Archives: August, 2012

Federal Pay Advantage Narrows

Average private sector wages in the United States rose 3.0 percent in 2011, which was more than the 1.2 percent average increase for federal government workers. This was the second year in a row that average private pay rose faster than average federal pay, but that comes after many years of an escalating federal pay advantage.

Figure 1 shows average wages for private and federal workers, based on newly released data from the federal Bureau of Economic Analysis (see Tables 6.2D, 6.3D, 6.5D, and 6.6D). Federal pay has generally grown faster than private pay since the early 1990s, which is reflected in the widening gap between the two lines in the figure. The good news is that the gap has narrowed slightly the last two years, partly as a result of the recent federal pay freeze, or quasi-freeze .

Figure 2 shows similar trends for total compensation—wages plus benefits—of private and federal workers. On average, federal workers make twice the total compensation of private workers ($128,226 vs. $64,560).

The BEA data are just one way to compare pay between private and federal workers. The Government Accountability Office recently described some other comparison methods. I’ve summarized some of the issues regarding federal pay in this essay. However, we know for sure that we’ve got a $1 trillion budget deficit and that federal workers have done very well for themselves. It makes sense to keep the federal pay freeze in place, while also beginning to cut back on overly generous federal pension plans and other benefits.

You’re Eight Times More Likely to be Killed by a Police Officer than a Terrorist

It got a lot of attention this morning when I tweeted, “You’re Eight Times More Likely to be Killed by a Police Officer than a Terrorist.” It’s been quickly retweeted dozens of times, indicating that the idea is interesting to many people. So let’s discuss it in more than 140 characters.

In case it needs saying: Police officers are unlike terrorists in almost all respects. Crucially, the goal of the former, in their vastest majority, is to have a stable, peaceful, safe, law-abiding society, which is a goal we all share. The goal of the latter is … well, it’s complicated. I’ve cited my favorite expert on that, Audrey Kurth Cronin, here and here and here. Needless to say, the goal of terrorists is not that peaceful, safe, stable society.

I picked up the statistic from a blog post called: “Fear of Terror Makes People Stupid,” which in turn cites the National Safety Council for this and lots of other numbers reflecting likelihoods of dying from various causes. So dispute the number(s) with them, if you care to.

I take it as a given that your mileage may vary. If you dwell in the suburbs or a rural area, and especially if you’re wealthy, white, and well-spoken, your likelihood of death from these two sources probably converges somewhat (at very close to zero).

The point of the quote is to focus people on sources of mortality society-wide, because this focus can guide public policy efforts at reducing death. (Thus, the number is not a product of the base rate fallacy.) In my opinion, too many people are still transfixed by terrorism despite the collapse of Al Qaeda over the last decade and the quite manageable—indeed, the quite well-managed—danger that terrorism presents our society today.

If you want to indulge your fears and prioritize terrorism, you’ll have plenty of help, and neither this blog post nor any other appeal to reason or statistics is likely to convince you. Among the John Mueller articles I would recommend, though, is “Witches, Communists, and Terrorists: Evaluating the Risks and Tallying the Costs” (with Mark Stewart).

If one wants to be clinical about what things reduce death to Americans, one should ask why police officers are such a significant source of danger. I have some ideas.

Cato’s work on the War on Drugs shows how it produces danger to the public and law enforcement both, not to mention loss of privacy and civil liberties, disrespect for law enforcement, disregard of the rule of law, and so on. Is the sum total of mortality and morbidity reduced or increased by the War on Drugs? I don’t know to say. But the War on Drugs certainly increases the danger to innocent people (including law enforcement personnel), where drug legalization would allow harm to naturally concentrate on the people who choose unwisely to use drugs.

The militarization of law enforcement probably contributes to the danger. Cato’s Botched Paramilitary Police Raids map illustrates the problem of over-aggressive policing. Cato alum Radley Balko now documents these issues at the Huffington Post. Try out his “Cop or Soldier?” quiz.

There are some bad apples in the police officer barrel. Given the power that law enforcement personnel have—up to and including the power to kill—I’m not satisfied that standards of professionalism are up to snuff. You can follow the Cato Institute’s National Police Misconduct Reporting Project on Twitter at @NPMRP.

If the provocative statistic cited above got your attention, that’s good. If it adds a little more to your efforts at producing a safe, stable, peaceful, and free society, all the better.

IRS Can’t Manipulate Tax Code to Generate More Revenue for Itself

This blogpost was co-authored by Cato legal associate Matt Gilliam.

An American energy company called PPL bought one of many state-owned British utilities privatized in the 1980s. In 1997, PPL thus became subject to the UK’s new “windfall tax,” which was based in part on “profit-making value”—the utility’s average annual profit multiplied by an imputed price-to-earnings ratio.

