Archives: 07/2012

When Government Tells Untruths — For Our Own Good

Raised on Hoecakes catches a NHTSA impaired-driving program telling a whopper:

“THE DAYS OF BEATING A DRUNK DRIVING ARREST HAVE BEEN RULED EXTINCT….

“If you are arrested, you will be prosecuted and likely lose your license, money and car.”

As Raised on Hoecakes says:

Cool, huh? Only one problem: it isn’t true. Someone missed the memo telling judges to make arrests for DUI a resulting conviction 100% of the time.” In Florida, to take one state he says is representative, there were 55,722 DUI tickets and 33,625 DUI convictions in 2011, and although not all cases are closed the same year they begin, the estimated conviction rate still must run closer to 60 percent than 100 percent. Nor is it true that all arrests result in prosecution: prosecutors decline to press some charges where they deem the evidence in hand to be weak, and almost everyone, with the possible exception of certain hosts of TV crime shows, agrees that’s as it should be.

I suppose the generous way to interpret untruths like the ones on this poster would be as a fancier way to say, “Don’t drive drunk, you’ll get caught.” But they also send a rather more disturbing message: “If arrested on DUI and you believe the government’s case against you is weak, better not fight, just take a plea. Because it doesn’t matter how strong your defense is, a judge won’t save you.

Presumably that second message is unintentional.

[Cross-posted from Overlawyered. Earlier on government as false advertiser here.]

Topics:

Lincoln, Lawsuits, and Humility

The Templeton Foundation’s Big Questions Online invited me to write a short essay leading a discussion on the topic, “Does a Litigious Culture Undermine Our Capacity for Humility?”

I cite a couple of references to the costs of litigation that may be familiar to many readers, such as Charles Dickens’ Bleak House, as well as others that may be less familiar, such as Abraham Lincoln’s Notes on a Law Lecture. Excerpt:

What comes naturally to Lincoln, as it does not to most of us, is a frankly moral critique. A lawsuit, to him, is a war, and a settlement a peace. Who are the belligerents in these small wars? Our “neighbors” – a term by which he includes the adversary. …

By the 1970s law school literature had begun to describe the older view of litigiousness as a vice as something quaint, even “medieval”. In 1985 the U.S. Supreme Court broke explicitly with the earlier view: “We cannot endorse the proposition that a lawsuit, as such, is an evil.”

The reader discussion will be open for several more days. You can read and join in here.

Topics:

Whither the Assad Regime?

The bombing of Syria’s national security headquarters, which killed key figures in the government, is evidence of expanding instability, but not of a regime on the verge of collapse. The attack and others like it have not significantly altered the Syrian uprising’s most enduring challenge: the inability of its fragmented opposition to congeal. This challenge, coupled with the rebellion’s lack of an inclusive vision for Syria’s minorities, and the troubling developments today, should give proponents of intervention pause.

America, Russia, Turkey, and the Gulf Arab states have all called on Syria’s fractured opposition to unify. A commitment to inclusion today could break down tomorrow, and such divisions could set the stage for an even bloodier ethno-sectarian civil war in a post-Assad Syria. Discord persists despite rebel attacks on regime officials and security forces. In fact, conflicting reports about the most recent bombing in Damascus—whether it was carried out by the Free Syrian Army, which claimed responsibility, or a cabinet member’s personal bodyguard—points to the difficulty of discerning the exact nature of the opposition.

Islamists, for instance, seem intent on hijacking the struggle for a democratic Syria. In May, the Washington Post’s Karen DeYoung and Liz Sly reported that despite U.S. hopes that minorities would unite under the Sunni-led Syrian National Congress, Syria’s Christians, Kurds, Druze, and Alawite sect, “All have resisted what they say is the group’s domination by the Muslim Brotherhood.”

That same month, Pentagon spokesperson Navy Captain John Kirby told reporters that defense officials believe “al-Qaida has some presence inside Syria and interest in fomenting violence in Syria.” He added, “We do not believe they share the goals of the Syrian opposition or that they are even embraced by the opposition … The sense that we get is that it is primarily members of [al-Qaida in Iraq] that are migrating into Syria.”

Similarly, U.S. Director of National Intelligence James Clapper warned earlier this year that al Qaeda-aligned forces coming from neighboring Iraq—a country that the United States occupied for nearly a decade—had carried out explosions in Damascus:

The two bombings in Damascus in December … and then the two additional bombings in Aleppo, both of which were targeted against security and intelligence buildings … had all the earmarks of an al Qaeda-like attack.  So we believe that al Qaeda in Iraq is extending its reach into Syria.

Rather than exercise restraint, the rise of Syria’s Islamists has encouraged Washington to intervene. Last month, the New York Times reported that U.S. officials had ordered a small number of C.I.A. officers to help funnel “automatic rifles, rocket-propelled grenades, ammunition and some antitank weapons,” across the Turkish border through intermediaries in Syria who include the Muslim Brotherhood, all paid for by Turkey, Saudi Arabia and Qatar. The justification was to keep weapons out of the hands of al Qaeda-allied groups, which is not reassuring. The most infamous instance of planners in Washington assisting the arming of rebels was in the 1980s in Afghanistan—a country that years later turned into an al Qaeda sanctuary.

