The Heritage Insider: ObamaCare encourages less work, new non-profit rules are the old non-profit rules, something's missing from inequality debate, and more
Updated daily, InsiderOnline (insideronline.org) is a compilation of publication abstracts, how-to essays, events, news, and analysis from around the conservative movement. The current edition of The INSIDER quarterly magazine is also on the site.
February 8, 2014
Latest Studies: 46 new items, including an Institute for Policy Innovation guide to a more market-oriented health care system, and a Manhattan Institute report on why the European Union’s energy policies are no guide
Notes on the Week: ObamaCare adds more disincentives for work, the new non-profit rules are the old non-profit rules, something’s missing from the inequality debate, and more
To Do: Make the best case for religious liberty
Budget & Taxation
• Municipal Tax Reform – Buckeye Institute for Public Policy Solutions
• City and County Issue Guide 2014 – John Locke Foundation
• Making Budget Rules Work – Mercatus Center
• The U.S. Corporate Effective Tax Rate: Myth and the Fact – Tax Foundation
• Trading Longer Asset Lives for Lower Corporate Tax Rates in the United Kingdom – Tax Foundation
Economic and Political Thought
• 50 Core American Documents – Ashbrooke Center
• Joseph Story, the Natural Law, and the Modern Jurisprudence – The Heritage Foundation
• The Last Communist – Hoover Institution
Economic Growth
• Growth without Poverty Reduction: The Case of Costa Rica – Cato Institute
• Tax Revolt! It's Time to Learn from Past Success – Cato Institute
• Economy Better, but Still Growing Too Slowly Becaue of Anti-Growth Policy – The Heritage Foundation
Education
• Alabama’s 2015 Education Budget and the Education Rolling Reserve Cap – Alabama Policy Institute
• Blended Learning in DC Public Schools: How One District Is Reinventing Its Classrooms – American Enterprise Institute
• The Death of the Humanities – Hoover Institution
Elections, Transparency, & Accountability
• “Cooling Off” Period for Legislators Leaving Office to Lobby – Alabama Policy Institute
Family, Culture & Community
• Architects and Citizenship – American Enterprise Institute
• Multiculturalism and the Fetish of Diversity – Centre for Independent Studies
• Adoption from Foster Care – National Center for Policy Analysis
• Foster Care versus Modern Orphanages – National Center for Policy Analysis
Foreign Policy/International Affairs
• Human Rights Abuses in Egypt – Hudson Institute
Health Care
• CMS Rulemaking and Medicare Part D: Stifling Innovation, Limiting Access, and Decreasing Quality – American Action Forum
• The ACA’s Risk Spreading Mechanisms: A Primer on Reinsurance, Risk Corridors and Risk Adjustment – American Action Forum
• Obamacare: What We Know Now – Cato Institute
• CBO Confirms: Medicare Premium Support Means Savings for Taxpayers and Seniors – The Heritage Foundation
• Ten Steps for a Market-Oriented Health Care System – Institute for Policy Innovation
Immigration
• 10 Reasons Why Biometric Exit May Advance in 2014 – Center for Immigration Studies
Information Technology
• System Error: How Bad Analysis Poisons Tech Policy – American Enterprise Institute
Labor
• Labor Watch: Turning Points in the Fight Against Forced Unionism? – Capital Research Center
Monetary Policy/Financial Regulation
• Endogeneity: Why Policy and Antibiotics Fail – American Enterprise Institute
• A Century of Central Banking: Was the Fed a Good Idea? – Cato Institute
• Money, Markets, and Government: The Next 30 Years – Cato Institute
• Mortgage Reform Under the Dodd-Frank Act – Cato Institute
• Don’t Crush the Ability of Entrepreneurs and Small Businesses to Raise Capital – The Heritage Foundation
National Security
• Top Homeland Security Priorities for Congress in 2014 – The Heritage Foundation
• Drones: Old, New, Borrowed, Blue – Hoover Institution
• What, If Anything, Is Strategically New About Weaponized Drones? – Hoover Institution
• U.S. Asia-Pacific Strategic Considerations Related to P.L.A. Naval Forces Modernization – Hudson Institute
• A Citizen’s Guide to Terrorism and Counterterrorism – Routledge
Natural Resources, Energy, Environment, & Science
• 10 Ways the EXPAND Act Would Take the Energy Market in the Right Direction – The Heritage Foundation
• Maintaining the Advantage: Why the U.S. Should Not Follow the EU's Energy Policies – Manhattan Institute
Philanthropy
• The Chicago Way: Despite Its Good Reputation, a Network of Housing Charities has Serious Flaws – Capital Research Center
• The Joyce Foundation: Betraying Donor Intent in the Windy City – Capital Research Center
• Making Forever Families – Philanthropy Roundtable
• Philanthropy Keeps the Lights on in Detroit – Philanthropy Roundtable
The Constitution/Civil Liberties
• The Conscience of the Constitution: The Declaration of Independence and the Right to Liberty – Cato Institute
Transportation/Infrastructure
• Organization and Innovation in Air Traffic Control – Hudson Institute
Welfare
• Primer: Earned Income Tax Credit and the Minimum Wage – American Action Forum
ObamaCare encourages less work. ObamaCare’s subsidies make it easier to get health insurance without working; meanwhile the law’s additional taxes reduce workers’ take-home pay, making leisure time seem more attractive. As a result, says the Congressional Budget Office, the nation will work between 1.5 percent and 2 percent fewer hours by 2024 than it would have worked if ObamaCare had not become law. The loss of those hours is equivalent to losing 2.5 million full-time workers.
