The International Monetary Fund Accidentally Provides Strong Evidence for the Laffer Curve

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments.

And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially when the IMF’s politicized and leftist (and tax-free) leadership dictates the organization’s agenda.

Which explains why I’ve referred to that bureaucracy as a “dumpster fire of the global economy” and the “Dr. Kevorkian of global economic policy.”

I always make sure to point out, however, that there are some decent economists who work for the IMF and that they occasionally are allowed to produce good research. I’ve favorably cited the bureaucracy’s work on spending caps, for instance.

But what amuses me is when the IMF tries to promote bad policy and accidentally gives me powerful evidence for good policy. That happened in 2012, for example, when it produced some very persuasive data showing that value-added taxes are money machines to finance a bigger burden of government.

Well, it’s happened again, though this time the bureaucrats inadvertently just issued some research that makes the case for the Laffer Curve and lower corporate tax rates.

HASC vs. SASC on BRAC

Neither of the defense bills (National Defense Authorization Acts, NDAAs) wending their way through the House and Senate grant the Pentagon the authority to reduce excess infrastructure. Military leaders have asked for such permission for many years, but Congress has stubbornly refused. An amendment sponsored by Rep. Tom McClintock (R-CA) would have stripped the language from the House NDAA that blocks a new Base Realignment and Closure (BRAC) round. That amendment failed yesterday by a vote of 175-248.

Before the vote, the House Armed Services Committee issued a “BRAC Facts” one pager to preempt the McClintock amendment and other attempts to resolve the impasse between Congress and military leaders over BRAC.

The one pager includes a few facts, but is selective to the point of misleading. For example, it states that Secretary of Defense James Mattis “does not have confidence in DOD BRAC assessments.” And quotes Mattis as saying “I am not comfortable right now that we have a full 20 some percent excess.” 

But the SecDef also said that a new BRAC round could save the Pentagon $2 billion a year. In written testimony last month, Mattis called BRAC “a cornerstone of our efficiencies program” and necessary to “ensure we do not waste taxpayer dollars.” Granting the Pentagon authority to reduce overhead, Mattis continued, “is essential to improving our readiness by minimizing wasted resources and accommodating force adjustments.” He observed, “Of all the efficiency measures the Department has undertaken over the years, BRAC is one of the most successful and significant.”

Meanwhile, deputy defense secretary Robert Work has also called for BRAC. “Spending resources on excess infrastructure does not make sense,” he wrote last year. In short, it simply isn’t accurate to imply that current Pentagon leaders doubt whether the military has more bases than it needs. And that is true even if the military were to grow in the next few years, as the HASC claims it must.

No ‘Freedom Option’ in the Revised Senate Health Care Bill

The other day, I wrote a piece lauding an amendment Sen. Ted Cruz (R-TX) was proposing to add to the Senate GOP’s health care bill. Cruz called it the Consumer Freedom Amendment. If insurers offered two ObamaCare-compliant plans to all comers, the Cruz amendment would have freed them to sell–and freed consumers to purchase–health-insurance plans that did not comply with those regulations. The legislative language I saw appeared to free consumers, not from all the regulations I would like, but from enough that it would have made the Senate bill a step in the right direction. It also included more restrictions on the use of this “freedom option” than I would like, but same thing. The changes would have dramatically reduced premiums for consumers. Perhaps more important, it would have offered more comprehensive and more secure coverage to people who develop expensive illnesses than ObamaCare does.

Today, Senate GOP leaders released an updated draft of their health care bill. 

This draft imposes ObamaCare’s “single risk pool” price controls on “freedom option” plans. Long story short, that means there is no “freedom option” in this bill. Insurers probably would not even offer non-compliant plans. If they did, ObamaCare’s “single risk pool” price controls would make secure, guaranteed-renewable health insurance impossible by taxing such plans to death. Here’s how.

