President Obama included a much discussed proposal to increase the national minimum wage to $10.10, from its current level of $7.25. To date, the proposal has gone nowhere in Congress. In the meantime, some cities and states have introduced or approved increases in their minimum wage rates. Ten states and the District of Columbia have enacted increases in the 2014 session so far. In June, the Seattle City Council unanimously voted to increase their minimum wage to $15. In San Francisco, Mayor Ed Lee followed suit and has introduced a ballot measure to increase their minimum wage to $15 an hour.
Germany is currently grappling with the ramifications of imposing a national minimum wage, and the lessons we can learn from their experience should deter calls for raising the minimum wage here.
Earlier this month, the German parliament’s lower house adopted a new national minimum wage of €8.50 ($11.61) an hour, beginning in 2015. Before this, there had been no national minimum wage in the country, with trade unions and employers negotiating wages by sector. Just as the Congressional Budget Office estimated that raising the minimum wage here could reduce employment by 500,000 workers by 2016, one of Germany’s most respected economic institutes warned that Germany could lose the equivalent of 340,000 full-time jobs. While there are some factors, such as a high proportion of apprenticeships, which could dilute the harmful effects of such a minimum wage in Germany, this adoption is a step backwards for the country that is often an economic leader in the EU.
Young workers are disproportionately affected by the minimum wage as they are more likely to have jobs that pay below the new statutory minimum.
Currently, Germany’s youth unemployment rate is roughly a third of the euro area average, and Germany outperforms every other country in the EU on this metric. In fact, since 2007, Germany is the only country in the euro area to see a decrease in youth unemployment.Source: European Commission, “Euro area unemployment rate at 11.8%,” Eurostat, May 2, 2014.
There is thus some concern that their new minimum wage could increase unemployment and limit opportunities for young people. As Cato’s Steve H. Hanke has pointed out, in “the twenty-one E.U. countries where there are minimum wage laws, 27.7% of the youth … was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven E.U. countries without minimum wage laws — 19.5% in 2012.”
This week the International Monetary Fund (IMF) released its latest report on the German economy, in which the authors raised numerous concerns about the imposition of a new national minimum wage (strange that they did not give voice to these concerns when advocating that the US raise its minimum wage in an earlier report this year).
As previous work by the Cato Institute has shown, the benefits of a minimum wage increase are poorly targeted to households in poverty. The IMF report notes that the “effects of the minimum wage on income redistribution toward the working poor may be limited, as the population of minimum wage earners and that of the working poor overlap only partially.”
The IMF authors also seem to recognize that the imposition of the minimum wage could have outsized adverse effects in some regions of Germany because a higher proportion of affected low wage workers live in East Germany (27 percent in the East compared to 15 percent in the West). While the variation between U.S. states is not as clear cut as the difference between East and West Germany, the employment outcome would be the same were a higher national minimum wage implemented here: in poorer states, where many workers would be affected by the increase, there would likely be significant job loss.
Local minimum wage increases, like the one in Seattle, are not as affected by this last mechanism, but they face the added danger of losing jobs to nearby jurisdictions that have not raised the minimum wage, as it is easier to outsource jobs to a neighboring city than it is to another state or country in many cases.
The new minimum wage in Germany will prove ineffective in improving the lot of low-income workers, and will likely lead to some job loss for the very people it is trying to help. Both countries would be better served exploring other means to improve outcomes for low-income workers. There are other, potentially more effective policy options to explore such as expanding apprenticeships (as Germany has already done) or introducing a lower provisional minimum wage for teens and the long-term employed. One thing is certain: in Germany, and the United States, a blunt policy instrument like the minimum wage is not the answer.
Tom G. Palmer
The DC government ignored the Supreme Court’s ruling in the Heller case, so we had to take them back to court. We won again. The idea that they can simply ban the exercise of a fundamental and enumerated constitutional right is absurd. If the constitutional approach of the DC government were applied to the First Amendment, they would interpret the power to regulate the time, place, and manner of its exercise to include banning all churches, mosques, temples, and synagogues in the District. That cannot be right and the court has set them straight on that matter.
Alan Gura, our lawyer, is a hero for his work on behalf of the rule of law. I and the other plaintiffs are grateful to him and to the Second Amendment Foundation for this resounding victory.
Caleb O. Brown
Saturday afternoon, a federal judge in the District of Columbia ruled that D.C.’s “complete ban on the carrying of handguns in public is unconstitutional.” Alan Gura is the attorney on the case, entitled Palmer v. D.C. We talked yesterday about the ruling and how D.C. might comply.
Gura, along with Clark Neily of the Institute for Justice and Cato Institute chairman Robert A. Levy, served as co-counsel to Dick Heller in the landmark case of District of Columbia v. Heller. The lead plaintiff in this case is Cato Institute senior fellow Tom G. Palmer.
On his blog, here’s how Gura characterized the win:
With this decision in Palmer, the nation’s last explicit ban of the right to bear arms has bitten the dust. Obviously, the carrying of handguns for self-defense can be regulated. Exactly how is a topic of severe and serious debate, and courts should enforce constitutional limitations on such regulation should the government opt to regulate. But totally banning a right literally spelled out in the Bill of Rights isn’t going to fly.
Daniel J. Mitchell
So I shouldn’t be surprised that he wants to catch me making an error. But I’m not sure his “gotcha” moment is very persuasive. Here’s some of what he wrote for today’s New York Times.
Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare. …Needless to say, conservatives predicted doom. …Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.”
Kudos to Krugman for having read Atlas Shrugged, or for at least knowing that Rand sometimes referred to “looters and moochers.” Though I have to subtract points because he thinks I’m a conservative rather than a libertarian.
But what about his characterization of my position? Well, he’s right, though I’m predicting slow-motion suicide. Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs.
Here’s some of what I wrote:
I’m generally reluctant to make predictions, but I feel safe in stating that this measure is going to accelerate California’s economic decline. Some successful taxpayers are going to tunnel under the proverbial Berlin Wall and escape to states with better (or less worse) fiscal policy. And that will mean fewer jobs and lower wages than otherwise would be the case.
Anyhow, Krugman wants readers to think that California is a success rather than a failure because the state now has a budget surplus and there’s been an uptick in job creation.
Here’s more of what he wrote:
There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels. …And, yes, the budget is back in surplus. …So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need.
I’m not persuaded, and I definitely don’t think this counts as a “gotcha” moment.
First, I’m a bit surprised that he wants to brag about California’s employment numbers. The Golden State has one of the highest jobless rates in the nation. Indeed, only four states rank below California.
Second, I don’t particularly care whether the state has a budget surplus. I care about the size of government.
