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How states can use the Clean Power Plan to cut taxes

November 30, 2015, 5:29 PM

With the latest round of climate talking getting underway, all eyes are on Paris. Yet back in the United States, states are already considering how to reduce greenhouse gas emissions. Under the final version of the Clean Power Plan (CPP), published in October, states are required to reduce carbon dioxide emissions from existing power plants by 32 percent (from 2005 levels) by 2030.

To meet the CPP’s emissions goals, states have a variety of options, from efficiency mandates to cap-and-trade. There is, however, one compliance option that would not only reduce emissions, but would also allow states to finance needed tax reform. As the Environmental Protection Agency notes in the final rule, a state could comply with the CPP by imposing “a fee for carbon emissions from affected EGUs” sufficient to achieve the required reductions. Revenue generated from this fee could then be used to offset cuts to existing, more burdensome taxes.

To get a sense of how much money we are talking about, I took a look at EPA modeling data on the carbon price each state would need to impose to meet its CPP 2030 goals. This price varies considerably between states. Many New England states, for example, would require no carbon price at all, indicating that those states are already on track to meet their CPP goals. In other states, the price is above $20 a ton.

The amount of revenue each state would get annually from a CPP-compliant carbon fee is in many cases considerable. The highest annual revenue is generated by Texas ($2.5 billion), followed by Illinois ($1.6 billion), Florida ($1.3 billion) and Ohio ($1 billion).

For states where meeting CPP goals requires a higher carbon price, a carbon fee for electrical generation could generate substantial revenue for tax relief. Revenues from a CPP-compliant carbon fee exceed many individual state taxes. In Texas, for example, revenue from a CPP-compliant tax is significantly greater than revenue from the state’s tax on natural gas production, all cigarette and alcohol taxes combined, would be more than half of revenue collected from the state’s franchise tax and third quarters of the state’s gasoline tax. Many other states would be able to reduce or eliminate state corporate, gasoline or other taxes if they adopted a tax-swap approach.

In a recent report, I looked specifically at some of the ways Texas might implement a carbon fee approach. While Texas is one of the handful of states without a state income tax, it still has several economically damaging taxes, such as the business-franchise tax, that revenue from a carbon fee could be used to eliminate. The state could also use revenues to offset a portion of the state’s sales tax, which is particularly regressive. Properly designed, a state could implement a system that guaranteed all revenue generated from a carbon fee are passed on to taxpayers without growing government. While focused on Texas, these ideas are obviously applicable to every state that must implement a carbon reduction plan.

A wide variety of economist and activists, from Nobel Prize-winning economist Gary Becker to climatologist James Hansen, have endorsed carbon fees as the most efficient way to reduce greenhouse-gas emissions. And because the fee approach provides the opportunity for tax relief, it blunts the economic impact of the CPP in a way other plans do not.

The real history and meaning behind ‘the State of Jefferson’

November 27, 2015, 8:43 AM

Green flags emblazoned with a yellow circle encompassing twin Xs are an increasingly common sight in the Gold Country. That standard belongs not to a county or a current state in the union, but rather to a would-be state: the State of Jefferson.

In October 1941, the original State of Jefferson movement got its start. Local officials from counties along the Oregon/California border proposed the idea of creating a new state, independent of the distant leadership of either Salem or Sacramento. Empowered locals took enthusiastically to the idea and, in late November of that year, set-up a road block on Route 99 near Yreka to distribute copies of Jefferson’s “Proclamation of Independence.”

In spite of their fervor, the December attack on Pearl Harbor and the ensuing outbreak of World War II effectively doused the quiet rebellion of the Jeffersonians as national unity was prized over regional pride.

Now 75 years later, a resurgent State of Jefferson movement is seeking to found a new state encompassing not only the border counties of southern Oregon and northern California, but also counties as far south as Placer and El Dorado. In part because of that expanded footprint – Jefferson would be the 18th largest state in the U.S. – the movement has successfully gained not only notoriety, but also limited political success.

County governments in Siskiyou, Modoc, Glenn, Yuba, Tehama and Sutter have all adopted resolutions on the theme of withdrawing from the State of California. Lake and Lassen county supervisors, meanwhile, have submitted similar questions about devolution to their electorates. In each case, representational concerns are at the center of the calls for independence.

At both the national and state levels, the area that would make-up the State of Jefferson is subject to control from bodies in which its level of representation is minimal. For instance, in California, by the most generous tally of state legislative districts and the broadest understanding of Jefferson’s boundaries, the would-be state has six Assembly Districts and three Senate Districts in chambers of 80 and 40, respectively.

The consent of the governed is difficult to appraise when, as a matter of population, the governed are more removed from their state senator (district population of 931,349) than they are from their national member of Congress (704,566). But that is a statewide problem in California.

Specific to Jefferson, while proportionally represented at the state level, the sheer size of its proposed boundary underscores the intuitive sense of under-representation that advocates for its creation feel at the federal level. Living in a predominately rural region, the voices and concerns of would-be Jeffersonians are under-represented in the U.S. Senate when compared to their rural neighbors in Nevada and Idaho.

But while the counties of northern California and southern Oregon have a legitimate gripe when it comes to their influence in Washington, D.C., the legal obstacles confronting the creation of Jefferson are substantial. Not the least of which would be convincing both legislatures to assent to the departure of the disaffected counties.

Barring a major shift in the political landscapes of both California and Oregon, the State of Jefferson will remain consigned to the imaginations of those who envision its creation. Yet, whether or not Jefferson becomes the 51st State, the movement’s crystallization of concerns about the voice of the North State and the Gold Country is a success in itself.

R Street at the Thanksgiving table

November 25, 2015, 5:19 PM

Every year, various publications wish their readership a happy and healthy Thanksgiving. Some go further. They provide their readership with advice about how to navigate political conversations around the Thanksgiving table.

