Share |

Tax Cuts without Spending Limits Will Not Make America Great Again

James A. Dorn

When the states ratified the 16th Amendment in 1913, the top
marginal personal income tax rate was 7% and federal spending was
less than 10% of GDP; today the top rate is close to 40% and
spending is 21% of GDP.

The tax code has become more and more complex, tax preferences
(loopholes) have politicized the system, and high rates are
penalizing success. Meanwhile, the mammoth IRS continues to oppress
people’s liberties.

President Trump’s tax reform would simplify the individual
income tax by closing loopholes and reducing the number of brackets
from seven to three — with marginal rates of 10%, 25% and
35%.

Those changes would take us closer to the flat-tax system first
proposed by Robert E. Hall and Alvin Rabushka in 1981, which
motivated President Ronald Reagan and Congress to cut the top
marginal personal income tax rate from 70% to 28% while closing
loopholes to make the reforms “revenue neutral.”

Tax reform is necessary
to make America great again, but so are effective limits on the
size and scope of government.

There is a strong case for a simple, flat-tax system on grounds
of both efficiency and freedom. But tax reform must be tied to
downsizing government.

The total tax burden is current taxes plus deferred
taxes
. Unless spending is cut, the current portion may fall,
but the deferred portion will rise, which doesn’t reduce the
overall tax load over time.

Limits on taxing and spending ultimately need to be embedded in
constitutional limits on the size and scope of government —
and those limits can only be enforced if there is a public ethos of
liberty. When government is asked to do too much, the private
sector suffers along with civil society.

“The sum of good government,” said Thomas Jefferson in his 1801
Inaugural Address, is “a wise and frugal government, which shall
restrain men from injuring one another, shall leave them otherwise
free to regulate their own pursuits of industry and improvement,
and shall not take from the mouth of labor the bread it has
earned.”

That vision of limited government — and the extension of
that vision to all Americans — is what made America
great.

Getting back to first principles is essential if America is to
be great again. When President Reagan signed the Tax Reform Act of
1986, he noted, “But for all (the) tax reform’s economic benefits,
I believe that history will record this moment as something more:
as the return to the (Founders’) first principles.”

The Reagan tax reform indicates, however, that unless tax reform
is linked to spending limits there will be a strong incentive to
raise tax rates to gain revenue and expand government.

Soon after President Reagan left office, marginal income tax
rates started to climb. The top rate of 28% lasted only three
years: 1988, 1989 and 1990. In 1991, the rate went to 31%, and then
rose to 39.6% in 1993, where it stands today. Meanwhile, federal
spending, especially on entitlements, has continued to grow, with
mounting unfunded liabilities — and thus deferred taxes.

Cutting the top rate to 35% would take us back to 2003, but not
to 1988. Hong Kong, the freest economy in the world, has a simple
flat tax of 15%. It has also lived within its means and limits
government spending to about 18% of GDP. Its mantra is “small
government, big market.”

It is not sufficient for prosperity and freedom to reduce tax
rates without at the same time reducing the size and scope of
government. Unless spending is constrained — for example, by
a constitutional cap that limits annual spending growth to
population growth plus inflation — there is no guarantee that
lower tax rates and fewer loopholes will survive political
gamesmanship.

When tax rates were lowered in the 1980s the economy benefited,
but the federal budget deficit went from $74 billion in 1980 to
$221 billion in 1986.

The budget was in surplus from 1998 to 2001, but has been in
deficit ever since. The accumulated deficits have increased federal
debt to more than 100% of GDP, and that doesn’t include the
trillions of dollars of implicit debt — that is, the
unfunded liabilities in Social Security, Medicare and Medicaid.

The true cost of government is spending, not taxes. Federal
spending is expected to reach 22% of GDP in fiscal year 2018, a
figure that is twice the share extracted by all state and local
governments — and a figure that would have astonished the
Founding Fathers.

Tax reform is necessary to make America great again, but so are
effective limits on the size and scope of government. Ultimately,
it will be up to the American people to restore an ethos of liberty
and choose leaders who put the principles of the Constitution
first.

James A. Dorn
is a senior fellow at the Cato Institute and editor of the Cato
Journal.

Share |

Some Obvious Thoughts about the Comey Firing

Julian Sanchez

As it says on the tin, most of what I have to say about the
dismissal of FBI Director James Comey is obvious, and indeed, most
of it has already been
said well by others
. But sometimes it’s worth rehearsing the
obvious.

