A Litmus Test for ObamaCare and the Rule of Law

Ilya Shapiro and Josh Blackman

This spring will mark the 800th anniversary of the signing of the Magna Carta, the landmark agreement by King John of England at Runnymede ceding certain rights to rebel barons. Liberty will have another chance to shine on Wednesday when the Supreme Court hears a case with momentous implications about another sort of executive power. In this instance, though, it is the rebels who have the royal name: King v. Burwell raises questions about how President Obama has enforced the ObamaCare law—or, more precisely, modified, delayed and suspended it.

This will be the third challenge to the Affordable Care Act to reach the court. But King is different. The law’s constitutionality was challenged in NFIB v. Sebelius, 2012, and the way certain regulations burden particular types of plaintiffs was addressed by Burwell v. Hobby Lobby last year. Now comes King, challenging the administration’s implementation of the law. Even though the ACA gives wide latitude to the executive branch over implementation, its most important parts—coverage rules, mandates and subsidies—were addressed by Congress with specific dates, formulas and other directions. None of these provisions has gone into effect as Congress designed, simply because the plan conflicted with the president’s political calculus.

For example, the executive branch delayed the “minimum essential coverage” provision for two years, suspended the requirement that millions maintain qualifying insurance, and modified the employer mandate into something very different than what the law demands. Through a series of memorandums, regulations and even blog posts, President Obama has disregarded statutory text, ignored legislative history and remade ObamaCare in his own image.

The president has ignored the law’s plain language. Now the Supreme Court decides if that’s all right.”

King focuses on the subsidies that help people pay increased premiums, one ACA pillar that the administration has toppled. Because Congress couldn’t constitutionally command states to establish exchanges, it authorized these credits for people who buy insurance “through an Exchange established by the State.” If a state didn’t establish an exchange, its residents—who would instead use the federal exchange Healthcare.gov—wouldn’t be eligible for subsidies.

But a funny thing happened on the way to utopia: Only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three quarters of the states. This result was untenable to an administration intent on pain-free implementation. And so the administration engaged in its own lawmaking process, issuing an Internal Revenue Service rule that nullified the relevant ACA provision, making subsidies available in all states.

As documented in a detailed 2014 report by the House Oversight Committee, at least one Treasury Department official recognized that there “was no direct statutory authority to interpret federal exchanges as an ‘Exchange established by the State.’ ” But the rogue rule was released anyway, as if the law meant whatever the executive chose. No matter how unmoored from statutory authority, the administration justified these actions because they “expanded coverage” and fit into the ACA’s “broader purpose.”

Executive lawmaking of this sort poses a severe threat to the separation-of-powers principles enumerated in the Constitution. The president has acted on the belief that legislative gridlock allows him to transcend his constitutional limits. A ruling that upholds this behavior would set a dangerous precedent for the nascent health-care law, which will be implemented for years to come by administrations with different views. More troubling, such a precedent could license virtually any executive action that modifies, amends or suspends any duly enacted law.

King, which the Supreme Court is expected to decide in June, is thus about much more than interpreting statutory language or evaluating the “deference” that judges owe bureaucrats. It isn’t a technical debate over the finer points of administrative law; it is an existential one about the rule of law itself.

Chief Justice John Roberts was correct in 2012 when he wrote in the NFIB v. Sebelius decision that it isn’t the court’s role to “express any opinion on the wisdom of the Affordable Care Act.”

But he also correctly noted “the Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits.” The court’s duty is to be a bulwark against arbitrary rule.

This is especially true in disputes between the political branches; the judiciary thus provides the ultimate safeguard of the separation of powers. Or, as Justice Robert Jackson put it in the famous Youngstown case of 1952 that rebuked President Truman ’s unilateral seizure of steel mills: “With all its defects, delays and inconveniences, men have discovered no technique for long preserving free government except that the Executive be under the law, and that the law be made by parliamentary deliberations. Such institutions may be destined to pass away. But it is the duty of the Court to be last, not first, to give them up.”

The president has shown deliberate indifference toward the plain text of the law. The Supreme Court must strike down the IRS rule and confirm the principle that, like King John at Runnymede, all political leaders are bound by the rule of law.

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute. Mr. Blackman is a constitutional law professor at the South Texas College of Law in Houston. They recently filed a brief on Cato’s behalf in King v. Burwell.

Currency Wars, Again

Steve H. Hanke

The specter of currency wars rises like a phoenix once again. This time around, most of the warriors reside in Washington, D.C.. The strong dollar has inflamed the currency warriors (read: mercantilists) led by Democratic Senator Chuck Schumer from New York and Lindsey Graham, a Republican Senator from South Carolina. These mercantilists argue that “cheap” foreign currencies give the U.S.’s trading partners an “unfair” advantage, something worth doing battle over.

About the only thing the mercantilists have right is the fact that the U.S. dollar has been strengthening. As the accompanying chart shows, the currencies of all the U.S.’s top trading partners have lost value against the greenback over the past six months. These losses have ranged from 1.8% for the Chinese yuan to 21.6% for the Brazilian real. Russia, the fifteenth largest trading partner of the U.S., has seen the value of its ruble fall 39.5% over the past six months.

image

So, the currency hawks want to do what they always want to do: go to war. The particular trigger is the Trans-Pacific Partnership (TPP), a trade agreement between Asian countries and the U.S.. With this agreement, which the Obama administration is pushing for, the currency warriors have spotted an opening. They want to insert enforceable rules against so-called currency manipulation into the TPP.

