Dispatch from the ASIL Annual Conference II

This morning I attended two panels at the ongoing American Society of International Law Conference. The first was “The Politics of War Crimes Tribunals,” which refreshingly did not simply rehash the formation of the International Criminal Court but dealt with the meatier issues of how to decide whom to prosecute, what kind of justice to pursue, etc. The panelists, all academics who had played various roles associated with, for example, the Special Court for Sierra Leone, discussed precisely the issue that most interests me: how to draw the line between law and politics. If you overshoot and try to prosecute thousands of perpetrators of unspeakable crimes, spread across multiple countries, your political support will collapse. If you amnesty everyone, there is no justice. Tough decisions have to be made such that there is some justice, which is better than no justice.

One interesting anecdote from this first panel involved the quixotic attempt by Col. Luke Lea and a motley band of doughboys to capture Kaiser Wilhelm at the end of World War One. The panelist who told this story – which was relevant because the plan was to prosecute the Kaiser as a war criminal – misnamed Col. Lea as having been a Texan, when anyone worth his salt knows that it’s “Luke Lea of Tennessee.”

(Ok, ok, the only reason I knew this factoid was because when I interned for former Senator Bill Frist (R-TN) over a decade ago, I was charged with writing an essay on Lea as part of a project to document the lives of all Tennessee senators. Lea was a one-termer who, upon losing the Democratic nomination after the passage of the Seventeeth Amendment – direct election of senators – volunteered for the Great War.)

Who Wins the Tax Competition Debate?

The Wall Street Journal posted an online debate between yours truly and Raymond Baker of the Brookings Institution. We are supposed to decide which is worse: tax havens or high taxes. I began the debate by explaining:

Tax competition is a liberalizing force. When politicians worry that jobs and investment have the freedom to cross borders, their reflexive desire to overtax and overspend is at least somewhat curtailed. Tax havens play a valuable role in this process, and this helps explain why income tax rates have dropped by more than 25 percentage points since 1980 and corporate rates have fallen by more than 20 points. These reforms have greatly strengthened the global economy, improving living standards across the board and helping to lift hundreds of millions of people out of poverty. Efforts by bureaucracies such as the OECD to create a tax cartel – an “OPEC for politicians” – should be rejected.

In his contributions, Mr. Baker largely avoided any debate about tax competition and repeatedly asserted that tax havens were refuges for dirty money. I cited numerous sources that suggest otherwise. I then closed by arguing that: Because of tax havens and tax competition, the world today is much more prosperous and global poverty has been reduced. The OECD should not be allowed to disrupt the world economy by stifling competition and creating an “OPEC for politicians.” Every nation has the sovereign right to determine its own tax and privacy laws – and to control the taxation of economic activity inside its borders. Tax competition is good for America, good for the world, and good for freedom.

It will be interesting to see whether the comments in the reader forum will favor one side or the other.

Massachusetts: a Cautionary Tale

Before and after Gov. Mitt Romney (R) signed into law the Massachusetts health care reforms of 2006, Cato scholars predicted that this attempt at central planning would fail.  Both Michael Tanner and David Hyman predicted that the cost of the reforms would exceed projections.  The Boston Globe recently reported:

The subsidized insurance program at the heart of the state’s healthcare initiative is expected to roughly double in size and expense over the next three years - an unexpected level of growth that could cost state taxpayers hundreds of millions of dollars or force the state to scale back its ambitions. 

State projections obtained by the Globe show the program reaching 342,000 people and $1.35 billion in annual expenses by June 2011. Those figures would far outstrip the original plans for the Commonwealth Care program …

The state has asked the federal government to shoulder roughly half of the program’s cost from 2009 through 2011, but there is no guarantee of that funding. 

“The state alone cannot support that kind of spending increase,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded budget watchdog group. 

I predicted that shifting uncompensated care subsidies to insurance subsidies wouldn’t much reduce uncompensated care.  The Globe reports:

[Romney] has repeatedly suggested that the state could insure low-income residents largely by reallocating money paid to hospitals and health centers that serve the uninsured … As more uninsured residents were covered, the state had expected to shift hundreds of millions of dollars from free care to insurance subsidies, but the drop has been slower than predicted.

David Hyman noted that “the Massachusetts plan does nothing to control the cost of health care—and health care in Massachusetts is already pricey because of the heavy reliance on teaching hospitals and academic medical centers.”  I wrote, “An individual mandate would not fix our broken health care system.  It would simply pump more money into that system. ”  The Globe reports:

Even with federal backing, the state may not be able to afford the insurance initiative as designed, because the law did not make any attempt to trim wasteful health spending, said Alan Sager, a Boston University professor who specializes in healthcare costs.

The Globe also notes, “There has been no discussion of a tax increase to pay for the healthcare plan.”  So far.

Other states (and the District of Columbia) should take note.

Sneaky Supplemental Spending

Many people are spilling a lot of ink debating whether America is taking the right approach in the war against terrorism, but very few are analyzing how that war is being financed. That is why an article by Veronique de Rugy of the Mercatus Center is a welcome contribution to the debate. She explains that politicians in Washington are deliberately abusing the supplemental spending process (which ostensibly is reserved for unforeseen emergencies):

