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Deepwater Horizon restoration funding must be transparent and avoid cronyism

March 26, 2014, 9:38 AM

Next month will mark four years since the Deepwater Horizon oil rig exploded fifty miles off the Louisiana coast, killing eleven men and spilling over four million barrels of oil into the Gulf. While initial predictions about the spill’s likely economic and ecological effects fortunately proved to be overblown, the Gulf’s economy continues to struggle and its natural environment is still suffering. To wit: last month, a half-ton tar mat from the spill washed ashore near Pensacola, Florida.

But the coast’s fortunes are looking up. The Treasury Department will soon outline how state and local governments across the Gulf Coast can draw down funds from the Gulf Coast Restoration Trust Fund, an account established with civil fines paid after the 2010 Deepwater Horizon oil spill. Whether these funds will be used effectively and efficiently — or squandered on pet projects and cronyism — is ultimately not in the hands of Treasury officials, but policy makers in the coastal states.

This devolution of authority was the express intent of Congress, which in 2012 passed the RESTORE Act. This landmark bill places 80 percent of the Clean Water Act fines paid by oil company BP and rig operator Transocean into a Gulf Coast Restoration Trust Fund. The vast majority of these funds will go either to individual states or to a council led by the governors of the five Gulf states. Depending on how litigation against BP resolves, the total amount available to the fund could be as much as $14 billion.

Conservatives have supported this policy from day one, and they should continue to endorse it and closely monitor its implementation. After all, giving state governments rather than Washington the responsibility to develop and execute projects that have positive environmental and economic benefits for the Gulf Coast reflects important conservative values: it allows states to address the particular needs of their populations and doesn’t try to impose a bureaucratically-driven, one-size-fits-all model on five states and thousands of miles of shoreline.

But in order for the RESTORE Act to live up to its potential, spending decisions must be made in a completely transparent manner — and funds absolutely cannot go to pet projects and special favors for particular industries or companies.

Fortunately there are good efforts afoot on the transparency side. Mississippi has launched a web site where citizens can suggest projects to fund with RESTORE Act dollars. In Florida, where the counties are primarily responsible for identifying and executing projects, a bipartisan bill in the legislature would require every proposed appropriation to be posted online for at least 30 days before it comes up for a vote. And in Louisiana, a proposed constitutional amendment would require that all funds the state receives under the RESTORE Act go to funding the state’s coastal protection infrastructure plan.

Spending this windfall on projects that benefit the economy and environment of the coast is consistent with limited government principles — provided it is done correctly. Building public infrastructure, developing public goods, and mitigating the deleterious effects of failed government projects are all appropriate activities for governments to undertake. If done properly, they can save taxpayers future costs and create an environment conducive to economic growth.

But in order to ensure that funds are spent in a way that benefits the broader economy, it is critical that policymakers steer funds towards projects with broad benefits, not those that just benefit certain favored groups. Too often, policymakers use targeted tax incentives or giveaways to politically connected companies as a means of trying to spur investment. But this is little more than industrial policy conducted through the tax code, and it would be a terrible use of RESTORE Act funds.

Projects funded through the RESTORE Act must be evaluated by proper metrics. This means examining likely costs and benefits in order to ensure taxpayers get the most “bang for the buck.” Looking just at the number of “jobs created” by a program, for instance, is a poor way to evaluate whether it provides value for taxpayers.

With the RESTORE Act, Congress made a historic decision to allow the Gulf Coast states to take the lead in developing stronger coastal economies and more resilient natural environments. The onus is now on policymakers in these states to ensure that projects are selected and funds spent transparently and efficiently on projects with benefits that accrue both today and into the future.

What the GOP can learn from the Koch brothers

March 25, 2014, 5:06 PM

Republicans are very enthusiastic about this year’s midterm congressional elections, and it is easy to see why. Obamacare, the president’s signature domestic policy legislation, remains unpopular. Turnout during midterm elections skews older and whiter than turnout during presidential elections, and Republicans tend to fare better among older and whiter voters.

And then there is the fact that Democrats are defending a number of Senate seats in states that tend to back Republican presidential candidates. Nate Silver, the editor of FiveThirtyEight, best known for his eerily good job predicting the outcome of last year’s presidential election, forecasts that Republicans will retake the Senate.

So can the GOP sit back and relax? Not quite. As Chris Cillizza of the Washington Post reminds us, even if Republicans barely retake the Senate in 2014, the GOP faces a much tougher Senate map in 2016, when the electorate will be younger and more diverse. If Republicans want to achieve ambitious goals like replacing Obamacare and implementing pro-growth tax reform, holding the Senate for two years under a lame-duck president will do them little good.

Republicans need to think long-term. First, the GOP should offer a more compelling domestic policy agenda, as the National Review’s Ramesh Ponnuru argues. The second, more prosaic step, is to make better use of technological tools. Without a compelling agenda, Republicans won’t deserve to win. But even with a compelling agenda, Republicans will have to embrace the technological, experiment-based revolution that has allowed innovative companies like Amazon, Google and Starbucks to conquer their markets, and which GOP campaigns have been slow to grasp.