Many of those columns focus on maintaining a serene path into the holiday season, while others focus on the best pithy ways to evangelize. Or, failing that, to “shame/destroy/eviscerate” those at the table with whom they disagree.

This piece, unlike those, is simply a collection of gifs designed to do no more than capture the feelings of a libertarian-minded guest when various political topics arise.

In the name of the Thanksgiving spirit, I give you: “R Street at the Thanksgiving table.”

Things will start off pleasant. Everybody can find a way to get along for at least 15 minutes while waiting for dinner:

Invariably, at some point, the presidential election will come up;

The always important “polls” will be discussed. At which point, your hitherto irrelevant knowledge of the RealClearPolitics average and fivethirtyeight.com tracking will be of some use:

Regardless which candidate is discussed, the libertarian position will be well outside the table’s mainstream and you’ll end up disappointed:

Still, in that process, someone might ask you what libertarianism is really about. You’ll do your best to explain:

…and the table won’t like it:

You may have a chance to discuss specifics, like cutting government funding for both “Obamacare” and Medicare. Others will disagree:

But some of your ideas might catch on. Like, maybe we can have a free and open Internet and security at the same time?

If they don’t, you can always change the topic to something everybody agrees upon:

From everybody at the R Street Institute, we wish you and your friends and family a happy Thanksgiving.

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

In wake of record fine, Pennsylvania lawmakers scramble to legalize ridesharing

November 25, 2015, 5:13 PM

The Pennsylvania Legislature is having to act fast to settle on a way to regulate transportation network companies like Uber and Lyft. That’s because administrative law judges for the state’s Public Utility Commission have recently recommended a mind-boggling $50 million fine against Uber.

Pennsylvania has proven a tricky state for TNC operations. In 2014, both Uber and Lyft began business in the Keystone State, before law and regulation had an opportunity to clarify their legal status. Philadelphia, the largest city, promptly outlawed the services outright and actively began to combat their presence by impounding vehicles. For its part, the PUC chose to establish a regulatory baseline and grant two-year provisional licenses to the services, valid in 66 of the state’s 67 counties (all except Philadelphia County, which shares the same boundaries as the city).

Almost a year after Uber began business in the state, the PUC has handed down the record fine on the basis of the six months in which Uber operated in the state before the two-year provisional licensing period began. The two administrative law judges recommending the fine claim that Uber’s behavior “warrants a serious penalty to deter future violations.”

The specter of the huge fine, while daunting, may have had a salutary effect on the long-term viability of TNCs in Pennsylvania. Before it was levied, ongoing efforts to legalize TNC activity on a statewide basis repeatedly stalled in Harrisburg. But following news of the fine earlier this month, the state Senate found a way yesterday to pass to the House of Representatives a bill that would legalize the services.

Senate Bill 984, sponsored by state Sen. Camera Bartolotta, R–Monongahela (who enjoyed a career as an actress before joining the Senate, appearing in films such as the 2014 teen romance “The Fault in Our Stars”) passed the body 48-2 and would establish insurance and safety standards for TNC services.

The insurance requirements contemplated by the bill, ($50,000 per-person and $100,000 per incident for bodily injury and $25,000 for physical damage) are reasonable and in keeping requirements throughout much of the rest of the nation. The background check requirements are similarly standard. Overall, the bill has many of the same characteristics as the insurer/TNC “national compromise” language first presented at the Phoenix meeting of the National Association of Insurance Commissioners.

Session will reconvene in Harrisburg Dec. 2. At that point, since the session is set to end Dec. 9, the House will need to act quickly to pass the bill.

Unfortunately, even if approved before the end of session, the legislation would have no retroactive legal bearing on the fine. Still, there is no doubt that it would give pause to the PUC as it decides whether or not to approve and pursue that measure to a decision. For that reason alone, the Pennsylvania Legislature should pass S.B. 984.

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

Why wait until tomorrow? How to speed innovation

November 25, 2015, 1:16 PM

There was no such thing as a self-driving car in 2003. That’s when the Defense Advanced Research Projects Agency announced its first Grand Challenge, with a $1 million prize for the first robotic vehicle to complete a course from California to Nevada in less than 10 hours.

In the eight years since the last DARPA challenge, self-driving car research has exploded. Today, nearly every car company is working to develop autonomous cars, from Ford and Tesla to Google and maybe Apple. Fully self-driving cars may be here within the next five to seven years, and much of the credit belongs to the DARPA challenges.

The idea of awarding prizes for private action, sponsored either by public or private entities, is at least as old as the patent system. Qui tam statutes, going back to the 1300s, allowed a private citizen to bring action on behalf of a government to recover a penalty, while the first known patent was in Venice in the 1400s.

One example of qui tam statutes from U.S history was the False Claims Act of 1863, also known as the “Lincoln Law,” enacted during the Civil War for the purpose of combating fraud. The original False Claims Act entitled those who pursued funds for which the federal government had been defrauded to half of any money recovered. In a recent paper for the R Street Institute, I propose a federal program to create a novel, self-funded prize that would both spur innovation and save taxpayers money.

Still currently in the developmental phase, new technologies like 3-D-printed kidneys not only would revolutionize medicine, but also could have a major impact on federal spending.

More than 400,000 Americans are currently on dialysis as they await kidney transplants. Each dialysis patient costs Medicare $700,000 per year. If 3-D-printed organs made of our own stem cells (thus ensuring they wouldn’t be rejected) were to become as ubiquitous in hospitals as blood supplies are today, not only would hundreds of thousands of lives be immeasurably improved, but taxpayers could save as much as $500 billion in just 10 years.

While the National Institutes of Health (NIH) currently spends $549 million each year on kidney disease research, its budget for 3-D technologies is only about $4 million. In addition to sparse funding, the problems associated with correctly developing the techniques for 3-D-printed organs may not be patentable inventions. They may be iterative solutions to small problems, few or none of which can receive a 20-year monopoly.

