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The split screen

January 15, 2016, 6:52 PM

The headline for a New York Times piece by Peter Baker this week used the metaphor of a split screen, contrasting President Obama’s State of the Union address with the messages conveyed in last night’s South Carolina debate between the Republicans who seeking to replace him.

We are decidedly the most powerful nation in the world, or we have nearly fumbled our chance to be so.  We have a surging economy with millions of new jobs, or we are making our way back excruciatingly slowly to where we were in 2008, and only after throwing trillions of dollars onto our piles of debt. We have better health-care coverage and have saved the system with electronic medical records, or our doctors all complain that they spend 90 percent of their patient time (with the few lucky people they still are willing to see) clicking through seven computer screens to prescribe Tylenol. Wall Street runs the country and is ruining it, or the political class is running the country and ruining it.

Take your pick of visions. These are the landscapes in the parties’ parallel universes. As we move into election season, they will provide a lot of interesting discussion, and much more noise.

With the January calendar still allowing a first this or that in 2016, I would like to add these considerations of public schizophrenia to those proffered:

Is the United States a country which is great, or used to be, or can be, because of its government or because of the character of its people?  Because of its rules, or because of the people who live by them – or don’t?  Are we a better country if the federal government decides most everything about how our nation operates, or is it a better county if the states and local governments can figure out much of how to referee the activities of the work-a-day world?

How many people understand the difference between national and federal these days?  I can tell you that many CEOs have learned the difference, as regulations spew out of the Federal Register.

Ten or so years ago I was privileged to sit in an audience in the National Press Club in Washington to listen to a presentation by the legendary Alex Kozinski, who until 2014 served as chief judge of the U.S. Court of Appeals for the Ninth Circuit. He was introduced by Supreme Court Justice Anthony Kennedy and stepped to his side to rip the cover off of a large presentation board on an easel with some writing on it.

Upon inspection, it appeared to be a colorful version of the first ten amendments to the U.S. Constitution – the Bill of Rights.  Some of them were huge and written in international orange and hot pink. Some were barely discernable by even those seated in the front rows.  He said that’s how the US Supreme Court actually sees them.

Kozinski’s point was that the first, fourth and fifth amendments get a lot of attention at SCOTUS, but cases were not being brought under the Tenth Amendment.  There had been only two or three within the last couple of decades, at that time.

Today, largely because of the partisan and ideological agenda of the current administration, there is surging interest in rebuilding the federalism structure that served us well for hundreds of years.  As Ronald Reagan often reminded us and the current crop of GOP presidential candidates are emphasizing, the powers not enumerated in the Constitution are reserved to the states and the people.  The states have shown the way to reform and innovation for years, and people are starting to recognize the difference between state and federal regulation.

There are many manifestations of this new split-screen federal/state vision, which has worked its way into the edge of the right-track/wrong-track polling.  As Gov. Chris Christie mentioned in the Charleston debate, since Mr. Obama has been in the White House, the number of states run by Republican governors has increased from 19 to 31. That can’t be purely attributable to gerrymandering (state borders haven’t changed, after all). It must mean that voters are becoming more concerned about fiscal management.  How else do you explain new Republican governors in Maryland, Illinois and Massachusetts?  How else do you explain General Electric’s move of its corporate headquarters to the latter from Connecticut?

Delegations from many states have met three times in the last two years, specifically to discuss an Article V constitutional convention to address restoring the eroded authority of states.  A large number of them are suing or otherwise resisting the federal government on health care, land management, the administration’s Clean Power Plan or the Waters of the United States regulation.

My friend Ken Ivory, a state legislator in Utah, was on the front page of the New York Times this week as the founder and energy behind the American Lands Council, an organization formed to petition the federal government to return unallocated federal lands in the western states to those states, as was done in the East a century and a half ago. Because the federal government owns up to 90 percent of the unallocated land in some states, it is supposed to be making payments in lieu of taxes that the states are unable to levy to support school districts and other state services funded by property taxes.

Unfortunately, when sequestration went into effect, one of the first things cut was these payments to states.  The federal government loses money on every acre of land that it holds, and has locked up enough resources from any recreational, mineral resource, timber harvest or other use to have attracted increasingly negative attention from residents of western states.

Sen. James Inhofe, R-Okla., who chairs the Senate Environment and Public Works Committee fired off a letter earlier this week to 20 politically diverse states who are contesting EPA overreach over one issue or another.  After identifying the purpose of the request for information, the letter ends:

Accordingly, the Committee respectfully requests your feedback on the state resources and efforts necessary to comply with EPA regulatory actions, and whether the current regulatory framework between EPA and the states upholds the principle of cooperative federalism.

It has been a long time coming, but the long-ignored side of the split federal/state screen is beginning to sputter some images, and could generate a strong signal during the upcoming presidential sweepstakes.

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

Postcom national news

January 15, 2016, 5:38 PM

From Postcom

The Postal Service Board of Governors is not well-structured to provide competent oversight of USPS executives and the massive USPS apparatus. The agency has a half-million employees and more than 30,000 facilities. Governors are part-timers who rarely have expertise in postal operations or corporate matters. They do not have a squad of permanent professional staff who can school them on postal issues and watch the hen house while they are away. Governors’ compensation, notably, is not affected by their performance or by the USPS’ financial results. As Congress slogs away at postal reform legislation, one hopes it will rethink the USPS board of governors. It may determine that a board is still needed, but if so, lawmakers should define its purposes, and craft the board in a way that would give its members the ability and incentive to be successful.

 

BCFC announces top ten most egregious examples of unfair government competition for 2015

January 15, 2016, 5:33 PM

From Business Coalition for Fair Competition

San Antonio’s CPS Energy, the city-owned utility, began a solar rent-a-roof program, SolarHost, a pilot program that would pay CPS customers, homeowners and commercial property owners to let them put solar panels on their roofs in direct competition with private solar companies.

