Topic: Regulatory Studies

Just Call Us the “Not Smart Enough” Bunch

From a Baltimore Sun article on the regulatory fate of car-sharing services Uber and Lyft, bitterly attacked by their more highly regulated taxi competitors: 

At a recent work session on the issue, Kelley [Sen. Delores G. Kelley, D-Baltimore County] rejected the contention from Lyft and Uber that it’s a matter of consumer choice about whether to use the application to book a ride and they won’t do it if the price is too high. 

“We regulate all sorts of things because the general public is not smart enough to know when they’re about to be fleeced,” Kelley said.

But what about members of the general public who are smart enough to know they’re about to be fleeced, but are unable to do anything about it because it’s lawmakers and market incumbents combining to make that happen? 

SCOTUS Deferred to Executive Agencies. What Happened Next Will Infuriate You!

In the 1996 case Auer v. Robbins, the Supreme Court ruled that where there is any ambiguity or disagreement over what a federal regulation means, courts should defer to the interpretation favored by the agency that issued the regulation. The practical consequence of this decision has been that government agencies have had the power not just to create and enforce their own rules but also to definitively interpret them. Given the mind-boggling number of federal regulations that exist—and the exceptional breadth of behavior that they govern—the importance of this “Auer deference” can’t be overstated.

While handing the powers of all three branches of government to the bureaucracy is problematic in and of itself, a recent decision by the U.S. Court of Appeals for the Ninth Circuit further extended the deference courts show to agency rulemakers by declaring that an agency’s interpretation of its own rule is authoritative even if the agency has altered its interpretation dramatically since the regulation came into effect. Under that logic, an agency could spend decades saying that its regulation governing footwear only applied to shoes—and then, without warning or consultation, unilaterally decide to extend the rule to sandals and slippers (despite explicitly saying for years that they were not covered by the regulation).

Such a power to rewrite regulations through after-the-fact “reinterpretation” is incredibly tempting, freeing agencies to change the rules of the game without further legislation or congressional oversight, or even the formalized rulemaking process required by the Administrative Procedure Act.

Peri & Sons, a family-run farm in Nevada (one of America’s largest onion producers), is caught in just such an Kafkaesque morass. In its case, the Ninth Circuit ruled that even though the Department of Labor for over five years interpreted regulations issued under the Fair Labor Standards Act to mean that employers aren’t required to pay employees for the costs of moving for a job (including passport and visa applications), DOL is free to change its interpretation to now require employers to cover those costs.

Cato, along with the Center for Constitutional Jurisprudence and the National Federation of Independent Business, filed a brief urging the Supreme Court to hear this case. We argue not just against the Ninth Circuit’s extension of Auer to cases where the agency has reversed its position, but also that Auer itself was incorrectly decided. Granting agencies post-hoc control over their regulations’ textual meaning is an abdication by the courts of their constitutional duty to zealously guard against executive encroachment on the judiciary’s role as interpreters of the law. And we’re not alone in questioning the wisdom of Auer; as recently as 2011, Justice Scalia criticized the ruling as being “contrary to [the] fundamental principles of separation of powers.”

The Supreme Court will be deciding this spring whether to hear Peri & Sons Farms v. Rivera.We urge the Court to take the case and restore a modicum of the Constitution’s separation and balance of powers.

Obama’s Overtime Edict: Anything But a Free Lunch

As the New York Times reported yesterday, President Obama intends to barge unilaterally into a hotly contested area of employment law by ordering the Department of Labor to develop regulations “to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as ‘executive or professional’ employees.” As with the expansion by decree of minimum wage law, it will be interpreted in some quarters as an undiluted boon to the employees it covers – their employers will either raise their pay or limit the hours they are expected to work, or both, and how could they be anything but happy about that? But as the piece quotes Cato’s Dan Mitchell as warning, There’s no such thing as a free lunch… If they push through something to make a certain class of workers more expensive, something will happen to adjust.”

At Forbes, Daniel Fisher explains some of the mechanisms by which that will happen. It will probably become harder to retain exempt status, for example, for “management-plus” jobs, such as one where a shift manager is expected to fill in occasionally at the register during a cashier’s break. That will hit smaller establishments especially hard, while yanking away transitional positions by which ambitious hourly hires can cross over to management. Moreover: 

…non-exempt employees will be watched more closely to avoid tripping the sort of litigation threat that increasing numbers of labor lawyers are looking out for. Working at home could become taboo, since the employer has more difficulty monitoring hours and working conditions. Employees who harbor the perhaps foolish idea that by working hard and taking on greater responsibilities they can move up in the organization will instead be told to go home and relax.

