Archives: 11/2012

Unhinged at the Times

Few subjects more unhinge the editorialists at the New York Times than the Supreme Court’s 2010 Citizens United decision, which upheld the right of corporations and unions to engage in unlimited independent campaign spending. No defense of that “disastrous” decision, it seems, is too passing to not warrant the Times’ unbridled condemnation.

In the instant case it was Justice Samuel Alito’s speech last week at the 30th annual Federalist Society convention that gave offense. Only one among several decisions he discussed that evening, Citizens United, he said, “was not really groundbreaking at all.”

In fact, all it did was reaffirm that corporations have free speech rights and that, without such rights, newspapers would have lost the major press freedom rulings that allowed the publication of the Pentagon Papers and made it easier for newspapers to defend themselves against libel suits [as] in New York Times v. Sullivan.

But the good justice then made a point that appears to have hit a nerve at the Times.

The question is whether speech that goes to the very heart of government should be limited to certain preferred corporations; namely, media corporations. Surely the idea that the First Amendment protects only certain privileged voices should be disturbing to anybody who believes in free speech.

Charging that Justice Alito “wrongly confuses the matter” – which is worse, one assumes, than rightly confusing it – the Times avers that it’s “not the corporate structure of media companies that makes them deserving of constitutional protection [but] their function – the vital role that the press plays in American democracy – that sets them apart.” The Court got it backward, the Times contends, when it said that the purpose and effect of the McCain-Feingold Act “was to keep unions and most corporations from conveying facts and opinions to the public, though it exempted media corporations.” Instead, “the point of the law was to protect the news media’s freedom of speech and not the legal form that they happened to be organized under.”

Really? Parse that last sentence: Assume, contrary to fact, that the point of McCain-Feingold “was to protect the news media’s freedom of speech” – so far so good, but – “and not the legal form that they happened to be organized under.” What? One’s head spins. A corporation’s legal form is “protected” (or recognized) under corporate law, not campaign finance law. The point of the law here was precisely as the Court held, to keep non-media corporations from speaking – indeed, even from publishing a book than ran afoul of its strictures, as the government held at oral argument.

And why should non-media corporations have lesser speech rights than media corporations? Because, as Justice John Paul Stevens said in dissent, and the Times quotes, they “are not actually members of society” – unlike the Times, presumably. Unhinged indeed.

Postal Reform in the Lame Duck?

According to the Hill, policymakers are “scrambling” to do something about the U.S. Postal Service in the current lame-duck session of Congress. The USPS’s recently announced $15.9 billion loss for 2012 apparently inspired policymakers to act.

It’s hardly a surprise that Congress has waited as long as it can to do something about the USPS. Interest in postal issues for most members probably doesn’t go beyond naming post offices and franking. And regardless of whether Congress passes “reform” legislation in the lame-duck or next year, it will end up just kicking the can down the road. (Policy analysts who are frustrated with the inability of Congress to tackle entitlement reform would be wise to stay away from postal policy issue for mental health purposes.)

To get an idea of how absurd the current negotiations are, take this line from the article:

[S]ome liberal lawmakers and postal unions have pushed back against any attempts to limit six-day delivery, saying it would make bad business sense for the Postal Service to give up any competitive advantage as it moves forward.

Competitive advantage? By law, private carriers can’t compete with the USPS on the delivery of first class mail. To the degree that first class mail “competes” with the private sector, it’s with the internet. Going from six-day to five-day delivery won’t change the fact that the demand for the USPS’s flagship monopoly product is in permanent decline as more and more people decide to click “send” instead. What makes “bad business sense” for the USPS is to leave politicians in charge of it.

[See this essay for more on privatizing the U.S. Postal Service.]

Why ‘Obamacare’s Critics Refuse to Give Up’

Jonathan Adler and I have a paper titled, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Our central claims are:

  1. The Patient Protection and Affordable Care Act explicitly restricts its “premium-assistance tax credits” (and thus the “cost-sharing subsidies” and employer- and individual-mandate penalties those tax credits trigger) to health insurance “exchanges” established by states;
  2. The IRS has no authority to offer those entitlements or impose those taxes in states that opt not to create Exchanges; and
  3. The IRS’s ongoing attempt to impose those taxes and issue those entitlements through Exchanges established by the federal government is contrary to congressional intent and the clear language of the Act.

Over at The New Republic’s blog The Plank, my friend Jonathan Cohn says this is “preposterous”:

No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.

It appears my friend does not know the statute, the legislative history, or what Congress’ intent was.

Cohn writes that the statute is “a little fuzzy” on this issue. Quite the contrary: the statute is crystal clear. It explicitly and laboriously restricts tax credits to those who buy health insurance in Exchanges “established by the State under section 1311.” There is no parallel language – none whatsoever – granting eligibility through Exchanges established by the federal government (section 1321). The tax-credit eligibility rules are so tightly worded, they seem designed to prevent precisely what the IRS is trying to do.

