Tag: regulation

Senator Rubio, Representative Posey, and other Lawmakers Fighting to Stop Rogue IRS Proposal that Would Drive Investment from U.S. Economy

There hasn’t been much good economic news in recent years, but one bright spot for the economy is that the United States is a haven for foreign investors and this has helped attract more than $10 trillion to American capital markets according to Commerce Department data.

These funds are hugely important for the health of the U.S. financial sector and are a critical source of funds for new job creation and other forms of investment.

This is a credit to the competitiveness of American banks and other financial institutions, but we also should give credit to politicians. For more than 90 years, Congress has approved and maintained laws to attract investment from overseas. As a general rule, foreigners are not taxed on interest they earn in America. Moreover, by not requiring it to be reported to the IRS, lawmakers on Capitol Hill have effectively blocked foreign governments from taxing this U.S.-source income.

This is why it is so disappointing and frustrating that the Internal Revenue Service is creating grave risks for the American economy by pushing a regulation that would drive a significant slice of this foreign capital to other nations. More specifically, the IRS wants banks to report how much interest they pay foreign depositors so that this information can be forwarded to overseas tax authorities.

Yes, you read correctly. The IRS is seeking to abuse its regulatory power to overturn existing law.

Not surprisingly, many members of Congress are rather upset by this rogue behavior.

Senator Rubio, for instance, just sent a letter to President Obama, slamming the IRS and urging the withdrawal of the regulation.

At a time when unemployment remains high and economic growth is lagging, forcing banks to report interest paid to nonresident aliens would encourage the flight of capital overseas to jurisdictions without onerous reporting requirements, place unnecessary burdens on the American economy, put our financial system at a fundamental competitive disadvantage, and would restrict access to capital when our economy can least afford it. …I respectfully ask that Regulation 146097-09 be permanently withdrawn from consideration. This regulation would have a highly detrimental effect on our economy at a time when pro-growth measures are sorely needed.

And here’s what the entire Florida House delegation (including all Democrats) had to say in a separate letter organized by Congressman Posey.

America’s financial institutions benefit greatly from deposits of foreigners in U.S. banks. These deposits help finance jobs and generate economic growth… For more than 90 years, the United States has recognized the importance of foreign deposits and has refrained from taxing the interest earned by them or requiring their reporting. Unfortunately, a rule proposed by the Internal Revenue Service would overturn this practice and likely result in the flight of hundreds of billions of dollars from U.S. financial institutions. …According to the Commerce Department, foreigners have $10.6 trillion passively invested in the U.S. economy, including nearly “$3.6 trillion reported by U.S. banks and securities brokers.” In addition, a 2004 study from the Mercatus Center at George Mason University estimated that “a scaled back version of the rule would drive $88 billion from American financial institutions,” and this version of the regulation will be far more damaging.

Both Texas Senators also have registered their opposition. Senators Hutchison and Cornyn wrote to the Obama Administration earlier this month.

We are very concerned that this proposed regulation will bring serious harm to the Texas economy, should it go into effect. …Forgoing the taxation of deposit interest paid to certain global investors is a long-standing tax policy that helps attract capital investment to the United States. For generations, these investors have placed their funds in institutions in Texas and across the United States because of the safety of our banks. Another reason that many of these investors deposit funds in American institutions is the instability in their home countries. …With less capital, community banks will be able to extend less credit to working families and small businesses. Ultimately, working families and small businesses will bear the brunt of this ill-advised rule. Given the ongoing fragility of our nation’s economy, we must not pursue policies that will send away job-creating capital.We ask you to withdraw the IRS’s proposed REG-14609-09. The United States should continue to encourage deposits from global investors, as our nation and our economy are best served by this policy.

Their dismay shouldn’t be too surprising since their state would be especially disadvantaged. Here are key passages from a story in the Houston Chronicle.

