Click on WORD or PDF for full content
Richard Epstein explains Virginia’s win against Obamacare.
…The key successful move for Virginia was that it found a way to sidestep the well known 1942 decision of the Supreme Court in Wickard v. Filburn, which held in effect that the power to regulate commerce among the several states extended to decisions of farmers to feed their own grain to their own cows. Wickard does not pass the laugh test if the issue is whether it bears any fidelity to the original constitutional design. It was put into place for the rather ignoble purpose to make sure that the federally sponsored cartel arrangements for agriculture could be properly administered.
At this point, no District Court judge dare turn his back on the ignoble and unprincipled decision in Wickard. But Virginia did not ask for radical therapy. It rather insisted that “all” Wickard stands for is the proposition that if a farmer decides to grow wheat, he cannot feed it to his own cows if a law of Congress says otherwise. It does not say that the farmer must grow wheat in order that the federal government will have something to regulate.
It is just that line that controls this case. The opponents of the individual mandate say that they do not have to purchase insurance against their will. The federal government may regulate how people participate in the market, but it cannot make them participate in the market. For if it could be done in this case it could be done in all others. …
The WSJ editors crafted an excellent editorial on individual mandate that is well worth reading.
…Moreover, Judge Hudson says that no court has ever “extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market.”
…While Judge Hudson’s ruling is the first to declare part of the law unconstitutional, more than 20 state attorneys general and the National Federation of Independent Business are also suing in Florida. Oral arguments will be heard on Thursday in that case, which we think is the strongest constitutional challenge to the law.
As the Virginia case shows, ObamaCare really does stretch the Commerce Clause to the breaking point. The core issue is whether the federal government can order individuals to do anything the political class decides it wants them to do. The stakes couldn’t be higher for our constitutional order.
David Goldman says get out of municipal bonds and bank equities while you still can.
I’ve been warning for months that a few state and municipal bankruptcies (actually, a few states and a great many city bankruptcies) will be required to slay the beast of government-union pension liabilities. The total size of the muni bond market is about $2.4 trillion. Unfunded pension liabilities (calculated with a realistic discount rate) are almost as high, according to one study. Now comes James Pethokoukis of Reuters to tell us of a “secret GOP plan” to bankrupt local governments and crush the government unions.
…That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”…
I’m not going to trade in Capitol Hill rumors, but whether there is a secret plan or not, the US federal government is in the same position that Germany is with respect to Greece — the creditors (in this case public employee pensions) have to take a massive haircut for the numbers to add up. The delayed effect of the real estate collapse (which is still getting worse) is going to hit local revenues next year due to massive downward adjustment in tax assessments. …
…It’s cities, not states, that live off real estate taxes. Local government was riding the real estate boom along with everyone else but it takes a couple of years for the price collapse to work its way through tax assessments. What’s going to happen is two, three, many Harrisburg bankruptcies. The cities will collapse and the states will push them over the edge (like NY State with NYC in 1974). They’ll make a horrible example of a couple of states — California and Illinois — others will hold the line as the cities go down like ninepins
…There’s a limit to how far they can take this: Banks and insurance companies together have about $700 billion of munis. You can wipe out mom and pop (did so already with the auction securities market) but a 40% haircut would take out about $300 billion of financial institutions’ capital — not pretty. And that’s not to mention the spillover effect on other markets. That’s yet another reason not to own the banks’ common equity. …
In the Financial Times, Christopher Caldwell thinks that the tax deal does not bode well for the US.
…This week’s debate is the latest, and maybe the last, chapter in a woeful deterioration of US budgetary politics. Democrats and Republicans used to understand that tax receipts must equal outlays, and they argued over priorities. For a while after Ronald Reagan, the argument shifted to the size of government, with Republicans arguing for smaller budgets and Democrats for larger ones. But in the decade of George W. Bush, it all changed. Republicans argued for ever-lower taxes, and often had the power to push them through. Both parties agreed on ever-higher spending. This week Mr Obama took a slightly different tack, larding more tax cuts on to the ones he professed to dislike, but the fiscal effect is the same: a social-democratic government on an anarchist budget, with deficits of more than 10 per cent of gross domestic product and a government that pays for 40 per cent of operating expenses by borrowing.