All this saber rattling is a broken mercantilist record, particularly with regard to the U.S.’s biggest Asian trading partners: Japan and China. Indeed, these two countries have accounted for the lion’s share of the U.S. trade deficit over the past twenty years (see the accompanying chart).

image

From the early 1970s until 1995, Japan was viewed by the mercantilists as an enemy. They asserted that unfair Japanese trading practices caused the U.S. trade deficit, and that the U.S. bilateral trade deficit with Japan could be reduced if the yen appreciated against the dollar — a “weak dollar policy.” Washington even tried to convince Tokyo that an ever-appreciating yen would be good for Japan. Unfortunately, the Japanese complied and the yen strengthened, moving from 360 to the greenback in 1971 to 80 in 1995.

In April 1995, Secretary of the Treasury Robert Rubin belatedly realized that the yen’s great appreciation was causing the Japanese economy to sink into a deflationary quagmire. In consequence, the U.S. stopped arm-twisting the Japanese government about the value of the yen and Secretary Rubin began to evoke his now-famous strong-dollar mantra.

The U.S. trade deficit is the result of a U.S. savings deficiency, not exchange rates.”

But, while this policy switch was welcomed, it was too late. Even today, Japan continues to suffer from the mess created by the yen’s appreciation.

As Japan’s economy stagnated, its contribution to the increasing U.S. trade deficit declined, falling from its 1991 peak of almost 60% to 9.3% today. While Japan’s contribution declined, China’s surged from slightly more than 9% in 1990 to 47.2% today. With these trends, the Chinese yuan replaced the Japanese yen as the mercantilists’ whipping boy.

Interestingly, the combined Sino-Japanese contribution to the U.S. trade deficit has actually declined from its 1991 peak of over 70% to 56.7%. This hasn’t stopped the mercantilists from claiming that the Chinese yuan is grossly undervalued, and that this creates unfair Chinese competition and a U.S. bilateral trade deficit with China.

image

This raises an obvious question: does a weak yen or yuan vis-à-vis the dollar (in nominal terms) explain the contribution of Japan and China to the U.S. trade deficit? After all, this exchange-rate argument (read: competitive advantage) is what the mercantilists use to wage war. When it comes to Japan, whose contribution to the U.S. trade deficit has been declining for the past twenty years, there is a very weak relationship between the yen’s strength and Japan’s contribution to the trade deficit (see the accompanying chart). Certainly not something worth going to war over. And as for China, the relationship between the strength of the yuan and China’s contribution to the U.S. trade deficit contradicts the mercantilist conjecture (see the accompanying chart). Indeed, the Chinese yuan has appreciated in nominal terms relative to the greenback over the past twenty years, and so has the Chinese contribution to the U.S. trade deficit.

image

But, evidence fails to sway the mercantilists. They still want tough currency manipulation provisions inserted into the TPP. They don’t realize that the term “currency manipulation” is hard to define and, therefore, is not an operational concept that can be used for economic analysis. In consequence, currency manipulation rules would be almost impossible to implement. The U.S. Treasury (UST) has acknowledged this fact in reports to Congress. Indeed, in 2007, the UST attempted to have the International Monetary Fund (IMF) act as a currency cop and go after manipulators. Raghuram Rajan, who is currently governor of India’s central bank and was the IMF’s chief economist in 2007, pronounced the episode an “unmitigated disaster.”

It isn’t only the mercantilists’ pols who don’t understand that nominal exchange rates don’t have much to do with trade deficits. Some economists — most notably C. Fred Bergsten of the Peterson Institute for International Economics and supply-side guru Arthur B. Laffer — don’t seem to understand the economics behind the U.S. trade deficit, which has been with us since 1975. Those economics were fully explained by one of my occasional collaborators, the late Ronald I. McKinnon from Stanford University. Indeed, he elaborated on them in his last book, The Unloved Dollar Standard: From Bretton Woods to the Rise of China(2013). In short, the U.S. trade deficit is the result of a U.S. savings deficiency, not exchange rates. As a result, the trade deficit can be reduced by some combination of lower government consumption, lower private consumption or lower private domestic investment. You wouldn’t know this basic truth by listening to the rhetoric coming out of Washington.

Steve H. Hanke is a professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C. You can follow him on Twitter: @Steve_Hanke

What Terrorists Are Really Angry About

John Mueller

We will not know for some time exactly why three men who were arrested on Wednesday in the United States wanted to join ISIS in Syria.

But what we do know is that it has become common, even routine, to argue that there exists a process by which potential terrorists become “radicalized.” The concept, which has become something of a buzzword, suggests that the central motivation for terrorist violence is ideological.

However, Islamist terrorists in the West have generally been set off not so much by anything theoretical but rather by intense outrage at American and Israeli actions in the Middle East and by a burning desire to seek revenge, to get back, to defend, and/or to make a violent statement expressing their hostility to what they see as a war on Islam.

Perhaps the most prominent motivating force is anger at U.S. foreign policy.”

This can be seen in the story of one of the shooters in the Charlie Hebdo attack in Paris. If he was “radicalized” by anything, it was by news about the way prisoners were being treated by the United States at Abu Ghraib in Iraq. He spent years trying to get to Iraq to fight the Americans there, finally finding a target closer to home.

The same observation arises when one looks over a collection of case studies of terrorists or would-be terrorists who have sought to do damage in the United States. The overwhelming driving force in these cases has been simmering, and more commonly boiling, outrage at American foreign policy.

It was not that the plotters in these cases were motivated solely by a coherent ideology or had a burning urge to spread Islam and Sharia law or to establish caliphates. Rather, it was the desire to protect their religion against what they perceived to be a concentrated war upon it in the Middle East by the United States government and military.

