Minor Thoughts from me to you

Archives for Subsidy (page 1 / 2)

Group Backing Ted Cruz Accuses Marco Rubio of ‘Cronyism’

Group Backing Ted Cruz Accuses Marco Rubio of ‘Cronyism’ →

Seeking to drive Senator Marco Rubio from the presidential race, a “super PAC” supporting Senator Ted Cruz is spending heavily against Mr. Rubio in Florida, his home state. The five new ads that the group, Keep the Promise I, have released attack Mr. Rubio’s attendance record in the Senate, his stand on immigration, his tax plan and his relationship with Florida’s sugar producers.

Fact Check

Mr. Rubio supports the federal sugar program, defending it as necessary to protect domestic sugar producers from comparable government subsidies in competing countries. “Otherwise, Brazil will wipe out our agriculture, and it’s not just sugar,” he said recently. Mr. Rubio has also received campaign contributions from sugar producers, most notably Jose Fanjul, who along with his brother owns Domino and other sugar companies.

​This is one of my two biggest reasons for disliking Marco Rubio. It may be true that he can't get elected in Florida without the support of the sugar producers. But if he'll compromise his supposed conservative principles on corporate subsidies for political gain, what else might he compromise for political gain.

The President’s infrastructure investment argument

The President’s infrastructure investment argument →

From Keith Hennessey:

Geographic politics distorts and often dominates government investment in physical infrastructure. Highway funds and airport funds especially are allocated in part based on which Members of Congress have maximum procedural leverage over the spending bill. Even if you could somehow get Congress to stop earmarking infrastructure spending (good luck), and even if you could rely on the Executive Branch not to allow their own political goals to influence how they allocate funds, local geographic politics would come into play at the state level, since much federal infrastructure spending flows through State governments. This is where reality most falls short of a valid theoretical starting point for increasing productivity and long-term growth.

Keith argues that infrastructure spending isn't useless but it does face a lot of problems that prevent it from quickly creating jobs. It's not a great "investment in America".

Obama’s Auto Bailout Was Really a Hefty Union Payoff

Obama’s Auto Bailout Was Really a Hefty Union Payoff →

GM did go bankrupt – filing for Chapter 11 protection against its creditors on June 1, 2009. It’s what happened next that the president can take credit for – a handout of $49.5 billion in taxpayer money to GM, some $27 billion of which remains outstanding, and another $17 billion to its financial arm Ally Financial, which still owes $14.7 billion.

Where did that money go? Mainly, it went to paying off debts owed by GM and Chrysler, and – in an historic distortion of our bankruptcy proceedings – to securing the pensions and livelihoods of UAW workers. It turns out the real debt was that of Mr. Obama to organized labor, which had ponied up some $400 million to help him defeat John McCain.

The Obama administration strong-armed the auto companies’ creditors into accepting undeniably unfair terms – terms that saw pensions obliterated for non-union workers but saved for those carrying a UAW card. Terms that saw non-UAW shops close but UAW factories stay open. Terms that doled out ownership in GM with political favoritism as a guiding principle.

These charges are not at issue. In the government-managed reorganization of GM, bond holders (secured bond holders, who normally are at the top of the pay-out chart) were given equity in the carmaker at a price of $2.7 billion per one percent ownership. The government ended up paying $834 million for every one percent it claimed; the UAW paid only $629 million.

It was not only the ownership share that was skewed towards the UAW. As jobs began to come back, it was the UAW plants that kicked into high gear. Workers at GM’s plant in Moraine, Ohio, who had been laid off in 2007, were not included in the re-hiring. Why? Because they did not belong to the UAW. The Moraine plant was reportedly one of GM’s most productive, but under the terms of GM’s reorganization, its workers were “banned from transferring to other plants,” according to Sharon Terlep at The Wall Street Journal.

Moraine was not the only non-UAW facility to fall under the knife; a truck plant in Ontario organized by the Canadian Auto Workers also went down.

Pell Grants and College Tuition

Pell Grants and College Tuition →

It looks like Pell grants are subsidies for universities rather than being a true aid for needy students.

For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for out-of- state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition.

The Tax Treatment of Health Insurance

The Tax Treatment of Health Insurance →

Economists agree on theoretical grounds and have shown empirically that all contributions toward premiums—those made by employers and workers alike—are forgone wages. In other words, wages are lower by exactly the amount of the premium, even when the employer seems to pay it. What’s going on here is that employers are shifting compensation from wages to premiums. The preferential tax treatment of the latter encourages this.

