Justice Dept Backs Up After KPMG Ruling

The New York Times reports that the Justice Dept. is rolling back its bullying tactic of penalizing companies that reimburse their employees’ legal fees during investigations and trials.  This move is mostly show–to make the feds seem reasonable and open to suggestions.  But it is really just a reaction to the department’s defeat in today’s KPMG case (pdf) and a lame attempt to stave off legislation that would be more meaningful and permanent.

Attorney Richard Janis details these issues in this new Cato report.

For still more background, go here, here, and here.

The Uncool Animal Farm Bill

Congress believes some Americans are more equal than others. How else could it have passed (by overwhelming margins and over a presidential veto) the 2008 Farm Bill, which amounts to about a $7 billion annual transfer from the pockets of American taxpayers to high-on-the-hog agribusinesses?

To leave no doubt that these “farmers” are the exalted class, Congress included a truly Orwellian set of requirements referred to euphemistically as “Country-of-Origin Labeling” (COOL) for agricultural products like beef, chicken, pork, lamb, vegetables, and fruit.

COOL is justified by its proponents as a means of helping consumers make informed decisions. But COOL is nothing more than a ploy to thrust the marketing costs of U.S. producers on processors, packers, wholesalers and retailers, while stimulating demand for U.S. beef, chicken, pork, vegetables and the like by raising the costs of handling imports. And with the supermarket industry operating at about one to two percent profit margins, there isn’t any doubt about who will be flipping the bill.

A story in today’s Wall Street Journal gets right to the bottom line in its opening paragraph: “Grocery bills, already surging because of higher commodities costs, will almost certainly rise as costs are passed along for implementing a new country-of-origin food-labeling law, the supermarket industry says.”

The Department of Agriculture estimates first year compliance costs for entities in the supply chain to be $2.52 billion. But USDA grossly underestimated the cost of implementing COOL for fish and shellfish in 2005: the actual costs were 6 to 11 times higher than estimates.

COOL provisions for agricultural products were originally included in the 2002 Farm Bill, but implementation (for all but fish and shellfish) was stopped by congressional moratorium, as a debate, in which proponents used fears of mad cow disease and other health concerns, raged on. In a 2004 Cato Institute paper on the topic, I wrote

Proponents argue that mandatory COOL is desired by both producers and consumers. A “made-in-the-USA” label, they contend, would help identify U.S. products for consumers who are otherwise unsure and who may be willing to pay a premium to know they are buying American food.

That sounds fair enough. But there’s more to the story. If, in fact, consumers are overwhelmingly in favor of country of origin labeling, then why haven’t domestic producers voluntarily obliged? After all, if there is demand for it, why does there need to be a law mandating it?

Proponents argue that the costs of implementing COOL are small, yet none of them has been willing to implement it voluntarily. Instead, they have been expending considerable time and money to force those requirements further down the supply chain. Processors, wholesalers, and retailers-firms that buy and sell both domestic and imported products-would incur the costs of segregating inventory, keeping records, constructing and maintaining compliance systems, and often physically labeling products. Burdensome compliance costs may induce those firms to limit their sources, in some cases to only domestic suppliers.

Although consumers may be interested in having country of origin information, it is a relatively unimportant determinant of the purchasing decision. If it were important, consumers would be willing to pay higher prices for products labeled with that information, and producers would supply that information voluntarily if the increase in revenues exceeded the increase in the costs of providing it. That such information is not provided voluntarily indicates that any preference for commodities of U.S. origin is marginal.

Mandatory labeling is nothing more than a scheme to pass on what should be the marketing costs of U.S. producers to other firms in the supply chain. It is also intended to drive up the costs and reduce the revenues of businesses that produce, process, distribute, and retail imports.

What was true in 2004 remains true today. Only this time Congress succeeded in doing the bidding of our “more equal” farmers.


Keep on Rolling

The global tax revolution rolls on. From this week’s International Tax Review:

Kazakhstan’s corporate income tax rate will be cut in half over the next three years after the country’s president approved drafts of the new tax and budget codes.

The new rate of corporate income tax will come into force yearly, decreasing from 30% to 20%, 17.5% and 15% by 2011.

“A lower corporate tax rate will assist in the development of an attractive fiscal environment, which will stimulate the retention of income in Kazakhstan,” said Zhanna Tamenova, head of tax and legal services at Ernst & Young, Kazakhstan.

“It will also encourage a more competitive business climate compared to other jurisdictions, especially neighbouring countries,” Tamenova said.

New European Regulation Belongs in the This-Can’t-Possibly-Be-True Category

According to the Irish Times, European Union bureaucrats in Brussels have decided that people no longer should be allowed to eat cakes, tarts, and other treats entered in baking competitions. American bureaucrats love to concoct senseless rules, but can anyone think of a regulation in the United States that matches this gem?

New EU regulations have banned the consumption of cakes and confectionary entered at country fairs and agricultural shows immediately after baking competitions.

The chairman of Mayo County Council, Cllr Joe Mellett, said the new rules were the “death knell” for the Irish agricultural show.”

When you see things like this it’s no wonder the people voted No to the Lisbon Treaty. This will be the end of the traditional baking competition at local shows across the country, therefore impacting on local revenue. It’s just ridiculous.”