At the same time, these cases — from the shoe-bomber to the underwear bomber — show that there is remarkably little hostility to American culture or society. For example, the infamous Times Square bomber, a Pakistani-American who tried to blow up a car in New York, specifically mentioned U.S. drone strikes that killed civilians in Pakistan. The Boston Marathon bombers, similarly, explicitly cited the U.S. wars in Iraq and Afghanistan as motivating factors. Almost none of the terrorists or would be terrorists had any problem with American society itself.

This is particularly impressive because many of them (though certainly not all) were misfits, suffered from personal identity crises, were friendless, came from broken homes, were often desperate for money, had difficulty holding jobs, were on drugs, were petty criminals, experienced various forms of discrimination, and were, to use a word that pops up in quite a few of the case studies and fits even more of them, “losers.”

As terrorism specialist and former CIA officer Marc Sageman points out, “radicalization” principally happens because of perceived injustice against one’s group — a perspective the Washington Post’s David Ignatius finds ”worth a careful look,” but calls “contrarian.”

The standard “radicalization” misdirection process can be seen in a Seattle case in 2011 in which two men were picked up for planning to shoot a machine gun and lob grenades at a local military processing center. According to news reports, the perpetrators said that they were motivated by a desire to retaliate for crimes by U.S. soldiers in Afghanistan and that they wanted to kill military personnel to prevent them from going to Islamic lands to kill Muslims. The official Department of Justice press release on the case, however, merely says that the men were “driven by a violent, extreme ideology.”

Similarly a former FBI counterterrorism analyst was asked recently on PBS NewsHour about why people are drawn to violent extremism. He stressed that there are “ideological issues” as well as “local grievances” including “access to education and job opportunities” and whether one feels that one is fully accepted in society.

Outrage at American actions in the Middle East scarcely entered the discussion.

Speakers at the recent White House summit on countering violent extremism typically found some of the “root causes” of terrorism to lie in ideology, the ministrations of propagandists, the influence of the Internet, poverty, inadequate job opportunities and alienation from society. Those may well be contributing factors, but perhaps the most prominent motivating force is anger at U.S. foreign policy.

John Mueller is a political scientist at Ohio State University and a senior fellow at the Cato Institute.

Common Core Confusion: Blame Supporters

Neal McCluskey

As students across the country head into Common Core testing, a new poll reveals that Americans are confused about what, exactly, the Core is. But don’t blame them. Blame Core advocates, whose rush to install nationwide curriculum standards has left Americans befuddled and angry.

What is the Core? Supposedly, just reading and math standards — basic guidelines about what students should be able to do — voluntarily adopted by states. But that is not how the public perceives it. According to a new Fairleigh Dickinson University poll, only 17 percent of Americans hold favorable opinions of the seemingly innocuous Core, and two-thirds think it covers specific content: at least one topic out of sex education, evolution, global warming, and the American Revolution.

Some of the public is misinformed. Unfortunately, that is in part because what Core advocates tell us is often quite misleading.

The way the Core became policy — rushed through the back door — made public understanding essentially impossible.”

Start by looking at what the pollsters — whose press release was very pro-Core — assert. While it is true the Core does not explicitly tackle the four hot-button subjects mentioned above, it touches all of them, in one case forcefully. The English portion has sections on “literacy in history/social studies, science, and technical subjects,” and more explicitly says that students in grades 11 and 12 will “analyze … U.S. documents of historical and literary significance … including the Declaration of Independence … for their themes, purposes, and rhetorical features.” Inextricably connected to the “themes” and “purposes” of the Declaration is, of course, the American Revolution. Yet the pollsters suggest it is flat wrong to think the Core includes this topic.

Then there are those national Common Core-aligned tests millions of students are facing. If they ask about global warming or sex education, those topics essentially become Core content.

The Core is not simply guidelines, but content, and that is without even mentioning the math standards, which are much more specific when it comes to dictating material than the reading standards.

Of course, the average person — with a job, family, and countless political issues vying for his or her attention — has little time to research any given topic, so some confusion is to be expected. But the way the Core became policy — rushed through the back door — made public understanding essentially impossible.

The key was the 2009 federal “stimulus,” which allocated $4.35 billion for what became the Race to the Top (RTTT) program. While all eyes were on the Great Recession, RTTT made states compete to win federal dough, and among several things, they had to promise to adopt standards common to a “majority” of states — a parameter only the Core met — to truly compete. And applications were due before the final version of the Core was even published.

After RTTT came No Child Left Behind waivers, cementing adoption by giving states only two standards options: Either adopt the Core, which most states had already promised under RTTT, or have their own standards certified by a state university system as “college- and career-ready.”

Core supporters almost certainly lobbied to include the Core in RTTT, and both RTTT and waivers were in line with what the National Governors Association and the Chief State School Officers had called for in their 2008 report “Benchmarking for Success: Ensuring U.S. Students Receive a World-Class Education.” This was not truly a voluntary adoption of common standards, but was pushed by federal “incentives,” including funding and regulatory relief.

Finally, much blame for confusion lies at the feet of advocates who, in trying to quell a revolt that erupted when the Core hit districts and the public finally became aware of it, have tried to sell the Core as both content-heavy and content-bereft. All things to all people.

A good example is E.D. Hirsch, author of the famous book Cultural Literacy: What Every American Needs to Know. In 2013 Hirsch endorsed the standards, writing that “they break the fearful silence about the critical importance of specific content.” Then what did he write? The Core actually contains no “specific historical, scientific, and other knowledge that is required for mature literacy.” It just embraces the idea of content.

