Archives: 06/2012

Adler on How the IRS Is Rewriting ObamaCare to Tax Employers

Jonathan H. Adler is the Johan Verheij Memorial Professor of Law and director of the Center for Business Law and Regulation at Case Western Reserve University.  In this new Cato Institute video, Adler explains how a recently finalized IRS rule implementing ObamaCare taxes employers without any statutory authority.

For more, see this previous Cato video, “States Should Flatly Reject ObamaCare Exchanges”:

See also our November 2011 op-ed on this IRS rule that appeared in the Wall Street Journal.

Niskanen and Discriminatory Democracy

William A. “Bill” Niskanen’s book Bureaucracy and Representative Government (Chicago: Aldine, Atherton, 1971) has not received the attention it deserves. Although Niskanen himself may not have fully realized it, the argument offers explanatory insights into the apparently inexorable growth in the collectivized share of valued resource usage. Until and unless political economists and the citizenry come to understand the workings of the institutional structure, governmental action will continue its dramatic increase that described the twentieth century.

Niskanen concentrated analysis on the role of bureaucratic agency in generating pressures for budgetary expansion. The formation and subsequent existence of a designated agency charged with the functional provision of program services, including transfers, insures the omnipresence of an advocacy group which complements and even initiates identifiable sets of beneficiary end-users. Demands for increasing and ever-larger budgets build up with essentially no opposition.

Consider, by way of comparison, the introduction of a valued good or service in the market sector of the economy. Potentially benefited end-users may exhibit latent demand for the product, and potential suppliers will recognize profit opportunities. Production followed by mutually advantageous exchanges follow in which end-users give up their demands for other valued goods. The process is driven by the offsetting pressures—on demanders to increase their utilities by giving up less preferred for more preferred goods and on suppliers to enter exchanges in the other direction as a means of increasing rents. Through marginal adjustments, the market comes into balance. Exchange ceases at the point where neither demanders nor suppliers see further opportunities for gain. There is no gain to be secured by extending production consumption toward satiety.

For the demander-user of a collectivized good or service, the decision calculus is different, in that there is no direct linkage between the quantity of the good demanded and the nonvoluntary payment exacted as the budgetary size changes. The rent seekers and rent holders in bureaucratic positions join constituency beneficiaries in exerting pressures for budgetary expansion, and they face only vague, disorganized, and nonidentified sets of general taxpayers.

The ultimate fiscal “exchange” is necessarily unfair in that the two sides cannot be brought into some rough but unbiased balance that might generate results closer to widely-accepted efficiency norms. Until and unless, the rules are modified specifically to correct for the bias noted, the collectivized sector must increase in relative size, at least to aggregate supply side limits on revenues.

Both hard-nosed positive analysis and imaginative normative proposals for institutional innovation are needed.

This post is intended as a memorial tribute to Bill Niskanen, surely one of the stalwarts of modern classical liberalism. But it may also be interpreted as a call to arms for an intellectual battle against the natural forces of the cultural evolution that push us toward the discriminatory limits that convert “democracy” into a pejorative term.

The Greek Vote Solves Very Little

Predictably, Europe’s great-and-good have been thrilled by the Greek vote over the weekend. It may indeed be possible for the pro-bailout parties in Greece to put together a parliamentary majority, but what then? The Greek economy is still in a downward spiral with no sign of recovery. Europe is still piling on new debt and the euro faces great dangers (Spain, Italy, etc.) ahead.

What Greece needs is a credible commitment to deep structural reform (a Thatcher moment) regardless of whether the country remains inside the eurozone or leaves the common currency. Therefore, it is worth noting that the liberal parties committed to such reform did not gain a single seat in Sunday’s election. And so, the great Greek drama - minimum reform, continued bailouts and economic destitution – looks set to continue for a little while longer.

Justice Kennedy’s Mysterious Philosophy

Time magazine’s cover story looks at the power and mystery of Justice Anthony Kennedy.

He’s often the pivotal vote on a divided Supreme Court, Massimo Calabresi and David Von Drehle write. Sometimes he sides with the conservatives, sometimes with the liberals. It seems to mystify them:

Over that time, Kennedy cast the pivotal vote in cases dealing with abortion, the death penalty, gay rights, the war on terrorism, campaign finance and school prayer….

Efforts to fit Kennedy’s major opinions into a clear, coherent philosophy have met with little success. He generally sides with the court’s conservatives but is not tethered to any particular constitutional doctrine. “There is no grand unified theory for Justice Kennedy’s jurisprudence,” says Viet Dinh, a leading conservative court watcher….

More and more cases are decided based on his idiosyncratic values.

They do provide a few hints:

Instead of grounding abortion in a “right to privacy,” which is never mentioned in the Constitution, Kennedy declared it to be part of the well-established right to liberty….

[In the Texas sodomy case] Kennedy wrote broadly, “Liberty protects the person from unwarranted government intrusions” and “includes freedom of thought, belief, expression, and certain intimate conduct.”…

Opponents of Obamacare focused their Kennedy briefs on a number of opinions in which he maintained the importance of limiting government intrusions into individual liberty.

Hmmm. Justice Kennedy seems to be very concerned with liberty. He often sides with conservatives on economic issues (which are actually never mentioned by Time) and campaign speech, and with liberals on civil liberties, gay rights, and school prayer. Pretty inconsistent, huh?

Or then again, maybe Justice Kennedy has a basically libertarian view of the world and the Constitution. The word “libertarian” never appears in the article. Perhaps it should.