Two recent articles describe how conservative political operatives helped Republican David Jolly win a March 11 special election in a Florida congressional district that Barack Obama won in 2008 and in 2012. The first, by Alex Roarty in National Journal, attributed Jolly’s success to the efforts of the National Republican Congressional Committee (NRCC). Roarty reports that the NRCC and its allies targeted the voters most essential to victory and hit upon a message — vote Republican or House Minority Nancy Pelosi will once again become House Speaker — that convinced them to come to the polls.

The second article, by Carl Hulse and Ashley Parker of the New York Times, told an entirely different story. Hulse and Parker focused on the role of Americans for Prosperity, a conservative political advocacy group backed by Charles and David Koch, the wealthy libertarian activists who have been vilified by Senate Majority Leader Harry Reid and others on the left as self-dealing plutocrats. According to Hulse and Parker, Americans for Prosperity transformed Jolly’s district into a laboratory in which a variety of different approaches were used to impact the outcome of the race. (The Koch brothers’ group is keeping the information proprietary, for obvious reasons.)

I don’t know which story is closer to the mark. What I can say is that Americans for Prosperity has the better approach for the long term.

To win an election, you have to do a number of things — raise money, register voters, persuade voters to back your candidate and get voters who back your candidate to turn out and vote. To do these jobs well, you have to develop clear metrics to gauge how effectively you’re executing each of them. For example, you don’t just want to know how much money you’re raising; you also want to know how much money you’re spending to raise a given amount of money. A fundraising strategy that works in one month with one donor might not work as well in another month with the same donor. The same basic logic applies with the other jobs as well. Registration efforts that work well with one eligible voter might not work as well with another.

In an ideal world, we wouldn’t think about voters as part of broad, diffuse, ill-defined demographics, like “NASCAR dads” or “soccer moms,” because these groups are extremely heterogeneous. The problem with thinking in a demographic box is that an Asian-American single mother radiologist from the Bronx might behave like another Asian-American single mother radiologist when it comes to a fundraising appeal, but she will behave like a retired Mexican-American police officer when it comes to voting or, say, sharing campaign messages on Facebook.

In the past, when computing power and data storage were more expensive, breezy generalizations about large groups of people were the best that campaigns could do. Yet generalizations can’t tell you much about how real people will respond to stimuli. What campaigns really want is to be constantly learning how people actually behave — to learn not just what people will say in response to a survey, but how that belief translates into what they do. As the cost of computation and storage has collapsed, campaigns have more options. They can, like Americans for Prosperity, turn every campaign into a laboratory. As campaigns run more and more technology-enabled experiments, as they engage in a trial-and-error learning process, they will get better at learning from their mistakes and adapting to new circumstances.

Republicans often lament that Democrats are miles ahead of them when it comes to campaign technology. President Obama’s 2008 and 2012 campaigns prided themselves on being state-of-the-art and Democrats often mocked their GOP counterparts for being stuck in the past. Thanks to the efforts of smart political professionals and academic political scientists, Democrats have a big head start on applying trial-and-error thinking to campaigns.

But Americans for Prosperity is demonstrating that conservatives can catch up. By deploying more experiments faster, they can, in theory at least, cram a decade’s worth of learning into a much shorter period of time. And that will help the party do better — not just this November, but in many elections to come.

Million-dollar homes, but at what price?

March 25, 2014, 4:04 PM

From NBC News:

“We estimate that houses today, depending on the metropolitan area in question, are from 250 to 1,000 square feet larger than they otherwise would be,” a forthcoming study by the R Street Institute determined.

The richer the homeowner, the greater the benefit, it found. “We also find that major metropolitan areas on the East and West coasts get the most tax relief from the mortgage interest deduction,” the study said…

…Ultimately, the R Street Institute study comes to a sobering conclusion: “For millions of families who struggle to afford a house, these tax breaks offer no relief at all.”

America’s $100 billion tax break helps the rich buy bigger homes

March 25, 2014, 3:34 PM

From ThinkProgress:

But instead of helping poorer people become homeowners, the tax break helps rich people buy bigger houses, economists at R Street Institute say. “The study estimates that tax preferences, particularly the mortgage-interest deduction, have helped drive up the size of houses by as much as 18% in the nation’s most affluent areas while not broadly encouraging people to buy homes,” the Wall Street Journal notes. The average house sold today has more than 2,500 square feet of space. That’s 750 square feet larger than the average size of a house bought in 1980 and 400 square feet larger than the average home sold in 1990, according to the researchers. Larger homes are more expensive homes, so by inflating the size of houses on the market, the mortgage interest deduction is likely pushing up the price of homeownership for everyone. That’s good for real estate agents, but not for middle- and low-income families.

Popular tax break just helps wealthy people buy bigger houses

March 25, 2014, 3:20 PM

From Gawker:

Today in Ways the United States Tax Code Benefits the Rich: a new study indicates that the politically popular mortgage-interest deduction is useful mostly for helping affluent people buy larger homes.