Or consider former Secretary of Education William Bennett, who in 2014 wrote that he once polled hundreds of people about what all students should know, and “almost every person agreed on … the Bible, Shakespeare, America’s founding documents … ‘Huckleberry Finn’ and classical works of mythology and poetry.” He then asked, “Why … is Common Core drawing such heavy fire?” Answer: “A myth persists that [it] involves a required reading list.”

See why the public is confused?

Neal McCluskey is the associate director of the Cato Institute’s Center for Educational Freedom and author of Behind the Curtain: Assessing the Case for National Curriculum Standards.

Hillary the Stealth Candidate

Michael D. Tanner

While much of the media has been obsessed with tracking down Republican positions on such crucial issues as evolution and President Obama’s religion, one searches in vain for hints of Hillary Clinton’s position on … pretty much anything. That is not to say that potential Republican candidates haven’t botched what should have been easy, commonsense answers, but shouldn’t there be at least a little bit of curiosity about where the all-but-inevitable Democratic nominee stands on actual issues that will affect the future of this country?

It is early, of course, and Republicans themselves have not yet laid out detailed positions on most issues. It’s no surprise, therefore, that Hillary has not yet put together a specific platform for her campaign. Still, there are enough hints out there to discern a flavor of what she will offer. 

Clinton has flirted with Elizabeth Warren–style populism, even declaring, “Don’t let anyone tell you that it’s corporations and businesses that create jobs.” But populism is not an easy fit for the crony-capitalist Clintons, so she appears to be settling into something called “inclusive capitalism.” This idea, developed by the Center for American Progress, and championed by many of Hillary’s top economic advisers, is less overtly hostile to the rich. Instead, it calls for corporations to put less emphasis on short-term profits and shareholder value and instead to invest more in employees, the environment, and communities.

Shouldn’t there be at least a little bit of curiosity about where the all-but-inevitable Democratic nominee stands on actual issues that will affect the future of this country?”

That should not be interpreted to suggest that Clinton would be business friendly. Companies would be required to provide paid parental leave, universal paid sick days, and more paid vacation days; this on top of the inevitable demand for a higher minimum wage. Businesses would also be pressured to add labor representatives to their boards. 

On other issues, Hillary has been in full stealth mode. She has given rhetorical support to the need to reduce the deficit, calling it a national-security issue. But she has offered few ideas for how to reduce spending, though she has hinted at a willingness to include entitlement reform in a “grand bargain” to reduce the debt. In 2013, she told an audience at Colgate University: “What has worked is a compromise where yes, we raise revenues for a certain period, we go and look at entitlements to see what is fair and can be done without really disadvantaging either existing beneficiaries or people who are going to rely on those programs.”

But when push comes to shove, she has opposed big changes to Medicare or Social Security. One is left with the distinct impression that her idea of compromise simply means raising taxes. For example, she opposes personal accounts for Social Security, but says she is open to lifting the cap on Social Security taxes. She has had little to say recently about Medicare, but has been a supporter of Obamacare (though she carefully allows that it may need some changes). 

That caution provides an additional clue about how Hillary will campaign. Expect few bold proposals or big ideas. Instead, she will run as a grandmother, the first woman president, and liven this appeal with middle-class pandering. As with everything Clintonian, her words will be carefully measured and poll-tested, designed to create as little controversy as possible. Her campaign won’t generate much passion among the Democratic base, but it won’t alienate independents and moderates.

This will leave the eventual Republican nominee with a difficult choice. He will have to find a way to force Hillary to become specific about her more radical positions — but do so without seeming to be too aggressive. (Remember Rick Lazio?) And he will have to find a way to energize the Republican base without alarming the broad middle of the electorate that may see Hillary as history-making. That’s a tall order, and Republicans should keep this in mind as they choose their nominee. But it would certainly help if the media decided to pay attention to actual issues. rticle/414365/hillary-stealth-candidate-michael-tanner

Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Terrorism Poses No Existential Threat to America. We Must Stop Pretending Otherwise

John Mueller and Mark G. Stewart

One of the most unchallenged, zany assertions during the war on terror has been that terrorists present an existential threat to the United States, the modern stateand civilization itself. This is important because the overwrought expression, if accepted as valid, could close off evaluation of security efforts. For example, no defense of civil liberties is likely to be terribly effective if people believe the threat from terrorism to be existential.

At long last, President Barack Obama and other top officials are beginning to back away from this absurd position. This much overdue development may not last, however. Extravagant alarmism about the pathological but selfdestructiveIslamic State (Isis) in areas of Syria and Iraq may cause us to backslide.

The notion that international terrorism presents an existential threat was spawned by the traumatized in the immediate aftermath of 9/11. Rudy Giuliani, mayor of New York at the time, recalls that all “security experts” expected “dozens and dozens and multiyears of attacks like this” and, in her book The Dark Side, Jane Mayer observed that “the only certainty shared by virtually the entire American intelligence community” was that “a second wave of even more devastating terrorist attacks on America was imminent”. Duly terrified, US intelligence services were soon imaginatively calculating the number of trained al-Qaida operatives in the United States to be between 2,000 and 5,000.

President Obama and other top officials are backing away from this absurd assertion. But others are resisting reality.”

Also compelling was the extrapolation that, because the 9/11 terrorists were successful with box-cutters, they might well be able to turn out nuclear weapons. Soon it was being authoritatively proclaimed that atomic terrorists could “destroy civilization as we know it” and that it was likely that a nuclear terrorist attack on the United States would transpire by 2014.

No atomic terrorists have yet appeared (al-Qaida’s entire budget in 2001 for research on all weapons of mass destruction totaled less than $4,000), and intelligence has been far better at counting al-Qaida operatives in the country than at finding them.

