Economy

IRS Political Harassers Could Theoretically Be Fired, as Required by 1998 Law

by Hans Bader on May 24, 2013 · 0 comments

in Economy, Employment, Legal

Earlier, I wrote about how, thanks to civil-service regulations, it is hard to fire government employees for misconduct, despite often-ignored Constitutional provisions, such as the Appointments Clause, that the Founding Fathers put into the Constitution to enable department heads to fire and replace federal “officers.” As a result, I was concerned that IRS managers and employees would continue to escape punishment for  making burdensome, intrusive, and unconstitutional demands for irrelevant information from non-profit groups that were critical of the government, such as the Tea Party, and which taught about the Constitution. These intrusive investigations violated the First Amendment.

It turns out that they could, after a protracted and costly process, be fired for the types of misconduct they committed — and that their termination for such misconduct may technically be mandated, not merely permitted, by a 1998 law. A lawyer discusses this at Powerline.  Misconduct, not incompetence, will likely need to be shown. As noted earlier, few federal employees with ‘‘poor’’ ratings ever get fired, and civil-service employees ‘‘are almost impossible to fire’’ for incompetence, to quote the Houston and San Francisco Chronicle newspapers.

Anti-Business and Anti-Freedom: The United Nations Convention on the Rights of Persons with Disabilities

by Hans Bader on May 23, 2013 · 0 comments

in Economy, Employment, Insurance, International, Labor, Legal, Personal Liberty, Regulation

In the American Spectator, CEI Vice President for Strategy Iain Murray and Geoffrey McLatchey explain why the Senate should be skeptical of the United Nations Convention on the Rights of Persons with Disabilities, which fell six votes short of the 67 needed for ratification last December.  As they note, “the treaty would enable an enormous increase in the potential power of UN bureaucrats over the American people and undermine national sovereignty.”  Moreover, although “CRPD proponents argue that it merely reiterates existing U.S. disability law,” this is simply false, based on the treaty’s plain language.

It also delegates authority to a UN committee, they note, resulting in a “loss of U.S. sovereignty.” UN committees like to define free speech as discrimination against minority groups in violation of international treaties, making it dangerous to ratify such treaties.  For example, the  U.N. Committee on the Elimination of Racial Discrimination has ruled Germany violated international law by not prosecuting a former legislator for remarks to a scholarly journal about Turkish-immigrant welfare recipients that were deemed racially offensive. The UN committee ruled Germany’s failure to prosecute the speaker violated the International Convention on the Elimination of All Forms of Racial Discrimination.

As Murray and McLatchey point out, “Under CRPD Article 34, U.S. policy would be subject to the ‘Committee on the Rights of Persons with Disabilities,’ a U.N.-appointed panel consisting of 12 ‘experts.’ The history of other UN bodies [such as] the Human Rights Council — which includes countries with a long history of human rights abuses and hostility toward the United States — is not encouraging. And the Convention’s vague language — such as defining disabilities as ‘an evolving concept’ — suggests the Committee will have ample opportunity to redefine terms to America’s disadvantage.”

Subjecting American policies to the UN is a bad idea, especially given many UN officials’ anti-American ideologies. Such hostility is illustrated by the disturbing remarks blaming America for the Boston terrorist bombing by “Richard A. Falk, the U.N. ‘human rights’ official and Princeton professor. . . .Commenting on the Boston bombing, Falk wrote, “Should we not all be meditating on W.H. Auden’s haunting line: ‘Those to whom evil is done/do evil in return’?” “The American global domination project is bound to generate all kinds of resistance in the post-colonial world.”

As Murray and McLatchey note, “The CRPD also requires the United States to set up a propaganda agency. Yes, you read that right. Article 8 states that signatories must take “immediate and effective measures…to raise awareness throughout society, including at the family level, regarding persons with disabilities, and to foster respect for the rights and dignity of persons with disabilities.” It becomes the federal government’s duty to “combat stereotypes… in all areas of life” by “initiating and maintaining effective public awareness campaigns.”

We previously explained how the CRPD could harm small business and civil liberties at this link.  Cato Institute legal analyst Walter Olson highlighted troublesome provisions in the treaty in an article in The Daily Caller, and a followup analysis at Cato at Liberty.  As Olson pointed out, other mandates in the treaty that go beyond current U.S. law include costly “requirements for ‘guides, readers and professional sign language interpreters” for facilities that currently don’t require them.  As I previously noted, this would appear to partly override the Supreme Court’s decision in Southeastern Community College v. Davis (1979) limiting the degree of accommodation that can be imposed. They also seem to impose new insurance mandates that call into question fundamental actuarial principles used by prudent insurers.