ObamaCare supporters just know that can’t be right. It must have been an oversight. Congress could not have written the law that way. It doesn’t make any sense. Those provisions must take effect in federal Exchanges for the law to work. Why would Congress give states the power to blow the whole thing up??

The answer is that Congress didn’t have any choice. Congress intended for ObamaCare to work this way because this was the only way that ObamaCare could become law.

  • The Senate bill had to have state-run Exchanges in order to win the essential votes of moderate Democrats. Without state-run Exchanges, it would not have passed.
  • In order to have state-run Exchanges, the bill needed some way to encourage states to create them without “commandeering” the states. In early 2009, well before House and Senate Democrats introduced their bills, an influential law professor named Timothy Jost advised congressional Democrats of one way to get around the commandeering problem: “Congress could invite state participation…by offering tax subsidies for insurance only in states that complied with federal requirements…”. Both the Finance bill and the HELP bill made premium assistance conditional on state compliance. Senate Democrats settled on the Finance language, which passed without a vote to spare. (Emphasis added.)
  • The Finance Committee had even more reason to condition tax credits on state compliance: it doesn’t have direct jurisdiction over health insurance. Conditioning the tax credits on state compliance was the only way the Committee could even consider legislation directing states to establish Exchanges. Committee chairman Max Baucus admitted this during mark-up.
  • Then something funny happened. Massachusetts voters sent Republican Scott Brown to the Senate, partly due to his pledge to prevent any compromise between the House and Senate bills from passing the Senate. With no other options, House Democrats swallowed hard and passed Senate bill. (They made limited amendments through the reconciliation process. These amendments did not touch the tax-credit eligibility rules, and indeed strengthen the case against the IRS.)

A law limiting tax credits to state-created Exchanges, therefore, is exactly what Congress intended, because Congress had no other choice. On the day Scott Brown took office, any and all other approaches to Exchanges ceased to embody congressional intent. If Congress had intended for some other approach to become law, there would be no law. What made it all palatable was that it never occurred to ObamaCare supporters that states would refuse to comply. The New York Times reports, “Mr. Obama and lawmakers assumed that every state would set up its own exchange.”

Oops.

The only preposterous parts of this debate are the legal theories that the IRS and its defenders have offered to support the Obama administration’s unlawful attempt to create entitlements and impose taxes that Congress clearly and intentionally did not authorize. (But don’t take my word for it. Read the statute. Read our paper. Read this, and this. Watch this video and our debate with Jost. Click on our links to all the stuff the IRS and Treasury and Jost have written.) I wonder if Cohn would tolerate such lawlessness from a Republican administration.

Cohn further claims the many states that are refusing to create Exchanges are “totally sticking it to their own citizens” and people who encourage them “are essentially calling upon states to block their citizens from receiving federal tax breaks, worth as much as several thousand dollars per person. Aren’t conservatives and libertarians supposed to be the party that likes giving tax money back to the people?” Seriously?

  • Fourteen states have enacted statutes or constitutional amendments – often by referendum, often by huge margins – that prohibit state employees from directly or indirectly participating in an essential Exchange function: implementing employer or individual mandates. In those instances, the voters have spoken.
  • Only 22 percent of the budgetary impact of these credits and subsidies is actual tax reduction, and the employer- and individual-mandate penalties triggered by those tax “credits” wipe out most of that. The other 78 percent is new deficit spending. So what we’re really talking about here is $700 billion of new deficit spending.
  • When states refuse to establish Exchanges, they block that new spending, which reduces the deficit and the overall burden of government.
  • In addition, those states exempt their employers from the employer mandate (a tax of $2,000 per worker) and exempt millions of taxpayers from the individual mandate (a tax of $2,085 on families of four earning as little as $24,000).

Who’s for tax cuts now?

Here’s what I think is really bothering Cohn and other ObamaCare supporters. The purpose of those credits and subsidies is to shift the cost of ObamaCare’s community-rating price controls and individual mandate to taxpayers, so that consumers don’t notice them. When states prevent such cost-shifting, they’re not increasing the cost of ObamaCare – they’re revealing it.

And that’s what worries Cohn. If the full cost of ObamaCare appears in people’s health insurance premiums, people will rise up and demand that Congress get rid of it. Cohn isn’t worried about states “sticking it to their citizens.” He’s worried about states sticking it to ObamaCare.

The title of Cohn’s blog post is, “Obamacare’s Critics Refuse to Give Up.” At least we can agree on that much.