Most politicians love the mortgage-interest deduction, because it is seen as “promoting home ownership,” which is seen as “promoting the American Dream,” both of which are things assumed to be good until you think about them for a few minutes. Here is the actual outcome of the policy, via the Wall Street Journal:

Rick Santorum’s geographic suicide pact

March 25, 2014, 1:53 PM

While the 2014 midterm election season has not yet fully taken shape, reading most major press outlets, one could be forgiven for concluding that the 2016 presidential primary has already kicked off. At least, that seems to be the impression of former Pennsylvania senator, and 2012 candidate, Rick Santorum, who has all but explicitly declared his intent to run for the office again in an interview with Time magazine.

Santorum starts off that interview sticking to a standard script that few conservatives would argue with. But then, at one point, he rushes spectacularly headlong into misguided political thinking, offering his analysis on how he would have defeated President Barack Obama last time around:

I would have been able to attract the voters in the states that mattered. Romney would probably do better than me in New Jersey and California and New York. But I’d do better in Michigan, Ohio, Pennsylvania, Wisconsin, Virginia—in the states that were going to decide the election. Look at how we did in Ohio in the primary. We got outspent by huge amounts. I didn’t run a single ad in the Cleveland market, and we still almost beat him in Ohio.

One could excuse Santorum his inelegant phrasing and assume that by “the states that mattered,” he means “the states that were comparably winnable.” But unfortunately, this comment is representative of a much larger failing on the part of a specific variety of Republican, Santorum among them, who tend to write off demographically unfriendly states not merely as unwinnable, but as worthy of absolute contempt.

This is not merely an offensively parochial attitude to have, it is also a losing one. And it’s one Santorum managed to avoid earlier in the interview, in this passage:

Even Santorum’s current gig as CEO of the Christian movie company Echolight Studios serves, in some ways, as preparation for another try at the GOP nomination. ‘I’m a storyteller. I see this in some respects as refining my craft,’ he says. ‘Reagan did it the other way, right?’

If anyone believes Ronald Reagan would have written off his home state of California, or states like New York and New Jersey (both of which voted for him twice), they’re mad. And if anyone thinks a winning Republican Party can ignore these states (one of which may, in fact, field a 2016 GOP contender of its own), they are simply naïve. Santorum most definitely fits the bill.

To begin with, there is the obvious mathematical irony that the states in which Santorum believes Romney would have been competitive are worth more electoral votes than the ones in which he believes he himself would have been competitive. In fact, in conceding the three states he does, Santorum effectively concedes nearly one-fifth of the entire electoral vote count. Not exactly mathematical wisdom, especially if he had been right about Romney’s competitiveness in any of these states. If the GOP could find a candidate capable of actually taking New York, California and New Jersey back, it would be sheer folly not to have that candidate on the ticket in some capacity.

It’s true that, barring a surging political realignment, Republicans are unlikely to win back some of these now solidly blue states. But some possible 2016 contenders like Rand Paul are nonetheless courting people in precisely these lions’ dens, and that could prove crucial. Besides their mathematical importance, California and New York are the font of nearly every element of American culture and media. A candidate who alienates those states can expect to see their campaign derailed via cultural and news memes before the Democrats even start trying. One doesn’t even need to Google Santorum’s name to know how easy that would be in his case.

But finally, the importance of campaigning in states like California, New York and New Jersey is even more simple than all this: campaigning in these states today is a dress rehearsal for campaigning nationwide. By 2040, campaigners like Santorum might feel nostalgic for campaigning in present-day New York, seeing as the demographics of the country will look more like present-day California by that time. By contrast, most of the states Santorum cites as his strongholds lag demographic trends. Michigan, for instance, is 3 percent more white than the country as a whole.

Unfortunately, in Santorum’s case, this is probably no accident. He ran his last campaign as a love letter to the sorts of dying industries that propped up an American social order that has rapidly obsolesced, one built around the sort of plodding, manufacturing industries that used to dominate the states he mentions. Candidates today need to have a vision for our tech-focused, global, entrepreneurship-driven world. Those states that are peopled with younger voters who were raised in this world have seen their reliably Republican status shift as soon as they start running candidates whose appeal rests solely on the politics of cultural and social nostalgia. That is no accident.

Rick Santorum may compare himself to Reagan, but his political theory is closer to Pat Buchanan’s. While the town of Ellijay, Ga., might regret this, Buchanan never even won a nomination, let alone the presidency.

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

Report: Key mortgage tax break just helps the wealthy

March 25, 2014, 11:47 AM

From Newser:

The tax code is rife with home ownership incentives that are both popular with voters and staunchly defended by lawmakers. But it turns out the breaks mostly just help rich people buy pricier houses, according to a new report from the right-leaning R Street Institute. They “don’t encourage homeownership in any meaningful way,” the study’s author tells the Wall Street Journal. “People just end up buying larger homes.” He estimates that in Washington, DC, the subsides have increased the average home size by 1,400 square feet.