First: The position of FBI director has — since 1976, and
following J. Edgar Hoover’s umbral half century tenure — been
set for 10 years, in substantial part to keep it both symbolically
and practically removed from the vicissitudes of electoral cycles.
Formally, any president can, of course remove a director short of
that term, but it’s
happened exactly once
, 24 years ago, when Bill Clinton sacked

early-90s arcade screen mainstay
William S. Sessions, for

ethics violations
. It is not, traditionally, one of those posts
that just routinely swaps occupants when a new administration
pitches its tent: Firing a director is an extraordinary event, for
which one expects strong, clear reasons.

Second: The stated reasons for Comey’s dismissal are pretextual.
They are so transparently, ludicrously pretextual that we should
all feel at least a little bit insulted. The putative basis for
Comey’s firing is a three page memo, dated May 9, faulting his
public handling of the Hillary Clinton e-mail server investigation,
and a recommendation from Attorney General Jeff Sessions, also
dated May 9, that Comey be dismissed on that basis. That memo
levels a number of fundamentally valid criticisms. It is also, as
perhaps three page memos must necessarily be, pretty conclusory: It
renders a verdict without much more than a gesture in the direction
of an argument, and preempts a pending Inspector General
investigation that would have produced a lengthy and serious
account and analysis of Comey’s actions. While I’m inclined to
agree with the memo’s critiques, underdeveloped as they are, they
would be an extraordinarily thin basis on which to remove an FBI
director, even if you thought they were the real basis.
And they’re clearly not the real basis.

We are asked to believe that the decision to fire the FBI
director — so abruptly he learned about it from a cable news
chyron while out of D.C. — was based on a dashed off memo,
and a response from the Attorney General, both issued the same day.
We are asked to believe that it was motivated by Comey’s breaches
of FBI protocol: First, in publicly criticizing Hillary Clinton,
rather than letting Attorney General Loretta Lynch announce the
decision that the former Secretary would not be indicted, and then
in informing Congress that he had (fruitlessly, as it turned out)
reopened the investigation into her e-mails. These are breaches
both Trump and Sessions praised
effusively at the time
, with Sessions even declaring that Comey
had an “absolute duty” to act as he did. All of them, of course,
were well known long before
Trump took office and chose to retain Comey
.

The most charitable thing one can say about this narrative is
that it is not even intended as a serious attempt to advance a
genuine rationale. It is an attempt to be cute. Having
been directed to concoct a reason
to eliminate Comey, the
Attorney General ran with a slapdash pastiche of Democrats’
complaints. Anyone who’s been on a long car trip with a sibling
knows this gag: “Stop hitting yourself! Stop hitting yourself!” The
only people even pretending to take this explanation seriously are
those paid for the indignity.

Firing a FBI director is
an extraordinary event, for which one expects strong, clear
reasons.

Third: In another sense, that hastily cobbled together memo
probably does reflect, indirectly, the authentic rationale
for Comey’s cashiering. What Comey has demonstrated, after all, is
that he is — sometimes to a fault — dedicated to
preserving the appearance of the Bureau’s independence from
improper political influence. He is, to that end, willing to go
over the heads of the political appointees to whom he reports when
he believes it’s necessary, publicly announcing the findings of an
FBI investigation without vetting by the administration. To a
substantial extent, Comey owes his current post to the fact that he
was, famously,
willing to say “no” to the White House
when he believed a
president’s demands to be at odds with the law. This seems like a
quality that Trump — who rages against the intransigence of
“so-called judges” in staying his executive orders — would
find intolerable in a subordinate under any circumstances. Against
the backdrop of a protracted and embarrassing investigation into
Russian electoral interference it must be downright terrifying.
Unsurprisingly,
press reports citing anonymous administration sources
are
already claiming that Trump’s rage at Comey’s unwillingness to take
dictation — both on the Russia question and Trump’s claims
about being wiretapped by his predecessor — are what
ultimately doomed him.

My own suspicion — for reasons not worth delving into here
— is that we’re unlikely to get any unambiguous, smoking gun
proof of knowing collusion between senior Trump campaign officials
and the Russian government, at least as far as electoral
interference is concerned. But it also seems quite likely that an
investigation into the campaign’s Russian ties —
which on the public record alone
raise more eyebrows than a
Spock cosplay convention — would turn up any number of other
unseemly or embarrassing facts the White House would prefer not to
have aired. Comey has demonstrated that he would likely be prepared
to disclose any findings he believed the American public had a
right to know, whether or not they amounted to clearly indictable
offenses — perhaps even over the objections of Attorney
General Jeff Sessions.