The Syrian opposition’s failure to unite, combined with the ascendance of Islamists and al Qaeda-linked jihadists, complicates, among other things, the Western response to the Assad regime’s continued massacre of its people. For now, these divisions will prove more damaging to the Syrian uprising than the uprising’s attacks on the regime’s iron-fist.

The Turbo-Charged Italian Version of the Laffer Curve

Thanks largely to the Laffer Curve, there are some impressive examples of failed tax increases in countries such as the United States, France, and the United Kingdom. But if there was a prize for the people who most vociferously resist turning over more of their income to government, the Italians would be the odds-on favorite to win.

When they’re not firebombing tax offices to show their displeasure, they’re taking to the high seas to escape.

Here are some excerpts from a report in the UK-based Telegraph about runaway yachts.

Thousands are weighing anchor and fleeing with their gin palaces to quiet corners of the Mediterranean to escape a tax evasion crackdown – part of efforts by the government of Mario Monti, the prime minister, to tackle Italy’s €1.9 trillion public debt. …in the ports and marinas they are going after the owners of luxury yachts. Uniformed officers of the Guardia di Finanza, or tax police, are performing on-the-spot checks, boarding boats and checking owners’ details against their tax records. …The unwelcome attention has led many yacht owners to flee Italy’s marinas for friendlier foreign ports, from Corsica and the Cote d’Azur in the west to Croatia, Slovenia, Montenegro and Greece in the east. Others are heading southwards, to Malta and Tunisia - where they can access their boats on low-cost budget flights from Italy for a fraction of the tax bill they might otherwise face.

Not surprisingly, a lot of middle-class people are suffering because of lost business.

Around 30,000 yachts have fled Italy this year, costing €200 million in lost revenue from mooring fees, port services and fuel sales, according to Assomarinas, the Italian Association of Marinas. “We’ve lost 10 to 15 per cent of our regular customers,” said Roberto Perocchio, the president of Assomarinas. “This is the worst crisis in Italian boating history. The authorities are using scare tactics and creating a climate of fear.” …Plans for a further 30,000 new berths have been put on hold. Business is down by more than a third in many marinas, with some half empty compared to last summer. “We’ve lost 40 boats in the last few months, all between 20 and 25 metres long,” said Giovanni Sorci, director of a marina at Rimini, on the Adriatic coast. “Most went to Slovenia – in fact it is so popular that there’s now barely a berth to be had there. …At Porto Rotondo in Sardinia, Giacomo Pileri, the general manager of a 700-berth marina, said at least 150 boats had fled to nearby Corsica. …A steep new tax of up to €700 per day on the largest yachts mooring in Italian ports, introduced by the Monti government in December, was watered down in March to exclude foreign-owned boats. But it has further fuelled the exodus of Italian boats abroad.

And it’s not just yachts that are being targeted by a revenue-hungry government. Here’s a remarkable report from Reuters on what’s happened to the luxury car market (h/t: suyts space).

Italians spooked by rising car taxes and highly publicized tax fraud spot checks cut back their purchases of Fiat’s high-end sports car brands Ferrari and Maserati in the first quarter of 2012, an industry body said on Tuesday. Ferrari sales slumped 51.5 percent, in Italy, and Maserati sales plummeted by 70 percent, said Italian car dealers group Federauto in a statement. Prime Minister Mario Monti’s government has stepped up its fight on tax evasion with spot checks on supercar drivers, as well as higher taxes on large cars. “These figures show how the choices made by the government are literally terrorizing potential clients,” said Federauto chairman Filippo Pavan Bernacchi.

I assume those awful sales numbers are partly because the economy is weak, but well-to-do Italians obviously don’t want to attract attention from the tax police.

The moral of the story is that Italy’s government should try a new strategy. The politicians need to understand that taxpayers don’t meekly acquiesce, like lambs in a slaughterhouse.

Heck, even the folks at the International Monetary Fund (a crowd not known for rabid free-market sympathies) have acknowledged that excessive taxation is the leading cause of the shadow economy.

So rather than trying to squeeze more blood from an unwilling stone, maybe the Italian government should junk the current tax code and adopt a simple and fair flat tax.

To conclude, here’s Part II of the three-part video series on the Laffer Curve, which focuses on historical evidence (including what happened to the yacht market in the U.S. when politicians went after the “rich”).

Sort of makes you wonder why politicians never seem to learn from their mistakes - especially when thoughtful people like me give them free lessons about the relationship between tax rates, tax revenue, and taxable income.

P.S. While I’m very happy to defend tax evasion in cases where government is excessive, venal, and/or corrupt, I suspect that Italians would evade even if they lived under a Hong Kong-style fiscal regime. If that ever happened (don’t hold your breath), even I wouldn’t get upset about crackdowns on yacht owners and Maserati drivers who aren’t declaring any income.

Threat to ObamaCare Is No ‘Drafting Error’

It turns out that ObamaCare makes an essential part of its regulatory scheme—an $800 billion bailout of private health insurance companies—conditional upon state governments creating the health insurance “exchanges” envisioned in the law.