Texas bankers fear Mexican nationals will yank their deposits if the institutions are required to report to the Internal Revenue Service the interest income non-U.S. residents earn. …such a requirement would drive billions of dollars in deposits to other countries from banks in Texas and other parts the country, hindering the economic recovery, bankers argue. About a trillion dollars in deposits from foreign nationals are in U.S. bank accounts, according to some estimates. …The issue is of particular concern to some banks in South Texas, where many Mexican nationals have moved deposits because they don’t feel their money is safe in institutions in Mexico. …”This proposal has caused a wave of panic in Mexico,” said Lindsay Martin, an estate-planning lawyer with Oppenheimer Blend Harrison + Tate in San Antonio. He has received in recent weeks more than a dozen calls from Mexican nationals and U.S.-based financial planners with questions on the rule. …Jabier Rodriguez, chief executive of Pharr-based Lone Star National Bank, said not one Mexican national he has spoken to backs the rule. “Several of them have said if it were to happen, then there’s no reason for us to have our money here anymore,” he said. Many Mexican nationals worry that the data could end up in the wrong hands, jeopardizing their safety. If people in Mexico and some South American nations find out they have a million dollars in an FDIC-insured account in the United States, “their families could be kidnapped,” added Alex Sanchez, president of the Florida Bankers Association.

For those who want more information about this critical issue, here’s a video explaining why the IRS’s unlawful regulation is very bad for the American economy.

Wednesday Links

Wednesday Links

ADA Service Animals: The Silence of the Goats

As I note in a New York Post opinion piece published on Sunday, today marks an unusual milestone: the executive branch of the U.S. government is actually rolling back a significant burden imposed on business owners and others under the Americans with Disabilities Act (ADA). Because the subject matter is an unusually colorful one – the widespread misclassification of household pets, including such exotic species as iguanas, goats, and boa constrictors, as “service animals” under the ADA – you’d think there’d be major press coverage. And yet with scattered exceptions here and there, public attention has been muted. And there’s a story in that too.

In the early years of the law (as I observe in the Post piece) the ADA’s mandate that businesses admit service animals caused little stir because dogs trained to help persons with blindness, deafness and some other disabilities are skillfully trained to stay on task while ignoring such distractions as food, strangers and the presence of other animals. But given the law’s lack of definitions, combined with lopsided penalties should a defendant guess wrong – $10,000 is possible for a first violation – shop owners began seeing more and more rambunctious spaniels and irritable purse dogs, to say nothing of rabbits, rats, ferrets, lizards and critters of many other sorts. Doctors obligingly wrote notes testifying that the animals were helpful for mood support or to fend off depression; you can buy “therapy dog” vests online with no questions asked.

The new rules toughen things up. With a minor exception for miniature horses, service animals will now have to be dogs; they’ll have to be trained to perform a service; and while that service can relate to an “invisible” disability, including one of a psychiatric nature, it cannot be based simply on mood support or similar goals. Also, they’ll need to be on-leash unless their service requires otherwise.

In revising the rule, the Obama administration was heeding the wishes not of frazzled retailers but of disabled-rights advocates themselves. As press coverage recounts, persons who employ well-trained service animals suffer not only from public backlash but also from more tangible setbacks such as disturbances that can arise when other, less well-trained animals challenge their dog in an indoor setting. If the new change counts as deregulation, it’s a sort of accidental and tactical deregulation not arising from any notion that it’s better to leave private owners free to set their own rules.

And that helps explain the absence of fanfare, not to say stealth, with which the Obama administration is letting the new rule go into effect. Knowing that the change will be unpopular with some of its own constituents, it seems happy to forgo credit with constituencies that might favor deregulation – notwithstanding the public fuss a few weeks ago about the President’s newfound interest in reducing regulatory burdens. That interest remains, to say the least, untested.

Pro-Choice Activists Become Skeptics of Regulation

In the Richmond Times-Dispatch, Barton Hinkle notes that the Virginia General Assembly has just passed “tough new regulations on abortion clinics.” And

Suddenly, outraged liberals are sounding remarkably like libertarian advocates of laissez-faire capitalism and the industries they defend.