  • The “single risk pool” price controls would require insurers to increase premiums for both ObamaCare-compliant plans and non-compliant plans by the same percentage. If claims in the compliant market necessitate a 10 percent increase, while claims in the non-compliant market necessitate only a 6 percent increase, the insurer would have to increase premiums in the former market by too little and/or increase premiums in the latter market by too much.
  • Let’s say insurers split the difference by increasing premiums in both markets by 8 percent. In the second year, insurers would be over-charging consumers in the non-compliant market. The problem would only get worse with time. By year five, the insurer would be overcharging consumers in the non-compliant plans by almost 10 percent. That creates an incentive for the insurer or a competitor to issue new, appropriately priced non-compliant plans that lure the healthy people out of the old non-compliant plans.
  • Consumers who developed expensive illnesses in the first year could not switch to the new non-compliant plans, because insurers would underwrite them and charge them an even higher premium. So those folks would stay in the old non-compliant plans until the hidden tax imposed by the “single risk pool” price controls made those plans a worse deal than the heavily subsidized ObamaCare-compliant plans. At that point, those consumers would switch to the ObamaCare-compliant plans. Actually, the effect would be a lot like that of the MacArthur waivers in the House’s health care bill. [Update: Astute reader Doug Badger notes that because the non-compliant plans do not qualify as creditable coverage, people in those plans could not automatically switch to ObamaCare-compliant plans. “They would either have to renew their existing policy, buy another non-ACA-compliant policy, or remain uninsured for a period of six months before enrolling in a policy sold through the Exchange,” he writes. Another option would be for the enrollee (or a parent or spouse) to take a job with health benefits for twelve months and then switch to an ObamaCare-compliant plan. Since employer-sponsored insurance would count as creditable coverage, there would be no waiting period, and while employers may impose waiting periods of up to 90 days for health benefits, the enrollee could keep her non-compliant plan until she is eligible to enroll in the employer plan. To the extent these strategies are feasible, newly sick enrollees in old non-compliant plans would and could migrate to compliant plans. To the extent such strategies are infeasible, the “single risk pool” price controls would create a trifurcated market of (1) healthy people hopping among non-compliant plans and (2) newly sick people stuck in increasingly overpriced non-compliant plans that subsidize (3) people with preexisting conditions in ObamaCare plans. Presumably, however, at a certain point, the costs of remaining in increasingly overpriced non-compliant plans would exceed the costs of those switching strategies.]
  • In other words, secure, long-term, guaranteed-renewable coverage would be impossible, because the “single risk pool” price controls would tax those plans to death.
  • This dynamic would happen even faster if insurers increase both the compliant and noncompliant plan premiums by 10 percent, which they probably would.

I’m not saying there’s no way Senate Republicans can redeem their bill. I have offered ideas that might. But at this point, the Cruz amendment does not redeem or even add to the bill.

I don’t get Republicans’ sudden infatuation with price controls

It’s the Slingshot, Not the Nuke, That’s the Bigger Danger?

For most of American educational history, government massively discriminated against African Americans, first with some states prohibiting any education for them, and long after that districts maintaining de jure, and to this day de facto, segregated schools. But we are to believe that the big segregation danger is school choice? That’s like saying it’s not the nuke we’ve been using that’s the big threat, but that someone might use a slingshot. It is also what the Center for American Progress is asserting in a new brief: The Racist Origins of Private School Vouchers.

This may be a new report, but that modern proposals are a huge danger because some states and districts used choice to evade public school integration after Brown v. Board of Education isn’t a new argument. Some places absolutely did do this, but the argument remains as logically and factually untethered from full history as it has ever been.

For one thing, the large-scale drive to have education dollars follow students to chosen schools did not start with white people trying to escape racial integration, but Roman Catholics—and others—trying to direct funding for their children to schools that taught their religious values, not someone else’s. They wanted to be treated equally, which public schools did not do. Meanwhile, as even the CAP report hints, often private people tried to help African Americans in the face of government discrimination.

Of course, we continue to have segregation in education: if you want to access a “good” district, you have to be able to pay for a home there. That is why most people probably do not think of private schooling when they think of “white flight,” but of families moving out of districts with growing African-American populations into suburban districts that tended to be largely white. This happened most famously in Michigan, not deep in the kudzu of Alabama or Mississippi.

No Surveillance Reform in Defense Policy Bill

As I predicted 72 hours ago, the FY18 National Defense Authorization Act (NDAA) will not be a vehicle for reforming National Security Agency (NSA) surveillance authorities under Sec. 702 of the FISA Amendments Act (FAA). The twist is that while the House Rules Committee did disallow an amendment to prevent “back door” warrantless searches of the stored communications of Americans (the full NDAA amendment list is available here), the author of all three surveillance reform amendments to the bill, Rep. Ted Lieu (D-CA) withdrew the other two before a Rules Committee vote. Lieu’s office offered the author the following statement on the decision:

Mr. Lieu has always been a strong advocate for protecting our civil liberties and our privacy. He introduced these NDAA amendments (which have been offered previously by other Members) to prevent warrantless searches of Americans’ data under Section 702 of the Foreign Intelligence Surveillance Act. Warrantless searches are just one of many problems with the law, which is set to expire at the end of this year. The House Judiciary Committee is currently negotiating a package that reauthorizes the necessary foreign surveillance authorities while adding sweeping reforms to protect Americans’ civil liberties. We were asked to withdraw our amendments this week to allow those reform discussions to continue in good faith, and we obliged because we are optimistic about achieving our goals. The amendment decision in no way changes the fact that a broad, bipartisan coalition of Member’s will fight any attempt to reauthorize Section 702 without serious reform.