And it’s not like the idea of Justice Kennedy’s libertarianism is a deep, dark secret. The writers might have consulted Helen Knowles’s book The Tie Goes to Freedom: Justice Anthony M. Kennedy on Liberty. Or Frank Colucci’s book Justice Kennedy’s Jurisprudence: The Full and Necessary Meaning of Liberty. Or Randy Barnett’s Cato Supreme Court Review article on the Texas case, “Justice Kennedy’s Libertarian Revolution.”

I’m not saying that Justice Kennedy is a down-the-line, Nozick-reading, Cato Institute libertarian. He did join the Court’s statist majority in the medical marijuana case Raich v. Gonzales. And he infuriated libertarians by joining the majority in striking down state term limits and upholding state eminent domain. But the books and article cited above, and the Institute for Justice’s 1997 rating of Supreme Court justices, do point to a strong libertarian streak in Kennedy’s jurisprudence.

Time’s inability to point that out reminds me of a column I did in 2010, on another distinguished journalist’s inability to apply the obvious label to Nobel laureate Mario Vargas Llosa’s political views – which are clearly libertarian, or as he would put it, liberal. Are journalists really so stuck in a red/blue, liberal/conservative world that they can’t identify libertarianism even when they describe its elements?

Big Government at Work

As President Obama devotes his weekly radio address to “plenty of big ideas” on how to expand the size, scope, and power of government in a putative effort to get the economy going again, Washington Post columnist Anne Applebaum reminds us of the congenital inefficiency of government:

In 2002, the British government estimated the cost of hosting the Olympic Games at $2.8 billion. Ten years later, the price has passed $15 billion and is still rising. When everything is added up — lost business, as many as 13,500 British soldiers patrolling the streets of London (more than are in Afghanistan) — the expenses may come to $38 billion.

The scandal, of course, is that this is no scandal. It’s just standard operating procedure in government. Everyone knows that government programs – from stadiums to Medicare to reconstruction projects – will likely suffer massive cost overruns. The question is why we keep believing the promises.

Handy Chart Shows How Farm Bill Money Is Spent

Following on from Chris’s post yesterday about the explosive cost of food stamps, Brad Plumer at the Washington Post’s Wonkblog yesterday posted this pie chart showing how the CBO has broken down the spending in the proposed Senate farm bill (costing almost $1 trillion over 10 years).  Nutrition programs account for almost 80 percent of the spending. From Plumer:

The Congressional Budget Office has a handy breakdown (pdf) of many of the provisions of the bill, which I’ve redone in simplified pie-chart form:

I’ve blogged about food stamps before. For sure the program has problems, and moreover I think nutrition programs should be handled by the states if not even more locally (although I still place nutrition programs lower on my priority hit list than, say, the terribly distorting and costly federal sugar program). But at the very least we should separate out all of these parts of the farm bill and force members of Congress to vote on each of the programs on their merits, and not as some gigantic logrolling extravaganza.

Obama Administration Adopts De Facto Dream Act

Two senior Obama administration officials told the Associated Press that the administration will enforce many of the major portions of the Dream Act using the president’s administrative discretion to defer deportation actions.  According to a memo released by the Department of Homeland Security this morning, the plan would apply to unauthorized immigrants who:

  • Came to the United States under the age of 16.
  • Have continuously resided in the United States for a least five years preceding the date of the memorandum and are present in the United States on the date of the memorandum.
  • Are currently in school, have graduated from high school, have obtained a general education development certificate, or are an honorably discharged veteran of the Coast Guard or Armed Forces of the United States.
  • Have not been convicted of a felony offense, a significant misdemeanor offense, multiple misdemeanor offenses, or otherwise poses a threat to national security or public safety.
  • Are not above the age of 30.

If the above plan is implemented fully, between 800,000 and 2.1 million unauthorized immigrants could be legalized for up to two years.  By being legalized they will become more productive, earn higher wages, and more fully assimilate into American society.  But this is only a temporary fix.

Temporary work permits can be issued to unauthorized immigrants who have their deportations deferred but in this situation they would only last 2 years.  It’s a routine administrative procedure that already occurs for unauthorized immigrants who have their deportations deferred.  This is one situation where the complexity of our immigration rules and regulations works to the advantage of immigrants and Americans.

A permanent version of this action in the form of the admittedly imperfect Dream Act would need to be passed to reap the full rewards.

The benefits from passing the Dream Act are enormous.  Evidence from the 1986 amnesty showed that the legalized immigrants experienced a 15.1 percent increase in their earnings by 1992, with roughly 6 to 13 percentage points due to the legalization.

In the Winter 2012 issue of The Cato Journal, Raul Hinojosa-Ojeda estimated that an amnesty similar to 1986 would yield at least an added $1.5 trillion to GDP over a single decade.  If 2.1 million eligible unauthorized immigrants were permanently legalized, that would be at least $250 billion in additional production over the next decade (back of the envelope calculation).

However, before we get too thrilled about the prospects of this sorely needed temporary liberalization, we should remember that hardly anything changed the last time the Obama administration used its prosecutorial discretion to review deportation cases.  His administration promised to wade through backlogged cases and close those where the unauthorized immigrants had strong American family ties and no criminal records.  Since that policy went into effect in November 2011, DHS officials have reviewed more than 411,000 cases and less than 2 percent of them were closed.

If the administration’s proposal temporarily goes as far as the Dream Act would, it will shrink the informal economy, increase economic efficiency, and remove the fear and uncertainty of deportation from potentially millions of otherwise law-abiding people.  It would be a good first step toward reforming immigration and a glimpse at what the Dream Act would do.