Topic: Government and Politics

Joe Biden’s So-So Record on Trade

During his long tenure in the Senate, Joe Biden of Delaware has compiled a mixed record on votes affecting our freedom to participate in the global economy. The record of the Democratic vice-presidential hopeful is more pro-trade than Barack Obama’s but much less so than John McCain’s.

According to our “Trade Vote Records” feature on the Cato trade center web site, Biden has voted in favor of lower trade barriers on 24 out of 48 votes in the past 15 years. On trade-distorting subsidies, such as farm price supports, he has voted for lower subsidies on only 3 of 11 votes. Since Obama joined the Senate in 2005, he has voted for lower barriers 36 percent of the time and for lower subsidies 0 percent. John McCain has voted for lower barriers on 88 percent of votes and for lower subsidies on 80 percent.

Here are the highlights and lowlights of Biden’s voting record on trade:

On the positive side from a free trade perspective, he voted consistently to maintain normal trade relations with China, including permanent NTR in 2000; for the North American Free Trade Agreement with Canada and Mexico in 1993; for the Uruguay Round Agreements Act in 1994; for the Freedom to Farm Act in 1996; for fast-track trade promotion authority in 1998; to defund enforcement of the travel ban to Cuba; to cut sugar production subsidies; and in favor of the Morocco and Australian free trade agreements in 2004.

On the negative side for those who support the freedom to trade, Biden voted for steel import quotas in 1999; for the 2002 and 2008 protective and subsidy laden farm bills; against trade promotion authority in 2002; against the Chile, Singapore, Oman, and Dominican Republic-Central American FTAs; in favor of the Byrd amendment directing anti-dumping booty to complaining companies; in favor of imposing steep tariffs on imports from China to force changes in that country’s currency regime; and in favor of screening of 100 percent income shipping containers by 2012.

For a senator who prides himself on his foreign policy experience, Biden’s record shows great ambivalence about American participation in the global economy.

Joe Biden and Limited Government

Barack Obama and Joe Biden both get a perfect 100 from the big-government liberal Americans for Democratic Action, which probably tells you all you need to know. But I remember a dramatic moment back in 1991 when Biden made his commitment to unlimited government clear and dramatic. Clarence Thomas had been nominated for the Supreme Court, and Biden, then chairman of the Senate Judiciary Committee, was questioning him. Biden bore in on the possibility that Thomas might believe in “natural law,” the idea, as Tony Mauro of USA Today summarized it, that “everyone is born with God-given rights - referred to in the Declaration of Independence as ‘inalienable rights’ to ‘life, liberty and the pursuit of happiness’ - apart from what any law or the Constitution grants.” Biden singled out Cato adjunct scholar Richard Epstein and Cato author Stephen Macedo and demanded to know if Thomas agreed with them that the Constitution protects property rights. Waving Epstein’s book Takings in the air like Joe McCarthy with a list of communists, Biden demanded to know, as we very loosely paraphrased it in Cato’s 25-year Annual Report (pdf; page 14), “Are you now or have you ever been a libertarian?” As most judicial nominees do when pursued by a senator roused to defend his power like a mama bear, Thomas assured Senator Biden that he wouldn’t take the Constitution too seriously. Here’s Biden on the warpath:

Was Biden right to worry? Well, as we said in the Annual Report, four years later Thomas joined the Court in declaring, “We start with first principles. The Constitution creates a Federal Government of limited powers.” But ten years later the Court finally considered whether the Constitution protects property rights and said, “Ehh, not so much.” Thomas protested, “Something has gone seriously awry with this Court’s interpretation of the Constitution. Though citizens are safe from the government in their homes, the homes themselves are not.” Biden was right to worry that Thomas’s understanding of individual rights and the Constitution just might put some limits on the power of government.

The Democrats and Free Trade

If and when trade and globalization come up at the Democratic National Convention next week, I can almost guarantee that the take will be negative. It has become part of the party’s core message these days that free trade favors the rich at home and our unfair trading partners abroad. Just yesterday, in a tour of southern Virginia, Democratic hope Barak Obama took an indirect swipe at trade when he told a crowd in Martinsville, “You’re worried about the future. Here people have gone through very tough times. When you’ve got entire industries that have shipped overseas, when you’ve got thousands of jobs being lost… . That’s tough.”

Not all Democrats share the pessimistic view of trade. In the latest edition of the Cato Journal, hot off the presses, I review a new book by pro-trade Democrat Ed Gresser of the Progressive Policy Institute. In my review of Freedom from Want: American Liberalism and the Global Economy, I wrote:

Although it is easy to forget today as Democratic candidates rail against NAFTA and globalization, but for decades it was the Democratic Party that championed lower tariffs. Democrats opposed the high tariff wall maintained by Republicans from the Civil War to World War One, arguing that tariffs benefited big business at the expense of poor consumers. Under President Woodrow Wilson, Congress drastically lowered tariffs in 1913 and replaced the revenue with an income tax, only to see Republicans raise tariffs again in the 1920s, culminating in the Smoot-Hawley Tariff of 1930 and the Great Depression that followed.

The Democrats should think long and hard before they give up that legacy altogether.

You can read the full review here.

Truth-Squading Fursbee

I just got a media inquiry from someone who was on a conference call with Obama economic advisors Jason Furman and Austan Goolsbee.  According to this source, they claimed that McCain’s health insurance tax credit “will surely prove a trojan horse tax increase on middle class familes” (my source’s words) because the amount of the tax credit would grow only at the rate of the Consumer Price Index (i.e., inflation).  That’s much slower than the growth rate for the value of the current tax exclusion for employer-sponsored health insurance, which grows at the much-faster rate of premium growth.  (BTW, it also grows with the rate of increase in marginal tax rates.  Ahem.)