Fourth: It is no longer possible for the FBI to conduct its
investigation into the Trump campaign’s involvement in Russian
electoral interference in any meaningfully independent way. Agents
who might once have hoped that the FBI director would shield them
from retaliation if their inquiry turned up truths inconvenient to
the White House have now seen that director summarily and
humiliatingly dismissed, for inconveniencing the White House.
Nobody lower down the totem pole can possibly believe themselves
safe from reprisal under these circumstances, and even people of
great integrity have mortgages. Even if the next FBI director
avoids any hint of improperly seeking to influence the
investigation, the damage has been done; the sight of Comey’s head
on a pike is influence enough. And that’s the optimistic scenario.
That Trump chose to send Comey his pink slip in Los Angeles, with
no warning, ought to at least prompt some inquiries into whether
both his own files and those of the investigation remain secure.
The manner of his termination may be merely one more humiliation,
but it also had the side-effect of limiting his ability to take any
last-minute steps to forestall tampering. Such direct tampering is,
I hope, a remote possibility, but it no longer seems inconceivable
that this administration might believe it can quash the
investigation, purge the case files, “move
on
,” and ride out a week or two of negative coverage. Either
way, whatever remains of a congressional investigation once the FBI
has been bent to the yoke would almost certainly be rendered a
cosmetic exercise, dependent as it necessarily would be on raw
materials provided by the intelligence community, even if we assume
the political will to continue a serious inquiry. Even a special
counsel would not, ultimately, be fully independent of the
administration, but at this point it seems like the only path
forward with even a hope of being credible.

Fifth: The fields of punditry are littered with failed
predictions that this scandal, at last, will be the one
Trump cannot survive, but it is nevertheless stunning how badly the
White House seems to have misread the politics of this. Even

many senior Republicans
are balking at making excuses for the
timing of Comey’s sacking. Trump, rather notoriously, seems to
regard any form of criticism as personal betrayal — a
declaration that one has joined the enemy camp. He therefore seems
not to have grasped that, notwithstanding the array of harsh
criticisms leveled at Comey by lawmakers of both parties, the
director enjoyed broad bipartisan respect, built up over a long
career. His actions over the past six months may have drawn down
that reservoir of goodwill, but they have not exhausted it. Much
has been made of Trump’s willingness to flout longstanding
political norms, but what’s less often observed is that this
appears to be as much a function of ignorance as brazenness. That
is, it’s not just that he’s decided he can get away with breaking
the rules — which thus far he has — but that he
routinely seems to do so unwittingly, unaware of what the rules
are. Many have expressed incredulity that the White House
truly believed it could take this step without provoking a
political firestorm; I find it all too plausible. As a result,
they’ve been caught unprepared, without any believable story that
would give members of his own party cover to defend the move with a
straight face.

Sixth, and finally: The question of Comey’s replacement is
hugely significant, and the confirmation hearings for the next FBI
director are bound to be explosive. One consistent theme of Trump’s
business career is that he has always viewed the law as a cudgel
with which to bludgeon adversaries — whether it’s
contractors coerced to accept half-payments
by the prospect of
ruinously expensive litigation or
journalists mired in frivolous libel suits
for printing
unflattering sentences. The prospect of a Federal Bureau
Investigation run in the same way ought to be genuinely
frightening, and with Comey out of the way, it seems all too
possible.

Julian Sanchez is a senior fellow at the Cato Institute and contributing editor for Reason magazine.

Share |

The Vexing Question of ‘Preexisting Conditions’

Michael D. Tanner

As Senate Republicans prepare for their turn in the health-care
meat grinder, it increasingly appears that the question of
preexisting conditions will be toughest to address. This is an
issue so fraught with emotion as to cry out for some straight
talk.

First, let’s be clear about whom we’re talking about when the
conversation turns to preexisting conditions: people who are
already sick or at high risk of becoming sick. Insurance is —
or should be — about managing risk. We buy coverage to
protect us against events that are unlikely to happen but would
carry a catastrophic cost if they did. Our premiums reflect both
the likelihood of those events and the potential price of the
medical care they’d require.

Consider that, in 1752, Benjamin Franklin started the
Philadelphia Contributionship for the Insurance of Houses from Loss
by Fire, the first wide-scale commercial-insurance company in the
United States. In providing Philadelphians with insurance against
the then-frequent calamity of house fire, Franklin made the
common-sense decision to charge those who lived in wood houses,
which were more likely to burn, higher premiums than those who
lived in brick houses.