Because wages are taxed, compensation in the form of health insurance in lieu of wages reduces government revenue. In fact, it reduces it a lot: $250 billion per year. Just to put that figure in perspective, $250 billion is almost half the Medicare budget. It is more than 3½ times the average annual cost of the Affordable Care Act’s low-income health insurance subsidies. Employer-sponsored health insurance is among the most subsidized types of health insurance in America, almost as subsidized as Medicaid.

The preferential tax treatment of employer-sponsored health insurance also encourages more generous coverage and higher health care spending. By one estimate, health spending among insured workers is 26% higher than it otherwise would be if not for the tax break.

We should get rid of the employer healthcare tax subsidy. It distorts purchasing incentives, it's a massive middle class welfare program, and it drives up the cost of healthcare. It's toxic and it needs to go. (McCain's healthcare plan would have accomplished that. The Obama campaign blatantly lied about it for 6 months and we got Obamacare instead. I'm still angry about that.)

A Reminder of How Bad the Farm Bill Is

A Reminder of How Bad the Farm Bill Is →

Veronique de Rugy sheds some light on the farm bill. Here's a small taste.

here is a little reminder of what is in the farm bill, how big it is, and other details relevant to this discussion:

The farm bill is massive; it would spend almost $1 trillion over the next decade.

For the most part, farmers are doing very well. As Drew White at Heritage reminds us, in spite of and partially thanks to this year’s drought, net farm income is estimated to set a new record of $122.2 billion in 2012.

Charles G. Koch: Corporate Cronyism Harms America

Charles G. Koch: Corporate Cronyism Harms America →

Charles Koch speaks out against the bipartisan corruption of crony capitalism.

Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.

So why isn't economic freedom the "default setting" for our economy? What upsets this productive state of affairs? Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.

We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.

This entry was tagged. Government Subsidy

QE3: An Example of Regulatory Capture

QE3: An Example of Regulatory Capture →

The Federal Reserve Bank’s recent QE3 announcement that they will be buying $40 billion in mortgage-backed securities a month for an indefinite period of time is an excellent example of regulatory capture. Under Chairman Bernanke, the Fed has successfully pushed to increase its regulatory role over the financial industry, and Stigler’s capture theory would predict that the Fed, as a financial regulator, would act to benefit the financial industry it regulates.

In recent posts on The Beacon I have argued that the Fed’s purchases of these securities is unprecedented, that it is an example of crony capitalism, and now am arguing that it is an example of the regulatory capture that Stigler described. Just like the government’s purchase of Chevy Volts, the Fed is creating demand for a product (morgtage-backed securities) that is in weak demand, for the benefit of the industry it regulates.

Cronyism: Utility Edition

Cronyism: Utility Edition →

The invaluable Eric Lipton over at the New York Times has another excellent article pointing out to the many ways that well-connected companies benefit from government favors. This time, he looks at the case of an Illinois-based energy producer, Exelon Corporation.

The company’s ties with senior officials in the Obama administration are important and extensive: Board member John W. Rogers is a friend of the president, Obama adviser David Axelrod worked at Exelon as a consultant, and Rahm Emanuel helped create the company. Exelon executives and administration officials held a large number of meetings at the White House, and ultimately, the executive branch enacted a number of policies and regulations that favored the company at the expense of its competitors.

Veronique de Rugy points provides extra background and details how the Obama administration is using the power of government to reward big businesses.

Complexity Is a Subsidy

I read this in Jonah Goldberg's emailed newsletter, the "Goldberg File", last week. I thought it was really good.

The other day Mary Katharine Hamm tweeted a link to one of those utterly predictable stories about how corporations with more lobbyists pay lower taxes or some such. She also remarked "complexity is a subsidy" -- and that really stuck with me. In many respects those four words distill vast swaths of scholarship from everyone from Friedrich Hayek to Charles Murray.

Again, it's not a new idea, but I think it's an extremely useful and pithy description of a very complex argument. The more that financial success depends on high IQ; the more demand there is for lawyers, lobbyists, and accountants; the more onerous regulations become for men-with-strong-backs to find work or for entrepreneurs to start businesses -- then the more we move towards a society where the government rewards people based on their ability to navigate paperwork or fulfill quotas on a political to-do list. Complexity benefits statists because increasing complexity allows statists to claim we need more government to help people navigate through these complex times. In the process of helping, they make the government more complicated, creating new services for "fixers" of all stripes to solve problems the statists created in the first place.