How to fix Fannie and Freddie

January 15, 2016, 11:56 AM

This op-ed was co-authored by James K. Glassman, a former under secretary of State and a visiting fellow at the American Enterprise Institute.

In the midst of the financial panic seven years ago, the government took over and bailed out two of the culprits of the bubble, the mortgage giants Fannie Mae and Freddie Mac. Now, as we start 2016, they have $5 trillion in assets but are still entirely wards of the state. It’s high time to resolve this great unfinished business. We need to extract Fannie and Freddie from their government bondage, while simultaneously ensuring they will never repeat their disastrous free ride on the taxpayers.

In September 2008, Fannie and Freddie were put in federal conservatorship as their losses from bad loans and subprime investments swamped them. The Treasury Department eventually invested $189 billion of taxpayers’ money to get their capital up to zero. Under the bailout deal, Fannie and Freddie had to pay a 10 percent annual dividend on the $189 billion in senior preferred stock that the Treasury acquired. (In addition, the government owns warrants on 79.9 percent of Fannie and Freddie common stock, which pays no dividend.)

Of course, other big financial institutions received Treasury investments as well. JPMorgan Chase, Wells Fargo, Citicorp and Bank of America—the nation’s four largest banks—received a combined $90 billion. American International Group Inc., the giant insurer, received $68 billion from the Treasury and more from the Federal Reserve. All repaid the money and continue as privately owned, publicly traded companies.

Fannie and Freddie have not retired a dollar of the government investment, although they have paid $241 billion in dividends on the Treasury’s senior preferred stock. In 2012, the government, in an agreement between conservator and the Treasury—that is, an agreement between the government and itself—changed the deal. In regular “profit sweeps,” the dividend was redefined as all of the institutions’ net profit except a bit of working capital. This abrupt change of terms has been challenged in the courts by investors, so far without success.

As a result of the sweeps, Fannie and Freddie cannot build capital. Their combined $5 trillion in liabilities is supported by a mere $5 billion in equity, for a risible capital ratio of 0.1 percent. Even minor losses would thus require more bailout money. Compare that to the 5 percent minimum capital ratio required of large banks.

So here we are: The two mortgage funders are effectively federal bureaucracies, stripped of their independence, with basically zero capital, but still dominating the market for mortgage financing.

What to do? Politicians on the left like the situation the way it is, with Fannie and Freddie under total government control and subject to the same political pressures to provide high-risk mortgages that got them into trouble in the first place. Conservatives are ambivalent. Many especially despise Fannie for its history as a Democratic Party fiefdom and would prefer to kill off both firms. Others want to relaunch them in privatized form onto the free-market, but aren’t sure how.

There is a way. Fannie and Freddie shouldn’t remain government agencies, but they shouldn’t die either because they have built considerable organizational value over the decades. The key is to transition the entities to the private sector by eliminating the previous special advantages that came with their status as government-sponsored enterprises. They should have to compete on an equal footing with the big banks. Here’s how to do that:

First, Congress should return Fannie and Freddie to the free market by eliminating the sweep on the mortgage giants’ profits each quarter and instead reinstituting the original 10 percent dividend on the Treasury’s senior preferred stock. This change should be extended back to 2012, as if the “profit sweeps” agreement never happened. Any difference between the sweep and the initially negotiated 10 percent dividend can be used to pay down the principal on the government’s senior preferred stock until it is retired. Treasury would also be required to exercise the warrants it owns for 79.9 percent of Fannie and Freddie’s common stock, and then sell the shares into the market over time.

Second, lawmakers must end Fannie and Freddie’s unfair advantage over other banks. Treasury should end the conservatorship and designate Fannie and Freddie as systemically important financial institutions, subject to the same capital-ratio requirements as large banks like JPMorgan Chase. This denies Fannie and Freddie a capital advantage over the private sector and adds a key layer of safety for taxpayers.

Congress should also make Fannie and Freddie pay a fee for the implicit federal backing that their bonds enjoy. Investors will still rightly believe that the mortgage giants enjoy an implicit backing from the federal government—and thus will be able to borrow at preferred rates. To offset this, the feds should simply charge a fee through a levy on total liabilities—the same way banks pay for deposit insurance.

Third, lawmakers must end the current exemption Fannie and Freddie enjoy from state and local corporate income taxes and enforce the law that requires increasing the g-fees that Fannie and Freddie charge to guarantee mortgage-backed securities. Those fees are now artificially low, keeping out private competitors.

Finally, Congress should ensure that Fannie and Freddie are no longer used as vehicles to promote social agendas or reward political constituencies by requiring normal congressional appropriations for what the two entities used to dole out from their subsidized profits.

Under this proposal, the two institutions would become private financial institutions on a par with other large banks. They would no longer be government-sponsored enterprises, trading favors with politicians for an implicit free guarantee. Fannie and Freddie would have to raise their own capital through debt or equity offerings and retained profits and slug it out with JPMorgan Chase, Wells Fargo, Citi and Bank of America and whatever other banks want to compete in the mortgage liquidity business.

In the omnibus funding bill last month, Congress inserted a “jump-start” provision that prevents Treasury from imposing more unilateral conditions on Fannie and Freddie like the 2012 sweep. The responsibility now lies with Congress itself to clean up the great unfinished business of 2008.

Daniel Semelsberger

January 14, 2016, 6:21 PM

Daniel Semelsberger is R Street’s research assistant for financial services. Before joining R Street, he served as a co-author and editor for textbooks with Higher Rock Education.

He is a recent graduate of Kenyon College, where he held several leadership positions with the Student Council and Campus Senate, as well as various student groups.

Email: dsemelsberger@rstreet.org

Obama’s disappointing regulatory reform record

January 14, 2016, 3:55 PM

In his final State of the Union, President Obama declared his belief that “a thriving private sector is the lifeblood of our economy,” which he paired with the assertion that “there are outdated regulations that need to be changed and there’s red tape that needs to be cut.”

