Topic: Regulatory Studies

Budget Deals and Tax Increases

Centrist and liberal columnists are lamenting the lack of tax increases in the debt deal. But the hollowness of the deal itself provides a good justification for Republicans to oppose all tax increases in such bipartisan deals.

The federal debt crisis is being caused by spending increases, not revenue shortfalls. When the economy recovers, revenues will rise to the normal level of about 18 percent of GDP, even with all current tax cuts in place. It is spending that is projected to rise to abnormal levels, as I discussed in my recent Senate testimony.

However, let’s say a fiscal conservative in Congress was willing to swap, say, $1 of tax increases for $3 of spending cuts in a deficit-reduction deal. Most likely, the tax increases would turn out to be real and damaging, but the spending cuts would probably be phony or overstated, as the deal just passed illustrates.

In the debt-limit deal, discretionary spending rises over time. It isn’t cut.  Economist Larry Summers seems to agree that the cuts in the deal aren’t real:

Despite claims of spending reductions in the range of $1 trillion, the agreements reached so far are likely to have little impact on actual spending over the next decade. The deal confirms the very low levels of spending already negotiated for 2011 and 2012 and caps 2013 spending about where most would have expected this Congress to end up. Beyond that, outcomes are anyone’s guess — Congress votes on discretionary spending annually, and the current Congress cannot effectively constrain future actions. True, there are caps and sequester threats in the debt deal, but these are virtually certain to be reformulated in 2013.

Deficit deals during the Reagan and Bush I years typically promised the public more spending cuts than tax increases. But the tax increases stuck, while the spending cuts were either smoke-and-mirrors or they didn’t last.

Consider the big budget deal in 1990, the one where Bush I infamously reneged on his “read my lips” promise. Bush claimed that the deal delivered two and a half dollars of spending cuts for each dollar of tax increases. But the cuts to defense in the deal were against an inflated baseline, and nondefense spending increased 15 percent in the two years following the deal.

Looking ahead to the special congressional committee that will report in November, I don’t see any incentive for a fiscal conservative to agree to tax increases. Democrats will call for a “balanced” plan, but that makes no sense because the cause of the government’s problems is not balanced. In addition, the idea that giving in a bit on taxes in order to leverage larger spending cuts has not worked in the past, as noted.

I’d like to be an optimist about spending cuts in a November deal, but most current political leaders show no interest in real cuts. Leaders in both parties continue to be positively allergic to naming any actual programs that they want to cut. Indeed, in the Washington Post today, Treasury Secretary Tim Geithner calls for more federal spending, not less. He wants more for “education and innovation.” He wants to “strengthen” Medicare. He decries the “extreme agenda” of policymakers who want to “dismantle” programs for the elderly and less fortunate. And he wants “short-term measures to strengthen the economy,” by which he means spending on infrastructure and unemployment subsidies.

Good grief. Geithner’s op-ed reflects the administration’s intransigence in defending the bloated welfare state, not any willingness to make serious budget reforms.

Saving a Baby Woodpecker: The Legal Consequences

Federal law makes it illegal to “take,” “possess,” or “transport” a migratory bird except under permit. If you worry that this sweeping language might give the federal government too much enforcement power, perhaps you are one of those horrid House Republicans who, according to Bryan Walsh in Time magazine, are in the grip of “antigreen ideology” and want to “essentially prevent” agencies like the Department of the Interior “from doing their jobs.” Who else would object to laws meant to protect Nature?

It’s a pretty safe bet that Walsh hasn’t met the Capo family of Fredericksburg, Virginia. According to a report on broadcast station WUSA, and now being picked up far and wide by other news outlets, 11-year-old Skylar Capo saved a baby woodpecker in her back yard from the family cat and decided to keep it for a day or two to make sure it wasn’t injured before letting it go. The family’s problems began when Skylar took the bird into a Lowe’s to keep it out of the hot sun and was spotted by a woman in the store who confronted her and said she was a Virginia state game officer. Two weeks later, says Skylar’s mother Alison, the woman showed up at their front door accompanied by a state trooper with the news that the family owed a fine of $535; the federal law also carries possible jail time. (The bird itself was long gone by this point, having been released the same day of the store visit, the family says.)

With publicity about the case hitting the wires, the U.S. Fish and Wildlife Service has now announced that it has rescinded the fine—the ticket had been mistakenly issued, it insists, in spite of a decision not to pursue charges. That also presumably takes care of the worry about jail time. But really, if you’re the parent of a youngster fascinated by backyard wildlife, why take chances? Order them back indoors to play video games and watch TV. It’s much legally safer that way.

For more from Cato on overcriminalization, see posts like this, this, and this.

Telegraph Messengers, Elevator Operators and the Connecticut Economy

Attorney/blogger Daniel Schwartz notes that even as the state of Connecticut continues to enact new labor laws at a hectic pace – from obligatory employer-paid sick leave, a first-of-its-kind law, to new curbs on consideration of workers’ credit records in hiring – it seldom gets around to repealing any of the obsolete old ones, such as its laws regulating the working conditions of telegraph messengers and elevator operators and saying disabled persons need a doctor’s note to accept night-time work in stores and restaurants. Because more law equals better law, right?

Not at all by coincidence, the New Haven Register noted ruefully in February that Connecticut has had zero job growth since 1990 and that the state “is projected to have the lowest national job growth rate — less than 1 percent — through 2016, according to IHS Global Insight, a New York economic analysis company.” At this rate, Connecticut is going to need every telegraph messenger and elevator operator job it can get. Is it any wonder the country is looking elsewhere – and in particular to states like Texas – for policy leadership?

