Out of the Storm News
The Conservative Political Action Conference is clearly not as energized as last year, due largely to the intervening national election, which many of these folks had thought would end the reign of terror for conservatives by restaffing the White House and executive branch.
There are two main classes of politically aware folks that predominate these days. The first are people who believe that global warming and income inequality are the spinning out-of-control dangers that will eventually render civilization unrecognizable, and sleep-depriving in the meantime. They don’t worry at all about the national debt or sovereignty, and are inclined to care more about our harmonization with other countries and universal precepts than protection against either intruders or radical Islam.
The people at CPAC are in large part the mirror image. Global warming doesn’t keep us up nights, but owing China a trillion dollars does. We stick with the observations and arithmetic to undergird our worries, and CPAC provides plenty of information about bad trends and unintended consequences. (This morning’s pick – apparently increased use of ecologically correct cloth shopping bags instead of plastic bags for groceries has increased the E. coli infection by 25% in some jurisdictions and precipitated some real life martyrs to the green cause.)
A heavy sense of resignation lies on the CPAC audience this year. Although the mainstream media hasn’t mentioned this, 2012 featured the first American president since every state started relying on popular vote to determine the Electoral College to be reelected with fewer votes than when he was first elected. A president reelected after producing virtually no progress on the slowest recovery in the modern era and having presided over a nation with only 58.6% of its citizens working and the first credit downgrade in history. A president who we now know chose not to ask the American military to defend our embassy in Libya while it was under attack for seven hours because of the optics of possible additional casualties just before the election.
The White House seems to be pursuing its agenda with increased intensity, and conservatives fear that the unthinkable might be possible in a world where John Kerry is secretary of state and Gina McCarthy runs the Environmental Protection Agency. There is real concern that the United States might sign onto the Law of the Sea treaty, which is a mammoth wealth transfer to poorer countries, or that the administration might be able to arrange a deal to trade the Keystone pipeline in return for enhanced subsidies on alternative energy projects which mostly brighten the futures of only the early investors.
Even though many of the elected champions like Rep. Paul Ryan, R-Wis., and Sens. Marco Rubio, R-Fla., and Rand Paul, R-Ky., are here, the only repeated standing ovations I’ve seen so far were for the executive director of the National Rifle Association and the last movie to feature the work of Andrew Breitbart.
New Jersey Gov. Chris Christie was not invited, which I’m sad about, because it is hard to see how conservatives can win by riding any other horse than the GOP, and he appears likely to redefine Republican executive electoral success in one of the bluest states around. The 30 Republican governors have been mentioned several times as a hope for the party. I think the hope of the nation as well may depend more and more on these men and women state executives engaging 21st century challenges in our state capitals.photo by: Gage Skidmore
The R Street Institute, a (small-l) libertarian think tank in Washington, D.C. wants to hire a social media and marketing manager.
We’re looking for someone who not only knows the tricks to hoarding a bazillion Facebook likes and Twitter followers, and who can tell a Fark from a Reddit from a Newsvine, but most importantly, someone who can originate and implement innovative online marketing campaigns from start to finish. We need someone who can identify the right audiences, set the right goals and track the right metrics, all while integrating our marketing efforts with our content calendar and our social media strategies with those of our coalition partners.
Experience with basic video production and editing is also a major plus.
An ideal candidate should have an understanding of the free-market movement and demonstrated experience doing the things we want done. This job requires you to be a self-starter. While somebody antagonistic to free market goals couldn’t do this job, agreeing with all of our political views probably isn’t necessary. That’s a long way of saying that you don’t have to identify as a libertarian to work with us.
We’ll offer a chosen candidate tremendous freedom to figure out how to achieve goals like building our social media followers and getting more traffic for our website. We’re not micro-managers and a person who achieves goals can expect tremendous freedom to pursue them. One of our major initial efforts associated with this position will be a social-media based campaign to educate conservatives and libertarians about wasteful, environmentally destructive spending related to agricultural subsidies. If you know the farm subsidy landscape, that’s an advantage but, in the end, your social media skills—not your subject matter knowledge—are what really matter.
We think we offer a pretty good work environment. We have a strict rule against holding any standing internal meetings. (Honestly, we have NONE. Ever.) We try to pay more than any other free market non-profit and offer better benefits. Among other things, we pay 100 percent of all health insurance premiums, offer fully employer-paid disability insurance, a 401(k), and a bonus potential that’s unparalleled in the free market movement. There’s free soda and coffee in our office all the time. Our leave policies are also the most generous in the business and you’ll get a employer-paid iPhone as well as whatever laptop computer you want.
To apply, send us a resume, a cover letter, a writing sample to firstname.lastname@example.org.
Earlier this month, the New York Times published and op-ed penned by Richard Daynard of Northeastern University titled “Stubbing out Cigarettes for Good.” Professor Daynard is president of Northeastern Law’s Public Health Advocacy Institute, and a prominent anti-tobacco crusader. I wrote the following response, and sent it to the Times, but they declined to print it. I also shared copies with Daynard and Mark Gottlieb, his colleague at the Public Health Advocacy Institute.
In reply, Gottlieb shared some research findings relative to the “light” cigarettes, noting that they contained the same amount of nicotine as full-flavored cigarettes, but were designed to hide nicotine content from the then-prevalent “FTC method” machines used to measure tar and nicotine content. Smokers could access the additional nicotine by inhaling longer and more deeply. His proposal for a low-nicotine cigarette would, per their limited studies, result in minimal compensatory behavior by smokers since such compensatory behavior would not yield more nicotine.
He acknowledged the legitimacy of the other points I made, but disagreed that, if implemented, they would likely do more harm than good. He also acknowledged the potential value of adding a tobacco harm reduction initiative to current tobacco control programming, and correctly noted that the initiatives Daynard recommended and tobacco harm reduction are not mutually exclusive.
The first of his two proposals – reducing the nicotine in cigarettes to non-addictive levels — ignores what we have learned over the past 30 years about light and low-tar cigarettes. These cigarettes dramatically lowered both tar and nicotine. Their message was so effective that such cigarettes now account for more than 99% of American cigarette sales. They have done nothing to reduce the prevalence of smoking in the United States and appear to present a risk of lung cancer greater than the full-flavor cigarettes they replaced. In order to securing the desired dose of nicotine, smokers appear to have inhaled the smoke deeper and held it longer within the lung.