Krugman might respond by saying that the tax hike generated revenues, thus disproving the Laffer Curve, which is something that does matter to supporters of small government. But the Laffer Curve doesn’t say that all tax hikes lose revenue. Instead, it says that tax rate increases will have a negative effect on taxable income. It’s then an empirical question to figure out if revenues go up a lot, go up a little, stay flat, or decline.
And what matters most of all is the long-run impact. You can rape and pillage upper-income taxpayers in the short run, particularly if a tax hike is retroactive. In the long run, though, people can move, reorganize their finances, and take other steps to reduce their exposure to the greed of the political class.
In other words, people can vote with their feet … and with their money.
The data aren’t population-adjusted, so populous states are overrepresented. But you can still see that California is losing while Texas is winning.
Here are similar data from the Tax Foundation:
So what’s all of this mean?
California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.
But the number of people willing to pay will shrink as the premium rises.
But I won’t hold my breath waiting for a mea culpa from Krugman.
State policymakers often look for ways to attract investment, companies, talent, and residents to their states. Sometimes they do it with sensible and broad-based reforms, such as reducing business regulations, increasing school quality, or making taxes lower and simpler. Unfortunately, another way they try to do it is to provide narrow tax benefits and subsidies to particular businesses and industries.
Every state does it. Illinois provides a tax credit for the film industry. New Jersey Governor Chris Christie has frequently provided tax credits to resident companies that agree not to relocate to other states. Florida Governor Rick Scott has provided benefits to companies that agree to move to Florida. Many other states have similar policies.
These types of tax provisions are called “tax expenditures” or “tax incentives.” They include narrow breaks to income taxes, sales taxes, property taxes, and other taxes. Federally, the Joint Committee on Taxation (JCT) defines a tax expenditure as “any reduction in income tax liabilities that result from special tax provisions or regulations that provide tax benefit to particularly taxpayers.” The JCT estimates that the federal government provided approximately $1.3 trillion in tax expenditures in 2013.
Tallying state tax expenditures is much more difficult because state tax systems are different and there is no official national scorekeeper. A new report from the American Legislative Exchange Council (ALEC) sought to accomplish that task. In the report, the authors totaled the tax expenditures within every state based on state-published reports. According to their research, state tax expenditures total about $228 billion for personal and business taxes and $260 billion for sales taxes.
ALEC’s report is an excellent first stab at calculating state tax expenditures. However, five states—Alabama, Alaska, Nevada, South Dakota, and Wyoming—do not report on the value of their tax expenditures. Other states, such as Arkansas and Missouri, publish “infrequent or incomplete” data. There are also varying levels of reporting data: California only publishes information on tax expenditures valued at greater than $5 million, while Arizona only includes ones valued at greater than $703.
The ALEC authors note that not all of these tax expenditures represent cronyism on the part of state policymakers. For one thing, there is disagreement over what tax items are distortionary or unjustified. Some provisions on official tax expenditure lists move a state’s tax system closer to a low, broad, and neutral tax base and are justified, such as allowing capital expensing. Lower rates on capital gains help offset the double taxation of capital under the income tax system. Also, exempting business-to-business transactions prevents tax pyramiding.
A large portion of the provisions tallied by ALEC are narrow and distort the economy, such as Hollywood film tax credits. To make matters worse, some tax expenditures are “refundable,” meaning that recipients receive money from the government if they do not have a tax liability. Policymakers use this trick to hide the full cost of spending on the tax side of the budget.
The large-scale provision of tax credits, deductions, and exclusions to specific industries or companies is an acknowledgement by state policymakers that taxes matter in business decision-making. But a much better way to grow a state economy is to reform tax systems by simplifying the tax codes and cutting marginal tax rates.
Andrew J. Coulson
Slate recently published a badly misinformed piece about Sweden’s voucher program, which I addressed here. One of the other responses to the Slate piece was written by Swedish economist Tino Sanandaji for NRO. Sanandaji did an excellent job of showing that the voucher program cannot plausibly explain Sweden’s test score decline and usefully explored some of the more likely causes.
Though I agree with much of what Sanandaji wrote, his piece occasionally endorses heavier regulation of the program for reasons that are either not apparent or inconsistent with the evidence. For instance, he rightly observes that the Swedish government requires universities to accept high school grades as a key admissions criterion but does not permit them to take into account differential grading practices across high schools. This, he notes, puts significant external pressure on high schools to inflate grades. But despite acknowledging this, he later refers to “other problems caused by the [voucher/school choice] reform … such as grade inflation,” implying that this “corruption” is “caused by the lack of [state] control.”
And yet the evidence he presents points to the opposite conclusion: that grade inflation is particularly problematic in Sweden because of imprudent government intrusion into university admissions policy. Consider as a contrast the case of the United States, where universities are free to take high schools’ grading practices into account during admissions. We still have differential grade inflation across high schools, but it is less of a concern because universities can adjust for it. As the head of admissions at Brandeis University has observed, “It’s really not that hard [for colleges] to evaluate a school bearing in mind the differences in grading and weighting processes they employ.” In the absence of government meddling, high schools cannot secure admission to good colleges for their students simply by giving them all A’s.
Still more puzzling is Sanandaji’s criticism that “some private schools broke the rules to cherry-pick students.” This is curious because Sanandaji defends free markets on a number of other occasions, and a hallmark of free markets is that they rely on mutually voluntary exchange. So, naturally, schools in a relatively free marketplace want to enroll students they think they can successfully serve, just as families seek schools they believe can successfully serve them.
This does not mean that all private schools in a relatively free market will seek to serve only high-scoring or well-behaved students. In the United States, where the vast majority of private schools are free to admit students based on any criteria they like, many exist specifically to serve difficult-to-educate students that the typical public school is not well-equipped to teach. A study conducted in the mid-1990s found that public school districts were sending hundreds of thousands of students to the private sector for just that reason. Do some other private schools focus on serving high-performing students? Of course. But the largest share seem to place little or no emphasis on students’ prior academic performance, based on survey data from Arizona that I analyzed several years ago.
The same result can be seen in the for-profit Korean after-school tutoring market, which has complete autonomy over admissions and in which admission is hardly ever selective. Tutoring firms administer tests to their applicants, but they use those tests merely to identify the right classes for them, not to determine admission. When left to themselves, education markets do not focus exclusively on high performing students, well-behaved students, or indeed on any single subgroup of students. They respond to market demand.
What makes the “cherry-picking” criticism of Swedish schools even more strange is that the government actually requires high schools to accept students based on their elementary school grades. Thus, again, to the extent there is a systematic problem in this area, it is actually caused by the state, not by the schools.