Others have made this charge before.  I’m sorry to hear that Fursbee have picked it up.

Here’s what I wrote to our media friend:

Fursbee are correct, in the sense that providing a tax break that is standardized (i.e., a fixed credit versus an exclusion whose value varies with one’s premiums and marginal rate), and whose growth is limited (to CPI versus today’s unlimited exclusion), would tax currently untaxed activity. 

But they’re flat wrong in concluding that would be a net tax increase.  The ‘why’ requires some explanation. 

Employers provide health insurance principally because those benefits are excluded from income & payroll taxes, while individual-market coverage is not.  A recent survey of health economists found that 91 percent agree that workers pay for health benefits through reduced wages.  The average “employer contribution” to the average family policy is roughly $9k.  That means that if employers weren’t providing health benefits, the labor market would force them to return that $9k to workers.  We call the current exclusion a tax break, even though it denies workers the ability to control $9k of their compensation.  If government took $9k from workers and used it to provide workers with health insurance, then we would call that a tax.  Yet when government effectively takes that money from workers and gives it to employers, we rather curiously call it a tax “cut.” 

McCain’s tax credit would level the playing field between job-based and individual-market health insurance.  With no tax penalty encouraging workers to let their employer control that $9k, the labor market would gradually force employers to add that money to workers’ cash wages.  Letting workers own and control that money is nothing if not a tax cut.  And it would swamp the tax-increasing effect of limiting the tax credit’s value to CPI growth. 

Fursbee are being too cute by half.  And I don’t even like the McCain tax credit.

I might have added that McCain’s credit would encourage Americans to be much more economical about their health insurance, which could restrain premium growth.  (Any excess premium growth due to the exclusion is itself a tax.)  Or I might have noted that the McCain credit would be a pure tax cut to people without access to job-based coverage. 

Or I might have mentioned that Fursbee should know better.  They know that tax exclusion for employer-sponsored health insurance is horribly inefficient, that reform is crucial, and that any reform will be imperfect.  Assuming my source is correct, they are being selective about their facts, demagoguing a serious effort to fix this problem, and making it harder for anyone to do so.

Federal Worker Pay Blasts Off

Newly released data show that federal employee wages and benefits continue a rapid ascent above and beyond private sector pay levels. The data was released last week by the Bureau of Economic Analysis. (See tables 6.2, 6.3, 6.5, and 6.6).

The new data show that the 1.8 million federal civilian workers earned an average wage of $77,143 in 2007, which is 61 percent higher than the $48,035 average in the U.S. private sector. That 61 percent pay advantage has increased from a 34 percent advantage in 2000.

Looking at total compensation (wages plus benefits), federal workers earned an average $116,450 in 2007, which is more than double the $57,615 private sector average. The federal compensation advantage increased from 68 percent in 2000 to 102 percent today. Federal workers not only earn much more than private sector workers, their earnings advantage is getting more pronounced every year.

Federal compensation rose quickly during the 1990s, but even faster during the 2000s. I call this the “Bush Bounce” because it appears that the Bush administration has caved into federal union demands for expanded pay year after year. Between 2000 and 2007, average federal compensation increased at an annual average rate of 6.3 percent, which compares to the private sector increase of 3.5 percent. During the 1990s, average federal worker compensation increased at an average rate of 5.1 percent. The charts below illustate the “blast off” in federal wages and compensation. 

The upshot is that with a federal budget deficit of $500 billion, federal pay restraint should be a priority of the next administration. I’ve proposed freezing federal pay for a period of years, while privatizing costly activities such as air traffic control. The BEA data show that compensation for federal civilian workers cost taxpayers $213 billion in 2007, so there are substantial savings possible here. (Those costs do not include the $166 billion in military compensation costs in 2007).

The Wall Street Journal has called the overly generous federal pay environment “Club Fed.” How long will average American wage earners be willing to foot the tax bill for this elite Washington club?


For further information, see

http://www.cato.org/pubs/tbb/tbb-0605-35.pdf

GOP Governors Lead the Way!

In recent years, Republican governors have been doing a fantastic job of carrying the torch for fiscal conservatism and burnishing the GOP’s brand name as the tax-cutting party. This leadership is clear from two stories in State Tax Notes today [subscription req’d]:

  • “In an effort to break the budget impasse that has lasted over a month, California Gov. Arnold Schwarzenegger (R) has proposed a temporary 1 percentage point sales tax increase. The increase would run for three years and is expected to raise between $5 billion and $6 billion yearly, or over $15 billion for the three-year period.”
  • “Mississippi Gov. Haley Barbour (R) said August 4 that he would plug the state’s $90 million Medicaid funding hole by raising taxes on state hospitals. Barbour wants to raise hospitals’ gross revenue assessment – the tax hospitals pay on the money that flows into their coffers – from 0.45 percent to 1.08 percent. … The increased tax rate would raise $88 million; the remaining $2 million would be saved by cutting funds from other services. But don’t expect the state’s hospitals to accept this plan lying down. The Mississippi Hospital Association filed a lawsuit against the governor in 2005 when he proposed something similar. …’It’s a good, fair deal that taxes the hospitals, not our citizens – and rightly so,’ Barbour said in a press release describing the plan.”

Voters and taxpayers in these states will appreciate the strong conservative thrust of these policies. Schwarzenegger’s tax hike is only “temporary,” and will surely expire after runaway state spending has been cut and current fiscal problems solved. And Barbour wisely wants to impose his tax hike on hospitals, which clearly won’t burden the people of Mississippi or the state economy at all.