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Civil Asset Forfeiture: A Slice of Venezuelan-Style Thuggery in America

Sat, 09/16/2017 - 12:45pm

I periodically list people who have suffered horrible abuse because of despicable actions by government. At some point, I’ll have to create a special page to memorialize these victims. Something like the Bureaucrat Hall of Fame or Moocher Hall of Fame, though I haven’t figured out a good name (“Victims of Government Thuggery Hall of Fame” is too wordy).

Anyhow, many of these unfortunate people (the Dehko familyCarole HindersJoseph Rivers, and Thomas Williams) have something in common. They are victims of theft. But they can’t call law enforcement because their money and property was stolen by the government.

Such theft is enabled by “civil asset forfeiture” and we can now add Gerardo Serrano to the list of victims. The Washington Post has the disgusting story of what happened.

On Sept. 21, 2015, Gerardo Serrano was driving from his home in Kentucky to Piedras Negras, Mexico, when his truck was searched by U.S. Customs and Border Protection agents at Texas’s Eagle Pass border crossing. After finding a small ammunition clip, the agents took Serrano’s truck from him. Two years later, Customs hasn’t charged Serrano with a crime, and they haven’t given his truck back either.

The bureaucrats could take his truck because civil asset forfeiture basically gives bureaucrats a license to steal. I’m not joking, though I wish I was.

Customs seized the truck under the laws of civil asset forfeiture, which allow authorities to take cash and property from citizens upon suspicion of criminal wrongdoing. Because it happens under civil law, no criminal conviction — or even criminal charge — is necessary for authorities to take property they believe is connected to a crime.

That’s bad enough. But it gets even worse when you read about what happened to Serrano.

In September 2015, Serrano drove his new Ford F-250 pickup from his home in Kentucky to the Mexico border. He was going to visit a cousin he hadn’t seen in many years. He snapped a few photos with his phone as he drove through the checkpoint, planning to upload them to Facebook, just as he says he had been doing throughout his whole trip, to share the experience with friends and family back home. That’s when the trouble started. One of Serrano’s photos shows two Customs agents looking in his direction, hands held up. According to his lawsuit, the agents objected to his taking photos.

Are these bureaucrats members of some primitive jungle tribe that believes a photograph steals their souls?

That would at least be a semi-rational explanation.

But if you read the rest of the story, they’re apparently petulant jerks (I had other words in mind, but this is a family-friendly site).

Those agents waved him over to the side of the road, on the U.S. side of the border, and demanded he hand over his phone. Serrano said “no.” Customs declined to say whether there’s a prohibition on photography at border crossings. …one of the agents unlocked Serrano’s door, unbuckled his seat belt, and yanked him out of the car. “I know I didn’t do anything wrong,” Serrano told The Post. “So I say ‘listen, you can’t yank me out like that, I’m an American, you can’t do that to me.’”The agent took his phone, and demanded Serrano give him the passcode. Serrano recalls he told the agent to “go get a warrant.”By this time, other agents had started searching his truck. “I said, ‘Hey listen I have rights, you’re violating my rights, you’re not supposed to do that kind of stuff,’” Serrano recounted. …“I’m sick of hearing about your rights,” the agent said, according to Serrano’s lawsuit. “You have no rights here.”Eventually, one of the agents searching the truck found an ammunition clip containing five .380-caliber bullets and yelled “we got him!,” according to the lawsuit. …Serrano had planned to take his pistol on the trip, but he left it home at the strong urging of his cousin, who explained the potential consequences of bringing it to Mexico. But he didn’t realize the extra ammunition clip, containing five .380 caliber rounds, was still in the center console of his truck.

The bureaucrats must have been trained in Venezuela.

At the crossing, the CBP agents put Serrano in handcuffs and continued to ask him to give up the passcode. “You go get that warrant,” Serrano says he told them. “I’ll wait for you in jail.” Serrano didn’t believe that any judge would grant a warrant to search a phone for taking pictures at the border. …The agents eventually placed Serrano in a locked cell without food, water or a toilet, Serrano says. Periodically someone would come in and ask for the passcode to his phone, he says. He refused every time.

The good news is that Mr. Serrano won, sort of.

Serrano says that after three hours, the agents told him he was free to go, returned his phone and said he wasn’t being arrested or charged with any crime. Serrano says he was elated.

The bad news is that the bureaucrats stole his truck.

But then, the agents handed him a document informing him that Customs was taking his truck and the ammunition clip. Those items were “subject of legally becoming the property of the Federal Government (forfeiture),” according to the document, because Serrano had failed to disclose the presence of the clip, making the truck a “conveyance of illegal exportation.” …Several weeks later he received a formal forfeiture notice from Customs, informing him that the government believed his truck was being used to transport “arms or munitions of war.” The notice gave him a number of options to pursue if he wanted his truck back.

Here’s the part that only be described as adding insult to injury.

One of the options was to make an “offer in compromise” — send Customs a check, and if they deemed the amount to be high enough, they would return his truck to him. “That’s like a shakedown,” Serrano said.

Fortunately, the great folks at the Institute for Justice are helping him challenge this horrific example of theft by government.

By the way, you may be thinking Serrano is some sort of thug, maybe a gang member from MS-13? I’ve had some defenders of civil asset forfeiture claim that the program is justifiable because it gives law enforcement leeway to go after bad guys that they can identify with their “sixth sense.” Was Serrano a bad guy who was nailed, albeit using a bad law?

Um…, not exactly.

Serrano is originally from Chicago but he’s lived on a farm in Kentucky for 20 years. A lifelong Republican, he unsuccessfully ran for a seat in Kentucky’s House of Representatives in 2014 on an explicitly pro-Second Amendment platform. He describes himself as a civil libertarian, and has a concealed carry permit for a Sig Sauer .380 pistol he carries for self-defense. “I believe in freedom,” he said in an interview with The Washington Post. “That’s what made this country great, is our freedom, our liberty.”

Serrano sounds like a great American. If he’s an immigrant, I want more just like him.

He understands what’s really going on.

“It’s like there’s a war going on and they want to make war with my Bill of Rights,” he said. “How do they get away with this? How could this happen?”

For what it’s worth, I hope Senator Rand Paul (who is willing to fight for liberty) place a “hold” on all nominations to the Justice Department and Department of Homeland Security until and unless the government returns Serrano’s truck and compensates him for mistreatment.

Let’s close with some additional excerpts from the column that explain the injustice of civil asset forfeiture.

Many Americans haven’t heard of civil asset forfeiture, the legal provision that grants police the authority to seize cash and property from people not charged with a crime. The practice doesn’t follow the traditional American concept of “innocent until proven guilty.” If police suspect that you acquired something as a result of illegal activity, or even if it is connected to illegal activity, they can take it from you. If you want to get it back, the onus is on you to prove you got it legally. Once property is seized and forfeited, in most states and at the federal level police can either keep it for themselves or sell it at auction to raise money for the department. Critics say this creates a perverse profit motive. …said Robert Johnson, Serrano’s attorney. “That’s an open invitation to abuse.” The practice is widespread. In 2014, for instance, federal law enforcement officers alone took more than $5 billion worth of cash and property from people — more than the total amount of reported burglary losses that year. After public outcry, the Obama administration put in place a number of restrictions on forfeiture that made it harder, in some cases, for authorities to take property without a criminal conviction. But Attorney General Jeff Sessions recently reversed those restrictions.

Every sentence of the above passage is spot on. Including the last two sentences. The Obama Administration actually took a small step in the right direction, but that was reversed in a terrible move by Trump’s Attorney General.

And here are some excerpts from a column published by CapX.

…asset forfeiture lets government agents seize Americans’ assets (cash, but also cars and even houses) on the mere suspicion that they were involved in a crime. Asset forfeiture is intended to deprive criminals of their ill-gotten gains, but frequently enables police to take the property of Americans who remain innocent in the eyes of the law. …Asset forfeiture primarily targets the poor. Most forfeitures are for small amounts: in 2012, the Institute for Justice, a libertarian law firm that has focused heavily on asset forfeiture, analyzed forfeiture in 10 states and found that the median value of assets seized ranged from $451 (Minnesota) to $2,048 (Utah). Given that law enforcement routinely takes everything they find in a forfeiture case, these small values suggest the relative poverty of the victims. The procedural hurdles for challenging asset forfeiture also mean that poor people are less able to get their money back. The average forfeiture challenge requires four weekdays in court; missing four days of work can be a prohibitive expense for Americans living paycheck to paycheck. …Asset forfeiture is especially dangerous for the unbanked, because police and federal agents consider high amounts of cash to be suspect. …Asset forfeiture functions as a regressive tax, which reduces low-income Americans’ economic mobility. A family that sees their savings wiped out has to start again from the bottom. A person whose cash rent payment is seized may turn to payday loans or the black market, or simply be evicted—none of which are conducive to upward mobility.

Civil asset forfeiture is reprehensible.

The fact that poor people are disproportionately harmed is awful (and pervasive in parts of the criminal justice system).

P.S. To their credit, the first two administrators of the federal government’s civil asset forfeiture program now recognize that it’s become an abusive monster and want it repealed.

Unsurprisingly, “Free” Healthcare from Government Is Very Expensive

Fri, 09/15/2017 - 12:32pm

In a strange way, I admire Bernie Sanders. He openly embraces big government. Back during the 2016 campaign, I frequently observed that the difference between the Vermont Senator and Hillary Clinton is that he wanted America to become Greece at a much faster rate.

Well, he just installed a turbo-charged engine and stepped on the accelerator. He’s proposed a single-payer healthcare scheme that is being called “Medicare for all.”

According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending.

That approach is workable (though only in the short run) for Medicare. But it won’t work if government is paying for everyone’s health care.

So even Bernie admits that a tax increase will be necessary. And not just any tax hike. He’s proposing the biggest tax hike in the history of the United States. Heck, it’s the biggest tax hike in world history. Here are some of the frightening details, as reported by the Washington Post.

The Medicare for All legislation backed by Sen. Bernie Sanders (I-Vt.) and 16 Senate Democrats does not include details on how it might be paid for. …Sanders’s Senate office released a white paper on possible ways to pay for the legislation.

He starts with a giant payroll tax of 11.5 percent (on top of the 15.3 percent payroll tax that already exists).

The taxes themselves would fall on both employers and employees. Sanders floats the idea of a 7.5 percent tax on employers… Another tax, of 4 percent, would hit individuals.

To understand what this means, just contemplate the disastrous impact of Obamacare on the job market.

Sanders also has a big class-warfare tax hike.

The next big slice of funding: higher tax rates on the very wealthy. Income…$250,000…higher…would be hit harder, on an upward sliding scale, ending at a 52 percent tax on income over $10 million.

By the way, imposing a tax is the easy part. Collecting revenue will be a much harder task, especially since Sanders wants to take the very successful experiment of the 1980s and run it in reverse. He also wants a big levy on banks (foreign financial institutions are probably praying for that outcome), an extra layer of tax on American companies competing in world markets (foreign corporations are cheering for that one), along with a huge boost in the death tax and the imposition of a wealth tax (lawyers and accountants doubtlessly are licking their chops).

Sanders imagines a tax on financial institutions worth more than $50 billion, a one-time tax on offshore profits (an idea that is continually floated then sunk in tax reform negotiations), a higher estate tax (topping out at 55 percent), and a 1 percent wealth tax on the richest 0.1 percent of households.

That’s all the tax hikes listed in the Washington Post story, but Sanders also has some additional material on his office’s website.

A huge increase in the double taxation of dividends and capital gains (particularly when you consider that personal tax rates will be much higher.

…end the special tax break for capital gains and dividends on household income above $250,000, treating this income the same as income earned from working.

A restriction on itemized deductions.

…itemized deductions would be capped at 28 percent for households making over $250,000. In other words, for every dollar in tax deduction a high-income household could save at most 28 cents.

For what it’s worth, I don’t like the state and local tax deduction and the charitable deduction, and I also don’t like preferences for housing.

But I want to eliminate such distortions only if the revenue is used to finance lower tax rates, not to finance bigger government.

That being said, let’s get back to our list. Sanders has a special tax targeting small business.

…ensure that all business income of high-income people would be subject to the existing 3.8 percent tax to fund Medicare, either through the net investment income tax or the additional Medicare tax on earned income.

Last but not least, he wants to skim $112 billion over 10 years from corporations by manipulating accounting rules.

…eliminate the “last-in, first-out” (LIFO) accounting method.

The bottom line is that Sanders, in one fell swoop, would saddle America with a European-sized government. And that would mean European-level taxes. The only thing that’s missing is he didn’t propose a value-added tax.