Next Sanandaji acknowledges that a poorly managed for-profit school chain went bankrupt, closed down, and its students had to find new schools. Perhaps I misunderstand him, but he seems to present this as an example of market failure, adding that “some of this abuse has been stopped [by tighter regulation].” It is hard to reconcile this characterization with Sanandaji’s otherwise sound exposition of how markets work. The failure and exit of poorly managed businesses is not a bug in the software of capitalism, it is a feature. No economic system guarantees that all service providers are effective and efficient in perpetuity.
The same applies to systems of education. Having studied school systems around the world and across time back to Athens and Sparta in the 5th century B.C., I have never come across one that achieved perfection. The best that an education system can do is to provide incentives for effective and efficient operation, and to reliably force the exit of schools that fail to respond to those incentives.
So, in Sweden, a large, ill-managed school network went out of business in a few years, and its students are now enrolled in other schools that are at least well-enough managed to still be operating. Contrast this with how failure is dealt with in a system with many layers of government oversight and ostensible quality control: U.S. public schooling. In most of the nation’s big cities, performance has generally been regarded as ranging from mediocre to abysmal for at least several generations, despite high and rising real per-pupil spending. Schools and districts deemed “dropout factories” continue to operate indefinitely. This, it should be obvious, is an inferior way to deal with educational failure—allowing it to continue decade after decade, afflicting an endless stream of children, instead of bringing it summarily to a halt after just a few years.
But Sanandaji, in other contexts, understands all this. He can undoubtedly cite Schumpeter chapter-and-verse on the process of “creative destruction” that drives progress in free markets. It’s not clear why he doesn’t apply this knowledge here.
And lest readers assume that the above analysis is nothing more than economic theory, I encourage them to review the empirical research on within-country comparisons of different school systems. I surveyed that research for a 2009 paper and found that the least regulated, most market-like school systems—those in which parents pay at least some part of their own children’s tuition directly—are consistently the best at serving families’ needs across all outcomes that have been studied. In practice, in the real world, additional government “control” (i.e., regulation) of education markets is not associated with better outcomes. If anything, the reverse appears to be true.
Finally, Sanandaji reports poll results indicating that “Swedes have turned sour on for-profits’ running schools generally.” That people would offer this answer to pollsters is not at all surprising given the often confused and misleading media coverage of the subject. But, in talking to people in Sweden and Chile (another country with a national school choice program that allows for-profit schools), I’ve found that parents are often unaware which private schools are for-profit and which aren’t, and so cannot be placing much weight on that factor in choosing schools for their children. That is perhaps why two of the biggest school chains in Sweden, Kunskapsskolan and International English Schools (IES), are both operated for profit and both highly regarded. Indeed IES is perhaps the fastest growing chain in the country. Despite growing as fast as it is able, opening several new schools each year, it had a waiting list of 60,000 students as of last year. The minister of education himself sends one of his children to an IES school.
So while badly managed chains are failing, well-managed ones are growing. That is how markets work, and it is in the best long term interest of consumers.
All of the above said, there are certainly defects in the Swedish voucher program, centered on counterproductive regulations and the total reliance on third party government funding. I will be writing about those problems, but will have to leave that for another day.
One of the central promises of educational choice is expanding equality of opportunity. When students are assigned to schools based on where they live, access to higher-performing schools depends on a family’s ability to afford a home in a more expensive community. This disparity between higher- and lower-income families persists even in academically high-performing states like Massachusetts.
Though the Bay State consistently ranks among the very top performers on the National Assessment of Educational Progress (NAEP) and is internationally competitive in math and science, these aggregate scores obscure the reality that performance varies considerably across districts, particularly along socio-economic lines.
In wealthier towns and cities like Dover and Weston, where the median household income is $184,646 and $180,815 respectively, students perform well. On the 2013 state assessment (the MCAS), 99 percent of Dover-Sherborn Regional High School students scored ‘proficient’ or ‘advanced’ in math, and 100 percent scored ‘proficient’ or ‘advanced’ in English. Likewise, 97 percent of Weston High School students scored ‘proficient’ or ‘advanced’ in math and 99 percent scored proficient or advanced in English.
By contrast, students from lower-income communities like Chelsea and New Bedford, where the median household income is $43,155 and $37,493 respectively, often do not perform nearly as well. On the most recent MCAS, only 61 percent of Chelsea High School students scored ‘proficient’ or ‘advanced’ in math and 77 percent scored ‘proficient’ or ‘advanced’ in English. So too, only 49 percent of New Bedford High School students scored ‘proficient’ or ‘advanced’ in math, and 76 percent scored ‘proficient’ or ‘advanced’ in English.
This pattern is repeated across the commonwealth – in the 10 poorest cities and towns in Massachusetts, only 40.6 percent of students scored ‘proficient’ or ‘advanced’ on the MCAS score compared to a statewide average of 65.1 percent. In 2013 the percentage of low-income students who scored ‘proficient’ or ‘advanced’ in English or math in all grades was approximately 33 points below the percentage for higher-income students.
One might assume that the differences in performance across income groups reflect disparate funding levels, yet there is scant evidence that increased school resources lead to increased student performance. Indeed, after adjusting for inflation, K-12 spending in the United States has tripled since 1970, but NAEP scores have remained essentially flat.
Wealthier families already have educational choice. They can afford to live in communities with higher-performing schools, like Dover and Weston, or they can send their children to private schools. Since they have the ability to exit, the district schools must be responsive to their children’s needs. By contrast, lower-income families often have only one viable option: the district school to which their children are assigned. They are a captive audience, so their schools become de facto monopolies. And while some low-income families are able to send their children to METCO or charter schools, there are more than 10,000 students on waiting lists for METCO schools and more than 40,000 students on waiting lists for charter schools, demonstrating both the demand for and lack of additional educational options.
Poverty certainly plays a significant role in the varied performance, but high quality studies consistently show that educational choice programs improve academic outcomes for low-income students, often to a greater degree than for higher-income students. While educational choice programs are not a panacea, they are a precondition to ensuring equality of opportunity.
A scholarship tax credit (STC) program tailored to Massachusetts’ needs could expand educational opportunity for thousands of students from low-income families while remaining revenue neutral or even saving the commonwealth money. In a new study, jointly published by Pioneer Institute and Cato Institute, “Giving Kids Credit: Using Scholarship Tax Credits to Increase Educational Opportunity in Massachusetts,” Professor Ken Ardon and I propose a state tax credit worth 90 percent of the amount a corporate or individual taxpayer donates to a qualified scholarship organization. The organization would then use the money to provide scholarships averaging between $4,000 and $4,500 for students whose family income is below 200 percent of the federal poverty line. Families would use the money toward the cost of attending non-public or out-of-district public schools.