The more you look around at spots where society and government intersect, the more you can see how pervasive and pernicious this dynamic is. The more rules you have, the more power you bequeath to the people well-suited to make or manipulate the rules.

This entry was tagged. Regulation Subsidy

Rick Perry and Crony Capitalism

Rick Perry and Crony Capitalism →

I don't like to see Presidential candidates engaged in this kind of crony capitalism.

The Emerging Technology Fund was created at Mr. Perry's behest in 2005 to act as a kind of public-sector venture capital firm, largely to provide funding for tech start-ups in Texas. Since then, the fund has committed nearly $200 million of taxpayer money to fund 133 companies. Mr. Perry told a group of CEOs in May that the fund's "strategic investments are what's helping us keep groundbreaking innovations in the state." The governor, together with the lieutenant governor and the speaker of the Texas House, enjoys ultimate decision-making power over the fund's investments.

… All told, the Dallas Morning News has found that some $16 million from the tech fund has gone to firms in which major Perry contributors were either investors or officers, and $27 million from the fund has gone to companies founded or advised by six advisory board members. The tangle of interests surrounding the fund has raised eyebrows throughout the state, especially among conservatives who think the fund is a misplaced use of taxpayer dollars to start with.

Zygi Wilf Can Buy His Own Stadium

Zygi Wilf, Minnesota governor Mark Dayton discuss new Minnesota Vikings stadium - ESPN

When Gov. Mark Dayton and state lawmakers announced that the outlines of a new budget deal were in place, the Minnesota Vikings were hoping that the door was finally open to discuss their plan for a new $1 billion stadium in the Twin Cities suburbs.

It may not be quite that simple.

Vikings owner Zygi Wilf spoke with Dayton on Friday, telling him in a phone conversation that the team wants a stadium bill to be considered in a special legislative session expected to begin next week, according to Vikings vice president for stadium affairs Lester Bagley.

"He made the case that now is the time," Bagley said. "We've done everything that has been asked of us. It's time to do it. We're down to months left on our lease and every day that goes by, the cost of the project goes up."

… Arden Hills is about 10 miles north of the Metrodome in downtown Minneapolis. The new facility would be located at the site of a former Army ammunition plant with plans to open in spring 2015.

Wilf and the Vikings have pledged more than $400 million to the project, which also calls for a half-cent sales tax in Ramsey County that would contribute another $350 million and $300 million in state money.

This is just disgusting. Depending on where you Google, Zygi Wilf is worth somewhere around $300 million and the Vikings franchise itself is worth around $700 million. If he wants a new stadium, he has several options:

  1. invest more of his own fortune and the team’s worth into the new facility
  2. ask the team’s fans to invest into the facility in exchange for benefits (priority access to available tickets? special access to memorabilia?)
  3. Get banks or investors to loan or invest the needed funds

The Vikings are a cash generating franchise. If a new stadium is a good investment, Wilf shouldn’t have any problems obtaining the funding he needs. If a new stadium isn’t a good investment, Wilf shouldn’t be demanding that the Minnesota taxpayers fund his boondoggle.

It’s disgusting the way that he’s demanding that a state that’s struggled to close a $5 billion budget hole turn around and give $300 million in state money and $350 million in county money to his privately owned business. I hope the state legislature smacks him down and shuts the door on his demands.

Further Thoughts on Taxes and Spending

Further Thoughts on Taxes and Spending →

William Voegeli takes on the idea that “it’s absurd to cut spending because we tax the wealthiest Americans less today than we did in 1955”.

First he illustrates that today’s rich pay more in taxes than the rich of 1955 did. (They pay more in real dollar terms, even if they do pay less in percentage terms.) Then he cuts to the core of the moral argument.

If the principle is that the rich should pay higher taxes because they can more easily bear the rates, then we should keep raising tax rates until the rich can no longer bear them—until, that is, they're no longer rich. One need not be rich to find this prospect disquieting. A government that can take whatever it wants strikes a lot of people as unfair, and unfree.

He also points out that (many) blue states are net federal taxpayers while (many) red states are net federal tax recipients because “states with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax”. If you don’t like the idea of states subsidizing each others’ residents, you need to scale back (or eliminate) the progressivity of the federal income tax.

I like this welfare reform idea too.

Buckley would confine eligibility for [Federal] welfare state programs to Americans living in states whose median income was below the national average. Because Buckley thought it was economically and politically debilitating to "turn the skies black with criss-crossing dollars," his reform would ground a lot of those dollars. Federal welfare expenditures would shrink, as the number of people eligible for them was limited, and prosperous states would pay for their own welfare programs without the transit and administrative fees of sending them on to Washington and then back to the states.