Vermont vapers cheesed off by tax proposal

March 25, 2014, 11:11 AM

The Vermont Legislature is considering a new (vastly higher) tax on e-cigarettes and smokeless tobacco that would treat them very much like cigarettes. The revenue Vermont hopes to raise—$1.3 million—is relatively paltry. I doubt that it’s good policy for at least three reasons:

1. It’s likely to damage public health. As R Street’s Joel Nitzkin—a former Louisiana public health commissioner and head of the tobacco control efforts of the Association of Public Health Physicians— has written, e-cigarettes offer public health benefits if regulated and used properly. Raising taxes on them sends a signal that they are just as bad as tobacco cigarettes. E-cigs certainly aren’t healthy–they’re addictive for sure and, because they are a stimulant, aren’t good for heart health—but vaping is far better than inhaling huge amounts of organic matter into one’s lungs. As Nitzkin writes:

Experience to date with currently unregulated e-cigarettes  strongly suggests they already are securing substantial public  health benefits among current smokers without increasing  teen initiation of tobacco/nicotine use and without adverse impact on quit rates.

Brad Rodu of the University of Louisville has observed similar positive health impacts (relative to smoking) for people who switch from cigarettes to snus.

2. The taxes are highly likely to be regressive. Overwhelming evidence indicates that tobacco taxes fall heavily on the poor. Here’s a take from the liberal webzine Slate and here’s an academic study showing the same thing. Smokeless tobacco users tend to be even more downscale than smokers. (The limited data we have on e-cigarette users suggest that they’re slightly wealthier.)

3. High cigarette taxes tend to create black markets that, in turn, fuel serious crime. It’s quite probable that much higher taxes on smokeless tobacco and e-cigarettes will do the same thing in some cases.

Snus and e-cigarettes aren’t exactly health foods and the Vermont Legislature has lots of reason to think about ways to control them. Taxes may, in some cases, in some places, even be a legitimate part of a control strategy. But the Legislature should look carefully at the data before deciding whether or not to approve these policies.

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

’4/04 Day’ panel and happy hour

March 25, 2014, 10:01 AM

The Congressional Data Coalition is hosting a panel and happy hour on April 4 (“4/04 Day”) sponsored by the R Street Institute, and organized with help from other coalition members. Register for the panel here: http://404day.eventbrite.com. And for the happy hour here: http://404reception.eventbrite.com.

Here’s the event description and list of participants:

Two decades ago, Congress began publishing on the Internet, revolutionizing public access to legislative information. While the technology we use has evolved since the 1990s, Congress has not always kept up.

In the meantime, public-minded entrepreneurs have used congressional data to alert people to important bills, keep track of votes and put citizens in contact with their elected representatives.

While some modernization has occurred, further improvements to Congress’ publishing methods are urgently needed. And with the looming switch from THOMAS to Congress.gov, many organizations and individuals who depend on the available data will be left in the dark, endangering the public’s ability see what its government is doing.

Join our panel of data experts for a discussion of how far we have come, and how far we have yet to go, to fulfill the promise of lawmaking in the open.

Featuring:
Jim Harper, Global Policy Counsel, Bitcoin Foundation; Senior Fellow, Cato Institute (Moderator)
Steve Dwyer, Digital Director & Policy Advisor to Rep. Steny Hoyer
Josh Tauberer, Founder, Govtrack.Us
Nick Schaper, Senior Vice President, Engage
Kirsten Gullickson, Senior Systems Analyst, Clerk of the House of Representatives

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

Family Business Coalition letter to Gov. Cuomo

March 24, 2014, 1:23 PM

March 24, 2014

The Honorable Andrew M. Cuomo
Governor of New York State
NYS State Capitol Building
Albany, NY 12224

Governor Cuomo,

We are encouraged by your budget, which calls for increasing the New York estate tax exemption from $1 million to match the federal estate tax exemption at $5.34 million and lowering the top tax rate from 16 percent to 10 percent. This change is much-needed relief for small business owners and individuals in New York who are currently forced to grapple with one of the most burdensome state death taxes in the country.

New York is currently one of only 19 states that impose an additional tax at death.

Forbes recently listed New York as a place “Not to Die” in 2014 because of its high death tax. New York’s low estate tax exemption of $1 million and high rate of 16 percent make it one of the most confiscatory in the country. In New York, even a middle-income family with a modest home and retirement savings can easily surpass the $1 million exemption. A New York resident could move only a few states away to New Hampshire or to any of the 32 states that don’t tax death to avoid a state death tax altogether.

Your proposed reform of the estate tax comes at a critical time, as states have been moving quickly in recent years to eliminate or reduce the burden of their death taxes. In the past four years, Ohio, Indiana, North Carolina, and Tennessee have all eliminated their state death taxes. This year, Maryland and Minnesota are both moving to increase their state estate tax exemptions.

In order to remain competitive, New York would be best served by fully eliminating their state death tax. Simply put: death should not be a taxable event. It makes no sense to force a grieving family to pay a tax on their loved one’s property. Increasing the New York estate tax exemption and lowering the rate is a step in the right direction towards this end.

Your proposal to reform New York’s estate tax is a common sense improvement that will help grow New York’s economy by keeping business owners, workers, and retirees in the state. We look forward to working with you this month to see this important policy change through.