But the notion that terrorism presents an existential threat has played on. By 2008, Homeland Security Secretary Michael Chertoff declared it to be a “significant existential” one – carefully differentiating it, apparently, from all those insignificant existential threats Americans have faced in the past. The bizarre formulation survived into the Obama years. In October 2009, Bruce Riedel, an advisor to the new administration, publicly maintained the al-Qaida threat to the country to be existential.

In 2014, however, things began to change.

In a speech at Harvard in October, Vice President Joseph Biden offered the thought that “we face no existential threat — none — to our way of life or our ultimate security.” After a decent interval of three months, President Barack Obama reiterated this point at a press conference, and then expanded in aninterview a few weeks later, adding that the US should not “provide a victory to these terrorist networks by over-inflating their importance and suggesting in some fashion that they are an existential threat to the United States or the world order.” Later, his national security advisor, Susan Rice, echoed the point in a formal speech.

It is astounding that these utterances — “blindingly obvious” as security specialist Bruce Schneier puts it — appear to mark the first time any officials in the United States have had the notion and the courage to say so in public.

Whether that development, at once remarkable and absurdly belated, will have some consequence, or even continue, remains to be seen. Senators John McCain and Lindsay Graham have insisted for months that Isis presents an existential threat to the United States. An alarmed David Brooks reported that financial analysts have convinced themselves that the group has the potential to generate a worldwide “economic cataclysm.”

And General Michael Flynn, recently retired as head of the Defense Intelligence Agency, has been insisting that the terrorist enemy is “committed to the destruction of freedom and the American way of life” while seeking “world domination, achieved through violence and bloodshed.” It was reported that his remarks provoked nods of approval, cheers and “ultimately a standing ovation” from the audience.

Thus even the most modest imaginable effort to rein in the war on terror hyperbole may fail to gel.

John Mueller s a political scientist at Ohio State University and a senior fellow at the Cato Institute. He is the editor of the webbook, Terrorism Since 9/11: The American Cases, and, with Mark Stewart, the author of the forthcoming Chasing Ghosts: The Costly Quest to Counter Terrorists in the United States.

India’s Next Budget Needs a Vision for Leading Asia

Swaminathan S. Anklesaria Aiyar

Does Indian Finance Minister Arun Jaitley have a fiscal vision that can inspire and stir the blood? He will present his second budget on February 28. His first effort was a patchwork affair in the middle of the last fiscal year after winning the general election. Jaitley then lacked time for a major fiscal overhaul; this time he must deliver.

He should frame his budget as the first step in India becoming the leading Asian tiger. Toward this end, he should pledge to reform India’s direct tax rates and practices to compete with the best in the Asian neighborhood.

Back in 1997, Finance Minister Chidambaram presented a vision of competing with ASEAN in import duties as a first step to becoming an economic tiger. This meant reducing India ’s standard import tariff from 50 percent to 8-10 percent in stages. This vision was adopted by succeeding finance ministers of other parties, and the target of ASEAN equivalence was met in 2004. This helped accelerate GDP growth to over 8 percent over the next five years.

India’s 2015 budget will need to address several key areas.”

Jaitley should follow the same path with regards to direct taxes. India’s maximum income tax rate of 33.9 percent is well above that of Singapore, but competitive with most other Asian states. But its corporate tax rate of 34 percent is much higher than in China (25 percent), Thailand (20 percent), Malaysia (25 percent), and Indonesia (25 percent). India should cut its rate to 25 percent, and simultaneously trim its multitude of tax exemptions, to be more in line with competing countries.

Prime Minister Narendra Modi recently promised an end to “tax terrorism.” Unable to meet revenue targets in recent years, Indian taxmen have cracked down in irrational ways on supposed tax evasion by multinationals like Vodafone and Shell. Jaitley should aim to grow revenue by attracting additional investment rather than through tax terrorism. He should align India’s transfer pricing rules, advance tax rulings, and other tax practices with those of Asian competitors.

Jaitley aims for a constitutional amendment to create a unified Goods and Services Tax (GST) in place of the current complicated system that divides powers of indirect taxation between the central and state governments. The existing system leads to tax cascades and huge opportunities for corruption and evasion. Experts estimate that a unified GST could raise GDP by 2-2.5 percent. But many states want to retain tax-raising powers, denting the ideal of a uniform national tax. GST will be a process, not a single event, but Jaitley needs to start that process.

He has set a fiscal deficit target of 4.1 percent of GDP in the current fiscal year, to be reduced to 3.6 percent and 3.0 percent in the next two years. Some influential economists want to go slow on deficit reduction to finance urgently needed infrastructure. The public-private partnership model for infrastructure has ended in tears, with over-leveraged private companies unable to service debts and dragging down the banks with them. New financing has to come mainly from the government.

Still, Jaitley should stick to his fiscal reduction schedule to build global confidence and a reputation for reliability. Increased infrastructure spending should be financed by aggressive sales of government assets — shares of corporations, land, spectrum and mineral rights. Fortunately the boom in stock markets has made sales feasible at good prices.

Modi seeks foreign investment in India’s railways and ports. He must first convert the Railway Board and all port trusts into corporations. Only then can their equity be subscribed to by private investors.

The fall in oil prices has enabled Jaitley to end the diesel subsidy. Up to 40 percent of subsidized kerosene is used not for lighting in non-electric areas but for adulterating diesel. He should shift to cash transfers in lieu of subsidized kerosene, ending price distortions and adulteration. Indeed, he needs to experiment with cash transfers in place of current very leaky subsidies on cooking gas, fertilizer, and food. This will lower subsidies while getting to the needy. Modi’s financial inclusion drive has provided 115 million new bank accounts, making possible cash transfers to maybe 90 percent of people.