Some might question whether scholarships of that size might be useful to low-income families in a state where the average private school tuition is nearly $20,000. However, that figure is skewed by the presence of numerous expensive boarding schools. When reviewing the published private school tuitions in the five poorest of Massachusetts’ 10 largest cities – Springfield, Fall River, New Bedford, Brockton, and Lynn – we found an average tuition of $4,470 for kindergarten, $4,173 for grades 1-5, $4,510 for grades 6-8 and $9,125 for high school. Moreover, those figures do not include all the tuition assistance that private schools already provide to low-income families.
In addition to benefiting low-income students, an STC program produces savings for taxpayers when the amount of money that would have been spent on the scholarship students had they attended a district school exceeds the reduction tax revenue from the tax credits. We estimate that our proposed STC law would save the commonwealth of Massachusetts approximately $41 million in year one and the savings would grow to approximately $222 million by year five.
Few proposals promise to simultaneously expand educational opportunity for low-income students and save money while doing so. Yet this is no pipe dream. There are currently about 200,000 students attending the school of their choice using tax-credit scholarships in more than a dozen states, and the available evidence suggests that these programs are saving money. Though Florida’s STC law is the least likely candidate for savings because it offers a 100 percent tax credit and the most generous scholarships of any state, the Florida legislature’s nonpartisan Office of Program Policy Analysis and Government Accountability estimated that Florida saved $1.44 for every forgone dollar of state tax revenue.
The Constitution of the Commonwealth of Massachusetts declares that the preservation of its citizens rights and liberties depend upon “spreading the opportunities and advantages of education” to all children, no matter their income. An education system that determines a child’s school based on the home her parents can afford fails to achieve the constitution’s vision. True equality of educational opportunity requires breaking the link between education and housing. The proposed scholarship tax credit would move the Commonwealth toward that vision by helping tens of thousands of low-income students attend the school of their choice.
Writing in the Washington Post about the D.C. Circuit’s decision in Halbig v. Burwell, E. J. Dionne Jr. bemoans
a conservative judiciary that will use any argument it can muster to win ideological victories that elude their side in the elected branches of our government.
There are several problems with his argument. First, of course, the argument accepted by two judges on the D.C. Circuit is pretty strong: the IRS can’t rewrite a law just because because the law isn’t working out so well.
Second, it’s not so clear that it’s conservatives who couldn’t “win ideological victories … in the elected branches of our government.” Democrats in Congress and other ACA supporters wanted states to establish exchanges, so they wrote the law with subsidies for state exchanges. (See also this original paper by Michael Cannon and Jonathan Adler, especially pp. 142ff.) But because of widespread opposition to the law, many states chose not to set up exchanges. That is, supporters of the law were unable to “win ideological victories … in the elected branches of our government,” so they turned to the unelected bureaucracy to rewrite the law, and now they want the courts to uphold their end run around the legislative process.
Third, I wonder if E. J. Dionne Jr. really wants a judiciary that rolls over for the political branches, whether legislative or executive. Does he believe that the Warren Court should not have struck down school segregation, which was clearly the will of the people’s elected representatives–and no doubt the people–in Kansas, as well as in South Carolina and Virginia, whose similar cases were combined with Brown? Does he believe that the Supreme Court was wrong to strike down Virginia’s law against interracial marriage in 1967? The Texas law outlawing sodomy in 2003? Does he regret the Supreme Court’s reining in of the Bush administration’s claimed powers in several terrorism cases? Or the court’s 2013 rulings on gay marriage?
Probably not. And that’s why we should judge judicial decisions on the basis of their adherence to the law and the Constitution, not on political grounds. Three cheers for judges who uphold the rule of law without fear or favor and without political intent.
Rail advocates often call me “anti-transit,” probably because it is easier to call people names than to answer rational arguments. I’ve always responded that I’m just against wasteful transit. But looking at the finances and ridership of transit systems around the country, it’s hard not to conclude that all government transit is wasteful transit.
Nationally, after adjusting for inflation, the APTA transit fact book shows that annual taxpayer subsidies to transit operations have grown from $1.6 billion in 1970 to $24.0 billion in 2012, yet per capita ridership among America’s urban residents has declined from 49 to 44 trips per year. A lot of that money ends up going to unionized transit workers, but the scary thing is that these workers have some of the best pension and health care plans in the world that are mostly unfunded–which means that transit subsidies will have to increase in the future even if no one rides it at all.
Capital and maintenance subsidies are nearly as great as operating subsidies, largely due to the industry’s fascination with costly rail transit. In 2012, while taxpayers spent $24 billion subsidizing transit operations, they also spent nearly $10 billion on maintenance, and more than $7 billion on capital improvements. In 2012, 25 percent of operating subsidies went to rail transit, but 56 percent of maintenance and 90 percent of capital improvements were spent on rails.
Who, other than rail contractors, union members, and other transit agency employees, is enjoying the benefits of all of these subsidies? To answer this question, I went to the Census Bureau’s American Community Survey page and downloaded table B08519, which shows how people get to work by income class, for states and metropolitan areas.
Nationwide, the data reveal, 5.0 percent of workers take transit to work. For low-income workers–those making less than $25,000 a year–the share is only slightly higher, at 5.9 percent. The shares are lower for other income classes except for people earning $75,000 a year or more, 6.1 percent of whom take transit to work. Where just under 1.2 million people who earn less than $10,000 take transit, more than 1.3 million people who earn more than $75,000 take transit.
About half of those high-earning transit commuters live in the New York metropolitan area. But this isn’t too surprising, as 40 percent of all American transit commuters live in the New York metro area. The high-income workers who take the most advantage of transit subsidies, relative to their low-income counterparts, seem to be mainly in the suburbs of New York, Chicago, Seattle, Washington DC, and–curiously–Idaho Falls.
Even in most places where low-income transit riders outnumber those who earn more than $75,000 a year, transit usage is not heavily weighted to the poor. In the Portland metro area, about 8.5 percent of low-income workers take transit to work compared with 6.1 percent of all workers. In the San Francisco Bay Area, it is 18.5 percent vs. 16.1 percent. In Tampa-St. Petersburg, it is 2.6 percent vs. 1.2 percent.
I’ve recently looked at data for Pinellas County, Florida, whose transit agency wants to build a $1.5 billion light-rail line. The county has more than 400,000 workers, but only 6,000 take transit to work. Of about 14,000 commuters who live in households with no vehicle, 41 percent drive alone (presumably in borrowed or employer-supplied vehicles), 12.5 percent carpool, and just 15 percent take transit to work.
