Archives: 06/2012

Supreme Court Spanks HUD

Having one’s read of the law vindicated by the Supreme Court is always a nice feeling, even if I had to wait about a decade.  From 2002 to 2003, I managed the HUD office which administered the Real Estate Settlement Procedures Act (RESPA).

In 2001, prior to my arrival, the legal staff at HUD released a “policy statement” claiming that RESPA’s Section 8(b) prohibited some instances of fees as excessive or unreasonable because said fees would constitute a person “giving or accepting any unearned fees”.  How HUD even knows what is earned or unearned is besides the point, Section 8(b) of RESPA only prohibits fees that are basically split between two or more parties.  As far as statutes go, RESPA is actually quite clear.  That clarity, however, did not stop HUD from taking the convoluted position that one can split or share a fee with one-self.  This was obviously an attempt to create a “reasonable” test for fees where one did not exist.

During my brief tenure at HUD, the RESPA office largely ignored this section of the 2001 policy statement.  The staff there related to me that its inclusion was largely “political” anyway, an attempt to the make the remainder of the policy statement more palatable.  I made clear at the time that the policy statement went far beyond any actual authority in RESPA.  It seems, however, that the trial bar was not willing to let this statement remain dormant, and assembled a class action based upon this erroneous reading of RESPA, leading to last week’s decision, which rejected 9 to 0 HUD’s reading of RESPA.

Dodd-Frank moved the RESPA office from HUD to the newly created Consumer Financial Protection Bureau (CFPB).  It moved much of the HUD enforcement and legal staff as well.  What is not clear is whether the willingness to simply make up law where there is no statutory authority was also left behind.  One of the reasons why I, among others, have strong concerns as to the current structure of the CFPB is this trend of regulators constantly going around the letter of the law.  How are we to hope for respect for the law when those tasked with enforcing it show so little respect themselves.

The Great Tax Haven Debate, Part II

Back in April, responding to an article written by Ann Hollingshead for the Task Force on Financial Integrity and Economic Development, I wrote a long post defending so-called tax havens.

I went through the trouble of a point-by-point response because her article was quite reasonable and focused on some key moral and philosophical issues (rather than the demagoguery I normally have to deal with when people on the left reflexively condemn low-tax jurisdictions).

She responded to my response, and she raised additional points that deserve to be answered.

So here we go again. Let’s go through Ann’s article and see where we agree and disagree.

A couple of weeks ago, I wrote a blog post criticizing the philosophies of Dan Mitchell, a libertarian scholar from the Cato Institute. I asked for a “thoughtful discussion” and I got it—both from the comments section of our blog and from Dan himself.  On his own blog, Dan replied with a thought-provoking point-by-point critique of my piece.

It has been a polite discussion, which is good because readers get to see that we don’t really disagree on facts. Our differences are a matter of philosophy, as Ann also acknowledges.

Dan made several interesting points in his rebuttal. As much as I’d like to take on the whole post right now, my reply would be far too long and I don’t think our readers would appreciate a blog post that approaches a novella. Rather I’ll focus on a couple of his comments that I find interesting on a philosophical level (there were many) and which demand a continued conversation because, I believe, they are the basis of our differences. We’ll start with a rather offhand remark in which Dan indirectly refers to financial privacy as a human right. This is an argument we’ve heard before. And it is worth some exploration.Unless I am very much mistaken, Dan’s belief that financial privacy is a human right arises out of his fundamental value of freedom. My disagreement with Dan, therefore, does not arise from a difference in the desire to promote human rights (I believe we both do), but rather in the different relative weights we each place on the value of privacy, which Dan (I’m supposing) would call an extension of freedom.

I wouldn’t argue with her outline, though I think it is incomplete. I’m a big fan of privacy as a principle of a civil and just society, but I also specifically support financial privacy as a means to an end of encouraging better tax policy. Simply stated, politicians are much more likely to reduce or eliminate double taxation if they feel such taxes can’t be enforced and simply put a country in a much less competitive position.