Reducing nicotine to a level that will no longer satisfy current smokers seems more likely to drive these smokers to contraband cigarettes than to quit smoking or to switch to other tobacco/nicotine products. Contraband cigarettes are already a major problem in jurisdictions with high cigarette taxes. Making regulated cigarettes unpalatable to smokers would likely increase the demand for contraband products.
The second of Professor Daynard’s two proposals — to ban sales of cigarettes to persons born after the year 2000 — is and has been in place for many years throughout the United States. Every state now bans cigarette sales to persons under 18 years of age. This has not been effective in preventing 15% to 20% of teens from initiating cigarette use.
New thinking will be required within both the U.S. Food and Drug Administration and the larger tobacco control community if we are to substantially reduce tobacco-related illness and reduce nicotine addiction in the United States.
The first element of this new thinking should be to recognize that we have two separate tobacco-related problems. The first relates to current adult smokers. The second relates to teens at risk of initiating tobacco use.
The 8 million Americans likely to die of a tobacco-attributable illness in the United States over the next 20 years (400,000 per year x 20 years) are current adult cigarette smokers over 35 years of age. The smokeless products that have been on the American market since the 1980s — chewing tobacco, snus, and other snuff products — present a risk of potentially fatal tobacco-attributable illness less than 2% the risk posed by cigarettes. E-cigarettes, strips, sticks and orbs probably present even less risk. Simply informing current smokers of this difference in risk would likely induce large numbers of smokers to switch to one of these lower risk products.
This approach, known as tobacco harm reduction, is currently opposed by the tobacco control community. They refuse to consider use of any non-pharmaceutical tobacco/nicotine product in the context of a public health initiative. In addition, the FDA tobacco law imposes nearly insurmountable barriers to tobacco harm reduction and requires continuation of misleading and technically inaccurate warnings on American smokeless tobacco products: warnings based on hazards posed by tobacco products that are not available in the American market.
Tobacco harm reduction could be added to current tobacco control programming. It would rely on market forces to achieve reductions in tobacco-attributable illness and death not likely achievable in any other way. It would do so in a way that would not increase demand for contraband products.
Experience with e-cigarettes and other bits of scientific evidence suggest that these smokeless tobacco products may be less attractive to teens and easier to quit than cigarettes. This flies in the face of the conventional wisdom in the tobacco control community that informing the public that such products are lower in risk than cigarettes would dramatically increase the number of teens initiating tobacco/nicotine use.
The time has come to seriously consider tobacco harm reduction as a new addition to current tobacco control programming.photo by: Alex E. Proimos
The debate over how to reform Florida’s Citizens Property Insurance Corp. has been a years-long and arduous political battle. Despite its original mission to act as Florida’s insurer-of-last-resort, Citizens became former Gov. Charlie Crist’s instrument of populist politics du jour, and consequently grew to be the state’s largest insurer due to its artificially suppressed rates. It has taken the Florida Legislature years to even begin to reverse those ill-conceived policies from the Crist era.
The main impediment to reform has been the loud opposition to increasing Citizens rates, which would organically address most of the problems the state-run entity faces. Whenever there is legislation up that would increase Citizens’ premiums even nominally–increases that would put them somewhat closer to their private market counterparts–telephone lines and email in-boxes are overwhelmed with opposition. As such, legislators are hesitant (at best) to support such reforms.
One organization that has been on the forefront of promoting reforms to Citizens has been Associated Industries of Florida. As one of the state’s leading pro-business organizations, it understands the risks the current system poses on Florida’s business community. As such, they prefer gradual, methodical increases in rates over the enormous post-hurricane assessments that could likely come quickly and severely, and do great harm to the state’s economy.
So to address the concerns of many legislators, they recently released an interactive map that shows exactly the percentage of Floridians in each House and Senate district who are insured by Citizens. This information has taken Tallahassee by storm, and even some legislators who have historically opposed Citizens reforms have realized they haven’t necessarily been representing a majority of their constituents on this issue.
The data affirms that 77 percent of Floridians are NOT enrolled in Citizens, but are on the hook for the 23 percent who are.
“This is the first time we’ve looked at the data this way, and it’s very telling. More than two-thirds of residents in a majority of Senate and House districts don’t have Citizens as their property insurer. Yet, these same homeowners who are dutifully paying their annual insurance premiums are expected to shoulder the financial burden for the other third not paying their fair share. Many of these Citizens policy holders do not even live in Florida,” said Tom Feeney, the former congressman and Florida House speaker who now serves as AIF’s president and chief executive officer.
- Of 40 total Senate districts, more than 2/3rds (27) have nearly 70% of the households subsidizing lower premiums for the remaining 30% insured in Citizens.
- Of a total 120 House districts, 86 (or 71%) have 30% or fewer households insured in Citizens and subsidized by the rest.
- Not one single Senate district has more than 54% of its households in Citizens.
These are definitely interesting data that should make some legislators reassess their position that has forced a majority of their constituents to cover those who don’t pay their fair share.
Legislation to break up North Carolina’s rate bureau cartel and bring the state’s auto insurance market into the 21st Century has now been introduced in both houses of the General Assembly. This past week, Rep. Jeff Collins, R-Nash, introduced H.B. 265, a companion to Senate legislation introduced late last month by Sen. Wesley Meredith, R-Fayetteville.
Both bills would allow auto insurers to opt out of the North Carolina Rate Bureau, a legally mandated, but privately run organization through which insurers currently set rates collectively. Companies who do opt out would be permitted to consider any rating and underwriting factors they deem appropriate, so long as rates are sufficient and not excessive or discriminatory. There would be a 12 percent “flex band” in which rate increases would be presumed to be appropriate, although even those could be challenged by the Department of Insurance, so long as they provide justification.
The changes would bring North Carolina in line with the competitive markets that are found in most states today, in which insurers have incentive to develop new products and offer competitive discounts to attract business. Predictably, vested interests in the Tar Heel state – both economic and political – are pushing back hard against reform, and it unfortunately appears some of the state’s leading newspapers have taken to regurgitating the old guard’s talking points.