There are no easy answers
to covering sick Americans’ costs of care, but understanding the
reality of the issue is a good start.

The Affordable Care Act essentially eliminated this type of
risk-management, mandating identical premiums for both brick and
wood houses, or in this case, someone in perfect health and someone
in very ill health. It is this Gordian knot that congressional
Republicans are attempting, in their usual inept way, to cut.

A lot of numbers have been thrown around about how many
Americans have preexisting conditions. Barack Obama, for example,
has suggested that the number is as high as 133 million. But these
figures grossly exaggerate the number of Americans who would be
affected by changes to the ACA’s preexisting-conditions provisions.
They include, for example, Americans on Medicare or
employer-provided health insurance, neither of which are subject to
medical underwriting. If you get your health insurance at work, the
company’s overall costs may increase to reflect its claims
experience in the event that Congress’s reform bill gives insurers
the right to charge more for those with preexisting conditions, but
your individual contribution will not increase because you have
such a condition.

Democrats have also been circulating a long list of medical
problems that meet the technical definition of preexisting
condition. Many of those conditions have little more than a
marginal impact on premiums, and others are explicitly addressed by
state laws that ban insurance companies from charging more for
those who have them. For example, some commentators have claimed
that insurers might call rape or domestic violence preexisting
conditions. But even if an insurer was willing to bear the public
outrage from doing so, 44 states currently prohibit the practice.
Those that don’t ban it explicitly, including states such as
Vermont, would enact a ban at the first hint that an insurer might
change its policies to punish a victim of rape or domestic
abuse.

This politically motivated hysteria does not make the question
of how the system should treat those with preexisting conditions
any less pertinent, of course. If you have a preexisting condition,
you are not being “insured” in any real sense, because there is no
risk to manage or spread over a larger pool. But your health-care
costs still need to be paid, and there are essentially just four
ways to allocate those costs.

We could require that people with preexisting conditions bear
all the costs themselves, either by paying an actuarially fair
premium or by forgoing insurance and paying their costs
out-of-pocket. For some the increases will be modest, more an
inconvenience than a crisis. Charity care might fill in some of the
gaps, and federal law would continue to require that hospitals
provide emergency care. Nevertheless, it is likely that many people
would not receive the care they need. As a result, virtually no one
favors this option.

Second, other people in the insurance market could pay the
costs. That’s how the ACA works. The ACA mandates that healthy
people, who are unlikely to use insurance, buy it anyway, and
charges them much higher premiums than would normally be justified
by their actuarial risk. The young and healthy essentially
subsidize care for the older and sicker. This has the perverse
effect of forcing some people who are struggling financially, such
as those just out of college, to subsidize people who might be much
better off financially. It also doesn’t work, as the ACA’s
implementation showed, because not enough healthy people sign up to
pay for the influx of sick people. Insurance companies then either
drop out of the market, cut back on high-quality providers, or
raise premiums. All of this in turn forces healthy people out of
the insurance pool, threatening to create an adverse-selection
death spiral.

Third, you can try spread the cost of insurance subsidies over
the entire tax-paying population. That’s the theory behind
high-risk pools. Individuals with preexisting conditions would be
removed from the general insurance pool, allowing premiums for the
rest of us to drop to levels reflecting our reduced risk. Most
people’s premiums will go down, while those in the high-risk pools
face much higher premiums. To be feasible, this option thus
requires government to subsidize premiums for those in the
high-risk pools. Before the ACA, some 226,000 Americans were
enrolled in high-risk pools in the 35 states that offered them.
Some state pools were well-designed and worked fairly well, while
others had problems. It remains to be seen whether a new generation
of high-risk pools would be better. The major problem with this
option is that it attempts to preserve the illusion that people
with preexisting conditions are being “insured,” when in actuality
the uninsurable are uninsurable and there is little point in
continuing to include insurance-company middlemen between them and
their health-care providers.

Finally, we can take those with preexisting conditions
completely out of the insurance market and have taxpayers pay
directly for their care, including them, for example, under
Medicaid. That is the approach advocated by Senator Rand Paul,
among others. Its biggest downside is an increased risk of adding
substantially to federal and state spending at a time when the
growth in Medicaid costs is already squeezing out other priorities
such as education and infrastructure. Another risk is that directly
paying providers might recreate the many problems plaguing existing
programs such as Medicare, Medicaid, and the VA, with the specter
of price controls, rationing, oppressive taxation, and debt looming
as costs rise.

