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Subsidized flood insurance is one of the many federal programs that is counter to both sound economic policy and sound environmental policy. Congress created the National Flood Insurance Program (NFIP) in 1968 to help homeowners in flood-prone areas purchase insurance. The FEMA-run program covers floods from river surges and storms on the seacoasts.
In recent years, the NFIP has gone hugely into debt and it may be bailed-out by taxpayers at some point. The program has encouraged people to build homes in areas that are too hazardous to safely occupy. It has encouraged towns to expand development in flood-prone areas. And the program undermines constitutional federalism by prompting the federal government to reach its regulatory tentacles into local zoning issues.
The NFIP subsidizes wealthy people with multiple payouts after their homes on the seacoasts are repeatedly destroyed. The program is very bad policy—a seemingly good idea to policymakers in the 1960s that has ended up creating growing distortions.
When I started reading about the NFIP recently, I was surprised to learn that Congress made sensible reforms to it in 2012 under the Biggert-Waters Act. The best reform would be a complete repeal of the NFIP, but in the meantime the 2012 law was a good start at reducing the program’s costs and distortions.
Alas, the prospect of Congress staying on a pro-market, pro-environment reform path was apparently too good to be true. No sooner had the ink dried on the 2012 law than members of Congress began trying to reverse the reforms.
This week, Congress will be voting on a bill that backtracks on the 2012 reforms. I have not studied the details of the new bill, but Diane Katz at the Heritage Foundation has penned a nice overview.
As I noted in my book The Rule of Lawyers, it’s not by happenstance that the sharpest increases in Americans’ smoking rates have come in wartime. Nicotine staves off the boredom, fear, and loneliness of life on the front lines, and the smoking habit encourages socialization among troops. Years later, the federal government was at pains to downplay its vigorous promotion of tobacco use as part of both the WWI and WWII war effort. (It had a sideline in promoting some other important forms of substance abuse as well, notably amphetamine-munching.)
This poster, of World War I vintage, would have made a good illustration for the article I wrote in Reason a while back on government contributions to product-related risk. For some other tobacco-related war poster themes, check the Hoover Institution political poster database.
The Obama Administration appeared prepared to abandon a major portion of its initial greenhouse gas regulatory scheme in oral argument before the Supreme Court today. Solicitor General Donald Verrilli, defending a series of EPA rules, sought to preserve regulations reaching large industrial sources by offering up a more aggressive gambit by the agency that could potentially reach millions of smaller businesses, apartment buildings, and schools.
The problem, as EPA itself has conceded, is that EPA’s regulatory approach renders the Clean Air Act’s Prevention of Significant Deterioration program “unrecognizable” to the Congress that enacted it. That’s because GHGs are emitted in far greater quantities than traditional pollutants and PSD requirements are based on the quantities of emissions, with facilities emitting more than either 100 or 250 tons per year of any applicable pollutant being subject to an expensive pollution-control regime. For GHGs, those tonnage triggers would transform the PSD program from one aimed at only the nation’s largest sources of emissions. For that reason, after deciding to use PSD to regulate GHGs, EPA then issued a “tailoring rule” to avoid the absurd result by discarding the numerical thresholds that are specified in the law and adopting new ones thousands of times larger.
That decision was under heavy scrutiny at oral argument. Businesses challenging the rule, represented by Peter Keisler, argued that the PSD program is structured to address local air quality concerns and therefore does not extend to emissions of carbon dioxide. PSD’s triggers, monitoring requirements, requirement for local air-quality analysis, and administration by 90 separate state and local permitting authorities all demonstrate that Congress did not intend the statute to address anything like GHG, Keisler argued. So while the statute does apply to “any air pollutant,” that term cannot be interpreted to reach pollutants that cause these other statutory requirements to fail
For many people free markets seem cold and calculating. Maybe it’s the best way to sell, say, automobiles and soap. But we shouldn’t like the process. And we certainly shouldn’t base our behavior on markets when basic concepts of right and wrong are at stake.
