Calling All Conservatives

The most important thing to happen to health care reform this year is not Michael Moore’s film SiCKO. It is an editorial in the July 9 issue of National Review.

National Review’s editors declared that conservatives and other free-market advocates should reject the goal of “universal coverage” that has seduced health care reformers left, right, and center. The editors write:

[T]o achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it…

The health-care debate has centered on the uninsured. That so many people do not have health insurance is a consequence of foolish government policies…

Republicans should go in a different direction, proposing market reforms that make insurance more affordable and portable. If such reforms are implemented, more people will have insurance…

Some people, especially young and healthy people, may choose not to buy health insurance even when it is cheaper…Forcing them to get insurance would…lead to a worse health-care system for everyone because it would necessitate so much more government intervention. So what should the government do about the holdouts? Leave them alone. It’s a free country.

Libertarians and conservatives have fought a decades-old war over the direction the conservative movement should take on health care reform. One such skirmish will take place at a Cato Institute Capitol Hill briefing this Thursday on the Massachusetts health plan.

The editors of National Review have planted their flag on the side of less government and more freedom. Kudos to them. That should help conservatives coalesce around health care reforms that explicitly reduce the role of government, thereby enabling markets to make health care of ever-increasing quality available to an ever-increasing number of people.

An Almost-Ideal Plan to Fix the AMT

Kevin Hassett’s column proposes to solve the problem of the alternative minimum tax by dramatically lowering the top tax rate, a step that could be financed by eliminating the state and local tax deduction and ending the exclusion for municipal bond interest. While a very attractive proposal, the plan has a couple of less-than-perfect features, primarily the fact that it assumes the aggregate tax burden should rise. Admittedly, this already is going to happen if the AMT is allowed to fester (which will happen if current law is not changed), but acquiescing to a higher tax burden should never be an option. Moreover, his approach to municipal bond interest also is appealing since current law creates an advantage for debt-happy state and local governments over other interest-bearing investments, but eliminating the double tax on all forms of interest is the ideal way of fixing this inequity:

…the AMT problem is easy to fix in a way that should have bipartisan appeal. The key observation is this: most of the special items, such as the state and local tax deductions, that put taxpayers on the AMT mostly benefit wealthy people. After all, most ordinary folks don’t even itemize. Thus, if Congress is raising marginal tax rates to preserve the current system, they are effectively giving rich taxpayers money with one hand, when they allow them deductions, then taking the money back with the other, by raising marginal rates. Talk about needless complexity. It is a fool’s game, and it’s not all that hard to stop. Just eliminate or cap the deductions. To illustrate how beneficial that would be, the Tax Foundation recently estimated how big a revenue-neutral tax reduction you could fund by eliminating the big-ticket deductions and exclusions in the tax code. That is, they imagined a world with no state and local income deduction and no tax exclusion for municipal bond interest. They found that eliminating those items would allow a proportional tax-rate reduction of about 31 percent. That would take the top tax rate down from 35 percent to 24 percent. They also found that eliminating the deductions took just about everyone off the AMT. That was scored to raise the same revenue as the current code. In the real world, it would surely raise more as the low rates spurred economic activity. Such a reform is too bold to be considered bipartisan, but the key observation is this: It’s not difficult to conceive of a revenue-neutral reform that eliminates the AMT, drops tax rates by almost a third, and improves the overall efficiency of the economy. In that case, it is child’s play to conceive of half- measures necessary to eliminate the AMT and leave tax rates where they are today. Instead of eliminating the state and local tax deduction, for example, you could cap it at $10,000. The revenue gained from that could help you fix the AMT, without requiring marginal tax-rate increases.

At Least Somebody’s Listening (If Only It Were U.S. Policymakers)

Today’s Wall Street Journal reports (sub. req.) that the European Union is considering implementing a change that I have long advocated the United States implement: graduating China to market economy status for purposes of antidumping proceedings.  Among the reasons given in the article for the prospective change is that doing so might make it easier for Europe to “extract a range of concessions” from the Chinese on other issues deemed crucial to the trade relationship.

Though they have been stubbornly resistant, U.S. policymakers should be doing the same thing for the same reasons.  When we hear about the issues that define the U.S.-China trade relationship, those issues read like a litany of U.S. gripes.  The Chinese should: stop subsidizing industry; stop manipulating the currency; stop engaging in unfair labor practices; stop dumping; stop stealing intellectual property; stop imposing behind-the-border barriers; start opening services markets; start allowing uninhibited foreign ownership, start being a responsible stakeholder, and on and on.  (The presumption being that fulfillment of American objectives is the chief aim of Chinese policy.)

Can you name a single Chinese demand of the United States?  Well, there are several, but none of them are really “demands.”  They are requests, pursued diplomatically through ongoing dialogue and without a lot of political grandstanding. The single most important wish of the Chinese on the trade front is that they be given market economy status.  More than anything else, I believe, China’s interest in achieving that status is driven by a desire to be treated respectfully by the international community.  The non-market economy label carries a Cold War stigma and, in any event, is misapplied in the case of China, where the economy is increasingly market-oriented, if not market-based, by most metrics.

Under current European and American antidumping practices, China’s NME status means its rates of duty are not based on a comparison of prices.  Instead, they are based on a comparison of the Chinese company’s export prices to a fictitious guestimate of what the price would be in China if prices were in fact determined by market forces.  Got it?  Right!  NME rates tend to be higher than ME rates, but in any event are totally divorced from commercial reality.

