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Why the two-earner tax credit is a flawed approach

February 10, 2015, 12:31 PM

In his most recent State of the Union speech, President Barack Obama laid out a litany of tax proposals, including a $500 tax credit to households where there are two earners.

According to a White House fact sheet on the plan, the credit would offset the additional costs by the country’s 24 million couples where both spouses work. However, there are much better approaches to provide tax relief for working couples that are not as discriminatory against single parents and couples where one parent stays at home. There is also a better approach for targeting that relief than a broad tax credit.

According a CNN report on the double-earner tax credit proposal, the additional costs the White House hopes to offset include:

[The] costs of child care and commuting that lead some spouses — usually women — to determine it makes more financial sense to stop working.

This proposal is essentially a handout to a key part of the Democratic Party’s coalition. It’s designed to keep women in the workforce and to discourage stay-at-home moms (or dads). This puts into practice President Obama’s stated policy preference that women should be nudged to go into the workforce, and to ratchet down the number of women who choose to put their careers on hold in order to become full-time parents.

But it should not be the purpose of the tax code to encourage specific family preferences, much less to determine how American couples should raise their children. Instead, the primary role of taxation is to generate income for the state.

As a practical matter, this tax credit is a poor way to address the higher costs of child care and commuting that double-earning couples face. It also fails to take into account that single parents also face these higher child-care costs and that all workers face commuting costs as well. Is it sufficient to ask such families to utilize existing tax credits and find other ways to reduce commuting costs? For reasons of both fairness and the sake of a simpler tax code, I think the answer is yes.

There already is a child-care tax credit on the books. The current tax credit ranges from 20 percent of child care expenditures for those making more than $43,000 to 35 percent of child care expenditures for lower-income Americans. The credit maxes out at $1,050 for one child and $2,100 for two or more children. President Obama has also proposed raising the maximum credit to $3,000. If the president wants to help families defray the cost of child care, this seems a better approach than the double-earner tax credit. From a fairness factor, it would help all families, not just two-parent working households. It’s also a better way to target tax relief to the people who need it, rather than extending a broad tax credit to childless double-earner couples.

As for reducing the costs of commuting, we already have existing tax credits in place that can help with that. There are tax credits to subsidize everything from parking to even riding your bicycle to work. Again, the costs of commuting are borne by most working Americans, regardless of marital status. It would be a simpler and fairer proposal to expand those already-existing credits than to create a new credit that can be claimed even if one or both earners telecommute or work mostly from home.

There is another idea that would help the overwhelming majority of commuters, which is to reduce the federal gas tax. Alas, Obama appears to be leaving the door open to do the precise opposite. In recent days, administration officials have hinted at support for an increase in the federal gas tax.

Once you examine the costs the proposed double-earner tax credit is designed to mitigate, the argument for it just simply doesn’t make sense. There are better and fairer ways to address the costs borne by commuters and parents. President Obama should stop trying to use the tax code to wage a culture war and consider alternative approaches to help all American workers.

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

The ‘sharing economy’ is under threat

February 10, 2015, 10:15 AM

This piece was co-authored by R Street Editor-in-Chief and Senior Fellow R.J. Lehmann.

One of the underappreciated problems of the growth of the regulatory state is that rather than clarifying the rules of the road for companies and consumers, regulations often simply beget more regulations. A textbook example can be seen in the evolution of so-called “sharing economy” firms, and how they are treated by both regulators and the courts.

As transportation network companies (TNCs) like Uber and Lyft have continued to grow in popularity, a growing list of states and municipalities – including California, Colorado, Illinois, and the District of Columbia, with dozens of others to come – have passed basic regulatory frameworks that, in some cases, have nudged the companies away from their original business models. To remain in regulators’ good graces, TNCs have agreed to conduct background checks on their drivers, confirm that vehicles have undergone safety inspections, and provide extensive liability insurance to cover drivers any time they are on the clock and, in some cases, even when they aren’t.

But in a cruel irony, acquiescing to the very rules that have helped make ridesharing palatable to regulators could ultimately be used against the companies in a pair of class actions currently pending in U.S. District Court in San Francisco. The suits hinge on whether drivers for these platforms ought to be considered employees or independent contractors.

The decision could have serious implications for the companies’ bottom lines. If the ridesharing platforms are defined as “employers,” they’ll have to shell out for workers’ compensation coverage, gas and maintenance expenses, payroll taxes, unemployment insurance, and potentially even health, retirement benefits, and in some states, paid leave benefits. Under the California Labor Code, which is even more stringent than federal Department of Labor rules, the companies could face stiff fines if they fail to keep detailed paperwork on the drivers’ wage statements, and even steeper penalties if they failed to provide appropriate overtime or meal and rest breaks.

The TNCs certainly have a plausible case that their drivers ought to be considered independent contractors. Ridesharing drivers set their own hours of work and own their own cars. They start work when they want and can quit without notice. Many drivers actually work for multiple competing TNCs simultaneously. None of these things is consistent with a traditional employer-employee relationship.

On the other hand, there is the risk that courts could determine that in stepping up to agree to abide certain basic, reasonable regulations, like screening and insuring their drivers, the TNCs have inadvertently tiptoed over the threshold of “control” used by federal agencies like the Department of Labor and IRS to define who is an employee and who is a contractor.

