Topic: Government and Politics

GOP Responses to Trump Budget

President Donald Trump’s budget issued last week would cut $54 billion from nondefense spending. Budget director Mick Mulvaney did a nice job assembling an array of sensible cuts, as I discuss in this CNN op-ed and this blog.

Recipients of handouts and pro-spending activists are not happy with the proposals. But many of Mulvaney’s proposed cuts are for local activities, such as housing and schools. If programs are important, then local governments can fund them with their own taxes, which would be a more efficient, transparent, and democratic fiscal approach.

Some GOP members of Congress are not happy about the cuts either. Republicans generally consider themselves to be fiscal conservatives. But for some members, their oft-expressed concerns about deficits might be just philosophical musings, not a guide to their actual policy positions:

  • Senator Rob Portman (R-OH) responded to Trump’s cuts by coming to the defense of federal funding for Lake Erie restoration, which he called “critical.” Yet the senator’s official website complains about the federal “spending spree, piling up new deficits onto our massive debt … Washington’s fiscal irresponsibility passes the problem to future generations.”
  • Representative Michael Conway (R-TX) opposes farm subsidy cuts, saying “Agriculture has done more than its fair share” in restraining deficits. (That’s not true—farm aid has risen in recent years). Yet on his website, Conway says, “Our nation is in a budgetary crisis … As a CPA and fiscal conservative, I am committed to working with my colleagues to cut spending and put our fiscal house in order. Congress does not have a blank check; it is vitally important that we balance the federal budget.”
  • Senator Lisa Murkowski (R-AK) complained about the Trump budget as well. She “attacked plans to cut or eliminate programs that help the poor pay heating bills, provide aid for localities to deal with wastewater and subsidize air travel in rural areas like her home state of Alaska.” Yet her website says, “Senator Murkowski believes one of the most essential functions of Congress is to pass a balanced budget that sets a responsible spending plan for federal government services. For too long, the U.S. government has been spending more than it takes in and borrowing large sums of money to make up the difference. To set the nation on a more stable financial path, it is critical for Congress to set sustainable funding levels for the federal government, reduce overall spending levels.”
  • House appropriator Hal Rogers (R-KY) complained about Trump’s proposed cuts to foreign affairs activities. Yet his website says that he will “remain steadfast in fighting against government waste and any bills that increase the government’s reach on your dime.” As it turns out, foreign affairs has greatly increased its reach on our dime, and so Trump’s proposed cuts make a lot of sense.

President Trump recently signed an Executive Order requiring agencies to eliminate two regulations for each new one imposed. He should ask members of Congress to be similarly responsible on spending. For each proposed spending cut they disapprove, they should identify and pursue two similar-sized cuts elsewhere in the budget.   

House GOP Leadership Gives ObamaCare-Forever Bill a Touch-Up Job

Responding to conservative protests that the American Health Care Act would immortalize ObamaCare rather than repeal it, the House Republican leadership has announced several amendments. (See my initial analysis of the bill here, and my analysis of the Congressional Budget Office score).

The amendments do not even come close to fixing the problems with this fatally flawed bill. Indeed, by expanding the AHCA’s tax-credit entitlement, it will make the bill resemble ObamaCare even more.

ObamaCare’s Medicaid Expansion                                 

Original AHCA provisions:

As introduced, the AHCA includes language that supposedly repeals ObamaCare’s expansion of Medicaid to able-bodied, childless adults. In fact, it would expand the Medicaid expansion and make it permanent.

The original bill would have allowed the 19 non-participating states to implement the expansion until 2020, allowed participating states to expand enrollment until 2020, and would have kept paying states the enhanced, 90 percent federal “match” for each expansion enrollee until that enrollee disenrolled. Expansion advocates in those 19 states hailed the bill for removing obstacles to those states implementing the expansion.

The bill thus would have repealed the Medicaid expansion in name only. By 2020, there would have been so many more Medicaid expansion states and enrollees, that Congress would rescind the repeal and keep the expansion in perpetuity.

