to forcibly unionize people who indirectly receive government-funded compensation (an increasingly large group), more and more citizens will have to interact with their representatives through a government-designated intermediary (a union); our democracy will become even more dominated by special interests than it is now.

Cato, joined by the National Federation of Independent Business and the Mackinac Center, filed a brief urging the Supreme Court to address this issue and vindicate the First Amendment freedoms upon which a thriving democracy depends. We argue that the forcible unionization of home healthcare workers serves none of the compelling purposes for public-sector unionization that have been articulated by the Supreme Court.

Because the Court has long recognized that unionization impinges certain constitutional rights, it has limited public-sector collective bargaining to those situations which advance the aims of promoting “labor peace” and eliminating “free riders.” Labor peace is promoted by limiting competing workplace interests from bargaining over the conditions of employment — for example, two unions at the same workplace representing different colleagues. Free riders are non-union employees who enjoy the benefits of union-achieved gains without paying into the union’s war chest. But neither aim is promoted by a system, such as Illinois’s, in which employees work in different locations and in which the customer — the disabled person paying the homecare worker through a Medicaid disbursal—still controls every crucial aspect of the employment relationship, including hiring and firing.

This last fact is most telling: the Illinois law only allows collective bargaining for higher wages and more generous benefits. That is, the law is only about speech — petitioning the government for higher wages and benefits — and does not address workplace conditions at all.

As more and more states push to unionize more workers who indirectly receive government money — campaigns that, in face o dwindling private-sector union membership, have been called “labor’s biggest victory in over sixty years” — it is vital that the Supreme Court articulate a limiting principle on this practice. Otherwise, more and more of us will be forced to interact with our representatives only through government-appointed bodies.

What the Pentagon’s New Military Strategy Should Look Like

President Obama, Defense Secretary Leon Panetta, and Joint Chiefs Chairman Martin Dempsey are scheduled to brief the media tomorrow morning on the recently completed strategic review that will inform the Pentagon’s budget priorities for the coming five to ten years. Early indications suggest that the status quo will hold. And that is bad news for U.S. troops, and U.S. taxpayers.

Obama, Panetta, and Dempsey should clearly spell out:

  1. The types of missions that the U.S. military will be expected to perform on a regular basis
  2. Those operations that the military will occasionally conduct on short notice, and for short periods of time
  3. How defense capacity can be augmented in those very rare cases calling for significant mobilization of additional resources.

Some suggest that the strategy document will abandon the requirement that the Pentagon must be prepared to fight two sustained ground wars at the same time, something that the country hasn’t done since well before Barack Obama was born. Such a change, if true, should be welcomed.

It is significant the president is attending, and the most important questions should be reserved for him. It is particularly incumbent upon the civilian leadership within the Obama administration, beginning with the president himself, to spell out their intentions regarding the use of force, and of the role of the U.S. military more broadly. These should go beyond vague signals; our military leaders shouldn’t be forced to guess what missions that they will be asked to perform. The president must tell them.

For example, does he intend to deploy U.S. troops to more weak and failing states, missions that require a very sizable ground presence for an indefinite period of time? Or have the wars in Iraq and Afghanistan taught the president and his advisers that such missions are costly and counterproductive (and politically unpopular at home)? If the latter, the Pentagon should be planning for significant reductions in the Army and Marine Corps.

Does President Obama plan to conduct more Libya-style missions, operations conducted from the air, with some involvement by other militaries? Or is the recent deployment to Uganda emblematic of future missions, with a small-scale U.S. military presence on the ground in support of indigenous forces? Either way, the Air Force and the Navy are likely to be involved, though perhaps not as active as in the past decade.

More broadly, will the White House and the State Department continue to task the U.S. military with the defense of the global commons, providing security for all countries, and expecting nothing in return? Or will the twin constraints of fiscal insolvency and dwindling public support here at home lead to a less grandiose foreign policy, one that will call on the U.S. military to defend the United States and secure vital U.S. interests, while encouraging other countries to take responsibility for their own defense? The former requires a military even larger than the one that we have today, one that costs more than all other militaries in the world, combined, and that expects and demands much of our men and women in uniform. The latter mission, by contrast, could be easily handled with a smaller, more elite force, based largely here in the United States.

The answers to these key questions are what should guide the Pentagon’s force planning for the coming decade. The president, Secretary Panetta, Secretary of State Clinton, and other senior officials have stated that the United States must continue to be the world’s policeman, effectively discouraging other countries from doing more. The end result is likely to be a smaller U.S. military, tasked with a longer to-do list. That isn’t fair to the troops, or to the U.S. taxpayers who will foot the bill.