Though I’m sure that would get added to the mix since the huge increase in the government’s fiscal burden would retard growth. And since that would mean sluggish revenue, politicians would seek another way to extract more money from the economy’s productive sector.

P.S. I’m a policy wonk rather than a political tactician, but my guess is that Bernie is misreading the mood of the American people. Yes, “free” healthcare sounds nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide margin.

Foley Beach Express an Example for Meeting America’s Infrastructure Needs

Thu, 09/14/2017 - 9:51pm

Originally published by AL.com on September 13, 2017.

President Trump has consistently indicated that infrastructure is one of his top priorities, and wants $1 trillion in new infrastructure spending. Thankfully, the administration is not insisting on using only taxpayer dollars, but is instead open to leveraging the private sector to help fund America’s infrastructure needs. Alabama is showing how this can be done.

In recent years, traffic over the Intracoastal Waterway to Gulf Shores and Orange Beach, on both the public I-59 and the private toll bridge Foley Beach Express, has stretched the limits of existing capacity.

Unfortunately, politicians initially took an antagonistic approach when the company that owns the Express showed interest in investing in a new bridge. Rather than immediately welcome the private investment, city leadership sought to pressure the company to lower tolls on the Foley Beach Express by threatening to “put them out of business” by borrowing $30 million to build another “free” bridge.

Of course,  committing tens of millions of taxpayer dollars to a project, not to mention the ongoing government expense of operating and maintaining it, is not really “free.” It just shifts the costs to the public, whether they will ever use the bridge or not. It’s also not a prudent choice for a state experiencing constant budget problems, especially when other options are readily available.

Thankfully, that hasn’t happened. Rather than insisting on a taxpayer-funded take-down of an efficient private asset, elected officials began negotiating to expand the existing privately-owned bridge–a far better approach than threats and antagonism.

As a result, it has recently been announced that the company that owns the Foley Beach Express will add a third, reversible lane to ease congestion, at no cost to taxpayers. In the process, they’ll also be able to lower summer tolls thanks to other advancements improving throughput, like the widening of the toll plaza and greater reliance on electronic tolling that eliminates the need to stop for payment. In other words, everybody wins.

Avoiding unnecessary public spending is not just good politics, it’s also good economics. Tolls are a type of user fee, which means costs fall on those who actually use and benefit from a good, rather than on the entire public. Not only that, but variable tolls help reduce congestion at peak times by discouraging those commuters who can afford to wait until later from traveling during high traffic periods. And, of course, the ability to earn a profitable return on an investment in America’s infrastructure will encourage others to invest as well.

The lesson is that infrastructure problems can often be solved more efficiently through private action, or at least with private sector help. The Trump administration has the right idea in wanting to encourage public-private partnerships, proposing $200 billion in an incentive program for state and local governments that enter into agreements or make private sector deals. Other states should look to Alabama and find ways to incentive companies to meet the nation’s infrastructure needs instead of simply relying on an already overtaxed public.

Private Sector vs Government: The Humor Version

Thu, 09/14/2017 - 12:41pm

I’ve made very serious (and hopefully substantive) arguments about why small government and free markets are the recipe for prosperity.

Simply stated, profit and loss is a powerful feedback mechanism, and entrepreneurs and business owners who want to make money face constant pressure to attract consumers by offering better products at affordable prices.

These forces are so powerful that the private sector even does a good job in some areas that most people assume are reserved for government, such as criminal justiceroads, and airport security.

But let’s examine this issue today from a whimsical perspective. I found a couple of clever images on Reddit‘s libertarian page.

Here’s the first example, which will make instantaneous sense for anyone who’s ever walked into a McDonald’s and a DMV on the same day.

The second example is more elaborate but makes a similar point. Those of us with gray hair have seen the amazing developments produced by the private sector in this collage.

But can anyone think of something that has improved in the public sector?

For what it’s worth, the two cars in the column for the private sector don’t look that different. But, once again, those with gray hair will probably remember how often they used to break down in the past. The computerized engines have greatly improved operations and maintenance. Not to mention map programs, built-in TVs for the kids in the back seat, and other positive changes.

Let’s close with a serious point. Yes, business owners are greedy. They’re looking out for their own self-interest. They would love to charge us high prices.

But a system of free enterprise means that they can only earn money if they cater to our needs and wants. And so long as politicians aren’t showering them with bailoutssubsidiesprotection, or handouts, that means they compete to provide us ever-better goods and services at ever-more-affordable prices.

In other words, Adam Smith was right.

Government Run Amok at the Bureau of Alcohol, Tobacco, and Firearms

Wed, 09/13/2017 - 12:30pm

The Bureau of Alcohol, Tobacco, and Firearms (ATF) must be anxious to get on my list of government bureaucracies that shouldn’t exist.

The bureaucrats have engaged in some really silly and petty behavior (such as confiscating Airsoft toy guns because they might be machine guns), and they’ve engaged in some behavior that is criminally stupid and dangerous (running guns to Mexican drug gangs as part of the “Fast and Furious” fiasco).

Now we have another example. Though it’s so bizarre that I’m not sure how to classify it. Basically, the bureaucrats created an illegal slush fund, and then used the money illegally.

The New York Times has been on top of this story. Here are excerpts from the latest report.

For seven years, agents at the Bureau of Alcohol, Tobacco, Firearms and Explosives followed an unwritten policy: If you needed to buy something for one of your cases, do not bother asking Washington. Talk to agents in Bristol, Va., who controlled a multimillion-dollar account unrestricted by Congress or the bureaucracy. …thousands of pages of newly unsealed records reveal a widespread scheme — a highly unorthodox merger of an undercover law enforcement operation and a legitimate business. What began as a way to catch black-market cigarette dealers quickly transformed into a nearly untraceable A.T.F. slush fund that agents from around the country could tap. …One agent steered hundreds of thousands of dollars in real estate, electronics and money to his church and his children’s sports teams, records show. …At least tens of millions of dollars moved through the account before it was shut down in 2013, but no one can say for sure how much. The government never tracked it.

Oh, by the way, the ATF was breaking the law.

Federal law prohibits mixing government and private money. The A.T.F. now acknowledges it can point to no legal justification for the scheme.

But you won’t be surprised to learn that there have been no consequences.

…no one was ever prosecuted, Congress was only recently notified, and the Justice Department tried for years to keep the records secret.

And it’s also worth noting that this is also a tax issue. As I’ve noted before, high tax rates encourage illegality.

Though cigarettes are available at any corner store, they are extraordinarily profitable to smuggle. That’s because taxes are high and every state sets its own rates. Virginia charges $3 per carton. New York charges $43.50. The simplest scheme — buying cigarettes in Virginia and selling them tax-free in New York — can generate tens of thousands of dollars in illicit cash. By some estimates, more than half of New York’s cigarettes come from the black market.

By the way, I can help but wonder why the federal government is engaging in all sorts of dodgy behavior to help enforce bad state tax laws. Yes, I realize the cigarettes are crossing state lines, but so what? The illegal (but not immoral) behavior occurs when an untaxed cigarette is sold inside the borders of, say, New York. Why should Washington get involved?

In other words, I like the fact that borders limit the power of government. It’s why I don’t like global schemes to undermine tax competition (why should Swiss banks be required to enforce bad U.S. tax law?), and it’s why I don’t like the so-called Marketplace Fairness Act (why should merchants in one state be required to enforce the sales taxes of other states?).

But I’m digressing.

Let’s get back to the Bureau’s misbehavior. Here’s some additional reporting from the U.K.-based Times.

A US government crime-fighting agency ran a secret bank account that its employees used to buy luxury cars, property and trips to casinos. Officers for the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), charged with investigating smuggling and gun crimes, built up a slush fund worth tens of millions of dollars through illicit cigarette sales, ostensibly as part of an operation to catch traffickers. The scandal is the latest controversy to hit the agency, which has been criticised in recent years for lack of accountability and allowing the flow of guns and drugs to go unchecked. …Cash from the slush fund generated at an ATF field office in Bristol, Virginia, …funded activities such as a trip to Las Vegas, donations to agents’ children and the booking of a $21,000 suite at a Nascar race.

And what about the overall BATF bureaucracy? Well, it’s getting some unfavorable attention. Keep in mind that this scandal is on top of the “Fast and Furious” scandal of the Obama years.

The ATF has said that it has “implemented substantial enhancements to its policies, and has markedly improved leadership, training, communication, accountability and operational oversight”. Under the previous administration, it was widely derided for a botched weapons operation known as “Fast and Furious”. The agency allowed licensed firearms dealers to sell weapons to illegal buyers, hoping to track the guns to Mexican drug cartel kingpins. But out of the 2,000 firearms sold, only a fraction have been traced. The secret account scandal has renewed calls from across the political spectrum for the department of about 2,000 agents to be reformed or shut down.

Last but not least, I think we have a new member of the Bureaucrat Hall of Fame.

Thomas Lesnak, a senior ATF investigator, began the scheme. …Mr Lesnak retired with his pension and was not reprimanded.

Just like Lois Lerner and the IRS, engaging in corrupt and crooked behavior and then escaping any punishment.

Maybe the two of them should hook up? They’d make a great couple. I’m sure they could even figure out a way to make taxpayers finance their wedding and honeymoon.

P.S. The “Fast and Furious” scheme was just one of scandals that occurred during the Obama years, but it may have been the most foolish. Didn’t anybody at the BATF realize that it wasn’t a good idea to funnel weapons to Mexican drug gangs?!?

P.P.S. The silver lining to that dark cloud is that we got a couple of good one-liners about the Obama Administration’s gun-running scandal from Jay Leno and Jimmy Fallon.

Income Trends, the Middle Class, and American Prosperity

Tue, 09/12/2017 - 12:14pm

Let’s consider some good news about America.

Some folks on the left like to claim that the middle class is shrinking and that therefore we need bigger government and more redistribution to protect these Americans from falling into poverty.

Well, the first half of that statement is true. The middle class is becoming smaller. But here’s the good news. As I noted in 2015 when sharing some data from Pew, the middle class is shrinking because more and more households are earning six-figure incomes.

Now we have more confirmation. Courtesy of Mark Perry of the American Enterprise Institute, here’s a nice chart based on data from the Census Bureau’s new report on income and poverty in the United States.

Want to feel even better?

In a column for CNBC, Professor Daniel Smith of Troy University explains that government data understates the improvements in living standards. He points out that total compensation has increased much faster than wages.

Complaints that the rich are getting richer while the majority have hit a brick wall in wage growth have led to calls to impose regulations and taxes aimed at creating a “fair” economy. This mantra, however, is wrought with holes and erroneous interpretation of the data… Over the last few decades, employees have been receiving an increasingly larger portion of their overall compensation in the form of benefits such as health care, paid vacation time, hour flexibility, improved work environments and even daycare. …Total compensation, which adds these benefits to wages and salaries, shows that earnings have actually increased more than 45 percent since 1964.

And he notes that income gains are understated if measured against the PCE index rather than the consumer price index.

Furthermore, “purchasing power,” the amount of stuff people can buy with each dollar, has changed dramatically… CPI is notorious for overstating inflation, and thus understating the growth of real wages received by workers. Adjusting the data with the more appropriate Personal Consumption Expenditure index brings the growth in average hourly wages from 5.58 percent to more than 35 percent and the growth in total compensation of employees from more than 45 percent to more than 87 percent.

The bottom line is we’re able to buy more and better for less work.

But even that index fails to grasp the drastic increase in what workers get for their wages. …100.5 hours of work was required to purchase a washing machine in 1959 compared to just 23.3 hours of work (for the average worker) in 2013. Purchasing a TV demanded an astounding 127.8 hours of work in 1959, whereas a worker in 2013 could purchase one with only 20.7 hours of work. Moreover, the improved quality of these goods over the past few decades is staggering. …Today’s iPhones and other smart-phone models seem like a different species from their predecessors… We’ve seen the same progress in knee-replacement surgeries, computers, the Internet, vacuum cleaners, and other technologies we’ve come to rely on.

Professor Smith wrote this piece back in 2014, but these arguments apply just as well today as they did back then.

Though I don’t want to be a Pollyanna. There are very worrisome trends in our economy, especially increased dependency and reduced labor force participation.

So if you prefer to look at the glass as being half empty, Nicholas Eberstadt of the American University authored an article that is very pessimistic assessment about recent trends.

