State budgets face numerous long‐term pressures, including overpromised and underfunded pensions. Another challenge is Medicaid, the health insurance program for low‐income individuals, which is growing rapidly in cost and enrollment.
Medicaid is the single largest component of state budgets representing 25 percent of total state expenditures. Since 2003, state spending on Medicaid has increased 75 percent, growing faster than the federal budget. State spending decreased in 2010, but not because of any reforms. The federal stimulus bill temporarily increased the federal government’s share of Medicaid spending, so expenditures were simply shifted to the federal budget. But the stimulus has now expired so state spending is rising once again.
The below chart shows the growth in state Medicaid spending over the last ten years:
The higher levels of Medicaid spending are crowding out spending in other state budget areas, such as transportation and education, while also creating pressure to increase taxes.
In the newest edition of the “Fiscal Policy Report Card on America’s Governors: 2014,” Chris Edwards and I discuss how the president’s health care law is poised to make this situation even worse for state budgets:
Medicaid has grown rapidly for years, and the Affordable Care Act of 2010 (ACA) expanded it even more. Individual states can decide whether or not to implement the ACA’s expanded Medicaid coverage, but Congress created strong incentives to do so. The federal government is paying 100 percent of the costs of expansion through 2016, and then a declining share after that, reaching 90 percent by 2020. The Congressional Budget Office (CBO) estimates that Medicaid expansion under the ACA will cost the federal government $792 billion and state governments $46 billion over the next 10 years.
Even with the federal government paying most of the initial costs, the ACA will put a large strain on state budgets down the road. State policymakers are concerned that Congress will reduce the federal cost share in coming years because federal deficits will create pressure to cut spending. Without reforms, CBO estimates that federal Medicaid spending will almost double from $299 billion in 2014 to $576 billion by 2024. The growth is projected to be so rapid that even President Obama has suggested that Congress decrease the federal cost share.
The expansion of Medicaid under the ACA is bad policy for numerous reasons, and many governors are refusing to go along. Currently, at least 21 states have decided not to go along with the expansion. Those states may lose “free” federal money in the short‐run, but leaders in those states may be saving their states from huge fiscal burdens later on.
Refusing to expand Medicaid under the ACA is a good first‐step in controlling the growth in state and federal expenditures. But it is not enough. State and federal leaders should pass major structural reforms to Medicaid to halt the growth in this large entitlement program.
In the feudal era, rulers funded their households by taking a share of the crops farmers in their territory produced. The lords called this tribute and the peasants would’ve called it extortion.
We like to think that we’ve come quite a ways since then. After all, taxes are now paid withmoney—or even a digital abstraction of money—and forms, not cartloads of grain. We can even feel good (well, sanguine) about paying taxes, because we know that we’re funding the government of our own choosing—a democratically elected leadership restrained by the Constitution—not just feeding the avarice of a local warlord.
Except if you’re a raisin farmer in California, a state responsible for 40% of the world’s and 99% of America’s raisins. If you’re a California serf raisin farmer, you’re required by federal law to hand over up to 47% of each year’s crop to the U.S. government so the government can control the supply and price of raisins under a New Deal‐era regulatory scheme.
The Fifth Amendment says that “private property [shall not] be taken for public use, without just compensation,” however, so it’s hard to see how it would be constitutional for the government to take nearly half a farmer’s harvest without any payment—let alone “just compensation.” (To be clear, if you grow grapes for use in wine or juice, you’re fine. It’s only if you dry out those grapes that you have to watch your property rights evaporate.)
Yet the U.S. Court of Appeals for the Ninth Circuit has done just that, repeatedly. In 2012, the en banc court held that nobody could challenge this taking in federal court. The Supreme Court unanimously disagreed. (For more background and to read Cato’s merits brief in that case go here.)
Failing to take the hint, the Ninth Circuit has now held that the Fifth Amendment’s protection against state expropriation simply doesn’t apply to personal property (as opposed to real estate). To put it bluntly, that’s an arbitrary, unprecedented, and ahistorical distinction, so raisin farmers are once again forced to ask the Supreme Court to correct lower court’s failure to protect their rights.
Joined by the five other organizations, Cato has filed a brief urging the Court to take this case, thus insuring that the farmers’ constitutional rights aren’t left to wither on the vine. We argue that the Ninth Circuit’s distinction between real and personal property has no basis in the text and history of the Constitution, Supreme Court precedent, or a reasonable understanding of the English language.
The Fifth Amendment embodies the notion that property rights are central to a free people and a just government. It could not be more clear that property can’t be taken without “due process,” and that when it is taken, the government must pay “just compensation.” These guarantees reflect the many values inherent in private property, such as individual achievement, privacy, and autonomy from government intrusion.