This is evidence of some failure of national character. Perhaps the American moral imagination has been poisoned by those old Hollywood movies about virtuous underdogs, in which the hero’s interests and his principles always point uncomplicatedly in the same direction, and making things easier for oneself is always the right thing to do. Perhaps the failing is an inability to draw boundaries and give straight answers. Everything is provisional in American politics. Republicans, who warned two months ago that “uncertainty” about taxes made it hard for businesses to hire, have happily signed on to a plan that extends that uncertainty for another two years. The two parties have connived to kick every single difficult budget decision down the road. They have collaborated only to give away money. If this were part one of a larger plan to get the country’s fiscal house in order, it might be welcomed. But it is an exercise in wishful thinking. It damps hopes that America can reform before the markets bring it to heel.
The trap that Mr Obama’s angry partisans espy is that events will impose some serious gesture of deficit reduction on the new Congress. There are two ways to balance budgets: Democrats would prefer to assess government’s responsibilities, and then raise taxes to fund them. Republicans would rather measure government revenues, and then slash programmes those revenues do not cover. Mr Obama’s short-term deal makes it more likely that the long-term equilibration of income and outgoings will be done on Republican terms. …
Here’s an ugly collusion: big government, big business, and big unions. Gary Jason, in the American Thinker, explains how the taxpayers and GM’s creditors got screwed in the GM deal.
…First is the news that the “new” GM walked away from the crony bankruptcy proceedings with a huge tax break — one worth up to $45 billion. It was revealed in the paperwork filed for its IPO that the Obama administration gave the new GM a sweetheart deal: it will be allowed to carry forward huge losses incurred by the “old” GM prior to its bankruptcy. Of course, the IRS doesn’t allow the new companies that emerge from bankruptcy to write off their old losses. But the feds decided to waive that rule for companies bailed out by TARP.
Thus, the new GM will save about $45.4 billion in taxes on future earnings, which may allow it to escape taxes for the next twenty years. …
…The UAW was given a big chunk of new GM in the crooked bankruptcy settlement. To be precise, the very monster that drove GM off the cliff — the UAW — received 35% of the stock in the new company. With the sale of the stock in the new GM, the UAW earned an immediate $3.4 billion in selling about one third of its shares.
…In fact, the Obama administration screwed the taxpayer just as thoroughly as it pampered the UAW. The taxpayer put $49.5 billion into GM in the bankruptcy, not to mention all the funds shoveled at the company prior to that. The Treasury recouped only a wretched $13.7 billion in the IPO, mainly because the Obama administration — in yet another unprecedented gift to the union — announced publicly that it would not sell any more stock for the next six months. This enables the UAW to dump its shares whenever it wants at a much higher price than it could get if the Treasury were also selling. The taxpayers will almost certainly get a lower payout, and they will never recoup their forced investment in these dinosaurs — all to enable the UAW to walk away made whole.
…The Obama administration car czar, who engineered the crony bankruptcy — the aptly named Steve Rattner — claims that the secured creditors would have received nothing in a standard bankruptcy anyway. But his claim is ludicrous on its face: in a regular bankruptcy, the union contracts that caused GM’s and Chrysler’s failure would have been nullified, and the substantial assets of the companies (plants, inventory, receivables, land, patents, etc.) would have been worth a substantial amount to other automakers and investment companies. The proceeds would have gone to satisfy the bondholders at least to a fair degree. …
We have more from the WSJ editors, this time on the ethanol subsidy boondoggle.
…The public choice school of economics describes how the government and special interests collude against the public good, and it’s hard to think of a better model than the ethanol industry. Despite opposition from an emerging left-right anti-boondoggle coalition, the Senate version of the White House-GOP tax deal preserves the corn fuel’s multiple subsidies. …
…Direct subsidies and trade protectionism, plus mandates that force consumers to buy ethanol: This is the trifecta of government support, and all for an industry that is 30 years old and that even Al Gore now admits serves none of its advertised environmental purposes.