It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. …it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. …It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4 percent higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade. …Between 2000 and 2016, per capita growth in America has averaged less than 1 percent a year. To state it plainly: With postwar, pre-21st-century rates for the years 20002016, per capita GDP in America would be more than 20 percent higher than it is today. …If 21st-century America’s GDP trends have been disappointing, labor-force trends have been utterly dismal. Work rates have fallen off a cliff since the year 2000 and are at their lowest levels in decades.

I don’t disagree with any of this. Growth has been weak this century.

Which is hardly a surprise since we’ve seen an erosion of economic liberty (thanks Bush and Obama!).

But I also want to keep things in perspective. Weak growth is better than no growth. Our living standards are increasing, even if they could – and should – be rising at a faster clip.

So let me swing back to the Pollyanna side by sharing a chart which ostensibly is bad news because it shows rising inequality. But I view it as good news because it shows that all of us are at least 40 percent richer – in real terms – than we were back around 1980.

By the way, Thomas Sowell has pointed out that higher-income households tend to do better because they have more people working, while lower-income households feature lots of dependency. Moreover, if Professor Smith and others are right, the increase in living standards is far greater than what this chart shows anyhow. But even if you accept this data at face value, we are all getting richer over time.

Yes, growth rates should be faster and incomes should be climbing more rapidly. Especially at the bottom. Whether you look at global data or country-specific data, that’s an argument for free markets and small government.

As I wrote last year, we don’t need perfect policy to get more prosperity. Just give the private sector some breathing room.

Good Tax Reform Requires Loophole Closing, not Just lower Tax Rates and Less Double Taxation

Mon, 09/11/2017 - 12:49pm

If tax policy was a religion, the Holy Trinity of reform would be very straightforward.

But if tax policy was a meal, the first two items would be the dessert and the last item would be the vegetable. Simply stated, politicians like lowering tax rates and reducing double taxation because that makes most people happy (at least the ones who actually pay tax).

But when you take away loopholes, the people who benefit from those preferences are unhappy. And they get very noisy. Interest groups hire lobbyists. Trade associations spring into action. Campaign contribution get dispensed.

If tax policy was a movie, it would be Revenge of the Swamp Creatures.

In this clip from a recent interview, I talk about some of the dessert, specifically a much-needed reduction in the corporate tax rate.

But today I want to focus more on the vegetables of itemized deductions.

Here’s some of what Reuters reported last month about the swamp gearing up to protect its privileges.

…industry groups and other sectors of society are gearing up to fight proposed changes to the personal income tax. …proposed changes to the personal tax code have already stirred opposition from realtors, home builders, mortgage lenders and charities.

And here’s a description of what might happen and the impact.

To simplify the tax code, Republicans have proposed eliminating nearly all tax write-offs including those for state and local taxes, then doubling the standard deduction. This would eliminate the incentive to itemize and should drastically reduce the number of taxpayers who do so. Currently, many taxpayers use itemized deductions, claiming write-offs for things like charitable contributions, interest paid on a mortgage and state and local taxes. If the standard deduction becomes larger, fewer taxpayers will need to itemize, reducing the incentive to hold a mortgage or contribute to charity. …Estimates suggest more than half of taxpayers would stop itemizing under the proposed plan.

Should we hope that these reforms occur? If people lose or forego itemized deductions, would that be a good outcome?

As a long-time fan of the flat tax, I’m obviously not a fan of these preferences. Though I always stress that I only want to get rid of loopholes if the money is used to finance lower tax rates. At the risk of stating the obvious, I don’t want the money being used to finance bigger government.

Let’s see what others have said, starting with Justin Fox’s column for Bloomberg. He’s not happy that loopholes disproportionately benefits taxpayers with above-average incomes.

Let’s talk about upper-middle-class entitlements, the subsidies that flow almost entirely to those in the upper fifth or even tenth of the income distribution. …Why do these subsidies continue…? Mainly, it seems, because they’ve been granted to a sizable, influential population who, it is feared, will fight any effort to take them away. There are other interested parties, too — the real estate industry and mortgage lenders in the case of the mortgage interest deduction… But mainly it’s the millions of upper-middle-class Americans who, like me and my family, are beneficiaries of tax subsidies.

He’s right. I’m more upset about the economic distortions these preference create, but there’s no doubt that upper-income taxpayers reap most of the benefits.

Here’s his conclusion, which I think is spot on.

…if these tax breaks had never become law, no one would really miss them. Houses might cost a bit less. College might be slightly cheaper. Income tax rates might be a little lower. The economy might run a little bit more smoothly. So … how do we get to that place from here?

By the way, Fox includes a chart showing how richer taxpayers get more benefit from the mortgage interest deduction.

That’s certainly true, and I’ve previously shared data showing how the middle class gets almost nothing from itemized deductions compared to high-income taxpayers.

Let’s focus specifically on those goodies for the rich. This chart from the Tax Foundation reveals that the state and local tax break is especially lucrative.

For what it’s worth, the state and local deduction is my least favorite, so I’d like to see this chart change.

Though the healthcare exclusion may do even more economic damage (I assume it’s not included in the above chart since it’s an exclusion rather than a deduction).

But the bottom line of today’s column is that we’re not going to get the dessert of lower tax rates unless policy makers are willing to eat some vegetables – i.e., get rid of some tax preferences. Or, to be more exact, it will be impossible, given congressional budget rules, to have any sort of meaningful permanent reforms of the tax system unless there are revenue raisers to offset the tax cuts.

P.S. In any discussion of tax preferences, it’s important to properly define a loophole. Folks on the right generally think income should be taxed only one time (technically, they favor “consumption-base” taxation). So a loophole is a provision that results in zero tax on a particular activity.

Folks on the left generally think the tax code should impose double taxation (technically, they favor “Haig-Simons” taxation). So they have a much bigger list of loopholes, mostly focused on provisions that limit the extra layers of tax imposed on income that is saved and invested. You see this approach from the Joint Committee on Taxation. You see it from the Government Accountability Office. You see it from the Congressional Budget Office. Heck, you even see Republicans mistakenly use this benchmark.

By the way, Justin Fox presumably is in the Haig-Simons camp since his column treats the capital gains tax and 401(k)s as loopholes. But he cited one of my columns, so I can’t bring myself to criticize him.

P.P.S. It (almost) goes without saying that many folks on the left want to curtail tax breaks. They openly argue that it is good to divert a larger share of income into the hands of politicians and in order to facilitate bigger government. Some of them are even honest enough (crazy enough?) to openly assert that all income belongs to the government.

Overcoming FDA Bureaucracy and Saving Lives with Expanded “Right to Try”

Sun, 09/10/2017 - 12:30pm

I’m lucky. When I think of how government regulation impacts my life, my list contains minor nuisances such as inferior light bulbssubstandard toiletssecond-rate dishwashersweak-flow showerheads, and inadequate washing machines.

For my friend Matt Kibbe, by contrast, red tape could have been deadly. Literally.

Watch this powerful video and listen to him explain how he survived cancer. That’s the good part. The bad part is that he likely would have died if he got cancer during the 12 years it took before the Food and Drug Administration finally approved a life-saving drug.

Matt’s takeaway is that terminally ill patients should have the “right to try” drugs that aren’t approved by the FDA.

wrote about this issue last year and shared two other videos on the topic. Today, I want to approach the issue from another direction by pointing out that “right to try” laws shouldn’t be controversial because tens of millions of patients already take drugs for purposes that aren’t approved by the FDA.

The only catch is that they can do this only with drugs that have been approved for some other purpose.

This is not a recent revelation. Daniel Klein wrote about this issue 17 years ago for the Foundation for Economic Education.

Once a drug is approved for any use, it may be used in any way doctors and users see fit. Approved drugs are often found to have other benefits, and doctors learn to prescribe those drugs for such “off-label” uses. Although off-label uses have absolutely no standing with or approval by the FDA, they are perfectly legal. Do patients and doctors shrink in fear from uses not certified by the FDA? Absolutely not! Off-label prescribing is pervasive and vital to the health of millions of Americans. As economist Alexander Tabarrok says, “most hospital patients are given drugs which are not FDA-approved for the prescribed use.” Off-label prescriptions are especially common for AIDS, cancer, and pediatric patients, but are standard practice throughout medicine. Doctors learn of off-label uses from extensive medical research, testing, newsletters, conferences, seminars, Internet sources, and trusted colleagues. Scientists and doctors, working through professional associations and organizations, make official determinations of “best practice” and certify off-label uses in standard reference compendia such as AMA Drug Evaluations, American Hospital Formulary Service Drug Information, and US Pharmacopoeia Drug Information—all without FDA meddling or restriction.

Think about what this means. Countless Americans are taking medications and benefiting from those drugs, yet the FDA bureaucracy has never given its stamp of approval.

Which raises an interesting issue.

No one would be foolish enough to suggest that the FDA prohibit off-label prescribing. But…there is a logical inconsistency in allowing off-label prescribing and requiring proof of efficacy for the drug’s initial use. Logical consistency would require that one either oppose off-label uses and favor initial proof of efficacy, or favor off-label prescribing and oppose initial proof-of-efficacy.

By the way, just in case you think an old FEE article somehow isn’t enough proof, check out some of the research that is cited on the Wikipedia page for off-label use as of this morning.

Off-label use is very common. …Up to one-fifth of all drugs are prescribed off-label and amongst psychiatric drugs, off-label use rises to 31%. …A 2009 study found that 62% of U.S. pediatric office visits from 2001-2004 included off-label prescribing, with younger children having a higher chance of receiving off-label prescriptions. Specialist physicians also prescribed off-label more frequently than general pediatricians. …Some drugs are used more frequently off-label than for their original, approved indications. A 1991 study by the U.S. General Accounting Office found that one-third of all drug administrations to cancer patients were off-label, and more than half of cancer patients received at least one drug for an off-label indication. A 1997 survey of 200 cancer physicians by the American Enterprise Institute and the American Cancer Society found that 60% of them prescribed drugs off-label.

The bottom line is that we have rampant and pervasive drug use that is outside the FDA’s control. Yet that isn’t leading to horrible consequences. Or even bad consequences.

Instead, it’s teaching us that risk-averse bureaucrats are putting millions of lives at risk by delaying the approval of new drugs. Not just at risk. Don’t forget the research I cited last year estimating that deadly impact of FDA regulation.

I’ll close by noting that the FDA also does other boneheaded things. I’ve previously written about the bureaucracy’s war against unpasteurized milk (including military-style raids on dairies!). I suppose I also should mention that FDA red tape is responsible for the fact that Americans have a much more limited selection of condoms than Europeans.

P.S. While the regulatory burden in the United States is stifling and there are some really inane examples of silly rules such as the ones cited above, as well as the FDA’s war on vaping, I think Greece and Japan win the record if you want to identify the most absurd specific examples of red tape.

Does Making Government Bigger Make It More Competent?

Sat, 09/09/2017 - 12:31pm

There are some core functions of government, even in a libertarian world. The most prominent examples are national defense by the central government and public safety at the state/local level.

So how do we make sure those functions are handled competently? I’ve argued that we’ll get the best results if the public sector is streamlined and elected officials have more ability to focus on genuine “public goods.”

Not everyone shares my perspective. Fareed Zakaria asserts in today’s Washington Post that hurricanes and wildfires show the need for bigger government. I’m not joking. Here’s how he starts.

…one cannot help but think about the crucial role that government plays in our lives. But while we accept, even celebrate, the role of government in the wake of…disasters, we are largely blind to the need for government to mitigate these kinds of crises in the first place.

I would argue that natural disasters sometimes show competence and courage by state and local first responders (along with private volunteers), but I’m much less sanguine about the role of the federal government, which comes in after the danger is over and starts spreading around money in ways that increase the likelihood of future problems.

But let’s set that aside and consider Zakaria’s broader argument about whether the United States is suffering from inadequate government. I’m not sure what world he’s living in, but he seems to think that America is some sort of libertarian dystopia, with an anemic public sector.

Ever since President Ronald Reagan, much of the United States has embraced an ideological framework claiming that government is the source of our problems. …Reagan argued for a retreat from the vision of an activist state and advocated instead a strictly limited role for government, one dedicated to core functions such as national defense. …Reagan’s worldview…has stayed in place for decades as a rigid ideology, even though we have entered a new age in which America has faced a very different set of challenges, often desperately requiring an activist government.

I wish this was true. I’d be delighted if “Reagan’s worldview” was “in place for decades.”

In reality, government spending is much higher today than it was in the 1980s. Even after adjusting for inflation, the federal budget is twice as big today as it was during the Reagan years (and it’s huge compared to its size for much of America’s history).

Call me crazy, but that’s not my definition of a “strictly limited…government.”