Amendment:

The amendment would prevent the 19 states that have not implemented the expansion from doing so. This is a welcome change—but it is not nearly sufficient.

Even with this change, there would more Medicaid-expansion enrollees after “repeal” than before. The 31 expansion states could keep adding new enrollees to the expansion until 2020, and keep receiving the enhanced, 90 percent federal “match” for those enrollees after 2020. The AHCA would still reward state officials who did the wrong thing (expanding Medicaid) and punish state officials who did the right thing (refused to implement the expansion). The bill would still create increased pressure on Congress to rescind this “repeal” before 2020.

The amendment would allow states to impose work requirements for able-bodied Medicaid enrollees. Again, this is a welcome change, but not nearly sufficient.

Work requirements could reduce dependence on Medicaid, reduce Medicaid spending, and reduce pressure for Congress to preserve the expansion. Yet work requirements are only (politically) feasible for able-bodied adults. And the states where work requirements are most needed—the 31 states that have implemented the Medicaid expansion—are the least likely to impose a work requirement. Why would they? States that use work requirements to help Medicaid-expansion enrollees achieve financial independence would see only 10 percent of the savings. The other 90 percent goes to Washington. The amendment’s optional work requirements are a fig-leaf proposal that does little if anything to improve the AHCA.

Minimum Wages and Bad Use of Terminology

A news story today leads with the headline “Minimum-wage hikes could deepen shortage of health aides” (h/t David Boaz). The key section (reported on ABC News):

It’s a national problem advocates say could get worse in New York because of a phased-in, $15-an-hour minimum wage that will be statewide by 2021, pushing notoriously poorly paid health aides into other jobs, in retail or fast food, that don’t involve hours of training and the pressure of keeping someone else alive.

Contained within this story is some bad economic reasoning and terminology but also an interesting, but rarely discussed, effect of minimum wages.

First, the mistake. Take the headline. The basic economics of the minimum wage tells us the raising the statutory price of labor above some equilibrium will lead to a reduction in the quantity of labor demanded. But it also says there will be an increase in the quantity of labor supplied. Far from causing a “shortage” of health aides then, raising the minimum wage leads to a surplus of labor. Raising the pay rate increases the return to working in the industry relative to being on welfare, and presuming budgets are unchanged (the article explains that most home care is paid by government programs), the quantity demanded falls at the same time. The gap that arises is precisely the “unemployment effect.”

It’s not clear then why raising a minimum wage would lead to fewer people seeking to be home care or health aides. Assuming demand is fixed, it would lead to fewer people being health care aides or health care aides being less available (shorter working hours etc). Yet that is not what the article claims—it suggests supply of available workers is falling, despite the pay-off to the job increasing.

What’s the point that the article is getting at then? It can be the case that raising a minimum wage changes wage rate differentials between industries. The article states that the average home care wage is about $11 per hour, whereas a quick Google search suggests many low-paid retail and fast food jobs may pay less than that in certain regions. If a hypothetical fast food job would pay $9 per hour in a free market and a home care job $11 per hour, then raising the statutory minimum to $15 can eliminate the differential. This makes fast food jobs more attractive on the margin, particularly given the home care training, and could mean the relative supply of workers increases in these industries compared to home care.

DOJ Enters the Fray…Against the CFPB

There’s another installment in the ongoing saga of PHH v. CFPB, the legal case challenging the constitutionality of the newest federal agency, the Consumer Financial Protection Bureau. And this installment is a weird one. The Department of Justice has now joined in, filing a briefagainst the CFPB. Yes, the federal government is now effectively on opposing sides of this case.

If you haven’t been following the story, I have a few posts that can bring you up to speed. At this point, a panel of judges has ruled against the CFPB, and a majority of them found that the CFPB’s structure is unconstitutional. (I find it difficult to see how anyone could find otherwise.) Part of the problem with the agency’s structure, as the court found, is that it has a single head who is removable only for cause. The director is not accountable to any elected official. To cure this problem, the court decided that the director should be removable by the president at will. This would make the agency more like a traditional executive agency—like the Department of Justice, for example—and less like existing independent agencies. Although it is important to note that even most independent agencies, like the Securities and Exchange Commission, are headed by a multi-member board and the chair of that board serves as chair at the will of the president. 