So where does that leave FAA reform prospects? That will depend in no small measure on how determined reformers are to push the House GOP leadership on the question. As I write these lines, House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Ranking Member John Conyers (D-MI) are working on competing FAA bills; while I expect the Conyers bill to offer more sweeping reform proposals, Goodlatte will no doubt not allow the Conyers bill to get a vote in committee. All of this means that unless at least 5-6 GOP House Judiciary members make it clear to Goodlatte that any FAA Sec. 702 reform bill brought up in committee must be amendable, what passes out of that committee and goes to the House floor for a vote may be just as anemic a reform measure as the 2015 USA Freedom Act

Heritage Report Shows Refugees Are Not a Major Threat

Olivia Enos, David Inserra, and Joshua Meservey of the Heritage Foundation published an interesting Backgrounder last week about the U.S. refugee program. We agree with many, though not all, of its conclusions and think that it serves as a wonderful example of policy experts grappling with a difficult policy question in a nuanced and thoughtful way – two characteristics often lacking in Washington, D.C.

However, the Backgrounder’s claim that 61 refugees were convicted of Islamist “terrorism-related” offenses since 2002 has earned a lot of attention from the media. David Inserra was kind enough to send us a complete list of the refugee terrorists he and his colleagues counted. Here are the facts about these 61 people:

  • None of these refugees killed anyone in a terrorist attack on U.S.-soil.
  • Only five (8 percent) were refugees who attempted or planned an attack on U.S. soil. The other 56 (92 percent) of the list were either not refugees or not terrorists targeting U.S. soil.
  • At most 50 were actual refugees who may have committed terrorism offenses, out of the 2.1 million refugees admitted since 1989, which is the earliest year that anybody on the list entered as a refugee. At least eleven (18 percent) of the refugee terrorists reported by Heritage were either not actually refugees or not convicted of terrorism offenses.
  • Only five (8 percent) entered as refugees since 2008.
  • Only five (8 percent) were likely refugee security vetting failures who entered as adults or older teenagers and committed an offense soon after entering.
  • The 50 refugees represent just five of the 124 nationalities of refugees admitted since 2002 (4 percent). Three-quarters of the refugees who committed a terrorism offense came from a single nation.

The security threat from refugees is minuscule, concentrated among a few Somalis, and has little to do with vetting.

The Non-Refugees and Non-Terrorists

The Backgrounder’s use of terrorism-related offenses is problematic as it is not synonymous with actual direct or indirect support of terrorism. There is no definition of a terrorism-related offense in U.S. statutes but there is a broad working GAO definition: that it relates to “terrorism, homeland security, and law enforcement, as well as other information.” As far as we can tell, the term terrorism-related is used to describe a conviction for any offense that results from a terrorism investigation – even if it is for crimes that bear no relation to terrorism such as buying stolen cereal. David Inserra told us that “Our [Heritage’s] inclusion criteria wasn’t based on convictions for terrorism offenses because people could be involved in that sort of activity and not ever be convicted. We were trying to find the happy medium between overly-restrictive and too loose definitions.” Thus, we are working with different definitions and the reader should keep that in mind. 

Six individuals on the Heritage list were not convicted of terrorism offenses. The government dismissed its complaint against Al-Hazmah Mohammed Jawad. Aws Mohammed Younis Al-Jayab and Ali Mohammed Al Mosaleh were charged with making false statements. Abdi Mahdi Hussein was convicted of failure to follow financial reporting requirements and was “not charged with any terrorism offense and was not alleged to have knowingly been involved in terrorism activities,” according to the FBI. Yusra Ismail was charged with stealing a U.S. passport—not terrorism—and Saynab Hussein was convicted of perjury.

CFPB’s Theory of Consumer Protection: Less Choice, More Cost

Signaling its intent to proceed with business as usual, despite ongoing controversy over its leadership and structure, the Consumer Financial Protection Bureau (CFPB) recently finalized a rule restricting the ability of financial services companies to use arbitration clauses in their contracts. 

An arbitration clause requires the parties to the contract to take any dispute to arbitration, a privately operated hearing procedure that typically has a legally binding effect. Arbitration is often attractive because it can be quicker and less expensive than a case brought in court. It also typically means that the plaintiff cannot join together with other plaintiffs to bring a class action suit. This is the crux of the issue. 

Supporters of the new rule claim that these clauses, buried in fine print and ubiquitous in almost all parts of American legal life, allow banks and credit card companies to get away with abuses that would otherwise be checked by class action litigation. An unlawful practice that costs every customer $5 is almost assuredly not worth the cost or hassle of going to court over. However, bring together a class of one million customers (most of whom will never realize they’re part of the class at all), and there’s real money at stake. Enough money to entice a lawyer to litigate and, let’s be honest, control the entire process for a chance at the typical fee of 33 percent of whatever is recovered. 

Is this true? Were companies able to get away with practices that netted them cash while harming consumers because the harms were so diffuse? Maybe.  Probably. Without speculating about what kinds of practices companies may have engaged in or how wide-spread any were (I have no intention of impugning an entire industry, but every industry has its bad eggs), to the extent litigation was required to check any particular misconduct, if the harm per customer was marginal, it is unlikely anyone would bother with litigation.