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R Street Panels at SXSW 2015

March 13, 2015, 3:00 AM
Join the R Street Institute in Austin, Texas for three policy-focused panels during SXSW Interactive.

Big SIFI news: MetLife is designated, Obama signs insurance capital standards bill

2 hours 26 min ago

This week brought big news on two fronts in the world of allegedly “too big to fail” insurers.

By a nine to one vote, with former Kentucky Insurance Commissioner Roy Woodall as the lone dissenter, the Financial Stability Oversight Council voted Friday to designate MetLife Inc. as a systemically important financial institution. In a statement, Treasury Secretary Jack Lew said the council concluded after an 18-month investigation that “material financial distress at MetLife could pose a threat to U.S. financial stability,” adding that:

Designation of a nonbank financial company is a critical tool for the Council to address potential threats to U.S. financial stability.  Consistent with its mandate, the Council remains focused on protecting the broader economy from the types of risk that contributed to the financial crisis.

FSOC is the “college of regulators” created under the Dodd-Frank Act and charged with monitoring, preventing and ultimately resolving broad systemic risks to the U.S. economy. Under the FSOC process, certain non-bank financial institutions designated as SIFIs may be subject to heightened scrutiny and capital standards, both by the council and by the Federal Reserve Board. FSOC previously has slapped the SIFI tag on fellow insurers Prudential Financial and American International Group.

Though the company challenged the preliminary designation back in September, in some ways, it was years in the making. In the case of MetLife, the designation amounts more rejoining the group of SIFIs. The company previously was organized as a bank holding company, and went through the first several rounds of the Fed’s annual “stress tests,” dating back to the height of the financial crisis in early 2009.

However, there long have been questions about whether the bank-centric focus of the Fed’s Comprehensive Capital Analysis and Review test was appropriate for a company primarily engaged in the business of life insurance. These concerns reached a boiling point in 2012, when the company failed the stress test, as the Fed found that it did not have the minimum 8 percent total risk-based capital it estimated was necessary to withstand a stress scenario.

Largely in response to the MetLife scenario, Congress this year has been debating various versions of legislation to clarify that state-regulated insurers who are part of the same holding company as a depository institution, or that are subject to Fed supervision as a nonbank holding company, are not to be subject to the minimum leverage and minimum risk-based capital requirements established by federal banking regulators. Among other changes, the bill allows insurers who must report their financial results to federal banking regulators to do so using the Statutory Accounting Principles employed under state insurance law, rather than Generally Accepted Accounting Principles.

After much debate and procedural mire, Congress reported the S. 2270 version of the bill to the White House this week, which President Barack Obama signed on Dec. 18. The bill does not preclude FSOC’s designation of MetLife, Prudential and AIG, though it would conceivably alter how financial strength tests are applied to the companies going forward.

In a separate dissenting opinion, Woodall – the only voting member of FSOC with insurance experience, as Missouri Insurance Commissioner John Huff and Federal Insurance Office Director Michael McRaith are both non-voting members – criticized the FSOC analysis of MetLife, saying it presumed “that all current operations and activities are static without consideration of any dynamics or responses occurring before a presumed insolvency.”

Moreover, Woodall said the analysis was dismissive of the state-based regulatory regime that governs insurance and the willingness and ability of state regulators to act in advance of a potential insolvency. He added that the analysis relied on “implausible, contrived scenarios as well as failures to appreciate fundamental aspects of insurance and annuity products,” and that even in the unlikely case that the company or its major operating units did face a solvency crisis, it isn’t apparent that MetLife provides “any critical financial service or product for which substitutes are unavailable.”

I do share concerns about some of MetLife’s activities, particularly in the non-insurance and capital markets activities spheres, and in the resulting exposures identified and described in the Council’s Notice of Final Determination in the Company Overview and Exposure Transmission Channel sections. These activities might conceivably pose a threat to the U.S. financial stability under certain circumstances. It is these types of activities that should be fully evaluated under the Second Determination Standard, as opposed to the flawed Council analysis under the First Determination Standard.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Senate will release bulk downloads of legislative summaries, bill text from 113th and 114th Congress

December 19, 2014, 4:30 PM

WASHINGTON (Dec. 19, 2014) — The U.S. Senate will deliver access to its legislative information in modern, open data formats, starting when the 114th Congress convenes in January 2015.

That announcement was made at yesterday’s public stakeholder meeting of the Legislative Branch Bulk Data Task Force. The Senate will join the legislative data publishing system created by the Government Printing Office and originally launched for all 113th Congress House bills in January 2013.

“Complete, digital and modern access to America’s most important information — our laws and legislation — is now in view,” said Seamus Kraft, executive director of The OpenGov Foundation and a Congressional Data Coalition steering committee member.  “Though the Senate won’t catch up to the House on open legislative data overnight, upper chamber implementation should be fast and efficient, thanks to the fantastic foundation laid by the staff of  the House Clerk, Library of Congress, GPO, House Administration Committee, Speaker Boehner and others.  It’s amazing what Congress can accomplish with non-partisan teamwork, sustained public engagement and a clear focus to deliver better results for all Americans.”

“In the modern age, public access to legislative information must include digital access,”  said Citizens for Responsibility and Ethics in Washington’s Daniel Schuman, a founding CDC steering committee member.  “The Senate’s move to join the House in releasing information about legislation in useful formats provides a stable platform for innovation and public access to the work of government. While there is still more to do, this is a tremendous step forward.”

“This is great news for both the public and scholars studying our national legislature,” adds R Street Institute Governance Project Director Kevin Kosar. “Making this data available in a very useful format will help give us a better view of our national legislature’s work.”.

