Britain’s “Incapacity” Racket

The United Kingdom has an “Incapacity” program for people allegedly unable to work. And like the “Disability” portion of America’s Social Security program, the British system is a magnet for fraud. The Times reports that more than $8 million was paid to people who are “too fat” to work. But this is a drop in the bucket compared to the people receiving handouts for mental health reasons. In an obvious sign that people are scamming the system (unless the UK’s government-run health care system is even more dangerous than current stories suggest), the number of people who are ostensibly incapacitated has tripled in less than 30 years:

Almost two thousand people who are too fat to work have been paid a total of £4.4 million in benefit, it emerged last night. Other payments went to fifty sufferers of acne… Billions of pounds is being paid in benefits to people claiming to be unable to work because they suffer from depression, stress, fatigue and unknown or unspecified diseases. …Frank Field, a former Social Security Minister, said last night that too many people were working the incapacity benefit system to avoid work. “It is a racket, which governments have allowed to exist for far too long. I do not blame people for working the system, it is the job of politicians to stop them doing it.” …The number on incapacity benefit has more than trebled since 1979… More than £2 billion was paid in 2006-07 for mental health complaints, including £518 million to those with what are described as “unknown and unspecified” diseases.

Corporate Tax Lobbying

In the popular media, Capitol Hill is swarming with corporate tax lobbyists pushing lawmakers to enact unjustified loopholes for their businesses. Sometimes that is true, but probably more often businesses are on the Hill fighting against unjustified revenue grabs by politicians trying to soak them with tax hikes invisible to the general public.

The big tax bill recently introduced by House Ways and Means chairman, Charles Rangel, provides many examples of unjustified revenue grabs. A corporate tax lawyer sent me a one-pager on proposed changes to LIFO inventory accounting:

LIFO in a Nutshell

Among provisions of Chairman Rangel’s “Tax Reduction and Reform Act of 2007” is repeal of the LIFO method of valuing inventory. According to scoring by the Joint Tax Committee, repeal would raise additional tax revenue of over $100 billion over ten years. Although complicated in its details, the rationale for LIFO is both simple and sensible – the best way of measuring the income of businesses with rising costs of supplies … LIFO is an abbreviation for “last-in-first-out”. This is opposed to the other common inventory accounting convention which is “FIFO” for “first-in-first-out” … LIFO is considered a more accurate accounting method when inventory costs are rising, by taking into account the greater costs of replacing inventory. This gives a better measure of both the financial condition of the business … After thorough consideration of the issue by the Congress, LIFO came into the tax law in 1939.

To sum up: Out of the view of average voters, Mr. Rangel wants to change established law of seven decades to shake an added $100 billion (that’s with a “b”) out of U.S. manufacturers, in a way that apparently doesn’t make any economic sense and will damage their competitiveness, while federal revenues are pouring into the Treasury and have already risen above historically normal levels.

Three cheers for the corporate tax lobbyists who fight this sort of nonsense!

Supreme Court To Hear Landmark Case

The Supreme Court just announced that it will decide a landmark lawsuit concerning the constitutionality of the District of Columbia’s ban on guns. This is terrific news. My colleague, Bob Levy, senior fellow in constitutional studies here at Cato, is the prime mover behind the lawsuit. The whole idea of challenging the DC ban several years ago was to get a good Second Amendment case to the Supreme Court, i.e. plaintiffs who were responsible people who simply wanted to keep a handgun in their home for self-defense purposes. The Court will be hearing arguments in the case early next year and we can expect a ruling in the case by late June.

For a quick podcast interview with Bob Levy about the lawsuit, go here (or subscribe via iTunes). To listen to or watch a Cato policy forum about the lawsuit, go here. For Cato scholarship about the right to keep and bear arms, go here. For lawyers and law students interested in all the details about the lawsuit, go here and here.

Tax Agency Failures

Laptops lost with taxpayer personal information. Sluggish bureaucracy. Massive fraud from tax credit schemes. Tax credits called a “nightmare” of complexity. Thousands of administrative errors and unwarranted penalty notices.

Sounds like the IRS. But it’s another country with a high-rate, loophole-ridden income tax. The United States is not the only country that needs a flat tax.

Derek Jeter Battles the New York Tax Bureaucracy

The Wall Street Journal opines on the New York government’s attempt to extort more money from the Yankee shortstop. The most interesting revelation is that Jeter apparently followed the rules and avoided being in the state for more than 183 days, but the tax collectors want to apply a different rule simply because Jeter has expressed his “love for New York.” Who knew free speech could be so expensive?