And, says CBO in its latest report on the budget outlook, low-income workers are more likely to be affected since the subsidies are aimed at helping them. Because the subsidies are phased out as income rises, they create a disincentive to earning more—much like a higher marginal tax rate would. Some workers will drop out of the labor force altogether, says CBO, which projects that the labor force participation rate will fall to 62.5 percent by 2017.
The disincentives to work also include the employer penalty for not providing health insurance, which CBO says will be borne by employees in the form of either lower wages and benefits or fewer job opportunities. CBO explains which workers will see their job opportunities diminish: “[B]usinesses generally cannot reduce workers’ wages below the statutory minimum wage. As a result, some employers will respond to the penalty by hiring fewer people at or just above the minimum wage—an effect that would be similar to the impact of raising the minimum wage for those companies’ employees.” [“The Budget and Economic Outlook: 2014 to 2024,” Congressional Budget Office, February 2014]
The disincentives to work created by ObamaCare’s mix of subsidies and taxes needs to be understood in the context of all the disincentives to work created by the American welfare state. The disincentives were already quite high before ObamaCare. This figure, also based on CBO data, shows the combined effect of federal and state taxes and the effect of means-tested transfer programs.
[figure from “Effective Marginal Tax Rates for Low-Income Workers Are High,” by Salim Furth, The Heritage Foundation, January 8, 2013]
The figure above depicts the effective marginal tax rates of the American welfare state as it existed in 2012. It therefore does not include the increase in effective marginal tax rates created by ObamaCare. ObamaCare adds even more disincentives to the system. Liberals would have you believe that ObamaCare makes things better, since now we can all quite our jobs and go on ObamaCare!
Honored for working for religious liberty: The Becket Fund for Religious Liberty has awarded its 2014 Canterbury Medal to Rabbi Lord Jonathan Sacks, Emeritus Chief Rabbi of the United Hebrew Congregations of the Commonwealth:
We had the pleasure of publishing Rabbi Sacks’s remarks at the Foreign Policy Research Institute’s 7th Annual Templeton Lecture on Religion and World Affairs on May 21, 2002. In his speech, Rabbi Sacks proposed that the way to avoid a clash of world civilizations was not to aspire to a universal culture that eliminates differences but to understand that our differences reflect God’s design:
So whether we look at biology or economics, difference is the precondition of the complex ecology in which we live. And by turning to the Bible we arrive at a new paradigm, one that is neither universalism nor tribalism, but a third option, which I call the dignity of difference. This option values our shared humanity as the image of God and creates that shared humanity in terms like the American Declaration of Independence or the UN Universal Declaration of Human Rights. But it also values our differences, just as loving parents love all their children not for what makes them the same but for what makes each of them unique. That is what the Bible means when it calls God a parent.