This is not particularly unusual. In nearly 75 percent of the nation’s 315 largest urban areas, more commuters who live in households that lack a vehicle nevertheless drive alone to work than take transit. Nationwide, 21 percent of commuters who lack an automobile drive alone to work, but in some urban areas it is much higher: 51 percent in Riverside-San Bernardino, 42 percent in Raleigh, 40 percent in Kansas City and San Jose, 39 percent in San Diego, 36 percent in Indianapolis, and 31 percent in Tampa-St. Petersburg to name a few.
Most people believe we originally decided to have government take over transit to help low-income people who were transit-dependent. In fact, Congress first passed the Urban Mass Transit Act of 1964 to rescue commuter trains in New York, Chicago, Philadelphia, Boston, and San Francisco, whose private operators wanted to terminate service. In other words, transit was really a subsidy to big-city downtown property owners, not low-income workers.
Even if you want to help low-income workers, there doesn’t seem to be many left who are truly dependent on transit anymore. Between high rates of auto ownership even among low-income people, the growing use of shared rides, and the soon-to-arrive self-driving car, there doesn’t seem to be much use for transit anymore.
I’ve noted before that urban planning professor David King worries that transit is “not living up to its social contract” of providing “the social benefits of mobility for non-drivers.” This view is affirmed by my friend Wendell Cox in New Geography, not to mention this graph comparing subsidies to different Bay Area transit systems and the race of the patrons of each of those systems.
One reason transit agencies no longer worry about low-income people who lack automobiles is that there aren’t very many of them left. Most non-vehicle households may be that way by choice, not by circumstance. After all, more than 20 percent of no-vehicle households are in New York, a state that has only 6 percent of the nation’s population.
Unfortunately, the census tables don’t show vehicle ownership by income, but even to the extent that some low-income households lack cars, it would cost a lot less to give each one a car than to continue subsidizing transit at the rate we do. Considering that less than 5 percent of the households in many states lack autos, I estimate that no more, and probably far less, than 5 million low-income households are without a motor vehicle. Less than two years’ worth of transit subsidies could buy Nissan Versas or similar cars for all of those people.
So transit isn’t for low-income people anymore. We also know that transit isn’t particularly green: except in New York and a few other big cities, transit uses a lot more energy and emits a lot more pollution, per passenger mile, than driving. Nor, outside of New York, does transit carry enough people to relieve much congestion, especially when you consider that the real congestion problem is poorly priced roads, a problem that isn’t solved by providing transit alternatives.
All of which leads me to conclude that there is no longer any sound reason for giving $41 million in subsidies to transit each year. Transit has become nothing more than a source of political favors to unions, downtown property owners, and rail contractors. As self-driving cars will soon begin to provide mobility for the disabled and those too young or old to drive, it is time for regional planning agencies to stop building obsolete rail transit lines and start thinking about phasing out public transit subsidies over the next two decades.
Numerous responses to my article in the New York Times yesterday about corporate tax inversions indicated a lack of understanding. Related articles by Levin, Johnston, and Huang similarly suggested that further enlightenment is needed.
The following chart should simplify the issue for NYT readers, columnists, and policymakers.
All data from KPMG. Global average is for 134 countries.
Earlier this month UberX, Uber’s rideshare service, launched in four cities in South Carolina. Residents of Charleston, Greenville, Columbia, and Myrtle Beach are free to download Uber’s app and request a ride from a driver using his or her own vehicle. However, police across South Carolina are planning on taking action against UberX drivers, who they believe are violating regulations.
According to the South Carolina Office of Regulatory Staff, Uber is illegally operating in the Palmetto State without state or local business licenses.
The Nerve, a project of the South Carolina Policy Council, reported that police officers in Greenville and Columbia could issue UberX drivers warnings and citations at their discretion.
Myrtle Beach officials claim that Uber is not licensed to work in the city, and Myrtle Beach police have said that they plan to cite UberX drivers for operating without a business license, which Myrtle Beach officials claim each driver needs. Uber believes that it does not need a business license because it is connecting passengers and drivers via its app and not providing rides.
So why doesn’t Uber just get a business license? Taylor Bennett, an Uber spokesperson said they don’t think they need one.
He said Uber is a technology company that connects drivers and riders through an app. Because they don’t actually provide the ride, they say they don’t need a business license.
As for the city’s crackdown, Uber argued the city is limiting competition and hurting residents in the long run.
“What Uber provides is economic opportunity for drivers to make a living, to make some extra cash, to start their own business and to take it away they’re taking jobs away from cities. It’s taking opportunity away from drivers,” Benett [sic] explained.
It’s a shame that police in Myrtle Beach are planning on dedicating time and resources to citing UberX drivers when the city has a violent crime rate that has been historically much higher than the U.S. average. Don’t the police in Myrtle Beach have anything better to do than pursuing drivers willing to give a ride to consenting customers?
In Charleston, police are reportedly planning on sting operations. Undercover police will be handing out warnings to UberX drivers before eventually “handing them citations with a maximum fine of $1,049,” according to The Post and Courier. Uber plans to pay all of the fines issued to UberX drivers.
Similar sting operations targeting ridesharing company Lyft took place earlier this year in Miami.
Uber spokesman Taylor Bennett, who also commented on the news from Myrtle Beach, said that law enforcement discouraging UberX drivers from operating is the same as discouraging entrepreneurship:
“Any effort by law enforcement to discourage drivers from partnering with Uber is the equivalent of discouraging people from pursuing entrepreneurship, making a living, and contributing to the economy,” Bennett said. “Instead of listening to taxi companies complain about competition, authorities should listen to the people of Charleston who have embraced more choice and greater access to opportunity.”
Rather than trying to enforce regulations that cannot keep up with the changes in technology that allow Uber to function South Carolinian officials and police should perhaps concern themselves with actual nefarious behaviors and not passengers using an app to find a driver.
K. William Watson
Thanks to an ad campaign by a U.S. agriculture group, Washington, DC, commuters—especially those who work on Capitol Hill—have been learning about Japan and the Trans-Pacific Partnership. The agribusiness lobby group called “Keep Food Affordable” has covered one DC metro station with ads complaining about Japan’s effort to maintain some of its tariffs in the TPP negotiations.
It’s rare to see public advertising about trade policy. This is true even in the unique DC market where commuters encounter pitches for other strange things like fighter jets, tax reform, and museums dedicated to remembering genocide.
When trade policy does make it into advertising space, it’s almost always bad. Election campaigns and advocacy groups use emotionally charged language to push protectionist policies: ‘China is poisoning us,’ ‘international organizations are stealing our country,’ ‘small town life is fading,’ ‘baby seals are dying,’ etc.
A sad consequence of seeing trade as a battle between “us” and “them” is that trade policies are often sold to the public through a lens of jingoism and xenophobia. For example, the U.S. airline pilots union is campaigning against Norwegian Airlines by pointing out that it—shamelessly—hires employees from multiple countries. Numerous ads during the last election cycle accused opponents of doing things that benefited Chinese people, including one bizarrely racist commercial.