We will eventually develop 3-D-printed organs, but with proper incentives, it’s possible we could speed that development from a generation away to less than a decade.

Under the “innovation savings program” I propose, if researchers developed 3-D-printed kidneys, and this technology was shown to save the federal government money, the team would receive a portion of those savings. The NIH also could work with scientists to identify the major impediments to developing 3-D-printed organs and divide potential awards among those who solve those discrete problems.

There are, to be sure, kinks to work out. The program would have to be overseen by a competent and independent agency, and there would need to be effective legislative oversight—including from the Government Accountability Office—to ensure any awards are granted based on proper accounting and transparent processes. Federal agencies also would need an incentive to cooperate, perhaps by allowing them to retain a small portion of the savings as unrestricted funds.

Historically, prizes have been a powerful tool to spur innovation. The federal government can learn from what has worked for the past 500 years. We should be leveraging all tools at our disposal to solve our nation’s problems and a self-funded prize for innovation is an easy way to start. It has the added benefit of being free.

Free-market groups to Congress: Continue risk corridor’ restrictions

November 25, 2015, 9:54 AM

Speaker Paul Ryan
H-232, The Capitol
Washington, D.C. 20515

Majority Leader Mitch McConnell
S-230, The Capitol
Washington, D.C. 20510

Dear Speaker Ryan and Majority Leader McConnell,

As you begin negotiations over legislation to continue government funding past December 11, 2015, we the undersigned individuals and organizations urge you to continue the policy contained in recent appropriations bills restricting the use of Obamacare’s “Risk Corridor” program.

Many of us signed on to a letter last year describing the Risk Corridor program (Sec. 1342 of the Patient Protection and Affordable Care Act, better known as “Obamacare”) in detail and outlining why we believed it was important to restrict its ability to serve as a “taxpayer bailout” for Obamacareparticipating insurance companies. Fortunately, Congress was able to insert such language into the last omnibus appropriations act (specifically Division G, Title II, Sec. 227 of P.L. 113-235).

In last year’s letter, we pointed out that the experience of insurers in the new exchanges would likely lead to them demanding much more in returns from the program than they were putting into it. That prediction has turned out to be true. On October 1, the Department of Health and Human Services (HHS) announced that they would only be able to pay out $362 million of the requested $2.9 billion, or just 12.6%, of funds that Obamacare-participating insurers had requested. Absent the Sec. 227 language mentioned above, HHS may very well have simply filtered the difference of $2.538 billion from hardworking taxpayers to bailout insurers for their poor business decisions.

Among other things, Obamacare is about hiding costs and shifting costs, not about lowering them. The Risk Corridor program represents a microcosm of the law, and one of its most insidious provisions, as it attempts to hide the true costs of Obamacare from insurance companies and beneficiaries, and instead spread it out among hardworking taxpayers. Eliminating the Risk Corridor program’s ability to do this represents a major blow to the law and a step towards increased transparency in Obamacare’s exchanges.

As Obamacare’s exchanges continue to struggle, we know the Administration is looking for any and all avenues to try to mask and hide those failures, both for political reasons of public perception and for practical reasons of trying to help a doomed program limp along.

We also know insurance companies and their lobbyists are pressuring the Administration and Congress to release the common-sense restriction placed on the Risk Corridor program by the Sec. 227 language. However, taxpayers should not be on the hook for any more of Obamacare’s failures, and so we urge you to ensure that their voices prevail by continuing to include language preventing Risk Corridors from becoming a taxpayer bailout in any future appropriations bill. Failure to continue this policy would represent a devastating roll back of this important conservative victory.

In addition, we urge you to eliminate or limit a related provision: Obamacare’s “reinsurance program” (Sec. 1341 of PPACA). Similar to the risk corridor program, Obamacare’s reinsurance program is not a traditional reinsurance program, but rather is structured in a way that artificially props up Obamacareparticipating insurance companies. In brief, rather than transferring money within a pool of insurers or insurance products, Obamacare’s reinsurance program taxes people with non-Obamacare group health plans to transfer funds to insurers participating in Obamacare’s exchanges. Putting a stop to this program would further reduce the Administration’s ability to hide the true costs of Obamacare.

Thank you for your consideration.


Michael A. Needham, CEO, Heritage Action for America
Grover Norquist, President, Americans for Tax Reform
Phil Kerpen, President, American Commitment
Heather Higgins, President and CEO, Independent Women’s Voice
Sabrina Schaeffer, Executive Director, Independent Women’s Forum
David McIntosh, President, Club for Growth
Brent Gardner, Vice President of Government Affairs, Americans for Prosperity
Adam Brandon, President and CEO, FreedomWorks
Jenny Beth Martin, Co-Founder, Tea Party Patriots
Ken Hoagland, Chairman, Defend America Foundation
Thomas Schatz, President, Council for Citizens Against Government Waste
Dean Clancy, Partner, Adams Auld LLC
Eli Lehrer, President, R Street Institute
Gregory T. Angelo, President, Log Cabin Republicans
Eric Novack, Chairman, US Health Freedom Coalition
Dan Perrin, President, The HSA Coalition
Norm Singleton, President, Campaign for Liberty
John R. Graham, Senior Fellow, National Center for Policy Analysis
Greg Scandlen, Principal, Health Benefits Group
Twila Brase, President, Citizens’ Council for Health Freedom
Andrew Langer, President Institute for Liberty
Chris Conover, PhD, Adjunct Scholar, American Enterprise Institute
Beverly Gossage, President, HSA Benefits Consulting
Donna Hamilton, Virginians for Quality Healthcare
Marc Short, President, Freedom Partners
Gov. Gary Johnson, Honorary Chair, Our America Initiative
Jeffrey A. Singer, MD, FACS
Naomi Lopez-Bauman

