The Heritage Insider: The price of labor matters after all, a bad week for governments based on cronyism, plus lots to do next week
February 22, 2014
Latest Studies: 50 new items, including reports from the National Center for Policy Analysis on how competition could lower costs in state Medicaid programs, and a report from the American Action Forum on how the Comcast-Time Warner merger could be a boon for consumers
Notes on the Week: At least some part of the government is aware that prices matter, a bad week for governments based on cronyism, and more
To Do: Yes, Virginia, there are free market solutions to health care
Budget & Taxation
• The 2014 Farm Bill Subsidy Reforms Don’t Go Far Enough – American Action Forum
• Our State, Our Future: How Tennessee’s Income Tax Secret Harms Retirees and Entrepreneurs – Beacon Center of Tennessee
• Securing a Fiscally Sound Future for Tennessee: Reforming the State Spending Cap to Curb Government Growth and Promote Prosperity – Beacon Center of Tennessee
• How to Spend $3.9 Trillion – Cato Institute
• Pension Update Winter 2014 – Center of the American Experiment
• The Streamline Search: Options for NY Localities – Empire Center for New York State Policy
• Blank Check: What It Means to Suspend the Debt Limit – The Heritage Foundation
• The Proper Tax Treatment of Interest – The Heritage Foundation
• Reckless Unions – Hoover Institution
• Wisconsin’s Turnaround: How Labor Reform under Act 10 Gave Power Back to Taxpayers and Created a Multimillion-Dollar Surplus – Illinois Policy Institute
• Government Privatization in Missouri: Successes, Risks, and Opportunities – Show-Me Institute
• Justifying Boeing: A Post-Mortem Analysis on the Process – Show-Me Institute
• Inflation Indexing in the Individual Income Tax – Tax Foundation
• Pro-Growth Tax Reform in the Cornhusker State – Tax Foundation
• The High Burden of State and Federal Capital Gains Tax Rates – Tax Foundation
• The City of Seattle Pension System: A New Approach Is Needed – Washington Policy Center
Crime, Justice & the Law
• Domestic Abuse on Indian Reservations: How Congress Failed to Protect Women Against Violence – The Heritage Foundation
Economic and Political Thought
• Egypt and “The End of History” – Hoover Institution
Economic Growth
• China’s Economic Reform Plan Will Probably Fail – American Enterprise Institute
• How Can Maryland Help the Working Poor? – Maryland Public Policy Institute
Education
• Grading the No Child Left Behind Waivers – American Enterprise Institute
• Target Aid to Students Most Likely to Succeed – Education Next
• The Kalamazoo Promise Scholarship – Education Next
• Matching Students with Excellent Tutors: How a Massachusetts Charter School Bridges Achievement Gaps – Pioneer Institute for Public Policy Research
• Overview of the McCleary Decision on Public Education Funding and Reform – Washington Policy Center
Elections, Transparency, & Accountability
• The Sock Doctrine: What Can Be Done about State-Funded Political Activism? – Institute of Economic Affairs
Foreign Policy/International Affairs
• Obama Needs to Send Strong Message to Allies – The Heritage Foundation
• Self-Determination and National Security: Why the U.S. Should Back British Sovereignty over Gibralter – The Heritage Foundation
• U.S. Should Augment Sanctions After North Korean Crimes Against Humanity – The Heritage Foundation
• U.S. Should Support Tunisia’s Democratic Progress with Concrete Action – The Heritage Foundation
• U.S.-Baltic Military Cooperation in the Persian Gulf – The Heritage Foundation
Health Care
• Impact of the Health Insurance “Annual Fee” Tax – American Action Forum
• The American Action Forum’s Affordable Care Act Monthly Enrollment Report for January – American Action Forum
• Cheap Indian Generic Drugs: Not Such Good Value After All? – American Enterprise Institute
• Reforming Arkansas’ Medicaid Drug Program – National Center for Policy Analysis
• Reforming Oklahoma’s Medicaid Drug Program – National Center for Policy Analysis
• Reforming Wisconsin’s Medicaid Drug Program – National Center for Policy Analysis
Immigration
• Is the “Kids Act” Amnesty Really Just for Kids? Probably Not – Center for Immigration Studies
Information Technology
• Comcast-Time Warner Cable: An Overview of the Relevant Markets – American Action Forum
Information Technology