None of these options includes a magic money tree that provides
“free care.” We are arguing about who should pay, which is a
natural and healthy debate to have in a democracy. But too much of
the discourse surrounding this issue pretends that treating people
with preexisting conditions is cost-free. Moreover, all of this
debate takes place against the backdrop of the ACA’s ongoing
implosion. The law’s protections for those with preexisting
conditions may not count for much if, in the near future, there are
no plans being sold on exchanges in their markets, or if none of
the available plans cover the doctors or hospitals they need. And
even where insurers have not yet pulled out of Obamacare, people
with preexisting conditions are currently being hurt by high
premiums and deductibles wrought by the law’s flaws.

This is not to suggest that the GOP’s proposal is in any way
coherent, of course. In their endless quest to be a little bit
pregnant on the topic, Republicans have crafted a bill that manages
to borrow the worst aspects of all the above models, and their
unwillingness to be frank about the tradeoffs involved deserves all
the derision it has received.

But if Democrats have a better answer, we have yet to hear
it.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the Entitlement
Crisis
.

Share |

Beryllium Broadside: Obama’s Last-Minute Rule-Making Will Cost Jobs

Ike Brannon

Few people are aware of (or care about) the role that beryllium
plays in people’s lives, but a last minute, unexpected expansion of
a workplace rule regulating it may push numerous people out of a
job.

Beryllium is an extremely light metal that forms a strong alloy
when combined with various other metals. It is a key material in
the construction of spaceships and satellites, as well as other
items that must be able to withstand potentially high
pressures.

It is also potentially harmful to humans if ingested in
sufficient quantities. While few people receive any exposure to the
element (which is quite rare) in their day-to-day lives, people who
work in industries that use beryllium may be exposed to dust
containing particles of the metal.

Excessive regulation
imposes real costs on society.

In 2012 the Obama administration announced that it was
contemplating reducing the already-low exposure standards for
industrial workers, and 2015 OSHA proposed a rule to limit worker
exposure to beryllium beyond current standards. The proposal
targeted the industries and production procedures that created the
greatest risk of exposure, such as the manufacture of beryllium
alloy.

The rule explicitly precluded workers exposed to extremely low
levels of airborne beryllium, such as those performing abrasive
blasting work with coal slag in the construction and shipyards
industries. The logic for excluding construction and maritime work
from the OSHA rule was that the benefits of the rule covering those
industries appeared to be rather slight compared to the anticipated
compliance costs. Such industries already take stringent measures
to prevent workers from being exposed to potential toxins, which
includes beryllium. Abrasive blasting in particular is already
subject to over two dozen OSHA rules governing worker safety,
including preventative measures to avoid undue exposure to airborne
chemicals.

The various entities who stood to be impacted by the revised law
— the workers and their labor unions, manufacturers, and
other interested parties — offered comments on the proposed
rule over the following year. However, during that time the
administration offered little indication that it would
significantly alter the proposed rule, and the industries most
likely to be impacted had begun contemplating the its impact of the
new rule on their operations.

However, when the final rule was finally issued, less than two
weeks before the end of Barack Obama’s term, the scope had been
unexpectedly widened to include those previously exempted
industries.

While the administration felt no apparent compunction about
making a radical last minute change, it did feel obliged to offer
some direction to companies affected by the expansion of the new
rule, and how they might manage to adjust their operations in a
cost-effective way. One potential approach to mitigate worker
exposure, it averred, would be to simply automate their operations
so that the production process involves fewer people.

While that may seem to be a common-sense recommendation for an
administrative body, it’s a politically tone-deaf, potentially
counterproductive suggestion.

This avowed capitalist gives no truck to protests against the
general mechanization of society today, which has led to a
resurgence of luddism in certain quarters. The rapid technological
advances of the last two centuries have led to an enormous
improvement of productivity that has greatly expanded our standards
of living across the income distribution.

However, the government’s explicit direction that companies
automate in the name of protecting workers against a potential
health hazard that would likely not survive an honest cost-benefit
analysis is not the path to increased prosperity.

While it may not seem intuitive to most people, excessive
regulation imposes real costs on society — the minimal safety
gains that the last-minute extension of the enhances beryllium
standards will do little to improve the safety of workers while
costing the economy thousands of jobs.

The Trump administration has stayed the enactment of the beryllium rule,
along with various other last-minute regulations enacted by the
Obama administration. It would do well to reexamine the rule and
its last-minute modifications and ensure that those changes past a
stringent cost-benefit test.