An open letter to Congress: Beware of reinsurance tax hikes as ‘pay-fors’

November 25, 2015, 9:41 AM

Dear Member of Congress:

As the 2015 session winds down, lawmakers are seeking a variety of “pay-fors” to offset the costs of legislation whose passage is deemed urgent. Although many of these bills may be worthy endeavors in their own right, the undersigned organizations urge you to pursue spending reductions rather than revenue increases for such purposes. We further caution you to avoid employing revenue-raisers in the service of random, unrelated bills, whatever the merits of those bills may be. One of many examples would be to slap a tax hike on foreign reinsurance –a critical product that balances risk in the insurance system to the benefit of policyholders. This provision, often characterized as a “deduction disallowance for non-taxed reinsurance premiums paid to foreign affiliates,” would amount to little more than a thinly disguised tariff proposal that could impose enormous costs on consumers and limit international trade.

The proposal, which Rep. Richard Neal, D-Mass., has pushed aggressively for years and has the support of President Barack Obama, simply penalizes non-U.S. headquartered companies for a normal business practice. All insurers that operate internationally are “groups” of related companies that cooperatively manage financial resources in order to insure risks around the world. Under the Neal scheme, these ordinary business transactions would be slapped with a large tariff that would substantially raise costs for non-U.S. insurers. While current tax laws treat U.S. and non-U.S. companies slightly differently, there is no “loophole” for non-U.S. companies. Indeed, in some cases they pay higher effective taxes than their U.S. counterparts. From a policy perspective, the primary underlying premise of the Neal plan is protectionism.

And, for consumers, the consequences of this plan would be devastating – the Brattle Group has estimated that the consumers’ costs for insurance could rise by $130 billion over 10 years. This would trickle down into the prices of everything from airline tickets to food. Meanwhile, the tax could bring much less to the Treasury than anticipated. According to a Tax Foundation analysis, the downstream effects of the policy would be so adverse that “[o]ver the long term, the tax provision reduces GDP by about twice the revenue it collects directly. As a result, about 40 percent of the intended revenue from the provision ends up being lost through lower collections of other taxes.”

Just as importantly, the structure of the proposal might well violate the United States’ obligations with regard to the World Trade Organization. This, in turn, could result in other countries slapping retaliatory tariffs on American goods and services. The result, quite literally, could be a trade war.

At a time when systemic tax reform is becoming more imperative, it is especially critical for Congress to avoid embedding further distortions into the law that will have long-term drawbacks and make the task of simplification even more difficult. For all the foregoing reasons, we hope you will reject a reinsurance tax hike or anything like it.

Yours truly,

Eli Lehrer, President, R Street Institute

Pete Sepp, President, National Taxpayers Union

Steve Pociask, President, American Consumer Institute

Tom C. Feeney, President and CEO, Associated Industries of Florida

David Williams, President, Taxpayers Protection Alliance


Should we be worried about the big beer merger?

November 25, 2015, 7:00 AM

Last month, AB InBev and SABMiller announced they had agreed to join forces. The proposed $106 billion deal would unite the makers of two of the best-known American lagers, Budweiser and Miller. Together, the two firms would account for a third of the world’s beer output and half the beer industry’s profits.

The deal is not particularly surprising, as beer mergers are frequent. AB InBev itself was the product of multiple mergers. Brahma and Antarctica combined into AmBev in 1999 and AmBev became InBev in 2004 by merging with Interbrew, the Belgian company best-known for Becks and Stella Artois. (Interbrew, by the way, was formed in 1988 through Stella’s acquisition of Piedboeuf Brewery.) In 2008, InBev bought Anheuser-Busch and AB InBev was born.

SABMiller, likewise, is the product of multiple mergers and complex deals. It formed in 2002, when South African Breweries bought Miller Brewing from Altria, the U.S. tobacco company. Canada’s Molson and Colorado’s Coors merged in 2005, and SABMiller partnered with Molson Coors Brewing Co. to establish MillerCoors in 2007.

The AB InBev-SABMiller deal has made some beer drinkers anxious. Lovers of Miller and Miller Light may wonder, “Will Bud kill off these competitors to Bud and Bud Light?” Other observers fret the merger will produce a big beer monopoly.

Neither of these outcomes will occur. AB InBev is jettisoning Miller in the process. The agreement requires SABMiller plc, a London-based beer conglomerate, to sell its stake in MillerCoors. The beneficiary of this divestiture is Molson Coors Brewing Co., which would become the outright owner of the U.S. breweries that make Miller beers. AB InBev’s portion of the U.S. market will not increase.

SOURCE: Beer Marketer’s Insights, 2014

The objective of this deal is not to increase its domestic market share. Per-capita North American and European demand for alcoholic beverages has declined generally since 1980, and wine and spirits have nibbled at beer’s control of the cup. Beer now accounts for less than 50 percent of alcoholic beverages purchased domestically. Craft brews, which are growing by leaps and bounds, also have eaten into big beer’s market share. Last year, Bud’s chunk of the U.S. beer market slid 10 percent, from 50 percent to 45 percent. Some 4,000 breweries are operating in America today.

Instead, the merger’s aim is to expand AB InBev’s business in markets outside America. Emerging markets are where the profits are. SABMiller earns 72 percent of its profits in places like Africa and South America. Thus, it is the SAB portion of MillerSAB that is of real interest to AB InBev, as owning it gives the company access to the growing African market.

Some in Congress are worried about the deal. Legislators fret over possible job losses due to brewery consolidations. Whether any such thing will happen is anyone’s guess, and quite frankly none of Congress’ business. A few senators have sent a letter to the Department of Justice. It is a bit of a head-scratcher. It notes that craft beer is booming, with 3,739 of them in business. The letter then complains that big beer is engaged in a “dangerous plan to constrain distribution channels.” The missive offers no evidence of vertical monopoly building. Again, the two big beer companies have lost market share.