Obama’s Constitutional Gamble on Consumer Finance Nomination

President Obama is announcing today that despite the fact that the Senate is not in recess, he’s going to recess appoint Richard Cordray to be the head of the Consumer Financial Protection Bureau (CFPB), created under the Dodd-Frank Act.

Of course the President is actually claiming that the Senate isn’t in session and that its “pro forma” sessions are just a “gimmick”.  Funny I don’t remember then Senator Obama complaining about gimmicks when the Senate used the sames tactics to block Bush recess appointments.  But then again this is the guy who signs a bill allowing indefinite detention of American citizens after having campaigned on shutting down Guantanamo.  Only a former constitutional law professor could be so creative with the Constitution.

More importantly the “recess” appointment of Cordray doesn’t solve the President’s problem.  The Dodd-Frank Act is very clear, even a law professor can probably understand this section, that authorities under the Act remain with the Treasury Secretary until the Director is “confirmed by the Senate”.  A recess appointment is not a Senate confirmation.  Now don’t ask me why Dodd and Frank included such unusual language, they could have just given the Bureau the new authorities, but they didn’t.  So even with this appointment, the CFPB won’t be able to go after all those non-banks, like the pay-day lenders and check-cashiers that caused the financial crisis (oh wait, those industries didn’t have anything to do with the crisis).

This appointment also guarantees that Obama, even if he gets a second term, is unlikely to ever get a CFPB Director past the Senate.  Maybe not such a big deal for Cordray since the rumor has always been this is just a political stepping stone so he can go back to Ohio and run for office.  The real harm is that Obama has decided to take a gamble with the Constitution, risk the further erosion of the Senate’s advise and consent powers, solely to have another campaign issue.  So he can try to paint Republicans as captive to Wall Street, all despite the fact the new agency exempts Wall Street (who will continue under the ever effective oversight of the SEC).  Maybe he can have Geithner and the various Goldman alum in the Administration stand next to him to help remind us how hard he is fighting for the middle class.

Mitt Romney, the Value-Added Tax, and America’s European Future

My Iowa caucus predictions from yesterday were hopelessly wrong, probably because I was picking with my heart rather than my head. As I noted a couple of weeks ago, Mitt Romney’s openness to a value-added tax makes him a dangerously flawed candidate, and I hoped Iowa voters shared my concern.

In a column for today’s Wall Street Journal, I elaborated on those concerns, explaining why a VAT is bad fiscal policy. I had three main points. First, I noted that the big spenders need a VAT in order to achieve a European-sized welfare state in America.

… the left needs a VAT. It is the only realistic way to collect the huge amount of revenue that will be necessary to finance the mountainous benefits promised by our entitlement programs. Which is exactly what happened in Europe, where welfare-state policies only became feasible after VATs were adopted, beginning in the late 1960s.

Second, I explained that the left favors this giant tax on the middle class because they want more money and soak-the-rich taxes don’t generate much revenue.

First, there aren’t enough wealthy people to finance big government. According to IRS data from before the recession, when we had the most rich people with the most income, there were about 321,000 households with income greater than $1 million, and they had aggregate taxable income of about $1 trillion. That’s a lot of money, but it wouldn’t balance the budget even if the government confiscated every penny—and if it did, how much income do you suppose would be available in year two? Second, higher tax rates don’t raise as much revenue as expected. Upper-income individuals are far more likely to rely on interest, dividends and capital gains—and it is much easier to control the timing, level and composition of capital income, so as to avoid exposing it to the tax man.

Third, I debunked the foolish notion that a VAT creates a “level playing field” for American exporters.

…some manufacturers are willing to overlook the VAT’s flaws because the tax is “border adjusted.” This means that there is no VAT on exports, while the tax is imposed on imports. For mercantilists worried about trade deficits, this is a positive feature that they claim will put America on a “level playing field.” But that misunderstands how a VAT works. Under our current tax system, American goods sold in America don’t pay a VAT—but neither do German-produced goods or Japanese-produced goods that are sold in America because their VAT tax is rebated on exports. Meanwhile, any American-produced goods sold in Germany or Japan are hit by a VAT, as are all other goods. In other words, there already is a level playing field. To be sure, there will also be a level playing field if America adopts a VAT. But it won’t make any difference to international trade. All that will happen is that the politicians in Washington will get more money whenever any products are sold.

But I didn’t limit myself to economic analysis. I also warned that Mitt Romney might be an even greater threat on this issue than Barack Obama.

Unsurprisingly, President Obama is favorably inclined toward a VAT, having recently claimed that it is “something that has worked for other countries.” And yet it’s unlikely that the president would propose a VAT, in large part because he is fixated on class-warfare tax hikes. If he did, almost every Republican in Congress would be opposed, even if only for partisan reasons. But what if a VAT sympathizer like Mr. Romney wins next November and decides that his plan for a lower corporate tax rate is only possible if accompanied by a VAT? There will be quite a few Republicans who like that idea because they want to do something nice for their lobbyist friends in the business community. And there will be many Democrats drawn to the plan because they realize that they need this new source of revenue to enable bigger government. That’s a win-win deal for politicians and a terrible deal for taxpayers.