Hearing these words was less a cause to cheer than a depressing reminder of the road not taken. Obama arrived in office as a self-proclaimed reformer who aimed to go big in public policy. Tinkering with broken systems was futile; systemic reforms were needed. Health care, for example, needed to be reinvented entirely. Obama spoke as a progressive technocrat who wanted to pursue smartly designed post-partisan policies.

A few months into his first term, Obama appointed Cass Sunstein to head the White House’s Office of Information and Regulatory Affairs. A Harvard professor who understood regulation, Sunstein had a record of following logic and evidence even when it went to politically incorrect places. It looked to many of us like proof that the president wanted iconoclastic solutions. OIRA plays a critical role in producing rules that affect just about every aspect of our lives.

Hopes for regulatory reform rose higher in 2011, when Obama released an executive order directing agencies to “identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.” The presidential directive also tasked agencies with crafting plans for retrospective reviews to ensure regulations were not “outmoded, ineffective, insufficient or excessively burdensome.”

The talk was big, but the action ultimately was underwhelming. The regulatory system remains today largely as it was. Private companies and groups frequently find themselves suing the government to halt extra-legal regulations. The Code of Federal Regulations, the corpus of current rules, continues to grow. Today, it runs to more than 175,000 pages.

Disappointingly, the Obama administration proved more than happy to issue mega-regulations to achieve its policy goals, like “net neutrality.” Sunstein quit in 2012 after suffering the slings and arrows of the left, who found him insufficiently eager to regulate. Rep. Darrell Issa, a California Republican,observed with a jaundiced eye that Sunstein “appeared to recognize the harm overly burdensome regulations inflict on economic growth and job creation—although he was not able to stop the tsunami of regulations enacted by the Obama administration.”

Obama has shown unabashed and consistent disdain for congressional efforts for regulatory reform. In both 2011 and 2015, Obama threatened to veto the REINS Act, which would have made Congress vote to approve $100 million regulations before they took effect. Last year, the president also threatened to strike down Rep. Bob Goodlatte’s modest Regulatory Accountability Act.

The week before his SOTU pronouncement, the Obama administration promised to veto two regulatory reform bills: the Sunshine for Regulatory Decrees Act and the SCRUB Act. The former legislation aims to open to public scrutiny the “sue and settle” agreements between regulators and the regulated. The latter bill would create a bipartisan process for weeding out old and failed regulations. Never mind that the SCRUB Act had the support of Speaker Paul Ryan and 245 members of the House. “Although outside input and perspective on what rules may be ripe for potential reform or repeal is crucial,” the administration lectured, such “review is most effective when led by the agencies.” Even when both house of Congress voted to disapprove of a particular rule, the president wielded his veto.

In the past seven years, Obama has behaved less as a regulatory reformer than an eager proponent of executive unilateralism. The only regulatory changes enacted were those he likes, none of which have fundamentally transformed the regulatory regime. If that were not sufficiently disappointing, more new regulations can be expected before Obama departs from office.

 

Coalition letter to House Oversight Committee on NSA surveillance of Congress

January 14, 2016, 2:57 PM

Jan. 14, 2016

The Honorable Jason Chaffetz
Chairman, Committee on Oversight and Government Reform
2157 Rayburn House Office Building
Washington, DC 20515

The Honorable Elijah Cummings
Ranking Member, Committee on Oversight and Government Reform
2471 Rayburn House Office Building
Washington, DC 20515

Dear Chairman Chaffetz and Ranking Member Cummings:

We are writing regarding the Dec. 30, 2015, letter to National Security Agency Director Michael Rogers inquiring into “the processes NSA employees follow in determining whether intercepted communications involve[] Members of Congress and the latitude agency employees have in screening communications with Members of Congress for further dissemination within the executive branch.”

Congressional independence from the executive branch is essential to our system of separated powers enshrined in the Constitution. This independence must include protection from executive branch surveillance when conducting legislative and oversight functions. We applaud the inquiry into whether the executive branch has overstepped its proper role through intentional or “incidental” collection of communications involving Members of Congress.

As part of this inquiry, we urge you to hold public hearings into this issue. Hearings should address whether the executive branch has intercepted communications regarding the Congress, federal courts and other independent government agencies; the sufficiency of existing protections to ensure that the communications of Congress, the courts, and other independent government agencies are not intercepted; and the need for additional legislation to ensure appropriate separation of powers in this context.

In addition, we urge you to publicly share guidance governing the process the NSA follows regarding interception of communications from or to the Congress, the courts and other independent government agencies, and in screening such communications for further dissemination. During prior congressional investigations of Intelligence Community activities, congressional requests for information have been interpreted narrowly and not always in accordance with their plain meaning.

 

Accordingly, we encourage a broader and deeper inquiry that goes beyond the private staff briefing requested for Jan. 15. This inquiry should examine past collection practices; collection of communications and metadata involving congressional staff and legislative support agency staff; communications with Congress by critics of the government, including whistleblowers; and possible data collection of activities conducted by the courts and by government agencies that are independent from the executive branch.

Finally, we urge you to develop legislation to limit collection of communications involving legislative and judicial branch activities, as well as independent executive branch agencies. NSA guidance on data collection efforts is subject to agency interpretation and these dissemination practices are subject to change. Legislation should flatly prohibit executive branch interception of communications and collection of metadata involving Members of Congress, congressional staff, legislative support agency staff, and the work of any independent government agency, unless explicitly and directly authorized by a federal judicial warrant pursuant to a judicial finding of probable cause. The ban also should extend to the federal judiciary, including communications by litigants with the courts, especially since these data collection efforts may be inadvertently infringing upon attorney-client privileges.

Thank you for your attention to the crucial question of separation of powers and legislative and judicial autonomy. We welcome the opportunity to discuss this further. Please contact Daniel Schuman, Demand Progress policy director, at daniel@demandprogress.org, or Sascha Meinrath, X-Lab director and Palmer Chair in Telecommunications at Penn State University, at sascha@psu.edu.