Graduating China to ME status does not mean that Chinese exporters would be immune from antidumping allegations and actions by U.S. industries.  No, they would still be subject to a law that routinely produces high, and sometime prohibitive, tariffs.  But graduating China to that more respectable status would engender much good will and would likely inspire greater willingness among the Chinese to work with U.S. negotiators to resolve outstanding differences.

Ironically, the U.S. interests that are opposed to changing China’s status are the same interests that endorse the litany of gripes against China.  Eventually, they may smarten up like their European brethren and do the right thing.

Free Speech, Loophole, or Partisan Politics?

One of the things I find striking about today’s Supreme Court rulings is the extent to which the free-speech angle is downplayed in media coverage of the Wisconsin Right to Life decision. Consider the LA Times write-up of today’s decisions:

The Supreme Court gave President Bush and Republican leaders two important victories today by clearing the way for corporate-funded broadcast ads before next year’s election and by shielding the White House’s “faith-based initiative” from challenge in the courts.

The term “speech” only appears twice in the coverage of the decision, and in both cases they’re in quotes of the majority decision. The reporter never describes the case as a free-speech case himself. And let’s be clear here: “corporate funded” doesn’t mean ads funded by Exxon-Mobil or Microsoft. In this particular case, it was a pro-life organization—a grassroots non-profit—that was being prevented from promoting its views on television. The NRA, the ACLU, the Sierra Club, and dozens of other genuine issue advocacy organizations had their free speech rights curtailed by BCRA. Now check out the coverage of the “Bong Hits 4 Jesus” case later in the same story:

In a third ruling, the court gave school principals the authority to discipline students who advocate the use of illegal drugs at schools. Roberts said the court was not rejecting the notion that high school students had free-speech rights, but rather making clear that these rights were limited, especially when students advocated in favor of illegal drugs.

The decision reversed a free-speech ruling in favor of a high school student from Juneau, Alaska, who had been suspended for holding up a banner that read “Bong hits for Jesus.”

So the right to unfurl a “Bong Hits 4 Jesus” banner is a free-speech issue, but the right to air television ads critical of elected officials is just partisan politics.

You see the same sort of bias in the New York Times coverage of the ruling. The word “speech” doesn’t appear in the story until the fifth paragraph, at which point it’s used in the following sentence: “Its detractors see it as interference with free speech.” In contrast, in the second paragraph, the article states that “the high court opened a significant loophole in the Bipartisan Campaign Reform Act of 2002.”

On the other hand, the headline in the Times write-up of the “Bong Hits” case is: “Supreme Court Limits Students’ Speech Rights.” The article starts off by saying ” The Supreme Court tightened limits on student speech Monday.”

So when a high school principal prohibits a student from displaying a nonsensical “Bong hits 4 Jesus” sign, that’s a restriction on the student’s speech. However, when Congress tells Wisconsin Right-to-Life and the ACLU that they’re not allowed to buy ads criticizing elected officials in the month before an election, that’s merely closing a loophole in campaign finance law.

Deja-vu All Over Again

The Wall Street Journal reports today (subscription barrier) that Philadelphia’s experiment with contracting out the operation of public schools to private providers is in jeopardy. Despite showing improvement since the contracting arrangement was introduced six years ago, a budget crunch is now being used as an excuse by district officials to demand that the program be shut down.

This is EXACTLY what happened to the school management firm Education Alternatives Inc. in Baltimore during the early 1990s. EAI was awarded a contract to run some of the city’s schools, the city subsequently spent itself into insolvency, refused to pay EAI what it was owed, and unilaterally cancelled its contract. I wrote about it all here.

For both practical and political reasons, contracting arrangements like these are dramatically inferior to real market reforms like universal education tax credits or school vouchers. Under these arrangements, schools are still bound by districts’ collective bargaining agreements, and sometimes even remain employees of their districts rather than of the private management firms. Students often continue to be assigned to schools based on their place of residence, rather than having a choice, so instead of creating an educational marketplace these programs simply subcontract the existing monopoly.

Politically, such programs are under constant threat of termination on the slightest pretext – usually budgetary as in the cases mentioned above. For any school choice program to create real, lasting market forces, funding has to be attached to the children and not pass through political or bureaucratic hands before making it to schools. The ideal such program is a tax credit (see link above) that avoids having education funds collected by the state in the first place, while still ensuring universal access to the marketplace.

Regulatory Burden Reaches Record Level

George W. Bush has been a big spender, but he also is increasing the burden of government in other ways. As explained in a piece for Investor’s Business Daily, government red tape has climbed to all-time highs:

…there is much more to government’s reach in the economy than direct spending. The costs to the public of complying with federal health, safety, environmental and economic regulations appear nowhere in the federal budget. Economist Mark Crain’s research for the U.S. Small Business Administration finds that in 2006 regulatory compliance cost Americans $1.14 trillion. Astoundingly, that approaches half of last year’s total federal spending of $2.6 trillion, and exceeds 9% of U.S. GDP… Agencies publish regulations in the Federal Register, the daily depository of all federal rules and regulations. In 2006, the Register swelled to 74,937 pages, the second-highest level in history (the highest was 2004). Within those pages, agencies issued 3,718 final rules. …the 60-plus federal departments, agencies, and commissions are at work on 4,052 more rules. Of these, agencies report 139 are “economically significant,” which means they will cost at least $100 million — often far, far beyond — while 787 are expected to affect small businesses. …Almost 4,000 new rules every year is a lot of “regulation without representation.”