Category Archives: markets

Appellate Court En Banc Hearings

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The DC Circuit a short time ago held in Halbig v Burwell that Federal regulations regarding Federal health plan exchanges violate Obamacare’s plain language: Federal subsidies, contrary to those regulations, are available only to health plan holders who got their plans through State-run health plan exchanges.

Adam White, in a recent Wall Street Journal piece in the context of that ruling and the Federal government’s subsequent appeal to the DC Circuit to rehear the case en banc, noted a couple of things.

One is how rare en banc (re)hearings are, especially for the DC Circuit:

The DC Circuit rehears virtually none of its cases. Each year the court’s three-judge panels make roughly 500 rulings, but the court averages roughly one en banc rehearing. This year has produced a bumper crop: two. The previous year: zero.

Then he got into why this is so.

…the court’s high standard, found in the Federal Rules of Appellate Procedure: en banc rehearing “is not favored and ordinarily will not be ordered” unless the case satisfies one of two standards. First, an en banc rehearing may be needed to “secure or maintain uniformity of the court’s decisions.” A three-judge panel is not allowed to overrule old precedents, even when precedents are in conflict; only the full court can do so, en banc.

Second, en banc rehearing is appropriate for what the federal appellate rules call cases of “exceptional importance.” For the DC Circuit, this standard has been met almost exclusively by cases raising serious constitutional issues. Over the past decade seven of the nine cases reheard en banc raised difficult questions of constitutional law, such as the rights of Guantanamo detainees or of terminally ill patients.

Cases that will substantially affect the court’s own workings also can be deemed of “exceptional importance.” In 2011, the court sat en banc to decide whether taxpayers could file lawsuits challenging IRS procedures for obtaining tax refunds.

Halbig was a straightforward application of the Obamacare law as it was written. That the 4th Circuit saw this differently isn’t relevant; the DC Circuit can only rehear its own cases, not those of sister appellate courts. There’s no precedent conflict here. Some might argue that the question has Constitutional significance, and I’d agree with them. However, neither set of litigants raised any sort of Constitutional question, and the case and the ruling turned on the law itself. There’s no Constitutional controversy here, either.

What about the case’s “exceptional importance?” Judge Harry Edwards, who dissented in Halbig, wrote this in a 1987 case [Edwards’ emphasis]:

[N]o judge agrees with all of the decisions handed down in the circuit….” But if each judge called for en banc rehearing simply to overturn a panel decision with which he personally disagrees, it would do “substantial violence to the collegiality that is indispensable to judicial decision-making.” Rather, en banc review must be reserved for “the rarest of circumstances… [with] real significance to the legal process.”

In the context ofHalbig, it’ll be instructive to see whether the DC Circuit’s newly appointed judges are appellate judges who happen to be Democrats or whether they are Democrats who happen to be appellate judges.

Another Government Overreach

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In a recent op-ed piece, The Wall Street Journal correctly decried the Financial Industry Regulatory Authority’s CARDS program. This program, cynically named “Comprehensive Automated Risk Data System,” is a program that wants to require all of our brokerage houses to report to FINRA massive amounts of data concerning our investment accounts, including what we’re doing in (with?) those accounts.

The op-ed correctly objected to CARDS’ massive collection of data, saying

FINRA says the ocean of data will help it spot a problem almost in real time, far earlier than if it showed up during a regular examination. …

But the financial crisis showed that more data doesn’t guarantee that regulators will know what to do with the information, and it’s as likely the data flood will overwhelm FINRA.

 

But the WSJ missed a far larger problem with CARDS (and with FINRA generally). The piece cited FINRA’s Chairman and CEO Richard Ketchum’s statement about CARDS’ purpose:

CARDS will allow us to collect and manage data from firms in such a way that we can quickly identify trends and product concentrations that are harmful to investors and take swift, responsive action.

Whose definition of “product concentrations that are harmful?” Why, Big Government’s, of course. This is the real danger of this sort of program: government usurping the free market’s role—and so, deprecating the market—in determining what is harmful. This simply makes the definition of “harmful” a political one, rather than a legitimate one.

Paul Ryan’s Expanding Opportunity in America

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House Budget Committee Chairman Paul Ryan’s “Expanding Opportunity in America” proposal can be seen in full here. I’ll only comment on parts of it in this post.

On the 50th anniversary of the War on Poverty, then, we should reexamine the federal government’s role. For too long, the federal government has tried to supplant, and not to support, the people fighting poverty on the front lines—families, neighborhoods, community groups. In the fight against poverty, the people ultimately are the vanguard, and government is the rearguard. Government protects the supply lines. But it is the people themselves who take to the front lines.

