Tag: reform

Reform for Senate Elections?

People inside the Beltway seem to think that the only things worth being said and written are said and written in Washington. John David Dyche’s column today makes a good case for the quality of commentary outside the all-knowing capital.

While most everyone in DC is calling the stretch run of the horse race, Dyche steps back and wonders whether the Kentucky Senate race would have been better for citizens if the U.S. Constitution had not been changed to direct election of senators. He thinks it would be.

I am not so certain. As Dyche notes, James Madison thought the representative or indirect aspects of American constitutional democracy would improve public choice. As times has passed, I wonder more and more about the quality of people drawn to all legislatures, including state bodies. Madison thought indirect election wold “refine and enlarge the public views by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations.” Should we still rely on the wisdom of that medium? And yet, what is the alternative? (Todd Zywicki has an informative article on the origins and demise of indirect election of senators).

Dyche works as an attorney in Louisville, Kentucky, and has written a nice biography of Mitch McConnell. His column is worth a regular read, especially if Rand Paul comes to Washington as a U.S. Senator. Dyche would be a good guide to how Paul’s libertarian tendencies are playing out politically back home.

An Australian Lesson about Capital Gains Tax Rates and Revenues

A decade ago, amid much controversy, I persuaded the Australian government to cut the capital gains tax rate in half.

Stephen Kirchner, an economist from Australia’s leading think tank, the Center for Independent Studies, reviewed the results last November.

This a brief summary:

The introduction of capital gains tax discounts for individuals and funds as part of the 1999 Ralph business tax reforms has received a lot of bad press, but much of this commentary is ill-informed… .

Those who called for reform of Australia’s capital gains tax regime 10 years ago argued that the Ralph reforms would likely raise more revenue because of the increased incentive they provided for taxpayers to realise capital gains that would otherwise go untaxed. Supply-side economist Alan Reynolds predicted that the reforms would raise twice as much revenue in the long run. He was right. The capital gains tax share of Commonwealth tax revenue nearly doubled between the introduction of the Ralph reforms and 2006–07. In absolute terms, CGT revenue rose from $4.6 billion in 1998–99 to $17.3 billion in 2006–07. CGT revenue growth has been strongest among individuals, who received the larger discount of 50%, followed by funds, which received a 33% discount. The slowest CGT revenue growth has been from companies, which received no discount.

The data suggest that the Ralph CGT reforms have resulted in more tax revenue through increased realisations of capital gains. They have thus strengthened rather than weakened the ability of the tax system to serve equity objectives. The Ralph reforms demonstrate the basic supply-side insight that lower effective tax rates lead to faster growth in the tax base and tax revenue.

Public Sees Past Facade of “Financial Reform”

A new AP-Gfk poll reveals that about two-thirds of the American public lack confidence that the financial regulation bill, currently being crafted by House and Senate conferees, will actually help avert future financial crises. 

The public is right to be skeptical, as there is nothing in either the House or Senate bill that ends bailouts or ends “too-big-to-fail.”  In fact parts of the bill, such as the expansion of deposit insurance, will actually increase the likelihood of future crises.  (The IMF has an insightful working paper on the negative impacts of deposit insurance). 

Perhaps the failure of Congressional efforts to end financial crises is the result of Washington’s unwillingness to recognize that government itself was the major driver of the recent crisis.  Fortunately the public seems to get that.  Some 70 percent of the poll respondents believe that government shares blame for the crisis.  Here’s to hoping that Congress will at some point listen to the public, and end many of the distortionary policies that caused the crisis.

To Kill ACORN, Kill the Programs

Last year, when the issue of defunding ACORN was a hot-button issue, I told countless radio talk show audiences that the focus should be on eliminating the underlying fuel that created the organization—the flow of federal subsidies.

Chris Edwards pointed this out in September. If Congress simply stops subsidizing ACORN, its activists will reincorporate under new names and again become eligible for funds. Alas, that’s precisely what ACORN is currently doing.