Okay, so on to [my] answer of the subject of this post. Privacy—and financial privacy by extension—is important. But is it a human right? That’s a big phrase; one which humanity has no business throwing around, lest it go the way of “[fill in blank]-gate” or “war on [whatever].” And as Dan himself points out, governments have a way of fabricating human rights—apparently some European courts have ruled that free soccer broadcasts and owning a satellite dish are a human rights—so it’s important that we get back to [philosophical] basics and define the term properly. The nearly universally accepted definition of “human rights” was established by the Universal Declaration of Human Rights, which the United Nations adopted in 1948. According to the UN, “human rights” are those “rights inherent to all human beings,” regardless of “nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status.” The Declaration includes 30 Articles which describe each of those rights in detail. “Financial privacy” per se is not explicitly a human right in this document, but “privacy” is, and I think it’s reasonable to include financial privacy by extension. But privacy is defined as a fundamental, not an absolute, human right. Absolute rights are those that there is never any justification for violating. Fundamental freedoms, including privacy and freedom from detention, can be ethically breached by the government, as long as they authorized by law and not arbitrary in practice. The government therefore has the right to regulate fundamental freedoms when necessary.

I’m not sure how to react. There are plenty of admirable provisions in the U.N.’s Universal Declaration of Human Rights, but there are also some nonsensical passages - some of which completely contradict others.

Everyone hopefully agrees with the provisions against slavery and in favor of equality under law, but Article 25 of the U.N. Declaration also includes “the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.”

That sounds like a blank check for redistributionism, similar to the statism that I experienced when I spoke at the U.N. last month, and it definitely seems inconsistent with the right of property in Article 17.

I guess what I’m trying to say is that I don’t care that the U.N. Universal Declaration of Human Rights includes a “right to privacy” because I don’t view that document as having any legal or moral validity. I don’t know whether it’s as bad as the European Union’s pseudo-constitution, but I do know that my support for privacy is not based on or dependent on a document from the United Nations.

As an aside, I can’t help noting that Articles 13 and 15 of the U.N. Declaration guarantee the right to emigrate and the right to change nationality, somethings leftists should keep in mind when they demonize successful people who want to move to nations with better tax law.

Getting back to Ann’s column, she confirms my point that you can’t protect property rights for some people while simultaneously giving other people a claim on their output.

That’s important because it means, that when it comes to freedom and privacy, we need to make choices. We can’t always have them all at once. To use a hideously crude example that gets back to the issue of tax evasion, in a developing country, a rich person’s right to financial privacy might be at odds with a poor person’s right to “a standard of living adequate for the health and well-being of himself and of his family.”

For those who are not familiar with the type of discussion, it is the difference between “negative rights” promoted by classical liberals, which are designed to protect life, liberty, and property from aggression, and the “positive rights” promoted by the left, which are designed to legitimize the redistributionist state.

Tom Palmer has a good discussion of the topic here, and he notes that “positive rights” create conflict, writing that, “…classical liberal ‘negative’ rights do not conflict with each other, whereas ‘positive’ rights to be provided with things produce many conflicts. If my ‘right to health care’ conflicts with a doctor’s ‘right to liberty,’ which one wins out?”

Continuing with Ann’s article, she says values conflict with one another, though that’s only if true if one believes in positive rights.

I started this post with a discussion of values, because at the core that’s what we’re talking about. Values are relative, individual, and often in conflict with one another. And they define how we rank our choices between human rights. Dan values freedom, perhaps above most else. He might argue that economic freedom would lead to an enrichment of human rights at all levels, but he probably wouldn’t disagree that that thesis remains untested. My views are a little more complicated because I don’t get to enjoy the (albeit appealing and consistent) simplicity of libertarianism.

I’m tempted to say, “C’mon in, Ann, the water’s fine. Libertarianism is lots of fun.” To be a bit more serious, libertarianism is simple, but it’s not simplistic. You get to promote freedom and there’s no pressure to harass, oppress, or pester other people.

As my colleague David Boaz has stated, “You could say that you learn the essence of libertarianism — which is also the essence of civilization –  in kindergarten: don’t hit other people, don’t take their stuff, keep your promises.”

The world would be a lot better if more people rallied to this non-coercive system.

One more point. Dan mentioned he does “fully comply” with the “onerous demands imposed on [him] by the government.” But as Dan insinuates, irrespective of an individual’s personal values, those demands are not optional. In the United States, we have the luxury of electing a group of individuals to represent our collective values. Together those people make a vision for the country that reflects our ideals. And then, we all accept it. If our country got together and decided to value freedom above all else, we would live in a world that looks a lot like Dan’s utopia. But, frankly, it hasn’t. So we respect our tax code out of a respect for the vision of our country. Dan has the right to try to shape that vision, as do I. Neither of us has the right to violate it.