Unlike those ads, the campaign to end Japanese tariffs is pro-trade. Even if it is about foreign protectionism, it is still a call to reduce trade barriers and further the natural course of economic globalization.
Unfortunately, they fall into the same “us vs. them” rhetorical trap as the anti-trade campaigners. As with all agriculture related lobbying, the ads show wholesome, intergenerational, white Americans and allude to the values of family and hard work. They contrast that with “JAPAN”:
It’s worth noting that securing Japanese tariff reductions through the TPP will mean increased business opportunities, while failing to do so merely maintains the status quo—nothing is harming U.S. farmers here. Nevertheless, if you go to their website, you’ll be treated to this ominous image:
Perhaps this campaign will convince congressional staffers who ride the subway to work that Japanese tariff elimination is an important goal in the TPP negotiations, but it will do so at the expense of constructive rhetoric about trade policy.
The truth is that while lowering tariffs in Japan will help U.S. agribusiness, it will do a whole lot more to help the Japanese people. Japanese agriculture has much more political power than it has economic significance. Japan has a thoroughly modern economy and the average Japanese farmer is about 70 years old. High tariffs on rice, wheat, sugar, meat, and dairy imports keep food prices high. Because everyone eats, lowering these tariffs will decrease the cost of living for everyone in Japan, directly increasing their quality of life.
Free trade advocates don’t need to scare people with red-lettered warnings about Japanese farmers cheating the system and ruining American rural family life. On the contrary, there is real potential for civil society groups to work together across borders to advocate for the common interests of U.S. farmers and Japanese consumers. That’s the positive message about trade that Congress desperately needs to hear.
Thanks to Cato Institute trade policy intern Ethan Rutledge for the photos.
Humans are progress seekers. Those with an entrepreneurial drive use their intellect to invent novel solutions to our problems. Sometimes, their solutions alleviate widespread suffering and let us live better than kings of centuries past. Thomson Reuters released just such a list of welfare-enhancing inventions to expect by 2025:
Dementia, Alzheimer’s, cancer drug-induced deaths, and Type I diabetes should afflict far fewer individuals by 2025. See below that cancer–one of the most common causes of death in several countries–is already on the decline (with a graph made on HumanProgress.org):
Solar energy should be in widespread use by 2025. Consider this prediction in combination with dropping carbon dioxide emissions per dollar of GDP and flattening overall emissions in developed countries:
GMOs and lighting advances (for year-round crop growth) should make food shortages and food price fluctuations rare by 2025. We already know that food prices in the United States are dropping as food becomes more abundant:
Digital technology should be ubiquitous–even in Africa–and lightweight electric cars and planes should become more common by 2025. We already know that internet users and air passengers are quickly increasing:
Quantum teleportation (i.e., “Beam me up, Scotty!”) will be tested by 2025. (Unfortunately, HumanProgress.org doesn’t include data on teleportation—yet.)
Patrick J. Michaels and Paul C. "Chip" Knappenberger
Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”
In science,…novelty emerges only with difficulty, manifested by resistance, against a background provided by expectation. Initially, only the anticipated and usual are experienced even under circumstances where the anomaly is later to be observed.
–Thomas Kuhn, The Structure of Scientific Revolutions (1962)
One of global warming’s “novelties” is that satellite measurements show the extent of ice surrounding Antarctica is growing significantly, something not anticipated by our vaunted climate models.
Thomas Kuhn would predict “resistance”, and today we see yet another verification of how stubborn science can be in the face of results don’t comport with the reigning paradigm. The paradigm, in this case, is that our climate models are always right and any counterfactuals are because something is wrong with the data, rather than with the predictions.
“Resistance” means that peer-reviewers aren’t likely to find much wrong with papers that support the paradigm (and that they will find a lot wrong with ones that don’t). Further, the editors of scientific journals will behave the same, curiously avoiding obvious questions.
Perhaps as fine an example as there is of this process appeared June 21 in the journal The Cryosphere, which is published by the European Geosciences Union. It is a paper called “A spurious jump in the satellite record: has Antarctic sea ice expansion been overestimated?”, by Ian Eisenman (Scripps Institution) and two coauthors.
As shown in our figure, the increase in Antarctic ice extent has been quite impressive, especially since approximately 2000.Antarctic ice extent from Cryosphere Today (http://arctic.atmos.uiuc.edu/cryosphere/IMAGES/seaice.anomaly.antarctic.png)
Not so fast. Eisenman et al. write that “much of the expansion [of Antarctic ice] may be a spurious artifact of an error in the processing of satellite observations” [emphasis added].
Wow, that would be really something, knocking down one of the glaring anomalies in global climate, and adding credence to the models. Eisenman et al. note
In recent years there has been substantial interest in the trend in Antarctic sea ice extent…primarly due to the observed asymmetry between increasing ice extent in the Antarctic and rapidly diminishing ice extent in the Arctic (e.g. Cavalieri et al., 1997) and the inability of current models to capture this (e.g. Eisenman et al, 2011).
No doubt working from the premise that the observed increase in Antarctic ice just can’t be right, Eisenman et al. would appear to have finally verified that hypothesis.
Until you look at the numbers.
Then you are left questioning the review process—at all levels—relating to this work.
The key finding is that there was a processing error in the data. Microwave sensors that are used to estimate ice extent (and also lower atmospheric temperature) wear out in the harsh environment of space, and new satellites are launched with fresh equipment. But each one doesn’t send data with the exact same statistical properties, so a succeeding sensor is “calibrated” by comparison with an existing one.
Eisenman et al. found that there was a change in the intercalibration between instruments in December, 1991 when the data were reprocessed in 2007. Apparently this wasn’t immediately obvious because there is so much “noise” in the data.
Indeed, Eisenman et al have located the needle in this haystack, showing the step-change between the two data sets:
Please take a look at the y-axis. You will see that the value of the “step” change is about 0.2 times 106 square kilometers, or 200,000 square kilometers.
Wow, that’s a lot! After all, Eisenman et al. tell us that this shift explains “much” of the increase in Antarctic sea ice.
Hopefully readers caught on before going this far. If the reason that the shift was undetected is because the data is so noisy, how important can it be? Now, have a look at the overall ice extent, shown in our first figure.
The y-axis is in millions of square kilometers. The change since the turn of the century is about 1.3 million square kilometers, a mountain of ice The step change is about 200,000, a molehill. That doesn’t sound like “much” to us.
But, hey, if you don’t look too close—and we are sure are greener friends (or the reviewers) won’t (or didn’t)—you might believe that everything is ok with the reigning, model-based paradigm. In fact there’s “much” that is wrong with it.
