House Republicans have released a proposal for major tax reform. Kudos to Ways and Means chairman Kevin Brady for stepping up to the plate and planning ahead for 2017. Brady and his staff did extensive outreach to think tank experts and the GOP caucus, and they have come up with a blueprint that focuses on savings, investment, simplification, and economic growth. 

The GOP plan would cut the top personal income tax rate from 40 percent to 33 percent, while consolidating the bracket structure from 7 rates to 3. The plan would reduce the top tax rate on small businesses to 25 percent, and it would repeal the estate tax and alternative minimum tax.

The corporate tax rate would be cut from 35 percent to 20 percent. That would be the single most important thing that the next Congress could do for the U.S. economy. Corporations build factories, buy equipment, and hire workers to earn after-tax profits. Slashing the marginal tax rate by 15 points would substantially increase the after-tax profits companies could earn on new investments, and they would respond accordingly. More capital investment would mean more job opportunities and higher wages for American workers.

The GOP plan would allow businesses to immediately write off capital investment, which would further boost after-tax returns on new investment and simplify the tax code. The plan would adopt a “territorial” approach for foreign business income to make America an attractive place to headquarter multinational corporations. The lower tax rate, territorial approach, and capital expensing would generate a large inflow of real investment and paper profits to our shores, rather than repelling them as our current tax system does.

The GOP plan would expand individual saving opportunities as well. In particular, it embraces the Brat/​Flake proposal (H.R. 4094/S. 2320) for creating Universal Savings Accounts (USAs). After the big success of such accounts in Canada and Britain, I’ve long argued that USAs are a no-brainer for tax reform in the USA.

House Speaker Paul Ryan has championed major tax reform for years. If Donald Trump wins the White House, the GOP could well move swiftly on tax reform early in 2017. Ryan and Brady are smart to put a detailed plan out there now and rally support for bold changes.

Last night, the British people voted to leave the European Union. When Britain joined the European Economic Community in 1973, the EEC was little more than a customs union. Over time, the EEC evolved into a supranational entity that at least superficially resembled a federal state. The European Union has its own flag, anthem, currency, president (five of them, actually) and diplomatic service. It is governed by an overpaid and arrogant, but opaque and unaccountable, bureaucracy in Brussels. It was, therefore, perfectly reasonable to give the British electorate an opportunity to reflect on the changes that have taken place in Europe over the last 43 years.

Moving forward, there is no reason why nations committed to entrepreneurship and free trade should not prosper outside of the EU. Switzerland has done so in the past and Britain can do so in the future. By showing the rest of Europe that it is possible to live in prosperity and peace outside the suffocating confines of the EU, Britain could lead the way for other nations – including Denmark, France, Holland and Sweden.

(It occurred to us that some of our early posts, and especially ones from Alt‑M’s predecessor, Free​bank​ing​.org, may deserve a new airing, as they remain pertinent, but haven’t been seen by many of our newer readers. With that in mind, we’re pleased to introduce Friday FLASHBACKS: an occasional weekend dip into our archives. Enjoy!)

Skipping over ancient thinkers, early modern expressions of classical liberal thought on money may be found in the writings of Nicholas Oresme and other Scholastics who denounced the sovereign’s debasement of the coinage as a dishonest and tyrannical, a violation of the sanctity of contract that a just sovereign must respect. David Hume in the 1750s refuted the Mercantilist fear that unless the sovereign interfered with freedom of trade and payments the nation’s economy would retain too little silver and gold. Adam Smith in 1776, and later defenders of free banking in Britain, on the Continent, and in the Americas (my favorite being William Leggett), applied free-trade doctrines to banking and bank-issued currency. Thomas Hodgskin and Herbert Spencer even dared to defend private coinage. Walter Bagehot defended the principles of free banking, though he thought it a lost cause politically. In the twentieth century the Austrian economist Ludwig von Mises gave new subtlety and rigor to the case for free banking. Friedrich Hayek made somewhat ambivalent cases for gold and free banking earlier in his career, but in the 1970s forcefully called for Choice in Currency and The Denationalisation of Money. Free banking as a policy ideal is the result of applying the norms of classical liberalism to money and banking. Classical liberalism upholds individual liberty and private property rights, including freedom of contract, under the rule of law. It opposes rule by unconstrained authorities.