Now the federal appeals court in D.C. is rehearing the case en banc. That means that all 11 of the active judges on the court will hear the case and issue an opinion together. On Friday, the DOJ filed a friend of the court brief in support of PHH.

While it is extremely rare (although not unheard of) for one part of the government to file a brief in opposition to another part, it is not entirely surprising in this case. In ruling against the CFPB in the earlier hearing, the court handed the president a new bit of power. One of the reasons that our government has three co-equal branches is to allow them to serve as checks on one another. As Judge Kavanaugh noted in his opinion for the panel in the original hearing, quoting Justice Scalia “The purpose of the separation and equilibrium of powers in general, and of the unitary Executive in particular, was not merely to assure effective government but to preserve individual freedom.” Arguably, the government filing on both sides of a case is a sign the system is working as planned. 

The Filibuster: A Primer

Most legal scholars agree that Supreme Court nominee Neil Gorsuch has the necessary experience, expertise, and temperament to be confirmed as Justice Scalia’s replacement.  But suppose the Democrats decide to filibuster the nomination and Republicans can’t get the 60 votes needed to break the filibuster?  If that happens, you can expect the Republicans to “go nuclear” and change the filibuster rules so that only 51 votes are required to shut off debate.  To understand what that means, here’s a short backgrounder on the filibuster:

Senate filibusters have been around since 1837.  Beginning in 1917, a cloture vote to shut off debate required a 2/3 supermajority; that was changed to 60 votes in 1975.  Sen. Strom Thurmond (D-SC) set the record with a 1957 talk-a-thon against civil rights legislation: 24 hours, 18 minutes.  Nowadays, senators need not actually speak.  They merely announce their intent to prolong debate and that triggers the 60-vote cloture rule. 

Suppose senators want to revise the 60-vote rule.  Rules can be revised by majority vote.  But suppose further that the vote on revising the 60-vote rule is itself filibustered.  According to Senate rules, if a vote to change the 60-vote rule is filibustered, it takes two-thirds of the senators to break the filibuster.  The so-called nuclear option would override that rule.

There are two versions of the nuclear option – one simple and one complicated.  First, the simple version:  On the first day of a new Congress, Senate rules don’t yet apply.  Therefore, new rules can be adopted – and debate can be halted – by the default procedure, which is majority vote.  After the first day, however, that option isn’t available.

The second version is more complicated; but it can be used at any time.  One party, let’s say the Republicans, moves to change the 60-vote cloture rule to 51 votes.  The Democrats filibuster the rule-change – which means it would take 67 votes to close debate.  Republicans then go for the nuclear option – which is a point-of-order, upheld by the presiding officer, declaring that the 67-vote requirement is unconstitutional.

In 2005, it was the Republicans threatening the nuclear option to stop Democrats from blocking confirmation of George W. Bush’s judicial nominees.  In response, the Democrats said they’d shut down all Senate business.  Then-Senator Obama (D-IL) said, “I urge my Republican colleagues not to go through with changing these rules.  In the long run, it is not a good result for either party.”  Eventually, the confrontation was diffused when the Gang of 14 – seven senators from each party – agreed not to filibuster judicial nominees, except in extraordinary circumstances.  So, the Republicans never did use the nuclear option.  But eight years later, the Democrats had gained control of the Senate.  Majority leader Harry Reid (D-NV), who had previously opposed any effort to change the Senate’s rules, abruptly decided to support the nuclear option that he had argued vigorously against. 