The ethanol extension is the bipartisan handiwork of Iowa Senators Chuck Grassley and Tom Harkin, who both regularly abandon their professed principles (fiscal conservatism for the Republican and equity for the Democrat) in the service of agribusiness. …
Peter Suderman comments on how the politicians and the people they’ve been paying off are still controlling the ethanol money.
As CEI’s Brian McGraw points out, ethanol subsidies are opposed by just about everyone: researchers, environmental activists, free market wonks, and newspaper editorial writers across the ideological spectrum. Even Al Gore has come out against them.
I say “just about” everyone because of course the ethanol lobby and the farmers it serves still favor keeping the subsidies in place.
Naturally, the current plan is to extend them for another year. …
In the National Review, Robert Bryce has more on unsustainable fuels. Or fuels that can only be sustained with your tax dollars.
…But the ethanol producers, as usual, can’t get enough of your money, and they are working hard to assure that the fat subsidies (which now total about $7 billion per year) keep flowing. Last month, their main lobby groups — the Renewable Fuels Association, Growth Energy, and the American Coalition for Ethanol — sent a letter to congressional leaders telling them that ethanol has been “uniquely successful in reducing our dependence on foreign, imported oil.” They urged Congress to pass legislation extending the tax credit before the end of the year.
..While oil imports are increasing and the ethanol industry is producing too much ethanol, the wind-energy sector is being garroted by that dastardly opponent of renewable energy: competitive markets. In late October, the American Wind Energy Association announced that through the first three quarters, just 1,600 megawatts of new wind capacity was installed in the U.S., “down 72 percent versus 2009, and the lowest level since 2006.”
In a press release, the lobby group said the solution for its woes were — wait for it — more subsidies and mandates. The group’s CEO, Denise Bode, said that “the best way to galvanize the industry now will be continued tax credits and a federal benchmark of 15 percent renewables in the national electricity mix by 2020.” Bode continued, saying that those subsidies and a 15 percent renewable mandate “will send a clear signal to investors that the U.S. is open for business.”
…Unable to compete in the free market, the wind industry’s only near-term hope is an ethanol-style mandate. And if given that mandate, perpetual ethanol-style subsidies will surely ensue. Congress, please, just say no.
Jennifer Rubin comments on a Sarah Palin op-ed.
Last week, I criticized Sarah Palin for using Twitter to render an ambiguous, off-the-cuff response to the bipartisan tax agreement. I understand that some of her supporters weren’t too pleased with the suggestion that one of her favorite modes of communication made her seem like a lightweight. But she then followed up in the Wall Street Journal with a robust and detailed endorsement of Rep. Paul Ryan’s (R.-Wisc.) Roadmap for America’s Future. After detailing her criticisms of the debt commission proposal, she argued:
“…The Roadmap would also replace our high and anticompetitive corporate income tax with a business consumption tax of just 8.5%. The overall tax burden would be limited to 19% of GDP (compared to 21% under the deficit commission’s proposals). Beyond that, Rep. Ryan proposes fundamental reform of Medicare for those under 55 by turning the current benefit into a voucher with which people can purchase their own care.
On Social Security, as with Medicare, the Roadmap honors our commitments to those who are already receiving benefits by guaranteeing all existing rights to people over the age of 55. Those below that age are offered a choice: They can remain in the traditional government-run system or direct a portion of their payroll taxes to personal accounts, owned by them, managed by the Social Security Administration and guaranteed by the federal government.”
… she’s made a valuable contribution by highlighting and explaining Ryan’s plan. It is a step in the right direction for someone who in some capacity wants to be a player in the GOP.
The Economist reports on a possible new medical use for an old pain reliever.
FOR thousands of years aspirin has been humanity’s wonder drug. Extracts from the willow tree have been used for pain relief in folk medicine since the time of the ancient Greeks. By 1897 a synthetic derivative (acetyl salicylic acid) of the plant’s active ingredient (salicin) was created. This allowed aspirin to become the most widely used medicine in the world.
In recent years its benefits as a blood-thinning drug have led to it being prescribed in low doses of around 50mg to reduce deaths from stroke and heart attack. There were also hints that aspirin may help prevent some cancers. But these were mostly based on observational studies, which can be misleading. …