Such a finding would be unfortunate, as it would hurt those who benefit most from the sharing economy — workers wanting to try a new job or make extra money on the side. Raising the costs of operating a sharing economy platform would constrict demand for the sorts of part-time “gig” workers who have made these services the successful ventures they are. It also would serve as a red flag, warding off future entrepreneurs who might bring to market new ways to unlock trapped capital, both human and financial.

Perhaps most troubling is that a ruling against the ridesharing companies could serve as precedent for future suits that target other forms of sharing economy services. (Leaders of at least two other major sharing economy companies outside of the ridesharing space told one of us they already are concerned about similar lawsuits.) That’s why these cases deserve careful scrutiny.  If the courts fail to see how the flexibility inherent in the sharing economy benefits workers, companies and consumers, it might be time for Congress to revisit these rules. Otherwise, a dynamic new market could end up being smothered while its still in the cradle.

Obama will veto Keystone XL behind closed doors

February 10, 2015, 10:06 AM

President Barack Obama will veto a bill authorizing construction of the Keystone XL pipeline this week, despite the bill’s bipartisan support. But instead of making a big deal out of the “do nothing Congress” he’s seen so far as his foe (Obama’s only had the chance to veto three bills in his presidency, largely due to partisan deadlock in the legislature), Obama will stamp this one out quietly, behind closed doors at his desk, without any media fanfare.

Because, as it turns out, the man who has spent the better part of four years accusing the Republicans of being the blockade against effective legislation is about to undertake a two-year crusade against anything passed by Congress, and he doesn’t want anyone to know about it.

Obama’s veto — just the third of his presidency and the first since 2010 — is expected to come with little fanfare, with even opponents of the pipeline arguing the White House should avoid further angering Democrats and unions who want Keystone to be built.

“We just want to see it get it rejected. Our work doesn’t end with the veto, we need to make sure votes are there to sustain that veto,” said Melinda Pierce, Sierra Club’s legislative director.

Republicans are eagerly awaiting Obama’s stroke of the pen, believing every veto he makes will help them make the case that job-creating legislation is being blocked by a president of “no.”

“This is the first piece of legislation on his desk . . . and he will have to choose between hard working Americans and taxpayers or environmental extremists,” said Sen. John Barrasso (R-Wyo.), a staunch Keystone supporter.

Even if you aren’t interested in the mechanics of transporting oil across America’s heartland, or are confused on the details of who gets to build Keystone and where, this bill has a deeper meaning for the Democrats’ coalition going into 2016. While it’s easy to see why the president would veto a measure that impacts something the Democrats as a whole find to be a core belief of the party – say, abortion restrictions – the Keystone XL pipeline actually has an impact on several small Democratic coaltions. Heartland Democratic legislators want the economic boost that comes with a massive infrastructure project. Typically Democratic labor unions are very interested in the possibility of hundreds, if not thousands, of union jobs. And moderate Democrats from industrial states across the country are joining Republicans to vote for the project. Vetoing the pipeline affords greater consideration to more typically “fringe” Democratic constituencies, like radical environmentalists, and demonstrates where the party thinks it needs to go to attract loyal voters in time for 2016.

This, of course, leaves blue-collar industrial workers, who are mostly middle-class, open to Republican marketing, provided they’re paying attention to legislative minutiae. And that’s why Obama will take this veto behind closed doors. What you don’t see happen, never happened.

IWF joins coalition urging Congress to draft and pass comprehensive tax reform bill now

February 10, 2015, 9:46 AM

From Independent Women’s Forum:

Additional groups that signed the coalition letter include R Street Institute, 60 Plus Association, Americans for Tax Reform, Hoover Institute, American Commitment, and many other public policy organizations and leaders.

Alcohol delivery and your smart phone: a match made in heaven

February 09, 2015, 4:01 PM

In a world where the lines between the digital and the physical are blurry and fluid, constantly crossing and morphing and mashing up into a new version of reality, there are few more perfect marriages of our online and offline lives than in one growing phenomenon: delivery. Order it online. It shows up where you are. Exactly how you want it.

We use apps to order groceries, car rides, temporary apartments, declarations of love, personal assistants, valets, private chefs. And now, booze!

The Klink alcohol delivery app let’s you order alcohol to your doorstep by touching a button on your phone or your computer. The website sums up the process in four steps:

1) Tell us where you are.

2) Tell us what you want.

3) Pay. No markups.

4) Answer your door.

Klink’s business model contains many of the hallmarks of other startups in the sharing economy, in that it disrupts a market that was difficult or unpleasant to navigate and replaces it with services that are more user-friendly, affordable, customized and convenient.

If you did not live in New York City, taxicabs were unpleasant. But along came Uber. Renting a living space for short amounts of time was stressful, if not impossible, especially in a foreign city. Then, along came Airbnb. There are always exceptions, but I will not miss wandering around the nameless corner liquor store, hopelessly trying to decipher the organizational scheme and keeping fingers crossed that they carry the products I want.

When I sat down to talk with two of Klink’s founders, Jeffrey Nadel and Craig Bolz, they ardently expressed that creating an entire experience of celebration is a core component of their business model, which they are looking to expand following a new partnership with Bud Light.

Rebranded and expanded in June 2014, Klink demonstrates a new age of maturity in the sharing economy. It retains the user-centric hacker spirit, but complies stringently with existing laws and regulations. It does not process your payments. It does not sell or deliver alcohol. All of the regulated, technical aspects of alcohol sales are left to licensed liquor retailers. The service focuses on one thing that the sharing economy typically does really well: it connects buyers and sellers through an easy-to-use app.