Ike Brannon is
a visiting fellow at the Cato Institute and president of Capital
Policy Analytics.

Share |

The Cost of Wisconsin’s Opioid Crisis

Ike Brannon and Devorah Goldman

The entire country is in thrall to a large and growing opioid
crisis. From celebrity deaths to the ever-growing number of
individuals struggling with addiction, everyone, it seems, has been
affected in some way. Wisconsin politicians have reacted admirably
to the crisis, but to truly arrest this epidemic — here and
elsewhere — requires a more concerted effort from the federal
government.

By most accounts, the opioid epidemic began with the 1996
introduction of the painkiller OxyContin, which contains a chemical
cousin of heroin. Within a few years, OxyContin was being massively
overprescribed and abused. In 2010, OxyContin maker Purdue Pharma
replaced the drug with a reformulated version that is harder to
abuse. But this perversely gave addicts reason to look elsewhere
for more potent opioids. This resulted in a burgeoning market for
heroin, often supplied by Mexican drug cartels.

Wisconsin is on a good
path for treating those already afflicted, but reducing the demand
for opioids must be done nationwide.

Heroin is much more dangerous than OxyContin, and on the black
market, its potency and quality are vastly less predictable. Worse,
producers have taken to mixing heroin with fentanyl, a lethal
synthetic opioid roughly 100 times more potent than heroin. As the
nation learned after the death of the musician Prince, a small
amount of fentanyl can kill.

Beyond the lives lost and countless other tragedies related to
addiction, the opioid epidemic imposes a heavy monetary cost in
Wisconsin. Many addicts have lost employment and insurance and thus
have their myriad health crises paid for by Medicaid. A substantial
number of addicts end up in jail, with their health care and other
expenses falling upon the state.

Drug-company shenanigans also have increased the state’s
cost of treating opioid addiction. For instance, Indivior, the
maker of Suboxone — which is used to reduce opioid cravings
— took advantage of its exclusivity period granted by the
Food and Drug Administration by voluntarily recalling its product,
in tablet form, and replacing it with a medically unchanged product
in strip form. The FDA granted Indivior additional years of
exclusivity.

The higher price that resulted from the patent extension
continues to cost the state millions of dollars in higher Medicaid
expenses, and the Suboxone strip is now a popular contraband in
Wisconsin prisons, which has led to increased personnel costs.

The Wisconsin Medicaid Pharmacy Prior Authorization Advisory
Committee, scheduled to meet May 10 in Madison, can change the
current preferred drug list for buprenorphine, which now lists
Suboxone as the sole preferred drug covered by state Medicaid,
without the need to fund pilot programs or any other new state
initiative. By doing so, the committee would likely ease the burden
on law enforcement while expanding access to new, innovative
treatments for addiction.

To Gov. Scott Walker’s credit, he has acknowledged the
epidemic’s complexity. The state Senate on May 2 approved
legislation to expand opioid treatment and other initiatives, and
the governor has said he would sign the bills.

Walker’s Task Force on Opioid Abuse has, among other
things, addressed the state’s rural opioid crisis by creating
“addiction fellowships” for rural medical-training
programs. It moved to allow school nurses to administer opioid
blockers, which can reverse the effects of an overdose.

Unfortunately, the opioid epidemic isn’t going away soon.
No matter how big a wall we build on the Mexican border, as long as
the demand for drugs remains, a supplier will exist. Facile slogans
or stiffer penalties on drug abusers or their sellers will not be
enough to reverse the epidemic.

Wisconsin is on a good path for treating those already
afflicted, but reducing the demand for opioids must be done
nationwide, and it will require original thinking both about how to
revive the economy as well as how to renew faith in our
institutions and communities.

Ike Brannon is
a visiting fellow at the Cato Institute and president of Capital
Policy Analytics. Devorah Goldman is an assistant editor at
National Affairs.

Share |

Report from Seoul: South Koreans Are Also Voting on Kim Jong-Un–and Donald Trump

Doug Bandow

An accident of geography created the foundation for inter-Korean
relations. South Korea’s capital, Seoul, is just thirty or so miles
from the Demilitarized Zone, north of which sits the North’s
sizeable if aging military. In any war Seoul, the country’s
economic, political and population center, would face
destruction.

The city is one of the world’s great metropolises; roughly half
of the nation’s people live in Seoul and the surrounding province.
The city pulses with commerce—and politics too. The Blue
House, home to the president, will soon have a new resident as
South Koreans vote on Tuesday to replace disgraced and impeached
Park Geun-hye.