With best regards,

American Civil Liberties Union
American Library Association
Demand Progress
Electronic Frontier Foundation
FreedomWorks
Government Accountability Project
National Security Archive
National Security Counselors
OpenTheGovernment.org
Project On Government Oversight (POGO)
R Street Institute
Restore The Fourth, Inc.
RootsAction.org
X-Lab

cc: Members, House Committee on Oversight and Government Reform
Members, House Permanent Select Committee on Intelligence
Members, House Committee on the Judiciary

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Newsmax’s 30 most influential Republicans 30 and under

January 14, 2016, 1:58 PM

From Newsmax

Lori Sanders — As outreach director and senior fellow at the nonprofit R Street Institute, Sanders helps promote free markets and limited, effective government. Previously, she was program manager for AEI’s Road to Freedom project.

Calling Texan conservatives: cut taxes, cut carbon

January 14, 2016, 1:56 PM

From Pearland Journal

Libertarian groups like R-Street and economists like Resources for the Future have studied the benefits of doing a tax swap, i.e. lower corporate and income taxes first, then levy a carbon tax. This approach could be net-stimulative to the economy while lowering income taxes – and who wouldn’t like that?

‘Dig once’ could lead to smarter broadband

January 14, 2016, 1:56 PM

The following was co-authored by R Street Outreach Manager Nathan Leamer.

The hardest part of building broadband Internet just might be figuring out how to get more wires into the ground.

In a more perfect world, the best path would be for federal, state and local governments to get out of the way and let private interests figure out how best to make money from building infrastructure. But here in the real world, we live with the legacy of government control of highways and other infrastructure, which are intricately connected with regulation at every level.

Network expansion generally requires wires to be run underground or on poles. To reduce both the cost and disruption, one increasingly popular option is the approach policy mavens dub “dig once.” Under “dig once” initiatives, rather than having to tear up roads every time a company wants to add new wires, cables or fiber, infrastructure planners would require conduits be built large enough so that later providers could draw their wires through those pre-existing conduits.

Which is why this is one of the rare situations in which the federal government could actually help simplify the bureaucratic maze that confronts both existing telecom companies and new market entrants who seek to build out new capacity that would offer broadband Internet service to more Americans. If done correctly, a federal “dig once” initiative could help simplify broadband buildout by mandating that conduit to house underground wires be installed in any roadway construction project that uses federal funds.

The cost of this requirement would be only about 1 percent of federal highway appropriations. Over the long term, according to the Government Accountability Office, the approach saves about 16 percent off construction costs in rural areas, and between one-quarter and one-third of construction costs in urban areas.

Toward this end, Congress should pass H.R. 3805, the Broadband Conduit Deployment Act of 2015, sponsored by Reps. Anna Eshoo, D-Calif., and Greg Walden, R-Ore. It would provide for conduit to be installed under hard surfaces as part of federally funded highway construction projects in any community with an anticipated need for broadband in the next 15 years.

The bill currently has 31 Democratic and 19 Republican cosponsors. Eshoo adds that the bill’s approach effectively already has received White House endorsement. In 2012, President Barack Obama’s Executive Order Accelerating Broadband Infrastructure Deployment called for conduit to be deployed for broadband facilities associated with federal lands.

According to the Federal Highway Administration much of the cost associated with providing broadband service is the initial trench digging. “Dig once” would also mean paying once for the trenches. The initial monies for the trenches would come from federal roadway construction funds but leasing the conduit space to providers could potentially recoup that cost.

Of course, running conduit alone will not actually bring broadband into Americans’ homes. The “last mile” of cable, the part that actually connects homes to the network, will still have to be installed by Internet service providers. But this process would become significantly easier and less costly should the Broadband Conduit Deployment Act come into effect. One also expects increased competition will drive down the cost of broadband, as local service providers are forced to compete with new providers.

The long-term gains stemming from increased nationwide broadband access could also be substantial. In rural and farming communities, broadband access may become essential to modern agriculture, as production technology advances. This could help explain why the Senate version of the bill, S. 2163 (which includes additional provisions about property rights in federal lands) has drawn bipartisan support from states like Minnesota, Montana and Colorado.
“Dig once” is a market-based solution that the president and Congress should pursue to expand and improve broadband infrastructure to reach more Americans in more places.

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

Cameron Smith on the Dale Jackson show

January 14, 2016, 1:45 PM

From Dale Jackson show

AL.com’s Cameron Smith comes on the show to give his thoughts on the State of the Union address and Mike Hubbard.

Follow link for audio

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  • Bootleggers, Baptists and e-cigarettes

    January 14, 2016, 11:03 AM

    E-cigarette users should be concerned about proposed Food and Drug Administration regulations that may eliminate most brands of these potentially life-saving cigarette alternatives, leaving only those products marketed by large tobacco companies with the resources to complete expensive FDA applications.

    Who is responsible for the pending e-cigarette regulatory nightmare?

    A brilliant analysis of e-cigarette regulation titled “Bootleggers, Baptists and E-Cigarettes” has been published online by economists and legal scholars from Clemson University (Bruce Yandle), the University of Texas at Arlington (Roger Meiners), Case Western Reserve University (Jonathan Adler) and George Mason University (Andrew P. Morriss, now at Texas A&M University). A shorter version, with Adler as lead author, appeared last year in the Cato Institute’s flagship publication, Regulation. I’ll use quotes from both in this column.

    According to Yandle and colleagues:

    Durable regulation emerges most often when there are two distinctly different special interest groups that seek the same policy outcome. One group takes the moral high ground by pursuing a public-interested goal [Baptists] and gives the cooperative politician the ability to justify his actions on normative grounds. The other [Bootleggers], seeking the same policy outcome, is motivated by pecuniary interests, hopes to feather its nest, is often willing to share some of the gains with the politicians who deliver the goods, and does not generally conspire with its publicly interested counterpart that seeks the same regulatory goal.