Perhaps the biggest misconception – repeated in recent editorials in both The Charlotte Observer and The Pilot (from rural Moore County) – has to do with the insurance reform record of neighboring South Carolina. Both papers (presumably repeating a “fact” slipped to them by the opposition, which includes the insurance commissioner and the insurer with the largest market share) allege that following passage of reform legislation in 1999, auto insurance rates in South Carolina rose by 25 percent.
Neither paper cites a source for this claim, nor a time frame over which this purported rate hike was observed. Which is unfortunate, because the claim is flatly untrue.
As this chart from the Insurance Research Council shows, while it is true that average auto insurance premiums have risen in South Carolina in the decade since the state passed reform legislation, that’s because they rose everywhere else too. From 1998 to 2008, South Carolina saw auto insurance expenditures grow by 14.7 percent (not 25 percent), which was slightly higher than the 12.4 percent national average, but still notably lower than 18.4 percent average across all the South Atlantic states.
More importantly, what the North Carolina papers do not note is that in the eight years before reform passed, South Carolina’s rates spiked by a whopping 30.6 percent, compared to 21.9 percent nationally and 20.4 percent in the region. Reform clearly slowed, not accelerated, the rate increases. The IRC estimates South Carolina’s rates today are 4.8 percent lower than they would have been if reform hadn’t been adopted.
The Observer’s editorial adds:
The bill is supported by at least 14 insurers, including State Farm, Allstate, Geico and Progressive. They argue that a free-market approach would force companies to compete aggressively on price, letting drivers shop around for the best deal. But insurers already compete on price. The rate bureau method sets a ceiling, not a floor; insurers are free to charge less to attract customers, and often do.
This is wrong on at least two counts.
For one, it sets a remarkably low bar on what counts as “competition.” Imagine if the market for autos worked the way North Carolina’s market for auto insurance does. Ford, Chrysler and General Motors, along with Toyota, Volkswagen, and the whole panoply of foreign car makers, would get together and define what their product – a “car” – should be. They would determine how big it can be, how fast it can go, what color it should be, even how many cup-holders it can have. They’d then come up with a joint recommendation for how much it should cost and send that off to the auto commissioner, who would either give a thumbs up or a thumbs down.
And with that, the market’s terms would be set. Now, how many folks would define that market as “competitive,” simply because the manufacturers would have the option, if they wanted, to knock a few dollars off the MSRP sticker price every now and again?
It’s almost time for March Madness, an event that brings joy to millions of North Carolinians every year. As this year’s games are played, it’d be useful to take notice of all the auto insurance products that are hawked during breaks in the action – policies with deductibles that drop the longer you avoid an accident, policies that offer discounts for drivers with good credit, policies that give regular rebate checks, policies that offer deep discounts to those who provide real-time driving data to their insurer – all of which remain unavailable in North Carolina because they just simply don’t fit the state’s one-size-fits-all auto insurance system.
But the Observer’s observation gets it wrong in an even more fundamental sense. The rate bureau’s recommendation actually does not represent a ceiling on what insurers can charge for auto insurance. It instead represents a ceiling on what can be charged for a standard liability policy. But many people want more than just a liability policy — they want to insure their car for collision, theft and other damage.
Higher risk drivers who want collision and comprehensive physical damage coverage will generally find in the mail a letter from their carrier containing a “Consent to Rate Form.” This is, essentially, a request by the insurer to charge rates that exceed those recommended by the Rate Bureau. It is relatively common for consumers to consent to these requests, and in those cases, the ceiling doesn’t apply at all. In some ways, the flex band system proposed by the Meredith/Collins bills would be actually be more restrictive than the prices insurers can charge for CTR policies today.
For liability coverage, high risk drivers dumped into the North Carolina Reinsurance Facility, which does not offer physical damage coverage. The rest of the state’s auto insurance consumers get dinged by this system as well, as they are charged surcharges to support these so-called “clean risk” policies.
This is not a small problem. More than a fifth of all North Carolina drivers – some 1.54 million in total – cannot get a standard auto insurance policy. Indeed, while large residual markets used to be fairly common in the days before the use of credit information and advanced computerized underwriting allowed insurers a way to segment and price these higher risks, today, North Carolina drivers represent 81 percent of the 1.9 million residual market auto insurance policies written in the whole United States.
Returning to the South Carolina example, the rapid decline in the size of the residual market – which accounted for more than 30 percent of the policies in 1998, but are now less than 1 percent of the market – is the most remarkable outcome of reform. As the accompanying IRC chart shows, other states that have opened their auto insurance markets to competition, like New Jersey and Massachusetts, have likewise seen steady reductions in residual market policies.
The bottom line is this: Auto insurance is now a highly competitive business in virtually every state but North Carolina. North Carolina drivers have been fortunate that, for a variety of reasons, the underlying costs of that drive auto insurance claims are relatively low. These include caps on tort damages, reasonably tight enforcement of vehicle safety standards, demographics, and relatively low traffic density. All of these factors combine to make auto insurance premiums relatively affordable.
But the fact that rates aren’t especially high doesn’t make the market competitive. The fact that a reasonably large number of insurers do business in the state, likewise, doesn’t automatically make the market competitive. Indeed, given that state law requires that the insurance commissioner guarantee that insurers earn a “reasonable rate of return,” why wouldn’t they want to do business there? Guaranteed profits are hard to turn down, in any industry.
When prices and terms of coverage are set collectively, when companies have no incentive to innovative or introduce new products, that is, by definition, an uncompetitive market. It is a cartel, and it is time for that cartel to come to an end.
The federal Patient Protection and Affordable Care Act was passed to address both the cost of medical treatment through insurance and the fact that many people didn’t have coverage. The law is such a massive change in the health insurance landscape that it is taking several years to make it happen. The structure is slowly taking shape and there is already little hope that the “cost curve will be bent downward.” (A Newsweek broadcast journalist said while the legislation was progressing through the Congress that an “eight-year old would not believe that we are going to cover all these additional people in the system and save money doing it.”)
In fact, as attention turns toward getting people into the system, the Gallup organization reports that Texas has the highest uninsured rate in the United States, with 28.8% of residents lacking healthcare coverage in 2012. This is the highest for any state since Gallup and Healthways began tracking it five years ago.