• Do Municipal Networks Offer More Attractive Service Offerings than Private Sector Providers?: A Review and Expansion of the Evidence – Phoenix Center for Advanced Legal and Economic Public Policy Studies
Monetary Policy/Financial Regulation
• Fragile by Design – Princeton University Press
National Security
• Yemen’s Pivotal Moment – American Enterprise Institute
• U.S. Nuclear Weapons in Europe: Critical for Transatlantic Security – The Heritage Foundation
Natural Resources, Energy, Environment, & Science
• The Social Cost of Carbon – Capital Research Center
• Myths and Facts about the West Virginia Chemical Spill – Competitive Enterprise Institute
Regulation & Deregulation
• The Searching for and Cutting Regulations that are Unnecessarily Burdensome Act of 2014 – American Action Forum
• Don’t Overregulate Business Brokers – The Heritage Foundation
The Constitution/Civil Liberties
• An Executive Unbound: The Obama Administration’s Unilateral Actions – The Heritage Foundation
• Obamacare Anti-Conscience Mandate at the Supreme Court – The Heritage Foundation
Transportation/Infrastructure
• Ten Reasons Why Per-Mile Tolling Is a Better Highway User Fee than Fuel Taxes – Reason Foundation
The Congressional Budget Office says the minimum wage does cost jobs; but did the agency get the magnitude right? According to the Congressional Budget Office, raising the minimum wage would lift a million workers out of poverty, but it would cost half a million low-income workers their jobs. The CBO’s report has been cited as helping to inject some economic logic into debates. Keith Hennessey, for example, writes:
President Obama and his allies have been selling this proposal as a free lunch, a policy that will raise pay for some with no costs for anyone: “Give America a raise.” Proponents of raising the minimum wage now must contend with a reputable nonpartisan analysis that the proposal has costs as well as benefits. Congress must decide whether higher wages for some are worth destroying jobs for others. Every responsible news story will now include a sentence like, “At the same time, the Congressional Budget Office projects the President’s proposal would result in lost jobs for half a million low-skill workers.” [Keith Hennessey, February 19]
And James Pethokoukis notes that the CBO report should strengthen the case for the earned-income tax credit as an alternative to raising the minimum wage:
[O]f the 16.5 million workers who would get a pay raise totaling $31 billion, just a fifth of the increased income would go to families with earnings below the poverty threshold. “Raising the minimum wage probably reduces employment,” the CBO explains. “In the long term, that reduction in the workforce lowers the nation’s output and income a little … .” […]
In its report, the CBO notes that in contrast to a minimum wage hike, “an increase in the [Earned Income Tax Credit] would go almost entirely to lower-income families.” So there you go. More bank for the billions of bucks. [AEIdeas, February 19]
Diana Furchtgott-Roth, however, says CBO significantly underestimated the job losses that will occur:
Employers in CBO’s world would hire 96% of workers formerly making $7.25 an hour, even when their new wage rose to $10.10. Consumers would face higher prices, but they would not adjust spending down in a substantial manner.
CBO concludes that real income in the economy would rise by $2 billion if the minimum wage were raised to $10.10 an hour. The report states that “raising the minimum wage would increase demand for goods and service because, taken together, the second, third, and fourth direct effects would shift income from business owners and consumers (as a whole) to low-wage workers.”
The report continues, “Low-wage workers generally spend a larger share of each dollar they receive than the average business owner or consumer does; thus, when a dollar from business owners or consumers is shifted to low-wage workers, overall spending increases.”
But spending by upper-income consumers helps to employ low-wage workers. The Labor Department’s consumer expenditure data for 2012 show that the highest fifth of income earners was responsible for 52% of spending on personal household services, and 56% of spending on fees and admission to entertainment. These are all local businesses that employ low-wage workers. Reducing the incomes of the top fifth will result in less spending on these categories, and less domestic employment.