… the total price tag for America’s present wars [is] at least $822 billion, approximately 80 percent of which will be spent on Iraq. That surpasses the cost of the Vietnam War ($670 billion in inflation-adjusted dollars). And the Iraq portion dwarfs the $50 billion to $60 billion cost predicted at the outset of the war by Mitch Daniels, then director of the Office of Management and Budget. …To distract people from the real price tag of a two-front war, the president and Congress have used an unprecedented and fiscally irresponsible budgetary trick: a series of “emergency” supplemental spending bills totaling hundreds of billions of dollars. This scheme has allowed them not only to hide the costs of the conflicts but also to avoid painful budget choices while funneling billions of dollars in unvetted goodies to favored interest groups. Once a small blip among federal outlays, emergency supplementals have exploded since 2002, when the Republican Congress let a key legislative restriction on their use expire. In May 2007, President Bush signed into law the biggest supplemental bill in history, $120 billion, to fund military operations in Iraq and Afghanistan ($100 billion) and pay for hurricane recovery and agricultural disaster relief at home. This came just five months after Congress approved another $70 billion emergency request for the wars. By contrast, the average annual amount of emergency supplemental spending in the 1990s—a decade that saw interventions in Iraq, Somalia, Haiti, Bosnia, and Kosovo—was just $13.8 billion. … The costs of the war may be necessary and temporary, but they are by no means sudden or unforeseen. The war in Afghanistan started in October 2001, and the war in Iraq commenced in March 2003. Furthermore, the easy-to-predict salaries and benefits of Army National Guard personnel and reservists called to active duty amount to some of the largest expenditures in the supplemental bills.

One final note: Democrats such as Franklin Roosevelt and Harry Truman reduced domestic spending to help finance, at least in part, war spending. Bush unfortunately has chosen to increase domestic spending at the same time that the defense budget has grown.

Victory for “Laissez Faire”

I just talked to Brad Stevens, who runs the customized card programs and much else at Starbucks, about how the company came to reject customers’ request for customized cards featuring the call to arms “Laissez Faire.” In my Wall Street Journal article on Monday, I noted that customers had had requests for “Laissez Faire” rejected, while “People Not Profits” and “Si Se Puede” were approved. I wondered “just what the company’s standards were. If ‘laissez-faire’ is unacceptably political, how could the socialist slogan ‘people not profits’ be acceptable?”

Stevens assures me that the company has no intention of approving or rejecting personal messages on the basis of ideology. Only a very small number of requests are rejected by the review team at the contractor who actually fulfills the orders, mostly because they are obscene, are insulting to the company or to a specific person, infringe on trademarks, are overtly political, or in some other way associate the Starbucks brand with images the company doesn’t want. Thus, for instance, they have rejected such messages as “Democrats Suck, Republicans Blow,” “Vote Democratic for a Change,” “Impeach Bush, Vote Hillary,” and “I Love GWBush and Cheney.” They also, according to their records, rejected “Fair Trade,” odd since the company boasts that it is “North America’s largest purchaser of Fair Trade Certified coffee.” It may be a sensitive term, though, since “fair trade” campaigners continue to criticize the company.

Stevens says the rejection of “Laissez Faire” was just an unintended outcome of the instructions that the company gave its supplier. And indeed, Jonathan Adler reports today on the Volokh Conspiracy that a VC reader inspired by my op-ed has received his Starbucks Customized Card proudly carrying the message “Laissez Faire.”

And by the way, just in case anybody is confused, of course I think a company has the right to set any rules it wants to for its customized cards. If a company wants to allow “Obama for President” and reject “McCain for President,” it has every right to do so. That’s what laissez-faire means! But customers annoyed by the policy have a right to expose it, complain about it, or take their business elsewhere.

In this case the market worked, “Laissez Faire” cards are fully acceptable, and my Starbucks-addicted colleagues can breathe easy again.

Topics:

The Folly of Dismissing the Effects of Entitlements on Fertility

Steve Entin recently wrote in the Wall Street Journal (“The Folly of ‘Family Friendly’ Tax Policy,” April 9, 2008; Page A15): “…proponents of greater family tax credits also claim that society owes families a big child credit because the children will face huge payroll taxes to support childless retirees who never paid to rear the next generation. Another claim is that payroll taxes make it hard for families to afford children, and we need families to have more children to pay for Social Security and Medicare. These arguments don’t wash. Most people have children because they want them, not because the state needs future taxpayers to fund social programs.”

On the 1st claim of the child tax credit proponents: Higher child tax credits today would strengthen the defense against cuts in future benefits by everyone, and especially by childless retirees.  But that goes in the wrong direction relative to what’s required–cutting future benefits because they’re not payable, even under today’s high payroll taxes.

On their 2nd claim: If payroll taxes are a hurdle to procreation by young adults, the correct remedy should be to lower them rather than introduce yet another entitlement for young adults in their children’s names – which they would use to extract resources from those children in the future by way of retirement benefits. But today’s high payroll taxes on parents are not for saving and investing for their own future retirements.  Those taxes are for paying benefits to today’s retirees under our pay-as-you-go Social Security system.  Cutting payroll taxes, therefore, would require today’s retirees, in turn, to accept smaller benefits—which is, of course, a big no-no for proponents of child-tax credits.

According to Mr. Entin, however, both of these claims don’t wash because of the rather tepid idea that people have kids because they want them, not because they (or the state) wants more future taxpayers.

However, according to studies on the potential links between fertility and entitlement spending, (for example, Michele Boldrin’s) it appears that fertility rates correlate negatively with generous government entitlement expenditures across countries.  They also correlate negatively with better access to financial markets which enables people to securely transfer purchasing power to old age. So positive fertility seems to reflect, however indirectly, a desire to “save/invest” for the future in the absence of other public and private vehicles of achieving economic security during old age.

The bottom line: Along with its well-established negative impacts on saving/investing and labor supply, unfunded entitlement promises potentially erode yet another pro-growth factor–fertility.  An estimate of net benefit promises to current adults under current entitlement policies – compiled from various tables of the latest Social Security and Medicare Trustees’ reports – shows that such underfunding amounts to $44 trillion in present discounted value!  That’s a promise of almost $200,000 in today’s dollars of future Social Security and Medicare benefits for each person aged 15 and older today.  Why would you, then, work, save, and have children to safeguard your future?