Does Austerity Really “Kill”?

by Matthew Melchiorre on May 23, 2013 · 1 comment

in Economy, Health and Illness, Healthcare, International, Labor, Regulation

Does austerity kill? In a recent New York Times op-ed, David Stuckler and Sanjay Basu claim that fiscal austerity leads to a worsening of health outcomes, using higher suicide and disease rates across Southern Europe as their case-in-point. But there are problems with this formulation.

First, the authors make the mistake of linking fiscal austerity with less health spending.  Greece, Spain, and Italy chose to cut health spending even though there were better choices for cuts. And health spending didn’t put them into deep debt to begin with. Borrowing at cheap interest rates and spending it on pet projects and political patronage — which includes the welfare state, but not so much in health — put them in deep debt. Estonia swiftly and severely began to reduce the size of government in 2009, but it increased health spending during that period and suffered no health declines.

Second, Stuckler and Basu point to high unemployment and trimmed social services as the sources of increased depression and suicide in Southern Europe. But this is not an argument against austerity; it is an argument to make people less dependent on the social welfare system. In Southern Europe, labor markets are broken. That’s why the IMF gave each country a failing grade in labor market efficiency in 2010. In Italy, it’s illegal to fire employees for poor performance and difficult to dismiss them for outright negligence. Layoffs also are a long and expensive process. So,when recession comes, employers can’t hire at lower wages and don’t want to hire because of these factors — which makes matters even worse. Droves of Italians and Spaniards wouldn’t be dependent upon state welfare today if labor markets were more flexible. That’s why austerity should regard not just cutting spending and revenues, but also shrinking the regulatory state. Job protections,  a hidden cost of the welfare state, are the real killer.

The narrative with which the authors open their op-ed—in which an older Italian family commits suicide because Italy’s increasing the pension eligibility age forced the main breadwinner back into a workforce with meager opportunities—tells us to abandon not austerity but the level of commitment to current welfare-state policies. If businesses had more flexibility to hire and fire workers, if the implicit tax rate on labor wasn’t the highest in all of Europe, and if Italy’s court system was more efficient in resolving labor disputes, this family wouldn’t have been so reliant on receiving a state pension in the first place. Finding work would not have been such a hopeless proposition that it  ended in such tragedy.

Third, the authors bring up Estonia’s experience with poor health outcomes during its transition from communism but conveniently fail to mention its success with real austerity from 2009 to the present. After making deep cuts to both spending and revenues beginning in January 2009 (unlike any other country in the Euro Area), Estonia experienced positive economic growth by the third quarter of that year — more than 2 percent growth in 2010, and 7.6 percent growth in 2011. Unemployment began to decrease by the sixth quarter after austerity and is now below the Euro Area average. And most importantly to Stuckler and Basu, neither the change in the rate of suicides nor the change in the total death rate were statistically significant relative to Estonia’s previous 10 years. See my in-depth statistical report for more information: http://cei.org/web-memo/separating-european-austerity-fact-and-fiction.

Painting austerity as the grim reaper is more than a stretch. “Austerity” need not mean a reduction in health spending. And focusing on the short-term effects of trimming the welfare state ignores the long-term causes behind why some citizens’ lives depended so heavily upon it. Does austerity “kill”? It doesn’t have to.

Firing Government Employees Is Too Hard; the Constitution Intended for It to Be Easier

by Hans Bader on May 22, 2013 · 1 comment

in Economy, Employment, Legal

It’s hard to get rid of a career bureaucrat, even at the managerial level. “After you’ve been here for a year, it’s easier to kill you than fire you.” That’s what my co-workers at the Bureau of Labor Statistics would tell me on a sunny day, after we’d used up our lunch hour, but wanted to walk around the National Mall rather than go back to work. I was reminded of this when I learned that not one IRS employee has been so much as reprimanded for their role in making incredibly burdensome, intrusive, and unconstitutional demands for irrelevant information from non-profit groups critical of the government. (By contrast, the head of the IRS was forced to leave his position a month earlier than he wished, in a presidential “firing” designed to create the illusion of accountability.) As Reason magazine notes:

The IRS has admitted to sitting on applications for tax-exempt status by Tea Party groups for political reasons.