As a result, we now have a new rule:  the minority cannot filibuster executive appointments and federal judicial nominees, except for Supreme Court nominees.  Of course, with the Republicans back in control of the Senate, the rule change backfired on Reid and the Democrats.  Not only was it an unexpected gift to the Republicans, but it also opened the door to a second use of the nuclear option, if necessary, to ensure confirmation of Trump’s Supreme Court nominees.  And that’s what will happen if the Democrats try to stop Neil Gorsuch. 

For what it’s worth, here’s my view of the matter:  The gripe against the filibuster is that it’s undemocratic because it stifles majority rule.  That misses the point.  We are a republic, not a democracy, and our Constitution is intentionally undemocratic.  The Framers were concerned about tyranny by the majority.  Recent majorities, on both sides of the aisle, have proven that those concerns are justified.  Majority parties have killed bills in committee, refused floor votes, and blocked amendments – essentially denying the minority any meaningful role.  The filibuster is a partial counterweight to those problems.

Furthermore, the Framers wrote a Constitution replete with protections that limit majority rule.  To name just a few: we have limited and enumerated federal powers, two senators from each state, the electoral college, and the Bill of Rights.  And note that the Constitution requires a 2/3 vote to propose constitutional amendments, override vetoes, approve treaties, impeach the president, and expel a congressman.  The filibuster’s supermajority requirement may be undemocratic, but that’s precisely why we have it.

Without the filibuster, we would be laboring under a federal government far larger than today’s behemoth.  Thanks to the filibuster, senators can occasionally throw a few grains of sand in the ever-grinding wheels of the regulatory and redistributive state.  Milton Friedman captured that point when he said, “I just shudder at what would happen to freedom in this country if the government were efficient.”  He was right.  The filibuster is a valuable safeguard.  We’d be better off if it were codified as part of the Constitution – especially for votes on significant expenditures and tax increases – and also for confirmation of federal judges, who have lifetime tenure on the bench.  Unless and until we establish judicial term limits, it’s little enough to insist that lifetime appointees be approved by 60 senators. 

More likely, however, the availability of the filibuster for Supreme Court nominees will be short-lived.

What to Look for in the Gorsuch Confirmation Hearings

The moment has arrived: this week, we finally have Supreme Court confirmation hearings before the Senate Judiciary Committee. This is the culmination of a series of unusual political events that took place after Justice Antonin Scalia’s untimely death in February 2016.

Indeed, when Scalia died, President Barack Obama had almost a year left in office, so it seemed likely that he would get to select the Court’s next justice. But it was an election year—and the last time that a Senate controlled by the party not in the White House confirmed a Supreme Court nominee to a vacancy that arose during a presidential election year was 1888. Accordingly, Republicans vowed not to consider any high-court nominee until after the election. In a politically polarized nation that had reelected a Democrat to the presidency in 2012 and then gave Senate control to the GOP in 2014, they were determined to let the people have another say regarding who would get to appoint the next justice.

Nevertheless, Obama nominated Judge Merrick Garland, a seemingly uncontroversial pick designed to pressure Senate Republicans to cave. As Donald Trump became the Republican nominee and the electoral winds blew harder against the GOP, Senate Majority Leader Mitch McConnell’s #NoHearingsNoVotes gambit (which I supported) seemed increasingly ill-advised. But the unlikely happened: Trump not only won the presidency, but he picked his nominee from a gold-plated list of 21 candidates that he had issued during his campaign.

Since Judge Neil Gorsuch of the Denver-based U.S. Court of Appeals for the Tenth Circuit was nominated on January 31, his chances of joining the high court have only improved. A recent survey showed that 91 percent of Democratic congressional staffers expect him to be confirmed, as Democratic senators have failed to find any salient items that would merit disqualification. Sure, activists will attempt to tar Gorsuch as anti-women, anti-worker, anti-this-that-and-the-other, but the mild-mannered originalist is anything but the cartoon Monopoly Man this caricature tries to paint. And the argument about how this is a #StolenSeat isn’t going anywhere because that was litigated at the election.