What’s especially amazing is one of the examples Zakaria used to justify more government.

We watched as financial institutions took on more and more risk, with other people’s money, effectively gambling in a heads-I-win, tails-you-lose system. Any talk of regulation was seen as socialist. Even after the system blew up, causing the worst economic crisis since the Great Depression, the calls soon came to deregulate the financial sector once again.

Does he really not know that the financial services sector has been heavily regulated for decades?

Even more amazing, does he not know that government policies such as Fannie Mae/Freddie Mac subsidies and TARP bailouts are what creates the heads-I-win, tails-you-lose environment?

Does he really think a bigger federal government is the way to solve these problems when it was federal intervention that caused the financial crisis?

To be fair, he does raise some issues that are a challenge, such as how to have free trade with countries that use government intervention to distort trade. But he doesn’t offer any suggestions on how to solve such problems while avoiding the risk of 1930s-style tit-for-tat protectionism.

His closing comment basically argues that we need more government because of what is sometimes called creative destruction.

We are living in an age of revolutions, natural and human, that are buffeting individuals and communities. We need government to be more than a passive observer of these trends and forces. It needs to actively shape and manage them. Otherwise, the ordinary individual will be powerless.

I’m tempted to respond that we’ve always had creative destruction. And, yes, it is very disruptive. But it’s also why we’re much richer today than we were in the past.

And it’s very likely that we wouldn’t be nearly as rich today if people like Zakaria had power “to actively shape and manage” the economy in the 1800s and 1900s. Heck, the reason why places such as Greece and Venezuela are such a mess is that politicians did a steroid-fueled version of shaping and managing.

Let’s close by circling back to the issue of how to increase government effectiveness. The European Central Bank produced a very rigorous study back in 2003 that measured public sector performance and public sector efficiency in OECD nations.

What the economists found, unsurprisingly, is that smaller governments did a better job than medium governments. And, needless to say, medium governments did a better job than big governments.

And the ECB came up with equally strong results in a 2006 study that looked at a larger list of countries.

It’s also worth mentioning, given current debates over whether certain activities are better handled in Washington or at the state level, that the International Monetary Fund (yes, even the IMF) found that decentralized systems do a measurably better job in delivering public services.

These studies echo what I wrote, using the Ebola virus as an example, about how a smaller government is naturally more competent. And Mark Steyn made the same point, albeit in a more entertaining fashion.

P.S. My all-time favorite example of the disconnect between big government and competent government is Belgium, where the public sector consumes more than 50 percent of the economy’s output, yet a bureaucrat said it was hard to fight terrorism “due to the small size of the Belgian government.”

The Obamacare-Repeal Fight Is Important, but Much More Is Needed if We Want a Pro-Consumer Health System

Fri, 09/08/2017 - 12:22pm

Right after Obamacare was enacted in 2010, I wrote a column suggesting four principles that should guide and motivate supporters of free markets and limited government.

As part of that article, I pointed out that Obamacare wasn’t a dramatic change. Instead, it was just another layer of government imposed on a health system that already was burdened by a huge amount of intervention.

The way to think of Obamacare is that we are shifting from a healthcare system 68 percent controlled/directed by government to one that…is 79 percent controlled/directed by government. Those numbers are just vague estimates, to be sure, but they underscore why Obamacare is just a continuation of a terrible trend, not a profound paradigm shift.

Later that year, the Center for Freedom and Prosperity released a video that elaborated, pointing out that Obamacare simply made a system dominated by government into a system even more controlled by government.

With predictable bad results.

That video included two charts based on my back-of-the envelope calculation, and I shared them in a 2013 column that further discussed the incremental damage of Obamacare.

Our healthcare system as a mess before Obamacare. Normal market forces were crippled by government programs such as Medicare and Medicaid and also undermined by government intervention in the tax code that resulted in pervasive over-insurance that exacerbated the third-party payer problem. These various forms of intervention led to all sorts of problems, such as rising prices and indecipherable complexity…Obamacare was enacted in 2010, and it was perceived to be a paradigm-shifting change in the healthcare system, even though it was just another layer of bad policy on top of lots of other bad policy. …Not surprisingly, all of the same problems still exist, but now they’re exacerbated by the mistakes in Obamacare.

In other words, we’re not going to fix the healthcare system by merely repealing Obamacare.

Yes, that’s a necessary step, but much more needs to happen.

Which is why I’m very happy that Prager University has a new video pointing out that health insurance doesn’t work nearly as well as car insurance and homeowners insurance. Why? Because it’s become an inefficient form of pre-paid health care rather than protection against large and unexpected expenses.

Amen. I’ve made a similar case on several occasions.

Though I wish the video went even further by explaining how the healthcare exclusion in the tax code encourages over-insurance.

And here’s a video from the Foundation for Economic Education that also explains how government intervention is distorting the health market.

Here’s the most important factoid from the video, which comes from the accompanying FEE article.

According to the Consumer Price Index and Medical-care price index from 1935 to 2009, the health care spending crisis didn’t start until the mid 1960s, around the same time when Medicare and Medicaid were signed into law, and at the same time that we began requiring doctors to go through all sorts of expensive licensing procedures beyond medical school. Since then, health care spending has doubled, even adjusted for inflation.

But let’s keep everything in perspective. Our system is needlessly expensive and inefficient because of government, but it still manages to deliver some decent outcomes.

Here is some very interesting analysis from the Adam Smith Institute in London.

US healthcare is famous for…poor outcomes. …their overall outcome on the most important variable—overall life expectancy—is fairly poor.

I get this factoid thrown in my face repeatedly when speaking overseas, so I was delighted to find out that it has nothing to do with the quality of our healthcare.

…consider the main two ingredients that go into health outcomes. One is health, and the other is treatment. If latent health is the same across the Western world, we can presume that any differences come from differences in treatment. But this is simply not the case. Obesity is far higher in the USA than in any other major developed country. Obviously it is a public health problem, but it’s unrealistic to blame it on the US system of paying for doctors, administrators, hospitals, equipment and drugs. In fact in the US case it’s not even obesity, or indeed their greater pre-existing disease burden, that is doing most of the work in dragging their life expectancy down; it’s accidental and violent deaths. It is tragic that the US is so dangerous, but it’s not the fault of the healthcare system; indeed, it’s an extra burden that US healthcare spending must bear.

Indeed, it turns out that the American system produces very good results on life expectancy once you adjust for these behavioral factors.

…simply normalising for violent and accidental death puts the USA right to the top of the life expectancy rankings.

And here’s the relevant chart from the article.

By the way, health spending in the United States would probably be high compared to other nations even if we removed all government intervention and changed our risky behaviors.

But only because richer nations can afford – even demand – new technology, cutting-edge research, and new treatments. In his Bloomberg column, Professor Tyler Cowen discusses some of these factors

…viewed through the lens of consumption behavior, American health-care spending is typical of this nation’s habits and mores. Relative to GDP, Americans consume a lot more than Europeans, and our health-care spending is another example of that tendency. …Consumption in the U.S., per capita, measures about 50 percent higher than in the European Union. American individuals command more resources than people in countries such as Norway or Luxembourg, which have higher per capita GDP. The same American consumption advantage is evident if you look at dwelling space per person or the number of appliances in a typical home. …To put it most simply, we Americans spend a lot on health care because we spend a lot period.

Tyler includes a graph mapping healthcare expenditures with overall consumption. The basic takeaway is that what makes America an outlier is our ability to consume, with healthcare being an example.

So what’s all this mean for policy?

Peter Suderman offers some very sage advice in a column for the New York Times.

…when it comes to health care, Republicans don’t know what they want, much less how to get it. …Democrats, on the other hand, share a distinct vision of robust universal coverage guaranteed by the government and paid for by a combination of delivery-system efficiencies and higher taxes. What Republicans need, then, is a set of guiding principles — a health care vision that should work from the ground up, that imagines a more affordable and more effective system.

Peter then suggests some principles.

…it would mean giving up on comprehensive universal coverage. Otherwise, Republicans will just end up bargaining on the terms set by Democrats, as they are now. …a second principle: unification, not fragmentation. …employer-provided coverage…is subsidized implicitly through the tax code, which does not tax health benefits provided by employers as income. This tax break is the original sin of the United States health care system. Worth more than $250 billion annually, it has enormously distorted the market, creating an incentive for employers to provide ever-more-generous insurance while insulating individuals from the true cost of care. …the third principle comes in: Health coverage is not the same as health care. Instead, it is a financial product, a backstop against financial ruin. Health care policy should treat it as one. …For noncatastrophic, nonemergency medical expenses, Republicans ought to promote affordability rather than subsidies. …encourage supply-side innovations in addition to demand-side reforms. The tangle of regulations governing health care can make it difficult for providers to respond to market signals and innovate. Doctor-owned hospitals are restricted by law, for example, and certificate-of-need requirements force medical providers to obtain licenses in a process that effectively requires them to ask permission from competitors to expand.

In other words, we wind up this column where we started.

Americans get good health care, but it’s needlessly expensive and inefficient as I explained in Part I and Part II of a recent series. If we can somehow unravel, or even bypass, all the bad government policy that currently exists, we could have a much better system.

How much better? Well, check out this Reason video on a free-market health center in Oklahoma, which recently was featured in a story in Time. Based on my personal experiences, that’s a big step in the right direction.

Will Conservative Populists Save CFPB’s Gift to Trial Lawyers?

Thu, 09/07/2017 - 5:30pm

According to a report in today’s Politico Pro (subscription required), some conservatives are pushing to preserve the CFPB’s anti-arbitration rule:

A poll released today by the American Future Fund, a super PAC established to support Mitt Romney’s bid for president, shows broad support for the arbitration ban in states where moderate Republicans could decide the future of the rule.

…”The message for Republican senators is be very careful,” said Nick Ryan, founder of American Future Fund. “The people are against what the Republican majority did in the House, and they’re against it by pretty clear majorities.”

It’s not hard to make a poll say whatever the pollster wants, and they are clearly trying to make this into an issue of Big Banks vs The Little Guy. But it could just as easily, and more accurately, be described as an issue of Big Trial Lawyers vs The Little Guy. I’m sure if the polling question framed the issue as a handout to trial lawyers, who are the only group that benefits from the vast majority of class-action suits, the results would have been drastically different.

Nor should that be a hard case to make. CEI’s Ted Frank explains in today’s Wall Street Journal how the CFPB used faulty data to overstate the benefit of class action lawsuits:

The agency justifies its rule by claiming it found that 79% of money paid in class-action settlements goes to consumers. The statistic is bogus. Lawyers publicize the handful of settlements in which cash actually goes to consumers but hide the overwhelming majority of settlement results from public view.

A Florida federal district court, for example, has in recent years approved several settlements with banks concerning mortgage-insurance practices. Lawyers collected tens of millions of dollars. But the claims process for mortgage-holder class members was so arduous that consumers were certain to receive only a fraction of that. Class members, who have no say over who is appointed as their attorney, objected repeatedly. The court refused to consider how much class members would actually receive in the settlements—or even require its disclosure.

 

How did the CFPB study treat settlements like these, in which there is no public information about how much the class received? It assumed every class member got paid, then calculated its ratio based on that fictional “gross relief” number. The agency also calculated a “net relief” ratio based on actual payments—but that ratio ignored all settlements in which the actual payments were not disclosed, as well as those in which the class received no cash at all and the attorneys got 100% of the proceeds.

Republican Senators shouldn’t worry too much about some push polls. It’s not an issue that is likely to move the electoral needle, and if they bother to make the case at all they should be able to sell it as a clear example of regulatory overreach in order to benefit a major constituency of the Democratic Party. After all, the CPFB has practically served as an organ of the Democratic Party since its creation, and it continues to operate with an unconstitutional degree of autonomy.

The CF&P led coalition of 29 organizations, major conservative and free market groups, should provide sufficient courage for the politicians who need it to do the right thing.

India’s Disastrous War Against Cash, Encouraged by American Taxpayers

Thu, 09/07/2017 - 12:53pm

I wrote a four-part series about how governments are waging a war against cash, with the first two columns looking at why politicians are so interested in taking this radical step.

  • In Part I, I looked at the argument that cash should be banned or restricted so governments could more easily collect additional tax revenue.
  • In Part II, I reviewed the argument that cash should be curtailed so that governments could more easily impose Keynesian-style monetary policy.

Part III and Part IV are also worth reading, though I confess you’ll just get additional evidence to bolster what I wrote in the first two columns.

Today, let’s look at a real-world example of what happens when a government seeks to curtail cash. It happened in India last November, and I wrote about the disruption that was caused when the government banned certain notes.