Under the rules adjudicators of bakery sections in local shows are only permitted to taste the traditional favourites such as apple tarts or cheese cakes. Once the judging is over, the produce must be immediately destroyed. As a result, only bite-sized versions of the cakes will be entered in shows…

…Mr Mellett, one of the founding members of his own local agricultural show in Swinford, said he “could not believe” the latest EU directive.

“Honestly, when I saw this first I thought it was something to do with April Fools’ Day. I just couldn’t imagine someone sitting down and coming up with this rule.”

The Predictable Fallout from Doha

Following the collapse of the Doha round of multilateral trade negotiations last month, WTO members have chosen to pursue their trade objectives through litigation.

Brazil (through its foreign minister, Celso Amorim) said Wednesday (eastern Australian time) that it plans to ask for billions of dollars of punitive damages from the United States in retaliation for U.S. cotton subsidies (more on that dispute here). The precise figure has yet to be released, but the United States has lost at every point in this dispute and although the Office of the United States Trade Representative plans to defend the subsidies “vigorously,” another loss for the U.S. would be expected. (Note that in WTO litigation proceedings, ‘damages’ aren’t paid by check; rather, the aggrieved member is given permission to retaliate by suspending its own obligations to the errant member. Usually this involves the injured party raising tariffs on the errant member’s exports, economically insane though that action might be.)

The United States has joined the melee by making preliminary legal moves of its own–against China. In a communication to the WTO posted on Monday, the United States listed its grievances as a series of questions to China about its allegedly discriminatory tax treatment for domestically-reared pork, as well as other subsidies. The United States has pitched these questions as part of the “transitional review mechanism” that was part of the deal when China joined the WTO but it could form the basis of a dispute settlement action if the questions aren’t addressed to the United States’ satisfaction.

The collapse of the Doha round, as well as political pressure to enforce the terms of trade agreements and to save special firepower for China, is bearing predictable fruit.

Noble Populism

Is populism a good and noble cause that could never be associated with bigotry? NPR host Liane Hansen seems to think so. On NPR’s “Weekend Edition Sunday,” she interviewed Christopher Hedge, who composed the music for a PBS documentary on Andrew Jackson. When Hedge called Jackson a populist, Hansen objected. What about his treatment of slaves and Indians? she asked–that doesn’t sound very “populist.”

Oh, dear. What does Hansen think populism is? The term can have many meanings, but it certainly seems to mean the rallying of “us” against “them.” Sometimes that means “the masses” against “the elites”–whether political or economic. But frequently those elites include Jews or Americans or other groups perceived to be more economically successful than they deserve. Eastern Europe’s populist parties these days fulminate against free markets and against Jews, Gypsies, and other ethnic minorities. No one seems to have any doubt that that’s what populists do. A leading American Populist politician, Tom Watson, railed against Catholics, blacks, and Jews as well as against “the corporations” and sound money. So did Pitchfork Ben Tillman, who implemented Jim Crow in South Carolina. Not all American populists were racists; many wanted to organize poor blacks and poor whites to defeat corporate interests. But the combination was common.

As for Andrew Jackson, he was in many ways a great fighter for freedom and democracy. But NPR’s researchers need to do some research on the attitudes of Jackson’s white working-class supporters toward blacks and Indians. You can bet they didn’t think other races were part of “us.”

New Income and Poverty Figures Spoil the Pity Party

The Census Bureau’s release this morning of the latest income, poverty and health insurance numbers did not follow the script of those who want to paint a picture of a nation in crisis.

Opponents of free trade, immigration, and limited government constantly tell us that the middle class is shrinking, the poor are getting poorer and more numerous, and the number of Americans without health insurance is climbing inexorably. Their solution is always to restrict trade and immigration and launch expensive new programs to alleviate the obvious misery.

Spoiling the pity party is this morning’s widely anticipated report, “Income, Poverty and Health Insurance Coverage in the United States: 2007.” Among its major findings:

  • The number and percentage of Americans without health insurance actually declined slightly in 2007 compared to 2006. The share without insurance in 2007, 15.3 percent, is actually lower than it was a decade ago.
  • Median household income is not falling: “Between 2006 and 2007, real median household income rose 1.3 percent, from $49,568 to $50,233—a level not statistically different from the 1999 prerecession income peak.”
  • The share of households earning a middle-class income of between $35,000 and $100,000 in real 2007 dollars has indeed shrunk slightly compared to a decade ago, but so too has the share earning less than $35,000 a year, while the share earning more than $100,000 continues to rise. The middle class is not shrinking; it is moving up.
  • The 12.5 percent of Americans living below the poverty line in 2007 was statistically unchanged from 2006, and remains below the 13.3 poverty rate in 1997. The poverty rate has been trending downward since the early 1990s during a time of growing trade and immigration flows.
  • The Gini coefficient, a statistical measure of income inequality, was .463 in 2007, down slightly from earlier in the decade and virtually the same as it was a decade ago.

We can argue all day about what policies should be adopted to spur growth and higher incomes for the broadest swath of Americans. We certainly have plenty of ideas here at Cato. But it flies in the face of reality to argue that the major indicators of economic well being in America are trending downward in some sort of crisis that demands sweeping government intervention.