Many leading classical liberals over the centuries, however, have failed to apply their free-trade principles consistently to money. David Ricardo favored nationalization of coinage and banknote issue, and the forced substitution of redeemable paper notes for coins in all but the largest payments. Richard Cobden, the free trader, supported the nationalization of banknotes. After the Second World War, most of the German Ordoliberals and the Monetarists, led respectively by Walter Eucken and Milton Friedman, made peace with central banking and fiat money. (Although Friedman, it should be noted, reconsidered his position in the 1980s and began favoring free banking and the abolition of the central bank.) The otherwise radically free-market theorist Murray Rothbard favored a 100% reserve requirement, with no allowance for capitalist acts among mutually consenting adults who want to contract around that rule. Alternatives to fiat money, central banking, and deposit insurance were not on the program of the Mont Pelerin Society, a leading international society of classical liberal intellectuals, at its special meeting to discuss the financial crisis in 2009.

A century ago, before the First World War, economic classical liberals almost unanimously supported the ideals of the international gold standard. The “classical” period of the gold standard is usually dated from the United States’ resumption of gold payments in 1879 until the suspensions of payments in the First World War. The gold standard was fatally wounded in the First World War and never fully recovered. In practice it had not been a completely market-regulated system even before the war. National governments had long banned market competition in coining by giving themselves a monopoly in the minting of coins. Many similarly banned market competition in the issue of gold-backed banknotes and gave a monopoly to a government-sponsored central bank. National central banks violated the “rules of the game” by interfering with, overriding, or suspending the automatic operation of international gold flows. The centralization of gold reserves, a characteristic feature of central banking, altered the operation of the international gold standard for the worse.

Nonetheless the classical gold standard more nearly approached a self-regulating international monetary system than anything that has followed. Monetary nationalism and monetary statism since the First World War has brought us to our present system of national fiat monies, central banking, and extensive government interference in financial markets everywhere in the world (with the exception of offshore banking havens). The global financial crisis that began in 2007 has exposed the weakness and non-self-regulating character of the present system for all to see.

Our challenges for the present day, and for this blog, are to discover how we might reform the system in manner consistent with the ideals of freedom. How might we restore healthy self-regulation to our local and international monetary and banking systems?

Here are some references for the above history, which may also begin to answer Brad Jansen’s request for recommendations of classic readings.

Nicholas Oresme, De Moneta (Of Currency) [c. 1355], translated by Charles Johnson, in Lawrence H. White, ed., The History of Gold and Silver (London: Pickering and Chatto, 2000), vol. 1; David Hume, “Of the Balance of Trade,” in Essays, Moral, Political, and Literary, ed. Eugene F. Miller (Indianapolis: Liberty Fund, 1987); Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. R. H. Campbell, A. S. Skinner, and W. B. Todd. (Oxford: Oxford University Press, 1976); Vera Smith, The Rationale of Central Banking [1936] (Indianapolis: Liberty Fund, 1990); William Leggett, Democratick Editorials (Indianapolis: Liberty Fund, 1984); Thomas Hodgskin, Popular Political Economy (London: Charles Tait, 1827); Herbert Spencer, “State-Tamperings with Money and Banks,” in Essays Scientific, Political and Speculative, vol. 3 (London: Williams and Norgate, 1891); Ludwig von Mises, The Theory of Money and Credit [1912] (Indianapolis: Liberty Fund, 1980); Mises, Human Action, 3^rd ed. (Chicago: Henry Regnery, 1966); F. A. Hayek, Choice in Currency (London: Institute of Economic Affairs, 1976); Hayek, Denationalisation of Money, 2^nd ed. (London: Institute of Economic Affairs, 1978). David Ricardo, Plan for the Establishment of a National Bank [1824] in The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005),vol. 4, Pamphlets and Papers 1815–1823; Richard Cobden in 1840 Parliamentary testimony cited by Lawrence H. White, Free Banking in Britain, 2^nd. ed (London: Institute of Economic Affairs, 1995), p. 84; Walter Eucken, Grundsätze der Wirtschaftspolitik (Tübingen: J. C. B. Mohr, 1952); Milton Friedman, A Program for Monetary Stability (New York: Fordham University Press, 1960); Friedman, “Monetary Policy for the 1980s” in John H. Moore, ed., To Promote Prosperity(Stanford: Hoover Institution Press, 1984); Murray N. Rothbard, “The Case for a 100 Percent Gold Dollar” in Leland Yeager, ed., In Search of a Monetary Constitution (Cambridge, MA: Harvard University Press, 1962).