In contrast, the lowest fifth of income earners spend a higher than average percent of their income on apparel, footwear, and nondurables, which are more likely to be imported. […]
CBO’s conclusion that approximately 96% of workers will keep their jobs, even with substantial increases in their wages, suggests that these workers have been underpaid. The only way this could be the case is if labor markets in the United States were profoundly out of balance. CBO presents no evidence that this is the case. Indeed, CBO does not address the millions of unemployed Americans who seek work, especially teens and low-skill workers. This is evidence that entry-level wages are too high, not too low. [Market Watch, February 21]
A sign the ObamaCare insurance pool is not getting the healthy people to sign up: The Obama administration is now considering extending the risk-corridor program—a kind of government-operated reinsurance program for health insurers in the ObamaCare exchanges—beyond the three years stipulated in the law. If the administration is willing to put taxpayers on the hook for more insurer losses, it suggests the administration is seeing yet more problems with ObamaCare, writes Megan McArdle:
• The insurers have clearly been willing to lose money on these policies for a couple of years in order to help the exchanges get established. But with the rollout difficulties and the somewhat underwhelming enrollment numbers, they may be threatening to bolt unless they get some guarantee that they can sell policies people will actually be willing to buy.
• A risk-corridor extension would help keep the price of policies down by funneling a backdoor subsidy to the insurers. However, it would not keep the cost down – indeed, it could have the opposite effect. With the administration subsidizing the lion’s share of any losses, the incentives to control costs would be dramatically weakened.
• With health-care cost growth already running well above inflation in most years, this could be quite expensive. Basically, the administration would be violating all the promises that were made about deficit reduction and cost control in a desperate bid to keep insurers on the exchanges.
Also, an extension would probably be illegal. [Bloomberg, February 18]
The current non-profit rules are bad, too. The Internal Revenue Service’s proposed rules on 501(c)4 non-profits sweep so broadly as to compromise First Amendment rights. As much of a threat as those rules are, the IRS proposing them provides an opportunity to make the point that the IRS’s existing rules on 501(c)4 organizations also sweep too broadly because they are not supported by law. David Addington’s letter to Secretary of the Treasury Jacob Lew makes exactly this point, among others:
When Congress includes a particular restriction on political activities in one paragraph of subsection 501(c) and omits any such restriction in the very next paragraph, Congress is presumed to have indicated the omission. Issuance of a regulation by the IRS imposing a political restriction on 501(c)(4) organizations when Congress has directly spoken to the issue, imposing such a restriction on 501(c)(3) organizations but not 501(c)(4) organizations, is unreasonable. […]
When, as here, Congress has intentionally excluded political restrictions on 501(c)(4) organizations, the Secretary of the Treasury cannot impose them by himself by defining the statutory term “social welfare” to incorporate political restrictions that Congress excluded. […]
The plain meaning of that definition of “social welfare” includes promoting the common good and general welfare of the people for the purpose of bringing about civic betterments and social improvements through advocating, in the electoral process, principles and those who espouse them. [Internal citations omitted.] [The Heritage Foundation, December 19, 2013]
Don't forget to comment on the rules by February 27. (See item #2 in our “To Do” list this week.)
Not a good week for cronyism: Riot police stormed the camps set up by anti-government protestors in Kyiv this week, leaving at least 100 Ukrainians dead. In Venezuela, President Nicolas Maduro’s crackdown on tens of thousands of protestors around the country has left at least eight dead. In both countries, the people are protesting the lousy economic conditions that have been produced by governments that stymie the economic freedoms of the people in order to help politically connected cronies. Dalibor Rohac and Juan Carlos Hidalgo write:
After years of kleptocratic governance, which derailed the country’s transition toward a market economy, ordinary Ukrainians are desperate for change. In 1990, Ukraine’s GDP per capita was $8,200, which was roughly identical to Poland’s. Today, Poland’s GDP is $18,300 and Ukraine’s has gone down to $6,400. Unlike its post-communist neighbors to the West, Ukraine did not pursue deep institutional reforms and its economy was seized by a narrow group of oligarchs, with close connections to political power and to the Kremlin. The son of the President Viktor Yanukovych, Oleksandr, has become one of the richest men in the country during his father’s time in the office, while incomes of most Ukrainians stagnated.