“Sharing economy” is one of those blanket terms that encompasses a wide range of businesses and industries, each of which comes with its own unique model and legal framework. Broadly speaking, it describes a business that uses a digital platform to more efficiently distribute resources by directly syncing suppliers and customers. Sometimes, a sharing economy service skirts restrictive regulations or makes them obsolete. In other cases, it’s just a new way of performing an old service. There is very little actual “sharing” involved, unless you count the mints in the back seat of your Uber ride.

It is surprising that Klink has found a legal niche in one of the most tightly regulated markets in our economy, with laws regarding a whole range of operations, from Sunday sales to retail establishments that vary state by state and sometimes county by county. After all, illegally transporting alcohol across state lines is one of only two ways that a private citizen can violate the U.S. Constitution. The other is by enslaving someone.

Klink has navigated the complexities of the regulatory system as it expands to new states, having already launched in Florida, Michigan and the District of Columbia. As it’s expanded, Klink has discovered some surprising surprising allies. The vocal non-profit MADD (Mothers Against Drunk Driving) is supportive of alcohol delivery and ridesharing services that keep those who imbibe off the roads. The new Uber/MADD partnership recently released a poll showing that 80 percent of respondents are less likely to drive after drinking due to ride-sharing apps. DUI levels are down, drunk-driving crashes are on the decline, and other statistics reveal a strong correlation between safer driving practices and the availability of ridesharing services.

There are those who see disruptive technologies as changing our mode of existence in potentially harmful ways. It’s a fine line between laziness and efficiency, instant gratification and innovation. It’s a line I will do a little jig on while drinking a beer. Cheers!


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

A guide to religious tolerance in the 21st century

February 09, 2015, 12:00 PM

In Alabama, faith remains a cornerstone of many communities. It is not a simple box to check or a title to wear. Rather, faith is the lens through which a significant number of us see the world.

For countless Christians, the tenets of their faith, especially those related to marriage and sexuality, have clashed with a significant cultural shift. Unfortunately, some have reacted to that change with hatred and anger. That is simply unacceptable.

On that same note, the poor conduct of a few should not be used as an opportunity to attack an entire faith community. Recently, my colleague Kyle Whitmire penned a column, “A guide to Biblical dating and marriage in the 21st century.” Readers who began the column in anticipation of relationship guidance according to the Bible were met with a poor attempt at humor suggesting that a biblical view toward marriage condones rape, slavery and abuse. He endeavored to lighten his tone by stating, “Religions are grocery stores with many shelves, and you get to pick what you put in your cart.”

The column flippantly paints Christians with broad strokes that demonstrate the same lack of judgment and tolerance he finds so offensive in some of the public figures he has encountered.

The cultural edicts of the Old Testament indeed reflect cultural norms thousands of years before the arrival of Christ. They are nothing if not shocking to our modern sensibilities. Taken outside of their context in the Bible, they would indeed appear to be a draconian code outdated in today’s society. They represent the first part of the redemptive story of the Bible. The laws, edicts and mandates of the Old Testament ultimately point to a fallen, broken people in dire need of restoration.

Perhaps the most central verse connecting the Old Testament and the New is found in the simple words of Romans 5:8. “But God demonstrates his own love for us in this: While we were still sinners, Christ died for us.” The central theme of the Bible is flawed people redeemed through the sacrificial love of God. It is a message calling to the downtrodden, broken and weak. It was never intended to be an instrument of hate. In fact, the pages of the Bible reflect one of the greatest love stories ever told.

Christians who sincerely believe that God designed marriage between a man and a woman are not simultaneously condoning rape, slavery and abuse. More importantly, they are not, by their mere belief, espousing bigotry or intolerance. In fact, many Christians, especially those with lesbian, gay or transgendered friends or family, understand and are sensitive to the reality that the Bible’s admonishments on sexuality may be offensive to those who disagree.

We can and have passionately argued the merits of the state’s interest in a definition of marriage that aligns with a Christian religious perspective. Christians, people of different faiths, and those with no faith at all deserve their say on important public policy issues.

Christians may not ultimately win the argument, but religious tolerance is a critical part of our heritage. Mr. Whitemire’s piece misses that virtue, inflames each side of the debate and ultimately undermines the quality of discourse on an important policy issue.

Debbie and Sheila’s night out at the Grammys

February 09, 2015, 11:30 AM

I’ll be rounding up the highlights from last night’s Grammy Awards a bit later, but suffice it to say, if you didn’t watch it, you missed very little. As is tradition, we all got an eye-full of Madonna’s rear end, questioned whether Kim Kardashian’s dress was set to stay on for the whole night, were reminded that there was once such a thing as “rock and roll” but everyone who was involved in it can barely remember where they put their Metamucil, and that despite our best efforts at outlawing torture in this country, Ariana Grande still exists.

One unexpected highlight, however, was seeing Reps. Debbie Wasserman Schultz, D-Fla., and Sheila Jackson Lee, D-Texas — best known for haranguing Republicans for their ill treatment of the downtrodden and economically depressed — skating across the red carpet like they belonged there.

Schultz’s spokesperson acknowledged that his boss had spent the day prepping and preening for the prestigious awards ceremony, but stopped short of saying that Schultz had been a guest of honor, invited by the Grammy foundation. Instead, he just said she’d been attending some political meetings that are held at the same time as the event. He’s partially right.