As Kuhn wrote, “Only the anticipated and usual are experienced even under circumstances where the anomaly is later to be observed.”
Andrew J. Coulson
Last week Slate published a misinformed piece on Sweden’s school choice program and what we can learn from it. The errors of fact and logic are glaring. Apparently, they don’t have multiple layers of fact checking over there, so I decided to lend a hand and correct the record at Education Next.
Here’s a snippet:
First, [Slate] claims that “more Swedish students go to privately run (and mostly for-profit) schools than in any other developed country on earth.” In fact, neither of these claims is true. Taking the parenthetical claim first, according to the most recent data of which I am aware (from 2012), the majority of Swedish private schools are non-profit (in Swedish, “Ideella”).
As for overall private sector enrollment among industrialized countries, we can consult the OECD, an association of 34 industrialized nations that administers the PISA test:
“On average across OECD countries… 14% of students attend government-dependent [i.e., gov’t-funded] private schools…. In Sweden, the share of students in private schools increased significantly over the past decade from 4% in 2003 to 14% in 2012…. This brings the share of students in private schools close to the OECD average.”
Slate, in other words, is badly mistaken on this point. How badly? Here are the top five industrialized countries by share of private school enrollment, according to the OECD’s 2012 PISA database:Belgium 68.4 Netherlands 67.6 Ireland 58.2 Korea 47.5 UK 45.2
Sweden doesn’t even come close….
Michael F. Cannon
In August 2011, the Internal Revenue Service proposed offering subsidies through health insurance Exchanges established by the federal government, even though the Patient Protection and Affordable Care Act clearly and repeatedly provides those subsidies are available only “through an Exchange established by the State.” Due to the PPACA’s interrelated provisions, the decision to offer unauthorized subsidies in federal Exchanges also triggers unauthorized taxes against millions of individuals and employers in the 36 states that ultimately opted not to establish Exchanges. When the IRS finalized this proposal in May 2012, it cited no authority for its decision to depart from the clear language of federal law.
Today, a panel of the U.S. Court of Appeals for the D.C. Circuit – known as the second-highest court in the land – ruled in Halbig v. Burwell that the Obama administration is indeed imposing taxes and spending funds through those 36 federal Exchanges without statutory authority, and indeed contrary to the plain language of the PPACA.
Simply put, the president is violating the law.
Unlike other courts who have examined Halbig and related cases, the D.C. Circuit looked at the totality of the evidence, reached the only conclusion the law and the evidence permit, and struck down the IRS rule.
The court rejected the seemingly endless string of legal arguments the administration offered in defense of its actions. Despite those arguments, the court held, “the government offers no textual basis…for concluding that a federally-established Exchange is, in fact or legal fiction, established by a state.” As a result, the PPACA “does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges” and the Obama administration’s decision to offer them anyway is not only unauthorized but “gives the individual and employer mandates…broader effect than they would have” if the IRS followed the law.
While the dissent was political, focusing on the plaintiff’s motives, the opinion of the court was authored by Judge Thomas B. Griffith, whom the Washington Post has described as “widely respected by people in both parties, and those who have worked with him elsewhere regard him as a sober lawyer with an open mind. There is considerable reason to think he would make a fine judge.” His nomination to the D.C. Circuit drew praise from prominent Democrats including Seth Waxman and David Kendall. Indeed, then-senator Barack Obama himself supported Griffith’s nomination. Griffith noted that while the court’s ruling could have a significant impact on the PPACA, “high as those stakes are, the principle of legislative supremacy that guides us is higher still.”
The D.C. Circuit applied the law that Congress enacted. Any downstream effects of Halbig are the result of the PPACA itself, not today’s ruling. If those effects are intolerable, then it is up to Congress to change the law, not the IRS. If Halbig results in people losing health-insurance subsidies, the blame lies with a president who recklessly offered millions of Americans tens of billions of dollars in subsidies he had no authority to offer, that could vanish with a single court ruling.
Marian L. Tupy
The Telegraph has an interesting series of short articles about life in Britain at the start of WWI. While all of the articles are worth reading, here are the most interesting parts for those who are interested in comparing standard of living then and now.
Work and leisure
Most Edwardians worked in dark, noisy factories, cut hay in fields, toiled down dirty and dangerous mines; had bones bent by rickets and lungs racked by tuberculosis. Life expectancy then was 49 years for a man and 53 years for a woman, compared with 79 and 82 years today. They lived in back to back tenements or jerry-built terraces, wore cloth caps or bonnets (rather than boaters, bowlers and toppers) and they had never taken a holiday - beyond a day trip to Brighton or Blackpool - in their entire lives.
Mrs Patrick Campbell was invoked in court on the eve of the war to prove that a driver charged with ‘exceeding the motor-car speed limit’ (20mph) was really driving ‘very carefully.’
In the last full year before the war, 2,099 people died on the road (compared with 1,754 in 2012).
In 1910 of the 500 pilots active, 29 died, in half a million miles of flying. Much safer were the 5,800 pilots of 1912, of whom 140 died in 12.5 million miles… present-day aviation fatalities run at one every 1.24 billion miles.
Beyond the average purse, 5lbs for 1s and 2d – they [Jersey potatoes] are a luxury as are fresh peas. To have them you are going to have to economise on other articles of diet.
Alongside reels from Charlie Chaplin and Mary Pickford which delighted the masses came more artistically ambitious fare: from Italy, according to a review published on 11 March, came The Passions of the Renaissance, ‘a masterpiece of cinematography’ which ‘simply enthralls the spectator’, and a ‘startling’ documentary about the British army which featured ‘some very wonderful pictures of bursting shrapnel.’
[One] of the abiding images of the women’s suffragette movement is the arrest of its militant leader Mrs Emmeline Pankhurst as she tried to present a petition to the King at Buckingham Palace in May 1914. She was lifted off her feet in a bear hug by Chief Inspector Rolfe… The day after the Buckingham Palace protest some 60 women appeared at Bow Street and there was utter chaos as they shouted, sang the Marseillaise, threw newspapers and launched a shoe at the magistrate which he neatly caught and passed to an attendant. The Telegraph coverage was headlined ‘Suffragette Orgie [sic], Pandemonium in Court.’
The D.C. Circuit ruled today that the government isn’t Humpty Dumpty and so statutory text doesn’t mean whatever the government says it means. The provision at issue, which grants tax credits for people to buy health insurance, only applies to people buying policies through “exchanges established by the State”–which in any sane world can’t apply to exchanges established by the federal government. The fact that the vast majority of states have declined the federal government’s offer to establish exchanges–the list grows daily as initially supportive states’ exchanges fail–and that the resulting system thus doesn’t function as Obamacare’s supporters hoped is of no moment.