Sincerely,

Jim Martin
Chairman
60 Plus Association

Palmer Schoening
Executive Director
Family Business Coalition

Jim Rowland
Executive Vice President
Wine & Spirits Wholesalers of America

Douglas K. Woods
President
AMT – The Association for Manufacturing Technology

Joshua Reap
Director of Government Affairs
ABC, Empire State Chapter

Ralph Bombardiere
Executive Director
New York Association of Service Stations & Repair Shops, Inc

Ed Orlet
Vice President of Government Affairs
National Association of Electrical Distributors

Jonathan Melchi
Director of Government Affairs
Heating, Air-Conditioning & Refrigeration Distributors International (HARDI)

Jay Perron
Vice President, Government Relations and Public Policy
International Franchise Association

Christian A. Klein
Vice President of Government Affairs and Washington Counsel
Associated Equipment Distributors

Paul Fiore
Director, Government Affairs
Automotive Aftermarket Industry Association

Dan Hilton
Director of Government Relations
American Supply Association

Kirk McCauley
Service Station Dealers of America and Allied Trades (SSDA-AT)

Will Brown
Government Relations Manager
National Utility Contractors Association

Daniel Fisher
Vice President Legislative Affairs
Aeronautical Repair Station Association

Marta Gates
Director of Operations
WMDA Service Station & Automotive Repair Association

J. Barry Epperson
General Counsel
Associated Wire Rope Fabricators

Scott Jones
CEO
Forest Landowners Association

Roy Littlefield
Executive Vice President
The Tire Industry Association

Grover Norquist
President
Americans for Tax Reform

Brandon Arnold
Vice President of Government Affairs
National Taxpayers Union

Tim Phillips
President
Americans for Prosperity

Tom Schatz
President
Council for Citizens Against Government Waste

Lawson Bader
President
Competitive Enterprise Institute

Harry Alford
President, CEO
National Black Chamber of Commerce

John Tate
President
Campaign for Liberty

Andrew Moylan
Senior Fellow
R Street Institute

Mortgage tax breaks trickle up, new study shows

March 24, 2014, 11:29 AM

From the Wall Street Journal:

Federal tax benefits for homeowners primarily help wealthier people borrow more money to buy larger houses rather than boost homeownership, according to a new study.

The ZIP Code-level analysis of Internal Revenue Service data, conducted by a team of economists for the right-leaning R Street Institute, examined how tax benefits are distributed across income levels and major metropolitan areas. The study estimates that tax preferences, particularly the mortgage-interest deduction, have helped drive up the size of houses by as much as 18% in the nation’s most affluent areas while not broadly encouraging people to buy homes.

Policy makers have long supported homeownership in the tax code because it is viewed as having broad societal benefits, and they have been loath to curb the mortgage-interest deduction, which is popular with voters and strongly defended by the real-estate industry. But the new findings add to a growing body of economic research that suggests Americans don’t benefit broadly from the tax preferences, which the study estimates cost the government $175 billion annually in forgone revenue…

…Despite their popularity, the government’s tax subsidies for housing “don’t encourage homeownership in any meaningful way. People just end up buying larger homes,” said Andrew Hanson, an associate professor of economics at Marquette University who conducted the study along with two other economists.

In the greater metropolitan area of Washington, D.C., the study estimates that tax benefits have contributed to the average home size being about 1,400 square feet larger than if the benefits didn’t exist.

The results of the study will be published Monday in the latest issue of National Affairs…

…Mr. Hanson’s study examined the sharp disparities in benefits by region and income. The average annual savings for households claiming housing tax benefits are $12,300 in San Francisco and $10,700 in Los Angeles, compared with $1,600 in Detroit and $2,900 in Dallas, the study found.

Meantime, residents in San Francisco who earn more than $100,000 save $8,000 annually from the mortgage-interest deduction, compared with savings of $3,700 for residents who earn less than $100,000. In Detroit, higher earners save more than $4,000, while those earning less than $100,000 save $1,600.

The study also found that suburban residents were twice as likely to benefit from the tax code as those in urban areas.

Art sale could benefit retirees

March 24, 2014, 11:22 AM

The following piece was co-written by R Street Midwest Director Alan Smith.

Next month, Detroit emergency manager Kevyn Orr will release the latest iteration of a plan to restructure the city’s finances and begin the long slog out of the largest municipal bankruptcy in American history.

It will be an exercise in carefully distributing the pain associated with decades of population decline, economic stagnation, poisonous racism, regional isolation, mismanagement in all corners and outright corruption.

Among the city’s most famous assets is a world-class art collection held in the publicly-funded Detroit Institute of Arts.

Some boosters have suggested the art should be kept in Detroit and the DIA spun off as an independent entity, with proceeds used solely to bail out pensions.

But such a move would be misguided legally and could hamper the city’s economic reboot.

Detroit is unique among major cities in having funded directly huge portions of its signature art museum’s existence, including its building, operations and many of its works.

The precise value of the collection isn’t known, but the auction house Christie’s appraised 2,800 city-purchased pieces – just five percent of the collection – at more than $800 million.