Of course, markets are no substitute for understanding what the good life is all about. However, markets offer a powerful tool to reinforce underlying moral values.
One of the great tragedies of the modern age is the slaughter of elephants. Ivory long has been a widely desired decorative material.
Unfortunately, these days most new ivory comes from poachers. The killing of elephants has sparked a new form of prohibition, with steadily tighter controls over ivory sales.
As a result, elephants have turned into modern day bison—simultaneously owned by no one and more valuable dead than alive. The result has been devastating for elephant populations in many African states, with upwards of 40,000 elephants being killed annually.
In fact, about the only advocates of the giant creatures are Westerners who see the animals in zoos or on carefully controlled safaris. In contrast, struggling developing nations must manage wildlife reserves and deter poachers while facing what they see as far more pressing human needs.
Worse is the situation facing villagers and farmers. Residents of the industrialized West wax eloquent when talking of faraway elephants, but to locals the creatures are giant rats, threatening and destructive.
Thus, despite much effort, activists and governments have not been able to stop the massacre of elephants. Yet faced with the failure of prohibition, the usual suspects only propose more of the same.
They are pushing countries to destroy existing ivory stockpiles, acquired from elephants which died naturally or were culled, as well as seized from poachers. Groups also are pressing to ban even the sale of antique ivory, as if outlawing ancient objects could bring back long-dead elephants. Even more improbable have even been proposals that Western nations deploy military
Without a change of tactics, elephants could disappear from some African countries. Yet some in the West favor morality lectures rather than practical innovations.
Moral suasion always is worth a try. But what happens after preaching fails?
Use markets to reinforce the moral message. Observed the international conference covering endangered species (CITES): “provided that their full value (i.e. both intrinsic and extrinsic) is fully realized by the landholders involved, not only will elephants be conserved but so will the accompanying range of biodiversity existing on such land.”
It’s not a jump into the unknown. Before 1989 Botswana, Malawi, Namibia, South Africa, and Zimbabwe allowed legal sales. The same countries generally enjoyed expanding elephant populations, in contrast to the shrinking herds evident elsewhere in Africa.
Even today, after closure of these ivory markets, some governments sell licenses to hunt elephants when the population exceeds the land’s capacity. Where the money is shared locally, noted analyst Peter Fitzmaurice, “Damaged land and crop losses are not only being tolerated, but villages are doing their best to guard against poachers.”
More needs to be done. Observed CITES: “A legal trade in ivory, elephant hide and meat could change current disincentives to elephant conservation into incentives to landholders and countries to conserve them.”
Some activists appear to believe that it simply is morally wrong to trade in animals, or at least elephants (speciesism lives!). But markets have been used elsewhere to help save endangered species, such as vicunas, tigers, and crocodiles.
Why not elephants too?
The current system formally treats elephants as sacred, thereby leaving them for dead. Markets would treat elephants as commercial, thereby keeping them alive.
If asked, elephants likely would prefer the second policy. So should we.
I like everything about this British political poster, including the way the smoke coming out of the chimneys forms tiny question marks. It was employed in the 1929 election against Ramsay MacDonald’s Labour Party. The artist is reported as V. Hicks. If only it weren’t still so relevant! (Wikimedia link)
The bad habit of defining “tax reform” in terms of fairness or “closing loopholes” sidesteps the most essential task of effective tax policy – namely, to collect taxes in ways that do the least possible damage to incentives for productive effort, investment and entrepreneurship.
The Joint Committee on Taxation list of “tax expenditures” is arbitrary accounting, not economics, and tax expenditures are not necessarily “loopholes.” These estimates do not take taxpayer behavior into account and therefore do not estimate revenues that could be raised by closing the so-called loopholes (e.g., a higher tax on capital gains would shrink asset sales and revenues). Policies that make sense in terms of economic incentives can therefore be portrayed as useless tax subsidies in the purely static accounting of “tax expenditures.”
For example, a recent New York Times article by former vice presidential adviser Jared Bernstein complains that tax deferral for retirement savings is unfair because, “most savings subsidies go to households that would surely save anyway, while almost nothing goes to the households that need help to save.”
