Political Earthquake Hits as British to Exit European Union

The United Kingdom will exit the European Union. The shock waves first hit Scotland. The secession-minded government plans to hold another independence vote. Next time a majority of Scots may see no reason to stay.

Both the Conservative and Labour Parties face bitter, internecine strife. Calls already have been made for the resignation of opposition leader Jeremy Corbyn. Prime Minister David Cameron announced his intention to resign and the rest of his government is likely to be swept away as well.

The UK and EU must plan a process never before undertaken. Most important will be early negotiations over London’s future economic and political association with the rest of Europe.

However, some Eurocrats, who dominate Brussels, have threatened to retaliate against the British vote by making the UK’s departure as difficult as possible. For no obvious reason President Barack Obama took a similar position, telling the British people that they would end up at “the back of the queue” for free trade negotiations with Washington. Yet turning post-Brexit negotiations into a punitive expedition would harm everyone involved.

The impact of the vote will radiate across the continent. Some Eurocrats imagine that dissatisfaction with the EU is a uniquely English phenomenon. It actually is much more.

Observed Raoul Ruparel and Stephen Booth of London-based Open Europe: “a number of other states attempted to piggy-back on the UK’s reforms, but this was resisted by others for fear of ‘reform contagion’.” Reform may be harder to resist in the future, however.

Cato’s Marian Tupy pointed out that “the EU is undemocratic not by accident but by design.” Thus, the British are not the only Europeans desiring to escape from the EU’s smothering embrace.

A majority of French and Italians and plurality of Danes and Swedes told pollsters that they want a similar vote. And strong pluralities in most states polled favor returning more powers to national governments.

Moreover, populist and nationalist parties are likely to make EU membership an issue in upcoming elections. France, Germany, and Italy will hold elections within the next two years. Recently the hard nationalist right barely missed winning the presidency in Austria. Economic hardship also has elevated Euroskeptics of varying degrees on the left.

Although there will be no mass exodus from the EU, the departure of even a couple more nations would further diminish the reality of the “European Union.” Moreover, other governments are likely to push to regain authority or at least resist any further accretions of power to Brussels. The continent is fracturing, not uniting.

Some European leaders remain oblivious. There was strong resistance in Brussels to Cameron’s reform proposals as well as other nations’ attempts to win similar concessions. Yet ever fewer Europeans appear to desire the existing union.

In contrast, Donald Tusk, who heads the European Council, admitted that “ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.” France’s ambassador to America, Gerard Araud, argued: “Reform or die!”

What the EU desperately needs is a true “reform contagion.” Painful as it would be to Brussels in light of Brexit, the EU should move “in a ‘British’ direction,” argued Vernon Bogdanor of King’s College London. At least the organization could allow multiple levels of integration, with different requirements for different states.

Most important, I argue on Forbes online: “instead of attempting to circumvent the public, Eurocrats should make their case for change and abide by the voters’ decisions.” For today “the specter of a breakup is haunting Europe,” warned Tusk.

Once again the British have lived up to their reputation. Average folks rejected expert opinion and economic special pleading in order to better govern themselves. Just as America’s forefathers did against the British Empire so many years ago.

The Case for Restraint: What Should It Look Like?

The final panel of last week’s foreign policy conference continued the discussion of the political obstacles to restraint and provided further details on what such a strategy would look like today. Cato’s Emma Ashford kicked off the discussion by explaining how U.S. involvement has undermined U.S. interests in the Middle East, recommending instead that the United States adopt an offshore balancing approach to the region.

John Mueller, also of Cato, used his time to downplay the many commonly cited threats to U.S. security, including rising powers, proliferation, and terrorism. He also cast doubt on whether our large, powerful military is well-suited to deal with these minor threats, most of which are exacerbated by the use of force.

Ben Friedman discussed why primacy enjoys so much support in Washington, despite its flaws. U.S. safety and wealth, he argued, insulate most Americans from the consequences of foreign policy, making them indifferent to it, and enabling special interests that benefit from primacy dominate policy-making. He discussed policy reforms that would heighten appreciation of primacy’s costs in order to increase support for restraint.

The conference’s final speaker, Jacqueline Hazelton of the Naval War College, challenged those who seek a more restrained U.S. foreign policy to develop a plan to bring make it a reality. Picking up on that point, panel moderator Trevor Thrall brought the conference to a close by noting: “Our work is not done.”

The conference’s hosts, Cato’s Ben Friedman and Trevor Thrall are editing a book featuring chapters by the experts who presented at “The Case for Restraint” conference. For more information on the book, please email tevans [at] cato.org.

You can watch full discussion from final panel below.

 

House Republican Tax Plan

House Republicans have released a proposal for major tax reform. Kudos to Ways and Means chairman Kevin Brady for stepping up to the plate and planning ahead for 2017. Brady and his staff did extensive outreach to think tank experts and the GOP caucus, and they have come up with a blueprint that focuses on savings, investment, simplification, and economic growth.  

The GOP plan would cut the top personal income tax rate from 40 percent to 33 percent, while consolidating the bracket structure from 7 rates to 3. The plan would reduce the top tax rate on small businesses to 25 percent, and it would repeal the estate tax and alternative minimum tax.

