Archives: April, 2012

Save the EWG Farm Subsidy Database!

When the Environmental Working Group released the 2011 edition of its groundbreaking farm subsidy database, they asked for my comment to use in their press release. I was more than happy to do so, and I had this to say:

I can think of fewer initiatives that have had as big an impact on the American farm subsidy debate as EWG’s database. By shedding light on just who gets these subsidies, how much they get, and where they reside, the EWG has exposed U.S. farm programs for what they are: expensive, outdated, distorting, regressive ways for politicians to shovel money to their powerful special interest friends. When American agriculture is finally free of the shackles of government intervention, it will in large part be thanks to the folks at the Environmental Working Group.

No good deed goes unpunished, of course, and the wonderful work of the EWG has annoyed many in the farm lobby.  But it is a crucial part of the farm bill reform effort, not to mention a good way for taxpayers to learn where their money goes. And judging by the bill voted out of the Senate Agriculture Committee yesterday, it seems we’ll need every piece of ammunition available if we are to see any reform to U.S. agricultural policy. The Committee’s bill would end direct cash payments—based on historical production and not linked to current production or prices, and therefore relatively less distorting—but increase the role of subsidized crop insurance that would protect farmers from falls in revenue.  (Here’s Chuck Abbott from Reuters with a nice summary).

Adding insult to injury, the fact that farm support seems to be turning towards a greater emphasis on crop insurance is not good news for taxpayers who thinks they have a right to know where their money is going. That’s because the Federal Crop Insurance Act (in SEC. 502. 7 U.S. C. 1502 (c), available here) prohibits the Risk Management Agency of the United States Department of Agriculture from disclosing information about who receives crop insurance subsidies, other than in aggregate form. And a Freedom of Information Act request won’t help, because the FCIA has stated that crop insurance subsidy information is exempted from FOIA provisions (in 5 U.S.C. § 552(b)(3)).

So, in short, the more we move toward crop insurance, the less EWG—and the public—will know about where money is going.

It’s considerable money, by the way: the USDA (i.e., you) spent $7.4 billion on crop insurance subsidies in 2011, plus $1.3 billion in administrative and operating expenses for insurance companies. The federal government pays an average of 62 percent of the total premium costs (up from 37 percent in 2000). The Government Accountability Office released a pretty damning report on crop insurance last month, saying that the RMA doesn’t do enough to prevent fraud and abuse of the system, and calling for cuts to premium subsidies.  According to the report (pp. 19-20), one farming business (of course, we don’t know who, thanks to the FCIA) received $1.8 million in premium subsidies in 2010, plus an extra gift from the taxpayer in the form of a $309,000 payment to insurance companies to administer the farm’s insurance policies. Another farmer insured crops in eight counties and received about $1.3 million in premium subsidies.  The largest recipient was a corporation that insured nursery crops across three counties for a total of about $2.2 million in premium subsidies and over $800,000 in administrative expense subsidies.

I’ll stop there before I start a riot, and return to my main point, which is this: I suspect my opinion on the proper role of government differs from that of many staff at the EWG, and I disagree with parts of the platform they are proposing for the upcoming farm bill. But I’ve nothing but respect for the good folks working there, and nothing but profound admiration for the fine work they’ve done. If we are to see any change in agricultural policy in this country, the EWG must be allowed to continue that work, and to have access to the information that enables it. It’s nothing short of shameful that politicians want to limit that access.

Obama’s Long Knives Come Out

Today POLITICO Arena asks:

Is Common Cause’s complaint against The American Legislative Exchange Council valid, or is it a smear against a successful conservative advocacy group?

My response:

Common Cause has joined such bully-boys as the discredited former White House aide Van Jones and his “Color of Change” to do what the Left does best—smear those who oppose their political agenda. The American Legislative Exchange Council is a reputable organization of thousands of conservative and libertarian state legislators from across the country. They meet periodically to develop legislative proposals aimed at pro-growth solutions to problems facing their various states. ”Stand Your Ground” and voter-ID laws have constituted only a small part of ALEC’s agenda over the years.