Sacks concluded:
Those who are confident of their faith are not threatened but enlarged by the different faiths of others. In the midst of our multiple insecurities, we need now the confidence to recognize the irreducible, glorious dignity of difference. [“The Dignity of Difference—Avoiding the Clash of Civilizations,” The Insider, March 2003]
The Canterbury Medal Dinner will be held on Thursday, May 15, 2014, at the Pierre Hotel in New York City. [Becket Fund, February 6]
The new non-profit rules are the old non-profit rules. A major development this week in the investigation of the Internal Revenue Service’s oversight of non-profit organizations: Patrick Howley reports that the House Ways and Means Committee has obtained an email indicating that the rules that the IRS is now proposing to govern 501(c)4 organizations are not quite as new as they have been made out to be. The email shows that the rules were developed not as a response to the scandal, but during the time that the IRS was investigating conservative nonprofits. The memo further shows that the head of the IRS tax-exempt division, Lois Lerner herself, was involved. Howley reports:
The Treasury Department and Lerner started devising the new rules “off-plan,” meaning that their plans would not be published on the public schedule. They planned the new rules in 2012, while the IRS targeting of conservative groups was in full swing, and not after the scandal broke in order to clarify regulations as the administration has suggested. […]
“Don’t know who in your organizations is keeping tabs on c4s, but since we mentioned potentially addressing them (off -plan) in 2013, I’ve got my radar up and this seemed interesting…,” Treasury official Ruth Madrigal wrote in a June 14, 2012 email to Lerner and others obtained by Ways and Means and provided to The Daily Caller. [Daily Caller, February 5]
Madrigal’s email then provides the text of a post from the Election Law Blog. The post discussed a Fourth Circuit Court of Appeals ruling upholding the Federal Election Commission’s “major purpose” test for determining when a group qualifies as a Political Action Committee subject to disclosure requirements.
It would not be surprising to learn that the FEC and the IRS were taking cues from each other. Recall that before joining the IRS, Lerner was the head of enforcement at the Federal Election Commission, where colleagues remember her as very pro-regulation and in favor of limiting the influence of money in politics. [“Lois Lerner at the FEC,” by Eliana Johnson, National Review Online, May 23, 2013] And last year, the Ways and Means committee unearthed e-mail correspondence showing Lerner may have illegally shared confidential taxpayer information with the FEC. [“Lerner’s FEC Problem,” by Eliana Johnson, National Review Online, August 12, 2013]
As Investor’s Business Daily points out, it now looks like the Internal Revenue Service anticipated as early as 2012 that its standardless inquisition of conservative groups would come under scrutiny, and that the “new” rules it was working on at that time were a way of immunizing itself ex-post facto against the controversy. [Investor’s Business Daily, February 6]
By the way, the proposed rules and instructions on how to submit comments on them can be found at federalregister.gov. Comments will be accepted until February 27.
The American Civil Liberties Union objects to the new rules on nonprofits. It’s not just conservatives who object to the Internal Revenue Service’s proposed rules on what 501(c)4 organizations can and cannot do as tax-exempt organizations. The American Civil Liberties Union this week submitted comments to the IRS that explain in great detail how the rules, if implemented, would outlaw speech about policy issues that is supposed to be constitutionally protected, would further chill lawful speech by replacing one vague standard with another vague standard, and would unconstitutionally prohibit activities that are clearly non-partisan.
By way of illustrating the problem with the Service’s proposed “candidate-related political activity” standard for judging communication by non-profits, the ACLU noted that the rules would require the ACLU to remove from its website the very comments it was submitting to the IRS on its proposed rules:
[W]e note that these comments, when posted to the ACLU’s website and otherwise distributed, would likely qualify as CRPA under the proposed rule during the 60/30-day blackout period, including the rolling blackout period before the 2014 election. The ACLU would have to either remove this document from its website or otherwise determine a way to account for the expense in creating it as CRPA expenditures. [Internal citations omitted.]
The ACLU also argued that the new rules would likely lead to the same kind of standardless inquiries that led to the current scandal:
[V]ague “totality” tests like functional equivalence and the current “facts and circumstances” approach chill too much protected speech. As an abstract matter, a hypothetically reasonable speaker should be able to predict with a reasonable degree of certainty how a hypothetically reasonable listener will interpret an advertisement. History suggests otherwise. This uncertainty is compounded by the tendency of regulators to pile “prophylaxis-upon-prophylaxis” in an attempt to capture anything that could conceivably sway a vulnerable listener. That is, in effect, the rationale behind both the functional equivalence and current facts and circumstances tests. They encourage the government to burn down the house to roast the pig. [Internal citations omitted.]
The ACLU concluded:
In sum, the proposed “bright-line” rule offers a triple whammy for free speech. It suffers from an overabundance of clarity through application to virtually all legitimate issue advocacy during the 60/30-day blackout periods and the presidential rolling blackout. It repeats the sin of the “facts and circumstances” test through its application to all communications “susceptible of no reasonable interpretation” other than express advocacy. And, it paints with too broad a brush in its proposed application to unbiased and non-partisan voter registration activity, GOTV drives, voter education guides and candidate forums. [“Comments on Draft Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities,” The American Civil Liberties Union, February 4]
By the way, the proposed rules and instructions on how to submit comments on them can be found at federalregister.gov. Comments will be accepted until February 27.