This was no “drafting error.” During congressional consideration of the bill, its lead author, Sen. Max Baucus (D-MT), acknowledged that he intentionally and purposefully made that bailout conditional on states implementing their own Exchanges.

Now that it appears that as many as 30 states will not create Exchanges, the law is in peril. When states refuse to establish an Exchange, they are blocking not only that bailout, but also the $2,000 per worker tax ObamaCare imposes on employers. If enough states refuse to establish an Exchange, they can effectively force Congress to repeal much or all of the law.

That might explain why the IRS is literally rewriting the statute. On May 24, the IRS finalized a regulation that says the law’s $800 billion insurance-industry bailout will not be conditional on states creating Exchanges. With the stroke of pen, the IRS (1) stripped states of the power Congress gave them to shield employers from that $2,000 per-worker tax, (2) imposed that illegal tax on employers whom Congress exempted, and (3) issued up to $800 billion of tax credits and direct subsidies to private health insurance companies—without any congressional authorization whatsoever.

Some supporters of the law claim that Congress never intended to give states the power to block ObamaCare’s insurance-industry bailout. No doubt there are many in Congress who held that position. But they lost. If they’re unhappy now, they should take it up with Max Baucus.

What they should not do is set a precedent where the IRS can, on its own discretion, tax one group and subsidize another to the tune of $800 billion.

For more, see Jonathan Adler’s and my forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” which has been featured in The Wall Street Journal, The New York Times, The Washington Post, Politico, and NPR.

Will Farm Bills Save Taxpayers Money?

The Congressional Budget Office’s score of the farm bill passed in the Senate estimates that it would save $23 billion (versus the current baseline) over ten years. It’s score of the bill that came out of the House Agriculture Committee estimates savings of $35 billion. However, the previous three farm bills ended up costing more than the CBO originally estimated:

  • The 1996 farm bill was supposed to phase out farm subsidies. Instead, crop prices fell and Congress responded with multiple “emergency” bailouts. From a 2001 paper on farm subsidies written by Chris Edwards and me:

When the FAIR Act was passed, the Congressional Budget Office projected that $47 billion would be spent on direct farm subsidies during its seven-year authorization. Instead, direct farm subsidies will end up costing $118 billion, including projected spending for fiscal 2002, over seven years.

  • The CBO estimated that the six-year cost of the 2002 farm bill’s major provisions would be $264 billion. According to the Congressional Research Service, the actual cost was $270 billion. That’s pretty close, but only because much larger outlays for food stamps exceeded much lower outlays for farm subsidies.
  • The CBO estimated that the five-year cost of the 2008 farm bill’s major provisions would be $272 billion. A Congressional Research Service report from December 2010 estimated that the bill would end up costing $402 billion. Commodity programs came in lower, but crop insurance and, in particular, food stamps, came in much higher. Whatever the actual final tally ends up being, it will certainly be higher than what was originally projected.

The point isn’t to beat up on CBO. The point is that trying to project how much a bill is going to cost over ten years – let alone one year – is an inexact science. The cost of farm subsidies depends in part on commodity prices and yields. The cost of food stamps depends in part on the condition of the economy. And Congress can decide to facilitate more spending on these programs whenever it wants. Thus, claims made by members of Congress that either farm bill will save taxpayers X amount of money over the next ten years should be met with the rolling of eyeballs.

What, Us Worry about Paying for College?

Listen to the media and you might think every American is scared silly about paying for college, and  public aid is stretched micron thin to help just the neediest of students. A new report analyzing what and how Americans paid for higher education last year, however, puts the lie to that image.

How America Pays for College: 2012, from Sallie Mae and Ipsos Public Affairs, offers an interesting breakdown of who pays what and how for college, and furnishes some welcome contextual data. I’m not sure there is a unifying message in the numbers – other than people seem to be economizing a bit since the 2009-10 academic year – but some of the potential lessons are striking.

The first lesson is don’t believe that government aid is just for the poor. Families making $100,000 or more used federal loans, tax-incentivized savings programs, and federal, state, and school-based grants – which do not include scholarships – to cover 27 percent of their total cost of attendance.

Next, don’t get caught up in the overblown controversy over private student loans. It’s a diversion from the much bigger impact of government aid. Only 1 percent of the total cost of attendance last year was covered by private loans, versus 4 percent by federal Parent PLUS loans, 13 percent by other federal loans, 1 percent by federal work-study, and 16 percent by federal, state, or school-based grants. And don’t forget: much of the cost of public institutions is borne by taxpayers before the tuition bills even go out.

Perhaps most interesting, it appears that even though the sticker price of college has risen at astronomical rates, most people aren’t sufficiently concerned that they plan ahead for how they’ll pay. 50 percent of respondents either “somewhat” or “strongly” disagreed with the statement that “before my child/I enrolled, our family created a plan for paying for all years of college.” Only 39 percent somewhat or strongly agreed with the statement.

What does this tell us? Potentially many things, but one might be that many people assume someone, no matter what, will ensure that they or their child will be able to go to college. Unfortunately, that “someone” often ends up being the American taxpayer.