Monks Successfully Defend Their Right to Earn an Honest Living

Last week, a federal court in Louisiana ruled that a state law prohibiting sales of caskets by non-licensed merchants was unconstitutional.  A monastery that has made caskets for over a century sued the state to protect their modest casket business. It should come as no surprise that our friends at the Institute for Justice were leading the charge against the law:

Under Louisiana law, it was a crime for anyone but a government-licensed funeral director to sell “funeral merchandise,” which includes caskets.  To sell caskets legally, the monks would have had to abandon their calling for one full year to apprentice at a licensed funeral home and convert their monastery into a “funeral establishment” by, among other things, installing equipment for embalming.

The Honorable Stanwood Duval of U.S. District Court for the Eastern District of Louisiana ruled, “Simply put, there is nothing in the licensing procedures that bestows any benefit to the public in the context of the retail sale of caskets.  The license has no bearing on the manufacturing and sale of coffins.  It appears that the sole reason for these laws is the economic protection of the funeral industry which reason the Court has previously found not to be a valid government interest standing alone to provide a constitutionally valid reason for these provisions.”

Thus, even though merely economic liberty was at issue and therefore courts need apply only “rational basis” scrutiny to the regulation at issue, this regulation fails for being completely beyond any conceivable rational basis. And indeed, like so many regulations, this one was nothing more nor less than a barrier to entry for small businesses. Established funeral directors had used the power of the government to illegally control the market, eliminating competition and artificially driving up the prices of caskets. Not only was the funeral-director cartel denying the monks their right t earn an honest living, but they were taking advantage of the people they serve (ultimately, everyone in Louisiana) by extracting ill-gotten profit – often at the time of their customers’ greatest sorrow.

You can read the full opinion here and watch a video that tells the monastery’s story below. Congratulations to the monks of St. Joseph Abbey and the great attorneys at IJ!

Commerce Clause Abuse, Non-Obamacare Division

The federal government is currently engaged in a misguided attempt to use a noneconomic statute – the Endangered Species Act – to regulate under its Commerce Clause authority a noneconomic activity, the potential “take” of the noncommercial, wholly intrastate delta smelt.  Acting under this purported authority, the U.S. Fish and Wildlife Service issued an opinion in 2008 that requires a reduction of critical water deliveries in California for the alleged benefit of the threatened delta smelt species.  The delta smelt-based water cutbacks have resulted in substantial hardship to farmers and other water users in Southern California and the San Joaquin Valley.  

In 2009, the Pacific Legal Foundation filed a lawsuit contending that regulation of the delta smelt is not a valid exercise of the Commerce Clause.  The district court and the Ninth Circuit Court of Appeals disagreed.  Cato joined Chapman University’s Center for Constitutional Jurisprudence and former attorney general Edwin Meese in filing a brief that supports PLF’s request for Supreme Court review.  

We argue that the Court should take this case in order to delineate the constitutional distinction between federal and state power and protect the states’ exclusive police power to regulate and advance the health, safety, and welfare of the people.  Specifically, our brief argues: (1) that the federal government’s regulation of a wholly intrastate, noncommercial species exceeds Congress’s powers under the Commerce Clause; (2) the expansive application of the ESA to the delta smelt, because it is noncommercial species that doesn’t travel across state lines, intrudes on the core police powers reserved to the states; and (3) that the Supreme Court should repudiate the aggregation principle of Wickard v. Filburn (the 1942 wheat-farming case central to the Obamacare litigation).  Striking down the expanded interpretation of the ESA at issue here is not enough. 

If left untouched, the Ninth Circuit decision opens the door to unlimited and abusive assertions of power by an assortment of federal agencies.  The Court needs to reinforce and rebuild the limits of the Commerce Clause and to reign in a federal government that continues to believe that the Constitution sets no bounds on its power. 

The name of the case is Stewart & Jasper Orchards v. Salazar.  The Supreme Court will decide this fall whether to hear it.

Federal Government Subsidizes and Penalizes Boeing Co.

When an entity is as mammoth and undisciplined as the $3.8 trillion U.S. federal government, it’s inevitable that its programs will be working at cross purposes. Just ask the civil aircraft manufacturer Boeing Company.

Politicians love Boeing because it not only makes valuable products but it also exports billions of dollars worth around the globe. To give a boost to those exports and supposedly create more jobs in the United States, the federal government’s Export-Import Bank offers preferential loans to foreign governments and airlines to help them buy more Boeing aircraft.

As my Cato colleague Sallie James documents in a new study, “Time to X Out the Ex-Im Bank,”

the number-one user of the Ex-Im Bank is the Boeing Company. Of the 35 aircraft sales supported by Ex-Im in FY2010, 28 were Boeing products, and the Congressional Research Service estimates that more than 60 percent of the value of Ex-Im Bank loan guarantees supported Boeing aircraft sales in that year.

No wonder critics refer to the Ex-Im as “Boeing’s Bank.”

Yet the same federal government is making it more difficult for Boeing to manufacture its airliners cost-effectively in the United States. Under the sway of organized labor, the National Labor Relations Board is seeking to prevent Boeing from expanding its production in South Carolina, a right-to-work state where the company’s employees are non-unionized.

In a column at Bloomberg.com today, Harvard economist Edward L. Glaeser rightly worries that the NLRB action is undermining one of the most important advantages enjoyed by American-based companies—the freedom of labor, capital, and goods to move freely within the United States. As Glaeser notes:

The profound role that mobility has played in our country, enabling repeated reinvention, causes me to be deeply worried about the possibility that a National Labor Relations Board complaint will prevent Boeing Co. from moving plane production from [unionized] Washington state to South Carolina.

In the spirit of compromise, Congress should eliminate the Ex-Im Bank, while telling the NLRB to back off and let U.S. companies deploy their productive resources in whatever locations within the United States that make the most competitive sense.