Expatriotism has reached an all-time high. More Americans renounced their citizenship in 2013 than in any other year ever, according to figures from the Department of the Treasury:
[Figure from TaxProfBlog, February 6]
People like freedom, and that’s been going away, too. In 2008, the United States had the fifth freest economy in the world. Now it has the 12th freest. [2008 Index of Economic Freedom, The Heritage Foundation and the Wall Street Journal, 2008; and 2014 Index of Economic Freedom, The Heritage Foundation and the Wall Street Journal, 2014]
Is Treasury fudging its corporate tax calculations? The Department of the Treasury has claimed that the United States’ marginal effective tax rate on corporate investment is lower than Canada’s—even though Canada has a lower statutory corporate tax rate. Jack Mintz and Duanjie Chen of the Tax Foundation say Treasury’s calculation is wrong because it excludes effective sales taxes and uses inaccurate property tax rates.
According to the Tax Foundation, the real figures are 35.3 percent for the United States (instead of 29 percent, per Treasury) and 18.6 percent for Canada (instead of 33 percent, per Treasury). By the Tax Foundation’s calculation, the United States has had the highest corporate marginal effective tax rate in the Organisation for Economic Cooperation and Development since 2007, and the second highest in the world since 2009.
The result?
[T]he excessively high corporate income tax rate in the U.S. appears to have led to a smaller corporate sector in relation to the overall economy. Canadian corporate net profit has been well above 10 percent of GDP since 2003 when the corporate tax rate dropped to below 36 percent, and Canadian corporate taxable income also moved steadily to above 10 percent of GDP even during the recent period of financial crisis. […]
In contrast, there were only three years during period of 2000 to 2010 when corporate net profits in the U.S. reached above 10 percent of GDP and there was only one year (2006) when U.S. corporate taxable income reached 10 percent of GDP. [Tax Foundation, February 6]
Epstein’s version: Richard Epstein makes the case for classical liberalism as distinct from hard-line libertarianism:
It is important to understand the differences in views between the strong libertarian and classical liberal position. Serious hard-line libertarian thinkers include Murray Rothbard and Karl Hess. Rothbard believes nonaggression is the sole requirement of a just social order. For Hess, “libertarianism is the view that each man is the absolute owner of his life, to use and dispose of as he sees fit.” There are large kernels of truth in both propositions. It is quite impossible to see how any social order could be maintained if there were no limitations against the use, or threatened use, of force to enslave or butcher other people, which Hess’s proposition of absolute self-ownership strongly counteracts.
Yet the overarching question is how does a group of people move from the Hobbesian “war of all against all” toward a peaceful society? Hess claims that stable institutions are created by “voluntary association and cooperation.” Again, strong libertarians are on solid ground in defending (most) private contracts against government interference, which is why Lochner v. New York (1905), reviled as it is by most constitutional thinkers, was right in striking down New York’s sixty hours per week maximum labor statute. Yet the hard-line libertarian position badly misfires in assuming that any set of voluntary contracts can solve the far larger problem of social order, which, as Rothbard notes, in practice requires each and every citizen to relinquish the use force against all others. Voluntary cooperation cannot secure unanimous consent, because the one violent holdout could upset the peace and tranquility of all others.
The sad experience of history is that high transaction costs and nonstop opportunism wreck the widespread voluntary effort to create a grand social alliance to limit the use of force. Society needs a coercive mechanism strong enough to keep defectors in line, but fair enough to command the allegiance of individuals, who must share the costs of creating that larger and mutually beneficial social order. The social contract that Locke said brought individuals out of the state of nature was one such device. The want of individual consent was displaced by a consciously designed substantive program to protect both liberty and property in ways that left all members of society better off than they were in the state of nature. Only constrained coercion can overcome the holdout problems needed to implement any principle of nonaggression. [Defining Ideas, February 3]
Epstein goes on to explain how this difference over the hold-out problem leads classical liberals and hard-line libertarians to different conclusions in the areas of taxation, eminent domain, anti-trust regulation, and intellectual property. We’d like to know what our readers think of Epstein’s argument. Please feel free to email your thoughts to us at Insider@Heritage.org.
Epstein’s column, by the way, is called “The Libertarian.” No word yet on whether he plans to rename it “A Libertarian.”