If Congress really wanted to ensure the beer business remains competitive, it should hold hearings on state government practices that reduce consumer choice. The continued requirement that brewers sell their beer to distributors, who then sell it to the public, is one such policy. It permits wholesalers to become gatekeepers. So, too, are the corrupt franchise rules, which stifle choice by locking retailers into agreements with distributors.

Before the AB InBev deal is completed, it will be subject to Justice Department review. Section 7 of the Clayton Act forbids mergers or acquisitions that could diminish competition. With AB InBev’s share of the U.S. market staying the same, it’s hard to see how the DOJ could reasonably object.

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

Time for a progressive approach to insurance regulation

November 24, 2015, 10:10 PM

It’s time for a truly progressive approach to insurance regulation in California. Unfortunately, the state’s deeply Democratic blue politics conceal an unexpected pocket of regulatory conservatism.

California adopted Proposition 103 in 1988, setting in legal stone how the state approves certain insurance rates. The result has been tremendous opportunity cost for California consumers, as other states have pursued systems that allow a much faster pace of product innovation and approval.

This isn’t exactly a surprise. Prop. 103 was approved when President Ronald Reagan still sat in the White House. The law reflects the prevailing wisdom of the period, during which insurance rates were rising unceasingly. It sought to prevent insurers from raising their rates and, in the process, also ensured they’d almost never cut them.

Perhaps without completely understanding what they were voting for — there were five insurance measures on the 1988 ballot — Californians cemented in place a law that prevented their rates from declining as the state’s insurance cost drivers began to ebb.

Even early on, Prop. 103 proved to be the antithesis of the sort of smart, efficient and responsive governance that contemporary Californians seek to empower. Its legacy has continued that theme.

In fact, though touted as a consumer-protection law, Prop. 103 has effectively shackled the California Department of Insurance and its current elected head, Dave Jones, to a system over which they have limited control. The CDI’s best efforts to be quick, nimble and flexible in its cultivation and approval of rate changes are frustrated by Prop. 103, which makes a reasonable speed-to-market virtually impossible.

In a recent study completed by the R Street Institute, comparing California’s rate-approval process to that of other states, the effect of Prop. 103 jumps off the page. California has fewer rate filings (one-third as many as Illinois and half as many as New York) and a slower speed-to-market (according to some measures, by orders of magnitude) than any of the other states examined.

Efforts to improve Prop. 103 have been stymied and confused by bafflingly conservative rhetoric from quarters typically associated with reform. The “consumer-protection industry” is keen to double down on the nonexistent benefits of Prop. 103, because the regime it created provided them with a steady flow of cash.

California is the only state that allows private parties to intervene in insurance rate-making proceedings. The purported savings achieved by this redundant process are hard to quantify, particularly when placed in the context of the chilling effect it has had on the market as a whole. What’s certain is that intervenors are well-compensated for their time and have slowed rate approvals to an embarrassing crawl.

A process that takes 26 days in Nebraska, 55 days in Washington and 58 days in New York takes a whopping 139 days in California. In exchange for the delay, California enjoys auto-insurance rates that are higher than all of those states. In fact, they are the seventh-highest in the nation.

Is it any wonder that, last year, Californians overwhelmingly rejected Proposition 45, an effort to extend this system to the health insurance market? Which raises the question: Is Prop. 103, as it exists today, something a progressive should support?

If he or she believes laws should be written and executed for the benefit of special interests rather than the state as a whole; that regulation should limit choice; that it should be shifted to private hands and innovation should be slowed to a crawl, then the answer is yes.

Fortunately, the answers to every one of those questions is no. A truly progressive approach would benefit all Californians. Whatever that approach is, it would not look anything like Prop. 103.

Here’s how to make the Congressional Research Service more transparent

November 24, 2015, 12:13 PM

From Washington Examiner

“The policy is irrational, inefficient, and costly,” writes Kevin Kosar, a former CRS analyst and manager. Kosar notes that there is no reason why CRS reports must be available exclusively to Congress (they are non-confidential and do not contain any classified information), and every reason why they should be accessible to the public. Taxpayers fund the CRS. It’s only fair they have access to reports produced by legislators and CRS staff. It would cost little to provide them electronically in one simple, organized website.

Letter to congressional leadership on federal flood standards

November 24, 2015, 10:53 AM

Dear Speaker Ryan, Leader Pelosi, Leader McConnell, and Leader Reid:

SmarterSafer, a coalition of environmental organizations, taxpayer advocates, insurance representatives, housing organizations and mitigation experts that advocates for environmentally responsible, fiscally sound approaches to natural-catastrophe policy, supports the adoption of the Federal Flood Risk Management Standards. SmarterSafer believes that efforts in appropriations bills to halt the adoption of these standards are short-sighted and put lives, property and taxpayer funds at risk.

Natural disasters wreak havoc on communities and their residents. The scale and cost of natural disasters has been on the rise; so, too, has the federal share of disaster costs and the amount the federal government spends to clean up and rebuild after a disaster strikes.  Unfortunately, while the federal spending post-disaster has dramatically increased over the last few decades, spending on proven, pre-disaster planning and mitigation still falls woefully short of what is needed to better protect people and their property.  We know that mitigation and smarter, safer building protects people and their property.  For every $1 spent on disaster mitigation, $4 are saved on post-disaster recovery and rebuilding.  Investing in strengthening communities today is cost-effective and proven to reduce damage and resulting costs post-disaster.

The Federal Flood Risk Management Standards seek to better protect people from harmful flooding in areas that face flood risks. By establishing standards that incorporate the best science on flooding and requiring structures receiving federal funds to build at safe elevations, not only are people and property better protected, but federal investments are protected for the long-run.  When federal funds are being used to build or rebuild structures, or to subsidize structures, the government should ensure the taxpayer investments are being made in safe, resilient ways.