How these people get covered is a major topic of discussion in the states these days, and the National Conference of Insurance Legislators considered and passed a resolution today specifying some state lawmakers’ concerns about the “navigators” who will be organizing coverage for the people who have none. Whoever receives the state grants to facilitate coverage will be responsible for articulating the differences between plans; matching family income against the premium subsidies; and, if the states listen to these NCOIL lawmakers, will also accountable for errors and other funny business with their clients’ Social Security numbers and other private information. States are encouraged to consider training requirements, specific enforcement, criminal and regulatory background screenings, along with other consumer protection.
Any group can apply for the navigators grants, and every state is required to have at least two. They could be church or veteran’s groups, the AARP, union or even ACORN (if it still existed), as far as I can tell.
We are entering a different health world with the assistance of the navigators. The states are right to do everything they can to get the uninsured the help they will need from folks who will be full of advice and cloaked in government authority.photo by: eye of einstein
Senior Fellow Andrew Moylan appeared on the Huffington Post’s HuffPost Live program to discuss Internet sales taxes as part of a “Google Hangout” panel that also included Huffington Post state government reporter John Celock, Kansas state Rep. J.R. Claeys, We R Here Coalition Executive Director Phil Bond and Reason Foundation Policy Analyst Steven Titch.
Joseph Chamie, who recently retired as the chief demographer for the United Nations, has a new piece out that lays out in stark terms the choices that not a few Western European countries may soon face. With plunging birth rates already well below replacement rate and a tired economic engine lacking any momentum, these countries are beginning to realize the awesome promises they have made to their retirees simply cannot be kept. Greece has already responded by increasing retirement ages and chopping benefits, but they’re still far away from an entitlement promise that’s likely to be kept.
What’s the solution? If these countries want to stave off tax increases (which will chase away labor and investment in the EU environment, where workers and capital are free to move), their options are few. Increasing birth rates is easier said than done, and even if a country such as Spain or Italy were to muster the will to buy an increase in birthrates (a la France) it’s not going to matter much for the next two or three decades, beyond the time when their budget exigencies will come to a head.
What’s left? More immigration. Witness the gradual thawing of the EU’s relationship with Turkey, despite the fact that Turkey’s been doing little to help its cause of joining the EU (unless imprisoning journalists is now a virtue in that part of the world.) Why the change? For starters, Turkey’s decade-plus of strong economic growth has moved it from being the weak sister of the continent to the one bright spot in an otherwise economically moribund part of the world. With Prime Minister Erdogan’s turn towards the east, Europe is beginning to realize that they may need Turkey and its 74 million citizens more than Turkey needs the legitimacy of EU membership.
At some point, a European prime minister is going to level with his or her citizens and tell them they have a choice: Higher taxes, later retirement ages, lower benefits or more immigrants — or some combination thereof. If he’s not immediately deposed after his bout of honesty, my money’s on the one option that doesn’t cost people money–the immigrants.photo by: woodleywonderworks
Those who are following the great sequestration drama might get the impression that, while this kind of federal budget management is not ideal, at least something will be done to begin to straighten out Washington’s mess. Actually, this is far from the truth. The 2013 budget still spends more than last year’s; there are no reforms to entitlement programs which will eventually bankrupt our kids; and the military will continue to bear the brunt of budget cuts, even as the world becomes increasingly dangerous.
The sequester is not a management idea at all, and the president is trying very hard to forget that he suggested it. (I do not believe, however, that Republicans will ultimately win many points by relying simply on reminding folks whose idea this was, since they agreed to it.) Sequestration is a political threat, and was never meant to be any kind of serious budgetary process, as has been pointed out by nearly everyone who has written seriously on the subject. It’s not supposed to happen. There is a widely held view that one should never take a hostage unless prepared to sacrifice him, but widely held views do not always matter much on the northeast bank of the Potomac.
In the main, the only actual budget-cutting done by modern presidents is to the U.S. Armed Services, and this round is no exception. Everything else is a reduction of a proposed increase. That’s exactly how Bill Clinton and the Republican Congress balanced the budget – actual cuts to the military and hold the line on everything else. There is a formal assessment of military spending every four years, which sets out priorities and funding. This at least provides a measuring tool and guidelines. This administration had already cut that back with a new “strategic guidance” within the first year, so the budget numbers were headed downward before this latest Washington stork dance.
Of course there is wasted taxpayer money in the military, just like all bureaucratic operations, including the private sector, but sequestration virtually guarantees more of our money will be poorly spent because of its inflexibility. The sequestration process is a flat percentage in every account. If the Navy, for instance, was going to build five modern ships, you would imagine that the adjustment would be to just build four. But the federal law says they have to build 13% (this year) less of each one of the five.
The budget reductions in total for this year, $44 billion according to the Congressional Budget Office, are only about a quarter of what we spent to bail out AIG. This amount does not seem very threatening to our overall security, but since you can’t cut payroll except on the civilian side, the reductions mostly impact training and modernization. We have Air Force pilots today flying the same planes their fathers flew a generation ago.
Local school systems are smart enough to retain the flexibility to threaten band, football and musical theatre productions if they don’t get the money they ask for. The best the feds can come up with is to furlough some air traffic controllers, and hope that the resultant delays anger enough people to push the Republicans to cave in again.
The cognoscenti already know that the deal struck at New Year’s producing additional taxes on high earners, the American Taxpayer Relief Act of 2012, was spent within a couple of weeks on Hurricane Sandy relief. I keep coming back to the same irony. The more evasion of responsibility and bad decisions we see from the seat of government, the more power they seek to fix things.
A bad bargain, in my estimation.photo by: AvgeekJoe
This week, two important pieces of legislation began moving through the Texas Legislature. H.B. 1890 was filed by Rep. Phil Stephenson, R-Wharton, and S.B. 784 by Sen. Juan Hinojosa, R-Corpus Christi, was referred to the Senate Finance Committee.
H.B. 1890 is based, in part, on the tough conflict of interest and internal controls standards in the federal Sarbanes-Oxley Act. It would ban financial institutions from advising the Texas Windstorm Insurance Association or Texas Public Finance Authority on their bonding capacity and then participating in issuing those bonds. There is an obvious conflict of interest if an advisor is paid to give its recommendations for a financial transaction and is subsequently allowed to earn fees facilitating that transaction. In order to shield our state entities from any appearance of wrongdoing, such a ban on self-dealing is both proper and necessary.