From FoxNews.com:

One of the latest groups to adopt a new name is ACORN Housing, long one of the best-funded affiliates. Now, the group is calling itself the Affordable Housing Centers of America.

Others changing their names include what were among the largest affiliates: California ACORN is now Alliance of Californians for Community Empowerment, and New York ACORN has become New York Communities for Change. More are expected to follow suit.

A comment from Frederick Hill, a spokesman for Republicans on the U.S. House oversight and government reform committee, doesn’t indicate that the GOP has quite received the message:

To credibly claim a clean break, argued Hill, the new groups should at least have hired directors from outside ACORN.

It appears that for many Republicans, attacking ACORN represented political opportunism, not a statement about the proper role of the federal government.

Further rendering the GOP’s ACORN agenda moot was last week’s ruling by a U.S. District judge that singling out ACORN for defunding is unconstitutional. It truly boggles the mind what passes for constitutional and unconstitutional in this country.

Tuesday was the birthday of James Madison, the “Father of the Constitution.” Reflecting upon Madison’s wise words, it’s hard to understand how the federal “community development” programs that have funded ACORN could pass constitutional muster:

“The government of the United States is a definite government, confined to specified objects. It is not like state governments, whose powers are more general. Charity is no part of the legislative duty of the government.”

“[T]he powers of the federal government are enumerated; it can only operate in certain cases; it has legislative powers on defined and limited objects, beyond which it cannot extend its jurisdiction.”

“With respect to the two words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.”

“If Congress can do whatever in their discretion can be done by money, and will promote the general welfare, the government is no longer a limited one possessing enumerated powers, but an indefinite one subject to particular exceptions.”

See this essay for reasons why these HUD community development programs should be abolished.

David Goldhill: “A Democrat’s Case For ‘No’ ”

David Goldhill has done it again.

You may recall his article, “How American Health Care Killed My Father,” from the September 2009 issue of The Atlantic.

Now, at HuffingtonPost, he comments on the health care legislation that may soon face a final vote (of some sort) in the House:

[C]ontinuing our Party’s almost unquestioned conflation of health insurance with health care, the central feature of the proposed “reform” is further extension of our flawed insurance-based system…[D]espite the Administration’s recent heated rhetoric, most of the entrenched health industry interests are quietly or openly in favor of this bill. Should the bill become law, I suspect we will look back at it as an industry bailout…

How…can Democrats in the depths of a recession support a massive tax increase on middle-class job creation…? How…could we justify diverting even more of middle class income to support our broken system of care, further starving families of funds for all their other needs? Most uninsured Americans lack insurance only temporarily; how many of them would trade lesser lifetime job prospects and lower disposable income for the short-term retention of health insurance?…

If the legislation had any real prospect of controlling health care spending, would the pharmaceutical industry be funding the “yes” campaign?

As a former Democrat who hung door knockers for Michael Dukakis in 1988, I know the heavy heart with which he writes.  Read the whole thing.

Watch the video to hear Goldhill’s story:

Moody’s Caves In to Political Pressure on Municipal Bonds

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

A $1.1 Billion Re-Election Campaign. For the Senate.

When Rep. Collin Peterson (D- Minn. and Chairman of the House Agriculture Committee) pronounces that a farm program is too generous, you know you’ve crossed a line.

But that’s what happened recently after Sen. Blanche Lincoln (D-Ark), Senate Agriculture Committee Chairwoman and – oh, hey, how about that? – facing a tough re-election battle in November proposed an extra $1.1 billion in emergency farm aid be added to a jobs/tax/unemployment/kitchen sink bill going through the Senate this week. These extra handouts would flow despite the fact that the 2008 farm bill contained ”reforms” (the so-called ”permanent disaster” program) ostensibly to put an end to politically-motivated ad hoc emergency aid of just the type that Senator Lincoln is pushing now.

For those who can stomach it, this excellent article by Dan Morgan, one of the nation’s best agriculture journalists, contains plenty of background information.