A major part of his proposal is his Opportunity Grant Pilot-Project

[T]his proposal [The Opportunity Grant Pilot-Project] would create a new pilot project in a select number of states. In participating states, the federal government would consolidate a number of means-tested programs into a new Opportunity Grant (OG) program. The largest contributions would come from SNAP, TANF, child-care, and housing-assistance programs, and the funding would be deficit-neutral relative to current law.

It is important to note that this is not a budget-cutting exercise—this is a reform proposal. This consolidation does not make judgments about an optimal level of spending. Instead, this proposal is concerned with our ability to use resources effectively and to find out what works. It allows the federal government to leverage its strengths—vast resources—while also allowing states, localities, and communities to leverage theirs—deep knowledge of their population and the unique challenges they face. Therefore, this proposal seeks to create the space and flexibility necessary for local, state, and federal government to add value without making judgments about the right level of spending.

OG Funding Stream

  • Consolidates several means-tested programs into a new Opportunity Grant program.

  • Each participating state gets the same amount of funding they receive from the programs listed in Appendix I.

  • The proposal is deficit-neutral relative to current law.

  • Within the Opportunity Grant, states would have flexibility in accommodating housing-aid recipients, the elderly, and the disabled—either by maintaining the current programs or dedicating the same amount of resources to them in the new program.

He offers, though, few ideas on how this program would eliminate the welfare tax cliff he mentions and that’s also described here. “Sign a contract:”

Providers must be held accountable, and so should recipients. Each beneficiary will sign a contract with consequences for failing to meet the agreed-upon benchmarks. At the same time, there should also be incentives for people to go to work. Under each life plan, if the individual meets the benchmarks ahead of schedule, then he or she could be rewarded. For example, if the goal of an individual’s plan is to find a job within six months, and he or she starts working within three months, he or she could receive a bonus. Bonuses could take a number of creative forms, such as a savings bond.

He offers no examples of how this might work; he relies solely on the hope that State experimentation will suffice. This isn’t all bad, if only for the admission that the Federal government has no solutions—and that’s the point of his entire proposal. It’s also not a forlorn hope: State experimentation is necessary; it’s there that the answers will be developed.

Of course the Progressives in government will not like this plan: it encourages people to see to their own ends, it enables them to become responsible, independent, contributing citizens, and it will end their dependency on the welfare handouts of Progressives—it will reduce the need for those whose jobs, political or bureaucratic, depend on being able to provide welfare handouts.

Regarding Ryan’s Earned Income Tax Credit expansion, I confess to misgivings here, too, although Ryan’s proposal makes sense as a first cut. I’ve never been enamored of this; it’s hard to see how the welfare cliff from losing the credit in return for advancing in work isn’t a discouragement from finding advancement in work. However,

The consensus among independent economists is that in most cases the EITC makes low-income families more likely to work by increasing work’s rewards. CBO also finds that it encourages households to enter the labor force.

EITCGraphRyan’s proposal is simply to expand EITC eligibility to younger workers and to childless single and married parents (not to raise the upper income bound for eligibility), and to pay for that expansion with spending cuts—real cuts—elsewhere in the budget.

Running the numbers seems to mitigate the other part of this: that discouragement from advancement through the reduction in EITC subsidy that results. A married couple, one child family, for instance, making $25,000/yr gets roughly $3,500 in EITC for total income of $28,500. Were that family gets a wage increase to $30k, EITC falls to a rough $3k for total income of $33k. Thus, the family would keep $4.5k of that total income increase; the drop in EITC would constitute only a 10% “tax” on that raise.

Federal criminal justice system

Ryan’s proposal here centers on sentencing and prison reform, and this is good. A couple things are lacking, though, regarding sentencing. One specific sentencing reform that would be valuable—and that would dovetail nicely with his jobs training proposal—regards nonviolent criminal sentencing. This should center on community service, but not just any service: the criminal’s time here should be in a service that also teaches the man a marketable skill, so that when he’s finished paying his debt for his crime, he’s not only a free man again, he has the means with which to earn his way through life, rather than (be forced to) resume stealing it.

The other reform here will be much harder to achieve, and in truth it’s outside the scope of a budget proposal. We have too many Federal laws on the books, and in particular, we have too many Federal criminal laws. These need to be culled.