S.B. 784 provides for a sales tax holiday on items essential for hurricane preparedness. For a three-day weekend at the end of April every year, all Texans would be able to purchase storm shutters, generators, batteries and other products to protect their property tax free. This bill serves two purposes. The bill encourages citizens to mitigate property loss and it educates them on the importance of such investments. And although all Texans do not live along the coast, all of the tax free items are helpful during tornadoes and hailstorms that plague the rest of the state.photo by: diveofficer
National Public Radio’s Marketplace This Morning recently ran a piece on its show highlighting an in-depth investigation by the Center for Investigative Reporting that focused on the ability of U.S.-based companies to legally evade paying taxes on the profits earned from their overseas operations.
The story presented a picture of U.S. corporate behavior that no doubt left many people indignant both over the porous nature of the tax code as well as the perfidy of the U.S. corporations that, it alleges, are exploiting loopholes to deny the U.S. government much-needed revenue.
The sheer outrage that the story’s attempting to generate raises a question: is there another side to this? Since the Center for Investigative Reporting alleged that it couldn’t find anyone willing to go on the record to defend the ability of U.S. corporations to defer the payment of taxes on foreign-earned income, allow me to do so.
The United States is the only country in the 33-nation OECD that requires companies to pay taxes on income earned abroad. The other countries exempt this income for a simple reason: it allows their companies to be more competitive abroad, and that is ultimately a good thing for their country and the companies headquartered in their country.
A U.S. company operating in France does pay corporate income taxes to France on its income earned there—something the report inexplicably failed to mention. U.S. companies that do not defer bringing that income back to America must then pay U.S. taxes on top of the taxes paid to France. This means that U.S. companies operating in France pays an effective tax rate of nearly 40 percent (the highest in the OECD) while a company from nearly every other country pays the French tax rate of only 25 percent on those profits.
As a result, the U.S. company finds it more difficult to compete in this market, and its overseas operations will be smaller—as well as its U.S. operations, as it will need fewer support staff in IT, logistics, marketing, and management to support its smaller overseas operations. Allowing U.S. companies to defer paying U.S. taxes until they are repatriated allows them to narrow the tax gap between them and their competitors.
Sen. Carl Levin, D-Mich., whose report was mentioned, alleges that if U.S. corporations do not face the same (high) U.S. tax rate on their foreign and domestic operations then they will move domestic operations overseas to take advantage of lower tax rates, but there’s little evidence of that occurring. However, there is a great deal of evidence that companies that locate operations abroad usually do so in order to service local markets by producing low-margin goods close to where they are being sold. Without deferral, Pepsi is not going to produce soda and chips in the United States and ship them across the ocean to Poland: they’re more likely going to divest their Polish operations. How does that help the United States?
How we tax U.S. corporations abroad is a complicated and contentious topic that’s currently at the heart of attempts to reform the U.S. tax code. To present deferral as merely some kind of tax scam that U.S. tech companies are pulling on the Treasury while not offering any sort of rebuttal amounts to agitprop.
Floridians would face about $7.19 billion in post-hurricane taxes to make up the funding shortfalls of state-run Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund should even a 1-in-50-year storm hit the state – a tally that could grow up to $23.9 billion in the case of a much stronger storm – according to new projections submitted to the state Legislature by the Florida Financial Services Commission.
Those figures do represent some progress since 2008, when the state’s insurance programs faced their deepest financial holes. Back then, in the wake of former Gov. Charlie Crist’s market-destroying “reform” legislation, the Cat Fund’s shortfall alone was estimated to be $21.4 billion for a 50-year storm and $25.8 billion for a 100-year storm, compared with $7.15 billion today.
Citizens, which has been slowly building up its private reinsurance protection with a combined $1.75 billion package of traditional and catastrophe bond coverage this year, has seen its assessable shortfalls drop even more dramatically, down just under half to $16.76 billion for a 1-in-250-year storm, just over half to $4.14 billion for a 100-year storm and by more than 90 percent to just $46 million for a 50-year storm.
Despite that progress, the prospects still aren’t very sunny in the Sunshine State. The projections for Citizens, in particular, almost certainly paint an unjustifiably rosy picture. That’s because the Financial Services Commission assumes that, in addition to the $6.38 billion of surplus it is projected to hold at year’s end, Citizens would be able to recover $6.05 billion in reinsurance it would be owed by the Cat Fund itself.
It takes just a glance at the Cat Fund’s projections to see the problem with that assumption. The Cat Fund, which provides $17 billion of mandatory coverage to the Florida residential property insurance market, faces probable maximum losses of $54.93 billion in the event of a 100-year storm or a truly staggering $82.42 billion in the event of a 250-year storm.
But speculating about those larger scenarios is, in a sense, utterly irrelevant, when even a 50-year storm, with a PML of $37.25 billion, would wipe out the fund completely. Even that relatively modest sized storm would require the fund turn to the capital markets to fund its full $7.15 billion shortfall. And as the fund’s own management and advisors have been warning for some time now, that is simply not likely to go well. The Financial Services Commission itself notes in the report that “it is uncertain whether the FHCF could in fact complete a bond issue or series of bond issues of the size necessary to pay all covered losses at assumed interest rates or at any interest rate in a timely manner.”
If long‐term bonding in sufficient amounts is not immediately available, the FHCF would need to explore alternatives, including the levying of emergency assessments with no financing, a staged financing schedule and/or interim financing alternatives. The FHCF statute provides that the FHCF’s liability is limited to the amount it can actually raise from bonding and other available claims payment sources.
To translate that into terms everyone can understand, if the Cat Fund can’t raise the amounts it needs to pay all of its claims, it can, by law, simply shirk that responsibility. And that includes its more than $6 billion responsibility to Citizens.
Bearing those concerns in mind, the worst case scenario for Florida isn’t $7 billion in new taxes, or even $24 billion in new taxes. The worst case scenarios is that state lawmakers aren’t able to find the political spine to pass real reforms before the next storm hits, and takes down the entire insurance market with it.photo by: stevendepolo
Coming on the heels of a major deal that transferred 31,000 coastal policies and $30 billion in gross exposure to private start-up Weston Insurance Co., Florida’s state-run Citizens Property Insurance Corp. is moving to shift even more risk to the private sector with a planned $250 million catastrophe bond issuance.