Today’s announcement builds on years of non-partisan collaboration across Congress and civil society groups like the OpenGov Foundation and Congressional Data Coalition.  It paves the way for the completion of  work to modernize and improve public access to the most important information in our democracy.  .,

“The House of Representatives’ collective efforts to make its activities more open and transparent to the public,” Schuman said “For proof, one merely needs to look to the series of annual transparency conferences, the ongoing meetings of the Legislative Bulk Data Task Force, the recent Legislative Branch Appropriations Bill, the creation of docs.house.gov, the ongoing upgrades to rules.house.gov, the updated version of the U.S. code, and so on.”

Click here to visit the GPO’s bulk legislative data portal, which will grow to include Senate data over the course of 2015.  And click here to read the Congressional Data Coalition’s open legislative information primer for non-geeks.

Groups demand Congress really oversee intelligence agencies

December 19, 2014, 8:26 AM

From the Daily Caller:

Nathan Leamer from the R Street Institute, a group that signed the letter, told The Daily Caller News Foundation that intelligence information gets bottled up in the intelligence committees. Congressmen end up having outdated or even incorrect information. When outside groups contradict the intelligence committees, Congress has little information to go on.

“Do you trust just the intelligence committee or are we going to trust all members of Congress to know what they are voting on?” Leamer asked.

Leamer said the letter has received positive feedback from multiple members of Congress.

Why we need to get DATA Act standards right

December 19, 2014, 7:00 AM

Passing the Digital Accountability and Transparency Act (DATA) Act was a victory for open government and congressional data transparency. But passing the law alone is not enough — as we move into the implementation stage, it is crucial to get the standards for data formatting right.

Despite pre-existing transparency legislation, insufficient standards and poor implementation have led to major inaccuracies in data published by the federal government. According to an August 2014 report from the U.S. Government Accountability Office, federal agencies did not properly report approximately $619 billion in fiscal year 2012, making the data published on USASpending.gov unreliable. That mistake alone significantly undercut the objective of data-transparency efforts.

GAO Comptroller General Gene Dodaro recently told the House Committee on Oversight and Government Reform that, in spite of good intentions, “there is a long way to go before [federal agencies are] going to have the standards in place.”

The Office of Management and Budget and the Treasury Department are supposed to have formatting standards for the DATA Act in place by May 2015. According to Dodaro, the future success of real government-spending transparency hinges on these standards, telling the oversight panel: “Without the legislative underpinning and consistent oversight, this won’t happen.”

Government transparency is a core component of effective representative democracy. We need access to government spending data on publicly accessible platforms if we are going to hold the government accountable for spending activities.

Beyond questions of openness and accountability, research shows that data transparency is directly tied to the quality of government performance and execution. In a study of psychology papers in two major journals, researchers in the Faculty of Social and Behavioral Sciences at the University of Amsterdam found “the authors’ reluctance to share data was associated with more errors in reporting of statistical results and with relatively weaker evidence.” In other words, data transparency was directly correlated with data accuracy. Open data standards improve the quality of research.

Data transparency is just not a bonus feature to appease a small faction of geeks and activists. It is a quality-control mechanism that should be baked into every step of governance. The DATA Act holds great potential, but only if the responsible parties put serious thought and effort into making sure its standards and execution fulfill the law’s promise.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Two steps forward, one step back

December 18, 2014, 10:00 AM

When news broke that the Utah Department of Insurance found that popular new benefits company Zenefits was not in compliance with state insurance law, and would have to alter its operation or cease transacting business, there was an outcry from free marketers and Silicon Valley-types alike. At R Street, we were surprised by the department’s decision because Utah is otherwise such a great state to engage in the business of insurance.

Subsequently, the department has faced local scrutiny. Gov. Gary Herbert has signaled his willingness to seek reform and there is word of a legislative vehicle sponsored by state Rep. John Knotwell, R-Herriman, to amend the statute in question.

Since a political resolution to the department’s action appears to be in the works, it would be worthwhile to reflect on a few principles for regulating fast-moving, “disruptive” market actors:

  • Tread lightly: Unless and until specific harms are experienced, the decision to regulate, or to enforce ill-fitting law in a novel context, should be weighed thoughtfully against the deleterious impact such measures could have on new market actors.

Utah already has crossed this threshold. By doing so, the Department of Insurance has necessitated a costly and contentious response by Zenefits.

Prospectively accounting for the need to tread lightly, policymakers should circumscribe the interpretive discretion of insurance regulators. They can do so by stating, explicitly, their intention to see particular statutes applied to the circumstances they are contemplating at the time the statute is promulgated.

  • Strive for neutrality: Existing market participants enjoy the benefit of having familiarity with and, often, an impact on the laws that govern them. That reality doesn’t always pose a problem, but the significance of in-built structural advantages counsels for mindfulness of a statute’s original purpose.

For instance, in the case of anti-rebating statutes like the one Zenefits was deemed to have violated, the original purpose was twofold. First, statutes sought to ensure that insurer solvency was not compromised by the distribution of potentially rate-distorting ancillary benefits. Second, there was a desire to protect similarly situated consumers from illegally experiencing different treatment.

Zenefits’ alleged transgression is its willingness to offer a web-based human resources portal for free while also selling insurance benefits. The trouble is that the statute inadvertently inhibits a new model that bundles service without violating the purpose of the statute. As described by Joe Markland of Employee Benefit News:

If I buy the system, I get the HR and benefits parts whether I use them or not. One of the leading systems I know charges $5 (per employee per month) for its system. Without the HR, it is $5. With the HR, it is $5. The Utah Insurance laws treat these systems like they are different systems when they are not.