The Federal Flood Risk Management Standards — coupled with a renewed focus on mitigation, including nature-based approaches — could help protect people from harm’s way. SmarterSafer supports the adoption of these standards; however, we understand that there are concerns about implementation.  Many communities already have requirements for building that meet the new federal standards. We welcome a robust public-comment period at the agency level to ensure that communities are provided the opportunity and time to best prepare for the changing requirements. In addition, as we have articulated to the administration, we want to ensure that implementation takes into account how any changes might affect low-income communities and low-income families.

We look forward to working with you on this important matter. For any further information, please contact Jenn Fogel-Bublick at Capitol Counsel at (202) 861-3200.



No matter what the kids say these days, the sky is not the sea

November 24, 2015, 8:00 AM

A Washington state court has found that navigable waterways are linked to the planet’s atmosphere to such a great degree that the law governing one must apply to the other.

In a 10-page decision brimming with dicta, Judge Hollis R. Hill of the King County Superior Court resolved a dispute between the Washington Department of Ecology and youthful conscripts in a movement called “Our Children’s Trust” (Foster et al. v. Washington Dept. of Ecology).

The youths in question were a precocious bunch. They demonstrated an improbable familiarity with both the writings of Byzantine Emperor Justinian – whose understanding of public spaces, they incorrectly believed, undergirded their argument[1] – and the finer points of administrative law. Indeed, their case has a certain impetuous charm to it.

The youths maintained that the Public Trust Doctrine — holding navigable waterways in trust to benefit the public and empower commerce – should be extended to the atmosphere, specifically to address climate change. Their goal is to compel Washington and other U.S. states (they are litigating across the country) to restrict greenhouse gas emissions on the basis of an expansive understanding of what nature the states must hold in trust.

Lofty aspirations aside, the question before the court was a narrow one of administrative law. It was whether a petition should be granted that would appeal the state Department of Ecology’s refusal to initiate rulemaking on stricter emissions restrictions. Judge Hill found the department’s failure to promulgate more exacting emissions standards was a violation of the Clean Air Act, the Washington State Constitution and the Public Trust Doctrine.

The only trouble for the judge was that, in what must have been a frustrating development, Ecology actually is in the process of reevaluating its emissions rules. Thus, the petitioner’s appeal had to be denied.

But instead of confining her analysis to that inquiry, Judge Hill opted not to disappoint the youthful petitioners. She included in her decision a lengthy exposition on the DOE’s affirmative responsibilities relative to the various bodies of law to which it is subject. Specific to the Public Trust Doctrine, she had this to say:

‘(The Department of) Ecology argues that since the Public Trust Doctrine has not been expanded by the courts beyond protection of navigable waters it cannot be applied to protection of the ‘atmosphere.’ But this misses the point since current science makes clear that global warming is impacting the acidification of the oceans to alarming and dangerous levels, thus endangering the bounty of navigable waters.’

‘The navigable waters and the atmosphere are intertwined and to argue a separation of the two, or to argue that GHG (Greenhouse Gas) emissions do not affect navigable waters is nonsensical.’

Judge Hill’s assertion that the Public Trust Doctrine should be expanded to encompass emissions is based on the belief that protecting the atmosphere is a necessary precondition to protect navigable waterways. While there’s no doubt that atmospheric activity does impact navigable waterways, it’s certainly not “nonsensical” to argue otherwise in the context of what is only a trivial connection between Washington-specific emissions and the changes to the state’s waterways. Judge Hill overstates both how and to what degree they are linked, given the purpose of the Public Trust Doctrine, which is to maintain public access to waterways, historically, toward commercial ends.

Perhaps out of a moribund desire to adhere to the doctrine’s traditional purpose, Judge Hill makes an effort to find an economic nexus between emissions and the threat posed by acidification to the “bounty of navigable waterways.” But claiming that the atmosphere and navigable waterways are “inextricably linked” or are “intertwined” does not mean that they are so similar as to be governed by the same common law precedent.

At bottom, there is an unambiguous gulf between the law and Judge Hill’s desired policy outcome. Climate change is a serious threat to the American way of life and to the larger global community. But no threat, however great, should compel us to revert to governing tendencies best suited to an emperor. Reform doesn’t require obfuscation.

If Washingtonians desire to reduce the emission of greenhouse gasses in their state, they will soon have an opportunity to vote in favor of ballot initiatives that will accomplish just that.

[1] Justinian’s famous AD 350 quote, “By the law of nature these things are common to mankind – the air, running water, the sea, and consequently the shores of the sea,” is better understood in the context of his larger theory of public ownership. The quotation’s sentiment refers only to state of seashores prior to their private appropriation and improvement. See “Property and the Public Trust Doctrine” by Randy T. Simmons for further background material on the Roman understanding of the concept.

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Post office continues sinking as the band plays on

November 23, 2015, 10:07 PM

From Newsweek

The U.S. Postal Service lost nearly $5 billion this past year, according to itsyear-end financial results.

As in recent years, the agency did not make the legally required $5.7 billion payment to its Retiree Health Benefits Fund. The agency is $15 billion in debt and legally prohibited from borrowing additional funds. The unfunded portion of its retiree health benefits obligation is $54 billion…


Ethan Bishop

November 23, 2015, 4:43 PM

Ethan Bishop is operations associate for the R Street Institute. In this role, he is responsible for supporting the day-to-day operations of the institute’s headquarters, as well as providing executive support to the president and his staff.

Ethan came to R Street from the U.S. Chamber of Commerce Foundation, where he most recently served as administrative assistant for Hiring Our Heroes, a nationwide initiative to help veterans, transitioning service members and military spouses find meaningful employment opportunities.