The government would have the IRS and courts rewrite the law to fix its massive structural weaknesses. But neither executive-agency bureaucrats nor judges can change the text of the Affordable Care Act, after-the-fact legal rationalizing notwithstanding. Today’s ruling shows that Obamacare, a cynical political bargain that lacked popular support from day one, simply doesn’t work as conceived. It’s time to repeal this Frankenstein’s monster and instead pass market-based health care reform that lowers costs, expands choice, and increases quality-all while respecting the rule of law.
SHENYANG, CHINA—For the longest time I viewed twitter as, well, a silly waste of time, and refused to use it. I still view it as a silly waste of time in any normal world. But I finally gave in after friends and colleagues told me that it would be a very useful tool. I’m still not convinced, but I have to admit that I’m pleased to see the rise in the number of people following me (@Doug_Bandow) over time.
When I travel somewhere I normally go onto Google, check the news, and comment on current stories. After arriving in the People’s Republic of China (PRC) I logged in and plugged in Google. Which wouldn’t come up. So tried it again. And nothing.
Then the light went on. Of course. The Beijing authorities set up a Chinese version since they didn’t want their people to be able to access articles on forbidden topics. Of course, I thought, I could still make comments on Twitter about my visit. But when I tried to load Twitter and the same thing happened. Another bulb lit up. Of course: the PRC has set up its own system (Weibo) because people say bad things about China—its policies and leaders—on Twitter. So that service can’t be allowed.
It really makes one appreciate living in a free society.
But perhaps the most stunning aspect of China, which it takes a while to recognize, is the dearth of children and almost complete absence of siblings. There are a lot of people here. If you don’t like crowds, forget visiting Chinese cities.
However, for years the PRC has enforced, with various degrees of ruthlessness, the “one child” policy. Most families have one kid. Since rural, farming families tended to value boys for their labor, the policy led to infanticide with the killing of female babies. In part because of the latter, in recent years the government has relaxed the rules at the margin.
The result is a very odd national demographic. There are, for instance, too many men, many of whom won’t be able to find a wife. That will result in potential social dynamite. Moreover, the aging of the society will be extreme, far worse than in America and Europe. Some analysts speak of China growing old before it grows rich.
The economic, social, and political consequences will be huge. But the visual impact is more dramatic for the average visitor. No parents carrying a baby and holding a toddler by the hand. No harried mom or dad trying to keep up with a couple hyper-charged boys. No travelers attempting to guide a couple of young children onto the plane while holding an infant and stowing a baby carriage.
As for the college students I often deal with, there are none of the joys or frustrations of siblings. They will have no nieces or nephews. There will be no networks of cousins. The contrast with America is obvious enough. The contrast with more traditional societies with very tight networks of extended families is even greater.
It’s another reason to appreciate living in a nation where people are generally left free to make personal decisions.
The PRC is a fascinating place, a complicated civilization with a venerable heritage in rapid transition to somewhere, and no one is quite sure where. But while China has shown how market liberalization creates growth and empowers the poor, it also demonstrates how market liberalization is not enough to create a free society. Hopefully some day the Chinese people will be truly free.
Michael F. Cannon
Today at DarwinsFool.com, I released estimates of the impact of a potential ruling for the plaintiffs in Halbig v. Burwell, one of four cases currently before federal courts claiming that the subsidies and taxes the IRS is implementing in the 36 states with health-insurance Exchanges established by the federal government are illegal. The Patient Protection and Affordable Care Act repeatedly says those taxes and subsidies are authorized only “through an Exchange established by the State.”
Left-leaning groups and media outlets that defend the IRS are attempting to portray a potential ruling for the Halbig plaintiffs as catastrophic, because it would put an end to the subsidies roughly 5 million individuals enrolled in federal Exchanges are currently receiving. As I explain in detail, those commenters ignore three crucial facts. One, a victory for the Halbig plaintiffs would increase no one’s premiums. It would merely stop the IRS from unlawfully shifting the cost of those overly expensive PPACA premiums from enrollees to taxpayers. Two, if federal-Exchange enrollees lose subsidies, it is because the courts will have found those subsidies are, and always were, illegal. And three, if the Halbig plaintiffs prevail, the winners in the 36 states with federal Exchanges would outnumber the losers by more than ten to one.
As I explain at Darwin’s Fool, here is what the IRS’s defenders don’t want you to know about the impact of a potential Halbig victory.
- A Halbig victory would free more than 8.3 million individuals from the PPACA’s individual mandate. That’s how many people in those 36 states the IRS is currently subjecting to the individual-mandate tax without statutory authorization.
- In the 36 states with federal Exchanges, a Halbig victory would free 250,000 firms and 57 million employees from the PPACA’s employer mandate. That’s how many people the IRS is unlawfully subjecting to the employer mandate.
- The number of winners under a Halbig victory is therefore more than ten times larger than the 5 million people who would lose an illegal subsidy.
- Those 5 million people are “losers” not because they were deprived of an illegal subsidy. Regardless of one’s position on the PPACA, we can all agree that courts should put an end to illegal government spending whenever they can. Those people are “losers” because the Obama administration recklessly induced them to purchase overly expensive Exchange coverage with the promise of billions of dollars in subsidies that it has has no authority to offer, and that could disappear with a single court ruling.
I also provide state-level estimates of the number of firms and individuals Halbig would free from these mandates. For example:
- A Halbig victory would free nearly 1 million Floridians from the individual mandate, and more than 16,000 firms and 5.1 million Floridians from the employer mandate.
- It would free more than 1.5 million Texans from the individual mandate, and free more than 24,000 firms and nearly 7 million Texans from the employer mandate.
- A Halbig victory would also enable the 14 states (plus D.C.) that established Exchanges to exempt residents and employers from those mandates by switching to a federal Exchange, as well as create political and economic incentives for states to make the switch.
- If the Halbig plaintiffs prevail, the 14 establishing states (plus D.C.) could cumulatively exempt 3.8 million residents from the individual mandate and exempt 123,000 firms and nearly 29 million residents from the employer mandate.
- California, for example, could exempt 1.7 million residents from the individual mandate, and exempt 32,000 firms and 9.4 million workers from the employer mandate.
- Though those states would lose Exchange subsidies if they switched to a federal Exchange, the much larger number of firms and residents who would benefit could still pressure state officials to make the switch.
- These states could also experience economic pressure to switch to a federal Exchange, because the employer mandate (which increases the cost of doing business) will be operative in their states but not in states that opt for a federal Exchange. Establishing states could therefore lose jobs to federal-Exchange states, unless they become federal-Exchange states themselves.
Click here for state-by-state data on the impact (or potential impact) of a Halbig ruling.