    Yandle developed this concept in 1983, and he recently authored a comprehensive book on the subject. He labeled the two groups:

    …in homage to the political pairing of unlikely interests that was successful in championing laws that shuttered liquor stores on Sunday…the two interest groups would never form a visible coalition in the strict sense of the word. They merely sought the same outcome and were willing to struggle mightily to succeed. At the height of its success, this powerful pairing entirely shut down the legal sale of alcoholic beverages in counties, states, and—during Prohibition (1920-1933)—the nation as a whole.

    Yandle and colleagues identify the Baptists and the Bootleggers undermining the nascent e-cigarette market:

    Private and public health officials…are the Baptists in this story…  Based on what is known about the health effects of e-cig use, it would seem e-cigs might be hailed as an advance in public health insofar as they offer cigarette smokers a safer product. Even small reductions in the number of smokers or the amount of tobacco products smokers consume would likely produce substantial gains for public health. Yet e-cigs have been greeted with scorn by health researchers who focus on what is not known about e-cig health effects rather than what is known.

    The Bootleggers are a more diverse group. They consist of cigarette manufacturers, which “have an incentive to either enter the e-cig market themselves, suppress competition from upstart e-cig manufacturers, or both.”  They are joined by:

    Pharmaceutical companies that make NRT products…They have benefited from government encouragement that smokers use their products to aid in smoking cessation and government limitations on information on tobacco harm reduction through the use of e-cigs or smokeless tobacco products. [Emphasis mine]  Insofar as e-cigs are an alternative for smokers to satisfy their nicotine cravings, they are a threat to the profitability of NRT products. This is particularly so given recent research suggesting that NRT products do not help many smokers quit.

    Perhaps more surprising, state governments are also Bootleggers, as “Tobacco sellers have become, in effect, tax collectors.”  The booty includes excise taxes, which have skyrocketed over the past 10 years, and payments made from smokers to cigarette manufacturers to the states courtesy of the 1998 Master Settlement Agreement. Yandle, et al., note that:

    Some states securitized all or part of the MSA cash flow by selling tobacco revenue bonds so they could immediately spend the present value of the future revenue. The sale of tobacco bonds created a new group of Bootleggers—the bondholders and the state agencies that issued the bonds—with intense interest in the future fortunes of the tobacco companies, their sales, and any competitor that might reduce those revenues.

    This is a powerful coalition arrayed against e-cigarettes:

    There is an obvious irony here. To the extent that e-cigs provide a less hazardous alternative to consumers who seek to break their smoking habit, Bootlegger/Baptist induced regulations that limit e-cig competition and evolution bring with them a social cost measured in lost opportunities to improve human health. Going further, regulatory actions that limit e-cig marketability introduce uncertainty for yet-to-be-discovered smoking alternatives that might also threaten the market share of traditional tobacco and smoking cessation products. For the sake of human health and freedom of choice, such innovation should be welcomed, not chilled.

    The Campaign for Tobacco-Free Kids, the American Cancer Society, the Centers for Disease Control and Prevention, the National Institutes of Health and the Food and Drug Administration (Baptists) are aligned in a powerful coalition with tobacco and pharmaceutical manufacturers and state governments (Bootleggers) against e-cigarettes. There is more than just irony here. The e-cigarette is a “disruptive innovation” that not only “threatens the established order,” but holds the potential to help millions of smokers quit.

    If this unholy alliance triumphs, public health is doomed.

    Five things you might have missed in President Obama’s State of the Union address

    January 13, 2016, 6:42 PM

    I have to be honest: I watched the State of Union on digital video recorder so that I could fast-forward through the clapping, and get straight to the part where Joe Biden starts cracking open Natty Lights under the podium. While it was on, I drank most of a bottle of red wine and watched reruns of The Big Bang Theory. To be honest, I almost forgot the event was even on, since I haven’t watched basic cable in years. But alas, I work for a political publication, so I am forced to endure, at least, a partial viewing of our nation’s most time-honored, nonessential tradition: a one-hour presidential tribute to himself.

    For starters, a depressing fact: this may not be President Barack Obama’s final State of the Union address. It’s so early this year (far earlier than it has been in other years of Obama’s presidency), in part because networks are looking to air new episodes of shows earlier (ABC was forced to delay the premiere of Agent Carter for two weeks, lest it field complaints from angry fans that their show had been pre-empted by a man in a suit droning on about economics), but also in part because the White House wanted the speech to air before the primaries began. If the speech is scheduled for the same time next year, Obama could easily give one final extended goodbye before the new president takes over, and it wouldn’t even be unprecedented. Jimmy Carter tried to pre-empt Ronald Reagan by sending his final State of the Union to Congress right before Inauguration Day, and President Obama is nothing if not a less-careful version of Jimmy Carter. So, you have that to worry about.

    But, fine, without further ado: five things you might have missed if you were too drunk/too bored/asleep/watching Netflix during last night’s State of the Union:

    1. Despite tradition, Obama made a number of policy proposals: In case you were wondering whether Barack Obama intends to take it easy in his last year in office, you can dispense of that fear right now. With just 11 months left on the calendar, Obama is going to do everything from cure cancer* to ending our dependence on fossil fuels, to saving Medicare and Social Security, to encouraging the nations of the world to join together in a rousing version of “Kumbaya” on the White House lawn. He hasn’t managed to pass any signature legislation since 2009, and even his last proposal on gun control was an anemic effort at increasing enforcement of a dead law more than anything else, but hey – why the heck would you not have an increasingly ambitious agenda to close out your presidency? There’s still plenty of time for executive orders!
    2. Despite that gun control push last week – and an empty chair for victims of gun violence – gun control was all-but-absent from the president’s speech: Here’s one I didn’t even catch: so much was made of gun control in the lead-up to the president’s address, that I thought for sure, we’d have at least 10 minutes on the subject, particularly as the first lady gave up her guest to provide the media with a great opportunity to drive the point home, panning over the empty seat. But the president only talked about guns once, and even then, in the most neutral way possible, claiming that he would “protect our kids from gun violence,” in the context of things like “equal pay for equal work” and other nonsensical legislative ideals he’s pushed since the beginning. It’s strange, really, because he could have shed a few tears last night – the media would have called it an “emotional final address” – and he would have had no direct opposition. Could it be that gun control is such a losing issue for moderate Democrats that a nation of basic cable users wouldn’t be treated to an extended lecture on the constitutional intricacies of the Second Amendment?
    3. Obama singlehandedly solved the Middle East crisis, because of course he did: Last night, the president took what can only be considered a “victory lap” on the Middle East, basically saying that he’s made everything safer, that we’re just imagining the rise of murderous Islamic thugs across the continent and that Iran has gone to such great lengths to dismantle its nuclear program that you can now buy plutonium on eBay for less than it costs for a new clock radio. Meanwhile, Iran arrested (and, thankfully later released), 10 US soldiers and impounded a Navy vessel, claiming an incursion into their waters, and once the soldiers were safe, John Kerry personally apologized and thanked the Iranians for helping a Navy vessel in need, as pictures emerged of American soldiers kneeling to Revolutionary Guards at gunpoint. So, it seems less like we solvedthe Middle East crisis and more like we’re just not that into it anymore.

    Oh, and in case you were wondering, Obama is also responsible for the lower fuel prices, though those are generally attributable to the fact that crews are now pulling oil out of the ground in North Dakota so fast that area strippers have called in reinforcements for the burgeoning entertainment workload (not a joke – there’s a shortage of women in the huge work camps now dedicated to the Dakota operation), and that the Saudis have stepped up their production just to prevent their immense wealth from deteriorating.

    1. Obama also totally saved the economy, you guys: This is a good one – despite median wages and full-time employment being at an all-time low, despite health care costs skyrocketing out of control, despite fixed investment being down, despite stagnating economic growth and despite having almost no responsibility in swinging the stock market, the president believes that he single-handedly pulled America out of a recession, and anyone who says otherwise is peddling lies. That’s cool; no biggie.
    2. It was really, really boring: I’m not going to lie. States of the Union are always boring. That’s why people drink during them. This one was more boring than most, and I don’t know if that’s because I’ve gotten so used to the system that I can now fall asleep to the lilting tones of our president explaining the need for intrusive legislation, or because Obama has pretty much given up on everything and is just looking forward to perfecting his golf game in Palm Springs for the rest of his life.

    Congress seemed less than enthusiastic, the president seemed less than enthusiastic and the first lady seemed so uninterested, she only wore a $600 Narciso Rodriguez shift to the event, rather than the thousand-dollar suits she’s donned in the past. Even Gov. Nikki Haley, who did a phenomenal job delivering the GOP response, was kind of more interested in annoying Donald Trump supporters than she was in countering the president’s lame duck agenda. But hey, it’s an election year, it’s time for everyone else to make the empty promises, I suppose.

    And so, we’ve (hopefully) faced the final curtain. Next year, when President Trump delivers his first address to the joint session of Congress shortly after his Vegas inauguration, we can look back on these times fondly and laugh. Unless we’re being deported.

    SmarterSafer reform priorities for the National Flood Insurance Program

    January 13, 2016, 5:35 PM

    The National Flood Insurance Program (NFIP) is up for reauthorization in 2017, and the SmarterSafer coalition believes the program should be reauthorized and reformed to ensure it is sustainable, to better protect taxpayers who have backstopped the program, and to ensure there are sufficient incentives to resiliency. The NFIP provides critical and much needed insurance coverage for those at risk of flooding; however, the increasing scale of flood events and the resulting damages have made clear that the current NFIP program is unsustainable. The program was not designed to accommodate major catastrophic events; NFIP fails to adequately deter new development in areas vulnerable to flooding which leads to further environmental degradation; and it does not do enough to encourage states, communities, and individuals to reduce their vulnerability to current and future flood risk.

    NFIP must be reformed to better protect people in harm’s way, better protect taxpayers and better protect the environment.

    Vision:  It is important that Congress lay out an updated vision for NFIP that includes managing the nation’s escalating flood risks, reducing those risks over the long-term, promoting environmental stewardship, and easing the financial burden for flood risk now borne by the federal government.  As part of this vision, we believe Congress should acknowledge that NFIP is likely to be on a path towards becoming a market of last resort for those who cannot get flood insurance in the private sector, while ensuring the program continues to play a vital role in floodplain management standards, mitigation and mapping to increase community resilience to flooding. To these ends, any reauthorization of NFIP should include the following:

    • Accurate, up-to-date, and accessible mapping that takes into account the growing frequency and severity of floods as well as more detailed and granular risk analysis models to determine risks and rates.
    • A closer linkage of NFIP and hazard mitigation programs under the Stafford Act so that mitigation funds are used for those properties in NFIP most at risk to help reduce risk and lower NFIP premiums and losses.
    • A move toward risk-based rates for all properties over time, with means-tested assistance for those who cannot afford actuarial rates, with an emphasis put on risk reduction instead of premium subsidies.
    • Incentives to identify, protect, and restore natural resources that reduce risk and for communities to adopt floodplain management standards that go beyond NFIP’s minimum requirements to reduce risk.

    A Growing Role for Private Insurers–As rates increase and the private market starts to write more flood policies, lower-risk properties will likely be the first to migrate to the private sector. Congress should acknowledge this and establish parameters for this transition to ensure that NFIP remains a viable option for those who cannot get flood insurance in the private market and to maintain the program’s important floodplain management, mapping, and mitigation roles.