This reform would do much to take power away from Washington, D.C.

Only the poorest states would receive moneys from Washington. The more well to do states would spend their own money on welfare programs. Of course, they do that today too. But right now, that money goes through Washington (in the form of federal income taxes), where policitians get to attach rules and conditions to it, before sending it back to the states (as Medicaid payments or transportation funds or something else). If this reform were implemented, policitians would have many fewer opportunities to meddle and states would have a much greater freedom of action. That’s what I call a win-win scenario.

Families Are Fragile

Kay S. Hymowitz wrote about the fragile family effect, 3 weeks ago.

One of the study's most surprising initial findings was that the large majority - 80 percent - of poor, unmarried couples were romantically involved at the time of their child's birth. In fact, 50 percent of the couples were living together. Fathers almost always visited the mothers and children in the hospital and usually provided financial support. Even better, most of these new parents said that there was a 50-50 chance that they would eventually marry each other. They spoke highly of their partners' commitment to their children and of their supportiveness.

But within five years, a tiny 15 percent of the unmarried couples had taken wedding vows, while 60 percent had split up. At the five-year mark, only 36 percent of the children lived with their fathers, and half of the other 64 percent hadn't seen their dads in the last month. One-half to two-thirds of the absent fathers provided little or no financial support.

These families -- and society as a whole -- would have been far, far, far better off had these parents stayed together, instead of splitting up.

I don't know the full story of why 85% of the unmarried parents parted ways. But I can speculate as to one cause. Is it possible, is it conceivable, that welfare and broad societal support for "single mothers" is making mom feel comfortable about life without dad? Is it possible that welfare is making Dad feel okay about walking out on Mom?

I can only speculate but it would seem that Dad doesn't have to deal with the guilt of leaving Mom penniless and unsupported if he knows that Mom can register at the welfare office. And Mom doesn't have to worry about the implications of life without Dad if she knows that she can get a monthly support check with or without him.

I think it's a question worth asking. Is our compassion towards single moms leading us into a policy that creates more single moms and more "fragile" (broken) families?

This entry was tagged. Family Policy Subsidy

Barney Frank Wants to Kill Fannie and Freddie?!?

Be still my beating heart. No, wait. Start beating, my stilled heart. Barney Frank just recommended killing Fannie Mae and Freddie Mac.

"As I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their present form and coming up with a new whole system of housing finance [is in order]," House Financial Services Chairman Barney Frank (D, Mass.) said at a hearing.

This is the same Congressman Frank that previously refused to believe that anything could possibly be wrong with Fannie and Freddie.

"These two entities--Fannie Mae and Freddie Mac--are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

And this is the same Fannie and Freddie that the government is bailing out, with no limits whatsoever on the losses to the American taxpayer.

The Obama administration's decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday.

The Treasury announced Thursday it was removing the caps that limited the amount of available capital to the companies to $200 billion each.

Unlimited access to bailout funds through 2012 was "necessary for preserving the continued strength and stability of the mortgage market," the Treasury said. Fannie and Freddie purchase or guarantee most U.S. home mortgages and have run up huge losses stemming from the worst wave of defaults since the 1930s.

Of course, this is Barney Frank we're talking about here. I shudder to think about what he has in mind to replace Fannie and Freddie. Whatever it is, be sure that you'll be paying for it, not him. You'll probably be paying a lot.

Health care is not a human right

This morning I saw a new Facebook poll: "Is Health Care a Human Right?". I voted no.

Do you have a right to health care? Yes. And no. My answer ultimately depends on what you mean by a "right" to health care.

Rights come in two varieties: negative and positive. A negative right can be thought of as the right to be left alone. It's the right to do something without the fear that someone else will restrain you. A positive right can be thought of as the right to be served. While a negative right requires only that someone leave you in peace, a positive right requires that someone actively do something for you.

I believe you have the right to work with the doctor of your choice -- whether or not that doctor has been credentialed by a government.

I believe you have the right to take the drugs of your choice -- whether or not those drugs have been approved by a government panel of experts. I believe you have the right to take experimental cancer drugs, especially as a last ditch attempt to save your life. I believe you have the right to take marijuana to treat pain, to build appetite, and to relax.

I believe you have the right to buy insurance from any company, located in any state, covering any combination of conditions. I belive you shouldn't be limited to only the health insurance that covers a government approved list of condition from a government approved list of companies.