[This article originally appeared at Free​bank​ing​.org, the predecessor site to Alt‑M.org, on June 4, 2011]

In a lunch address to last week’s foreign policy conference, Barry Posen of MIT and author of Restraint discussed the perils of liberal hegemony, which he defined as a strategy that combines economic and military primacy with the “noble” goals of active democracy and human rights promotion. Posen argued that the advocates of liberal hegemony rely heavily on the use of force to achieve their objectives, and view military power as a scalpel that can perform precise, strategic operations.

Restraint-minded scholars, however, see military power as a “blunt and costly instrument” that is often counterproductive. Posen explained, for example, how identity politics, especially nationalism and religion, lead many to fight against or oppose invading armies, regardless of how benevolent the latter’s intentions may be.

Posen pointed out that there is strong opposition to America’s liberal hegemony strategy, in large part due to its high costs and profligate adventures abroad. Yet, by labeling restraint as “retreat,” Posen laments, liberal hegemony proponents militate substantive discussions and muddy the waters of the foreign policy debate.

You can watch Posen’s full remarks below. 

After six-plus years, congressional Republicans have finally offered an ObamaCare-replacement plan. They should have taken longer. Perhaps we should not be surprised that House Republican leaders* who have thrown their support behind a presidential candidate who praises single-payer and ObamaCare’s individual mandate would not even realize that the plan cobbled together is just ObamaCare-lite. Don’t get me wrong. The plan is not all bad. Where it matters most, however, House Republicans would repeal ObamaCare only to replace it with slightly modified versions of that law’s worst provisions.

Here are some of ObamaCare’s core private-health insurance provisions that the House Republicans’ plan would retain or mimic.

1. ObamaCare offers refundable health-insurance tax credits to low- and middle-income taxpayers who don’t have access to qualified coverage from an employer, don’t qualify for Medicare or Medicaid, and who purchase health insurance through an Exchange. House Republicans would retain these tax credits. They would still only be available to people ineligible for qualified employer coverage, Medicare, or Medicaid. But Republicans would offer them to everyone, regardless of income or where they purchase coverage.
2. These expanded tax credits would therefore preserve much of ObamaCare’s new spending. The refundable part of “refundable tax credits” means that if you’re eligible for a tax credit that exceeds your income-tax liability, the government cuts you a check. That’s spending, not tax reduction. ObamaCare’s so-called “tax credits” spend $4 for every $1 of tax cuts. House Republicans know they are creating (preserving?) entitlement spending because they say things like, “this new payment would not be allowed to pay for abortion coverage or services,” and “Robust verification methods would be put in place to protect taxpayer dollars and quickly resolve any inconsistencies that occur,” and that their subsidies don’t grow as rapidly as the Democrats’ subsidies do. Maybe not, but they do something that Democrats’ subsidies don’t: give a bipartisan imprimatur to ObamaCare’s redistribution of income.
3. As I have tried to warn Republicans before, these and all health-insurance tax credits are indistinguishable from an individual mandate. Under either a tax credit or a mandate, the government requires you to buy health insurance or to pay more money to the IRS. John Goodman, the dean of conservative health policy wonks, supports health-insurance tax credits and calls them “a financial mandate.” Supporters protest that a mandate is a tax increase while credits—or at least, the non-refundable portion—are a tax cut. But that’s illusory. True, the credit may reduce the recipient’s tax liability. But it does nothing to reduce the overall tax burden imposed by the federal government, which is determined by how much the government spends. And wouldn’t you know, the refundable portion of the credit increases the overall tax burden because it increases government spending, which Congress ultimately must finance with additional taxes. So refundable tax credits do increase taxes, just like a mandate.
   