This will be Citizens’ second dip into the cat bond waters, following last year’s record $750 million Everglades Re transaction. And it also marks 2013 as the second year in a row that Citizens will boost the total amount of risk it transfers to the private reinsurance market, which has the added benefit of reducing its reliance on the also-shaky Florida Hurricane Catastrophe Fund.
In 2011, Citizens bought $575 million of private reinsurance, a total it nearly tripled with last year’s $1.5 billion. With the most recent cat bond transaction, Citizens now targets its 2013 reinsurance program at $1.75 billion, which could include another $250 million cat bond issuance at some point this year and as much as $750 million in traditional private reinsurance.
In other good news, another major player also has entered the depopulation game, as Bermuda-based Axis Capital is backing a start-up take-out insurer called Qorval that will be led by former Citizens President Bob Ricker. It’s not yet clear if Qorval will look for take-outs of the same size as the Weston deal, but it’s fair to conclude from these trends that the private market’s appetite for Florida risk is growing.
However, it’s important that state lawmakers not draw the wrong lessons from these encouraging developments. Citizens is still too big. It still charges too little. And state residents – both the roughly one-quarter who are Citizens policyholders and the three-quarters who are not – would still be on the hook for big assessments the next time a major hurricane barrels across the Florida peninsula.
As detailed in a recent Sun-Sentinel piece, Citizens’ coastal account would face up to $14.8 billion in claims should a 1-in-100-year storm hit South Florida. Its claims-paying resources for such an event include about $3.997 billion in reinsurance from the Florida Hurricane Catastrophe Fund (which has solvency concerns of its own) and about $2.91 billion in cash reserves. The latter category includes Citizens’ obligations to pay roughly $444 million under the 10 percent quota share it would owe under its Cat Fund reinsurance, as well as $686 million to pay commercial and nonresidential policies that aren’t covered by the Cat Fund.
An additional $191 million would be raised through assessments on Citizens existing policyholders and $1.5 billion could be recovered under the reinsurance package — half-cat bond, half-traditional — it placed last year. Once the private reinsurance was used up, Citizens policyholders would then be hit up again for a second round of assessments estimated to be about $397 million.
But that would still leave Citizens with about $5.8 billion in unpaid claims, at which point, it would be forced to borrow money in the capital markets. To pay off these post-event loans, the first step would be to raise $620 million through 2 percent assessments on non-Citizens homeowners policies. For the remaining more than $5 billion, assessments would be laid on policies for cars, businesses, pets – essentially every property/casualty insurance policy in the state except workers’ comp and medical malpractice – and those assessments could persist for as much as a decade. Floridians still have $1 billion in remaining assessments to pay from the 2005 hurricane season, and that was before Citizens’ massive legislative expansion in 2007.
By no means should the recent spell of good news make state lawmakers complacent about shrinking the size of the state’s insurance mechanisms, both Citizens and the Cat Fund. The progress is encouraging, but it all could be wiped away in an instant.photo by: Xurble
Most of the attempts to fix Michigan’s long-time Essential Insurance Act have ended as spectacularly as the meteor which exploded over the Ural Mountains town of Chelyabinsk a few days ago, injuring over a thousand stunned residents of central Russia. A huge proportion of all accident injuries and fatalities are suffered by people driving or riding in various kinds of vehicles. Obviously, there are many interested parties to the process of sorting out who pays for what kinds of medical treatment, rehabilitation and compensated damages.
Most state laws do and always have featured upper limits in the policy for medical care resulting from crashes. Three states provided unlimited coverage and only Michigan still offers this expensive version of auto insurance. To pay claims for damages in the truly catastrophic cases, a private, non-profit fund –-the Michigan Catastrophic Claims Association–manages the major claims, since “unlimited,” in this case, refers to both length and severity. The association is itself managed by a board of property and casualty insurers doing business in Michigan, and charges a surcharge to raise the necessary revenue to pay the claims.
Separately, Michigan has recently levied a 1% surcharge on claims paid by health insurers, which was supposed to raise about $400 million annually, but has not.
Now the threads might be coming together to produce some needed reform. It appears that state lawmakers may be ready to accept the insurers’ argument that actuaries do not deal well with anything that is unlimited, because it loosens up the sophisticated guesses about what rates ought to be to stay in business. Some number will be picked as a cap, and I’m guessing it will be between $1 million and $5 million, because that will cover something like 95% of the cases. A new MCCA may be set up under new financing and with the new limits, if agreement can be found that a consortium is still the best way to handle catastrophic cases. Cases handled by the existing association will run on for years under the system in which they were created, until there are no more cases left.
Some cost containment will be have to be selected as an element, and a medical fee schedule such as those used typically for Medicaid or workers’ comp is likely. Some of the money saved will keep auto insurance rates from rising as fast as the cost of medical procedures and devices, with the rest will be used to shore up the MCCA’s deficit, as the new claims surcharge has not delivered revenue as reliably as projected.
Any true reform would have to address the worsening and expensive problem of how to compensate for home health care, as well, which is mostly administered by unlicensed friends and relatives.
In the legislative arena, it is always possible that a fight will erupt over some hitherto unexamined, but linked requirement of the federal Affordable Care Act, or family planning, or compensating people who suffer nightmares but present no physical injuries. There are lots of reasons that proposed solutions don’t look as promising to all the actors in a major legislative production.
But if one adds in the backing of the governor’s office and a couple of experienced and thoughtful insurance committee chairs working with their committees on this while Medicaid red ink is sloshing all over the landscape, I think this might be the year.
This coming Sunday, the Academy of Motion Picture Arts and Sciences will award its annual Oscars, with Steven Spielberg’s acclaimed “Lincoln” — a look at the 16th president’s work to abolish slavery with the Emancipation Proclamation and his efforts to get the 13th Amendment to the U.S. Constitution enacted –- up for several awards.
With the Academy Awards coming in the middle of Black History Month, it’s worth noting the fact that Republicans have put up proportionally more votes for every important civil rights act, including the landmark Civil Rights Act of 1964 during Lyndon’s Johnson’s presidency.
Against the backdrop of today’s battles – both in the courtroom and in state legislatures – over the civil and legal rights of gays, beneficiaries of government services and other groups who largely stand outside the Republican coalition, we now see the immigration issue emerging as central to the social reframing of the national Republican Party. But the question should be asked, who really stands for the civil rights of workers?