But maybe the short-run costs were acceptable because there are long-run benefits. That’s certainly possible, but the evidence suggests that the Indian government is doing long-run damage.

Derek Scissors of the American Enterprise Institute has a new column on what’s happening with India’s economy. He is not impressed.

There is certainly a long-standing and extensive corruption problem. The discussion of “black money” has become so absurd, however, that it has little relation to corruption. …Taking currency notes out of circulation in a surprise move late last year was said to target black money inside the country. Seizure of cash was justified by a huge amount of hidden funds. …For political reasons, black money is being wildly exaggerated as an economic issue. …Directly related to hoping there is trillions in black money is wanting to tax those mythical trillions. All governments chase revenue but India’s pursuit seems especially misguided. …Good policy enhances competition and individual economic rights for the sake of greater productivity and personal income. Being obsessed with black money, tax revenue, and GDP growth does nothing to enhance competition or individual rights and leaves ordinary Indians worse off.

India’s central bank is even more critical, bluntly stating that the plan failed, as reported by the BBC.

Indians returned almost all of the high-currency notes banned in last year’s shock government crackdown on illegal cash, the central bank says. It said 15.28tn rupees ($242bn) – or 99% – of the money had made its way back into the banking system. Ministers had hoped the move would make it difficult for hoarders of undeclared wealth to exchange it for legal tender. The news that it did not will raise questions about the policy, which brought chaotic scenes across India. …Many low-income Indians, traders and ordinary savers who rely on the cash economy were badly hit. …As per the RBI data, it’s safe to say that demonetisation has been a failure of epic proportions. …Agriculture, the rural economy and property – which rely largely on cash transactions – were sectors hit by the ban. It also contributed to a slowdown in economic growth.

Indeed, the former head of the central bank warned the government ahead of time that the plan wouldn’t work. Here are some details from a Bloomberg story.

Raghuram Rajan was governor of the Reserve Bank of India in February 2016, when he was asked by the government for his views on demonetization… “Although there may be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals,” he wrote in the book. “I made these views known in no uncertain terms.” …speculation has raged over who thought up the policy, with the debate getting more divisive last week as a slew of data showed demonetization contributed to a growth slump without meeting its targets. …the cash ban devastated small businesses. More than 1.5 million jobs were said to be lost and newspapers reported deaths linked to the decision.

Rajan correctly observed that the best way to boost tax compliance is with low tax rates.

“It’s not that easy to flush out the black money,” Rajan had said, using the local term for cash stashed away illegally to avoid tax. He added that he’d rather focus on the incentives for black money, such as tax rates.

Amen. This is a point I’ve made over and over and over and over again.

Meanwhile, the Indian Express also has a column, written by a former Chief Economist at the World Bank, on how demonetization has been a failure.

…a wealth of analysis and data have become available. Demonetisation’s half-anniversary is a good time to take stock of this historic decision. The verdict is clear. It was a monetary policy blunder. It achieved next to nothing, and inflicted a large cost on the poor and the informal sector. …demonetisation took the wind out of India’s sails. My calculation is that around 1.5 percentage points of growth were lost to it.

column in the Harvard Business Review pours cold water on the notion that demonetization is an effective way of reducing corruption.

The original reason given for the drastic demonetization action was to expose the so-called “black” market, fueled by money that is illegally gained and undeclared for tax purposes. …banks were estimated to have received 14.97 trillion rupees (around $220 billion) by the December 30 deadline, or 97% of the 15.4 trillion rupees’ worth of currency demonetized. …These rates of deposits defied expectations that vast troves of undeclared wealth would not find their way back to the banks and that black marketeers would lose this money since they would not be able to deposit their undeclared cash without being found out. This didn’t happen.

It probably “didn’t happen” because the government was wildly wrong when it claimed that cash was the problem.

…when corrupt people need places to park their ill-gotten gains, cash normally is not at the top of their list. Only a tiny proportion of undeclared wealth is held in cash. In an analysis of income-tax probes, the highest level of illegal money detection in India was found to be in 2015–2016, and the cash component was only about 6%. The remaining was invested in business, stocks, real estate, jewelry, or “benami” assets, which are bought in someone else’s name.

Indeed, the Washington Post reports that the new notes already are being used for illegal purposes.

For the first few weeks of demonetization, it was common to meet Indians who felt that their collective suffering and inconvenience was justified because it would ultimately usher in a less corrupt, more equal India. But as the initiative enters its second month, more and more reports are emerging of seizures of vast quantities of hoarded cash in the new notes. Like water reaching the sea, the corrupt, it seems, have found ways to navigate around the government’s new obstacles. …A sense is building that while millions of Indians languish in ATM lines, the old black money system is simply restarting itself with the new notes.

The real story is that the corruption is caused by government, not cash.

The biggest question is how people are getting their hands on such huge stashes of the new currency. …one way: visiting your local politician.

What’s especially disappointing is that the United States government took money from American taxpayers and used those funds to encourage India’s failed policy.

Too bad USAID was whispering sweet things into Modi’s other ear… https://t.co/KPAOQXOZ8U

— Constantin Gurdgiev (@GTCost) September 4, 2017

And here are some excerpts from a report by the Hindu.

The United States on Wednesday described India’s demonetisation drive as an “important and necessary” step to curb illicit cash and actions. “…this was, we believe, an important and necessary step to crack down on illegal actions,” Mark Toner, State Department spokesperson, said in response to a question. …Acknowledging that the move inconvenienced people, Mr. Toner said it was “a necessary one to address the corruption.”

It’s worth pointing out that the U.S. government was encouraging India’s bad policy during the waning days of the Obama Administration, so it’s possible that taxpayers no longer will be funding bad policy now that Trump is in the White House.

I hope there’s a change, but I won’t hold my breath. The permanent bureaucracy has a statist orientation and it takes a lot of work for political appointees to shift policy in a different direction. I hope I’m wrong, but I don’t think that will happen.

P.S. The Indian government also is hurting the nation – and poor people – with a value-added tax. Bloomberg has a report on some of the misery.

Before Prime Minister Narendra Modi introduced the country’s new goods and services tax on July 1, Ansari said he was earning 6,000 rupees ($93) a day selling leather jackets, wallets, bags and belts. But India’s new tax classified leather products as luxury items and raised the rate to 28 percent — more than double the 13.5 percent tax levied until June 30. Since then, his business has collapsed. “My business is down nearly 75 percent,” Ansari said… India’s vast informal economy — which accounts for more than 90 percent of the workforce — is struggling under India’s new tax rates…broader pain being felt by many small-and-medium-sized businesses in India’s informal sector, said K.E. Raghunathan, president of the All India Manufacturers Organisation.

The bottom line is that India needs more economic liberty, building on some good reforms in the 1990s. Unfortunately, politicians today are delivering bigger government.

In Tax Reform, Don’t Mess with Carried Interest

Wed, 09/06/2017 - 8:46pm

Originally published by the Washington Examiner on September 5, 2017.

Republican leadership is sending mixed messages about the treatment of carried interest in their coming overhaul of the tax code. Senate Majority Leader Mitch McConnell says all “preferences” should be looked at, including carried interest, while Treasury Secretary Steven Mnuchin said that the administration might now seek only to “close the loophole for hedge funds,” but would exempt “funds that do create jobs.” Mnuchin’s statement is a step in the right direction, and it hopefully means that the administration is abandoning its misguided attacks on carried interest.

For reference, the carried interest is the portion of an investment partnership’s return that is earned by a fund’s manager. It is treated the same as the portion earned by the other investors — as a capital gain. Contrary to popular claims, that’s no “loophole.” If the return is a long-term gain it is taxed at the long-term capital gains rate, but if it’s a short-term gain it’s taxed as ordinary income. The rules are already the same for everyone.

Carried interest also only applies if there is a positive return. Investors and managers alike risk earning nothing at all if they fail to make smart investments. And where the manager is guaranteed a flat fee, it’s treated already as ordinary income.

It’s important to note that capital gains are taxed at a lower rate to encourage investment in the economy. Since savings and investments are already double and even triple taxed compared to consumption, it would be better if capital gains weren’t taxed at all. After all, we need risk-takers to make new investments or start businesses to help grow the economy.

Despite then-candidate Trump’s campaign rhetoric railing against hedge funds “getting away with murder,” as well as the administration’s current position as expressed by Secretary Mnuchin, carried interest doesn’t actually have much to do with hedge funds. They rarely hold positions for more than a year, which means their returns are not often classified as long-term gains.

Carried interest matters much more for partnerships found in private equity and venture capital, both of which are crucial for getting new businesses off the ground. Making an exception for carried interest to treat it differently than other capital gains would mean billions taken out of the commercial real estate sector where partnerships are common.

Democrats have tried for years to raise taxes on carried interest and other types of capital gains as part of their tax and spend agenda. They recently introduced legislation that would force carried interest to be treated differently and taxed higher than other capital gains, which they call “fairness.” Democrats seem willing to do serious damage to the economy just to squeeze more revenue from the private sector to fund big government.

Unfortunately, President Trump agreed with Hillary Clinton during the campaign that taxes should be raised on carried interest. He even repeated the misconception that doing so would impact politically unpopular hedge funds. However, since carried interest doesn’t often apply to hedge funds, Mnuchin’s statement might be taken as an attempt for the administration to “retreat with honor.” The president gets to keep his campaign promise against hedge funds, while the more damaging aspects of a tax hike on carried interest are avoided. In the grand scheme of things that wouldn’t be bad, but it still represents an unnecessary gift to the left by chipping away at the rationale for taxing capital gains at a lower rate.

There are a lot of myths regarding carried interest, and it’s an easy issue to demagogue. But the fact of the matter is that the current tax treatment of carried interest is already fair. A destructive tax hike would not only create new distortions in the tax code, the opposite of what Republicans aim to achieve with comprehensive tax reform, but would do significant damage to the economy and add unnecessary barriers to job growth.

My First Pro-VAT Column, but with a Huge Caveat

Wed, 09/06/2017 - 12:46pm

Whenever I see an otherwise sensible person express support for a value-added tax, it triggers a Pavlovian response. And it’s not a favorable reaction.

But I just read a pro-VAT column and I liked it.

So what happened? Have I surrendered to big government? Did I ingest some magic mushrooms?

Actually, I think you’ll agree that I’m still the same lovable guy. Yes, Professor John Cochrane of the University of Chicago (also a Cato adjunct scholar) has a column in the Wall Street Journal that embraces a VAT. But unlike all of the others I just cited, he includes a condition that is mandatory, necessary, vital, and non-negotiable. It’s so important that it deserves the opposite of fine-print treatment.

…eliminate entirely the personal and corporate income tax, estate tax and all other federal taxes. …it is essential that the VAT replace rather than add to the current tax system, as it does in Europe.

Amen. John hits the nail on the head.

The VAT isn’t theoretically bad. Like the flat tax, it would have one rate. There also would be no double taxation of saving and investment. And it also can be designed to have no loopholes.

In other words, the good news is that the VAT – when compared to the internal revenue code – is a less-destructive way of generating revenue.

The bad news, though, is that the VAT is capable of generating a lot of revenue. And as we’ve seen in Europe, that’s a recipe for enabling a larger burden of government spending.

Which is why the idea of a VAT should only be on the table if the plan would first abolish all other federal taxes. Which is what John is proposing.

Except I’d take it one step farther. Just like I’ve argued when contemplating a national sales tax, I’d only allow the VAT if we first repeal the 16th Amendment and replace it with something so ironclad that even John Roberts and Ruth Bader Ginsberg couldn’t rule in favor of an income tax at some point in the future.

By the way, John is right that the economy would grow faster if the income tax was totally abolished. The current system is filled with warts.

Much of the current tax mess results from taxing income. Once the government taxes income, it must tax corporate income or people would incorporate to avoid paying taxes. Yet the right corporate tax rate is zero. Every cent of corporate tax comes from people via higher prices, lower wages, or lower payments to shareholders. And a corporate tax produces an army of lawyers and lobbyists demanding exemptions. An income tax also leads to taxes on capital income. Capital income taxes discourage saving and investment. But the government is forced to tax capital income because otherwise people can hide wages… The estate tax can take close to half a marginal dollar of wealth. This creates a strong incentive to blow the family money on a round-the-world cruise, to spend lavishly on lawyers, or to invest inefficiently to avoid the tax. …A reformed tax code should involve no deductions—including the holy trinity of mortgage interest, employer-provided health insurance, and charitable deductions. The interest groups for each of these deductions are strong. But if the government doesn’t tax income in the first place, these deductions vanish without a fight.