For instance, abortion-rights supporters already are warning that the heavy hand of government will impose requirements so absurd and so economically burdensome that they will force clinics to close their doors. “What they’ll do is put a burden of extra cost that is not backed up by sound science,” said one abortion provider who spoke on condition of … whoops! Actually, those were the words of Alva Carter Jr., chairman of a New Mexico dairy industry group, who was protesting new groundwater pollution regulations last April.

“The scale of the … current assault is unprecedented,” complained Planned Parenthood spokes — no, that was The Wall Street Journal, raging last November against the EPA. The paper said the agency “has turned a regulatory firehose on U.S. business and the power industry in particular.”

“The massive red tape … threatens to strangle … the industry,” complained — well, that was Investor’s Business Daily, writing about the Dodd-Frank financial bill last year. The paper cited a report by the American Bankers Association warning that “the coming ‘tsunami of regulations’ could wipe out hundreds of smaller banks.” Substitute “abortion clinics” for “smaller banks,” and you have the Virginia debate in a nutshell. (And yes, let’s stipulate right here that many so-called conservatives believe in limited government everywhere except the uterus.)

“They could require things that are completely unnecessary.” That actually was a quote from an abortion-rights supporter: Shelley Abrams, the director of A Capital Women’s Clinic in Richmond.

And she is entirely right. Sometimes government does require things that are not strictly necessary. And those requirements impose a heavy financial burden. This is hardly a revelation. Small-government advocates have been saying it for many years. Yelling it, actually, at the top of their lungs. To little avail.

Example: Supporters of abortion rights now worry that even existing clinics might have to obtain a Certificate of Public Need from the state. To which one might reply: Why should they be different? For years, certain voices in Virginia have been suggesting that the COPN process — essentially, a government permission slip for health-care providers — creates an unnecessary market entry barrier. They have argued that government has no business deciding whether a particular community needs a particular health-care facility.

He goes on to note that

when free-marketeers and industry groups gripe about the burden of governmental regulation, they often get truth-squadded by deeply skeptical liberals. On Monday, the AP’s “Spin Meter” gave the gimlet eye to predictions that the Obama administration’s new smog regulations could destroy more than 7 million jobs. The news service pointed out that the researcher who came up with the number was “industry-sponsored.” (Boo.) It lamented the “imprecise economic models” used. (Hiss.) And it pointed out that “those opposed to government regulations rarely mention the potential benefits to society.” Amen, brother.

Hinkle hopes that people concerned about the burden that regulation imposes on abortion clinics will eventually come to recognize that regulation also imposes costs and burdens on every other business.

Jerry Taylor and I have both noted in the past the differing media treatment of abortion and other science and health issues. Looking at two NPR stories on the same day, I praised one on the dangers of abortion pills:

It was a good example of careful, cautious reporting. But why are journalists seemingly much more cautious in reporting medical risks involving abortion than in reporting other kinds of risks? There are plenty of critics of the “junk science” involved in the Vioxx stories; why aren’t they interviewed in Vioxx stories? The numbers were small in the Vioxx study, as in the case of the abortion drugs, but that fact was dismissed in one report and emphasized in the other.

Cato’s Jerry Taylor noticed something similar in a Wall Street Journal column 11 years ago (January 3, 1995; not online). He noted that the Journal of the National Cancer Institute

caused quite a stir by publishing an epidemiological study suggesting that women who have abortions are 50% more likely to develop breast cancer than women who do not….”Not so fast,” countered epidemiologists; a 1.5 risk ratio (as epidemiologists put it) “is not strong enough to call induced abortion a risk factor for breast cancer.”

