Tag Archives: political economy

Tax Credits in the Obamacare Replacement Proposal

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In the main, I’m opposed to these on a couple of grounds.  One is that it’s just more welfare; we need to find a way to move folks off welfare and into the labor force and jobs rather than keeping them trapped in the welfare cage—like we did when we originally reformed the food stamps program by requiring recipients to get a job or lose the stamps.  That reform not only reduced overall unemployment, it put recipients back into jobs (and off that welfare program).  These weren’t make-work jobs, either; net prosperity for those recipient families increased.  (Then the Obama administration withdrew the work requirement, and we got record numbers of folks back on food stamps).

The (refundable) tax credits are just more of this sort of subsidy, just in the form of a tax credit rather than a direct payment, like most subsidies are.

The other is that the tax credits won’t encourage health coverage providers to lower their rates and deductible requirements.  Quite the opposite, the credits would prop up those costs by allowing the providers to put a commensurate fraction of their charges onto the taxpayer: the credits would be used by the providers to make up the difference between what the coverage purchaser pays and what the provider charges.

On the other hand, the tax credits would approach acceptability under a couple of conditions: if the credits decline year-on-year to a final value of zero over some number of years, say, two or three; or the credits are sunsetted and disappear after some number of years, say two or three.  Or a combination of the two.

With those conditions, and with the understanding that both individual and State budgets need time to adjust, a disappearing tax credit, by providing that adjustment time, could become acceptable.

Sanctuary Cities and Federal Funding

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San Francisco asked a federal judge Wednesday to block President Trump’s order threatening to strip federal funds from so-called sanctuary cities that bar police from enforcing immigration laws.

This suit has a good chance of succeeding.  In 1987’s South Dakota v Dole, the Supreme Court ruled (in a dispute over the State’s minimum drinking age and Federal highway funds transfers to the State) that the Federal government cannot withhold already agreed Federal funds from a State in order to coerce State acquiescence with Federal wishes.  Funds can be withheld to “persuade,” but the withheld funds must be related to the question at hand rather than a blanket withholding, and the amount withheld cannot be coercive in its size, but only persuasive.  Without naming a threshold for the amount, the Court held that the 5% withholding imposed by the Federal government was not coercive.

Right or wrong, that’s the law of the land as things stand.  Congress and the President will have to statutorily overrule the Supreme Court to enable such a broad withholding of Federal funds from San Francisco.

On the other hand, stopping sending all Federal funds to all cities altogether would bypass the Court’s ruling (although legislation still would be necessary to stop completely the funds transfers).  In the end, we have to ask why the citizens of Illinois, for instance, should have to pay any part of, let’s say, San Francisco’s expenses at all.

It’s true enough that we’re all in this republican democracy nation of ours together, and so we support each other.  But that mutual support includes cities like San Francisco not creating themselves as burdens on the rest of our nation with its irresponsible, profligate spending while demanding OPM to pay for that spending.

Misguided

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In light of whose DoJ it’s been doing this most recently, it’s easy to say it was nefarious.  But the whole thing could be eliminated with either of a couple of steps and a change in underlying procedure.

What is “it?”  It’s a secret (or merely secretive) slush fund fed by settlement proceeds from DoJ civil suits against large banks.

When big banks are sued by the government for discrimination or mortgage abuse, they can settle the cases by donating to third-party non-victims. The settlements do not specify how these third-party groups could use the windfall.

So far, investigators have accounted for $3 billion paid to “non-victim entities.”

Those third-party non-victims, under the Obama administration, were grassroots activist organizations favored by the Obama crowd.  These organizations consisted of the National Council of La Raza, the National Community Reinvestment Coalition, the National Urban League, and the like.

That arouses suspicion.  As Ted Frank, Competitive Enterprise Institute’s Director of the Center for Class Action Fairness, put it,

The underlying problem with the slush funds is we don’t know exactly where the money is going. Using enforcement authority to go after corporate defendants, DoJ bureaucrats are taking billions away from taxpayers to fund their pet projects overriding congressional preferences.

It’s bad enough that the money is going to those favored groups—directly to them and not going through DoJ or Treasury enroute—but as Frank noted, it’s taxpayer monies once the banks have paid the settlements, whether these were legitimate settlements or coerced ones.

It also turns out that much of the funding of the slush funds are “voluntary” extra payments, “encouraged” by DoJ.  Except that when DoJ is holding a lawsuit over the banks’ heads, there’s very little voluntary about acceding to “encouragement.”

The better solution is one of two: pay the money exclusively to the Treasury Department for the use of the Federal government.  That, though, leaves in place incentives for DoJ to browbeat the banks rather than seek justice for those the banks have been alleged to be cheating.  The better alternative, then, is for the banks to pay the money directly to the alleged victims.

The change in underlying procedure—the best solution—is for DoJ to stop being spring-loaded to settling.  If they have a case, bring it to court, and push the pace on it (the banks should do this, too; neither side should be allowed to stall the other).  If DoJ isn’t ready to bring the case, it should drop it altogether.  The settlements, even well-intended ones, just look like lawfare extortion.

Who Should Control American Foreign Policy?

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One answer is indicated by the Trump administration’s de-emphasis of the World Trade Organization as the primary arbiter of our international trade policy.  A draft policy document, if the leak of it is a legitimate one, and if it’s being accurately described in the NLMSM might represent a promising start.

The Trump administration is developing a national trade policy that would seek to diminish the influence of the World Trade Organization in the US and champion American law as a way to take on trading partners it blames for unfair practices, according to a draft document reviewed by The Wall Street Journal.

The policy…represents a dramatic departure from the Obama administration, which emphasized international economic rules and the authority of the WTO, a body that regulates trade and resolves disputes among its members.

A welcome departure it is, too.  The WTO, and other international organizations, have important roles in our foreign policy, but those roles have been badly overemphasized over the last too many years.  American foreign policy, American national policy, must be our national policy and no one else’s.

The Trump administration just has to be careful not to go too far in the other direction.

A Bank Gets One Right

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The city of Seattle, WA, is upset with Wells Fargo because the bank is a lender to the Dakota Access Pipeline project.  They’re so upset, in fact, that they’ve advised Wells that Seattle won’t renew its financial services contract with the bank when it expires at the end of next year.

Phillip Smith, Executive Vice President and Head of Government and Institutional Banking at Wells Fargo, isn’t worried, though.  He responded to the city via letter, saying that

if the city really wants out, the bank will sever its contract with the city immediately, with no penalty, and will help the city find a replacement[.]

I agree with Wells.  Seattle shouldn’t let the door hit it in the fanny on the way out.

The outcome likely will be more expensive for Seattle, though: Wells won the financing contract (nearly 20 years ago; what won’t be renewed is the latest 6-yr installment) by competitive bid.  That means any replacement bank probably will cost the city, which is to say the good residents of the city, more.