Legislative specificity goes hand-in-hand with neutral enforcement of the law, mindful of statutory purpose

The 21st century is an age of wonders. Never before has the world experienced a pace of change like that experienced today. Inevitably, old regulatory models will struggle with fast-paced market innovations. Zenefits is just the latest firm to be frustrated by an old model. Fortunately, Utah has an opportunity to quickly address not only the confusion surrounding the statute in question, but also confusion on the part of its regulatory apparatus.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

Sony hack reveals celebrity gossip, plot to undermine free and open Internet

December 18, 2014, 8:00 AM

Hollywood media have feasted this month on  thousands of emails and internal documents leaked as part of a massive breach of Sony Pictures by the hacker group “Guardians of Peace.” The breach has led to a steady stream of stories revealing everything from celebrity name calling, to nepotism, to gender pay gaps, to the details of upcoming films.

In an op-ed for the New York Times, screenwriter Aaron Sorkin questioned the ethics of journalists who traffic in the stolen documents, arguing there could be nothing of public interest:

“Do the emails contain any information about Sony breaking the law? No. Misleading the public? No. Acting in direct harm to customers, the way the tobacco companies or Enron did? No.”

Well, that’s not entirely true. As The Verge revealed Friday, the leaked emails show a lot more than celebrity gossip. They uncover a massive underhanded scheme between Sony and the MPAA (as well as other content producers like Paramount, Warner Brothers, Fox, Comcast and the RIAA) to take down “Goliath” — a codename for Google and other search giants.

The plan wasn’t limited to search engines. The media giants actually aimed to resurrect principles of the notorious failed SOPA (Stop Online Privacy Act) legislation. While ostensibly intended to combat online piracy, in practice, the bill would grant content producers enormous new powers to block websites and exert control over the way search engines operate, at the expense of free speech, fair use and a free and open Internet (really, we have enough absurd takedown disputes as it is).

As part of a multi-pronged approach, the MPAA and cohorts cozied up with various state attorneys general (a strategy the New York Times recently covered) and lobbied them to go after their number one target: Google. According to the emails, they didn’t simply take AGs out to fancy dinners. They directly funded their investigations against Google to the tune of “$585,000 to $1.175 million” in legal and public relations support. This even included investigations that were totally unrelated to online piracy, presumably just for the sake of harassment. On top of this, they spend more than $100,000 toward generating “media stories based on” these actions (R Street President Eli Lehrer discusses the plan in The Weekly Standard).

All this comes after Google changed its search ranking algorithm in October to downrank sites thought to be promoting illicit content, something the content industry long had sought (although they reacted poorly to the news). But even before this change, as R Street’s Mytheos Holt recently pointed out, mainstream search engines weren’t where people went to find pirated content.

Not only do Google users search for “Katy Perry” more often than they do “Free Katy Perry MP3,” but they do so 200,000 times more often. While sites that host pirated content do get 16 percent of their traffic from search engines, that’s far below the 64 percent average for the Internet at large (for comparison, R Street’s website gets 68.5 percent of its traffic from search, the vast majority of which is from Google).

The attack on Sony was reprehensible. But while one can debate the ethics of unearthing embarrassing comments about celebrities from illegally purloined documents, there’s a clear public interest in talking about the content industry’s campaign to corrupt government officials and undermine the free speech rights of ordinary citizens.

Copyright policy has long been an arena dominated by special interests. Ultimately, we need to take a balanced approach to protect the interests of rights holders while still allowing elbow room for free expression. For some reform-minded policy ideas, check out R Street’s paper on restoring the constitutional purpose of copyright.

The CEA considers a tax by any other name

December 17, 2014, 7:45 PM

The California Earthquake Authority has a heady legislative agenda on-tap for 2015, and Californians without earthquake insurance coverage could be made to foot the bill.

The CEA’s CEO, Glenn Pomeroy, on Wednesday presented two proposals, one laudatory and one lamentable, to the CEA Board of Directors — one designed to improve the state’s earthquake mitigation efforts and the other to increase the earthquake insurance take-up rate.

The laudable proposal would have the CEA seek legislative authority to establish a mitigation-financing program that will allow homeowners to pay for the cost of retrofitting their homes as part of their property tax bill. Such a program would be similar to the Property Assessed Clean Energy concept that R Street has enthusiastically embraced in the past.

The lamentable proposal, a plan to realize “risk-transfer cost savings,” is an effort to displace the costs of an earthquake from CEA policyholders to a broader pool of insureds: those without a CEA policy but insured by a CEA participating insurer. In other words, it’s a potential tax that would hit virtually all Californians.

The CEA’s plan envisions assessing Californians by introducing a layer of post-event bonds to the CEA’s capital structure. Borrowing to finance losses that have already occurred would allow the CEA to reduce its reliance on reinsurance. That would, according to the CEA, allow it to lower its rates. Lower rates would, in theory, encourage more Californians to purchase earthquake insurance.

Pomeroy made much of the fact that reinsurance is the CEA’s largest cost, and maintained that “we need to be less dependent on it to make our product ever more affordable.”

No doubt, increasing the earthquake insurance take-up rate and lowering earthquake insurance rates are laudable goals, but the CEA is going about it all wrong. Reducing reliance on reinsurance requires two significant and undesirable policy changes. First, it shifts risk-financing from pre-event to post-event and second, it displaces financing responsibility from the private realm to he public realm.

The pitfalls of post-event funding are manifest. Post-event funding would diminish the CEA’s ability to prospectively finance subsequent losses and would force the authority to gamble that subsequent assessments would not be necessary. Further, post-event funding would concentrate catastrophe risk in California. Concentrating catastrophe risk guarantees an outsized and long-tailed economic impact within the state.

Florida’s Citizens Property Insurance Corp., another catastrophe-focused, state-run insurance instrumentality, is an archetype of the post-event funding folly. Its reliance on post-event funding led to more than a decade of assessments, in spite of an unprecedented pause in hurricane activity. Citizens seems to have learned its lesson and is now seeking to fund more of its risk with pre-event reinsurance from the private market.