Grover Norquist vs. Bill Kristol on Taxes and Pentagon Spending

Grover Norquist spoke yesterday at the Center for the National Interest, and the event drew a gaggle of skeptics convinced that President Obama’s victory over Mitt Romney might spell the end of Norquist’s vaunted Taxpayer Protection Pledge. He sounded an optimistic tone, pointing to past election cycles when the pledge was prematurely declared dead on arrival.

I was most interested in what he had to say about the tiny number of Congressional Republicans who have tried – and so far failed – to build support for tax increases in order to protect the Pentagon from spending cuts. In his opening remarks, Norquist peered into his crystal ball:

With divided government, I think you get the sequester. The President said he doesn’t want to change the money for the Pentagon; Mitch McConnell has said we’re not raising taxes to ransom the Pentagon budget cuts. And, interestingly,…a lot of the focus has been on the Pentagon. The Ds are a lot more concerned about the $50 billion in domestic discretionary spending restraint every year than the Rs are on the defense budget….And you did see the Republican Study Committee, the conservative caucus within the Republican House, which is a majority of House members (maybe 60 percent), announce the only thing worse than sequestration would be not having the savings. So this stampede that was attempted – the problem with the stampede is that there are only two people trying to start the stampede – and it didn’t take. You didn’t get a demand that the defense budget…remain untouched, either in public opinion or in the House and the Senate.

He’s right. You don’t see a groundswell of public opinion calling for tax increases to fund a still-larger military. On the contrary, most polls actually show more support for Pentagon cuts than for cuts in other spending. This poll (.pdf, Q56) found that 52 percent of Republicans, and 57 percent of Independents, are opposed to any increase in taxes in order to maintain the current advantage in military power. In this case, at least, members of Congress are accurately representing the wishes of their constituents.

I invited Norquist to expand on his comments about this failure to mobilize public support for more Pentagon spending in Washington and on Capitol Hill, and whether self-described conservatives risk undermining the GOP’s brand on taxes and spending. What does he think, for example, when Bill Kristol stumps for tax increases, opening the door for major media outlets to spin the story as ”even conservatives like Bill Kristol support tax increases to protect the Pentagon.”

Norquist replied:

Bill Kristol has been on record saying that if the conservatives didn’t want to be the war party that he’d join up with the … Democrat liberal hawks. … It was an odd sort of threat, but it was kind of an explanation that he doesn’t see himself as a mainstream Reagan Republican. Everything is hawkish foreign policy (not a Reaganite foreign policy, but a hawkish foreign policy). So that’s not surprising. That’s … what he does, but it’s not at all transferable. There isn’t a caucus in the House or the Senate that falls in that category.

He closed with a unscripted rant against the GOP’s situational Keynesianism. It’s “intellectually dishonest,” he said, to oppose Obama-Reid-Pelosi’s stimulus, but then embrace Romney’s version in the form of massive military spending. His remarks echo some of what he said a few months ago in a Cato podcast, but here are a few new gems:

I thought that the Romney people ill served the country and themselves when they ran these campaigns that if the defense budget was cut all these jobs would disappear. Now lets see, we just spent four years making fun of Obama’s multiplier that if the federal government spends x number of dollars you create jobs.

That’s like arguing that people who are involved in organ donations are creating additional kidneys. No they’re not, they’re just moving them around….the government creates jobs the way ticks create blood. No it doesn’t….You can move stuff around but you took it from somewhere and then you put it somewhere else. You take a dollar from here and kill a job and put it over there and then you hold a press conference over here….

For the Republicans to talk about how defense spending creates jobs, I think, was unfortunate. You can make an argument that you need this plane or this tank, or “The Canadians are being annoying again. Keep an eye on ‘em.” I’m all for that. We should have a strong national defense. But don’t sell it as a jobs program. It’s intellectually dishonest, and it was a shame that it was done.

Getting Our Money Back from Fannie and Freddie

Yesterday in the New York Times, Josh Rosner, co-author of Reckless Endangerment, asked one of the questions that almost everyone in Washington is avoiding: how do the taxpayers get back their money, currently about $180 billion (including dividends), from Fannie Mae and Freddie Mac? Obviously Democrats do not want to be reminded that their social engineering of the mortgage market has been a disaster, but why have Republicans been quiet?

I suspect many Republicans, at least those not closely aligned with the real estate industry, are torn between wanting to immediately get rid of Fannie and Freddie and getting the taxpayers’ money back.  A common attitude in Washington also appears to be that the money put into Fannie/Freddie is gone, sunk, and will never be returned. I’m not so willing to just give up, on either getting rid of them or getting our money back.

First, let’s accept that any wind-down would likely take a few years, say six or so. So I would suggest we immediately take Fannie and Freddie into receivership. Impose any future losses on creditors, but also continue to run the companies. And continue to buy and package mortgages during the receivership. This would minimize disruptions to the housing and mortgage market.