In Venezuela the economic situation has deteriorated sharply since the death of Hugo Chávez last year. The country has the highest inflation rate in the world (officially 56 percent in 2013, although according to Steve Hanke’s Trouble Currency Project, the implied annual inflation rate is actually 305 percent). After years of nationalizations, expropriations, and currency and price controls—all under the name of “21st Century Socialism”—the private sector has been decimated. Hour-long lines in supermarkets are a daily occurrence and shortages of basic food staples and medicines are widespread. And just like in Ukraine, corruption is rampant as the ruling elite rake in the profits from oil revenues. This has resulted in the rise of a new privileged class called the “Boligarchs.” so-named because they’ve prospered tremendously under the so-called Bolivarian revolution. Moreover, Venezuela is now one of the most dangerous nations in the world, with almost 25,000 murders committed last year. A large segment of the population, mostly middle class, is simply fed up as the country quickly becomes unlivable. [The Cato Institute, February 21]
We don’t need government to get our broadband for us. Explains Rosalyn Layton of the American Enterprise Institute:
How ObamaCare’s mandates can make a $10,000 health insurance policy worth less than $4,000: Those who get subsidies for the health insurance ObamaCare forces them to buy aren’t necessarily better off than they were without ObamaCare. It could easily be the case, explains David Henderson, that the value of their health insurance plan is worth far less than the subsidized price a person has to pay:
Defenders of Obamacare often claim that the purpose of insurance is to pool risks so that a low-risk purchaser will pay to subsidize a high-risk purchaser. But that’s not true. Insurance works by pooling like risks. That’s why young single men pay more for auto insurance and old men pay more for life insurance.
Similarly, under Obamacare, insurers cannot legally set insurance premiums for young people that are less than a third of what they charge the elderly. This is in spite of the fact that covered expenses for the elderly are typically much more than three times the covered expenses for the young. So, just as in the case of pre-existing conditions, part of the family’s insurance premium covers expenses for a higher-risk group. And the people getting the government subsidy are likely to be disproportionately young because younger people have, on average, lower incomes than older people.
Finally, many people will value some required coverages at or close to zero. A young family in which the husband has had a vasectomy or the wife has had a tubal ligation is at minimal risk for pregnancy. Nevertheless, under Obamacare, they must pay for insurance that covers pregnancy. Also, even people with no children must pay for pediatric dental care. Obamacare requires a number of other coverages, including tests that the insurance company must pay for with zero co-payment by the insured. The insurance company will need to price the policy higher for all these coverages. If our hypothetical family does not place much value on these tests or services, then it is paying something for almost nothing. [Defining Ideas, February 18]
Other stuff we learned this week:
• The rollout of Common Core State Standards for education has been completely botched because teachers have not been given any input on implementing the standards, says National Education Association President Dennis Van Roekel in a letter to the NEA’s 3 million members. [NEAToday, February 19] Weren’t unions also in favor of ObamaCare before that rollout got botched?
• The Federal Communications Commission, the agency that hands out the licenses that broadcasters need to stay in the broadcasting business, now wants to investigate the “news philosophy” at broadcast news stations. One FCC commissioner warned the project could easily turn from collecting information to pressuring reporters, editors, and station owners about what stories to cover. [Washington Times, February 20] “What on earth is the FCC thinking?” says Howard Kurtz. [Fox News, February 20]
• There are lots of health insurance cancellations still to come, thanks to ObamaCare. Some 20 million employees of small business are likely see their company health plans cancelled at some point this year, calculates David Hogberg. [The American Spectator, September 20]
• About one in five who “signed up for ObamaCare” failed to make their first payment—meaning they’re not really covered by ObamaCare, reports Robert Pear. [New York Times, February 13]
• A review of 528 studies on economic policy finds that states that tax less, spend less, regulate less, and protect economic freedom more have more economic growth than states that tax more, spend more, regulate more, and protect economic freedom less, writes John Hood. [Reason, February 17]
• More black babies were aborted in New York City in 2012 than were born alive, reports Michael Chapman. [CNSNews.com]
• Eliminating Fannie Mae and Freddie Mac would have negligible effects on mortgage rates and homeownership; but it would reduce the amount of housing debt and the number of risky loans, calculate John Ligon and Norbert Michel. [The Heritage Foundation, February 7]
• President Obama has taken a lot of actions that are beyond his statutory or constitutional authority. Elizabeth Slattery and Andrew Kloster have produced a short (not necessarily exhaustive) catalog of those actions. [“An Executive Unbound: The Obama Administration’s Unilateral Actions,” The Heritage Foundation, February 12, 2014]
• Twenty-three states are raiding settlement funds, such as the 1998 tobacco settlement, to help balance their budgets. Four states are underfunding their pensions. Four states are selling their assets. The accounting tricks are numerous and widespread. Using data from State Budget Solutions, Luke Rosiak has produced a map showing which states use which accounting tricks to balance their budgets. How many does your state use? [Washington Examiner, February 18]
• Essential government services? Transferring wealth between individuals and funneling money to states make up two-thirds of federal spending, calculates Chris Edwards. [“How to Spend $3.9 Trillion,” Cato Institute, February 2014]
• New York has more charter schools than any city except Los Angeles, and those schools have been found to produce significantly better results than the city’s traditional public schools. But a proposal, backed by Mayor Bill de Blasio (D), to charge rent to charters that are co-located in public schools would put 71 percent of those charters into deficit, finds Stephen Eide. [“Should Charter Schools Pay Rent: Implications for Staffing and Growth,” Manhattan Institute, February 2014]
• The pop band ABBA wore outrageous outfits in the 1970s because Sweden’s tax code gave an exemption for costumes—but only costumes that were so outrageous that they couldn’t be worn anywhere but on stage—says Björn Ulvaeus in his new book. [The Guardian, February 16]
(Check out our blog for daily links to the important insights and ideas on the issues.)
