Bury Yesterday’s Bad Fish

By William A. Niskanen
November 19, 1998

The 105th Congress was the most unproductive in recent memory. Thank goodness. It came close to approving three very bad measures: the tobacco settlement, campaign finance reform, and HMO regulation. The Republican leadership deserves little credit for this outcome, for there were Republican versions of each of these measures and they died more by stealth and the pressure of time than by principled opposition. As a consequence, some version of each of these measures will probably surface again, like dead fish, in the 106th Congress.

Congressional Republicans are now trying to discover whether they have any common goals (other than re-election) following the debacle of the l998 election and the subsequent leadership contests. As part of this process, they should also consider whether they oppose any of the currently fashionable policy proposals on any basis other than the rate at which our freedoms would be restricted. A place to start would be an agreement to bury yesterday’s bad fish.

The omnibus tobacco proposal of 1998, fortunately, is dead. The anti-smoking zealots overreached, and the tobacco companies have recently agreed to a settlement with the state attorneys general. The Clinton administration, however, is expected to propose a large increase in the federal excise tax on cigarettes to reduce teenage smoking and to fund some of its favorite programs. The relevant principle here, if anyone cares, is that excise tax rates should be no higher than the incremental cost that consumers of the product impose on other parties. And both academic and government studies find that the current federal plus state excise tax rates on cigarettes are already higher than any reasonable estimate of the cost that smokers impose on other parties. The administration’s dubious logic is that adult smokers must pay a much higher federal excise tax in order to reduce the small percentage of cigarettes (illegally) sold to teenagers. All states now ban the sale of cigarettes to teenagers and have ample authority and incentive to enforce the ban. A higher excise tax on cigarettes would be bad policy and, for the Republicans, dumb politics.

Congressional Republicans are now trying to discover whether they have any common goals (other than re-election) following the debacle of the l998 election and the subsequent leadership contests.

Campaign finance reform, unfortunately, is a hardy perennial because limits on campaign contributions serve several powerful interests: incumbents, candidates with substantial personal wealth and those with easy access to the media. The current limits strongly bias the outcomes of our political system; of the 402 House incumbents who ran for re-election in 1998, for example, only 7 were defeated. The case for even tighter limits on campaign contributions escapes me. A legitimate concern about an undue influence of large contributors would be better served by a requirement for full and prompt disclosure of all campaign contributions of more than, say, $1,000 to any candidate.

Finally, the several proposals for an increase in the regulation of health maintenance organizations (HMOs), in the name of a “patient’s bill of rights,” would increase the cost of health insurance and the number of uninsured. One estimate is that the leading Republican proposal would increase average premiums by about 23 percent and the number of uninsured by about 11 percent. HMOs and other forms of managed care have been moderately effective in constraining the increase in medical care costs but at the expense of the usual problems of a “one-size-fits-all” package of services. The proposed regulation of HMOs would only lead to a more expensive “one-size-fits-all” package without resolving this dilemma. The only way out of this box is to increase the opportunity of individuals to chose their own health insurance, by allowing everyone to have a medical savings account or otherwise reducing the tax bias for employer-provided health insurance.

One might hope that the congressional Republicans will avoid their too frequent practice of making preemptive concessions to expected Democratic proposals. If they do, they should warn the administration not to revive the above three proposals — that yesterday’s bad fish should be buried.

William A. Niskanen is chairman of the Cato Institute and a former economic adviser to President Reagan.