What Ann writes is true, but not persuasive. Libertarians don’t like untrammeled majoritarianism. We don’t think two wolves and a sheep should vote on what’s for lunch.

We like what our Founding Fathers devised, a constitutional republic where certain rights were inalienable and protected by the judicial system, regardless of whether 90 percent of voters want to curtail our freedoms.

Ann, as you can see from her final passage, does not agree.

That, at is heart, is my problem with both tax evasion and tax avoidance. Neither lines up with the spirit of our collective compact; although the latter is not necessarily reflected in the official laws on the books. I’m not saying tax avoiders should be thrown in jail; they’ve done nothing illegal. I’m saying the regulations that confine us should line up with the vision we’ve created and the values we’ve agreed upon. If that vision is Dan’s, I’ll accept it. But I’m glad he’ll (begrudgingly) accept ours too.

I’m not automatically against having a “collective compact.” After all, that’s one way of describing the American Constitution. But I will return to my point about America’s founders setting up that system precisely because they rejected majoritarianism.

So what does all this mean? Probably nothing, other than the less-than-remarkable revelation that Ann and I have different views on the legitimate role(s) of the federal government.

Since I want to restrain the size and scope of government (not only in America, but elsewhere in the world) and avert future Greek-style fiscal nightmares, that means I want tax competition. And, to be truly effective, that means tax havens.

If that appeals to you (or at least seems like a reasonably hypothesis), I invite you to read some writings by Allister Heath of the United Kingdom and Pierre Bessard of Switzerland.

Gov. Andrew Cuomo Proposes Decriminalization of Marijuana in Public

Yesterday’s New York Times reports that Governor Cuomo will be asking the state legislature to change state law in a way that will sharply reduce the number of people who are arrested in that state each year for marijuana offenses.

Some background–Thousands and thousands of young males in New York City are stopped and frisked by the police each year.  A remarkable number of those stops are illegal at the outset because there was no real reason for the person to be briefly detained.  But once the involuntary encounter begins, an officer might direct the person to “empty your pockets!”  If the stopped person brings out a plastic bag of marijuana, he gets busted for “possession of marijuana in public.”  So the government that does a lousy job with the school system has been making matters worse by giving thousands and thousands of minority males a criminal record, making it even harder for them to establish themselves in the mainstream economy.

Drug warriors like to say “we’re not locking up marijuana users–that’s a myth.”  Some truth in that because there is no longer any room in the prison system.  Most of the marijuana prisoners are involved with the black market trade in some capacity.  Still, tens of thousands of  users do get busted and go thru the system.

 Officials in the Cuomo administration said the marijuana-possession arrests were problematic in part because they subjected New Yorkers, many of them young, to the process of being booked, retaining a lawyer and carrying the stigma of having been arrested. And they argued that the arrests were harming the relationship between the police and young people.

According to Harry Levine of Queens College, there were 400,000 low-level marijuana arrests in New York City between 2002 and 2011.  Prof. Levine presented some of his research findings at a Cato drug policy conference last year.

Mayor Bloomberg’s aggressive stop and frisk policy in New York City is an on-going scandal.  Governor Cuomo deserves credit for this move to scale it back.

Yemen, Drones, and the Imperial Presidency

Based on a broad theory of executive power, President Obama, and possibly his successor, has the authority to target people for death—including American citizens—without a semblance of transparency, accountability, or congressional consent. Since 9/11, officials and analysts have touted drone strikes as the most effective weapon against al Qaeda and its affiliates. Drones have become a tool of war without the need to declare one. The latest front is Yemen, where a dramatic escalation of drone strikes could be enlisting as many militants as they execute.

“In Yemen, U.S. airstrikes breed anger, and sympathy for al-Qaeda,” a headline blared in last week’s Washington Post. The evidence of radicalization comes from more than 20 interviews with tribal leaders, victims’ relatives, human rights activists, and officials from southern Yemen, an area where U.S. drone strikes have targeted suspected militants affiliated with al Qaeda in the Arabian Peninsula (AQAP). The escalating campaign of drone strikes kills civilians along with alleged militants. Tribal leaders and Yemeni officials say these strikes have angered tribesmen who could be helping to prevent AQAP from growing more powerful.

According to the Post, in 2009, U.S. officials claimed that AQAP had nearly 300 core members. Yemeni officials and tribal leaders say that number has grown to 700 or more, with hundreds of tribesmen joining its ranks to fight the U.S.-backed Yemeni government. “That’s not the direction in which the drone strikes were supposed to move the numbers,” wrote the Atlantic’s Robert Wright.