According to the government’s own investigation, applications containing terms such as Tea Party and Patriot were singled out for delays and holds even as groups with liberal-sounding names like “Bus for Progress” and “Progress Florida” sailed through the process.

President Obama said “the report’s findings are intolerable and inexcusable” and even fired the acting head of the Internal Revenue Service.

But “intolerable and inexcusable” doesn’t mean any consequences, at least not yet. Lois Lerner, the director of the IRS Exempt Organization Division, is now pleading the Fifth Amendment to avoid answering any questions. (Even left-leaning fact-checkers say she has lied to the public.) [click to continue…]

Udall-Paul Legislation Spreads Freedom for Credit Unions and Entrepreneurs

by John Berlau on May 20, 2013 · 1 comment

in Deregulate to Stimulate, Economy, Regulation

By definition, if a bill is sponsored by Sens. Mark Udall, D-Colo., and Rand Paul, R-Ky., or any similarly odd ideological couples in the House, it more than meets the definition of bipartisan. For that, it should get a big kumbaya from the Beltway cognoscenti.

Yet the Udall-Paul bill, S. 968, should be cheered not just because of its bipartisanship, but because it actually spreads freedom. Those concerned with government eroding options for entrepreneurs should cheer this legislation, which lifts regulatory barriers to an untapped source of capital for startups: America’s credit unions.

Small business and startups pursue many diverse sources of funding. As traditional sources have dried up, many credit unions have stepped up to fill the void. As Rohit Arora, CEO of the Biz2Credit small business loan arranging service,  recently explained at FoxBusiness.com, “Following the mortgage bust, many big banks essentially turned off the spigot to small business lending. Credit unions decided to take advantage of this hole in the marketplace by increasing their small business loan-making.”

But because of government barriers to credit union business lending, thousands of entrepreneurial ventures may be unnecessarily deprived of the seed capital credit unions could provide to them. As Arora says,  “Credit unions are handcuffed by a lending cap of 12.25 percent of their assets imposed  by the Credit Union Membership Access Act of 1998. Thus,  many of  those who became active in small business lending quickly hit their limit.”

And this regulatory barrier is exactly what Udall-Paul, and its House companion H.R. 688, sponsored by Rep. Ed Royce, R-Calif., would fix. The legislation would raise the cap for business lending to 27.5 percent of a credit union’s assets. The modest hike in the lending cap would pay big dividends for entrepreneurs and the economy. The Credit Union National Association estimates this increase in the cap would create 138,000 jobs in the first year, a figure Pepperdine University economist David M. Smith calls “conservative and well within the bounds of a reasonable projection.”

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Heritage Immigration Report Implies 70% of Americans “Increase Poverty”

by David Bier on May 10, 2013 · 1 comment

in Economy, Employment, Features, Immigration, International

Post image for Heritage Immigration Report Implies 70% of Americans “Increase Poverty”

The Heritage Foundation’s new report on the fiscal costs of legalization for unauthorized immigrants concluded that it will cost taxpayers $6.3 trillion. Yesterday, I listed some reasons why I think this number is much too high, and on Wednesday, explained why I thought John Locke would say, “Keep immigration. Reform welfare.” Today, I want to look at the broader economic implications of the Heritage study.

“Government policy should limit immigration to those who will be net fiscal con­tributors,” the authors concluded, “avoiding those who will increase poverty and impose new costs on overburdened U.S. taxpay­ers.” This conclusion means that Heritage believes that anyone who is not contributing more in taxes than they receive in taxes is an economic liability, hurting the economy and “increasing poverty.”

But this conclusion that only immigrants who will be “net fiscal contributors” are economically valuable and that the rest “increase poverty” applies equally to lower-wage Americans. “Following amnesty,” the report states, “the fiscal costs of former unlawful immigrant households will be roughly the same as those of lawful immigrant and non-immi­grant households with the same level of education.”

In fact, according to Heritage, its conclusion applies to anyone without a college degree, meaning 70 percent of Americans, under the Heritage formula, “increase poverty.” In fact, the Heritage report readily admits this fact: “Poorly edu­cated households, whether immigrant or U.S.-born, receive far more in government benefits than they pay in taxes,” it concludes.