By devaluing property rights of all sorts, the Ninth Circuit weakens the values of autonomy and reliance that undergird the Takings Clause and conflicts with the very foundations of our constitutional order.
Raisin farming ain’t easy; five pounds of grapes yield only one pound of raisins. Raisin farmers shouldn’t have to hand over half of that pound to the federal government.
The Supreme Court will decide whether to take Horne v. U.S. Dept. of Agriculture later this fall.
Cato legal associate Gabriel Latner co‐authored this blogpost.
National Review Online is in the midst of its “education week” – including offerings by yours truly and Jason Bedrick – and today brings us a piece by AEI’s Andrew Kelly on how to fix our higher ed system. Unfortunately, while he largely nails the problems, he stumbles on the solution.
Kelly is absolutely right when he criticizes the Obama administration for demonizing for-profit colleges – see my piece for the evidence that for-profits are not the problem – while simultaneously observing how odd it is for conservatives to decry as some great violation of free-market ideals attacks on institutions that get the vast majority of their funds through Washington. He is also right that the entire ivory tower is awash in waste and failure, and all institutions – for-profit or putatively not-for-profit – are self-interested money-grubbers. Finally, he correctly notes that it is a big problem that by far the largest student lender is the Bank of Uncle Sam, who basically gives to anyone who can breathe.
Where Kelly starts to get into trouble is in suggesting that a lot of these troubles could be meaningfully mitigated if we just had the right data readily available to consumers. He writes, “Basic pieces of information needed to make a sound investment — out-of-pocket costs, the proportion of students who graduate on time, the share who earn enough to pay back their loans after graduation — are either incomplete or nonexistent.”
Excellent article by Jon Campbell for the Village Voice about New York City’s zeal for arresting people on charges of possessing so‐called “gravity knives” — knives whose blade can be opened without the assistance of a second hand, and then be secured in place for use. Used in countless trades and occupations, knives fitting this description are sold at hardware, sporting, and work‐gear stores from coast to coast. But New York City routinely prosecutes persons in possession of them even in the absence of any indication that the holder was up to no good or knew they violated local law. Excerpt:
For years, New York’s gravity‐knife law has been formally opposed by a broad swath of the legal community. Elected officials call the statute “flawed” and “unfair.” Defense attorneys call it “outrageous” and “ridiculous” — or worse. Labor unions, which have seen a parade of members arrested for tools they use on the job, say the law is woefully outdated. Even the Office of Court Administration — the official body of the New York State judiciary — says the law is unjustly enforced and needs to change. They’ve petitioned the legislature to do just that.
A move in Albany to revamp New York’s law to cover possession of such a knife only when accompanied by “unlawful intent” failed, due in part to opposition from some quarters in the law enforcement community, where collaring some poor guy walking home from the subway for a “GK” (gravity knife) is known as an easy way to boost arrest numbers:
A poster on Officer.com, a verified online message board for law enforcement officers, put it bluntly in 2013 when he advised a rookie to be on the lookout for “GKs”: “make sure they have a prior conviction so you can bump it up to that felony!!!”
New York’s controversial stop‐and‐frisk policies are one reason it has such a high number of knife charges:
a Village Voice analysis of data from several sources suggests there have been as many as 60,000 gravity‐knife prosecutions over the past decade, and that the rate has more than doubled in that time. If those estimates are correct, it’s enough to place gravity‐knife offenses among the top 10 most prosecuted crimes in New York City.
More recently, Manhattan District Attorney Cyrus Vance in 2010 deployed the law as a municipal money‐maker by charging Home Depot and other hardware and sports chains for selling what many of them had assumed were lawful knives, and extracting large “restitution” payments as part of the ensuing settlements.
In much of the rest of the country, fortunately, the law is on a sounder path as Arizona, New Hampshire, and other states revamp outdated laws to respect the peaceful ownership and carrying of knives. (The national group Knife Rights monitors and advances this progress.) Read the whole Voice piece here.
Yesterday, San Francisco’s board of supervisors voted 7–4 to legalize and regulate the online rental marketplace Airbnb.
The legislation, which is expected be be implemented in February, was welcomed by Airbnb. Nick Papas, one of Airbnb’s communications staffers, wrote on the Airbnb public policy blog that the vote was “a great victory for San Franciscans who want to share their home and the city they love.”