Are concerns about ObamaCare-induced labor costs holding back employment? The Federal Reserve’s latest Beige Book has picked up some indications that ObamaCare is indeed holding back hiring. From James Sherk and Jacob Deveney, here are a few excerpts from the Fed’s interviews with bank directors and other key market participants:
• Atlanta Fed: “On balance, many firms expressed continued hesitancy caused by concerns about healthcare reform in terms of their overall hiring plans” (p. VI-3).
• Richmond Fed: “Employers continued to express concern about potential cost increases related to [Obamacare]” (p. V-4).
• Chicago Fed: “Non-wage labor costs also increased, with a number of contacts reporting higher healthcare premiums” (p. VII-3).
• Boston Fed: “Downside risks include the upcoming costs to businesses of compliance with [Obamacare] and the trend toward office downsizing on a space-per-person basis” (p. I-3).
• Philadelphia Fed: “Firms also expected to see the largest increase in health benefits costs compared with other input and labor costs in 2014” (pp. III-1 and III-2).
• Cleveland Fed: “A majority of our contacts cited rising healthcare insurance premiums as a concern” (p. IV-2). [The Foundry, February 3]
The inequality debate is missing something. The folks who worry so much about economic inequality seem to start with the assumption that the really rich don’t deserve their wealth. Thomas Sowell points out that if they were to bother looking into the matter, they would likely discover that most people who amass great wealth do so by convincing a lot of other people to give them their money in exchange for some good or service that makes their lives better. Consider the case of John D. Rockefeller, often identified as one of the robber barons of the 19th century. Sowell writes:
What Rockefeller did first to earn their money was find ways to bring down the cost of producing and distributing kerosene to a fraction of what it had been before his innovations. This profoundly changed the lives of millions of working people.
Before Rockefeller came along in the 19th century, the ancient saying “the night cometh, when no man can work” still applied. There were not yet electric lights, and burning kerosene for hours every night was not something that ordinary working people could afford. For many millions of people, there was little to do after dark except go to bed.
When we ignore the causes of other people’s wealth, we risk ignoring the causes of our own prosperity. Sowell: “From the standpoint of a society as a whole, money is just an artificial device to give us incentives to produce real things—goods and services. Those goods and services are the real ‘wealth of nations,’ as Adam Smith titled his treatise on economics in the 18th century.” [National Review, January 28]
• Learn how to recast the case for religious liberty. Hadley Arkes will explain how the most compelling case for religious freedom is not merely a plea for tolerance but an argument connecting faith with America’s principles of liberty and the rule of law. Arkes’s talk will begin at noon on February 13 at Hillsdale College’s Kirby Center in Washington, D.C.
• Find out how conservatives in Congress are advancing winning conservative ideas. Heritage Action for America will host a day-long Conservative Policy Summit on February 10.
• Know what your representative are doing. Michigan voters, make sure you get updated on the most important votes your representatives make. Check out the Mackinac Center for Public Policy’s new VoteSpotter, iPhone app.
• Celebrate Canada’s Flag-Day at the Macdonald-Laurier Soiree. The Macdonald-Laurier Institute, one of Canada’s premier free market think tanks, is bringing together parliamentarians, political watchers, public servants, and other Ottawa luminaries to celebrate the great Canadian Prime Ministers in the tradition of Sir John A. Macdonald and Sir Wilfrid Laurier. The Macdonald-Laurier Soiree, the Institute’s signature annual event, will be held on February 12 at 6 p.m. at the Rideau Club in Ottawa.
• Assess the state of the American family. The Family Research Council will release its Fourth Index of Family Belonging at noon on February 12. The Index examines the proportion of 17-year-olds who live in an intact married family.
• Discover how restrictions on oil and gas exports are getting in the way of our next economic boom. The Cato Institute will host a policy forum on how the export licensing system for natural gas and crude oil is distorting prices, and deterring investment and employment in the oil and gas sectors. The discussion will begin at 11:30 a.m. on February 10.
• Submit your comments on the proposed Internal Revenue Service rules on what non-profits can and can’t do and still remain non-profits. Those are the rules, remember, that would require you to scrub your website 60 days before an election to make sure you don’t mention anybody who is a candidate for office. The proposed rules and instructions on how to submit comments on them can be found at federalregister.gov. Comments will be accepted until February 27.
Save the date: Join leaders in the conservative movement for The Heritage Foundation’s 2014 Resource Bank Meeting, March 26 – 28, 2014, in New Orleans. Resource Bank is a must-attend conference of today’s top conservative leaders—policy experts, think tank CEO’s, activists, and donors—filled with strategy sessions, networking, coalition building, and policy collaboration.
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