The intrinsic shortcomings of post-event bonding aside, the timing of CEA’s legislative effort is strange. The CEA is seeking to reduce its reliance on reinsurance at exactly the moment that market conditions are such that the CEA could lock in longer-term reinsurance products at lower rates. It was not without some irony that the CEA’s own financial advisor, Kapil Bhatia of Raymond James & Associates Inc., testified before the board: “there is a record level of capital in the reinsurance market.”

Of course, the CEA is well aware of the value to be had on the reinsurance market. The CEA is filing for a rate decrease with the California Department of Insurance based largely on a 16 percent decrease in reinsurance premium that it has realized in the last year.

Given the value proposition of reinsurance, and the increasing availability of capital from the alternative market, there is sufficient financial room to achieve the universal goal of increasing the earthquake insurance up-take rate without shifting risk onto the public.

This raises the question: why is the CEA seeking to reduce its reliance on a method of risk-transfer that was largely responsible for the very rate decreases that it is now so proudly touting?

The answer is straightforward. Pomeroy believes that earthquake exposure is a public liability that all Californians, regardless of their risk, share. Under this rationale, transferring risk onto the public is an appropriate substitute for personal responsibility. Post-event bonds are the first step.

The proposal is a tax, plain and simple. And the last thing California needs is yet another tax.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

After CRomnibus, a conservative wish list for a Republican-controlled Congress

December 17, 2014, 5:10 PM

While enactment of the trillion dollar “CRomnibus” left some conservatives fuming over Republican leadership’s unwillingness to fight a shutdown battle over immigration or the Affordable Care Act, here are a few actions that might encourage conservatives in the upcoming Congress:

  1. Force President Obama to act on Keystone XL – If Republicans are not able to put approval of the Keystone XL pipeline on President Barack Obama’s desk quickly, they will have missed a serious opportunity. Even without control of the Senate, Republicans were only one vote away from making it happen. If President Obama vetoes the measure, Republicans have a strong political narrative on his preference of satisfying his environmental base over improving America’s energy infrastructure. If he approves Keystone XL, Republicans will have a bipartisan victory on a significant policy priority.
  1. Fight Obama’s executive actions on immigration and enact reforms - Republican leaders promised supporters of the CRomnibus an opportunity to fight President Obama’s executive immigration actions early next Congress without shutting down the whole government at the end of 2014. The tactical deferral becomes a political albatross and a divisive issue for Republicans if leadership somehow avoids the confrontation early next year. Republicans must also be proactive by introducing their own immigration reforms that include border security, addressing illegal immigrants in the United States and improving immigration efficiency. As always, the issue of a “path to citizenship” for illegal immigrants will be a political sticking point, but that should not stop Republicans from offering their own plan for the president to consider.
  1. Make Congress accountable for major federal regulations – Most Americans may not realize that presidents and their executive branch agencies are able to make so many regulations that feel like laws because Congress has delegated away its constitutional legislative responsibilities. For years, members of Congress have complained about executive overreach without reclaiming their legislative power. The REINS Act would require members of Congress to approve major federal rules before they could take effect. The GOP needs to show a willingness to be accountable for regulations created using their authority.
  1. Restore the regular budgetary process – Playing chicken with the entire federal government is a tremendous political leverage tool. After being forced to battle with Senate Majority Leader Harry Reid, some in the GOP would love to have President Obama’s veto pen take the blame for a government shutdown. A return to a regular budget process would show a willingness to engage in a real political dialogue, versus winner-take-all politics. While Republicans lose a potential leverage tool, so does the president. More importantly, splitting up federal spending into smaller bills shows a dedication to transparency, rather than giant omnibus measures where various policy changes are easier to hide.
  1. Enact corporate tax reform prioritizing simplicity over cronyism – Almost all Democrat and Republican politicians talk about the federal tax code being filled with loopholes for every special interest imaginable. At a minimum, both sides should be able to agree that eliminating provisions impacting specific industry groups could offset the revenue loss that would come with lowering the 35 percent corporate tax rate that makes the United States less competitive globally. Rather than playing games with the tax code, reducing the marginal rate toward the effective rate (what many companies actually pay) would treat corporations similarly across the board, improve transparency and lower the economic drag of tax compliance on domestic businesses.
  1. Remember the importance of inspiration – For all the lionizing of President Ronald Reagan, Republicans have frequently failed to embrace his ability to motivate with inspiration rather than fear. Inspiring Americans by creating a vision of a better future requires much more effort, but America desperately needs hopeful, happy leaders. Opposing the Affordable Care Act, carbon regulation and the president’s actions on immigration are important policy positions for many conservatives, but they are not a substitute for a positive alternative agenda from the political left. Breaking the bipartisan practice of fear mongering would breathe new life into the GOP and be a welcome change for many Americans.

Fed district court declares Obama’s executive amnesty unconstitutional

December 17, 2014, 4:03 PM

It’s only the first court of many that will review the order, so it’s nothing to get horribly excited about, but one federal district court in Pennsylvania has declared that some aspects of President Barrack Obama’s executive action on immigration go beyond mere “prosecutorial discretion” and are therefore unconstitutional.

Earlier Tuesday, a federal court in Pennsylvania declared aspects of President Obama’s executive actions on immigration policy unconstitutional.

According to the opinion by Judge Arthur Schwab, the president’s policy goes “beyond prosecutorial discretion” in that it provides a relatively rigid framework for considering applications for deferred action, thus obviating any meaningful case-by-case determination as prosecutorial discretion requires, and provides substantive rights to applicable individuals.  As a consequence,  Schwab concluded, the action exceeds the scope of executive authority.

This is the first judicial opinion to address Obama’s decision to expand deferred action for some individuals unlawfully present in the United States.