By the way, I will quibble with a couple of things he wrote.

First, I don’t necessarily think the correct corporate tax rate is zero. What’s important is eliminating either the corporate tax or the tax on dividends. That way the income is only taxed onceAnd since it’s probably administratively easier to tax the income once at the business level rather than once at the shareholder level, I’m not fixated on abolishing the corporate tax.

Second, it’s very important to get rid of double taxation (what he calls “capital income”), but you don’t need a VAT to make that happen. There’s no double taxation with a flat tax.

Third, he should have explicitly included the state and local tax deduction in his list of loopholes to abolish (I’m guessing he assumed it would be the first deduction on the chopping block and therefore didn’t need to be mentioned).

There’s another part of John’s column that deserves attention. He points out that you need to have small government if you want a low tax burden.

…if the federal government is going to spend 20% of gross domestic product, the VAT will sooner or later have to be about 20%. Tax reform is stymied because politicians mix arguments over the rates with arguments over the structure of taxes. This is a mistake. They should first agree to fix the structure of the tax code, and later argue about rates—and the spending those rates must support.

At the risk of being pedantic, I think the VAT rate would have to be significantly above 20 percent, both because the tax base will be smaller than GDP and also because there will be loopholes or rebates. But the point he’s making is spot on. You can’t have a low tax rate and a big government. I’ve made the same point when writing about Belgium and Germany, nations where middle-class taxpayers are pillaged because the welfare state is too big.

My bottom line on this issue is that Professor Cochrane has produced a column showing that a VAT is theoretically worth considering, but only if all other federal taxes are permanently abolished.

But since that’s not going to happen anytime soon, I don’t think there’s any reason to ease up on my dogmatic (and pragmatic) opposition to that levy.

P.S. My clinching argument is that Reagan opposed a VAT and Nixon supported a VAT. That tells you everything you need to know.

By Making it Easier to Fire Workers, Macron’s Reforms Will Encourage French Employers to Hire More Workers

Tue, 09/05/2017 - 12:33pm

I like France, in part because it’s a nice place to visit, but also because I’ve been able to use the country as an example of bad public policy.

It’s hard to pick which policy does the most damage. As a fiscal policy wonk, I’m tempted to blame France’s woes on high taxes and wasteful spending.

However, there’s a strong case that labor law is the worst feature of economic policy. France has all sorts of rules that “protect” employees, but the net effect is that workers suffer because these laws discourage entrepreneurs from creating jobs.

And even though I get a lot of mileage out of making France a bad example, I actually hope that the nation’s new government will move policy in the right direction. Indeed, this is why I wanted France’s current President, Emmanuel Macron, to get elected.

Yes, he used to be part of the previous socialist government that sought to make things worse rather than better. But I figured he was most likely to enact some pro-market reforms. And it appears my hopes may be realized, at least with regard to labor policy.

The BBC reports on why Macron wants reform, what he wants to do, and what likely will happen.

President Emmanuel Macron’s government has begun its drive to overhaul France’s rigid labour laws, vowing to “free up the energy of the workforce”. …France has an unemployment rate of 9.5%, double that of the other big European economies and Mr Macron has vowed to cut it to 7% by 2022.

Here’s what he is proposing.

The reforms aim to make it easier for bosses to hire and fire. …France’s labour code is some 3,000 pages long and is seen by many as a straitjacket for business. Among the biggest reforms, individual firms are to be offered more flexibility in negotiating wages and conditions. …If a business reached a deal with the majority of its workforce on working hours and pay that agreement would trump any agreement in the wider industry. …The government wants to facilitate deals at local level by encouraging companies with fewer than 50 employees to set up workers’ committees that can bypass unions. One of the thorniest problems for the government is how to make it easier for companies to dismiss staff. There is to be a cap on damages that can be awarded to workers for unfair dismissal. However, after months of consultations, ministers have agreed to increase the cap from their original proposal. The cap would be limited to three months’ pay for two years of work and 20 months’ pay for 30 years. Until now the minimum pay-out for two years’ employment was six months of salary.

And he’ll probably get what he wants, both because some of the bigger unions have decided to play ball and also because he’s been granted authority to unilaterally make changes.

Protests against the plan are expected next month, but two of the biggest unions say they will not take part. Jean-Claude Mailly, the leader of Force Ouvrière (FO), said that while the reforms were far from perfect, the government had carried out “real consultation” and FO would play no role in demonstrations on 12 September. The union with the biggest presence in the private sector, CFDT, said its members would not take to the streets either, although it was ultimately disappointed that its position was not reflected in the final text. …Mr Macron has already won parliamentary backing to push these reforms through by decree. An opinion poll on Wednesday showed that nine out of 10 French people agreed that their country’s labour code had to be reformed.

Dalibor Rohac of the American Enterprise Institute has some analysis of what’s been proposed.

…the National Assembly and Senate…authorized France’s government to amend the country’s byzantine labor code by executive orders… Prime Minister Édouard Philippe unveiled the details of the reform, divided into five decrees, on Thursday. So what exactly are they seeking to achieve? Perhaps most important is the introduction of caps on redundancy pay to those whose employment has been terminated without a just cause…stricter caps are introduced for small companies, for which large redundancy payments can be ruinous. It will also become easier for multinational companies to justify termination of employment on economic grounds. …it will be possible to downsize or close down French operations without having to subsidize them first from profits made overseas. …Companies with fewer than 20 employees will not have to rely on labor union representatives for their collective contracts. Subsidiaries of companies will have more freedom to offer temporary work contracts.

Dalibor is not overly impressed by this collection of changes.

…measured by the standards of what France needs, it is not much… The extent to which the reform elicits a strong reaction reflects purely the overregulated status quo, rather than the revolutionary nature of the proposed measures. …the government is doing something right, however timid.

The Wall Street Journal‘s editorial is a bit more optimistic.

French voters this spring gave themselves their best shot in a generation at reviving their moribund economy, and President Emmanuel Macron is now taking advantage of the opportunity. …the labor-market reforms he unveiled Thursday could remake the eurozone’s second-largest economy. …Mr. Macron will limit the severance payouts courts can mandate for fired workers. He will free small companies with nonunion workers from the straitjacket of national collective-bargaining agreements covering working hours, overtime pay, vacation benefits and the like. Companies will have more scope to negotiate labor deals at the firm level rather than being forced to abide by national agreements.

By reducing the potential cost of employing workers, the reforms will lead to more employment.

The severance overhaul will go a long way toward inducing businesses to hire more workers. Small- and medium-size French companies report pervasive fear of expanding their workforce lest they be stuck with problem employees or face ruinous expenses to lay off workers if economic conditions change.

And France desperately needs reform.

French unemployment is still 9.5% even at its five-year low. That’s double the rate in Germany, and French unemployment has become a social crisis, especially for young people frozen out of the job market. The jobless rate for French between age 15 and 24 is 25%—for those who haven’t moved to London or the U.S.

Though the WSJ does recognize that the reforms are merely a modest step in the right direction.

France isn’t becoming a laissez-faire paradise. Even if Mr. Macron’s labor overhaul takes effect, the French workplace will still be considerably more regulated than America’s.

Let’s close with some excerpts from a story in the New York Times.

…the government announced sweeping changes on Thursday with the potential to radically shift the balance of power from workers to employers. …an invigorated France is considered critical to the survival of a European Union that is finally showing signs of revival after a lost decade. …Economists in France and across Europe expressed optimism about the new law… France has stagnated for years under chronically elevated unemployment and slow growth. The country’s strong worker protections and expensive benefits have been blamed by some for being at least partly at the root of the problem.

Wow, it must be bad if even the NYT is acknowledging that government is causing the economy to stutter.

Amazingly, the story even admits that economic liberalization is the right way to get more job creation.

Germany crossed that Rubicon in the 1990s under Chancellor Gerhard Schröder. …Roughly 15 years ago, “France and Germany had economies that were more or less comparable, and that ceased to be the case because the Germans wisely did micro-reforms and the French did not,” said Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations. So the French ended up with “high unemployment, which fed populism, and getting out of that trap is vital

For what it’s worth, I think the reference to German reforms is key.

Under a left-leaning government, Germany liberalized labor markets. The so-called Hartz reforms were a huge success, slashing the jobless rate by more than 50 percent.

I don’t know whether Macron’s reforms are as bold as what happened in Germany, but any movement in the right direction will create more employment.

P.S. If Macron wants to save France, he better deal with the tax system as well. The problems are nicely captured by two videos, one about how young people are fleeing the nation and another showing a Hollywood celebrity reacting when told about the tax burden.

P.P.S. Whenever I give a speech in France, I ask the audience whether their government (which consumes half of economic output) gives them more and better services than the Swiss government (which consumes about one-third of economic output). The answer is always an overwhelmingly no.

Free Enterprise: The World’s Only Successful Strategy for Poverty Reduction

Mon, 09/04/2017 - 12:21pm

In prior years, I’ve shared some videos with powerful messages with a common message. Grinding poverty used to be the normal human condition, but then rule of law and limited government enabled a dramatic increase in prosperity.

All these videos are worth watching. They show that misery used to be pervasive but then we became rich starting a couple of hundred years ago.

But there’s one shortcoming in these videos. They basically tell a story of how the western world became rich. In other words, they describe how North American and Western Europe went from agricultural poverty to middle class prosperity.

What about the rest of the world?

Well, there’s a good story to tell there as well, albeit it’s happened more recently. Back in 2014, I shared some data from Economic Freedom of the world showing how there was a substantial increase in global economic liberty starting about 1980.

Yes, there were improvements in western nations during that period (thanks to ReaganThatcher, etc), but there were also improvements in economic freedom elsewhere (collapse of the Soviet Empire, reforms in what used to be known as the Third World, etc).

In this video from Prager University, Arthur Brooks of the American Enterprise Institute explains that this shift to free enterprise is what produced greater prosperity all across the world.

By the way, folks on the left (see this Salon article) don’t like the fact that the world shifted in the direction of economic liberty.

They grouse that the developing world was subjected to a “Washington consensus” that imposed a “neoliberal” agenda (with neoliberal meaning “classical liberal“).

But here’s a visual showing how a shift to capitalism was great news for the less fortunate. The number of people in extreme poverty has dropped dramatically since the early 1990s.

I wish the data went back to 1980, but even these partial numbers are a tremendous confirmation of the hypothesis that free markets are the best way of helping the poor.

Taxpayers Are Getting Drowned by Government-Subsidized Flood Insurance

Sun, 09/03/2017 - 12:24pm

Government subsidies have an unfortunate habit of causing widespread economic damage and often result in huge burdens for taxpayers (though sometimes consumers are the ones getting pillaged).

The common thread is that government intervention interferes with the normal operation of the price system and thus leads to distortions since markets are prevented from functioning properly.

Let’s add another example, and it’s very timely because of the flooding in Texas. The federal government subsidizes flood insurance. And it does so in a way that is bad for taxpayers and bad for the environment, while also giving a windfall to rich people and putting lives at risk.

That’s an impressive list, even by government standards.

In a must-read column for USA Today, my old friend Jim Bovard is very critical of the program.

Hurricane Harvey…offers the clearest lesson why Congress should not perpetuate the federal National Flood Insurance Program (NFIP)… The ravages in Houston and elsewhere would be far less if the federal government had not offered massively subsidized flood insurance in high risk, environmentally perilous locales. …NFIP embraced a “flood-rebuild-repeat” model that has spawned an almost $25 billion debt.

And when Jim says “flood-rebuild-repeat,” he’s not joking.

NFIP paid to rebuild one Houston home 16 times in 18 years, spending almost a million dollars to perpetually restore a house worth less than $120,000. Harris County, Texas (which includes Houston), has almost 10,000 properties which have filed repetitive flood insurance damage claims. The Washington Post recently reported that a house “outside Baton Rouge, valued at $55,921, has flooded 40 times over the years, amassing $428,379 in claims.

And he points out that the program is reverse class warfare.

Flood insurance subsidies benefit well-off households, and payouts disproportionately go to areas with much higher than average home values. Working stiffs in Idaho and Oklahoma are taxed to underwrite mansions for the elite. …NBC News revealed in 2014 that FEMA revised its flood maps to give 95%+ discounted insurance premiums to “hundreds of oceanfront condo buildings and million-dollar homes,” including properties on its “repetitive loss list.”

My colleague Chris Edwards has a comprehensive study of the federal government’s role in disaster relief. Here’s some of what he wrote about the history of subsidized flood insurance.