In other words, contained within the walls of 5200 Woodward Ave. are billions of dollars in assets that can be used to repay the city’s debts, both to pensioners and to bondholders, many of whom are retirees themselves.

Officials from the city, state, DIA and private foundations instead have offered a plan that would spin off the institute into an independent non-profit trust, in exchange for some $815 million in funding from state taxpayers and private interests.

Those proceeds would be earmarked solely for the General Retirement System and Police and Fire Retirement System pension plans.

This would turn bankruptcy law on its head, using an asset sale to pay off only one class of unsecured debt.

It is understandable why the emergency manager might seek to jump pensioners ahead in line.

After all, most pension recipients are honest, hard-working individuals who did their level best while union leaders and city officials broke their trust and mismanaged the funds’ assets.

But pensioners are not the only sympathetic figures in Detroit’s bankruptcy – and they are just one class who, under law, deserve to have their rights addressed.

The city’s pension debt is actually dwarfed by its unfunded retiree health care liabilities.

There are also thousands of vendors, from local markets to carpet cleaning operations, who are owed money.

And while no one has much sympathy for Wall Street giants who gambled on Detroit’s debt and lost, the sad reality is that jumping pensioners ahead of them in the payout line will likely carry serious negative consequences for the city, scaring off investors and raising the cost of borrowing the capital needed to rebuild.

Officials should instead embark on an honest legal assessment of which pieces can be sold or leased and then work with community figures and creditors of all types to arrange a deal to monetize as much of the art as is practical.

This likely would not involve emptying the building from stem to stern, nor should it.

Every untapped dollar that remains at the DIA represents a dollar that must come out of future pension checks of Detroit employees or a dollar in interest costs that taxpayers will need to pay investors to set aside their fears about loaning money to a struggling city.

Rethinking tax benefits for home owners

March 24, 2014, 10:51 AM

The attached piece, which appeared in the Spring 2014 issue of National Affairs, was co-written with Ike Brannon and Zackary Hawley.

The individual income-tax code offers a multitude of benefits for home owners. The largest in dollar terms, and the most apparent to taxpayers, is the mortgage-interest deduction, which allows home owners to deduct the interest paid on up to a $1 million mortgage and up to $100,000 in additional debt backed by home equity. But the tax code also tilts the balance toward home owners by allowing a deduction for state and local property taxes and exempting from taxes the capital gains from the sale of a home. These preferences for home ownership fall under the umbrella of “tax expenditures,” or provisions that create special benefits by lowering tax liabilities. Tax expenditures technically reduce the amount of taxes paid, but they resemble direct spending programs more than they do typical tax laws. The tax benefits for home ownership are thus essentially subsidies.

Although tax expenditures for housing are not real line items in a budget the way other spending programs are, they have real effects on the economy by creating incentives, lowering receipts, raising the debt, and causing tax rates to be higher than they otherwise would be. The cost of the tax benefits for owner-occupied housing adds up to about $175 billion annually, with the mortgage-interest deduction alone costing the Treasury roughly $100 billion. The five-year costs of these tax benefits total well over $1 trillion. To put this amount in perspective, one year of tax benefits for owner-occupied housing costs more than the discretionary budgets of the departments of Education, Homeland Security, Energy, and Agriculture combined.

Proponents of these generous tax benefits often justify them by arguing that they encourage home ownership, which in turn is said to offer society all manner of social and civic benefits. In reality, however, it is far from clear whether mass home ownership is inherently beneficial to our society or even to individual home owners. But whatever the merits of owning a home, the data regarding the reach and distribution of the various tax benefits we offer owners show that these benefits do not in fact encourage such ownership in any meaningful way. Most Americans receive no benefit from the preferential tax treatment of home ownership, and those who do see such benefits tend to be high-income earners who own large, expensive homes, and who are therefore unlikely to be on the fence about whether to buy or rent.

In fact, the tax benefits afforded to home owners are highly regressive, extremely expensive, and of little obvious value to society at large. Even if we do want to encourage home ownership through the tax code — and it is by no means obvious that we should — there are far better ways to do so. By considering the flaws in the tax treatment of housing and examining how our housing-related tax benefits are distributed across incomes and across the country, we may come to see how these policies might be transformed to better serve owners, renters, and taxpayers.

Study: Upper class entitlement helps upper class most

March 24, 2014, 10:20 AM

From Reason:

The Wall Street Journal has a write-up of a new study by the R Street Institute that looks at how the mortgage-interest deduction is taken zip code by zip code. Conclusion?

Mehrens confused about impact of Internet sales tax initiative

March 24, 2014, 10:06 AM

Nathan Mehrens is confused about the Internet sales tax issue and the so-called “Marketplace Fairness Act,” which he praises as addressing a “competitive advantage” enjoyed by online retailers (“Chaffetz is tackling Internet sales tax issue,” Opinion, March 15).

The federal government’s thumb is not on the proverbial scale, as he claims. Quite the opposite: Current law says if a business has a physical presence in a state, it must collect its sales tax, but if it has no presence, it does not. That goes for online businesses, brick-and-click and traditional brick-and-mortar retailers, too.