These “subsidies” for high-bracket taxpayers mainly consist of deferring rather than avoiding taxes, which only partly offsets the way savings are double-taxed. Even if higher-income households would actually save the same without 401(k) accounts (which contradicts research), they would still end up with much smaller retirement savings. Dividends and capital gains would then be repeatedly taxed, year after year, rather than being continually reinvested within a tax-deferred pension, IRA or 401(k) account.
Estimated “subsidies” from tax deferral are deceptive: Instead of having recent dividends and capital gains taxed at a 15-20 percent rate in recent years, distributions from tax-deferred accounts will later be taxed at rates up to 39.6 percent. It’s a subsidy only if you don’t live much past 70.
Bernstein presents a graph showing the top 20 percent getting a 66 percent share of these “subsidies” for pensions and defined-contribution plans while the middle fifth gets only nine percent and the poorest 20 percent just two percent. What these figures actually demonstrate is that (1) people who work full-time for many years have more income to save than those who don’t, and that (2) people who pay no income tax cannot benefit from any policy that reduces taxable income, even temporarily.
There are five times as many workers in the top 20 percent than there are in the bottom 20 percent. To exclude young singles and old retirees, Gerald Mayer examined the work experience of households headed by someone between the working ages of 22 and 62. Average work hours among the poorest 20 percent still amounted to just 1,415 hours a year in 2010, while those in the middle fifth worked 2,771 hours, and the top 20 percent worked 4060 hours.
If Bernstein’s “subsidies” were properly expressed as shares of income, rather than as shares of foregone tax revenue, the differences nearly vanish. The Congressional Budget Office (the undisclosed source of his estimates) shows tax benefits for retirement savings worth only about twice as much to the top 20 percent (2 percent of net income) as to the middle 20 percent (0.9 percent of income). Retirement savings incentives appear to be worth only 0.4 percent of income to the poorest 20 percent, since they rarely owe taxes, yet annual benefits are a poor guide to lifetime benefits. Those in low income groups while they are young commonly move up to higher tax brackets by the time they start saving for retirement.
The alleged unfairness of lower-income households not getting the same dollar tax break as couples earning more than $115,100 (the top 20 percent) could be alleviated by reducing marginal tax rates on two-earner families. But Bernstein instead suggests “closing loopholes that make it easy for wealthy individuals to exceed contribution limits to tax-preferred accounts (as was found to be the case with Mitt Romney), reducing contribution limits for high-income filers, or simple limiting the value of tax breaks for the wealthiest of filers (e.g. allowing them to deduct such contributions at 28 percent instead of 39.6 percent.” None of these schemes would add a dime to the savings of low or middle-income households, of course, and they wouldn’t work.
It is not legal – and therefore not “easy”– to exceed strict contribution limits for high-income taxpayers, and Mitt Romney certainly did not do so. What Romney did was to roll over qualified retirement plans into an IRA and then earn high compounded returns on very successful investments. Similarly, albeit on a much smaller scale, I rolled-over a lump-sum pension into an IRA in 1990 when I changed jobs, and that IRA is now 12-times larger thanks to compound interest and bold investments. Since I never contributed another dollar after 1990, tougher or lower contribution limits would have been entirely irrelevant.
Bernstein’s final proposal is from the Obama budget – “allowing taxpayers to deduct contributions at 28 percent instead of 38.6 percent.” But that too is irrelevant. Any alleged “loopholes” for retirement savings have nothing to do with itemized deductions for top-bracket taxpayers, who are not allowed to deduct contributions to an IRA. Failure to include employer contributions as taxable income is not an itemized deduction to begin with, nor is the exclusion from adjusted gross income for contributions to a Keogh retirement plan for the self-employed.
In the process of giving “tax reform” a bad name, Jared Bernstein uses a sham fairness argument to justify arbitrary and unworkable anti-affluence policies that are irrelevant to any ill-defined problems.
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