Taylor agreed that a 1.5 risk ratio is below the appropriate level of concern. But he wondered why “the same risk ratio that was so widely pooh-poohed by scientists as insignificant and inconclusive when it comes to abortion was deemed by the very same scientists an intolerable health menace when it comes to secondhand smoke. Actually, that’s not quite true. The 1.3 risk factor for a single abortion was significantly greater than the really hard to detect 1.19 risk ratio for intensive, 40-year, day-in-day-out pack-a-day exposure to secondhand smoke (as figured by the EPA).”

Occupational Licensing: It Isn’t Just for Doctors and Lawyers Any More

“Cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country …  are clamoring for more rules governing small businesses,” reports the Wall Street Journal in a front-page story today. “They’re asking to become state-licensed professionals, which would mean anyone wanting to be, say, a music therapist or a locksmith, would have to pay fees, apply for a license and in some cases, take classes and pass exams.” And despite all the talk about deregulation and encouraging entrepreneurship, “The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950,” according to Morris Kleiner of the University of Minnesota.

The Cato Institute has been taking on this issue for decades. In 1986 Stanley Gross of Indiana State University reviewed the economic literature on the impact of licensing on cost and quality. Kleiner wrote in Regulation in 2006:

Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.

Adjunct scholar Shirley Svorny noted that even in the medical field, “licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible.” David Skarbek studied the temporary relaxation of licensing requirements in Florida after Hurricanes Katrina and Frances and concluded that Florida should lift the rules permanently. In his book The Right to Earn a Living: Economic Freedom and the Law, Timothy Sandefur devotes a chapter to “protectionist” legislation such as occupational licensing.

And Then You’ve Got Your Pro-Regulatory Republicans…

President Obama’s “Regulatory Review” executive order, issued this week, has no effect on the regulatory environment that I can discern. It essentially encourages agencies to continue doing the thinking and analysis they are doing so poorly under existing law and executive decree. I called it “a cosmetic, symbolic effort” in the Washington Examiner and—you’ll get the backstory here—also speculated that it’s an effort to change the subject. “Regulatory review” has briefly turned the press away from the government’s huge, ongoing spending spree, and the pall of uncertainty that President Obama has cast over the economy with projects like his re-design of the American health care system.

But don’t take that as an endorsement of the Republican program. Yesterday, House Ways and Means Social Security Subcommittee Chairman Sam Johnson (R-TX) issued a statement endorsing the E-Verify program, which deputizes large and small businesses into a federal government document-checking program. You’d think that clearing out regulatory underbrush and getting people to work would be part of the Republican program, but Johnson said, “I will work with my colleagues and key stakeholders to design a verification system that prevents illegal employment while safeguarding the jobs, identities and privacy of U.S. citizens.” Can’t be done.

If you want to get a taste of the complexity, privacy consequence, and cost of E-Verify as it struggles through its nascent stages, take a look at this truly excellent summary of a recent GAO report. The system now prohibits the employment of around 26 people for every thousand potential new hires, down from 80—and that’s the good news!

There’s much bad news. (The always-understated Government Accountability Office says “significant challenges.”) Identity fraud and employer noncompliance are (predictably) growing, so U.S. Citizen and Immigration Services is negotiating to get access to driver’s license data from state Departments of Motor Vehicles. Along with state bureaucrats, federal bureaucrats are (predictably) weaving together the national identity infrastructure that the American states and people rejected with the REAL ID Act.

And then there are costs. The last thing we need is more government overspending, right? So USCIS and the Social Security Administration are hiding it. Says the ever-accomodating GAO:

USCIS’s cost estimates do not reliably depict current E-Verify cost and resource needs or cost and resource needs for mandatory implementation. While SSA’s cost estimates substantially depict current E-Verify costs and resource needs, SSA has not fully assessed the extent to which its workload costs may change in the future.

This is the intrusive, costly program that the House Republican majority is falling in line behind, a clear sign that business-as-usual is business-as-usual for both parties. It’s a record-setting rejection of the Tea Party zeitgeist that put them in power. Where does it say in the Constitution that every employment decision in the country can be run past the federal government for approval?