    The move to a system where both the private sector and NFIP write flood insurance will provide consumer choice and ensure competition and innovation, while maximizing the number of properties covered by flood insurance. Under this public-private system, NFIP could eventually transition, over a period of a decade or more, to serve as a residual insurance provider for those properties the private market is unable to insure cost-effectively.  FEMA would continue to have a clear mandate to provide maps for mandatory purchase, establish minimum floodplain standards, and focus efforts on mitigation and resiliency assistance to reduce risk at the household and community levels in cost-effective ways.  As more properties move to the private sector, NFIP would be able focus its mitigation efforts on the most at-risk properties. It is critical that mitigation and resiliency be elevated as part of NFIP’s mission, as well as through disaster assistance reforms.

    This system would maintain (and even expand) mandatory purchase requirements for those at risk, but would not force consumers to purchase flood insurance from any specific insurer (including NFIP) and would not force any insurer to provide flood coverage.

    Private companies are poised to write flood risk, and some already have started to write flood risk in the United Sates. To ensure there is a level playing field, Congress must clarify that private flood insurance counts for purposes of mandatory purchase—no property owner should be forced to purchase from NFIP or any particular insurer.  Consumers should have choice.  To better protect taxpayers, FEMA also should continue to examine transferring risk to the private sector, including through reinsurance. FEMA should also be required to study and report on the feasibility of carrying out pilot programs on mechanisms for public-private partnerships, such as reducing the risk in NFIP by allowing private companies to bid on and take out NFIP policies.

    Risk Based Rates— SmarterSafer continues to believe that rates for flood insurance should accurately reflect risk. Rates for all subsidized and grandfathered properties should either begin or continue to increase in 2017.  Rate increases should be capped on an annual basis, like they were in 2012, to some percentage of current premiums to make the increases predictable.  In addition, it is critical that property owners are informed what their risk-based rate would be so they understand their risk.  FEMA should be required to provide clear notice to all properties in the program what the risk-based rate is, the degree of subsidy the property currently receives, and how many years it will take for the rate to climb to risk-based.

    Affordability— SmarterSafer believes that FEMA should make assistance available for property owners of modest means. This could be in the form of continued, but means-tested and time-limited, subsidies; however, the subsidy should be clear and outside of the rate structure.  However, premium subsidies should not be the only option. Where a cost-benefit analysis shows that resiliency measures would reduce risk and lower rates, the agency should offer to policyholders with the riskiest properties the ability to access a number of years of subsidies as a lump sum (coupled with other mitigation dollars and low-interest FHA loans if possible) to mitigate risk to a property. This would ensure that policyholders can use subsidies to reduce risk instead of reducing premiums. FEMA would have to establish policies to ensure that approved mitigation measures will result in premiums remaining stable for some set period of time and policyholders would be required to maintain NFIP coverage for as long as they live in the home, and would have to pay back the lump sum if mitigation is not completed.

    Accurate Mapping and Risk Analysis–To ensure proper risk-based rates in NFIP, maps must be up-to- date and accurate, and property elevations (or proxies) must be known.  Private companies are doing risk assessment that assesses individual property risk–something that is not done through FEMA maps. FEMA must be required to update its maps, include the best science on known conditions and risks, but also to conduct (or purchase) risk assessments. While the government must continue to map for purposes of the Special Flood Hazard Area designation (mandatory purchase), and FEMA does so by contracting with private companies, we believe FEMA should look at whether they can access elevation or more granular risk analysis. SmarterSafer believes FEMA should be required to within a year gather information from as many private companies as possible on their ability to assess risk, gather elevation or proxies, and map, and report back to Congress on whether it is cost-effective to contract with a company to provide additional elevation/risk analysis for some areas.  If it is cost-effective, FEMA should be authorized at least on a pilot basis to get bids to provide this risk analysis/elevation. The agency should be authorized to tag on a minimal fee per property in NFIP to pay for these new tools after they conduct an analysis.

    FEMA currently charges a fee on each policy to pay for mapping and mitigation. To allow these important activities to continue even as properties move to the private sector, all policies whether private or public should include that fee— it should be disclosed in exactly the same language on all flood policies whether public or private and should be clearly marked as a fee on top of the premium.

    FEMA’s Technical Mapping Advisory Council (TMAC) should be required to continue its work and make a more detailed set of recommendations about incorporating land use information, including the type of land cover and identification of important natural resources and habitats that contribute to flood risk reduction and community resiliency. This would help communities assess their flood risks and develop strategies for reducing and managing those risks. TMAC should also be required to look at riverine erosion and how to best incorporate these zones into flood risk products. FEMA should be required to create advisory maps that show future flood risks and residual flood risks. As part of TMAC’s role of assisting FEMA in identifying how to best incorporate future conditions into FEMA NFIP maps and flood risk assessment tools, TMAC should consider and make recommendations on establishing future zones reflecting likely changing conditions of coastal barrier resources, and where FEMA and Congress could or should consider restricting or removing availability of federal flood insurance, due to the likely risks and impacts on resources reaching unacceptable levels for providing public insurance. Based on this kind of information, FEMA should then be required to create advisory maps that show future flood risks and residual flood risks.

    TMAC and FEMA should consider formulating and establishing a meaningful outreach effort to states, tribes, communities and the private sector to identify the range and types of information that are needed and desired for planning and for managing current and future flood risks. The need for updated map and elevation data is not unique to FEMA, but is also critically needed by other Federal agencies and State governments. FEMA should pursue joint mapping initiatives with Federal agencies that share needs for updated geospatial and elevation data. This ensures that FEMA is not left paying the bill for acquiring data that other agencies also depend on, and promotes unified utilization of best science and mapping techniques among Federal agencies.