In the end, there’s much not to like in Ryan’s proposal—it’s deficit neutral, for instance; it by design leaves spending and taxing alone—but there’s also much to like. Progressives in government won’t like it, either. It reduces the Federal government’s role in our economy and in our individual lives, and from that it reduces those Progressives’ raison d’être.

The largest likability, and this alone is a deal maker, is that it’s a net improvement over the existing welfare régime: it takes control over welfare away from the Federal government, which for all its good intentions is too remote and too slow to respond to changing conditions, and puts welfare in the hands of those closest to the particular welfare needs: the State governments and local agencies.

Ryan’s proposal does this—another strong likability—by reallocating existing spending into consolidated block grants and shipping those to the States. The strings attached to these grants—and I’m of mixed minds regarding any Federal stringing—are minimal and centered on satisfying a Federal agency (primarily HHS and Education) that a State’s plans for the grants are suitable to the task.

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Finally, we also must be mindful of two things: the first is that better is the enemy of good enough. This plan is good enough, for today. This plan is good enough as a first step.

The other thing is a direct follow-on to the first: welfare reform—nothing in politics—is a once and done affair. Most discussions of welfare reform, tax reform, spending reform, what-have-you reform only look at a specific proposal as though it’s entire in itself and nothing more need be done, or rejected. It’s not good enough now, so toss it and start over.

This plan is not fully grown or perfect, either. But it’s good enough for now. It’s good enough (since passage in 2014 is unlikely) for next year, and that year’s status as the first year of the 114th Congress. Pass it, knowing that the work isn’t done and knowing that the work can be improved. Then come back the following year, the second year of that Congress and correct the defects that will have become apparent by then, and add to the plan additional, de novo, changes as the experimental results come in, as experience suggests new ideas. Then in each of the sessions of the 115th Congress, do it again. And again in the 116th. And so on.

Define “Fair”

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Some think the mortgage interest deduction from our income taxes is unfair. After all, says one such,

I can easily construct a situation in which a taxpayer essentially enjoys no [mortgage related] tax benefits whatsoever. How about the single individual or possibly a married couple without children, who make just enough to make ends meet but still cannot save to buy a house? Or possibly, they prefer renting to the onerous commitment of home ownership. There doesn’t appear to be any tax breaks for them.

Although this person offers no definition of “fair” whatsoever, she seems to think that “fair” means everyone gets the same benefit, even though by her own construction, they’re not in the same situation as those who’ve “earned” that benefit. Because, equal outcomes.

One gets this grade on an assignment, another gets that grade, that’s unfair? One gets a first place prize in a contest and another doesn’t, that’s unfair? One earns more money than another, that’s unfair? One has a more fortunate endowment of work ethic, talent, luck, than another, that’s unfair? One made better use of his equal opportunity and so becomes better off than another, that’s unfair? How, exactly?

Of course, this particular question easily could be begged with a proper reform of our tax code, a reform that brings us to a single flat rate with no deductions, credits, etc. What is truly unfair is using our tax code for social and economic engineering and thereby picking winners and losers by government fiat rather than by actual performance and merit.

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Keep in mind that the sole purpose of taxes under our Constitution is to fund the government, not to control how free men interact with each other in a free market, not to say, “This is a worthy enterprise, but that is not.”

The Wrong Question

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Jim Angle, of Fox News, usually does better than this.

“Right now the savings that was projected to pay for all this spending [on Obamacare] is not being collected as originally projected,” said Charles Blahous, of the Mercatus Center. He estimated the law will eventually cost $200 billion a year by 2020.

And

“There was about $100 billion that was supposed to come in over the next 10 years from penalties on individuals, if they did not carry health insurance, penalties on employers, if they do not offer health insurance, and to date, those penalties have not been enforced,” Blahous said.

The law also counted on more than $700 billion in cuts to Medicare, including up to $150 billion in cuts to Medicare Advantage, but the president set those aside at the behest of Senate Democrats who feared angering seniors in an election year.

It’s gotten so bad that the CBO will no longer do estimates on Obamacare’s costs, Angle cites American Enterprise Institute’s Joe Antos as saying.

But then Angle goes astray:

The changes, and the overall uncertainty regarding the price tag, are raising concerns about whether the law even has enough revenue coming in to pay for the program.

This is the wrong question. The delays and alterations illustrated above show the essential capriciousness of any government effort—not just the present administration’s effort; this one is only the most active—at emulating a private business arrangement. This law shouldn’t have any revenue coming in to pay for it. This should be a private enterprise matter, with private enterprise raising the money for its private enterprise endeavor—or the endeavor fails, because the free market—American citizen participants—don’t want it. The law shouldn’t exist.