Various American energy companies subject to this tax filed claims with the IRS for a “foreign income tax” credit, which the IRS denied in 2007, asserting that the British tax was not a creditable one under the “foreign income tax” provision of the Internal Revenue Code (Section 901). The IRS claimed that the windfall tax did not satisfy the “predominant character” standard (was not predominantly an income tax) because the British statute used the term “profit-making value” instead of “net income” and “gross receipts,” and the tax rate was defined “as a percentage of an imputed value … rather than directly as a percentage of net income.”

After the federal tax court held that PPL was entitled to the foreign tax credit, the U.S. Court of Appeals for the Third Circuit reversed. Explaining that a tax exemption is a privilege extended by legislative grace, the appellate court held the tax not to be creditable because it reached beyond realized profit and did not tax actual gross revenue. In a different case last year, however, the U.S. Court of Appeals for the Fifth Circuit held that the British windfall tax was indeed creditable because (1) it reached realized income and (2) gross revenue was an inherent part of the calculation. The Fifth Circuit explained that the form and label of the foreign tax are not determinative and that the predominant character standard requires the IRS to analyze the history and intent of a tax to assess whether it tries to reach some net gain.

Cato now joins Southeastern Legal Foundation and Goldwater Institute on an amicus brief in urging the Supreme Court to take PPL’s case because it implicates fundamental issues of property rights, free markets, and the arbitrary exercise of government power—and the circuit split creates uncertainty for American businesses overseas. We argue that taxpayers have the right to be free from double taxation and that here the IRS and Third Circuit improperly disregarded the substance of the windfall tax and applied an overly rigid construction of its terms.

Ultimately, a foreign tax’s form or label cannot mask its substantive character and intent for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court will decide this fall whether to hear PPL Corp. v. Commissioner of Internal Revenue.

Written Testimony on the Illegal IRS Rule to Increase Taxes & Spending under Obamacare

The written testimony that Jonathan Adler and I submitted for the House Oversight Committee hearing on the Internal Revenue Service’s unlawful attempt to increase taxes and spending under Obamacare is now online. An excerpt:

Contrary to the clear language of the statute and congressional intent, this [IRS] rule issues tax credits in health insurance “exchanges” established by the federal government. It thus triggers a $2,000-per-employee tax on employers and appropriates billions of dollars to private health insurance companies in states with a federal Exchange, also contrary to the clear language of the statute and congressional intent. Since those illegal expenditures will exceed the revenues raised by the illegal tax on employers, this rule also increases the federal deficit by potentially hundreds of billions of dollars, again contrary to the clear language of the statute and congressional intent.

The rule is therefore illegal. It lacks any statutory authority. It is contrary to both the clear language of the PPACA and congressional intent. It cannot be justified on other legal grounds.

On balance, this rule is a large net tax increase. For every $2 of unauthorized tax reduction, it imposes $1 of unauthorized taxes on employers, and commits taxpayers to pay for $8 of unauthorized subsidies to private insurance companies. Because this rule imposes an illegal tax on employers and obligates taxpayers to pay for illegal appropriations, it is quite literally taxation without representation.

Three remedies exist. The IRS should rescind this rule before it takes effect in 2014. Alternatively, Congress and the president could stop it with a resolution of disapproval under the Congressional Review Act. Finally, since this rule imposes an illegal tax on employers in states that opt not to create a health insurance “exchange,” those employers and possibly those states could file suit to block this rule in federal court.

Requiring the IRS to operate within its statutory authority will not increase health insurance costs by a single penny. It will merely prevent the IRS from unlawfully shifting those costs to taxpayers.

Related: here is the video of my opening statement, and Adler’s and my forthcoming Health Matrix article, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.”

All Your Records Are Belong to U.S.

Twice in the last month, the Ninth Circuit Court of Appeals has affirmed that the government can access records about you held by third parties without getting a warrant. It’s a nice illustration of the broad and deep reach of the “third party doctrine.”

U.S. v. Golden Valley Electric Association is the more recent of the two. In that case, the government delivered an administrative subpoena to a member-owned electricity cooperative asking for quite a bit of information about three residences it served:

customer information including full name, address, telephone number, and any account information for customer; method of payment (credit card, debit card, cash, check) with card number and account information; to include power consumption records and date(s) service was initiated and terminated for the period 10-01-2009 through 12-14-2010…

Golden Valley resisted the subpoena on a number of bases, including by arguing that criminal investigations require a warrant.

The court rejected the Fourth Amendment argument because the customer of a business like Golden Valley “lacks ‘a reasonable expectation of privacy in an item,’ like a business record, ‘in which he has no possessory or ownership interest.’” That’s the third-party doctrine: The government can access your electricity usage records and billing information without implicating the Fourth Amendment.