As the majority of U.S. missile assaults shift from Pakistan to Yemen—allowing foreign policy planners to wage undeclared wars on multiple fronts—Americans should pay close attention to a few important and complicating factors that make the conflict in Yemen unique. First, the self-proclaimed Marxist state of the People’s Democratic Republic of Yemen (PDRY) only merged with its northern neighbor, the Yemen Arab Republic (YAR), in 1990. In 1994, the two countries fought a bloody civil war that did not result in a smooth reunification. The International Crisis Group’s “Breaking Point? Yemen’s Southern Question” summarizes competing North-South narratives:

Under one version, the war laid to rest the notion of separation and solidified national unity. According to the other, the war laid to rest the notion of unity and ushered in a period of Northern occupation of the South.

Media reports asserting that AQAP is taking advantage of the South’s hunger for independence should be understood in the context of this Northern-Southern divide. Rather than encourage the Yemeni government to respond to southern demands for greater local autonomy, Washington’s tactics are helping the U.S.-backed Yemeni government repress Southern separatists. Indeed, many residents in Abyan, in southern Yemen, claim that the Yemeni government intentionally ceded territory to domestic enemies in order to frighten the West into ensuring more support against the indigenous uprising.

These developments are troubling, as the escalation of drone strikes could be creating the self-fulfilling prophecy of helping alleged AQAP-linked militants gain ground and increasing local sympathy for their cause. As Ben Friedman wrote recently, the misperception that comes with conflating AQAP with the broader insurgency is that it “invites a broad U.S. campaign against Yemen’s southern Islamists, which could heighten their enthusiasm for attacking Americans, creating the menace we feared.” That assessment echoes the sentiment of The Nation’s Jeremy Scahill, who has done intrepid reporting in Yemen. He recently said the campaign being conducted “is going to make it more likely that Yemen becomes a safe haven for those kinds of [terrorist] groups.”

The Oval Office seems to be giving this issue of sympathy short shrift. President Obama’s top counterterrorism adviser, John O. Brennan, has publicly argued that the precision of drone strikes limits civilian casualties. However, the New York Times revealed last week that the president and his underlings resort to dubious accounting tricks to low-ball the estimate of civilian deaths, counting “all military-age males in a strike zone as combatants” while the Department of Defense even targets suspects in Yemen “whose names they do not know.” The Times’ article recounts one of the administration’s very first strikes in Yemen:

It killed not only its intended target, but also two neighboring families, and left behind a trail of cluster bombs that subsequently killed more innocents. It was hardly the kind of precise operation that Mr. Obama favored. Videos of children’s bodies and angry tribesmen holding up American missile parts flooded You Tube, fueling a ferocious backlash that Yemeni officials said bolstered Al Qaeda.

As foreign policy planners in Washington deepen our military involvement in Yemen, the American people—rather than focusing on the number of senior al Qaeda killed—should be asking whether we’re killing more alleged militants than our tactics help to recruit.

Cross-posted from the Skeptics at the National Interest.

To VMT or Not to VMT

“Gasoline taxes are not generating enough revenue to pay for roads and bridges,” says USA Today, so some states are experimenting with vehicle-miles traveled (VMT) fees. Actually, as I show in my recent Cato paper on this subject, gas taxes are currently generating enough revenue to maintain roads and bridges, but that revenue is expected to decline as cars become more fuel-efficient.

Better arguments for replacing gas taxes with VMT fees, my paper shows, are that such fees can virtually eliminate traffic congestion and save local governments $30 billion a year in general funds that are now used to subsidize local roads and streets. However, as I relearned after Cato published my paper, proposals for vehicle-mile fees produce two strong, visceral reactions from the public.

First is a fear that VMT fees will allow the government to invade your privacy by tracking your location. Second is a worry that government will waste the revenues it collects from vehicle-mile fees by spending them on pork barrel or other foolish things. Both of these complaints are really about problems with government, not the user-fee proposal.

Every time you make a phone call, send an email, or even walk out of your house into the possible view of a closed-circuit camera, you are giving the government an opportunity to track your whereabouts. This doesn’t mean we should ban telephones, email, or people leaving their homes; it does mean that we should design our technologies and institutions in ways that will preserve people’s privacy. As I explained in my paper, the VMT fee systems tested in Oregon and Minnesota are designed to make it impossible for the government to know where people drove or when they drove there; the systems only transmit the amount of money people owe for using the street and road network.