Based on His Leaked 2005 Tax Data, Donald Trump Should Move to Italy (or the Isle of Man)

The multi-faceted controversy over Donald Trump’s taxes has been rejuvenated by a partial leak of his 2005 tax return.

Interestingly, it appears that Trump pays a lot of tax. At least for that one year. Which is contrary to what a lot of people have suspected—including me in the column I wrote on this topic last year for Time.

Some Trump supporters are even highlighting the fact that Trump’s effective tax rate that year was higher than what’s been paid by other political figures in more recent years.

But I’m not impressed. First, we have no idea what Trump’s tax rate was in other years. So the people defending Trump on that basis may wind up with egg on their face if tax returns from other years ever get published.

Second, why is it a good thing that Trump paid so much tax? I realize I’m a curmudgeonly libertarian, but I was one of the people who applauded Trump for saying that he does everything possible to minimize the amount of money he turns over to the IRS. As far as I’m concerned, he failed in 2005.

But let’s set politics aside and focus on the fact that Trump coughed up $38 million to the IRS in 2005. If that’s representative of what he pays every year (and I realize that’s a big “if”), my main thought is that he should move to Italy.

Yes, I realize that sounds crazy given Italy’s awful fiscal system and grim outlook. But there’s actually a new special tax regime to lure wealthy foreigners. Regardless of their income, rich people who move to Italy from other nations can pay a flat amount of €100,000 every year. Note that we’re talking about a flat amount, not a flat rate.

Here’s how the reform was characterized by an Asian news outlet.

Italy on Wednesday (Mar 8) introduced a flat tax for wealthy foreigners in a bid to compete with similar incentives offered in Britain and Spain, which have successfully attracted a slew of rich footballers and entertainers. The new flat rate tax of €100,000 (US$105,000) a year will apply to all worldwide income for foreigners who declare Italy to be their residency for tax purposes.

Here’s how Bloomberg/BNA described the new initiative.

Italy unveiled a plan to allow the ultra-wealthy willing to take up residency in the country to pay an annual “flat tax” of 100,000 euros ($105,000) regardless of their level of income. A former Italian tax official told Bloomberg BNA the initiative is an attempt to entice high-net-worth individuals based in the U.K. to set up residency in Italy… Individuals paying the flat tax can add family members for an additional 25,000 euros ($26,250) each. The local media speculated that the measure would attract at least 1,000 high-income individuals.

Think about this from Donald Trump’s perspective. Would he rather pay $38 million to the charming people at the IRS, or would he rather make an annual payment of €100,000 (plus another €50,000 for his wife and youngest son) to the Agenzia Entrate?

Seems like a no-brainer to me, especially since Italy is one of the most beautiful nations in the world. Like France, it’s not a place where it’s easy to become rich, but it’s a great place to live if you already have money.

But if Trump prefers cold rain over Mediterranean sunshine, he could also pick the Isle of Man for his new home.

There are no capital gains, inheritance tax or stamp duty, and personal income tax has a 10% standard rate and 20% higher rate.  In addition there is a tax cap on total income payable of £125,000 per person, which has encouraged a steady flow of wealthy individuals and families to settle on the Island.

Though there are other options, as David Schrieberg explained for Forbes.

Italy is not exactly breaking new ground here. Various countries including Portugal, Malta, Cyprus and Ireland have been chasing high net worth individuals with various incentives. In 2014, some 60% of Swiss voters rejected a Socialist Party bid to end a 152-year-old tax break through which an estimated 5,600 wealthy foreigners pay a single lump sum similar to the new Italian regime.

Though all of these options are inferior to Monaco, where rich people (and everyone else) don’t pay any income tax. Same with the Cayman Islands and Bermuda. And don’t forget Vanuatu.

If you think all of this sounds too good to be true, you’re right. At least for Donald Trump and other Americans. The United States has a very onerous worldwide tax system based on citizenship.

In other words, unlike folks in the rest of the world, Americans have to give up their passports in order to benefit from these attractive options. And the IRS insists that such people pay a Soviet-style exit tax on their way out the door.