The Grammys are an annual fete for the Recording Academy, which is, at it’s core, a sort of trade union for musicians. The RA has an Advocacy and Industry Relations office in D.C. and has a “supersized musicians lobby” that is very friendly with Wasserman Schultz. Over the weekend, the RA held a number of events surrounding the Grammys for national lawmakers, where both sides (and, for that matter both parties – both Reps. Marsha Blackburn, R-Tenn.,  and Darrell Issa, R-Calif., were in attendance) meet to discuss policy priorities (the RA) and fundraising goals (Congress).

Lawmakers, who seemed to be mostly there to meet their favorite recording stars, also received a briefing on the state of the music industry and a backstage tour of the Grammys. If the lawmakers return the favor of being allowed to rub elbows with music superstars by taking the RA’s position on things like copyright, they get to be part of the special “Grammys on the Hill” event in the spring, where they‘ll be awarded honorary titles for their “contributions” at their own star-studded ceremony.

Of course, most of the event’s legislator attendees didn’t also get the honor of attending the ceremony. No, that seems to have belonged only to the Recording Academy’s shining stars: two women who do their level best to protect their fellow millionaires.

Think Tanks: Justice Dept. works to ‘see through walls’

February 09, 2015, 11:18 AM

From the Washington Examiner:

Kevin Boyd for the R Street Institute: In a growing trend begun a few years ago without much public disclosure or debate, at least 50 police departments across the country — including the FBI and U.S. Marshals Service — now deploy radar devices that could allow them effectively to “see through walls.”

Letter to Oregon Legislative Assembly about HB 2546

February 09, 2015, 11:16 AM

I submit this comment and request to amend H.B. 2546 in my capacity as a public health physician and my role as senior fellow for tobacco policy with the R Street Institute. I hope to assist in developing a bill that provides optimal public health protection with minimal encroachment on personal freedom.

H.B. 2546 deals with three issues. The first deals with the sale of tobacco, nicotine and cannabis products to persons under age 18. The second deals with extending smoking prohibitions to what the bill defines as “inhalant delivery systems,” more commonly referred to as e-cigarettes. The third deals with identity theft in the context of deception about age.

As a public health physician I strongly support prohibiting the sale of tobacco and inhalant delivery systems to minors, whether defined as 18, 21 or 25 years of age. Such prohibition is justified on the basis of the damage nicotine and marijuana can do to the developing adolescent brain and the tendency for smokers initiating cigarette use prior to the age of 25 to be addicted to cigarettes for life.

Despite hype to the contrary, including bits of scientific evidence taken out of context, there is no public health justification to prohibit inhalant delivery systems in areas where smoking is prohibited. Though e-cigarette aerosol does contain traces of chemical toxins, the levels rarely, if ever, exceed the background levels already present in indoor areas where no one has been smoking. The trace quantities of nicotine in exhaled e-cigarette vapor is well below levels that might be harmful to bystanders, especially considering that the bystanders are also exposed to nicotine in eggplant, potatoes, tomatoes and other common vegetables. I therefore urge the provisions related to such bans be deleted from H.B. 2546, pending detailed study of this issue by the Oregon Health Authority in collaboration with experts in the science of inhalant delivery systems.

All that being said, there are a number of less substantial but still important issues that may speak to the need to amend H.B. 2546.

  1. Line 2, page 2 – the definition of “inhalant delivery system,” as worded includes hookahs (which burn charcoal, not tobacco) and excludes nicotine-free and drug-free e-cigarettes. Perhaps this should be reworded as a device that “is designed for the purpose of delivering nicotine.”
  2. Line 37, page 2, dealing with the packaging of cigarettes, should specify “factory-sealed package” to prevent sales of single cigarettes repackaged by the vendor.
  3. Line 29, page 3, dealing with reports to be generated by the Oregon Health Authority, should specify annual reports and to whom.
  4. To adequately document the progress, or lack thereof, in teen use of tobacco, nicotine and related products, the reporting required of the Oregon Health Authority should cover all nicotine delivery products, including those sold over the counter as pharmaceuticals, and include numbers of teens using any nicotine delivery product by frequency of such use. This is needed because experience to date shows that more than 99 percent of e-cigarette use by teens is by smokers switching to e-cigarettes. The majority of use of e-cigarettes by non-smoking teens is one-time experimentation without continuing or future use.
  5. Lines 25 through 28 of page 4, dealing with the definition of tobacco and controlled substance smoke, does not cover hookahs as currently written. Hookahs burn charcoal. The user then sucks the charcoal fumes through flavored tobacco and water for the purpose of extracting nicotine from the tobacco and softening the otherwise overly-harsh taste with the flavoring and water. Hookahs deserve special consideration because of the large quantities of carbon monoxide inhaled, in addition to the full array of other toxic substances found in smoke of any organic substance.
  6. Lines 25-28 of page 4 should be amended to specifically reference hookahs.

The provisions of the bill dealing with the Oregon Clean Indoor Air Act should be deleted. Exhaled aerosol from such systems present no measurable risk to bystanders. Prohibiting e-cigarettes in no-smoking areas would likely do more harm than good. It would do nothing to reduce cigarette smoking. It would do nothing to protect bystanders. The only result would be to discourage smokers from switching to much less hazardous inhalant-delivery systems.