Similarly, any revenue source can be abused, but we can design institutions that minimize or even completely avoid such abuse. My paper points to county toll road authorities in Texas and other states as model institutions for vehicle-mile fees. These authorities, while technically governmental, rely exclusively on their tolls for revenues, so they act like private businesses. Other elected officials have no say in how they spend their money, while the toll road authorities have to provide services people will use or they will collect no revenue, so the tolls provide sound incentives for both the agencies and the users.

My paper also points out that one of the side-effects of replacing gas taxes with VMT fees will be a devolution of transportation decisions from the federal to the local level. The only real justification for a federal gas tax is that it is cheap to collect (since it is collected directly from refineries and importers). As one of the people interviewed by USA Today observed, federal officials fear VMT fees because such fees will reduce if not eliminate federal involvement and power.

VMT fees will also offer opportunities for privatization that are lacking today. It would be hard for a private road owner to collect a share of gas taxes, but if fees are collected from everyone driving on all roads and streets, anyone – private companies, homeowner associations, non-profit groups – could take over a portion of the road network and start collecting fees to maintain those roads.

Due to declining gas tax revenues, VMT fees are almost inevitable. Rather than object to any change, fiscal conservatives should work to insure that such fees are designed to avoid the pork-barrel and other problems associated with gas taxes.

 

I also discuss the future of highway financing in this video from a May 17 Policy Forum:

Protectionist Denial and Bribery

The Democratic members of the House Committee on Natural Resources have sent President Obama (and the rest of us) a letter urging him not to water down dolphin-safe labeling requirements in response to a ruling by the WTO, which found that the law unjustifiably discriminates against the Mexican tuna industry.  The substance of the letter offers an excellent example of how NOT to respond to an adverse WTO ruling, and there are two particularly interesting parts that are worth a moment of analysis.

The next to last paragraph reads as follows:

When Congress approved the Uruguay Round Implementation Act, we never intended to allow non-discriminatory, voluntary labeling regimes like the dolphin-safe labels to be a subject of this type of trade dispute.  The voluntary labels represent the good faith effort of the U.S. to use less trade restrictive regulatory approaches.  The implication of the recent WTO ruling, in contrast, is that the US should expend significant regulatory resources around the globe in an untargeted fashion, or alternatively, that imports from Mexico could utilize dolphin safe labels without having to meet the same requirements as tuna caught by US or other nations’ fleets. Neither result is acceptable, and “complying” in either way simply invites further costly WTO litigation from other nations, not to mention serious disruption of the canned tuna market in the US and loss of consumer confidence in environmental laws and labels.

First off, the labeling regime IS discriminatory—that’s why it lost at the WTO—and the regime isn’t exactly voluntary considering that you can’t include information about dolphin safety on your label unless you meet the requirements of the law.  The concern for expending “significant  regulatory resources around the globe in an untargeted fashion” would normally be as laudable as it is uncharacteristic, but the targeting that exists under the current law results in a lot of concern for dolphins where the Mexican fleet operates and none where the U.S. fleet operates.

As far as consumer confidence is concerned, the real issue is that the current labels are controlled by a regulation that is misleading and protectionist.  As I have noted here and elsewhere, consumers don’t need labeling laws, whose only function is to restrict the flow of information, in order to make ethical purchasing decisions.  Examples abound of how informative labels can thrive and adapt in the free market, including this story about the meaning of fair trade coffee and a recent controversy surrounding once-kosher chocolate chips.

The most revealing part of the letter, however, is in the last paragraph when the representatives ask the President to bribe the Mexican government to go away.

If the Mexican government continues to pursue WTO action in this case, we ask that your administration reconsider the level of economic assistance Mexico receives from U.S. taxpayers.

This doesn’t seem very respectful of a dispute settlement process the U.S. has used on numerous occasions to challenge WTO-inconsistent measures like Europe’s aircraft subsidies, Korea’s beef restrictions, India’s chicken restrictions, China’s export quotas, China’s duties on chicken parts, China’s duties on steel, and China’s green energy subsidies, to name a few recent examples.  Criticizing the WTO judicial process as overreaching because it revealed the inadequacies of a favored piece of protectionist legislation and then threatening to abuse the process through petty sanctions does nothing to enable consumers to protect dolphins and makes it more difficult for the United States to mount effective challenges to foreign protectionism.