The law is designed this way for good reason. Businesses with a physical presence place burdens on and enjoy the benefits of local infrastructure and services, while out-of-state businesses do not. States may not reach across their borders to tax businesses located outside their jurisdiction, a key taxpayer protection.

The Marketplace Fairness Act would give voracious revenue agents from states like California, Illinois and New York the power to force their sales tax rules on Utah-based businesses. Granting states a new power to tax that’s as big as the reach of the Internet itself, as Mehrens advocates, is no limited-government solution at all.

Ticket-selling giants push for Florida legislation to help squash industry competition

March 24, 2014, 9:20 AM

From BizPac Review:

Raulerson argues that proponents don’t want to disrupt the free market. But that’s exactly what the bill does, according to Christian Camara, Florida director for R Street, a Washington-based think tank that specializes in free-market issues.

Camara said the bill uses government regulation to dictate “how private citizens can sell tickets to each other.”

Restrictions on ticket resales are best left to individual venues without the interference of government involvement, he said. If a venue wants to impose resale restrictions, that should be its choice.

“Tickets are essentially a contract between the buyer and the seller,” he said. “We don’t mind private sellers attaching any conditions to the sale.”

Venues experiencing problems with outside ticket purchases for resale “could be solved on their own,” Camara said. “I just don’t think the government needs to be mandating conditions on tickets.”

Artfully resolving Detroit’s bankruptcy

March 24, 2014, 8:00 AM

The attached policy study was co-authored by R Street Midwest Director Alan Smith.

For the first three decades of the 20th Century, Detroit was the second fastest-growing city in the United States, behind only Los Angeles. It was a center of the high-tech industry of the day – automobile manufacturing – as the city saw the creation of what was, in many ways, a predecessor to today’s Silicon Valley. But as spectacular as its rise through the middle of the 20th Century was, its decline and ultimate bankruptcy has been just as precipitous.

As co-author Andrew Moylan wrote in a recent Reason.com piece on Detroit:

More than one million people have headed for the Motor City’s exits since its size peaked in 1950. Even when compared to other Rust Belt cities that have experienced significant population loss, Detroit stands out. The only city that has dropped farther from its mid-20th Century peak is St. Louis, but its population has never been even half as large as Detroit’s. In fact, of the eight U.S. cities that have lost more than 50 percent of their population in recent decades, Detroit is far and away the largest. Even in its shrunken state today of just over 713,000 residents, it is larger than Pittsburgh’s all-time peak of 677,000.

Today, those 713,000 residents receive atrocious public services and labor under extremely high tax burdens, with income taxes levied at the maximum level allowed by state law and property taxes that are higher than every other major American city. The legacy cost of services provided decades ago, as well as the city’s current expenses, continue to rise even while the population has dwindled dramatically. The result is a broken city with sky-high crime rates, rampant unemployment and a very uncertain future now that it has officially filed for Chapter 9 bankruptcy.

With the bankruptcy process underway, state-appointed emergency manager Kevyn Orr and the city’s 170,000 creditors have begun working to resolve many competing claims in order to restructure the city’s operations, retire debt and create a vibrant and sustainable operation for the future. Orr has dubbed this the “Olympics of restructuring,” but even that analogy doesn’t quite capture the high stakes involved in a municipal bankruptcy that’s roughly five times larger than the previous holder of the dubious distinction of the largest in history.

This saga offers a peek at the adversarial relationship that underpins any bankruptcy proceeding. In this case, Orr and other city officials have a strong incentive to undervalue existing assets and pay off as little of the accumulated debt as possible. On the other hand, creditors have an equally strong incentive to push the city to sell off anything that isn’t bolted down, regardless of potential negative impacts on the city’s ability to create a viable entity moving forward.

For no other asset is this fight more clear than the city’s incredible collection of artifacts housed in the Detroit Institute of Arts. In total, the DIA has in its possession some 66,000 art treasures collected over nearly 130 years, including works by Van Gogh, Rembrandt, Matisse and the amazing “Detroit Industry” murals painted in 1932 by Diego Rivera. Monetizing the art, even on a small scale, could prove enormously helpful in minimizing harm done to the interests of employees and creditors.

It is far from clear what the resolution will be, but it will undoubtedly establish precedent for future municipal bankruptcies of significant size. The domino effect on other struggling municipalities in Michigan, like Pontiac or Ecorse, and cities like Chicago with even bigger liabilities, will be a matter of intense interest, as they attempt to fix their finances to avoid Detroit’s fate.

R Street paper encourages using Detroit’s art collection to help combat debts

March 24, 2014, 8:00 AM

DETROIT, Mich. (March 24, 2014) – In order to relieve the crippling debt to creditors in the bankrupt City of Detroit, the city should turn to its priceless art collection, argued co-authors Andrew Moylan and Alan Smith in a paper the R Street Institute published today.

Some boosters have suggested that payments be made to spin the art collection of the Detroit Institute of Arts off in an independent entity, with proceeds used solely to bail out pensions. But Moylan and Smith argue such a move would be misguided legally and could hamper the city’s economic reboot. Detroit is unique among major cities in having amassed a large collection of valuable artwork that has been largely financed by the taxpayers, which in total is now worth billions.