This point deserves some elaboration. Why is the VAT a do-or-die issue?

Simply stated, the United States is in grave danger of becoming a European-style welfare state. Indeed, that will automatically happen in the next few decades because of demographic changes and poorly designed entitlement programs.

This is why there is a desperate need to reform programs such as Medicare and Medicaid. But politicians almost certainly won’t adopt the needed reforms if they have the ability to instead confiscate more money from taxpayers - especially if they have a new tax like the VAT, which is a money machine for bigger government.

P.S. For a humorous – but accurate – perspective on the VAT, take a look at these clever cartoons (here, here, and here).

Enforcing Housing Codes Is Not Racist

The federal Fair Housing Act makes it unlawful “[t]o refuse to sell or rent after the making of a bona fide offer … or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.”  Magner v. Gallagher addresses the question of whether the FHA’s ban on racial discrimination can be violated by someone who does not actually engage in racial discrimination:  Owners of rental properties in St. Paul, Minnesota brought this suit claiming that the city’s enforcement of its housing code — ensuring that rental units were safe and otherwise habitable — violated the FHA because the repairs and maintenance necessary to comply with the code would increase rents and price out many of their African-American tenants.

Unable to show that the housing code intentionally discriminated based on race, however, the owners argued — and the Eighth Circuit Court of Appeals accepted — a “disparate impact” theory under which a plaintiff need only show that an otherwise neutral practice has a disproportionate effect on some racial group. Cato has now joined the Pacific Legal Foundation, the Center for Equal Opportunity, and the Competitive Enterprise Institute on an amicus brief supporting the city’s request for Supreme Court review and arguing that the statutory language and congressional intent of the FHA preclude disparate impact claims.

We argue that extending such claims to the FHA “would deeply intrude on the authority of state and local governments, and render much of their housing policies illegal,” and “would inappropriately alter the federal-state balance in far-reaching ways.” Indeed, disparate impact claims would preclude all institutions subject to the FHA — public and private — from implementing many practical policies. For example, “because [the FHA] applies to financial institutions, banks and mortgage companies would be pressured to provide loans to unqualified applicants in order to avoid disparate impact liability. Similar actions played a key role in triggering the mortgage crisis of 2007-2008.”

Moreover, the disparate impact doctrine directly conflicts with the Fourteenth Amendment’s equal protection guarantees by forcing government agencies “to engage in unconstitutional race-conscious decision making” in order to avoid liability under the Act. In short, allowing disparate impact claims under the FHA would both lead to adverse economic consequences and create new constitutional tensions.

The Supreme Court will hear Magner v. Gallagher on Feb. 29.

As Predicted, Obama Administration Backs Off Medicare Anti-Fraud Efforts

Medicare and Medicaid are rife with fraud. We’re talking 10 percent or more of total spending, which is two orders of magnitude more than what credit card companies tolerate.

In a recent article, I explained a couple of ways such fraud occurs:

For providers, Medicare is like an ATM: So long as they punch in the right numbers, out comes the cash. To get an idea of the potential for fraud, imagine 1.2 million providers punching 1,000 codes each into their own personal ATMs. Now imagine trying to monitor all those ATMs.

For example, if a medical-equipment supplier punches in a code for a power wheelchair, how can the government be sure the company didn’t actually provide a manual wheelchair and pocket the difference? About $400 million of the…fines paid by Columbia/HCA hospitals were for a similar practice, known as “upcoding.”…

Yet federal and state anti-fraud efforts remain uniformly lame. Medicare does almost nothing to detect or fight fraud until the fraudulent payments are already out the door, a strategy experts deride as “pay and chase.” Even then, Medicare reviews fewer than 5 percent of all claims filed.

I also explained why fraud is so rampant:

Efforts to prevent fraud typically fail because they impose costs on legitimate beneficiaries and providers, who, as voters and campaign donors respectively, have immense sway over politicians. At a recent congressional hearing, the Department of Health and Human Services’ deputy inspector general, Gerald T. Roy, recommended that Congress beef up efforts to prevent illegitimate providers and suppliers from enrolling in Medicare. But even if Congress took Roy’s advice, it would rescind the new requirements in a heartbeat when legitimate doctors — who are already threatening to leave Medicare over its low payment rates — threatened to bolt because of the additional administrative costs (paperwork, site visits, etc.)…

How could it be any other way? Anti-fraud efforts will always be inadequate when politicians spend other people’s money…[People] care less about health-care fraud, and have a lower tolerance for anti-fraud measures, than they would if they paid the fraud-laden premiums themselves.