Prior to his work at the chamber, Ethan worked in Indian Affairs at the U.S. Department of the Interior as a self-governance specialist. A native of Franklin, Vt., Bishop is a graduate of St. Lawrence University, where he studied government, history and education.

Email: ebishop@rstreet.org

Phone: 202.600.0149 (m)

Understanding the crusade against e-cigarettes

November 23, 2015, 2:51 PM

Two recent public comment letters from Stanton Glantz of the University of California at San Francisco finally lay bare the myth that underlies the public-health crusade against e-cigarettes – that no non-pharmaceutical nicotine-delivery product could possibly have any personal or public health benefits.

If not licensed as a drug, the argument goes, all such products (other than cigarettes) should be summarily removed from the market.

The first letter urged the Food and Drug Administration to prohibit any non-drug product from claiming it offers “satisfaction” or a “nicotine hit,” as such claims should be considered drug claims. If enacted, such rules would require the product be removed from the market unless or until it is licensed as a drug.

The second letter to the FDA, related to their review of proposed regulations for e-cigarettes and selected other products, opines that drugs need to be tested both for safety and efficacy; non-drug tobacco-related products need to be tested only for potential harms. This note goes on to urge any such federal testing not be used to help commercialize any product.

Licensure as a drug requires blinded and randomized clinical trials. The product in question is compared to a placebo, with neither study participants nor investigators knowing which is which. Randomization is used to eliminate other factors that might affect the outcome. This works fine for medications used to treat diseases and can help determine short-term cure rates. It does not work very well for products intended to enable consumers to reduce their risk of potentially fatal disease by means of nonmedical changes in behavior.

E-cigarettes are intended to be recreational substitutes for cigarettes, to enable smokers to secure cigarette-like satisfaction without exposure to the deadly toxins in cigarette smoke. The e-cigarette products that seem to work best are those that enable users to pick the device, flavor and strength of nicotine that best meets their needs, and modify the flavor and strength of nicotine over time as they transition away from cigarettes. There is no practical way that this process can be studied by means of a randomized clinical trial. Imposing that as a requirement is simply a backhanded way to use the power to regulate to remove these products from the market.

As evidenced by its proposed regulations, FDA policy appears largely based on three considerations not written into either drug or tobacco laws. The first is that smoking is a disease, not a behavior. The second is a presumption that the only reason any non-pharmaceutical tobacco company would create a low-risk product would be to addict a new generation of teens to nicotine, with the expectation that they would then transition to cigarettes for a stronger and faster nicotine hit. The third is the notion that each new product and each product wishing a designation as lower in risk than cigarettes must provide original research comparing that individual product’s risk and addictiveness to cigarettes.

While some smokers are addicted to cigarette smoke, others are dependent on self-administered nicotine to enable them to properly focus on both work and enjoyable activities. Yet others simply enjoy an occasional smoke. The concept of smoking as a disease seems to be rooted in a brilliant marketing decision made by drug companies about 40 years ago that profits would be greater if they sell their nicotine gums, patches, etc. as drugs rather than as consumer products. No one in the public health community ever considered the possibility that anyone would ever develop a nicotine delivery product, like the e-cigarette, that could satisfy smokers without attracting significant numbers of teen nonsmokers to continuing nicotine use.

While governmental agencies can and have conducted large-scale surveys that demonstrate that e-cigarettes, as a class of products, attract very few nonsmoking teens to continuing nicotine use, it is physically impossible for the manufacturer of any single product (mass-market or vape shop) to demonstrate such non-recruitment in the context of a pre-market application. Imposing this requirement, as proposed by FDA, is another way to use the power to regulate to eliminate e-cigarettes from the marketplace.

Sensible regulation would enhance public health by giving smokers and potential smokers accurate information as to the risk and addictiveness presented by each class of nicotine-delivery product, while protecting all against shoddy manufacturing and predatory marketing.

The FDA’s proposed e-cigarette regulations will protect drug companies and cigarette makers from competition from these remarkable low-risk products. Eliminating them from the market, as currently anticipated, would deny us the opportunity to secure personal and public health benefits likely not achievable by any other means.

For those interested in more detail on the relative safety and relative non-addictiveness of e-cigarettes, compared to cigarettes, please see the Public Health England report, this safety evaluation by Dr. Konstantinos Farsalinos and this 2014 review by me.

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Massachusetts lawmakers go home for holidays; no action on ridesharing

November 23, 2015, 12:16 PM

In the home of the Pilgrims, lawmakers have gone home ahead of the Thanksgiving holiday. The Massachusetts Legislature has adjourned for 2015, having failed to move on any of four bills introduced this year that proposed statewide regulation for ridesharing services.

The adjournment caps a year of uncertainty for the services. Last December, former Gov. Deval Patrick made a last-ditch attempt in the waning weeks of his lame-duck tenure to propose a legal framework for ridesharing. Patrick’s proposal, which never got off the ground, would have seen the Department of Public Utilities issue certificates to operate to firms like Lyft and Uber and charged the DPU with policing whether the transportation network companies comported with basic standards for liability insurance and criminal background checks.

When he took office in January, Republican Gov. Charlie Baker directed the DPU to allow the firms to operate for six months while more formal regulations could be drafted. He also solicited proposals from insurance companies for how the risks stemming from ridesharing services could be covered. In October, the Commonwealth’s Division of Insurance announced that USAA became the first insurer to be approved to offer additional coverages for ridesharing drivers, in their case a coverage endorsement for drivers who are logged in to a transportation network company application, but have not responded to a request for a ride.