I believe in a strong negative right to health care. That's something that doesn't really exist in America today. Right now, you are not free to receive health care from anyone you trust, you are not free to take the drugs of your choice, and you are not free to buy whatever health care you desire. I am in favor of more freedom in health care. I believe you have a right to consume health care as you see fit, even if the majority of people around you disagree with your decisions. That's freedom.

I don't believe you have a right to force someone else to pay for treatment, medications, or medical supplies. I don't believe you have a right to force a doctor to work with you. It's one thing if you and the doctor can come to a mutual agreement regarding pay and hours of availability. It's something else entirely to require a doctor to treat you at a price of your choosing (not his) and at a time of your choosing (not his). I don't believe you have a positive right to health care.

To be blunt, I don't believe you have a right to turn doctors into slaves (by requiring them to treat for free or at a steep discount) or a right to turn your fellow citizens into slaves (by requiring them to work in order to pay the bills for your health care).

The current discussion of health care rights revolves almost entirely around positive rights -- getting someone else to pay for our health care. It includes an "exchange" that would strictly limit the options available. It includes subsidies forcibly taken from some people through taxes and used to pay for someone else's health care.

It includes a requirement for insurance companies to charge everyone the same price for health care. This practice, known as community rating, allows sicker people to pay less than the cost of their care and requires healthier people to pay more. In effect, community rating is a subsidy to the sick courtesy of the healthy. Community rated health care is a very bad deal for young, healthy individuals. So the current discussion revolves around a health care mandate. Most of the plans under consideration would require young people to purchase something that's a bad deal. They would be required to do this solely to provide a good deal to sick people and the elderly.

Claiming a positive right to health care is nothing more nor less than the claiming the right to enslave your fellow man. I don't believe you have that right.

Morning Links

Paul Copan busts some "First Christmas" myths over at Reclaiming the Mind.

  1. There would have been no inns in a backwater town like Bethlehem. They would be found along main roads or in cities.
  2. The word for inn (katalyma) is the same one as the "guest room (of a private home)" mentioned in Mk. 14:14 and Lk. 22:11 --the room where the last supper was eaten.

Shikha Dalmia and Reason Magazine unload on Detroit's bailout request in It's 65 Million B.C. for the Detroit Three.

General Motors alone burned about $5 billion a month for the last quarter and is expected to completely exhaust its kitty by the end of this year. (The other two will follow suit shortly after.) At that rate of cash burn, the bailout money translates into five more months of life.

A comeback in that time would be hard to pull off even if these were the best run companies on the planet, rather than ones debilitated by decades of labor intransigence and management incompetence, two characteristics that show few signs of abating.

Indeed, United Auto Workers (UAW) Chief Ron Gettelfinger, who has been accompanying the auto CEOs on their taxpayer shakedown missions to D.C., had until this morning ruled out any new concessions to the Detroit Three.

... Gettelfinger is also unwilling to overhaul the rigid workplace rules that have long crimped labor productivity. For instance, these rules prevent workers from doing multiple jobs, which means that they can't be quickly redeployed in response to shifting market conditions. Nor will Gettelfinger allow the immediate shuttering of the notorious job banks program that pays laid off workers nearly their full salary for years on end.

Maybe Gettelfinger is just posturing. Happily, he has convened a UAW meeting tomorrow to "mull" some concessions. But if the threat of imminent death won't persuade him to pull out all the stops to restore the auto companies to profitability, why would he do so after receiving a $25 billion life-line from Uncle Sam? In effect, this means that the bailout will force non-auto workers--who should be saving in the event they get a pink slip themselves--to subsidize unemployed auto workers so that they can continue to draw fat checks for a few more months.

Finally, Dave Barry gives some gift recommendations in his Holiday Guide 2008: Gifts - For the Naughty (washingtonpost.com).

A man buys a gift only when he sees a clear and present need, such as he remembers that his wedding anniversary was last week. Otherwise, when a man is in a store, he is looking for practical items.

If he happens to pass by, say, a little ceramic statuette of two little smiley-face turtles with "BEST" painted on one shell and "FRIENDS" painted on the other, he is not going to give it a second glance, because he can't imagine anybody having any use for such a thing except as an emergency substitute for a clay pigeon.

The gift guide includes such jewels as the Uroclub (#2), the wearable sleeping bag (#5), the gun-shaped egg fryer, and the Zombie Yard Sculpture (#11).