All things considered, and as best we can make such estimates at this time, e-cigarettes present less than 1 percent of the risk of potentially fatal tobacco-related illness than tobacco cigarettes. In other words, a smoker who is unwilling or unable to quit can reduce his or her risk of such illness by 99 percent or more by switching to an e-cigarette or related vapor product. Dual users of such products generally reduce their cigarette consumption to less than 5 cigarettes per day, compared to the half-a-pack or more they may have been smoking.

In addition, recently published data strongly suggest that e-cigarettes are less addictive and easier to quit than tobacco cigarettes. In addition, while still unsafe for use by minors, they tend to satisfy the user with far less nicotine than a tobacco cigarette.

The wording of the Clean Indoor Air Act might also deserve amendment with regard to consistency of age cutoff. Age 21 is referenced in line 20 of page 7 and age 18 on line 35 of page 8.

While unrelated to other provisions of the Clean Indoor Air Act, the Oregon Legislative Assembly should consider defining and managing vape shops in a manner similar to their definition and management of cigar bars and smoke shops. This would be appropriate to facilitate enforcement of the prohibition of sales to minors and to set the stage for other inspection activities that may be warranted if and when the Food and Drug Administration imposes regulations on the manufacture and sale of e-cigarettes.

San Antonio regulations driving Uber out of town

February 06, 2015, 4:07 PM

From Breitbart:

Josiah Neeley, the Texas State Director for the R Street Institute, concurred with Uber’s assessment of the heavy impact of the ordinance. “When you look at the sheer number of different burdensome requirements in San Antonio’s ordinance, it’s not surprising that Uber isn’t able to effectively operate in the current environment,” said Neeley. “Hopefully this will send a wake up call to the city to revisit the issue soon.”

Anti-rebating laws and the Utah experience

February 06, 2015, 9:00 AM

Most free-market proponents recognize there can be a productive role for sensible regulation, but the bar is relatively high. First, one must identify some clear and compelling consumer harm that must be addressed. Then, one must identify potential corrective measures that do not inflict even more damage than the harm they are intended to fix. Finally, one must be mindful of potential unintended consequences, such as how the proposed regulatory apparatus could be twisted should the regulators become captured by the regulated.

Markets can and do function despite rules that fail to meet any of those tests. Bad and unnecessary regulations can persist for decades, calcifying into background structures that quietly add costs, diminish competition and stifle innovation in ways few tend to notice. Few notice, that is, until some enterprising firm comes to market with a new business model that fails to fit the old rules or an equally enterprising regulator finds a novel interpretation that threatens to make those old rules even worse.

In Utah’s insurance market, we are currently seeing a confluence of both of those things simultaneously.

Anti-rebating laws – relics of the 19th century that long have saddled insurance markets with superfluous and anti-competitive regulations – are bumping up against the business models of some modern insurance producers who have found new ways to serve their customers. Moreover, Utah’s anti-rebating law is now being applied in an unfair, anti-consumer and unjustified manner that threatens to undermine those same innovative products and service

Repealing all of the nation’s anti-rebating laws is likely too radical a change to expect to achieve in the short term. Even just simply repealing Utah’s statute might be a step beyond political feasibility. But there are realistic and targeted amendments that can be made to rein in runaway regulations and, in this case, ensure that Utah’s insurance marketplace remains among the most sensibly regulated in the nation.

Utah should modernize anti-rebating regulations, R Street policy brief finds

February 06, 2015, 9:00 AM

SALT LAKE CITY (Feb. 6, 2015) – Utah should bring its anti-rebating regulations in line with the rest of the country, according to a policy brief published today by the R Street Institute.
Anti-rebating laws initially were passed to prohibit sharing the proceeds of an insurance commission with the insured, notes author Ian Adams, R Street’s western region director. Rules against rebates are usually justified on grounds they could provide an inducement to a consumer to purchase a product from a specific retailer or retailer’s representative.

In Utah, an over-zealous interpretation of the statute, at odds with the model promulgated by the National Association of Insurance Commissioners, has led to the determination that an insurance broker could not make available to its commercial clients a free online human resources portal, deeming the service “an illegal inducement” under the statute. This is in spite of the fact that the software is offered to businesses for free independent of the purchase of insurance.

“Utah’s application of its anti-rebating law fails the first test of regulation,” Adams wrote. “It does not identify any consumer who could feasibly be harmed by the market conduct in question, while many consumers could potentially benefit.”

Adams writes that Utah should move toward a more flexible understanding of the law, based upon the purposes that it believes its anti-rebating statute should and can achieve. This would require lawmakers to define a more limited conception of what constitutes a rebate, so that genuine innovations to better serve consumers are not precluded.

“As would be expected, the statute did not anticipate some of the innovations brought to market by the Internet and how e-commerce would affect the business of insurance producers,” Adams wrote. “A modernization of the law would be in consumers’ best interests as they harness the power of the Internet to work for them.”

Utah’s anti-rebating laws will be the subject of a Feb. 9 hearing of the state House Business and Labor Committee.


Heading a national ridesharing outline a political gain for Jones?

February 05, 2015, 5:45 PM

From Insurance Journal:

Ian Adams, Western Region Director at R Street Institute, believes Jones is using his role on the commission as a podium to campaign for his next office as he enters his final four-year term in office and begins looking down the road.

There those who believe Jones has his eye on California Attorney General Kamala Harris’ post. Harris in January formally entered the U.S. Senate contest to replace retiring Sen. Barbara Boxer. Harris is so far considered by most to be the front-runner.