The Republic of Korea’s political transition promises
major change. Likely victor Moon Jae-in, the loser to Park five
years ago, is on the left, having served as chief of staff to the
late Roh Moo-hyun. Moon’s economics trend toward
America’s Sen. Bernie Sanders—criticism of the
corporate conglomerates that play a dominating role in South Korea,
proposals to create public-sector jobs, and concern over labor
conditions and income inequality.

In this Moon matches the popular mood after the Park scandal,
which was rooted in part in corporate political abuses. His
foreign-policy views also are on the left. Moon hails from the same
political movement that propelled Roh to power. The latter was
elected in the midst of a burst of anti-Americanism following a
traffic accident that killed a couple of teenage girls. Roh was a
strong proponent of the Sunshine Policy, which offered the
Democratic People’s Republic of Korea subsidies and aid in an
attempt to purchase peace.

The Sunshine Policy was abandoned by Roh’s two
right-leaning successors, but Moon advocates reviving the policy,
including reopening and even expanding the Kaesong Industrial
Complex, which provided the North with nearly $100 million in hard
currency annually. Moon also opposed deployment of the THAAD
antimissile system, which sparked a row with China. Although he
tempered his positions during the campaign—for a time he
appeared to lose ground to the center-left candidate Ahn Cheol-soo,
who takes more hawkish foreign policy positions—Moon might
not be inclined to cooperate with the Trump administration’s
plan to squeeze the North economically and certainly would oppose
threats of a military “solution.”

The Republic of Korea’s
political transition promises major change.

President Donald Trump is the great unknown. South Koreans
accustomed to Washington’s protection were unsettled by his
campaign criticism of the alliance. He complained that the South
didn’t spend enough on the military—undoubtedly true in
the sense that Seoul underinvests in defense since it can rely on
America. He also complained that the United States didn’t get
good value for its money spent—also clearly correct, since
there is no longer a Cold War to give the Korean Peninsula special
geostrategic importance for Washington. South Korea’s
protection self-evidently should matter more to South Koreans than
Americans.

Subsequent assurances to Seoul from Secretary of State Rex
Tillerson and Secretary of Defense Jim Mattis calmed the waters,
but then the president threatened preventative war against the
DPRK, announced he was sending a nonexistent armada to Korea, said
the South should pay for THAAD, and threatened to tear up the two
nations’ Free Trade Agreement. In response, as in The
Wizard of Oz
, National Security Adviser H. R. McMaster told
the South Korean government to pay no attention to the man sitting
in the Oval Office.

It was not a performance likely to enhance the South Korean
people’s confidence in Washington’s commitment to their
well-being.

Of greatest danger is the administration’s constant
insistence that “all options are on the table.” This
long has been Washington’s standard formulation for
threatening war. It was a routine refrain applied to Iran prior to
the signing the Joint Comprehensive Plan of Action.

Few in South Korea are inclined to support military strikes
against the North. South Koreans have lived with North
Korea’s constant threats and intermittent provocations for
years while using the peace to turn their nation into a prosperous
democracy. Few expect the DPRK to attack. But they know that if
Washington starts shooting, a Second Korean War is not only
possible, but likely.

In advocating the possible use of force, since, he noted, any
conflict would be in the ROK rather than America, Sen. Lindsey
Graham acknowledged that it would “be bad for South
Korea.” But that barely describes the horror that almost
certainly would result.

The North has artillery dug in along the DMZ north of Seoul, as
well as Scud missiles. The DPRK could augment high explosives with
biological, chemical and possibly nuclear weapons. North Korea also
has abundant soldiers and equipment which, despite serious
deficiencies, might reach Seoul despite allied air superiority.
Backed by the United States the ROK would win, but at very high
price.

It would be a tragic irony for the United States to spend
sixty-four years working to prevent recurrence of conflict on the
peninsula, only to trigger one of extraordinary destructiveness.
And while Sen. Graham is right that the conflict would not occur on
U.S. territory, plenty of Americans would die fighting on the
peninsula and in possible missile attacks on American bases in the
region. It would have to be vital interest indeed to warrant also
sacrificing the lives of potentially hundreds of thousands of
Koreans, as well as Chinese, Japanese and Russians affected by the
war. Hoping that the North would forswear retaliation for U.S.
strikes would be a wild gamble, with extraordinary human and
economic costs if wrong.

