November 1, 1999

by Peter J.M. Orvetti

Going For Broke
Seems Like Old Times
Next Stop Privatization?

Going For Broke

Supporters of bankruptcy reform legislation in the Senate think they may still be able to pass a measure this year, AP reports. Senate Majority Leader Trent Lott (R-Miss.) and Minority Leader Tom Daschle (D-S.D.) are working on compromise amendments. The bill was derailed earlier in the year by Democratic efforts to add farm relief and a minimum wage increase to the bill.

In "Bankruptcy Reform: Principles and Guidelines", an article appearing in Regulation, Joseph Pomykala wrote, "There is an urgent need for Congress to act expeditiously on the issue of bankruptcy. Reforms such as limiting eligibility, reducing property exemptions, and restricting the availability of the discharge, would substantially lower bankruptcy filings. Reform now, during good economic times, is especially imperative. If a recession occurs before reform measures are enacted, a sudden surge in bankruptcies would send a tremor through an already overburdened system. The repercussions, as in past episodes, could foster relief type legislation giving borrowers even more opportunities to renege on debts, thus fostering even higher bankruptcy rates, potentially to the point where bank failings and restricted credit would further the depth of an economic downturn."

In an article in the current issue of Regulation, "What's Wrong with U. S. Personal Bankruptcy Law and How to Fix It", Michelle J. White writes, "Congress is considering a bankruptcy bill (H.R. 833 ) that would fall far short of the reforms that are needed. H. R. 833 would keep both the Chapter 7 and Chapter 13 procedures, but a household would have to file under Chapter 13 if its income is above the national median at the time of filing and its disposable income is high enough to repay a fourth of its debt over five years. Households that file under Chapter 13 would be required to use all their earnings above a formula amount set by the Internal Revenue Service to repay creditors, for five years or until their debts are repaid in full. Chapter 13 thus would be much less attractive to debtors than it is now because H.R. 833 would, in effect, impose a 100 percent bankruptcy 'tax' on a household's future earnings above the formula amount. The Congressional Budget Office has estimated that about 5 percent to 10 percent of bankruptcy filers would be forced into Chapter 13 by the provisions of H.R. 833.

"The bill nevertheless has two major disadvantages. First, the present system, with all its problems, would remain in effect for all filers whose incomes are below the national median. Second, above-median-income households that are considering bankruptcy would have an incentive to lower their incomes and run up their debt before filing, to avoid being forced into Chapter 13. Members of such households might quit their jobs, reduce their work hours, or borrow money they do not intend to repay. Both debtors and creditors would lose as a result."

Seems Like Old Times

China continued to crack down on the Falun Gong spiritual movement last week, AP reported. Chinese police arrested members of Falun Gong in Tiananmen Square Wednesday as the government called for police restraint when dealing with practitioners who renounce the group. Police stepped up patrols and surveillance of Tiananmen Square after nonviolent Falun Gong demonstrations intensified; police questioned people at random and carried at least a dozen people suspected of being Falun Gong practitioners away in vans. Foreign journalists were ordered to exit the scene.

Ned Graham, president of East Gates International, spoke at the Cato Institute on "U.S.-China Trade Relations and Their Impact on Religious Activity in the PRC" in June: "We have been in an ongoing struggle to get our business partners, especially in the area of publishing, to become more transparent and to conform to internationally accepted standards of business practice. Over the years as our relationships have deepened, we have seen improvements in this area but there still needs to be greater consistency in how business is conducted in China from city to city and province to province. This is also true for the implementation of religious policy. We believe expanding U.S. economic ties with China and especially China's admittance into the [World Trade Organization] will continue to benefit religious organizations working in China by 1) Encouraging China's adherence to international law and a rules based trading system, 2) Facilitating China's civil society in developing it's rule of law and 3) Expanding personal freedoms for its population.