“You’ve got Kamala Harris, who in two years will be leaving office early, and I think Dave Jones does have his eye on higher office and he probably likes the idea of attorney general,” Adams said. “Jones is going to be essentially camping for the next three-and-a-half years for whatever office comes next.”

…“He’s really doing a lot of things that are designed to get media attention,” Adams said.

Chairing an NAIC committee on a hot topic like ridesharing is a way for Jones to call attention to the fact that California has led the way on ridesharing regulation, and a way for him to show everyone he can help lay groundwork for dealing with issues of national importance, Adams said.

“If he does have another office in mind this is a great way of raising his profile,” Adams said. “There’s been a larger push by the California Department of Insurance with consumer-friendly, relatively high-profile, attention-getting moves.”

…R Street’s Adams agree there’s a real fear that committee could make overreaching suggestions in terms of insurance coverage and make future innovations from the budding ridesharing more onerous for companies to introduce.

“You don’t want to strangle the industry in the crib,” Adams said. “I think there will be a lot of pushback on the issue of coverage expansions across the board in terms of coverage amounts.”

Coalition letter on FOIA Oversight and Implementation Act

February 05, 2015, 2:03 PM

Feb. 5, 2015

Sen. John Cornyn
Sen. Patrick Leahy

Rep. Darrell Issa
Rep. Elijah Cummings

Dear Sens. Cornyn and Leahy and Reps. Issa and Cummings:

The undersigned organizations announce their support for the bicameral, bipartisan movement toward reforming the Freedom of Information Act (FOIA). We thank you and your staffs for your continued leadership and perseverance in updating this cornerstone of government accountability and transparency. Congress must act this year to ensure that FOIA stays current with people’s need to access government information and resilient in the face of attempts to subvert that access.

Public oversight is critical to ensuring accountability, and the reforms embodied in both the FOIA Oversight and Implementation Act (H.R. 653), introduced by Reps. Issa and Cummings, and the FOIA Improvement Act of 2015 (S.337), introduced by Sens. Cornyn and Leahy, are necessary to enable that oversight. The undersigned groups therefore strongly support these bipartisan efforts.

Both pieces of legislation would:

  • Codify the presumption of openness, thereby requiring records be released unless there is a foreseeable harm or legal requirement to withhold them;
  • Improve public access to released records;
  • Rein in (b)(5), the “withhold it because you want to” exemption, including by placing a 25-year sunset on its use;
  • Clarify and reform the use of fees as assessed by agencies; and
  • Strengthen the Office of Government Information Services (OGIS).

The bill introduced in the Senate, which is virtually identical to the bill that passed through unanimous consent last year, is the product of months of negotiations, which were unfortunately undermined by last-minute agency objections designed to stall FOIA reform. The House bill is very similar to last year’s, but includes additional language designed to further reduce the record-breaking overuse of exemption (b)(5). With the removal of the public interest balancing test, however, neither bill goes as far as the Senate’s original FOIA Improvement Act did last year. Given the disturbing, and increasing, misuse of the (b)(5) exemption, the undersigned organizations call on both chambers to pass the strongest reform possible.

We look forward to working with our allies on the Hill to make this happen.

Please contact Patrice McDermott of OpenTheGovernment.org (202.332.6736; pmcdermott@openthegovernment.org) with any questions or to follow up.
American Civil Liberties Union
American Association of Law Libraries
American Booksellers for Free Expression
American Commitment
American Library Association
American Society of News Editors
American-Arab Anti-Discrimination Committee
Appeal for Justice
Associated Press Media Editors
Association of Alternative News Media
Association of Research Libraries
Bill of Rights Defense Committee
Campaign for Digital Fourth Amendment Rights
Campaign for Liberty
Cause of Action
Center for Effective Government
Center for Science and Democracy at the Union of Concerned Scientists
Citizens for Responsibility and Ethics in Washington
Data Transparency Coalition
Defending Dissent Foundation
Electronic Frontier Foundation
FOIA Project
Food & Water Watch
Government Accountability Project
Human Rights Watch
International Justice Network
Less Government
Media Alliance
Mine Safety and Health News
National Coalition for History
National Security Archive
National Security Counselors
National Taxpayers Union
People for the American Way
Project on Government Oversight
R Street Institute
Society of Professional Journalists
Sunlight Foundation
Taxpayers for Common Sense
Taxpayers Protection Alliance
Transactional Records Access Clearinghouse
Tully Center for Free Speech at Syracuse University
Cc: Sen. Charles E. Grassley, chair, Senate Judiciary Committee
Rep. Jason Chaffetz, chair, House Oversight and Government Reform Committee

Geico goes end-to-end with Virginia ridesharing product

February 05, 2015, 12:31 PM

In a continuation of the encouraging trend of personal insurers embracing innovation as a way to deal with the increased popularity of “sharing economy” services, auto insurance giant Geico has announced it will be rolling out a new product in Virginia to cover ridesharing drivers for services like Uber, Lyft and Sidecar.

What’s more, the product goes significantly further than those previously announced by Farmers and USAA in Colorado and by National General Assurance Co.’s Metromile in California. Those products are designed to enhance personal auto policies with supplementary coverage for when a driver is logged on to a transportation network company’s smartphone application, but is neither in transit with a passenger nor en route to pick one up (the so-called “Period 1″).