If you are interested in civil rights, how could you be against giving workers the choice as to whether or not to join a union, depending on each individual’s personal philosophy and calculation of the benefits and costs? The new Michigan laws enacted and signed by the Republicans who control the statehouse and the executive branch “…will not affect collective bargaining in any way except to take away unions’ ability to fire workers for not paying them,” according to Mackinac Center for Public Policy Labor Policy Director Vincent Vernuccio.
Until the political leadership of the state signed legislation about two months ago, Michigan workers did not have all of the freedoms many Americans enjoy. They have been dependent for worker benefits on the people who control their workplaces. We all come down the same way on helping runaway kids escape from people who control their lives in countless and sometimes very personal ways, yet we seem confused about the burdens placed on many businesses and even major industries by union work rules. Such rules are hardly ever designed to achieve competitiveness for an organization, even though this may mean the life or death of a company in the modern era.
In the year since Indiana became a right-to-work state, they have reported adding 43,300 jobs on Michigan’s southern border. In the same time period, Michigan has lost another 7,300 jobs to other places. What is really telling is that inflation-adjusted compensation, according to Mackinac, has grown 12% in right-to-work states, compared to about 3% in forced unionism states.
Americans are hardwired for fairness, and a lot of people buy into the idea that it is only fair that unions who negotiate for benefits enjoyed by all workers should be allowed to collect a fee from even nonunion members who might benefit. In truth, there is no mandate or even pressure on the unions to negotiate for workers who don’t want to belong, for one reason or another.
To frustrate the purpose of the new laws, many Michigan unions are attempting to negotiate contracts with “security clauses” that would delay the new worker protections 0as far as out as (in one case) 2023, by grandfathering the unions’ ability to lock employees into paying union dues and fees. There undoubtedly will be some court cases on this unprecedented scheme to skim workers’ wages well beyond current contract periods.
Of note: Vincent Vernuccio will visit Columbus on June 12 to headline the distinguished speaker series and present “The Michigan Story on Workplace Freedom and What It Means for Ohio,” produced by Opportunity Ohio and co-sponsored by the R Street Institute. There will be more information on our website as the date approaches.photo by: brunkfordbraun
It has been more than two years since the adults regained control of Florida, yet the specter of the Charlie Crist days of demagoguery, populism-at-any-cost and overall political buffoonery looms heavy over the state Capitol.
The idea that Charlie Crist wants to make a political comeback and pursue the office he once held and neglected —then abandoned in order to run for two other offices—has become common knowledge throughout Tallahassee.
The trial lawyer firm he works for does everything it can to promote him, including feature him in television ads and on countless billboards across the state. He continues to chase photo-ops, pen op-eds and do anything else he can to offer unsolicited pontifications on any political issue.
If there is an accelerated program that confers Democratic bona fides on someone, Charlie Crist has graduated from it with honors. As a newly-minted independent, he formally supported several Democratic office-seekers in 2012 (including against former allies), endorsed Barack Obama, was featured as an “independent” speaker at the Democratic National Convention, switched his party affiliation after fulfilling the token “independent for Obama” role and, immediately following the massacre in Newtown, Conn., joined the chorus of Democrats calling for gun control, which is a far cry from his strong pro-Second Amendment record that earned him an “A” rating with the National Rifle Association.
This appears to complete his two-year political metamorphosis, which makes him ripe for a possible comeback as a Democrat.
And legislators are aware of this.
But concern over a Crist comeback reached fever pitch this week when Jim Greer–his hand-picked former chairman of the state’s Republican Party–pleaded guilty to five felony counts after long maintaining his innocence. His guilty plea spared Crist the indignity and embarrassment of having to testify as a key witness in the case that would have focused on his knowledge of Greer’s illegal shenanigans as chairman. This has sparked rumors of what compelled Greer to plead guilty and who paid for the attorney who “parachuted in at the last minute” to negotiate the plea.
Political observers viewed the Greer trial and the embarrassing evidence it would have revealed as something that could have derailed Crist’s hopes of a comeback. That is no longer the case, and legislators are aware of this.
Florida’s 2013 Election Year?
It has long been the case in just about every state that governors are rendered lame ducks during their last year in office. After leaving, they are not even an afterthought for the remaining lawmakers, much less even a remote factor in subsequent policy decisions. But two years after his exit, Charlie Crist is in some ways more of a factor in some issues before Florida’s upcoming legislative session than he was while he was governor.
It is no surprise that legislatures historically pursue bolder agendas during non-election years. The medicine-may-be-harsh-but-the-patient-requires-it types of policies that lawmakers hate to enact, but must for the good of the state, are usually pursued during odd-numbered years to allow enough time for short-term public anger to fizzle and fickle public opinion to improve before next year’s election. However, Florida legislators appear to be treating 2013 as an election year.
Take the property insurance issue, for example. Even opponents of reform concede that Florida’s property insurance system is shaky at best. Florida’s state-run insurance mechanisms—Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund—are too big and largely underfunded. Both have the potential of levying enormous assessments on every auto, renters, boaters and property insurance policy issued in Florida, thus dramatically increasing every Floridian’s overall cost of insurance for several years after a sufficiently bad hurricane season. Or worse, Citizens and/or the Cat Fund may simply fall short on their ability to meet their claims obligations, leaving thousands of families and businesses unable to rebuild in a timely manner.
In short, this is a big deal.
Unfortunately, part of the solution to the looming crisis must involve raising insurance rates on some, especially those covered by Citizens who live in the highest risk coastal areas of the state. If not, the rest of us — whether directly impacted by a storm or not — could face paralyzing increases in our overall cost of insurance to bail out Citizens and the Cat Fund.
Legislators know this and many are examining measured ways to address these issues. However, there is growing concern among some lawmakers, including solid free-market types, that pursuing the right policies will open the door to Charlie Crist demagoguing the issue, as he did in 2006 and 2007.
However, there are many reform ideas that would largely address the Citizens/Cat Fund issues that do not have an impact on insurance rates, and those that do affect a minority of Floridians. Such increases would be smaller and more methodically applied than the big, uncontained increase that would affect every Floridian for many years after a bad hurricane season. In other words, it’s a “fewer people paying a little more now” vs. “everybody paying a lot more later” situation.