The case that this particular opinion sprung out of is intriguing: it has to do with an immigrant who was deported, but then re-entered the country illegally. Before the court declared that he should be deported again, the court asked for a briefing on how Obama’s new policies would impact the immigrant, and whether they provided a way for him to avoid deportation. According to the Washington Post‘s legal experts, the constitutional evaluation of Obama’s program wasn’t necessary, but the court decided to do it anyway, which is good, because in this case, a defendant facing deportation would actually have standing to bring a case. The problem with some of the other cases questioning the act’s constitutionality is that they’ve been brought by states, and those states may not actually be able to sue to stop this kind of presidential action.

The reason this court reached the conclusion that it did was because it felt that, while the executive branch does have some prosecutorial discretion on how it handles (or whether it handles) the execution of laws in existing cases, it had gone so far to detail the execution of these laws that it created de facto legislation. Once the executive branch sets forth such a complicated rubric, it teeters into becoming legislation. And when the executive branch usurps the Legislative Branch’s job (even if it’s not technically doing its job), the executive’s actions are unconstitutional.

In this case, the judge also argued that it’s not the job of the government to “gang up” on the individual, and while it may seem like an executive can and should be able to step in when the legislature is failing, that does not necessarily give him more power. And whether the legislature is “failing,” is also a subjective determination; there’s no real emergency, and no urgency in pursuing legislation except for, perhaps, political expediency. So in this case, the court found, “failure” might actually be a legitimate option.

You can read the opinion here.

The Wind Production Tax Credit lives on

December 17, 2014, 2:27 PM

After much negotiation, Congress has passed legislation retroactively extending 55 “temporary” tax breaks (or tax extenders) through the end of 2014. It is likely that the president will also approve this short-term measure. These tax breaks include a number of incentives for nonprofits, individuals and businesses.

While a number of these breaks may raise some eyebrows — such as the tax credits for NASCAR tracks, Puerto Rican rum makers and Kentucky Derby racehorse owners — there is one particular extension that blows the rest out of water: the Wind Production Tax Credit. The projected cost of another one-year extension is $6.1 billion dollars, which doesn’t count the increased electricity costs in states with the highest wind “productivity.”

While encouraging new energy sources is a noble objective, R Street has detailed on manyoccasions how poor public policies like the WPTC actually deter private sector investment in promising energy sources and cost the American taxpayers dearly.

It isn’t just fiscal conservatives who are wary of this wasteful spending. As Warren Buffett summed up eloquently: “we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

It is about time policymakers hit the pause button and reevaluate their strategy on wind energy. Eliminating wasteful subsidies for the politically connected is a great place to start.

The temporary nature of this tax package gives the new Republican-led Congress a real opportunity to address our nation’s tax code. House and Senate leaders including (soon-to-be) Ways and Means Chairman Paul Ryan, R-Wis., and (soon-to-be) Senate Finance Chairman Orrin Hatch, R-Utah, have begun serious efforts to move the issue of tax reform forward.

It is about time we set a new course. One hopes the next Congress will eliminate the Wind Production Tax Credit as part of a serious effort to streamline and modernize our nation’s tax code.

This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

50+ organizations and experts call for improved intelligence oversight

December 17, 2014, 10:47 AM

WASHINGTON (Dec. 17, 2014) – Citizens for Responsibility and Ethics in Washington, the R Street Institute, the Sunlight Foundation and 50 additional organizations and individuals today called on congressional leaders for much-needed oversight reform of intelligence collection.

The letter—sent to Speaker John Boehner, R-Ohio, and House Minority Leader Nancy Pelosi, D-Calif.—is accompanied by a report from Citizens for Responsibility and Ethics in Washington that expands on the recommendations and details the extreme need and urgency for swift action by the House of Representatives.

The groups’ call comes on the heels of the release of the redacted Senate torture report, the disturbing details of which emphasize the need to empower congressional oversight of intelligence activities.

“These important oversight reforms will lay the groundwork for a more informed debate over looming national security questions by empowering members of Congress to make better informed decisions for themselves and their constituents,” said R Street Policy Analyst Nathan Leamer.

Outdated rules currently pose an obstacle to members who seek to access information about intelligence collection and to provide adequate oversight. Proposed solutions include giving a greater number representatives with experience in appropriations, judiciary, armed forces and other relevant matters a seat on the House Permanent Select Committee on Intelligence—the committee charged with overseeing intelligence collection.

“For far too long, the intelligence community has eluded the accountability essential to a democracy,” said CREW Policy Director Daniel Schuman. “These recommendations empower members of Congress to engage in the oversight necessary to check executive power and keep the people informed about what government is doing in their name.”

There is consensus on the need for these changes among good government groups from across the political spectrum, and it is broadly understood across Congress.

The letter also urges House leadership to ensure the select committee has adequate staffing with appropriate clearances to access and review intelligence information. Non-committee members also should be able to communicate with and retrieve information from the committee in order to exercise their oversight duties and make informed votes on intelligence issues.

“The Obama administration has claimed the current rules are sufficient, but they inhibit members from knowing, much less understanding, the activities of the intelligence community,” said Sunlight Foundation Federal Policy Manager Sean Vitka. “The existing rules actively prevent effective oversight, especially among members who are not currently seated on the House Permanent Select Committee on Intelligence.”

For a copy of the full letter and a list of signers, go here.

Vermont leads nation in effective insurance regulation, California least effective, R Street study finds

December 17, 2014, 9:56 AM

WASHINGTON (Dec. 17, 2014) – The R Street Institute has released its annual report card on insurance regulation, awarding Vermont with a grade of “A+” and California and North Carolina grades of “F.”

The 2014 Insurance Regulation Report Card, R Street’s annual flagship publication, examines which states do the best job of regulating the business of insurance, by assigning scores in 12 different areas, including insurer solvency, fraud, competitiveness and willingness to modernize.

“Reviewing the data on insurance in 2014, we see mostly stable trends in consumer and business freedom in state insurance markets,” said R Street Editor-in-Chief and Senior Fellow R.J. Lehmann, the author of the study. “In some states – notably Florida – real efforts were made to scale back, or otherwise place on more sound financial footing, residual insurance markets and state-run insurance entities. Other states, notably North Carolina, appear to be moving in the wrong direction.”