Airbnb might be praising the legislation, but it contains a number of restrictions on Airbnb hosts. Under the new legislation non‐hosted entire‐home rentals are limited to 90 days a year, and it will be up to hosts, not Airbnb, to provide the documentation to prove that they are not in violation of this regulation. Airbnb hosts will have to pay a $50 fee to be part of a public registry, pay a hotel tax (which Airbnb will reportedly remit), register with the city planning department, and not charge more than they are paying their landlord. Hosts must also have liability insurance or offer their listing through a platform that provides coverage.
The legislation will also prohibit buildings that have had Ellis Act evictions from being used for short‐term Airbnb rentals, as TechCrunch’s Kim‐Mai Cutler explains:
What’s the Ellis Act? Well, San Francisco city and California state rental laws have some strange overlaps. The city has incredibly strong rent control laws, that cover 172,000 of the city’s 376,000 housing units. As long as the tenant handles their basic obligations like paying rent on time, they can’t really be evicted and there’s a culture of lifetime tenancy in the city that’s fairly unique. But the state of California passed a law in the mid‐1980s that allows landlords to “go out of business” and take their rental units off the market. The concern in red hot San Francisco housing market is that this law is abused and landlords will take their units off the market to convert them into tenancies‐in‐common or permanent Airbnb rentals. This change is supposed to clamp down on that.
The board of supervisors rejected an amendment put forward by member David Campos, which would have required Airbnb to pay an estimated $25 million in back taxes. Airbnb announced in September that it would begin collecting 14 percent occupancy tax in San Francisco from the beginning of this month.
Although the new legislation contains some restrictive provisions it is understandable that Airbnb is accepting these new regulations. Airbnb, which was valued at around $10 billion earlier this year, wants to grow, and accepting regulations like those passed by the San Francisco board of supervisors allows for Airbnb to operate legally in San Francisco while refuting accusations that it evades taxes and operates in a grey market.
Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.
Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one's own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.
The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer's opinion:
Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.
While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it's pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level. But when aggregated across programs, the costs to individuals become more significant. It's death by 10,000 cuts.
The World Trade Organization’s judicial body determined over two years ago that a U.S. law banning clove cigarettes while leaving domestically produced menthols on the shelf was protectionist discrimination. Now the U.S. and Indonesian governments have reached a “settlement” in which Indonesia agrees to drop the case in exchange for nothing.
Technically, the settlement, as reported, includes a few promises from the United States, but these are so weak as to be practically meaningless. For example, the United States agrees to refrain from “arbitrary discrimination” against Indonesian cigars (which is already not allowed) and to “postpone” filing its own case against Indonesian export restrictions (which no longer impact U.S. companies).
American refusal to comply with global trade rules against regulatory protectionism is both unfortunate and, in this case, unsurprising. There were two basic ways that the U.S. government could have come into compliance: 1) by dropping the ban on cloves, or 2) by extending the ban to menthols. Neither of those options was politically feasible, so the United States did nothing.
Normally, the WTO dispute settlement process can be very helpful in overcoming political barriers to trade liberalization. When one country loses a case at the WTO and fails to comply, the complaining country has the right to retaliate by raising tariffs on goods from the losing country. This creates concentrated losses that have much greater political impact than the generally diffuse costs of protectionist policies. The ultimate goal is to “induce compliance”—the losing country discontinues its offending practice so that the retaliation will stop.
But the United States is very big and powerful, so that for most countries cutting off imports from the United States is not only ineffective at swaying Washington policymakers but also very harmful to their own economy. Indonesia appears to have decided that dropping the case and walking away makes more sense than continuing to press forward with costly, futile retaliation.
Unfortunately, the clove cigarette settlement joins a growing list of similar cases in which the United States has taken advantage of its economic and political power to avoid complying with WTO rules. These include a successful challenge by the tiny island nation of Antigua against U.S. restrictions on cross‐border online gambling that Antigua has no way to enforce.
Perhaps the most embarrassing example of noncompliance is the deal between the United States and Brazil reached after Brazil won a case against U.S. cotton subsidies. The United States managed to avoid retaliation and keep the subsidies by agreeing to send Brazilian cotton farmers a check for $147 million every year. That arrangement appears to be coming to an end with the United States providing one final payment of $300 million and keeping the cotton subsidies indefinitely.
The United States doesn’t always refuse to comply with WTO decisions. The threat of retaliation from Canada and Mexico may very well make a difference in the ongoing fight over protectionist U.S. regulations related to origin labels for meat. A big difference between that case and clove cigarettes is that Canada and Mexico are the two largest export markets for U.S. products.
There’s reason for optimism, but the reputation of the WTO dispute settlement process is being put at serious risk by this administration’s lack of commitment to the rules of the international trading system.