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Seven Ways Heritage Concluded Immigration Reform Will Cost $6.3 Trillion

by David Bier on May 9, 2013 · 0 comments

in Economy, Features, Immigration, International, Nanny State, Trade

Post image for Seven Ways Heritage Concluded Immigration Reform Will Cost $6.3 Trillion

The Heritage Foundation’s report this week that suggests legalization for unauthorized immigrants will result in a $6.3 billion fiscal deficit is an important conversation starter about the need for welfare reform. But the mere fact that legalizing the status of unauthorized immigrants in the United States will increase some costs for taxpayers should not, by itself, stand in the way of immigration reform, as John Locke once noted. Nonetheless, the report significantly overestimates the fiscal costs of legalization in at least seven ways.

1. Using a 51-year time frame: $6.3 trillion sounds huge, but when you break it down annually, it is a much smaller figure of $123 billion. Heritage has criticized the Congressional Budget Office for not evaluating fiscal impact beyond 10 years, which is true. But that’s for a good reason. To forecast fiscal and economic conditions 10 years into the future is extremely difficult in the first place and rarely very accurate—predicting 5 decades into the future is totally impossible. For example, what if high-paying jobs in the future don’t require a college degree, as the Bureau of Labor Statistics predicts? What if we reform entitlements? What if income mobility increases? Does anyone honestly think that anyone in 1953 could have predicted the economic condition of the U.S. in 2003, let alone the economic condition of a subset of that population 50 years from now?

2. Ignoring economic growth: Economists are virtually unanimous that immigrants create economic growth that results in increased tax revenues, but Heritage explicitly ignores this factor in its analysis. The White House Council of Economic Advisers found in 2007 that “annual wage gains from immigration are between $30 billion and $80 billion” to natives. The same year, Economist Giovanni Peri found that wages for workers with at least a high school degree grew by 2 percent due to immigration between 1990 and 2004. In 2012, UCLA economist Raúl Hinojosa-Ojeda incorporated economic growth into his analysis and found legalization would raise GDP by $1.5 trillion over 10 years. Economist Douglas Holtz-Eakin’s admittedly rudimentary analysis found that economic growth due to immigration reform would reduce the deficit by $2.5 trillion.

3. Ignoring effects of progressive taxation on the poor: Progressive taxation means that the government shifts that tax burden onto the rich, but that doesn’t mean that the poor don’t incur the costs of taxation. In tax policy, Heritage argues that all income taxes targeting the rich ultimately impact the poor. For instance, in 2004, Heritage concluded that the Bush tax cuts for higher-earners “boost the incomes of all Americans.” This admits that although the poor don’t pay many taxes directly, they incur the costs of taxes indirectly. Heritage should note this in its report.

4. Including U.S. citizen children: James Pethokoukis at the American Enterprise Institute rightly notes that 40 percent of the spending the report describes is on U.S. citizens, the children of unauthorized immigrants. Heritage justifies including these Americans because the National Research Council’s 1997 estimate of the costs of illegal immigration included them. The problem is that the NRC’s estimate was of the impact of illegal immigration in general—not the cost of a policy change, legalization, as Heritage’s report is supposed to be estimating.

5. Doesn’t actually estimate the cost of legalization: Not only does Heritage’s number include the cost of U.S. citizen children who would receive services regardless of legalization, but it also includes the cost of “population-based” services, like police, fire, and parks that would be spent regardless of whether there was a change in policy. More than 20 percent of the cost comes from these services alone.

6. Ignoring enforcement costs: The Heritage report ignores the fiscal costs of continuing enforcement-only policies and certainly not ramping them up as the report recommends. College of William and Mary professor of economics Rajeev Goyle estimated in 2005 that if we could find all 11 million deportable immigrants, the cost of mass deportation to be $206 billion over 5 years, or $41 billion annually. Five years later, the Center for American Progress put the number at $285 billion over 5 years. Immigration and Customs Enforcement (ICE) has found that it costs at the margin $12,500 to deport a single person. This translates to $144 billion, ignoring the capital costs.

The economic cost of deporting 11 million immigrants also includes also the lost productivity from the flood of workers leaving. Even a strong enforcement effort that reduces the number of unskilled workers by 28 percent would lower GDP by $80 billion per year or 0.5 percent of the income of U.S. households, according to economists Peter Dixon and Maureen Rimmer. In 2012, Raúl Hinojosa-Ojeda found that the number would likely be $2.6 trillion in lost GDP over 10 years (Prof. Goyle found the same number in 2005). In 2012, the Department of Agriculture looked at the economic impact of cutting the unauthorized population in half over 15 years. It found that it would reduce U.S. wages by 1 percent, $150 billion.