In 1968 the National Flood Insurance Act offered federal insurance to properties at risk for flooding. A key justification by supporters of federal flood insurance was that it would alleviate the need to pass special aid legislation after each flood disaster. As it has turned out, however, taxpayers are now both subsidizing flood insurance and paying for special relief bills passed after floods. …NFIP was supposed to save taxpayers money by alleviating the need for Congress to pass emergency aid packages after floods. Taxpayers were also not supposed to be burdened by the program itself because insurance premiums were to cover the system’s costs. Also, the NFIP included floodplain regulations that are imposed on communities adopting the program. These regulations were supposed to mitigate the harm from floods. None of the promises panned out. …Most importantly, rather than reducing the nation’s flooding problems, the NFIP has likely made flood damage worse by encouraging more development in hazardous areas. Since 1970, the estimated number of Americans living in coastal areas designated as Special Flood Hazard Areas (SFHAs) by FEMA has increased from 10 million to more than 16 million. Subsidized flood insurance has backfired by helping to draw more people and development into flood zones.

To add insult to injury, the program is poorly run.

The GAO has had the NFIP on its “high-risk” list of troubled programs for years. …In recent years, the program has accumulated more than $24 billion in debt because payouts have far exceeded premiums. Today, the program is in financial crisis and taxpayers will likely bear the burden of its large debt. The NFIP’s financial shortcomings are typical of government-run businesses. Unlike private insurance, the NFIP charges artificially low rates, does not build capital surpluses, and does not purchase reinsurance to cover catastrophic losses. …The GAO says that “by design, NFIP is not an actuarially sound program.” …A 2011 insurance industry study found that overall NFIP premiums are only half the level needed to cover the system’s full costs, and property owners in high-risk areas pay just one-third of full market rates.

But the biggest problem is that the program encourages imprudent – and even dangerous – behavior.

…artificially low rates subsidize people to live in high-risk flood areas. …it has encouraged development in hazardous areas. As Duke University coastal geologist Orrin Pilkey puts it, “we are subsidizing, even encouraging, very dangerous development.” Federal flood insurance has incentivized individuals and developers to build in hazardous areas…more lives and property are put in harm’s way.

And the program has plenty of repeat business.

…some property owners repeatedly rebuild in hazardous locations knowing that the government will bail them out after each flood. Repetitive loss properties account for only about 1 percent of all policies, but are responsible for about one-third of all NFIP claims. …One Mississippi home valued at $69,900 has flooded 34 times since 1978, and the owner has received $663,000 in NFIP payments over the years.

Here’s a related image from Reddit’s libertarian page:

An article for The Week looks specifically at how the program lured the people of Houston into taking excessive risk.

Why would the practical, fiscally conservative people of Texas anchor their financial security in houses that are now literally underwater? …a major culprit is the Federal Emergency Management Agency (FEMA), and specifically its subsidiary, the National Flood Insurance Program (NFIP). …Well-meaning but drenched in perverse incentives, they are complicit in the horrifying destruction now racking the Texas gulf coast. …a normal insurance company would jack up the premium price to cover the high risk of floodplain construction, thus discouraging vulnerable building plans among those who cannot afford to cover the cost of disaster, the NFIP will insure this construction at a discount. …an artificially low premium like the NFIP offers cruelly deludes homeowners into believing their flood-prone houses are far safer than they are. …NFIP has taxpayers subsidizing unrealistically low premiums that incentivize new construction on dangerous land, and its discounts are available even to wealthy homeowners with pricey properties. “About 80 percent of NFIP households are in counties that rank in the top income quintile,” notes a recent report at Politico, and “[w]ealthier households also tend to receive larger subsidies.”

How do we solve this government-created problem?

With the same answer that Chris gave.

Axing the NFIP and transitioning back to private flood insurance, with its accurate risk signaling, is much overdue.

Writing for Reason, Ronald Bailey explains the perverse incentives created by the program.

The main lesson that the public and policymakers ought to learn from Harvey is: Don’t build in flood plains, and especially don’t rebuild in flood plains. Unfortunately, the flood insurance program teaches the exact opposite lesson, selling subsidized insurance whose premiums do not come close to covering the risks home and business owners in flood prone areas face. As a result, the NFIP is currently $25 billion in debt. Federally subsidized flood insurance represents a moral hazard, Kevin Starbuck, Assistant City Manager and former Emergency Management Coordinator for the City of Amarillo, argues, because it encourages people to take on more risk because taxpayers bear the cost of those hazards.

And, in many cases, bear those costs over and over and over again.

Federal Emergency Management Agency data shows that from 1978 through 2015, 3.8 percent of flood insurance policyholders have filed repetitively for losses that account for a disproportionate 35.5 percent of flood loss claims and 30.5 percent of claim payments, Starbuck says.

The solution, once again, is obvious.

…taxpayers should not be required to subsidize people who choose to build and live on flood plains. When Congress reauthorizes the NFIP, it should initiate a phase-in of charging grandfathered properties premiums commensurate with their risks. This will likely lower the market values of affected homes and businesses and thus send a strong signal to others to avoid building and living in such risky areas.

A couple of months ago, before Harvey, the Wall Street Journal presciently opined about the downside of government-provided flood insurance.

A classic example of government dysfunction is a federal insurance program that helps pay to drain basements in millions of America’s second homes. …The 1968 program insures more than $1 trillion in property, with about five million policies in 2016 for those who live in areas prone to flooding. The program is more than $24 billion in debt. One reason for the hole is that about 20% of policies are directly subsidized. More than 75% of such policies are in counties in the top 30% for home values, according to a Government Accountability Office analysis, and many dot the affluent coasts of Florida, California and Texas. In other words, this is a wealth transfer from low and middle-income families to the folks who own real estate on Nantucket. …The best reform would be to convert the program into a private operation, though Members of both parties would pile together like sandbags to block it.

The editorial noted that Representative Jeb Hensarling, Chairman of the Financial Services Committee, has tried to limit the program. Since he’s a Texan, it will be interesting to see if his pro-market principles remain in the aftermath of Harvey (based on his record, I’m guessing yes).

In another Reason column, Katherine Mangu-Ward put together a list of things politicians shouldn’t do once the storm is over.

Here are a few things Trump and his pals absolutely shouldn’t do in the immediate aftermath of the hurricane, but probably will: …Increase funding for the federal flood insurance program. When it comes time to rebuild, everyone will studiously avoid discussing the fact that maybe we shouldn’t be using a massive federal insurance program to incentivize building in areas that are repeatedly hit by storms. There’s a reason private insurers don’t offer policies to many coastal dwellers, and it ain’t “market failure.”

Needless to say, I’m not optimistic that her advice will be heeded.

Though you would think some Democrats would be on the correct side, if for no other reason than the program is a big fat subsidy for rich people.

One of those fat cats even confessed that the program is a boondoggle that lines his pockets. Here are some excerpts from a 2004 column by John Stossel.

…the biggest welfare queens are the already wealthy. Their lobbyists fawn over politicians, giving them little bits of money — campaign contributions, plane trips, dinners, golf outings — in exchange for huge chunks of taxpayers’ money.

John then confesses that he put his snout if the taxpayer trough.

I got some of your money too. …In 1980 I built a wonderful beach house. Four bedrooms — every room with a view of the Atlantic Ocean. It was an absurd place to build, right on the edge of the ocean. All that stood between my house and ruin was a hundred feet of sand. My father told me: “Don’t do it; it’s too risky. No one should build so close to an ocean.” But I built anyway. Why? As my eager-for-the-business architect said, “Why not? If the ocean destroys your house, the government will pay for a new one.” What? Why would the government do that? Why would it encourage people to build in such risky places? That would be insane. But the architect was right. If the ocean took my house, Uncle Sam would pay to replace it under the National Flood Insurance Program. Since private insurers weren’t dumb enough to sell cheap insurance to people who built on the edges of oceans or rivers, Congress decided the government should step in and do it. …I did have to pay insurance premiums, but they were dirt cheap — mine never exceeded a few hundred dollars a year.

Lots of rich people like this subsidy.

The insurance, of course, has encouraged more people to build on the edges of rivers and oceans. …Subsidized insurance goes to movie stars in Malibu, to rich people in Kennebunkport (where the Bush family has its vacation compound), to rich people in Hyannis (where the Kennedy family has its), and to all sorts of people like me who ought to be paying our own way.

John was even an example of the “flood-rebuild-repeat” syndrome.

…just four years after I built my house, a two-day northeaster swept away my first floor. …After the water receded, the government bought me a new first floor. Federal flood insurance payments are like buying drunken drivers new cars after they wreck theirs. I never invited you taxpayers to my home. You shouldn’t have to pay for my ocean view.

More than once!

On New Year’s Day, 1995, …The ocean had knocked down my government-approved flood-resistant pilings and eaten my house. It was an upsetting loss for me, but financially I made out just fine. You paid for the house — and its contents.

Though now another rich person will get the subsidy.

I could have rebuilt the beach house and possibly ripped you taxpayers off again, but I’d had enough. I sold the land. Now someone’s built an even bigger house on my old property. Bet we’ll soon have to pay for that one, too.

Let’s close with some systematic data on the regressivity of the program.

Two of my other colleagues, Ike Brannon and Ari Blask, authored a study on the flood insurance program. They covered lots of material, but here’s what they wrote about poor-to-rich redistribution.

Wealthier households benefit disproportionately from the reduced average cost of flood insurance brought about by government intervention. Of course, not all NFIP-insured properties are high value, but insured homes are on average more valuable than noninsured homes. …In 2007, the Congressional Budget Office (CBO) published a report containing statistics on the average and median values of properties in the NFIP. …The median value of properties in the NFIP exceeded the median value of an American home across all four categories, as shown in Table 1. …40 percent of coastal properties receiving subsidies were worth more than $500,000 and 12 percent were worth more than $1 million. …Comparisons of NFIP premiums with potential private premiums show that NFIP policyholders with the most risk exposure tend to receive the largest subsidy, with 80 percent of explicit subsidy recipients living in counties in the top income quintile.

And here’s Table 1 from their study.

My guide to having an ethical bleeding heart is very straightforward.

If taking money from rich people to give to poor people is wrong, then taking money from poor people to line the pockets of rich people is utterly reprehensible.

I’ll write in the near future about why the federal government shouldn’t be involved in disaster relief. But I wanted to specifically highlight the wretched impact of subsidized flood insurance because it is such a perverse example of how government promotes unjust inequality.

Can Republicans Learn from Reagan, Transcend Class Warfare, and Focus on Growth-Oriented Tax Policy?

Sat, 09/02/2017 - 12:15pm

Why were the Reagan tax cuts so successful? Why did the economy rebound so dramatically from the malaise of the 1970s?

The easy answer is that we got better tax policy, especially lower marginal tax rates on personal and business income. Those lower rates reduced the “price” of engaging in productive behavior, which led to more work, saving, investment, and entrepreneurship.

That’s right, but there’s a story behind the story. Reagan’s tax policy (especially the Economic Recovery Tax Act of 1981) was good because the President and his team ignored the class-warfare crowd. They didn’t care whether all income groups got the same degree of tax relief. They didn’t care about static distribution tables. They didn’t care about complaints that “the rich” benefited.

They simply wanted to reduce the onerous barriers that the tax system imposed on the economy. They understood – and this is critically important – that faster growth was the best way to help everyone in America, including the less fortunate.

Kimberley Strassel of the Wall Street Journal thinks that Donald Trump may be taking the same approach. Her column today basically argues that the President is making a supply-side case for growth. She starts by taking a shot at self-styled “reform conservatives.”

In May 2014, a broad collection of thinkers and politicians gathered in Washington to celebrate a new conservative “manifesto.” The document called for replacing stodgy old Reaganite economics with warmer, fuzzier handouts to the middle class.

She’s happy Trump isn’t following their advice (and I largely agree).

Donald Trump must have missed the memo. …Mr. Trump wants to make Reagan-style tax reform great again.

The class-warfare crowd is not happy about Trump’s pro-growth message, Kimberley writes.