Current fiscal strains are best eased by a good business climate that accelerates GDP and tax revenues. Modi is devising reforms to move India from 142nd position in the World Bank’s ease-of-doing-business index to 50th position. Jaitley’s budget should spell out the key new ideas for slashing red tape.

Finally, some low-hanging fruit are just waiting to be picked. Betting is illegal in India, yet massive bets are placed on cricket matches and elections. Jaitley should legalize betting, starting with cricket, and levy taxes on this. The cricket World Cup competition has begun, and punters are already betting humungous sums. They will happily pay a tax for legal cover. Jaitley must go for it.

Swaminathan S. Anklesaria Aiyar is a Research Fellow at the Cato Institute.

Obama Moves to Extend U.S. Lives. Impossible for Him? Let’s See

Nat Hentoff

After such customary Obama administration un-American news as “US Will No Longer Report Guantanamo Hunger Strikes” (ABC News/AP, December 4) there suddenly appeared in the New York Times that the President was announcing “a major biomedical research initiative, including plans to collect genetic data on one million Americans so scientists could develop drugs and treatment tailored to the characteristic of individual patients” (“US to Collect Genetic Data to Home Care”, New York Times, Jan. 31, 2015).

Although I have been continually critical of Obama, what drew me to this story was the name of the reporter, Robert Pear, who broke the story at the bottom of page 12 of the Times (a story that should have been on the front page).

For years, I have learned more about health care from Robert Pear than from any other journalist.

Here he tells us that precision medicine, also known as personalized or individualized medicine, “gives us one of the greatest opportunities for new breakthroughs that we have ever seen,” as Obama declared at a White House event attended by patients’ advocates, researchers and bio-technology company executives.”

Among the listeners was, yes, a Republican: Senator Lamar Alexander of Tennessee “and chairman of the Senate health committee, who said he intended to work with the president on the issue.”

And, for once, Obama made immediate sense: “If we’re born with a particular disease or a particular genetic makeup that makes us more vulnerable to something, that’s not our destiny, that’s not our fate.”

Robert Pear shows the way ahead: “Federal officials described the project as a research consortium that would collect information from large numbers of people.

“The data could include medical records, laboratory test results, profiles of patients’ genes, and information about their diet, tobacco use, lifestyle and environment.”

And dig this quote from Dr. Baselga, chief medical officer at Memorial Sloan Kettering Cancer Center in New York:

“We dreamed of this. We can mine the genome of tumors from our patients, identify mutations responsible for the tumors, and accelerate improvements in patient care.”

Robert Pear lists, among Obama’s structural plans, his intent “to seek $10 million for the Food and Drug Administration, which regulates technology used to analyze DNA. Such analysis can identify millions of genetic variants, providing information that would help diagnose or treat some diseases, officials said.”

Moreover, he continued, “since the 1980s, researchers have been collecting and storing human tissue and other biological specimens in repositories known as biobanks.”

He then brought in Jo Handelsman, associate director of the White House Office of Science and Technology Policy, who emphasized:

“We do not envision this as being a biobank, which would suggest a single repository for all the data or all the samples. There are existing cohorts around the country that have already been started and are rich sources of data. The challenge in this initiative is to link them together and fill in the parts.”

Dr. Francis Collins, the director of the National Institutes of Health, “said the initiative was feasible because of the advances in genetics and cell biology, the use of electronic medical records, significant increases in computing power and a sharp decline in the past 15 years in the cost of a laboratory technique known as DNA sequencing. The technique is used to investigate the function of genes and to analyze the full set of a person’s genes — the genome.”

To this vital point, she added the striking addition that “it cost us $400 million for that first genome. Now a genome can be sequenced for a cost approximating $1,000.”

To further increase my excitement at this potential extension of American lifespans, Robert Pear concluded with Nancy A. Brown, the chief executive of the American Heart Association, saying that, to him, “patients with heart disease, like those with cancer, could benefit from precision medicine.”

Pear writes that Brown’s organization is “compiling a database of genetic information. The data, she said, could help doctors tailor treatments for heart failure of abnormal heart rhythms, or find the right combination of drugs to lower blood pressure.”

My personal interest in health care includes, not surprisingly, my becoming 90 next June as I continue to make deadlines while also working on a new book. But this potential for greatly improving and lengthening American lives is also focusing my attention on my grandchildren and their progeny.

This, if it becomes part of real American life, is also for future generations, and so I shall be closely following the reporting of Robert Pearl and other journalists on precision individualized medicine.

President Obama’s key role in alerting us to this does not, of course, obviate the many reasons he should be impeached — with due process — for continuing high crimes against our Constitution.

But if he is forced to exit, he will have merited gratitude for awakening us to the possibilities of precision individualized medicine.

Nat Hentoff is a nationally renowned authority on the First Amendment and the Bill of Rights. He is a member of the Reporters Committee for Freedom of the Press, and the Cato Institute, where he is a senior fellow.

Drug Money: Obama’s Reckless $1 Billion Payout to Central America

Juan Carlos Hidalgo

Last week, the New York Times editorialized in favor of the Obama administration’s proposal to give three Central American countries—Guatemala, El Salvador and Honduras—$1 billion in extra aid to help them fight poverty and crime. In a previous op-ed outlining the plan, Vice President Joe Biden even suggested that there is no reason why this program could not usher in “the next great success story of the Western Hemisphere.”

These Central American countries suffer from some of the most acute economic and security challenges in the Americas, some of which Washington has played a significant role in causing. Throwing money to governments with serious institutional flaws won’t solve these problems—and may exacerbate them.