4. Health-insurance tax credits also give the federal government as much control over the content of your health plan as ObamaCare’s individual and employer mandates do. The government has to define both (a) how much coverage you must buy to qualify for the credit, and (b) whether your employer offers sufficient coverage to make you ineligible for the credit. What House Ways & Means Committee chairman Kevin Brady (R‑TX) said yesterday of the tax preference for employer-sponsored insurance–“You only get it if you do exactly what Washington says”–is also true of his proposed tax credit. Republicans may try to allow for flexibility in insurance design, but they would still be creating (preserving?) tools that future Congresses and unelected bureaucrats would use (a) to restrict choice and innovation in both the individual and employer markets, (b) to push consumers back and forth between these markets, and (c) to increase government spending.
5. Since House Republicans would offer tax credits for non-employer coverage without imposing an employer mandate to discourage employers from dropping coverage, their plan would do even more than ObamaCare to encourage employers to drop coverage. I don’t necessarily think that employers dropping coverage a bad thing–but wait until you see what happens next.
6. House Republicans appear to want to retain ObamaCare’s guaranteed-issue regulations: “No American should ever be denied coverage or face a coverage exclusion on the basis of a pre-existing condition,” they write. “Our plan ensures every American, healthy or sick, will have the comfort of knowing they can never be denied a plan from a health insurer.” (Emphases added.)
7. They also would modify, rather than repeal, ObamaCare’s community-rating price controls. A bit of explanation. Rather than allow reality-based (i.e., actuarially fair) premiums, ObamaCare requires insurers to charge everyone of a given age the same premium, and forbids insurers to charge their oldest enrollees more than three times what they charge their youngest enrollees. The centerpiece of ObamaCare, these government price controls literally punish insurers (like United Healthcare) who offer coverage the sick actually want, while rewarding insurers who offer coverage that’s unattractive to the sick. House Republicans propose not to repeal these price controls, but merely to increase the age-rating ratio to 5:1 (better, but still binding) and, more importantly, to preserve pure community rating in cases where consumers switch plans. That last part is a big problem. Imposing community rating for plan-switchers would create the same perverse penalties and rewards, and cause the same race to the bottom among health plans, that we observe in ObamaCare’s Exchanges. The race to the bottom might be even worse under the House Republicans’ plan than under ObamaCare. The GOP plan contains none of the mechanisms ObamaCare uses to slow down the degradation of coverage. And if the House Republicans’ tax credits and lack of employer mandate cause employers to drop coverage, which is a real concern, then House Republicans could trap tens of millions more Americans in an even quicker race to the bottom than ObamaCare does.
8. House Republicans would also keep ObamaCare’s millennial mandate.
9. Like ObamaCare, they would cap the tax exclusion for employer-sponsored coverage in a way that increases taxes on workers with expensive health benefits.

Expect howls from conservatives who protest that the House plan is not ObamaCare-lite. I mean, gosh, Chairman Brady promised it would create “health care freedom in a way Americans have never experienced”!

Please. The above similarities to ObamaCare include at least remnants of all three legs of ObamaCare’s three-legged stool. Conservatives, libertarians, and independents have spent seven years fighting ObamaCare…for this?

Moreover, this plan is downright dishonest. House Republicans say they want to “Repeal ObamaCare” and make “a clean start,” because they want to signal to their conservative base that they remain committed to full repeal. But then they too start down the same path ObamaCare has blazed. That is arguably worse than framing this plan as partial repeal and promising to finish the job later. Pretending to repeal all of ObamaCare but then reinstating some of its provisions with a Republican imprimatur would make those provisions completely repeal-proof.

To be fair, the plan includes some proposals that move in the right direction. It would modestly expand tax-free health savings accounts (HSAs) and health reimbursement arrangements (HRAs). It would allow people to purchase health insurance licensed by states other than their own. It would limit federal spending on Medicaid by giving states the option of a fixed amount of federal dollars per enrollee or a block grant (except for the elderly and disabled). A pure lump-sum, block-grant approach would be better, but at least this would be a step in the right direction. The Medicare reforms would move that program ever so slightly in the direction of Social Security, where the government subsidizes enrollees’ health care simply by giving them cash. But there would have to be a lot–a lot–of Medicare and Medicaid cuts to make up for Republicans keeping an ObamaCare entitlement they are pretending to repeal.

And still other parts of this plan betray Republicans’ lack of seriousness about health care reform and/​or their own principles. Its authors claim, “ObamaCare set America on a path that leads to a larger government having a greater role in how health care decisions are made,” even though just a few paragraphs before they were lauding and promising to protect Medicare–a disaster of a program–and even boasting that it was Republicans who expanded it with a new, unfunded entitlement to prescription-drug coverage. They apparently see HSAs as a product to be promoted–or a nice way to shave a little off your tax bill–rather than as a mechanism for fundamental reform that gets the IRS out of your health care decisions entirely. Sen. Jeff Flake (R‑AZ) and Rep. Dave Brat (R‑VA) have introduced legislation that includes the basic elements of that approach. At press time, the House Republicans’ plan didn’t even include that bill among its list of health care proposals Republicans have offered this Congress. And then there are House Republicans’ wrong-headed, unconstitutional, anti-federalism, special-interest-pandering medical malpractice liability reforms. At a time when the estimated number of annual deaths due to medical errors in the United States (251,454) is seven and a half times the number of firearms deaths (33,636), these geniuses are proposing to reduce incentives for providers to invest patient safety–oh, and to abandon their principles along the way.