The Geico product, which will be offered through its commercial auto insurance arm, is instead designed as a full end-to-end solution, providing coverage regardless of whether the driver is logged into a TNC app, regardless of whether he or she is transporting a passenger and regardless of which or how many TNCs the driver is signed up with. Geico Regional Vice President Nancy Pierce said in the press release announcing the product:

This product will offer ridesharing drivers a complete solution so they will never have to worry about how to report a claim, and if they chose the coverage, whether their car will be fixed and whether they’ll have medical coverage. Not only does the product provide full coverage at an affordable price, but also peace of mind.

One of the problems the industry has faced with bringing this sort of hybrid product to market is that the cost of commercial coverage for taxi and livery services has been far out of reach of the average driver. As I outlined in a paper R Street published in October 2014, rates for taxi drivers can run in the range of $8,000 to $10,000 annually. But Geico’s product aims to be far more affordable than that. As the Richmond Times-Dispatch reports:

A quote requested for a 2008 Honda Accord, with injury coverage of $100,000 per person and $300,000 per accident, would cost just more than $1,000 per year. The quote assumed a clean driving record, with no accidents or tickets in the past three years.

As a point of comparison, 2012 data from the National Association of Insurance Commissioners shows the average annual expenditure for auto insurance in Virginia was $691.80. Thus, the enhanced Geico product would cost roughly an additional $25 a month.

The importance of an affordable product cannot be overstated, given pending rules winding their way through the commonwealth’s General Assembly that would put the onus to procure coverage almost entirely on the TNCs, rather than the drivers.

In a 67-28 tally, the House of Delegates voted Jan. 30 to approve regulations that require the TNCs to provide $1 million of liability coverage from the moment a trip request is accepted until the passenger exits the vehicle. Starting in 2016, the companies also will have to cover “Period 1,” but at the lower minimum liability levels of $50,000 per person, $100,000 per accident and $25,000 for physical damage.

Similar rules to legalize and regulate TNC services also passed the state Senate earlier in January by a 37-0 margin, marking a radical shift from just a few months ago, when the Virginia Department of Motor Vehicles on Thursday furnished both Uber and Lyft with letters demanding they cease and desist operations within the commonwealth.

The House and Senate bills do still need to be reconciled, as each would impose slightly different licensing fees on TNC services. The House measure calls for an upfront fee of $70,000, plus an annual $3,000 renewal fee. The Senate bill, by contrast, would impose just a flat one-time $100,000 fee. The Virginia Department of Planning purports the fees are necessary to cover the cost of regulating the TNCs, which it estimates at $640,000 for the first year and $440,000 thereafter.

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

R Street welcomes bill to crack down on patent trolls

February 05, 2015, 10:30 AM

WASHINGTON (Feb. 5, 2015) – The R Street Institute welcomed today’s re-introduction by House Judiciary Chairman Bob Goodlatte, R-Va., of the Innovation Act, which will address the problem of bad actors (also known as “patent trolls”) exploiting the patent litigation system unfairly to extort payments from genuine innovators.
Joining Chairman Goodlatte in a bipartisan effort to reform the patent system are Reps. Peter DeFazio, D-Ore.; Darrell Issa, R-Calif.; Anna Eshoo, D-Calif.; and Lamar Smith, R-Texas.

Under the Innovation Act, standards will be raised for “initial pleadings” by patent holders who claim infringement, requiring more detail about which patents are allegedly infringed and in what ways. It also proposes standards for when the losing party of a patent infringement case can be asked to pay the victor’s legal fees.

The bill would allow courts to join parties that have interest in the patents in question and to limit discovery until the patentee has constructed its claim. It also would permit manufacturers to intervene in suits against end users of their products.

“This bill is a promising step toward updating the America Invents Act to address a broader range of issues and aiming not only to foster innovation, but also to protect legitimate patent issues,” said Mike Godwin, director of innovation policy at R Street. “Such a need is so widely recognized, it’s no surprise to see such strong bipartisan support for the bill.”

The bill is Chairman Goodlatte’s renewal of identical legislation from the 113th Congress, which passed with overwhelming support in the U.S. House, but was stalled in the Senate.


Utah struggles to stay in tune

February 05, 2015, 10:15 AM

Legislators in Utah have responded quickly to concerns expressed by technology leaders that the state’s insurance department has struck a dissonant chord. Now they have an opportunity to help Utah get back into regulatory tune.

Late last year, the Utah Department of Insurance issued a discordant finding against a new human resources platform named Zenefits. The new firm offers a free cloud-based system that allows firms to shop for insurance products. In the department’s judgment, Zenefits was in ongoing violation of the state’s anti-rebating statute. Things became stranger still when Zenefits was fined and instructed to comply with the department’s order or cease operations in Utah.

The department’s harsh tone was striking in light of the obscurity and unrelated purpose of the law it was charged with violating. Anti-rebating statutes seek to prevent firms that sell insurance from offering benefits in exchange for insurance products. For example, a broker is barred from offering a television as part of a deal for the sale of an insurance policy. The television would constitute an impermissible “inducement.”

Anti-rebating laws exist to prevent insurance transactions from providing inducements so generous that insurer solvency might be threatened. For this reason, many years ago, they were promoted throughout the nation to ensure stability in state insurance markets. Today, almost all states have anti-rebating laws that are closely related in substance and form. That is no accident.