Let’s begin with the security challenges. According to the United Nations’ 2013 Global Study on Homicide, Honduras, El Salvador and Guatemala ranked first, fourth and fifth, respectively, in the number of homicides per 100,000 inhabitants. Neighboring Belize was third. Central America’s Northern Triangle is the most violent region in the word. The authorities in these countries claim that most of these homicides are committed by youth gangs known as maras. The dramatic collapse in El Salvador’s murder rate after its rival maras reached a truce in March 2012, and its subsequent spike as the ceasefire crumbled, seems to confirm the official claims.

Throwing money to governments with serious institutional flaws won’t solve these problems—and may exacerbate them.”

These gangs pose one of the most complex social problems in the Western Hemisphere. In the last decade, successive administrations in the region announced tough law and order approaches called mano dura, to no avail. Even the decision of El Salvador’s previous president, Mauricio Funes, to use the army to patrol the streets seems to have backfired: there are reports that the maras actually infiltrated the army and are getting their weapons from its arsenal.

A different approach sees the gangs as the children of poverty, and suggests that, instead of fighting them with guns, Central American governments should thwart their power by building schools, creating jobs and offering community programs in sports, arts and so on. While it is true that poverty plays a role in the proliferation of the maras, it’s difficult to see it as the leading cause. After all, Nicaragua suffers from even higher poverty levels than Guatemala, El Salvador and Honduras—in addition to having gone through a civil war in the 1980s—and yet has not fallen victim to this criminal scourge.

It’s not clear how giving $1 billion to Central American governments would somehow help to solve such a complex problem, particularly since new specific policies to deal with the gangs haven’t been articulated. And as long as these countries remain in the top five most violent nations in the world, it is difficult to see how they could prosper.

The fact that the Obama administration is drawing a comparison between its plan for Central America and Plan Colombia makes it even more confusing. Plan Colombia was designed to combat coca production and the Marxist insurgency that profited from that business. It was successful in helping deliver the latter goal of inflicting painful military loses to the FARC guerrilla—although, as Biden admits in his op-ed, Colombians were responsible for most of the financial effort in building up their military. Plan Colombia’s impact on cocaine production was more limited: potential production did fall by 54 percent since 2005  according UN numbers, but it simply moved back to neighboring Peru, which is once again the world’s leading coca producer. Overall, the Andean region produces more or less the same amount of cocaine as when Plan Colombia was launched in 2000.

The reality in Central America is much different than that of Colombia fifteen years ago. None of the Northern Triangle countries face a military struggle against a guerrilla whose aim is to topple the government. Instead, the greatest security challenge, as stated before, comes from youth gangs. Thus, military aid—which represented approximately 82 percent of Plan Colombia—is of little use in the Central American context.

Central America does face a serious problem with drug-related organized crime, particularly the infiltration of Mexican drug cartels. These have infiltrated not only the security and judicial apparatuses of Central American countries, but also have established alliances with the maras. According to a paper by Douglas Farah and Pamela Phillips Lum of the International Assessment and Strategy Center,

The most common interaction between gangs and TCOs [transnational criminal organizations] involved small time, street level cocaine and crack retail sales by some clicas [neighborhood level gang group of a few dozen members] who were paid in fractions of cocaine kilos for guarding loads and arranging logistics.

The authors note that there is not yet a robust economic relationship between gangs and Mexican drug cartels. However, this could change in the future, particularly if the cartels are forced to increasingly use land-based smuggling routes in Central America, as pressure grows on sea-lanes, due to U.S. patrolling. A 2009 report by STRATFOR indicates that this is already happening. It also points out that Mexican traffickers—who predominantly control northbound drug flows—have not yet engaged each other in territorial turf wars. This could easily happen if Central American governments launched large-scale counternarcotic campaigns against the cartels using U.S. aid, as occurred in Mexico.

Financially, Central American governments are no match for Mexican drug cartels, even if they receive the $1 billion pledge. In 2014, Guatemala, El Salvador and Honduras combined spent approximately $2.6 billion on their judiciary and security apparatuses. According to  a report from the U.S. Justice Department, the revenues of TCOs could reach up to $39 billion annually. (This figure is a high estimate and has been challenged by other sources that claim that the figure was lower, but still higher than the combined security spending of Central American governments).

It is hard to asses the precise impact that the War on Drugs has on violence in Central America, but it is clear that drug trafficking exacerbates the serious institutional problems facing these countries. For example, in the last couple of years, Honduras has purged hundreds of policemen, in some cases because they were working for the cartels. Since 2006, Guatemala has had to outsource the investigation and prosecution of serious crimes to a UN body, since its own institutions were deeply infiltrated by organized crime.

If Washington were serious about “meaningfully tackling the root causes of instability,” as the NYT put it in its editorial, it would heed the calls of Guatemalan president Otto Pérez Molina to legalize all drugs as a way to fight the drug cartels. Unfortunately, the Obama administration’s solution is simply to throw money at the problem.

Would conditionality work? In his op-ed, Vice President Biden points out how these countries are already engaging in “reforms” as a result of Washington’s promises:

Honduras signed an agreement with Transparency International to combat corruption. Guatemala has removed senior officials suspected of corruption and aiding human trafficking. El Salvador passed a law providing new protections for investors.

This is hardly evidence of a reformist drive. Transparency International’s Corruption Perceptions Index still ranks these countries dismally: El Salvador 80th (out of 175), Guatemala 115th and Honduras 126th.