The corporate tax rate would be cut from 35 percent to 20 percent. That would be the single most important thing that the next Congress could do for the U.S. economy. Corporations build factories, buy equipment, and hire workers to earn after-tax profits. Slashing the marginal tax rate by 15 points would substantially increase the after-tax profits companies could earn on new investments, and they would respond accordingly. More capital investment would mean more job opportunities and higher wages for American workers.

Brexit Marks the Beginning of the End for the European Union

Last night, the British people voted to leave the European Union. When Britain joined the European Economic Community in 1973, the EEC was little more than a customs union. Over time, the EEC evolved into a supranational entity that at least superficially resembled a federal state. The European Union has its own flag, anthem, currency, president (five of them, actually) and diplomatic service. It is governed by an overpaid and arrogant, but opaque and unaccountable, bureaucracy in Brussels. It was, therefore, perfectly reasonable to give the British electorate an opportunity to reflect on the changes that have taken place in Europe over the last 43 years.

Moving forward, there is no reason why nations committed to entrepreneurship and free trade should not prosper outside of the EU. Switzerland has done so in the past and Britain can do so in the future. By showing the rest of Europe that it is possible to live in prosperity and peace outside the suffocating confines of the EU, Britain could lead the way for other nations – including Denmark, France, Holland and Sweden.

MIT’s Barry Posen Makes the Case for Restraint

In a lunch address to last week’s foreign policy conference, Barry Posen of MIT and author of Restraint discussed the perils of liberal hegemony, which he defined as a strategy that combines economic and military primacy with the “noble” goals of active democracy and human rights promotion. Posen argued that the advocates of liberal hegemony rely heavily on the use of force to achieve their objectives, and view military power as a scalpel that can perform precise, strategic operations.

Restraint-minded scholars, however, see military power as a “blunt and costly instrument” that is often counterproductive. Posen explained, for example, how identity politics, especially nationalism and religion, lead many to fight against or oppose invading armies, regardless of how benevolent the latter’s intentions may be.

Posen pointed out that there is strong opposition to America’s liberal hegemony strategy, in large part due to its high costs and profligate adventures abroad. Yet, by labeling restraint as “retreat,” Posen laments, liberal hegemony proponents militate substantive discussions and muddy the waters of the foreign policy debate.

You can watch Posen’s full remarks below. 

House Republican Health Plan Might Provide Even Worse Coverage For The Sick Than ObamaCare

WASHINGTON, DC - JUNE 22: House Speaker Paul Ryan (R-WI) discusses the release of the House Republican plank on health care reform at The American Enterprise Institute for Public Policy Research on June 22, 2016 in Washington, DC. (Photo by Allison Shelley/Getty Images)

After six-plus years, congressional Republicans have finally offered an ObamaCare-replacement plan. They should have taken longer. Perhaps we should not be surprised that House Republican leaders* who have thrown their support behind a presidential candidate who praises single-payer and ObamaCare’s individual mandate would not even realize that the plan cobbled together is just ObamaCare-lite. Don’t get me wrong. The plan is not all bad. Where it matters most, however, House Republicans would repeal ObamaCare only to replace it with slightly modified versions of that law’s worst provisions.

Here are some of ObamaCare’s core private-health insurance provisions that the House Republicans’ plan would retain or mimic.

  1. ObamaCare offers refundable health-insurance tax credits to low- and middle-income taxpayers who don’t have access to qualified coverage from an employer, don’t qualify for Medicare or Medicaid, and who purchase health insurance through an Exchange. House Republicans would retain these tax credits. They would still only be available to people ineligible for qualified employer coverage, Medicare, or Medicaid. But Republicans would offer them to everyone, regardless of income or where they purchase coverage.
  2. These expanded tax credits would therefore preserve much of ObamaCare’s new spending. The refundable part of “refundable tax credits” means that if you’re eligible for a tax credit that exceeds your income-tax liability, the government cuts you a check. That’s spending, not tax reduction. ObamaCare’s so-called “tax credits” spend $4 for every $1 of tax cuts. House Republicans know they are creating (preserving?) entitlement spending because they say things like, “this new payment would not be allowed to pay for abortion coverage or services,” and “Robust verification methods would be put in place to protect taxpayer dollars and quickly resolve any inconsistencies that occur,” and that their subsidies don’t grow as rapidly as the Democrats’ subsidies do. Maybe not, but they do something that Democrats’ subsidies don’t: give a bipartisan imprimatur to ObamaCare’s redistribution of income.
  3. As I have tried to warn Republicans before, these and all health-insurance tax credits are indistinguishable from an individual mandate.  Under either a tax credit or a mandate, the government requires you to buy health insurance or to pay more money to the IRS. John Goodman, the dean of conservative health policy wonks, supports health-insurance tax credits and calls them “a financial mandate.” Supporters protest that a mandate is a tax increase while credits—or at least, the non-refundable portion—are a tax cut. But that’s illusory. True, the credit may reduce the recipient’s tax liability. But it does nothing to reduce the overall tax burden imposed by the federal government, which is determined by how much the government spends. And wouldn’t you know, the refundable portion of the credit increases the overall tax burden because it increases government spending, which Congress ultimately must finance with additional taxes. So refundable tax credits do increase taxes, just like a mandate.

Pages