7. Not analyzing the whole bill: Heritage only looked at the impact of legalization—it ignored the fiscal impact of all the other portions of the bill, including admitting far more highly-skilled individuals and guest workers who are ineligible for welfare benefits. These effects could very well offset any fiscal deficit that remains.

It is true that America has a redistribution problem, but that doesn’t mean that immigration reform will hurt the economy or the government’s budget. It just means that if we reform both welfare and immigration, the gains will be that much greater.

The Economist on “the muddle-headed world of American public pension accounting”

by Ivan Osorio on May 9, 2013 · 0 comments

in Bailout Watch, Economy, Labor

As state governments across the nation struggle to address a public pension underfunding crisis they can no longer deny, The Economist is the latest major news outlet to turn its gaze on the ongoing debacle. In the current issue, the magazine’s “Buttonwood” column draws a sketch of U.S. public pension accounting that is not only dysfunctional, but that runs against plain common sense.

American public-sector schemes discount their liabilities by the expected return on their assets. The riskier the asset mix, the higher the assumed return—and the lower the bill appears to be.

This is an odd way of thinking. Suppose a car company borrowed $10 billion in the form of a 20-year bond to build a manufacturing plant and planned to pay off the debt with the profits from running the plant. The car company will assume a higher return on capital than its financing cost (otherwise it should not build the plant). But it still has to recognise the $10 billion bond liability on its balance-sheet. It cannot say it owes only $2 billion because it expects a very high return.

The reason is clear. If the plant fails to earn a high return, the firm will still be liable to repay the bond. Similarly, if pension schemes fail to earn a high return on their assets, they still have to pay benefits. Final-salary pensions are a debt-like liability.

The Buttonwood columnist (currently Philip Coggan) notes recent changes to the nation’s largest public pension plan, the California Public Employee Retirement System (CalPERS), that would require greater employer contributions. But such changes will be ineffective in the long run unless they were to be accompanied by major reforms that address some of the structural factors that have made public pension shortfalls severe and chronic: payouts based on final-year pay, negotiation of benefits through collective bargaining, benefit increases through binding arbitration, politicized pension fund boards, and flawed accounting standards.

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CEI Podcast for May 8, 2013: The Debate over Undocumented Immigration

by Ryan Young on May 8, 2013 · 0 comments

in Economy, Immigration, International, Podcast

Have a listen here.

CEI Immigration Policy Analyst David Bier is critical of a new Heritage Foundation study that estimates that giving legal status to America’s undocumented immigrants would cost $6.3 trillion over the next 50 years.

Youth Unemployment Is at Highest Sustained Level Since World War II

by Hans Bader on May 8, 2013 · 0 comments

in Economy, Employment

Real youth unemployment is at 16.1 percent, the highest sustained rate since World War II. As the non-partisan youth advocacy group Generation Opportunity notes,

  • The [official] youth unemployment rate for 18-29 year olds for April 2013 is 11.1 percent (NSA).
  • The effective unemployment rate is 16.1 percent, which adjusts for labor participation rate by including those who have given up looking for work. The declining labor force participation rate has created an additional 1.7 million young adults that are not counted as “unemployed” by the U.S. Department of Labor because they are not in the labor force, meaning that those young people have given up looking for work due to the lack of jobs.
  • The April 2013 youth unemployment rate for 18-29 year old African-Americans is 20.4 percent (NSA).

Evan Feinberg of Generation Opportunity argues that “It is a rough time to be a young person in America. . . with about 2 million college students graduating this month, there is no sign of an economic recovery for my generation. Half of all graduating seniors aren’t going to find meaningful work in the coming months.”

The New York Times noted that the most recent jobs “numbers mask a stubborn jobs problem.” “The economy continues to add jobs in proportion to population growth. Nothing less, nothing more.” But “job activity does not seem to be accelerating.” “Construction employment has barely budged.” And in “Europe, policy makers delivered a grim forecast.”

AEI’s James Pethokoukis argues that lousy jobs growth has been artificially concealed due to Obamacare, which replaces full-time jobs with part-time jobs, resulting in a typical newly-created job being of less economic value than previous jobs. We discussed earlier how official unemployment figures conceal rising joblessness, as Obamacare strangles job creation. Other government mandates are also hurting hiring. For example, the EEOC, which flouts federal laws, is discouraging hiring by creating a bad legal climate for employers.

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