Already, wage-and-hour lawsuits are a thriving hub of litigation, since the law sets up a retrospective guessing game as to whether or not exemption will be upheld: “Enterprising plaintiff attorneys have made hundreds of millions of dollars pursuing lawsuits on behalf of stockbrokers, mortgage loan officers and other white-collar professionals not normally associated with punch-the-clock, shop-floor labor.” 

For years, some lawyers have been advising clients not to hand out company-paid cellphones to any workers who lack a lawful overtime exemption, lest a claim later be made that work was done on the phones during evenings and weekends. Where the law is particularly stringent about calculation of lunch breaks, as in California, some lawyers have advised employers to make it a firing offense to do any work during the allotted break.

Obama’s edict is anything but a done deal: it will first enter the slow and contentious Department of Labor regulatory process, and if the Senate turns Republican with this November’s election, the chances of stopping it in Congress will improve. Should it go into effect, however, it will sow widespread disruption in the business sector, deepen suspicion and polarization at the workplace, and frustrate ambitious individuals who willingly tackle long hours to rise into management ranks. Increasingly, Obama’s binge of executive orders and unilateral decrees to bypass Congress is coming to resemble a toddler’s destructive tantrum. 

 

How Much Tax Revenue from Legalized Marijuana?

Some marijuana legalizers push the argument that legalization will generate additional tax revenue. Opinions differ widely, however, on exactly how much revenue.

In mid-February, Colorado Governor John Hickenlooper predicted that the taxes, licenses, and fees on medical-plus-recreational marijuana would generate $134 million for the fiscal year starting in July.

In my 2010 Cato White Paper, I predicted that full legalization (federal and state) would generate roughly $55-60 million per year for Colorado.

Now just released data from Colorado for January, the first month of fully legal marijuana sales, show about $2 million from recreational marijuana and about $3.5 million for medical-plus-recreational marijuana.  The latter figure implies annual revenues of about $42 million.

This January figure may turn out to be misleading.  On one hand, the industry could grow over time, boosting revenues. On the other hand, initial hoopla over legalization may have inflated January sales.  And, longer term, sales in Colorado could decline if other states legalize or medicalize.

If the lower revenue numbers persist, does that weaken the case for legalization?

No: Increased tax revenue was never the main reason for legalization. Instead, the crucial goals of legalization are greater freedom for marijuana users and elimination of prohibition’s unintended consequences (crime, corruption, poor quality control, diminished civil liberties, restrictions on medical uses, and expenditure on enforcement).

Collecting revenue on legalized marijuana is perfectly sensible; it allows lower tax rates on everything else. But this appears to be a small effect, and it is not the main benefit of legalization in any case.

Cato Keeps Challenging an Illegal IRS Rule Regarding Obamacare

Last month, Cato filed a brief in the D.C. Circuit case of Halbig v. Sebelius, supporting a challenge to the IRS’s unilateral and unauthorized decision to extend tax credits to individuals who purchased health insurance from exchanges that were not established by their state. Now we’re continuing out advocacy in this area by filing a brief, joined by the Pacific Research Institute and the American Civil Rights Union, supporting the challengers in a similar Fourth Circuit case.

Here’s the background: To encourage the purchase of health insurance, the Affordable Care Act added a number of deductions, exemptions, and penalties to the federal tax code. As might be expected from a 2,700 page law, these new tax rules have the potential to interact in unforeseen and counter-intuitive ways. As first discovered by Michael Cannon and Jonathan Adler, one of these new tax provisions, when combined with state decision-making and IRS rule-making, has given Obamacare yet another legal problem. The legislation’s Section 1311 provides a generous tax credit for anyone who buys insurance from an insurance exchange “established by the State”—as an incentive for states to create the exchanges—but only 16 states have opted to do so. In the other states, the federal government established its own exchanges, as another section of the ACA specifies. But where § 1311 only explicitly authorized a tax credit for people who buy insurance from a state exchange, the IRS issued a rule interpreting § 1311 as also applying to purchases from federal exchanges. This creative interpretation hurts individuals like David King, a 63-year-old resident of Virginia.