Nevertheless, most lawmakers know Charlie Crist’s modus operandi, and know that he and a few remaining crypto-supporters in the Legislature will use any rate impact—regardless of how small—as a call to condemn the governor for “increasing rates on consumers.”
Good politics does not always equal politically good policy. Regardless, lawmakers must take steps to decrease the likelihood or severity of post-hurricane assessments if they do not want an economic cataclysm after a bad hurricane season. Doing nothing amounts to political malpractice.
That being said, those of us who advocate market-freeing reforms to the state’s insurance system accept political realities and acknowledge that Charlie Crist cannot be permitted to return to the Governor’s Mansion, as he is the architect of most of the state’s current problems.
Here is the given: Charlie Crist will take any opportunity to demagogue any issue. If reforms that increase rates are enacted, he will demagogue the increase in rates. Conversely, if nothing is done and a hurricane strikes, he will demagogue and blame the ensuing failures of Citizens, the Cat Fund and the state’s overall insurance system on Gov. Rick Scott and the current Legislature, even though it was Crist himself who triggered the time bomb years prior.
As such, lawmakers should consider enacting solutions that address the overexposure of Citizens and the Cat Fund that don’t needlessly increase rates on Floridians; those that do impact insurance rates should be measured and their rationale clearly articulated.
For example, according to a recent study, there are potentially thousands of vacation homes owned by non-Floridians that are covered by Citizens at below-market rates, and thus, subsidized by Florida taxpayers. These out-of-state owners should not be paying anything less than full insurance premium sufficient to cover their risk. This would obviously be an increase in rates for them, but it would be difficult to find any Florida voter outraged with doing so on this category of policies.
Another example is a proposal to right-size the Cat Fund. Currently, the Cat Fund promises more than its own managers estimate it can pay out. That is not acceptable. If the Cat Fund—a state-run reinsurance company that provides coverage to the state’s private insurance companies, as well as to Citizens—cannot meet all of its obligations after a bad hurricane, Citizens may not be able to pay all of its claims, several of the state’s private insurance companies likely would be insolvent, and thousands of residents and businesses may be left without their claims fully paid, which could obliterate Florida’s economy.
This is totally unacceptable, and the only way to remedy it is to reduce the size of the Cat Fund and the amount of coverage it can sell. Insurers would have to go to the private market for that coverage, which could increase overall insurance rates by approximately 3% over three years (if a current proposal under consideration is adopted). That, by any measure, is a small price to pay to immunize the state from an economic catastrophe, and this must be clearly explained to Floridians.
Another way to prospectively protect Florida taxpayers is to eliminate the government incentive to build along the state’s highest risk coastal areas by making Citizens coverage unavailable for new beachfront construction. This would not only save lives and property, but also protect ecologically valuable areas, wildlife habitats, and the natural barriers (sand dunes, wetlands, etc.) that protect inland areas from wind and storm surge. This would have zero insurance rate impact, and it has the potential to bring fiscal conservatives and environmentalists together to support good policy. More on that here.
These are just a sampling of possible meaningful reforms that can be pursued without giving demagogues like Charlie Crist fodder. But there are more ideas that deserve examination. They just need to be properly executed and articulated to Florida residents who deserve to know that they stand to lose a lot more if nothing is done.
Despite what its supporters claim, the reintroduced “Marketplace Fairness Act” is bad news for conservative principles and limited government. If it were to pass, it would tear down the walls that keep state tax collectors from wandering outside their borders while causing serious damage to electronic and interstate commerce. Though there are innumerable problems with the bill, the three most important are as follows:
- Countenances enormous expansion in state tax collection authority – The Marketplace Fairness Act would wipe away a baseline protection that shields taxpayers from harassment by out-of-state collectors, the physical presence standard, which dictates that a state can only require a business to collect its sales tax if it is physically present within its borders. This legislation would eliminate that protection for remote retail sales, allowing state tax collectors to target businesses all across the country.
- Allows for imposition of an “unlevel” playing field on retailers – Supporters of the Marketplace Fairness Act claim that it would “level the playing field” between beleaguered brick-and-mortar businesses and online retailers. In fact, it would do the exact opposite. Brick-and-mortar sales would be governed by a rule that allows the business to collect sales tax based on its physical location, not the destination of their buyer. Meanwhile, online retailers would be denied that convenient standard and would be forced to interrogate their customers about their eventual destination, look up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.
- Creates damaging interstate commerce and compliance burdens – Because they would now have to comply with the complex tax codes in more than 9,600 tax jurisdictions, remote retailers would be weighed down by substantial compliance burdens. In fact, the “small seller exception” in the bill (which is an inadequate $1 million in remote sales when the Small Business Administration definition of a small business is $30 million in sales) is itself an explicit acknowledgment that it will impose significant collection costs and that some should be spared the pain.
In seeking to address the failures of the “use tax” systems employed by states, the Marketplace Fairness Act ends up giving a federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based (the notion that physical presence is the appropriate limit for state tax authority), all while harming a sector (online sales) that still only accounts for roughly $0.07 of every $1 in retail spending.
Conservatives and believers in limited government should oppose such efforts and instead pursue a solution like origin-based sourcing, which would allow online sales to use the same collection standard that’s employed for brick-and-mortar sales today. An origin-based sourcing rule would require tax collection for all sales based on the physical location of the seller, not the buyer. This would maintain important taxpayer safeguards while encouraging robust tax competition.
The Marketplace Fairness Act has none of these virtues and should be opposed by conservatives in Congress.photo by: 401(K) 2013
The Texas Senate Business and Commerce Committee heard testimony on S.B. 183 this morning. The bill establishes a more reasonable period of time for private insurance companies to respond to requests from the Texas Department of Insurance. Additionally, it exposes the financial cost of such demands by requiring TDI to disclose the nature of the inquiry and justify how the request is necessary for the public good.
Current law requires companies to respond to data inquiries within 10 days after receipt. Such inquiries require additional personnel hours and resources which contribute to the overall cost of insurance products. Recognizing the cost of even the smallest regulation should give legislators pause when considering how much of a burden state agencies are allowed to place on private companies.
S.B. 183 was unanimously passed out of the committee and placed on the uncontested calendar. Currently, there is no companion bill filed in the House.