Instead of simply running the companies, business as usual, levy a surcharge on all their purchases and use that surcharge to pay back the taxpayer. Fannie and Freddie, combined, will likely purchase about a $1 trillion annually in mortgages over the next few years. Assuming a six year wind-down, that’s $6 trillion. A 2 percent surcharge gets back most of the bailout. That’s also high enough to encourage private money to come into the mortgage market and compete with Fannie and Freddie. If my Realtor friends feel this is a ”tax on home-ownership” then they are free to drop their commissions by 2 percent, leaving buyers no worse off. Even better, they can encourage buyers to use a non-government mortgage.

Any forecast of housing activity is going to have some error. So the numbers above are likely off, in one direction or another. The point is a surcharge on the purchases made by these Government-Sponsored Enterprises can kill two birds with one stone: getting the taxpayers’ money back and reducing the GSEs’ footprint in the mortgage market.

A No-Brainer: Bad for Privacy and Liberty

CNET journalist Declan McCullagh has lit up the Internets today with his reporting on a revamped Senate online privacy bill that would give an alphabet soup of federal agencies unprecedented access to email and other online communications.

Leahy’s rewritten bill would allow more than 22 agencies – including the Securities and Exchange Commission and the Federal Communications Commission – to access Americans’ e-mail, Google Docs files, Facebook wall posts, and Twitter direct messages without a search warrant. It also would give the FBI and Homeland Security more authority, in some circumstances, to gain full access to Internet accounts without notifying either the owner or a judge.

This would be an astounding expansion of government authority to snoop. And it comes at a time when the public is getting wind through the Petraeus scandal of just how easy it already is to access our private communications.

Assuming McCullagh’s reading of the draft he obtained is remotely plausible, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) should reconsider his current course–if he wants to maintain the mantle of a privacy leader, at least.

The Washington, D.C., meta-story is almost as interesting. Who is where on the bill? And when? The ACLU’s Christopher Calabrese told McCullagh last night, “We believe a warrant is the appropriate standard for any contents.” Freedom Works came out of the gate this morning with a petition asking for oppositions to Senator Leahy’s revised bill.

The Center for Democracy did not have a comment when McCullagh asked, though spokesman Brock Meeks suggests via Twitter today that McCullagh didn’t try hard enough to reach him. The reason that’s important? CDT has a history of equivocation and compromise in the face of privacy-invasive legislation and policies. At this point, the group has said via Twitter that they “wouldn’t support the rewrite described in CNET.” That’s good news, and it’s consistent with people’s expectations for CDT both on the outside and within.

There will undoubtedly be more to this story. Emails should not only be statutorily protected, but Fourth Amendment protected, based on the framework for communications privacy I laid out for the Supreme Court in Cato’s Florida v. Jardines brief.

The Emerging Democratic Majority

Thomas B. Edsall has a long piece in today’s New York Times that should give pause to anyone interested in the future of liberty, not least because it focuses on the big issues – in particular, on “the role of government.” Entitled “Is Rush Limbaugh’s Country Gone?” (a title sure to attract NYT readers), it’s a data-filled piece – one of a seemingly endless string of post-election analyses – that demonstrates, drawing from a 2011 Pew Research Center poll on changing attitudes about capitalism and socialism, “that in many respects conservatives are right to be worried” when they see those attitudes playing out in the election just past.

And we see the importance of framing the issues in this paragraph:

In fact, the rising American electorate represents a direct threat to the striking array of government benefits for the affluent that the conservative movement has won over the past 40 years. These include the reduction of the top income tax rate from 50 percent in 1986 to 35 percent; the 15 percent tax rate on dividend and capital gains income, which was 39.9 percent in 1977; the lowering of the top estate tax rate from 70 percent in 1981, with just $175,000 exempted from taxation, to a top rate of 35 percent this year with $5.1 million exempted from taxation.

Note how Edsall calls tax reductions “government benefits” for the affluent, as if those reductions were equivalent to the transfer payments that define the modern welfare state.

But he continues:

At the same time, the Pew survey cited above shows the high levels of skepticism and hostility toward capitalism on the part of the emerging Democratic majority. Insofar as the liberal coalition succeeds in electing senators and representatives who share those views, the business community will have increasing difficulty in winning approval of its deregulated market and free trade agenda.

Nowhere, however, does Edsall point to the tax and regulatory benefits that do amount to transfers to the business community – to crony capitalism – with Obamacare serving as Exhibit A of that political process. Instead, he reports uncritically about the “emerging Democratic majority” looking increasingly to federal programs – paid for by the rich – oblivious to how that process works in fact, undermining the very middle class the programs are designed to help. A dismal indication of growing economic and political ignorance, the piece shows how much work there is to be done.