Health care reform should make health care better, more affordable, and more secure, particularly for the most vulnerable. ObamaCare does the opposite, and Republicans are right to oppose it. If they really care for patients, Republicans need to go back to the drawing board until they find a better way.

 

*One of the architects of this plan, House Committee on Energy and Commerce chairman Fred Upton (R‑MI), has refused to endorse presumptive GOP presidential nominee Donald Trump.

In my continuing quest to shine the light on successful cases of defense conversion (i.e. transitioning former military facilities to non-military uses), I traveled to the Big Apple on Wednesday to visit Governors Island, a former U.S. Army and later Coast Guard facility that the federal government sold back to the City of New York in 2003.


The occasion of my visit was a rendezvous with Samer Bagaeen and Celia Clark, co-editors of a new book, Sustainable Regeneration of Former Military Sites. I contributed a chapter on two sites in Philadelphia, and co-authored a second chapter (with Clark) on the Brooklyn Navy Yard. Celia had previously visited Governors Island, and included it as one of many cases where former defense facilities had been converted to venues for art exhibitions.


Governors Island is accessible via ferry from Battery Park, at Slip No. 7, just adjacent to the Staten Island Ferry terminal. The ferries to the island run once every hour during the summer, with a second ferry route coming from Brooklyn on weekends. The trip takes only a few minutes, but along the way you are treated to some terrific view of Lower Manhattan and the Brooklyn Bridge.


There were perhaps one hundred on the boat that I boarded at 2 pm, but one of the friendly deck hands Krishendat (“Call me Kris,” he said) explained that the boats, which can accommodate 1,250 passengers, were packed on weekends.


I was skeptical. There were few others there as I strolled the peaceful grounds on a pleasant weekday. The National Park Service supervises the 22 acres of the Governors Island National Monument, and park rangers and volunteers showed people around and answered questions. A few folks tooled around on two-person bikes, and the lucky ones had golf carts for shuttling between the historic properties, including Fort Jay and Castle Williams (a former prison). For the most part, the walkways were sparsely populated or empty. The view of Lower Manhattan through the talls trees was striking.

The Commanding Officer’s House, constructed in the 1840s, is a nice venue for meetings. A plaque in the entry way boasted of one such meeting: Ronald Reagan’s luncheon with Mikhail Gorbachev and then-Vice President/President-elect George H.W. Bush on December 7, 1988. Other structures were not as well maintained, and the worst of the lot were closed off with gates and warning signs.


Leslie Koch, the long-time president and chief executive of the Trust for Governors Island, confirmed that 10,000 or more come to the island each day on summer weekends. Many will come for the grand opening of a new park, The Hills, constructed from the remnants of the old seawall. Leslie, who is stepping down next month, gave us a sneak peak.


The 10-acre area, once completely flat, now features several undulating hills of grass, small trees, and rock walkways (scrambleways) for climbing. The Statue of Liberty rose up from behind the hills as the golf cart wound its way up the freshly paved road. The new park is sure to be a big hit for all ages, but the young ones will like the slides.

We had sped past a number of brick buildings on the way there. Most of the structures are unoccupied. Per the terms of the sale from the federal government to the City of New York, residential housing is forbidden on Governors Island. This could be a lucrative source of revenue to offset more than $16 million per year in operating expenses; by way of comparison, the Presidio Trust in San Francisco collects more than 50 percent of its revenue from residential rents. Residences can also draw businesses to former base properties, one of the reasons why the former Philadelphia Navy Yard decided to develop a few thousand apartment units. The restaurants and shops that cater to these residents also make the place more attractive to businesses, whose employees otherwise would have to travel off site for lunch or to run errands.

But while there are untapped opportunities on the island, it is a terrific space just a few minutes away from the heart of New York’s financial district. If you haven’t been, you should. And, when you go, remember: this former defense site was once closed off to nearly everyone. Now it is open for all to use and enjoy. We can and should do the same with other defense facilities around the country.