The left saw this clearly, which explains its furious and frustrated reaction to the speech. …Democratic strategist Robert Shrum railed in a Politico piece that the “plutocrat” Mr. Trump was pitching a tax cut for “corporations and the top 1 percent” yet was getting away with a “perverted populism.” …Mr. Trump is selling pro-growth policies—something his party has forgotten how to do. …The left has defined the tax debate for decades in terms of pure class warfare. Republicans have so often been cast as stooges for the rich that the GOP is scared to make the full-throated case for a freer and fairer tax system. …Mr. Trump isn’t playing this game—and that’s why the left is unhappy. The president wants to reduce business tax rates significantly… He wants to simplify the tax code in a way that will eliminate many cherished carve-outs. …his address was largely a hymn to supply-side economics, stunning Democrats who believed they’d forever dispelled such voodoo. …Mr. Trump busted up the left’s class-warfare model. He didn’t make tax reform about blue-collar workers fighting corporate America. Instead it was a question of “our workers” and “our companies” and “our country” competing against China. He noted that America’s high tax rates force companies to move overseas. He directly and correctly tied corporate rate cuts to prosperity for workers, noting that tax reform would “keep jobs in America, create jobs in America,” and lead to higher wages.

Amen. That’s the point I made last week about investment being the key to prosperity for ordinary people.

Ms. Strassel concludes by putting pressure on Congress to do its job and get a bill to the President’s desk.

His opening salvo has given Republicans the cover to push ahead, as well as valuable pointers on selling growth economics. If they can’t get the job done—with the power they now have in Washington—they’d best admit the Democrats’ class-warfare “populism” has won.

I largely agree with Kimberley’s analysis. Trump’s message of jobs, growth, and competitiveness is spot on. His proposal for a 15 percent corporate rate would be very good for the economy. And I also agree with her that it’s up to congressional Republicans to move the ball over the goal line.

But I also think she’s giving Trump too much credit. As I point out in this interview, the Administration isn’t really playing a major role in the negotiations. The folks on Capitol Hill are doing the real work while the President is waiting around for a bill to sign.

Moreover, I’ve been repeatedly warning that there are some very difficult issues that Congress needs to decide.

Since big companies will benefit from a lower corporate rate, will there be similar tax relief for small businesses that file using “Schedule C” of the individual income tax? That’s a good idea, but there are big revenue implications.

Since Republicans (and this definitely includes Trump) are weak on spending, will they achieve deficit neutrality (necessary for permanent reform) by eliminating loopholes? That’s a good idea, but interest groups will resist.

Unfortunately, the White House isn’t offering much help on these issues. The President simply wants big tax cuts and is leaving these tough decisions to everyone else.

P.S. I should have been more specific in the interview. I said we would have a flat tax in my “fantasy world” but that I would settle for partial reform in my “ideal world.” I was grading on a curve, so I want to redeem myself. Here’s how things really rank.

P.P.S. I’m very hopeful that lawmakers will get rid of the deduction for state and local taxes. Not only would that provide some revenue that can be used for pro-growth changes, but it also would get rid of a very unfair distortion that enables higher taxes in states such as IllinoisCaliforniaNew YorkNew Jersey, and Connecticut.

P.P.P.S. I have no objection to family-oriented tax relief and other policies that target middle-class taxpayers. Such provisions are politically useful since they expand the coalition of supporters. But I want policy makers to understand that economic growth is the best way of helping everyone – including the poor. That’s why supply-side provisions should be the primary focus of any tax package.

P.P.P.P.S. The class-warfare crowd doesn’t like lower tax rates on upper-income taxpayers. They argue that rich people won’t pay enough and that the government will be starved of revenue. Yet they have no answer when I show them this IRS data. Or this data from the United Kingdom. Or this data from France.

Greek Government’s Moral Bankruptcy on Soviet Terror Generates Strong Response from Estonia

Fri, 09/01/2017 - 12:39pm

I like the Baltic nations, as illustrated by what I wrote last year.

I’m a big fan of…Estonia, Latvia, and Lithuania. These three countries emerged from the collapse of the Soviet Empire and they have taken advantage of their independence to become successful market-driven economiesOne key to their relative success is tax policy. All three nations have flat taxes. And the Baltic nations all deserve great praise for cutting the burden of government spending in response to the global financial crisis/great recession (an approach that produced much better results than the Keynesian policies and/or tax hikes that were imposed in many other countries).

No wonder the Baltic nations are doing a good job of achieving economic convergence.

I’ve specifically praised Estonia on several occasions.

Estonia’s system is so good (particularly its approach to business taxation) that the Tax Foundation ranks it as the best in the OECD. …Estonia…may be my favorite Baltic nation if for no other reason than the humiliation it caused for Paul Krugman.

Indeed, I strongly recommend this TV program that explored the country’s improbable success. And here’s some data showing that Estonia is leading the Baltics in convergence.

Now I have a new reason to admire Estonia. Having experienced the brutality of both fascism and communism, they have little tolerance for those who make excuses for totalitarianism. And the issue has become newsworthy since Greece decided to boycott a ceremony to remember the victims of communism and fascism.

Estonian Minister of Justice Urmas Reinsalu responded to his Greek counterpart, Stavros Kontonis following the uproar caused by the decision by Greece to not participate in the recent European Day of Remembrance for Victims of Stalinism and Nazism in Estonia.

The letter sent by Reinsalu is a masterpiece of moral clarity. He unambiguously condemns all ideologies that are contrary to free societies. Let’s look at some excerpts.

Our values are human rights, democracy and the rule of low, to which I see no alternative. This is why I am opposed to any ideology or any political movement that negates these values or which treads upon them once it has assumed power. In this regard there is no difference between Nazism, Fascism or Communism.

Amen. That’s basically what I wrote just a few days ago.

Reinsalu points out that free societies (sometimes called liberal democracies, with “liberal” used in the “classical liberal” sense) don’t oppress people, which is inherent with fascist and communist regimes.

Condemnation of crimes against humanity must be particularly important for us as ministers of justice whose task it is to uphold law and justice. …Every person, irrespective of his or her skin colour, national or ethnic origin, occupation or socio-economic status, has the right to live in dignity within the framework of a democratic state based on the rule of law. All dictatorships – be they Nazi, Fascist or Communist – have robbed millions of their own citizens but also citizens of conquered states and subjugated peoples.

The Estonian Justice Minister refers to the bitter experience of his nation.

Unlike Greece, Estonia has the experience of living under two occupations, under two totalitarian dictatorships. …In light of the experience of my country and people, I strongly dispute your claim that Communism also had positive aspects. ……in 1949, …the communist regime deported nearly 2 percent of the population of Estonia only because they as individual farmers refused to go along with the Communist agricultural experiment and join a collective farm. This was in addition to the tens of thousands who had already been imprisoned in the Gulag prison camps or deported and exiled earlier. Thousands more would follow, taken into prison up to mid-1950.

He points out that communism is incompatible with freedom.

…it is not possible to build freedom, democracy and the rule of law on the foundation of Communist ideology. …this has been attempted… This has always culminated in economic disaster and the gradual destruction of the rule of law…there are also countries and peoples for whom the price of a lesson in Communism has been millions of human lives.

The bottom line, he writes, is that all forms of totalitarianism should be summarily rejected.

…we must condemn all attempts or actions that incite others to destroy peoples or societal groups…there is no need to differentiate. It makes no difference to a victim if he is murdered in the name of a better future for the Aryan race or because he belongs to a social class that has no place in a Communist society. We must remember all of the victims of all totalitarian and authoritarian dictatorships.

Kudos for Minister Reinsalu. He doesn’t shrink from telling the truth about communism and other forms of dictatorship.

None of this should be interpreted to mean that western societies are perfect. Heck, I spend most of my time criticizing bad policy in the United States and other western nations. But there’s no moral equivalence.

Here’s Reinsalu’s entire letter, which contains additional points.

I’ll close by elaborating on one of his points. Reinsalu wrote about the miserable track record of communism and made some powerful points.

But I think he was too diplomatic. He should have highlighted the jaw-dropping body count of communist regimes.

He did mention some of the horrid policies of the Soviet Union (perhaps more than 60 million victims), but he also could have listed the incomprehensible misery that communism caused in places such as CubaCambodia, and North Korea. Or China back in the Mao era.

That being said, his letter is a very powerful indictment of the moral bankruptcy of his Greek counterpart (which perhaps isn’t a surprise given the ideology of the Syriza government).

And it’s also an indictment of all of the apologists for communist tyranny.

NDAA WATCH: Can Space Flight Rise Above Parochial Politics?

Thu, 08/31/2017 - 6:39pm

Originally published by Townhall on August 28, 2017.

Sen. Rand Paul (R-KY) often says that there is an unholy alliance between the right and left that conspires to spend more of our money at every turn. He’s absolutely right. Big Brother has spent taxpayer money on everything from a $500,000 study to determine if smiling in selfies makes you happier to an over $2 million research project analyzing what makes the perfect first date. Politicians from both parties are motivated to please campaign donors and provide the bacon for their home districts, so they all shake hands and agree to spend more on everything.

While Congress’ rampant fiscal irresponsibility is terrible on all fronts, there’s an extra element of danger added for matters relating to national defense. Time and time again, Washington ignores defense experts and instead appropriates money for wasteful, inefficient technology, jeopardizing the security of the American people by reducing the available funds for more pressing needs.

Consider the Abrams tank. A few years ago, the Army begged Congress to stop funding half a billion dollars for tanks that it doesn’t need. But Rep. Jim Jordan (R-OH), whose district happens to manufacture those tanks, and other Ohio representatives would not let up and overrode the defense chiefs to serve their own parochial interests.

To streamline the budget that same year, the Armed Forces also planned on retiring outdated materials that they no longer had any use for – among them: Ticonderoga class cruisers, C-130 and C-5A cargo aircrafts, B-1 bombers, and unmanned aerial vehicles. Yet most of their requests were ignored by Congress, which put in the NDAA that “none of the funds authorized” can be used “to retire, inactivate, or place in storage a cruiser or dock landingship.” Other mandates were similarly used to ensure that unnecessary items would remain funded.

Fast forward to the present, and it’s clear that members of Congress have become no less shameless in their efforts to prioritize defense procurements for their districts and donors. Sen. John McCain (R-AZ) has enjoyed a rather cozy relationship with SpaceX CEO Elon Musk, who has donated generous sums to the McCain Institute as well as the Senator’s campaigns. To please his rain man, McCain works tirelessly to introduce amendments, earmarks, and other provisions that shield Musk’s government-funded empire from competition.

Last year, McCain introduced an amendment to the NDAA that would have completely banned the use of Russian rocket engines to launch satellites into space, conveniently leaving SpaceX as one of the only remaining qualified providers. While everyone’s goal is to phase out the use of Russian rockets, the Air Force has been clear: until competing engines are fully developed in just a few short years, the RD-180, which 56 percent of EELV launches will rely on until FY 2020, remains necessary. To McCain’s dismay, Congress agreed and passed an amendment that will retain funding for the RD-180 until 2022.

McCain has not given up. He made defense leaders sweat by trying the same trick a few months ago, attempting to use the Russian hysteria in today’s political climate to his advantage by sticking the ban in a Russian sanctions bill. Again, he failed.

Now, though, the chance he’ll succeed in facilitating a government-created monopoly for SpaceX has hit an all-time high. The 2018 NDAA includes two provisions — Section 1612 and Section 1615 – that will limit funding “of new rocket engines for the Air Force’s Evolved Expendable Launch Vehicle (EELV) program”, as well as prohibit “the Pentagon procurement of transponder services on commercial satellites launched on Russian rockets.”

Yet again, this is just fancy lingo for protecting SpaceX. Right now, there are only three major launch systems — SpaceX’s Falcon 9, and United Launch Alliance’s (ULA) Delta IV and Atlas V. The Delta IV is outdated and being phased out, while ULA is also looking to phase out the use of the Atlas V since it uses some Russian rockets.

ULA is in the process of creating a new launch vehicle that would replace these two and adequately compete with SpaceX’s Falcon 9 in just a few short years. The DOD has already saved taxpayers $300 million with its strategy for developing new launch systems, yet some in Congress are again looking to throw these cost savings away by intervening and cutting off funding to protect their pal Elon Musk.

The Trump Administration, Department of Defense, and Air Force have already expressed heavy disapproval with these sections of the NDAA. The White House said they will “limit domestic competition, which will increase taxpayer costs by several billions of dollars through FY 2027 and stifle innovation.” The biggest kicker is that by suspending funding for the new launch system, Congress will be risking delays in ending the use of Russian engines.

Thankfully, Rep. Mike Coffman (R-CO) has an amendment on the table that will completely scrap Section 1615 and allow the Air Force’s continued competitive investment in domestic launch systems.

Congress must stop overriding the Pentagon’s judgment calls for self-serving political reasons. SpaceX has certainly been a boon to space travel, but every company is more efficient in the face of competition. We can and should protect taxpayers by ensuring the business interests of yet another large congressional campaign donor are not put above the security needs of the country. Passing the Coffman amendment would be a great first step in this regard.

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