    Mandatory Purchase–SmarterSafer believes properties that would be designated as located within a flood plain but for a flood protection system like dams and levees should be subject to the mandatory purchase requirement. Rates for these properties should clearly reflect the decreased risk the properties face as a result of the dam or levee. As we have seen time and time again, these residual risk areas flood. Since homeowners’ insurance policies do not include flood, homeowners are often surprised to learn they have no insurance coverage and will have to take out loans to cover any damages. Requiring purchase of flood coverage would protect these property owners at a reasonable cost.

    Resiliency— FEMA’s focus should be on mitigation and protecting those in harm’s way.  SmarterSafer has recommended a sliding scale for disaster assistance as a way to incentivize communities to become more resilient. This should be coupled with changes to NFIP to build resiliency.

    FEMA should look at mechanisms that encourage high risk policy holders to consider relocating, or that provide incentives for taking mitigation actions that will protect their property from flood damage over the long term.  It is also essential that means be developed to allow such relocations to take place on a much more timely basis. Currently, many distressed homeowners can be held up for years waiting for the necessary assistance. Congress should consider allowing some of the fee that is used to fund NFIP reserves to be used for mitigation of the most at-risk properties, particularly those of low-income policyholders. In addition, ICC funding (which is paid for within the program) should be increased from the current $30,000 cap when used for relocation or demolition, and should be raised somewhat for elevation.  This would allow individuals in the program to mitigate their risk and reduce costs to taxpayers. To ensure mitigation activities can occur, FEMA should be required to further change their cost-benefit analysis on mitigation to take into account a number of additional benefits including ecosystem restoration and environmental benefits.

    Communities should be encouraged to undertake resiliency measures. Congress should encourage enrollment and participation in the voluntary Community Rating System and should strengthen the program’s requirements to focus on non-structural mitigation and simplify administrative burdens. In addition, SmarterSafer has recommended a series of changes in disaster assistance to only provide maximum federal disaster assistance if states and communities are planning for and mitigating for known risks.

    SmarterSafer is a broad-based, diverse coalition of taxpayer advocates, environmental groups, insurance industry representatives, housing groups and mitigation interests that supports environmentally responsible, fiscally sound approaches to natural catastrophe policy that promotes public safety and encourages resiliency. A list of members and further information can be found at SmarterSafer.org.

     

     

    Portland’s sees big gains in transportation market freedom

    January 13, 2016, 1:01 PM

    Portions of Portland’s transportation-for-hire market – that is, the market for taxis, limos and ridesharing services like Uber and Lyft – have improved faster this year than in any other major city in the country. In the R Street Institute’s annual Ridescore report evaluating the friendliness of for-hire transportation rules in 50 of America’s largest cities, Portland improved from an “F” grade last year to a “B” in the most recent report.

    But a few serious problems remain.

    The bump in Portland’s score largely was on the strength of the decision made earlier this month by the City Council to pass permanent rules allowing transportation network companies to operate. That contentious 3 to 2 vote has, in some ways, placed TNCs and taxis on an equal regulatory footing. For that, the council should receive plaudits. But two recent developments endanger the gains the city made in 2015.

    The first concern stems from the Oregon Supreme Court, which recently found that taxi drivers are employees, not contractors, under state law. The decision will increase both the tax burden and the benefits liability associated with taxi operation in Oregon: effectively raising the cost for all consumers. Understandably, taxi interests immediately called for TNCs to be subject to similar rules.

    The second troubling development actually stems from 175 miles north of the Rose City, in Seattle. There, the city council voted unanimously to provide both TNC and taxi drivers with the ability to bargain collectively. The impact of that ordinance, which almost certainly will face judicial challenge, remains difficult to appraise. Even if it stands, it’s unclear whether it will be a mere administrative headache or the start of a national trend toward unionization of similarly situated contractors. Should Portland follow Seattle’s lead on collective bargaining, it would erect barriers to entry that could threaten the popularity of TNC operations, both for customers and for drivers.

    But while the specter of these threats loom large, Portland’s most significant ongoing shortcoming can be found in its regulation of limo services. The city imposes both a long minimum wait time and a minimum fare that’s 35 percent higher than for taxis. Those problems are compounded by higher-than-average insurance requirements for limos. The result is that Portland scores a dismal “F” grade in limo regulation.

    The Portland City Council clearly has a sense of the benefits of market liberalization, or it wouldn’t have acted to improve the TNC and taxi markets earlier this year. While limos represent a far smaller portion of the for-hire market, they shouldn’t be excluded from the transportation renaissance.

    Portland is a national success story. It corrected course and embraced a new industry in the face of pressure from both incumbent industries and well-meaning paternalists. In particular, its willingness to address taxi regulation at the same time as TNC regulation is something that should be replicated in other cities still grappling with how to provide a level playing field in this fast-changing environment.

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

    Cruz, Rubio trade barbs over tax-reform plans; GOP divided

    January 12, 2016, 1:47 PM

    From Wall Street Journal

    The tax fight between the two senators reflects a “fascinating decadeslong struggle among conservatives and libertarians. Do we prize efficiency and growth potential or do we prize visibility and transparency?” said Andrew Moylan, executive director of the R Street Institute, a free-market think tank in Washington. “Those two are often, although not always, at odds with one another.”

    The definition of SIFIs must Include Fannie Mae and Freddie Mac, the Federal Reserve banks and Open Market Committee and large federal credit programs

    January 12, 2016, 1:31 PM

    The attached policy study, offered as a response to MIT Center for Finance and Policy’s SIFI Contest, was co-authored by Thomas H. Stanton of the American Enterprise Institute.

    The Financial Stability Board should prepare a full analysis of the financial aspects of Fannie Mae and Freddie Mac so that they can be designated NBNI G-SIFIs, once the Financial Stability Board has issued the final version of its Assessment Methodologies. Given the demonstrated global systemic significance of the two companies, their extremely high leverage, their holdings or guarantees of over $3 trillion and $2 trillion, respectively, of mortgage risk, and sales around the world of a commensurate amount of debt obligations and mortgage-backed securities, we have no doubt that the two institutions will meet those criteria.