Giving $1 billion in aid to governments with serious corruption issues just because they are pledging to clean up their act is a triumph of hope over experience. After all, for almost a decade, both El Salvador and Honduras have received hundreds of millions of dollars in U.S. aid under the Millennium Challenge Corporation (MCC) for supposedly meeting thresholds in fighting corruption and improving governance. However, any observer of Central America would dispute the claim that these countries have better legal institutions today than they did five or ten years ago. The MCC recently approved Guatemala as one of its beneficiaries, too.

In the best case scenario, the Obama administration’s proposal is a waste of U.S. taxpayers’ money. In the worst case, giving $1 billion to governments with dubious records on transparency and human rights will empower corrupt officials to the detriment of ordinary Central Americans.

Juan Carlos Hidalgo is a Policy Analyst on Latin America at the Cato Institute’s Center for Global Liberty and Prosperity.

Testing Obamacare

Michael D. Tanner

Two weeks from today, the Supreme Court will hear arguments in King v. Burwell, the most important challenge to Obamacare since the Court upheld the constitutionality of the individual mandate in 2012 (thanks to Chief Justice Roberts’s bizarre legal interpretation). Given the possibility that the case could punch a very large hole in the health-care law’s implementation, it has unsurprisingly been the subject of much commentary and analysis. Unfortunately, most of that commentary and analysis has been wrong.

For example, the case has nothing to do with the constitutionality of Obamacare. No matter how the Court rules, it will not “strike down” the Affordable Care Act. The case concerns one provision of the law, subsidies provided through the exchanges, and whether those subsidies can be offered through federally run exchanges as well as through exchanges “established by a state.” That’s an important provision, to be sure, but even if the Court rules that subsidies cannot be offered through a federal exchange, most provisions of the law will remain in effect.

In fact, it could be agued that the plaintiffs are actually seeking to have the law implemented precisely as written.

President Obama illegally rewrote the ACA. Will the Court reverse him?”

Nor would a decision to strike down the subsidies necessarily mean that millions of Americans will lose their insurance overnight. No doctor is going to rush into someone’s hospital room and pull the IV out of his arm. Insurance plans don’t work that way, not in the real world.

One can fairly say that those raising the alarm about canceled or unaffordable policies have had a rather late conversion, since Obamacare itself notoriously forced the cancellation of some 6 million insurance plans that failed to meet its criteria. Obamacare also drove up the cost of insurance for millions of Americans. But that is exactly why those now complaining about unaffordable insurance have something of a point. Because Obamacare outlawed many affordable policies and drove up premiums generally, its operation is extremely dependent on shifting much of that cost to taxpayers through subsidies. Therefore, if some of those subsidies are ruled illegal, there will be Americans who will have difficulty paying their premiums — especially at Obamacare’s inflated prices. In a sense, removing the subsidies simply brings the law’s full cost home.

Does that mean some people may choose to give up coverage? Possibly, but fewer than commonly thought. To date, roughly 10.5 million Americans have signed up for insurance through an exchange. But roughly 2.75 million of them live in the 14 jurisdictions (13 states plus the District of Columbia) that have state-run exchanges. They would be unaffected no matter how the Court rules.

That leaves a bit less than 8 million Americans participating in the 37 federally run exchanges that are the subject of the suit. It is estimated that perhaps as many as 87 percent of them receive a subsidy. But it is important to remember that the subsidies are highly progressive. Many middle-income Americans are technically receiving a subsidy, but it could be just a few hundred dollars or even less per year. In fact, according to the Urban Institute, roughly 48 percent of those receiving subsidies have incomes above 200 percent of the poverty line, and therefore receive lesser subsidies. These Americans might not be happy about losing their subsidies, but they could pick up the difference and continue to pay their premiums and receive coverage.

Over the long term, it is possible that a lack of subsidies could speed Obamacare’s descent into adverse selection, since younger and healthier Americans would be most likely to drop their overpriced coverage. But adverse selection was likely to happen eventually anyway.

What about those who genuinely cannot afford insurance without the subsidies? Congress will almost certainly step in and find a way to preserve their coverage. Republicans in Congress have already proposed several Obamacare alternatives. So far, President Obama has refused to even acknowledge that they exist. But if the Court rules against the administration in King v. Burwell, it will force the administration to the bargaining table.

More worrisome would be the possibility that those who received subsidies that they shouldn’t have might have to repay them. However, historically, the IRS has been lenient about demanding repayment from those who, in good faith, relied on IRS advice that later turned out to be incorrect. If the IRS does insist on repayment, Congress is very likely to intervene. Besides, if some Americans do have to repay illegal subsidies, at least some of the blame should lie with the Obama administration, which has steadfastly refused to warn consumers that the subsidies were in jeopardy.

Moreover, focusing on the subsidies misses the larger question. This case is not about who gets one more federal welfare payment. It’s not even about the technical interpretation of statutory language. Rather, the question before the Court is whether a president — any president — has the power to unilaterally rewrite a law, simply because he doesn’t like the way it actually passed Congress. The Obama administration is, in effect, asserting that it can spend money that was not appropriated by Congress. And in this case, because the employer-mandate penalties are triggered by subsidy eligibility, the administration is also claiming the power to impose taxes without congressional approval. That’s a precedent that everyone should be wary of — no matter your ideology.

Of course every court case has winners and losers. The losers in this case will be those Americans who might have to pay for the full honest cost of their insurance — though, as I say, Congress can step in to help those most in need. The winners will include taxpayers, who will no longer have to bear as much of the cost of Obamacare’s subsidies. Businesses, especially small businesses, will also be winners, since they might be able to escape the employer mandate. That means workers will be winners too, since employers will find it easier to hire and offer higher wages.

And, if a court ruling finally forces President Obama to the bargaining table, we could all be winners with a new health-care law that undoes the damage Obamacare is doing to our health-care system.

Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.