“One need not diminish the cultural enrichment and aesthetic value of the collection to nonetheless determine that a city that quite literally cannot keep the lights on must consider every available option to blunt the financial impact on investors and pensioners,” said the authors.

Moylan, R Street executive director, and Smith, R Street Midwest director wrote that state-appointed emergency manager Kevyn Orr should embark on an honest legal assessment of which works can be sold, then perform a full-scale appraisal of the entire collection to determine its true value.

“If Detroit is forced to take the heartbreaking step of selling its art, it should get the maximum value, to reduce as much as possible the burdens on pensioners and other creditors,” the authors said.

Monetizing these pieces would be a major step toward relieving the city’s staggering debt to its creditors. The authors note that every untapped dollar that remains at the DIA represents a dollar that must come out of future pension checks of Detroit employees or a dollar that must be paid on top of ordinary rates in order to convince investors to set aside their fears about loaning money to a struggling city.

Moylan and Smith further stressed that monetizing the collection should not have the consequence of leaving Detroit without its art, and care should be taken to keep as much of the work in Detroit as possible.

“Monetizing the art would likely not involve emptying the building from stem to stern, nor should it,” the authors wrote. There are several scenarios in which the DIA would remain full of these priceless treasures, including sales that would keep the works on permanent loan to the Institute, leasing the art to other exhibitions or placing the collection in a trust in which shares could be sold.

R Street promotes two as organization continues to grow

March 21, 2014, 12:31 PM

WASHINGTON (March 21, 2014) — The R Street Institute today announced that Andrew Moylan has been promoted to executive director and Lori Sanders to outreach director, effective immediately.

In his new capacity, Moylan will act as the “tip of the spear” for the organization in public settings, maintaining its policy brand and relationships with policymakers, donors and the non-profit community. Moylan will also be responsible for creating original research and policy content to help advance the organization’s priorities. In addition, Moylan will oversee all relevant outreach, communications and policy staff.

“In less than two years, R Street has grown from a small startup spinoff of another think tank to a substantial institution in its own right. I’m pleased to announce that we’re restructuring to prepare for the next phase in our growth,” said Eli Lehrer, R Street’s president. “Andrew has taken a great leadership role at R Street since he joined us soon after our founding. He’s super-smart and a strong and effective manager. I can’t think of a better person to run our day-to-day operations.”

Moylan previously served as R Street’s outreach director, where he was responsible for coalition efforts as well as providing education about public policy issues to regulators, lawmakers and their staffs. He previously served as vice president of government affairs at the National Taxpayers Union and with the Center for Educational Freedom at at the Cato Institute.

Sanders, previously R Street’s outreach manager, moves into Moylan’s former position of outreach director, where she will take on a broader outreach and education role. She joined R Street from the American Enterprise Institute, where she served as program manager for AEI’s Road to Freedom project.

“Even on the wonkiest issues of policy, Lori has proven herself a great connector and fantastic outreach manager. She’s also a brilliant writer and incredibly bright,” said Lehrer.

Clinical trial: e-cigarettes are satisfying cigarette substitutes

March 21, 2014, 9:57 AM

A clinical trial demonstrates that e-cigarettes deliver nicotine, reduce craving and satisfy vapers. The research, published in Scientific Reports, is the work of Konstantinos Farsalinos and colleagues at the Onassis Cardiac Surgery Center in Kallithea, Greece.

Twenty-three experienced vapers (all former smokers) were recruited to compare a small e-cigarette (V2, also called a ciga-like) with a more advanced and powerful model (EVIC) in a cross-over trial on two separate days.  Participants abstained from e-cigarettes, caffeine and alcohol for eight hours before each session.  In the sessions, vapers took ten puffs during the first five minutes, then puffed ad lib for the next hour.

The advanced e-cigarette models delivered about 50-70 percent more nicotine than ciga-likes throughout the trial.  Peak blood nicotine levels, occurring at the end of the session, were 23 nanograms per ml for the advanced model and 16 ng/ml for the ciga-likes.

The investigators also compared nicotine delivery from these devices to previously published levels from conventional cigarettes.  They concluded:

It took about 35 minutes of vaping with the [advanced] device at high wattage in order to obtain plasma levels similar to smoking one cigarette in five minutes.  The [ciga-like] was even less efficient in nicotine delivery; even 65 minutes of ad lib vaping was insufficient to deliver…nicotine at levels similar to smoking.

The difference in nicotine delivery may have accounted for the fact that the advanced devices reduced cravings to a significantly lower level than ciga-likes during the sessions. Vapers rated the advanced devices as significantly more satisfying and more likely to provide a “throat hit,” even though they produced significantly more throat burning.  They rated ciga-likes as more similar to a cigarette.  There were no differences in other effects, such as calming, concentration or taste.

The bottom line: e-cigarettes are satisfying cigarette substitutes.  Ciga-likes have the look and feel of traditional cigarettes, while advanced models deliver nicotine and tobacco satisfaction more efficiently.  The findings suggest that the current e-cigarette market provides a range of models that should appeal to the majority of smokers.

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