Vermont received consistent scores across almost all areas of the scorecard, specifically in consumer protection, politicization, auto and homeowners insurance environments, rate freedom and clarity and regulatory restrictions.

At the other end of the spectrum, North Carolina received a failing grade in part due to the state’s inflexible rate bureau system and recent growth of the residual market FAIR Plan and Beach Plan. California earned a failing grade due to its similarly inflexible Proposition 103 regulatory system.

The report also noted that states continue to draw far more in regulatory fees and assessments than they spend on insurance regulation. The 50 states, Puerto Rico and the District of Colum­bia spent $1.32 billion on insurance regulation in 2013 but collected more than double that amount, $2.74 billion, in reg­ulatory fees and assessments from the insurance industry.

“These surplus regulatory fees and assessments end up in state coffers to patch other holes in state budgets,” Lehmann said. “They serve as a hidden tax on insurance consumers, raising the cost of coverage for everyone.”

If premium taxes, fines and other revenues are included in the tally, only 6.4 percent of the $20.45 billion states collected from the insurance industry last year was spent on insurance regulation, down from 6.6 percent the prior year.

The full report can be read here.

2014 Insurance Regulation Report Card

December 17, 2014, 9:00 AM

Since it opened its doors two years ago, R Street has issued an annual Insurance Regulation Report Card. This is the third edition of our annual examination of which states do the best job of regulating the business of insurance. R Street is dedicated to the mantra: “Free markets. Real solutions.” Toward that end, the approach we apply is to test which state regulatory systems best embody the principles of limited, effective and efficient government. In this context, that means states should regulate only those market activities where government is best-positioned to act; that they should do so competently and with measurable results; and that their activities should lay the minimum possible financial burden on policyholders, companies and ultimately, taxpayers.

There are three fundamental questions this report seeks to answer:

  1. How free are consumers to choose the insurance products they want?
  2. How free are insurers to provide the insurance products consumers want?
  3. How effectively are states discharging their duties to monitor insurer solvency, police fraud and consumer abuse and foster competitive, private insurance markets?

For this year’s report, we have adjusted the weightings of some categories and incorporated new data sets into our analysis. Most notably, we have added new sections analyzing the resources state insurance departments set aside to respond to consumer complaints, as well as states’ efforts to modernize their regulatory apparatus through such efforts as reform of reinsurance collateral rules and participation in the Interstate Insurance Product Regulation Commission. We also have refined our analysis of states’ fraud-fighting resources to better measure the degree to which they are prepared to respond to levels of suspected fraud reported in each state. Finally, both in order to more equitably balance the 12 macro rating categories this report tracks, and to provide more intuitive final scores, we have weighted the categories so as to track with a scale of zero to 100.

Did Tom Coburn just cancel the Super Bowl?

December 17, 2014, 12:06 AM

No, is the short answer. The longer answer is more complicated.

As has now been widely reported, it appears the U.S. Senate will not, after all, pass legislation extending the federal Terrorism Risk Insurance Act before the program’s scheduled expiration Dec. 31. The House had already passed the bill (about which, we’ve already expressed our quibbles) and Senate leadership reportedly had enough votes even to sustain any one of a number of potential 60-vote procedural motions.

In the end, however, a threatened hold from outgoing Sen. Tom Coburn, R-Okla., will sideline the measure for the rest of the year. Despite earlier promising that “we’re going to have to be here until we finish our work, whether that’s Tuesday, Wednesday, Thursday, Friday or Saturday,” Senate Majority Leader Harry Reid, D-Nev., sounded tonight like he was ready to throw in the towel on this one:

“His objection is going to kill TRIA,” Senate Majority Leader Harry Reid (D-Nev.) said Tuesday night, referring to Coburn.

“If we change the bill it’s gone,” Reid said. “Amending the TRIA bill would just be another way to kill the TRIA bill.”

Originally passed in 2002, TRIA requires commercial property insurers to offer terrorism insurance coverage to their clients in certain key lines of business, and creates a $100 billion federal reinsurance backstop for terrorism-related losses. The bill under consideration would raise the point at which coverage is “triggered” from the current $100 million in terrorism-related losses to $200 million.

Long a skeptic of the TRIA program, Coburn said his objection actually was to a separate provision to create the National Association of Registered Agents and Brokers, a nationwide registry of licensed insurance agents that was originally proposed as part of the Gramm-Leach-Bliley financial reform bill back in 1999:

He is criticizing the creation of a national, nonprofit clearinghouse that would allow insurance agents to register and establish a national standard, and he says states should be able to opt out of the program.

Coburn spokeswoman Elaine Joseph said that Coburn wants to offer an amendment allowing for the opt-out.

“If NARAB [National Association of Registered Agents and Brokers] is as popular as proponents say that it is, no state will ever opt out and the amendment will be moot,” Joseph said.

While we did not and would not advise allowing the program to expire abruptly, as it likely will cause at least a few weeks of consternation over what coverage insureds do or do not still have, neither is a short-term expiration of the program necessarily the catastrophic event some in the affected industries would have you believe. The broad outlines of a deal – albeit, as already mentioned above, not a deal we at R Street were especially pleased to see — clearly are already in place.

While there is a chance that the new Republican majority in the Senate would entertain somewhat broader and somewhat deeper reforms to the program than the outgoing Democratic majority, truly transformative changes aren’t really in the cards, and there’s almost zero chance that the program would stay expired for long. An extension could potentially even be passed “retroactively.”

Perhaps top of mind to the general public, who don’t usually pay much attention to obscure federal reinsurance programs, is that one particularly pernicious rumor should finally be put to rest: no one is canceling the Super Bowl over terrorism insurance. The NFL is now making this as clear as possible:

But NFL spokesman Greg Aiello told CNN in an email Tuesday that the speculation over the Super Bowl being canceled is “not true.”