Because buying insurance would cost King more than 8% of his income, he should be immune from Obamacare’s tax on the decision not to buy insurance (the “tax” that you’ll recall Chief Justice Roberts devised in his NFIB v. Sebelius opinion). After the IRS expanded § 1311 to subsidize people in states with federal exchanges (like Virginia), however, King could have bought health insurance for an amount low enough to again subject him to the Roberts tax. King argues that he faces these costs only because the IRS exceeded the scope of its powers.

In our latest brief, we argue that the IRS’s decision wasn’t just unauthorized, it was a blatant invasion of the powers exclusively awarded to Congress in Article I of the Constitution. This error was compounded by the district court’s holding that the IRS actions were lawful because, even if Obamacare explicitly restricts the availability of tax credits to states which set up their own exchanges, the expansion of tax-credit availability serves the law’s general purpose of making healthcare more affordable. By elevating its own perception of congressional purpose over the statutory text, the district court ignored the cardinal principle that legislative intent must be effected by the words Congress uses, not the words it may have meant or should have chosen to use.

In other words, if Congress wants to extend the tax credit, it can do so by passing new legislation. The only reason for executive-branch officials not to go back to Congress for clarification, and instead legislate by fiat, is to bypass the democratic process, thereby undermining constitutional separation of powers. This case ultimately isn’t about money, the wisdom of individual health care decision-making, or even political opposition to Obamacare. It’s about who gets to create the laws we live by: the democratically elected members of Congress, or the bureaucrats charged with no more than executing the laws that Congress passes and the president signs.

The U.S. Court of Appeals for the Fourth Circuit (based in Richmond) will hear argument in King v. Sebelius in May.

The Water Bed Effect in Drug Prohibition

If you lie down on a water bed, the amount of water does not change; it just moves elsewhere.

A similar phenomenon occurs with drug prohibition; targeting one drug reduces its use, but that displaced demand shows up somewhere else.

According to a new WaPo story, this is exactly what has occurred over the past ten years with respect to prescription opiates and heroin. As enforcement cracked down on Oxycontin and similar medications, demand shifted to heroin. And since purity information is noisy for an illicit good, heroin deaths increased noticeably.

Prohibition advocates will presumably respond with calls for greater enforcement against both prescription opiates and heroin, but the right response is the opposite. While opiate use carries risks, opiate prohibition makes these worse. Higher prices caused by prohibition, for example, encourage users to inject to get a big bang for the buck.  But then prohibition-induced restriction of clean syringes fosters needle-sharing, spreading HIV.

The right test for policy is never whether some good or activity is “risky,” but whether government intervention reduces those risks, and at what costs.  Drug prohibition fails this test.

When Tolerance Becomes Intolerance

Individual liberty took another hit with Arizona Gov. Jan Brewer’s veto of legislation enhancing protection for people’s religious principles while doing business. Gov. Brewer suggests that if you hang out a shingle you should leave your deepest beliefs at home. 

The issue in Arizona was not a lack of tolerance by those in business. There is no dearth of firms across the state willing to serve gays.

Instead, the question was tolerance for those in business. Should you be expected to abandon your conscience the moment you step into the commercial world? 

Indeed, why would a gay couple insist that a Christian opposed to gay marriage photograph their wedding or prepare their cake? There’s no need to force those with unfashionable views to affirm what they reject. 

ObamaCare’s contraception mandate has a similar effect—and almost certainly received vigorous support on the left for precisely this reason.  As I pointed out in the American Spectator online:

the point was always state-mandated intolerance rather than health care. The objective was to force Catholics, mostly, and the few fundamentalist Protestants who hold similar theological views, to pay for what they oppose. In fact, there is no better way to humiliate those you dislike. It is pure and unadulterated intolerance, the ultimate Washington triumph: Make those you despise pay for what they despise.

Leaving people largely left alone to manage their own lives should be what a free society is all about. Of course, those who are on the receiving end of social disapproval understandably don’t like the result. But no one has a “right” to be served by any particular person. Forcing someone into servitude is infinitely worse than simply finding someone else to do the job. 

The right response is to change social attitudes. My friend Sheldon Richman at the Future of Freedom Foundation pointed to the use of “boycotts, publicity, and ostracism” to penalize those who refuse service. Such activism is why gay marriage has gone from a policy wish to dominant law in just a few years. 

Unfortunately, throughout history newly empowered minorities often learn the wrong lesson. Rather than create barriers to new state injustices, some people use law for their own advantage. Hence state persecution of the New Mexico wedding photographer who felt she could not promote gay ceremonies which she believed to be wrong.