In April, Baker introduced H.3351, legislation that would:

  • Require drivers to undergo background checks through Massachusetts’ Criminal Offender Record Information system, which does not include a fingerprint-based check.
  • Mandate a minimum $1 million in liability coverage any time a ridesharing transaction in progress, as well as requiring that drivers have coverage (either on their own or through the TNCs) any time they are logged in to the ridesharing application.
  • Order the Department of Public Utilities to hire at least five full-time staffers to regulate ridesharing, funded by fees on the transportation network companies, and to develop rules in consultation with a municipal advisory group.
  • Require drivers to mark which services they work for through the use of a decal or other visible marker on their vehicles.

Though the measure had support from the major ridesharing service, unlike many statewide TNC bills that have passed over the last two years, Baker’s proposal would not pre-empt municipalities from imposing more stringent regulations.

A competing bill – H. 3702, sponsored by state Sen. Linda Dorcena Forry, D-Dorchester, and state Rep. Michael Moran, D-Brighton – enjoyed support from the incumbent taxi industry. That bill would require fingerprint background checks, which take longer to complete. It would require all vehicles to carry their own commercial insurance, which would appear to foreclose the kinds of liability policies Uber and Lyft currently have. It also would bar ridesharing drivers from using vehicles that are more than 5 years old; ban the practice of “surge pricing” during periods of high demand; and explicitly prohibit TNC drivers from operating at Boston’s Logan International Airport.

The session also saw introduction of two other bills. S. 559 – a bill from state Sen. James Timilty, D-Walpole – dealt solely with insurance requirements, which are broadly similar to those set out in Gov. Baker’s proposal.

State Rep. William Smitty Pignatelli, D-Lenox, introduced H. 931, a bill that would require each company to pay a $5,000 permitting fee. Pignatelli’s bill otherwise is in some ways looser than the Baker proposal, in that it would rely on company-performed background checks, rather than the state-run process, and would allow drivers as young as 19, compared to the minimum age of 21 set in the governor’s bill.

All four bills were the subject of a Sept. 15 hearing of the Joint Committee on Financial Services, but none have moved through the committee to receive floor attention. Because the Massachusetts Legislature operates on a two-year cycle, the bills are still technically “live” and any or all of them could be resolved in 2016.

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Noteworthy at the NAIC, Nov. 20

November 23, 2015, 11:37 AM

From SNL Financial

Morning technology chatter

Early risers can get breakfast with a side of tech talk at an early morning panel discussion on online insurance distribution. The Nov. 20 event will examine the new technology affecting how underwriters and brokers work together and sell insurance. New Mexico Insurance Superintendent John Franchini and R Street Institute Western Region Director and Senior Fellow Ian Adams are among the panelists. The panel starts at 7:30 a.m. ET in the Annapolis 1 meeting room

R Street Institute

November 20, 2015, 3:26 PM
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November 20, 2015, 3:25 PM
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Could restitution play a role in criminal justice reform?

November 20, 2015, 12:11 PM

It is widely acknowledged that the United States has a problem with mass incarceration. According to the Bureau of Justice Statistics, the nation has more than 1.5 million inmates in both state and federal prison. The number places America as one of the most incarcerated nations in the world, both by numbers of inmates and per capita.

Many state governments, along with the federal government, are looking at ways to reduce the prison population. They largely have focused on low-hanging fruit, such as nonviolent drug offenses. The federal government has decreased prison sentences for some drug offenses and even made some of those retroactive, releasing some inmates early. Some states even have decided to decriminalize or legalize marijuana. But on the state level, drug possession is only 3.6 percent of the prison population.

A possible avenue to target for states looking to reduce their prison populations is changes to punishments for property crimes, such as burglary, fraud and theft. Inmates convicted of property crimes make up 19.3 percent of the prison population. Should states, for example, look at using restitution, in combination with probation, as an alternative to incarceration?

All 50 states already offer restitution. Restitution is different from a civil judgment, in that it is awarded when the offender is convicted in their criminal trial. Some states offer compensation to victims awarded out of a state compensation program.

The concept dates back to biblical times. Indeed, Exodus 22:3 seems to mandate restitution. Those who couldn’t pay were sold into slavery. The Roman Empire imposed restitution on thieves, ordering them to pay several times the value of the stolen item. While many cultures punished theft by corporal punishment, public humiliation or even death, it only began to be punished by incarceration in the 19th century in Britain and the United States.

Restitution is defined by the National Center for Victims of Crime as “payment by the offender to the victim for the harm caused by the offender’s wrongful acts.” The organization also has a list of out-of-pocket expenses that could be covered by restitution orders:

  • Medical expenses
  • Therapy costs
  • Prescription charges
  • Counseling costs
  • Lost wages
  • Expenses related to participating in the criminal justice process (such as travel costs, child care expenses, etc.)
  • Lost or damaged property
  • Insurance deductibles
  • Crime-scene cleanup, or any other expense that resulted directly from the crime

It’s important to note that pain-and-suffering cannot be awarded through restitution because it is not something that can be quantified with a bill or a receipt.

Is restitution a viable alternative to incarceration in the 21st century? It could be implemented for property crimes that did not result in violence and for first-time offenders. The way it would work is that a value could be agreed on that the offender would have to pay. If the offender could not pay immediately, a repayment plan would be established with interest charges. The state would tack on probation for however long as it takes to pay the restitution or it could be an additional sentence for those offenders who pay immediately. This would provide closure for the victims and serve as a deterrent to thieves and fraudsters who know they would have to pay back everything they stole (and a bit more) if they’re caught.

What would the public think about this? A study was published in 2014 by the Journal of Sociology and Social Welfare showed there was strong support for creative restitution for property crimes. Panelists saw it as a way to personalize their cases. A 1980 study saw 61 percent of victims saw financial compensation as the fairest means of punishment. Support can be built if a sound proposal is made.

Restitution is not without its drawbacks. One of them is the difficulty to collect, but some states are working to fix that. It does appear to offer a solution to reduce the numbers of inmates in prison for property crimes.

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