• Explore fresh ideas for health care reform. The Galen Institute will host a Health Solutions Conference. The event will feature members of Congress who have introduced major reform legislation based on the idea of letting markets work in health care. The program’s luncheon will feature a debate between Manhattan Institute fellow Avik Roy and Wonkblog founder Ezra Klein. The conference will begin at 8:30 a.m. on February 27 at the National Press Club Ballroom in Washington, D.C.
• 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.
Also, if you would like to submit comments to the IRS anonymously (because, you know …) you can do so at www.NonProfitFreedom.org, a project of the Center for Responsive Politics. For background on the problems with the proposed rules, visit www.CampaignFreedom.org/irs.
• Appreciate James Q. Wilson’s dogged exploration of the most important questions related to human character, the moral sense. The Pepperdine University School of Public Policy will hold a two-day conference examining James Q. Wilson’s contribution to social science and good government. The conference will be held February 28 to March 1 at the Wilburn Auditorium at Pepperdine University.
• Analyze President Obama’s proposals for reforming the National Security Administration and its monitoring of Americans’ communications. The Federalist Society will hold a symposium on the topic starting at 10:50 a.m. on February 24. The symposium will be held at the offices of Jones Day LLP in Washington, D.C.
• Discover what the television show “House of Cards” teaches us about politics as it really is. The Learn Liberty Academy, a project of the Institute for Humane Studies, is offering an online course on “House Of Cards: Politics Without Romance.” Steve Horwitz, Professor of Economics at St. Lawrence University, will teach the course, which uses the episodes of “House of Cards” to illustrate the principles behind public choice theory. The one-week course begins March 3.
• Speak out on the Federal Communications Commission’s monitoring of the news. If the idea of the FCC investigating the “news philosophy” of broadcast television stations has you concerned about freedom of the press, then you should sign the American Center for Law and Justice’s “No Government Monitors in the Newsrooms” petition.
• Learn about the history of the Federal Reserve, in particular its various failures. The Cato Institute will host a briefing on the Case for a Centennial Monetary Commission “to explore alternatives to the current pure discretionary government fiat money regime.” The briefing will begin at noon on February 28 in room B-318 of the Rayburn House Office Building in Washington, D.C.
• Get the Israeli perspective on how the law of armed conflict applies to the challenge of fighting terrorism. The Heritage Foundation will host a talk by Colonel Eli Bar-On, Deputy Military Advocate General of the Israeli Defense Force. Colonel Bar-On’s talk will begin at 11 a.m. on February 26.
• Hear “how individuals and entrepreneurs are finding new ways to get ahead of and around burdensome regulations and restrictions to get on with the business of civilized living.” Jeffrey Tucker, executive editor of Laizzez Faire Books and author of Bourbon for Breakfast, will speak at the Illinois Policy Institute in Chicago on February 26. Tucker’s talk will begin at 6 p.m.
• Improve your asking skills. Coley Jackson, Vice President of External Affairs at the Competitive Enterprise Institute, will conduct a workshop on how to make bigger and better asks. The event will begin at 6:30 p.m. on February 27.
• Save the date: The 50th anniversary Conservative Political Action Conference is coming. This year, it will run March 6 to March 8 at the Gaylord National Resort and Hotel.
• Save the date: Join leaders in the conservative movement for The Heritage Foundation’s 2014 Resource Bank Meeting, March 26 to March 28 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.
(Check out our calendar for more events.)
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