In mid-July, a different panel of the Ninth Circuit concluded the same thing about hotel records.

Los Angeles Municipal Code section 41.49 requires hotel operators to maintain information about their guests,

including name and address; total number of guests; make, type and license number of the guest’s vehicle if parked on hotel premises; date and time of arrival; scheduled date of departure; room number; rate charged and collected; method of payment; and the name of the hotel employee who checked the guest in.

These records must be held for 90 days and made available for inspection by any officers of the Los Angeles Police Department.

The owners of motels in Los Angeles challenged the law as a facial violation of the Fourth Amendment. The court rejected that argument, finding that the information the ordinance makes available to law enforcement “does not, on its face, appear confidential or ‘private’ from the perspective of the hotel operator.” For their part, hotel guests do not have a “reasonable expectation of privacy in guest registry information once they have provided it to the hotel operator.”

This is another unremarkable application of the third party doctrine, which says that people do not have Fourth Amendment rights against unreasonable search and seizure with respect to information they have shared with others.

Last January, in her concurrence to the Supreme Court’s ruling in U.S. v. Jones, Justice Sotomayor questioned the “third party doctrine” (as Justice Alito had done during oral argument).

[I]t may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties. This approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks. People disclose the phone numbers that they dial or text to their cellular providers; the URLs that they visit and the e-mail addresses with which they correspond to their Internet service providers; and the books, groceries, and medications they purchase to online retailers.

It is not a slam dunk that utility and hotel records should be Fourth-Amendment protected, requiring probable cause and a warrant before law enforcement can access them. But if electric providers and hoteliers maintain information in confidence due to contractual or regulatory obligations, that should extend the protection of the Fourth Amendment to what I think of as the digital effects created by modern living. This is not so much because of the sensitivities around electricity use or lodging, but because this is the rule we need to secure the much more sensitive data we routinely share and store with third parties online.

Romney Runs from Spending Cuts

According to the Associated Press, Mitt Romney supports postponing the sequestration cuts scheduled for January 2, 2013 by at least one year:

The Republican presidential contender said Friday during a campaign trip to Las Vegas that the cuts would be “terrible,” particularly for the military.

Congress approved the cuts as part of a deal to reduce the deficit. They were designed to help lawmakers come up with a better plan. But that didn’t happen — so the cuts are scheduled to go into effect next year.

Romney says he wants President Barack Obama and lawmakers to work together to put, in his words, “a year’s runway,” in place to give the next president time to reform the tax system and ensure the military’s needs are met.

In other words, Romney’s position on sequestration is no different than the rest of the spendthrifts in Washington.

Romney’s punt coincides with the enactment of legislation that requires the White House to detail precisely what it would cut in January. The Office of Management and Budget has 30 days to release the report. The idea originated with congressional Republicans who relish the opportunity to get the president on record for proposing cuts to military spending. Democrats went along after the bill was changed to include provisions that force the White House to spell out cuts to domestic programs. The goal for both parties is to get the various special interests and their accomplices in the media to go bonkers when the report is released.

According to Politico, Romney – at the prompting of fellow Republicans – is apparently content to continue campaigning against excessive spending and deficits under Obama while offering few specifics on what he would cut to rein in the federal government:

“It’s going to be a hell of a Labor Day,” said Jim Dyer, a former GOP staff director to the House Appropriations Committee, estimating the date the White House Office of Management and Budget will issue its report that details programs and projects targeted for cuts on Jan. 2, 2013. “You put specifics out there, and each cut is a story unto itself. It’s an unenviable position to be in.”

That’s precisely why many Republicans are urging Mitt Romney to avoid specifics on which programs he’d slash as the campaign season heads into its final stretch.

“Why would you want to go out on a limb and say, ‘I’m for this and this and this specific thing?’” said Sen. Chuck Grassley (R-Iowa). “You ought to do like [Ronald] Reagan did, if you want to be president of the United States, have a few big things and talk about them.”

That’s sage advice from Senator Grassley – a career politician whose profiles in courage credentials include fattening the wallets of Iowa corn farmers (including his own) with taxpayer handouts.

The Stakes This Fall

Zhubin Parang, a writer for the Daily Show with Jon Stewart, writes about this year’s presidential election:

The match is uneven, to be sure, but the stakes are high. Securing a second Obama victory is the only way we can be assured that our nation will not return to the dark era when it was choked in the grip of an imperial president who executed suspected terrorists with impunity and commanded lawless prison camps while drowning us in debt.

High stakes indeed. Let’s hope we can move beyond that dark era.

Parang’s essay appeared in the Spring 2012 issue of Tunnel Vision, a Vanderbilt University alumni publication that does not promptly post new issues online.