Insurance is an industry largely regulated by the states. Since insurance companies often operate in many states, it is essential for regulatory harmony and statutory predictability to exist between the states. Toward that end, national organizations such as the National Association of Insurance Commissioners and the National Conference of Insurance Legislators draft and circulate model legislation so the states can enjoy the benefits of local control without experiencing the pitfalls associated with regulatory asymmetry.

Thus, when the Utah Department of Insurance issued its finding against Zenefits, it pushed its anti-rebating statute out of conformity with others, including states that have examined this specific case such as Texas, Wisconsin and Washington. Utah mistook Zenefits’ willingness to bundle a human-resources web portal with its other products as an inducement, which it is not.

To be an inducement, like the television, it is necessary for a product to be linked with the purchase of insurance. The human resources software that Zenefits bundles is free and available to anybody, independent of the insurance transaction. In other words, it is offered to the public on the same terms (free) with the insurance product as it is without the purchase of insurance. Is that an incentive? Sure! Is it an inducement? No.

If Utah maintains the Department of Insurance’s position, it will be impossible for firms to bundle services with insurance products. Industries will be forced into siloes and consumers will not realize the benefits of novel business models.

Confronted with the prospect of upsetting a competitive and attractive regulatory climate, prominent legislators have filed bills to update and clarify the anti-rebating statute so that Utah’s interpretation is no longer a national aberration. It is this sort of legislative responsiveness, in consort with Utah’s otherwise excellent regulatory restraint that led the state to its sixth-place ranking in R Street’s latest Insurance Regulatory Report Card.

If these legislators are successful, Utah will be on course to live up to its reputation as a Mountain West Silicon Valley, and to regain its form as a regulatory leader-among-equals.

War on hail declared in Texas as insurers take cover from storms

February 05, 2015, 9:28 AM

From Bloomberg News:

In the Austin statehouse, the insurance industry wants to make it harder for trial lawyers to profit from catastrophic weather. In January, R Street Institute, a Washington-based nonprofit, wrote a report titled “Come Hail or High Water: Texas’ Litigation Explosion.” The group, whose five-person board includes State Farm Insurance vice president Steve McManus, advocates changing the law to prevent “legal gamesmanship” after catastrophic weather events like hail. Gary Stephenson, a State Farm spokesman, declined to comment.

Before the Flood: Reducing Louisiana’s vulnerability to severe weather through market-based insurance reforms

February 05, 2015, 9:00 AM

This paper will examine Louisiana’s vulnerability to severe weather and suggest market-based reforms to adapt to extreme inherent risks, which could be exacerbated by a changing climate.

It is undeniable that Louisiana is particularly vulnerable to catastrophes driven by extreme weather. Even worse, these catastrophic risks could increase in a changing climate. In a state facing such dangers, a robust and functioning insurance market is critical. To attain this kind of market, Louisiana policymakers should implement free-market reforms. Insurers must be free to charge adequate rates for the products and coverages they offer and the risks they take on. Regulators must move quickly and efficiently to approve or reject rates and forms. Finally, lawmakers should consider policies that encourage property owners to reduce risk, for instance, through tax incentives or changes to building codes.

The paper also will discuss the risks faced by Louisiana, obstacles to reform and potential solutions to these obstacles, some viable and some apparent dead ends.

Free-market reforms could save Louisiana from catastrophe, Pelican Institute paper finds

February 05, 2015, 9:00 AM

BATON ROUGE, La. (Feb. 5, 2015) – Louisiana’s unique coastal vulnerabilities will require the state to pursue sensible free-market reforms to its insurance markets and built environment to avoid catastrophic costs in the decades ahead, R Street Senior Fellow Ian Adams writes in a new policy paper published by the Pelican Institute.
Projections from state and federal officials estimate the state can expect 30 to 40 hurricanes over the next century with annual flood-related losses of between $7.7 and $23.4 billion, Adams wrote. Due to a variety of trends – including natural tectonic subsidence, human development and rising sea levels, it is estimated that Louisiana’s Southeast corner may be submerged beneath at least 4.3 feet of water by the end of the century, he notes.

Given that backdrop, unless steps are taken to stem the development of vulnerable residential and industrial sites, losses could be overwhelming, Adams argues. He points in particular to distortions in the state’s insurance market that encourage building in risky areas, including rules limiting insurers ability to cancel policies; the sheer size of the state-run insurance authority, Louisiana Citizens Property Insurance Corp.; excessive controls on insurers’ ability to raise rates to reflect risk; and the impact of the subsidized coverage offered by the federal National Flood Insurance Program.

“To expand insurance options and to increase the number of Louisiana residents adequately covered, Louisiana must normalize the way insurers can do business so that the state can rebuild after future severe weather events,” Adams writes.  “In short, regulators must allow prices to direct how and where people live and builders develop. The market can and should be allowed to solve the problem.

Among the solutions Adams outlines are reforms to move the state to a modified flex-rating system of insurance rate controls; expansion of tax credits and abatements for property owners that invest in risk mitigation; and plans to invest funds the state expects to receive through the federal RESTORE Act in wetlands restoration and other durable projects to reduce Louisiana’s vulnerability.

Instead of controlling development through controversial and sure-to-fail centralized planning mechanisms, Louisiana should seek to modify behavior by allowing its residents to understand the true cost of the risk that they face,” Adams writes. “If available to them, the true cost of living in a dangerous location will at once promote awareness of danger and encourage economically rational decision-making.”