In a word, government is stupid.

As if to prove the point, the Obama administration—despite its rhetoric about getting tough on fraud—is behaving pretty much as I predicted. In mid-November, the administration announced two anti-fraud efforts, one to prevent fraudulent claims for power wheelchairs and scooters, and another to eliminate “pay and chase” for some Medicare claims in some states. Not two months later, under “heavy provider opposition,” Medicare has delayed these demonstrations “until further notice.”

If you’re interested to see how this all turns out, follow @CMS.gov on Twitter and keep an eye out for #pmd_demonstration (the wheelchairs and scooters demonstration project; there’s no hashtag for the project to curb “pay and chase”).  HT: Peter Suderman.

Ron Paul Challenges the GOP’s Irresponsible Foreign Policy

The Iowa caucuses will gather tonight in the first electoral event for the Republican presidential nomination. It is anyone’s guess which way this contest will go.

But the most noteworthy development up to this point may be Ron Paul’s emergence as a legitimate candidate receiving serious media attention. Much of the coverage has been critical, and rightly so on some issues. Yet, despite attempts to dismiss him as a viable national candidate, Ron Paul matters.

Cato’s president Ed Crane explained why in Saturday’s Wall Street Journal and emphasized, among other things, Ron Paul’s appeal to limited-government Republicans and independent voters on foreign policy and military spending. The Republican establishment should rethink its positions and recognize that Ron Paul has been speaking truth to power on these issues.

In the 2000 presidential campaign, candidate George W. Bush argued against nation-building. Unfortunately, President George W. Bush chose arrogance over humility as his foreign policy. Since then virtually every Republican presidential candidates has embraced his philosophy of endless war: in effect, the GOP mantra is “we’re all neoconservatives now.”

Only Paul (and Gary Johnson, excluded from most of the debates) challenge America’s role as World Policeman. Paul observed that conservatives enjoyed spending money, only “on different things. They like embassies, and they like occupation. They like the empire. They like to be in 135 countries and 700 bases.”

All of Paul’s establishment GOP opponents support defending rich nations around the world. Rick Santorum warned: as commander-in-chief Ron Paul “can shut down our bases in Germany. He can shut down the bases in Japan. He can pull our fleets back.”

Why would this be bad? The European nations have a larger GDP and population than America. The U.S. faces fiscal crisis: after 66 years, it is time for the Europeans to defend themselves. Japan, long possessing the world’s second largest economy, also could take care of itself.

The other Republican contenders, except Ambassador Jon Huntsman, have mostly defended Washington’s endless nation-building exercise in Afghanistan. Santorum demanded that we achieve “victory,” whatever that means. Romney said that he would listen to the counsel of the military commanders–as if that would relieve him of making an independent decision as president.

Most Americans agreed with the original objective of wrecking al Qaeda and ousting the Taliban but now want out. And rightly so. No “conservative” should sacrifice Americans’ lives and wealth in an attempt to create a strong, effective, and honest central government in Afghanistan, something which never before has existed.

But the most ardent criticism of Paul’s foreign policy is directed toward his position on Iran acquiring nuclear weapons. Paul is against a pre-emptive strike on Iran, an action that Romney and Rick Perry are willing to consider. There are good reasons to try to keep nuclear weapons out of Iran’s hands, but the costs of military action likely would be horrendous. Moreover, every additional threat to attack Iran only more clearly demonstrates to Tehran the necessity of developing nuclear weapons.

Paul’s willingness to rethink U.S. foreign policy means he is the only candidate to propose a realistic military budget, one that supports the “common defense” of America, not the rest of the world. The other GOP candidates decry nonexistent spending cuts. Military outlays under President Obama are higher than under President Bush. Only in Washington is slowing the rate of increased called a “cut.”

Most of the GOP contenders—again other than Paul and in this case Huntsman—endorse torture. For all of their talk about American exceptionalism, the Republicans see the U.S. as a beleaguered, virtually helpless giant, which must sacrifice its very being to survive. This depressing picture is unworthy of America. This may be why service members (at least who have contributed to candidates) have overwhelmingly backed Paul, one of only two veterans in the race.

The response to Ron Paul’s foreign policy views raises the question: Can the Republican Party any longer be taken seriously on national security issues? Over the last decade the GOP has needlessly sacrificed Americans’ lives, wasted Americans’ wealth, overextended America’s military, violated Americans’ liberties, and trashed America’s reputation. As a result, we are less prosperous, free, and secure. If the Republican Party refuses to learn from Rep. Paul, it does not deserve the public’s trust.

A version of this post originally appeared on the Huffington Post.