“The Super Bowl will be played,” Aiello said.

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Lawsuits against premium booze makers may have major impact on spirits labeling

December 16, 2014, 4:01 PM

So-called “premium” spirits, which are made in smaller batches and are traditionally more expensive than ordinary mass-produced spirits, are helping to fuel growth in alcohol sales in the United States and around the world. This coincides with the increase of market share that so-called craft beers have been enjoying in recent years. Higher-quality alcoholic beverages are in demand.

Two of the brands that have been gaining in popularity are Maker’s Mark bourbon and Austin, Texas-based Tito’s vodka. Just last year, Marker’s Mark aficionados complained when the company thought about lowering the alcohol content in order to stretch supplies. Tito’s vodka has seen explosive growth in sales since its founding in 1997, announcing plans for international expansion this year. Both brands also are targets of lawsuits from booze drinkers over how each is marketed and labeled.

Let’s start with Tito’s vodka. It’s distilled in Austin, Texas and comes with a fascinating story. Its founder, Bert “Bertito” Beveridge, started the company after borrowing $90,000 on his credit cards and cobbling together a still of used Dr. Pepper kegs and a turkey-frying rig. Beveridge won the San Francisco World Spirits Competition in 2001 and the company subsequently took off. Today, it has a 26-acre facility that produces 850,000 cases a year. In spite of this growth, the vodka brand still calls itself “Tito’s Handmade Vodka.”

In September, Tito’s was hit with a California lawsuit for false advertising, among other charges. The following month, the company was hit with a similar lawsuit in Florida. Both suits claim the product can no longer be called “handmade” because it’s made in a large factory process with little control by humans. Beveridge released a statement to the media answering the charges:

‘Here at Tito’s Handmade Vodka, we are proud of our process that focuses on the quality of the product and involvement of human beings,’ he said. ‘We distill at the same distillery in Austin, Texas, where I, Tito, started the business in 1995, distilling in batches in pot stills that are customized and hand-built on-site to our proprietary specifications. We hand-connect the hoses and pumps as we taste and qualify the next steps with the distillate. We taste our product to ensure head and tail cuts, all of which are done at our distillery in Austin, Texas, are made to our exacting standards to deliver the highest quality. The artistry involved in knowing when it’s time to make those cuts is something that cannot be duplicated by even the most sophisticated machines. Our proprietary process is designed to bring the very best quality vodka to our friends and fans for a reasonable price.’

Maker’s Mark also has been hit by a lawsuit over its label. Maker’s Mark, which is owned by Beam Suntory — which also owns Jim Beam and many other brands — also calls itself “handmade.” The Maker’s suit was also filed in California and accuses the company of misleading consumers because Maker’s Mark also uses modern manufacturing processes. While Beam Suntory has not commented to the media about the specifics of its planned defense, an attorney and bourbon expert, Chuck Cowdery, explained one potential strategy to the Lexington Herald-Leader:

‘I’m sure somebody noticed ‘handmade’ on the Maker’s Mark label and figured the case is just as good against Maker’s as it is against Tito’s, and Maker’s (i.e., Beam Suntory) has much deeper pockets,’ Cowdery said by e-mail. ‘Maker’s Mark isn’t new to this question. They have always pointed to the fact that every bottle is individually dipped in wax by hand. One might also argue that constant human oversight of all processes is a component of ‘handmade.”

The outcomes of these two lawsuits could go a long way to determine how companies in the premium spirits industry market themselves. The “handmade” label is just a part of how premium-spirits distillers set themselves apart from mass-produced products. A lot of the confusion centers on how to define a “premium spirit” or a small batch maker. Do we apply the terms to companies like Maker’s Mark and others like them who merely produce smaller volumes of alcohol, or do we need a more narrow definition?

The American Craft Spirits Association, which ironically was co-founded by Tito’s Vodka, limits membership to companies that produce less than 315,000 cases a year and are independent licensed distillers. This means that Maker’s Mark and other brands that are owned by larger companies could not join. Are the smaller distillers the only true “craft spirits” and the only true premium spirits on the market?

Ultimately, these questions will be worked out by the courts in how they interpret the false advertising statutes. But American consumers will play their own role in deciding which brands they think provide them with the premium alcohol they’re looking for.

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Big CRomnibus winners: NSA, hungry kids, farting cows

December 16, 2014, 10:41 AM

If there was any good news to come out of this weekend’s CRomnibus festivities, it was that you can now make any Democrat immediately cringe by implying that Eizabeth Warren is their side’s equivalent of everyone’s favorite showboating Republican presidential contender, Ted Cruz. But that’s about it. The rest of the CRomnibus is just an endless string of soul-crushing spending provisions, Wall Street handouts and complete budget funding for a bunch of agencies you don’t even know exist until you accidentally run afoul of them.

There were some winners, though. Republican legislators managed to scale back a few of Michelle Obama’s school lunch reforms, which will mean that fewer middle- and high-school kids will be able to gross out the Internet with their meager and disgusting meals (proven to keep them from obesity by ruining their delicate teenage appetites). Leadership was also able to cancel out EPA regulations that would have compelled cattle and dairy farmers to report and control the “methane gas emissions” from their herd, and prevent them from having to purchase EPA indulgences just so that their cows can safely fart and burp on American soil.

And while you were busy wondering if the government was going to shut down, and busily poring over 15 pounds of the CRomnibus bill, Congress took advantage of the distraction to pass a sweeping endorsement of the NSA’s warrantless data collection program.

With nearly no public notice or debate, Congress on Wednesday approved legislation that critics say blesses the warrantless collection, dissemination and five-year retention of everyday Americans’ phone and Internet communications

The controversial language was quietly incorporated into an intelligence authorization bill that passed the Senate on Tuesday and then the House on Wednesday.