But this is an especially important election year, so all the stops are out for the Left. And it starts at the top. For a chilling account of the tactics to which Obama is now stooping, read Kim Strassel’s piece in this morning’s Wall Street Journal. At an Obama campaign website we find ”Behind the curtain: A brief history of Romney’s donors.” Its purpose is plain as day: to expose and shame private citizens who’ve had the temerity to donate to the Romney campaign. “Quite a few,” the post charges, have been “on the wrong side of the law.” Their “crimes”? One is a lobbyist, another a hedge-fund manager, another outsourced jobs.

We haven’t seen such tactics since the days of Nixon’s “enemies list.” This is Axelrod and Chicago politics, and it’s not going to get any better, because Obama can’t run on his record. So brace yourself for the politics of personal destruction.

Supreme Court Gives Taxpayers a Muddled Win

This blogpost was co-authored by Cato legal associate Carl DeNigris.

Before the argument on the Arizona immigration case yesterday, the Supreme Court scored a blow for American taxpayers by rejecting the IRS’s attempt to overturn the Court’s prior interpretation of a disputed provision of the Internal Revenue Code, 26 U.S.C. §6501(e)(1)(A).  By avoiding the issue of whether agencies can use their regulatory powers retroactively, however, the Court didn’t go far enough.

In United States v. Home Concrete, the Court ruled that its decision in Colony v. Commissioner of Internal Revenue (1956) – that a taxpayer’s overstatement of tax basis in property is not an omission of income that would otherwise trigger an extended statute of limitations period for assessment – was still controlling.  The IRS had tried to change its interpretation of the relevant regulation but the Court concluded that, despite the government’s contention that the new interpretation was due judicial deference, “there is no longer any different construction that is consistent with Colony and available for adoption by the agency.”  That is, the IRS can’t unilaterally overturn Supreme Court precedent by changing how it interprets statutory language or applies a particular regulation.

But the Court didn’t address the government’s most insidious action here: the IRS sought deference for a regulation that it promulgated in the midst of litigation and which would have been retroactively applied to the taxpayers who were parties to the Home Concrete lawsuit.

In our amicus brief, Cato argued that sanctioning this sort of ad hoc, retroactive rulemaking undermines the rule of law by altering basic assumptions “regarding fairness and reliability of the laws and their application by the courts.”  Yet, with the exception of Justice Kennedy’s one sentence dismissal in dissent, the Court showed no interest in the retroactivity issue.  Moreover, it referred to the government’s blatant attempt at retroactive rulemaking as a mere “gap-filling regulation” with “no gap to fill.”  So while taxpayers won a narrow victory today, the Court’s silence gives little assurance that it remains a bulwark against arbitrary government power.

Perhaps even more importantly, it’s now unclear how courts are to apply an important precedent called Brand X, a 2005 case standing for the proposition that administrative agencies (like the IRS) can adopt regulations contrary to a judicial decision only when the relevant statute’s silence or ambiguity represents a congressional delegation of authority to fill that “gap” to the agency.  In other words, here the IRS acted contrary to clear statutory language as interpreted by Colony Cove, but what about future cases?  We’re no tax or even administrative law specialists, but it does seem that the Court has made a big mess out of Brand X:  When can an agency overturn decisions of the Court?  When can it not?  We’ll have to wait for the next ridiculous agency action to make its way to the Supreme Court to find out.

For more on the case, see here; for more technical administrative/tax law analysis, see here.  One other curious thing about this decision is that it ended up 5-4 but the majority opinion was written by Justice Breyer (who styles himself as the Court’s administrative law expert) and joined by the “conservative” justices – though Justice Scalia concurs only in part – with Justice Kennedy writing the dissent, joined by the remaining three “liberal” justices.

NATO: An Alliance Past Its Prime

On May 20, the 2012 NATO Chicago summit will bring together the heads of state from the alliance. The agenda reads like a rundown of major world events in the past two years: the Arab Spring, the Libyan civil war, the global financial crisis, and the war in Afghanistan. It seems no problem is too big for NATO.

Of these topics, the most pressing and headline-grabbing will be the plan NATO and the United States establish to gradually turn responsibility for security in Afghanistan over to the Afghan national forces. But also of note are the topics—“lessons learned from Libya,” and the “Smart Defense Initiative,”—that display the reliance of Europe on the United States for advanced military capabilities. Libya in particular showcased Europe’s inability to act without the U.S.