"China's WTO admittance, however, should not be granted carte blanche. Personally, I would like to see us encourage China to fully define and publish all policies, laws and rules governing religion. From the governmental level, all the way down to the township level, China should also be urged to publish and clarify all internal directives concerning Article 36 of its Constitution. China should also clarify (by written rule) exactly how it expects all officials (whether it is the Religious Affairs Bureau, the Public Security Bureau or local village officials) to interpret and implement these religious policies. It would also be helpful if there were either a set penalty for officials who violated these religious policies or a procedure for forcing their accountability and providing redress for individuals whose rights are violated…

"In closing I would like to briefly comment on the propensity of some leaders in the U.S. religious community who naïvely and publicly criticize China-often without firsthand knowledge or information that has been based upon unverified or exaggerated reports of what they are criticizing. When China sees religious leaders in the West using their religion as a political platform, engaging in 'high-decibel' China bashing, it only reinforces China's perception that most religions are Western and imperialistic and reinforces hard-liner belief that organized religion is actually a cover for insidious political activity. The misperceptions on both sides only serve to stress the relationship between the U.S. and China and ultimately harm religious practitioners in China and the Western organizations that seek to serve them."

Next Stop Privatization?

Amtrak reported record revenues for the past year, and bragged that ridership has increased for three consecutive years, AP reports. Amtrak took in $1.84 billion during the 1999 fiscal year, an increase in seven percent from fiscal year 1998. Ridership was just over 21.5 million, up two percent from 1998 and nearly 10 percent since 1997. A 1997 law prohibits Amtrak from using any federal funds for operating expenses after FY2002; Amtrak reported to Congress this week that it will meet that deadline.

The Cato Handbook for Congress (pdf) shows that the deadline makes the difference: "For over 25 years Amtrak, the government's passenger rail service, has operated in the red at the expense of American taxpayers. Although its services are neither essential for social equity nor a result of market failures, nearly 40 percent of Amtrak's costs are taxpayer subsidized. In 1997 Congress approved $2.2 billion to be spent over a two-year period for Amtrak capital improvements. It also authorized $5.16 billion between fiscal years 1998 and 2002 in operating subsidies and for other capital costs. Spending under that authority will be $1.058 billion in FY99. Meanwhile, Amtrak lost $760 million in FY96 and FY97. Much of Amtrak's subsidies is consumed by salaries and benefits for its overpaid employees. Amtrak's notoriously poor customer service, predictable tardiness, and clattery old coaches have caused it to lose its only legitimate source of funding-passengers. Since 1990 Amtrak has been losing passengers at a rate of 3 percent per year. Even Amtrak spokesman Clifford Black has said that privatization is a good idea, 'provided we're permitted to wean ourselves off of operating subsidies.'"

A Cato Policy Analysis from 1996, "Amtrak at Twenty-Five: End of the Line for Taxpayer Subsidies", examined the failed system: "Traditionally, there are two alleged justifications for taxpayer subsidies: market failure and social equity. Market failure occurs when the competitive market fails to provide (or provide enough of) an essential product or service. Concern for social equity arises when the competitive market price of an essential good or service is too high to allow access or purchase by people with low incomes. Amtrak fails on both counts. Amtrak's market share is so small that it contributes no meaningful enhancement to transportation system capacity. Train service supplies less than 0.5 percent of intercity trips annually, and it provides less than 0.007 percent of the daily work trips Americans make each year. As a result of Amtrak's low patronage, it does not divert a significant portion of traffic from busy highways or airports even in the Northeast Corridor. More U.S. communities are served by airports than by Amtrak stations. Taxpayer subsidies to Amtrak provide no benefit that is not more effectively provided by the competitive market. The smallest of the nation's 10 major airlines, for example, has double the intercity market share of Amtrak, measured in passenger miles. The intercity transportation market is competitive, vibrant, and characterized by high levels of service. Amtrak subsidies cannot be justified by the theory of 'market failure.'

"Taxpayer subsidies to Amtrak do not increase social equity either. Three-fourths of Amtrak passengers have household incomes that surpass the national average. Amtrak serves a far smaller percentage of travel by people with low incomes than do buses and private vehicles. There is no question that, for many people including the authors, it is fun to ride the train. A long rail trip across the West can constitute a memorable vacation. But the real issue is, Who should pay for those kinds of trips? Riders or general taxpayers? Amtrak can be profitable but only if Congress puts it back on track by weaning the railroad from federal subsidies. For 20 years, Amtrak supporters have promised that self-sufficiency is 'just around the corner.' Now is the time for Amtrak to turn that corner."