The legislation, privacy advocates say, sanctions for the first time the executive branch’s warrantless collection of American communications under Executive Order 12333, issued in 1981 to authorize the interception of communications overseas.

Section 309 of the intelligence bill sets a five-year limit, with many exceptions, on the retention of U.S. persons’ communications collected under that order, which was issued well before widespread use of cellphones and the Internet….

The good news is that Congress has managed to update a law that was written in 1981, before anyone was using email to do anything other than direct troop movements along the USSR’s Western border. The bad news is, they don’t much care to do anything to the law that reflects any update in technology made since the Reagan administration, and the provision basically rubber stamps what the NSA is already doing. But at least they’re being remarkably efficient in the Obama administration’s service for once: the update comes just in time for a rather large expansion in the Obama Administration’s surveillance program.

The New York Times reported in August that the Obama administration is rewriting internal policies to allow the FBI direct access to a database of raw communications collected under the executive order.

Yaaaaaaaay. I suppose it’s only perfectly appropriate that the U.S. Congress is taking note of the holiday spirit by adopting the same policy towards privacy as the Elf on a Shelf.


Patents as weapons of self defense

December 15, 2014, 11:21 AM

The Center for Economic and Policy Research’s Dean Baker notices something strange in the New York Timesprofile of four-year-old Chinese cell phone manufacturer Xiaomi, an emerging player in the global telecommunications market. Specifically, Baker picks out a seemingly throwaway line highlighting that one of the challenges Xiaomi faces is that it “does not yet have much of a patent portfolio, leaving it vulnerable to lawsuits from competitors.”

Baker asks why the lack of a patent portfolio, in and of itself, would necessarily open an emerging tech company to lawsuits:

The answer of course is that patents are used as a harassing tactic. The idea is to bury your competitor with patent suits in the hope that one may actually get past summary judgement and go to trial. This can be time-consuming and expensive for a small company.

The advantage of having a large patent portfolio in this context is that you get to play tit for tat. You turn around and throw a pile of patent suits back at your competitor. The fight usually ends with both sides agreeing to drop suits, and occasionally some licensing fees being paid.

From an economic standpoint, these patent wars are a complete waste, but they nonetheless may prove profitable for a company that fights effectively. It’s too bad that our “free traders” are so opposed to free trade, otherwise we could reduce this source of waste and upward redistribution (patent lawyers tend to be one percenters).




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Revealed: Little-known Mississippi attorney general go-to man for Hollywood

December 15, 2014, 10:45 AM

It’s easy to see how Mississippi Attorney General Jim Hood—a Bible-reading, pro-gun, pro-life Democrat—has survived in statewide office even as his already conservative state has turned a deeper shade of red. Quite simply, he’s a likeable, quotable guy who doesn’t seem to have forgotten his roots in New Houlka, Miss. (population 626).

Since taking office in 2003, Hood has done meritorious work bringing Civil Rights Era murderers to justice and has proven himself willing to tussle with insurance companies (over hurricane claims) and drug companies (about prices). Even his ties to once-wealthier-than-Croesus trial lawyer Dickie Scruggs (who finished up his prison sentence in September) seemed only to add to his populist charm.

That’s why it’s very interesting to learn, via the recently leaked trove of Sony emails, that Hood is the go-to-guy for Hollywood movie studios seeking to gain the upper hand in a complex but high-stakes battle with Internet companies over copyright law. In a nutshell, the studios, through the Motion Picture Association of America (MPAA), are seeking to revive the principles of the controversial SOPA (Stop Online Piracy) and PIPA (Protect IP Act) that would give them and anyone else who owns intellectual property a huge amount of power over the way websites and search engines operate.

The webzine The Verge first reported that one e-mail from MPAA General Xounsel Steven Fabrizio talks about getting together three to five attorneys general but says that “Hood alone, if necessary” will carry water for the studios. Similarly, the website Torrentfreak reports that Hood’s potential reaction to a press release was key in shaping the studios’ public message. Hood, the moviemakers and their lawyers seem to assume, is the guy who can and will issue civil investigative demands to the search engines on all sorts of things that interest them. As Techdirt reports, the studios are willing to spend heavily to get even more AGs to follow in Hood’s footsteps.

They’ll need some sort of strategy like this because the heavily funded push to pass SOPA and PIPA in 2012 failed dismally after groups on the left, right and center — as well as major Internet sites like Wikipedia — launched a major protest involving mass petitions and a one-day site blackout.

No evidence suggests that Hood’s relationship with the movie industry violates any laws or canons of legal ethics. Moreover, none of Hood’s major financial supporters seem to have strong ties to the movie industry. That makes his behavior all the more unusual, since Mississippi has almost no economic interest in the movie industry.

Indeed, the state lacks a major film school, doesn’t house production for a single scripted TV show and has served as the main shooting location for only five widely released movies over the past decade. The MPAA itself says that the state has a total of 242 film-and-television-production related jobs; one of the smallest per-capita totals in the nation. All in all, Mississippi has more people who make their living arranging flowers (460, according to the Bureau of Labor Statistics’ databases) than in film and TV production.

Maybe Jim Hood really likes hanging out with movie moguls?

San Antonio votes to crush ride-sharing companies like Uber

December 15, 2014, 10:16 AM

From Breitbart:

San Antonio already had the most restrictive regulations for TNCs, according to a study by the free market think tank R Street Institute, as Breitbart Texas reported last month. “Make no mistake. This is not an ordinance to allow ride-sharing. It’s an ordinance to prevent ride-sharing,” said Josiah Neeley, R Street’s Texas Director. “The regulation throws up so many anti-ride-sharing roadblocks, from millions in insurance to written exams, that it will effectively prohibit ride-sharing companies from operating in San Antonio.”