The lessons from Libya are two-fold, and it is important to keep them in mind as policymakers and pundits in Washington call for the next U.S. intervention, possibly in Syria or Iran. First, the results so far have been disappointing for America’s latest stab at coercive democratization.

Libya also was a disappointment as a supposed new model for U.S. intervention. In fact, that conflict reinforces the fact that NATO really stands for North America and The Others. Without the U.S., the Europeans would be essentially helpless.

A new alliance study underscores Europe’s relative ineffectiveness. Reports the New York Times:

Despite widespread praise in Western capitals for NATO’s leadership of the air campaign in Libya, a confidential NATO assessment paints a sobering portrait of the alliance’s ability to carry out such campaigns without significant support from the United States.

The report concluded that the allies struggled to share crucial target information, lacked specialized planners and analysts, and overly relied on the United States for reconnaissance and refueling aircraft.

This should surprise no one. After all, during the war against Serbia—another nation which had not threatened America or any American ally—Europe was estimated to have a combat effectiveness less than 15 percent that of the U.S. The Europeans had large conscript armies, but outside of Britain and France had very little ability to project power. Later European participation in Afghanistan has been marred by the dozens of national “caveats” limiting participation in combat.

Yet alliance expansion is also on the agenda for the May NATO summit in Chicago. The list of alliance-wannabes includes such powerhouses as Macedonia, Montenegro, and Bosnia. Former Soviet republics notable mostly for their tangled and/or troubled relations with Russia—Georgia and Ukraine—are also on the list. All of these nations would be security liabilities, not assets, for America.

As the NATO study demonstrates, should the alliance’s Article 5 commitment get invoked, America would do most of the fighting. It would be one thing to take that risk where vital interests were at stake. But they are not in the Balkans, let alone in the Caucasus, which was part of Imperial Russia even before the Soviet Union.

Alliances should reflect the security environment. The Cold War is over. The Europeans have developed, the Soviet Union is kaput, and the potential European conflicts of the future—distant and unlikely—are linked to no hegemonic threat against America.

Instead of talking about NATO expansion, the U.S. should set down the burden of defending Europe. Let the Europeans take over NATO or create their own European defense organization, as they have discussed for years. The latest reminder of Europe’s relative military ineffectiveness reinforces the case for ending the continent’s cheap ride. It is time to turn North America and The Others into simply The Others.

Cross-posted from the Skeptics at the National Interest.

Obama Is But a Small Cog in Drug War Machine

President Obama recently gave an interview to Rolling Stone and tried to defend his drug war policies–especially his escalation of the federal war against medical marijuana providers in California.  Obama now says anyone who thought he was hoping he’d change course from the Bush-Ashcroft policies somehow got the wrong impression from his 2008 campaign.  And, besides, he said you can’t blame the president for laws passed by the Congress.  Obama would have us believe that he’s just a small cog in the drug war machine.

A few questions for the president:

1.  Have you thought about your pardon power?

2.  Have you thought about rescheduling marijuana?

3.  Have you thought about prioritizing federal law enforcement resources?

4.  Have you thought about urging the Congress to, you know,  change  the drug laws?

5.  Have you thought about removing yourself from the presidential race?  There’s still time.

For related Cato scholarship, go here.

Thoughts on the Early History of the Nuclear Triad

In advance of Cato’s Capitol Hill Briefing on Monday, April 30th (details here) I’ve been reviewing some of the earliest arguments in favor of the nuclear weapons triad – the mix of bombers, land-based missiles, and submarine-launched missiles, that have comprised the nation’s nuclear deterrent since the early 1960s. So far, I’ve yet to find a single enthusiastic supporter of all three delivery vehicles, and quite a few cases where people were arguing for just two, or even one. Some of the leading scholars on nuclear weapons, including Norman Polmar and Robert S. Norris, and Lawrence Freedman, contend that the triad was a post hoc justification for a force already in being. James Schlesinger, secretary of defense during the Nixon and Ford administrations, once told Congress “To some extent I think the rationale of the Triad was a rationalization.”