New York’s tax bureaucracy…has made a refugee out of one of its most famous icons. …Who can blame him? Florida has no personal income tax, while New York’s rate for the top bracket is 6.8%, rising to [10.5]% in New York City… That makes for one of the worst tax burdens in America – and politicians are proud of it. …New York tax laws also take a notoriously wide view of “residency.” Literally tens of thousands of people only work in-state Tuesday to Thursday each week to avoid spending the requisite 184 days per year that would subject their full income to the state tax regime. And Albany’s taxmen try to catch them with things like travel records, credit-card usage and phone logs. …state auditors don’t dispute that his primary residence was in Florida before 2001 or after 2003, or even that he spent most of the year down south over the target period. Rather, they’re employing the more subjective “domicilery test.” They point to Mr. Jeter’s Manhattan apartment, his “numerous public statements professing his love for New York,” and allege he has “immersed himself in the New York community.” Gosh. Yankee owner George Steinbrenner is also a primary resident of Florida, no doubt for the same reasons as Mr. Jeter and who knows how many other professional athletes.

There are broader lessons to be learned from this episode. First, taxpayers respond to incentives, even if politicians like to pretend that high tax rates don’t impact behavior. Second, federalism is a good idea because it creates both good examples and bad examples. Third, maybe if New York wasn’t such a high-tax hell-hole, my beloved Yankees could concentrate on reclaiming their birthright by winning the World Series.

Hopkins on Gerson

Kara Hopkins has an elegant review of Heroic Conservatism, former Bush speechwriter Michael Gerson’s book, over at The American Conservative. Worth reading in full, but here’s a taste. Gerson on war:

Shortly after Gerson began scripting Bush, reporters noticed Biblical phrases creeping into the presidential rhetoric and wrote, with cryptologist’s glee, that Bush was sending coded messages to his Christian base. The truth was more perverse. As Presbyterian minister Fritz Ritsch noted, when Bush alluded to the hymn “There’s Power in the Blood” in a State of the Union text, he spoke of the “wonder-working power” not of the “precious blood of the Lamb” but of “the goodness and idealism and faith of the American people”—the world’s substitute saviors. Similarly, the president referred to the U.S. as “the light of the world,” which the “darkness” has been unable to put out—a clear invocation of John 1:1-5. As evangelical pastor Gregory Boyd pointed out, “In this paradigm, what applies to Jesus (“the light of the world”) can be applied to our country, and what applies to Satan (“the darkness”) can be applied to whomever resists our country. We are of God; they are of the Devil. We are the light; they are the darkness. Our wars are therefore ‘holy’ wars. With all due respect, this is blatant idolatry.”

And on Gerson’s big government conservatism:

[None of this is] to say that social justice isn’t a Christian concern. But Gerson is more stirred by abolitionists and activists like William Wilberforce and Martin Luther King Jr., and the sweeping social change they wrought, than he is by Christ’s own model, which was conspicuously short on political impact and long on individual acts of mercy. He implies that his giants—poverty, AIDS, illiteracy, genocide—are too big for hand-to-hand combat. Thus the Biblical call to “do unto the least of these”—the hallmark of which is personal sacrifice—must be replaced by government programs—the wellspring of which is coercion. If this constitutes an act of worship, it honors a failed god.

Again, worth a read. I haven’t seen Gerson get a favorable reading anywhere this side of the Ethics and Public Policy Center.

Consumer Product Info - Regulation or Markets?

60 Minutes had an interesting and balanced piece last night on proposals to mandate that fast-food restaurants promote calorie information by placing it directly on their menus.

This fits in a category of regulation that is increasingly prominent: mandated disclosure and promotion of product information. There are plenty of examples: financial privacy notices, real estate purchasing notices, nutrition labeling, etc.

If consumers had unlimited attention, the surfeit of notices would be an unqualified good thing. But consumer attention is not unlimited. Consumers quickly learn to ignore notices that don’t interest them. Notices can easily confuse consumers. Mandated notices often provide information that consumers would already get in more accessible ways.

Nutrition labeling is the sacred cow of mandated disclosure, of course, and mandating calorie notices in restaurants is one of its calves. Everyone who talks about nutrition labeling uses nutrition labeling and so can’t believe that anyone doesn’t. But it certainly hasn’t done anything to change the trend in U.S. obesity since the 1990 law requiring nutrition labeling went into effect.

Note in the 60 Minutes piece how proponents of calorie labeling really are just social engineers. They can’t outlaw you buying that Big Mac, so they’re going to put discouragement in your face using the intermediary of Mickey D’s. They mean well, but I’d just as well have them mind their own business.

Information about products and services is subject to market demand just like every other feature of the things we buy. If you don’t believe me, try running a grocery store without putting price tags on or near the canned peaches.