Be that as it may, the nation’s nuclear weapons infrastructure that was designed for the Cold War era, appears to have been moving on auto-pilot ever since. At next week’s forum, I’ll revisit some of the early arguments against a triad, speculate on why such arguments failed to carry the day at the time, and conclude with some thoughts on why similar arguments might be more effective in the present era. Following my remarks, I am especially looking forward to the comments of Laura Peterson of Taxpayers for Common Sense, and Russell Rumbaugh, Director of the Stimson Center’s Budgeting for Foreign Affairs and Defense Program. Laura and Russell are two of the leading experts in town on the military budget, in general, and have done some excellent work on the nuclear weapons budget, in particular.

To learn more about this event, or to register, visit the event page.

Switzerland’s ‘Debt Brake’ Is a Role Model for Spending Control and Fiscal Restraint

I’ve argued, ad nauseam, that the single most important goal of fiscal policy is (or should be) to make sure the private sector grows faster than the government. This “golden rule” is the best way of enabling growth and avoiding fiscal crises, and I’ve cited nations that have made progress by restraining government spending.

But what’s the best way of actually imposing such a rule, particularly since politicians like using taxpayer money as a slush fund?

Well, the Swiss voters took matters into their own hands, as I describe in today’s Wall Street Journal.

Americans looking for a way to tame government profligacy should look to Switzerland. In 2001, 85% of its voters approved an initiative that effectively requires its central government spending to grow no faster than trendline revenue. The reform, called a “debt brake” in Switzerland, has been very successful. Before the law went into effect in 2003, government spending was expanding by an average of 4.3% per year. Since then it’s increased by only 2.6% annually.

So how does this system work?

Switzerland’s debt brake limits spending growth to average revenue increases over a multiyear period (as calculated by the Swiss Federal Department of Finance). This feature appeals to Keynesians, who like deficit spending when the economy stumbles and tax revenues dip. But it appeals to proponents of good fiscal policy, because politicians aren’t able to boost spending when the economy is doing well and the Treasury is flush with cash. Equally important, it is very difficult for politicians to increase the spending cap by raising taxes. Maximum rates for most national taxes in Switzerland are constitutionally set (such as by an 11.5% income tax, an 8% value-added tax and an 8.5% corporate tax). The rates can only be changed by a double-majority referendum, which means a majority of voters in a majority of cantons would have to agree.

In other words, the debt brake isn’t a de jure spending cap, but it is a de facto spending cap. And capping the growth of spending (which is the underlying disease) is the best way of controlling red ink (the symptom of excessive government).

Switzerland’s spending cap has helped the country avoid the fiscal crisis affecting so many other European nations. Annual central government spending today is less than 20% of gross domestic product, and total spending by all levels of government is about 34% of GDP. That’s a decline from 36% when the debt brake took effect. This may not sound impressive, but it’s remarkable considering how the burden of government has jumped in most other developed nations. In the U.S., total government spending has jumped to 41% of GDP from 36% during the same time period.

Switzerland is moving in the right direction and the United States is going in the wrong direction. The obvious lesson (to normal people) is that America should copy the Swiss. Congressman Kevin Brady has a proposal to do something similar to the debt brake.

Rep. Kevin Brady (R., Texas), vice chairman of the Joint Economic Committee, has introduced legislation that is akin to the Swiss debt brake. Called the Maximizing America’s Prosperity Act, his bill would impose direct spending caps, but tied to “potential GDP.” … Since potential GDP is a reasonably stable variable (like average revenue growth in the Swiss system), this approach creates a sustainable glide path for spending restraint.

In some sense, Brady’s MAP Act is akin to Sen. Corker’s CAP Act, but the use of “potential GDP” makes the reform more sustainable because economic fluctuations don’t enable big deviations in the amount of allowable spending.

To conclude, we know the right policy. It is spending restraint. We also know a policy that will achieve spending restraint. A binding spending cap. The problem, as I note in my op-ed, is that “politicians don’t want any type of constraint on their ability to buy votes with other people’s money.”

Overcoming that obstacle is the real challenge.

P.S. A special thanks to Pierre Bessard, the President of Switzerland’s Liberales Institut. He is a superb public intellectual and his willingness to share his knowledge of the Swiss debt brake was invaluable in helping me write my column.