Although the Trump administration hopes to scare the DPRK and
China, Washington so far has created more unease than fear in
Seoul. The city continues business as usual. A friend of nearly
thirty years, active in national security policy, told me simply
“Trump is bluffing.” Although some American analysts
posit that Trump’s unpredictability may prove to be a useful
political tactic, in the South, at least, that tendency has made it
hard for people in the ROK to take his varying pronouncements
seriously.

Which likely undercuts the impact of his threats in the North as
well. Pyongyang responds to every challenge by promising even
greater death and destruction, so assessing what Kim Jong-un and
others in his government really believe is next to impossible.
However, to the extent they look at cues suggesting what others
believe, the Kim government isn’t likely to believe that
American action is likely. Nor is Beijing. Which suggests that
whatever advantage Washington might have gained from Donald Trump
trying to replay Richard Nixon’s famous “madman”
already has dissipated. It will be very difficult for the
administration to regain leverage by reviving the threat.

Donald Trump probably is bluffing, but who really knows what is
going on inside the presidential brain? And how he might react if
he realizes that the North Koreans have come to view him as a paper
tiger?

The greatest danger may not be an intentional war. Even if the
president is bluffing, conflict could result from two impulsive,
untested leaders playing a reckless game of geopolitical chicken
and misjudging the consequences. Sitting at breakfast at my hotel
atop a hill offers a fine view of the Seoul cityscape. It’s not a
pretty sight, but Seoul is filled with millions of people who want
what Americans want: a better life for themselves and their
families. President Trump should keep that reality in mind the next
time he starts musing about the potential for war on the Korean
Peninsula.

Doug Bandow is
a senior fellow at the Cato Institute and former special assistant
to President Ronald Reagan.

Share |

GOP Healthcare Bill Is Not Repeal — It Is ObamaCare-lite, or Worse

Michael F. Cannon

House Republicans have approved a bill to revise ObamaCare with
only one vote to spare (217-213). Democrats and
the media are having such conniptions about the American Health
Care Act, you’d think Republicans were really about to repeal
ObamaCare.

They’re not.

Rather than do what their supporters sent them to Washington to
do – repeal ObamaCare and replace it with free-market reforms –
House Republicans are pushing a bill that will increase
health-insurance premiums, make health insurance worse for the
sick, and ensure that Republicans rather than the real cause
(ObamaCare) will take the blame.

Republicans are not
repealing ObamaCare. They are making it worse, and offering to take
the blame for its failures, which will ultimately cement that law
in place.

Let’s start with where this whole mess started: March 23, 2010,
when President Barack Obama signed ObamaCare into law.

On that day, and every one of the 2,422 days between then and
the 2016 election, Republicans consistently and unequivocally vowed
to repeal and replace ObamaCare. Presidential candidate Donald
Trump formed a “Contract with the American Voter” in which he
promised legislation that “fully repeals ObamaCare.”

On the 2,4222nd day, voters finally gave the GOP control of both
chambers of Congress and the presidency. Seventy-six percent of Republicans and 80 percent
of Trump voters
want Congress to repeal and replace ObamaCare.
Areas of the country that supposedly had the most to gain swung the
farthest to Trump.

Despite that mandate, House Republicans went behind closed doors
and emerged with a bill that does not repeal the core provisions of
ObamaCare, and therefore cannot begin to repair the damage those
provisions are causing.

ObamaCare’s core provisions are the “community rating” price
controls and other regulations that (supposedly) end discrimination
against patients with preexisting conditions.

How badly do these government price controls fail at that
task?

Community rating is the reason former president Bill Clinton
called ObamaCare “the craziest thing in the
world” where Americans “wind up with their premiums doubled and
their coverage cut in half.”

Community rating is why women age 55 to 64 have seen the highest
premium increases under ObamaCare. It is the principal reason
ObamaCare has caused overall premiums to double in just four
years.

Community rating literally penalizes quality coverage for the
sick, to the point where Harvard economists found patients with
multiple sclerosis and other high-cost conditions “cannot
be adequately insured
” under ObamaCare. It is the driving force
behind ObamaCare’s narrow networks and the exclusion of premier
hospitals
.

Worst of all, community rating is taking health care away from
the sick. Community rating has driven every last insurer from the
Exchange in east Tennessee, leaving 43,000 Americans – including
many with expensive conditions – with no coverage after December.
It may soon do the same in Iowa, and another 1,000 counties that
have only one insurer remaining in the Exchange.

Why? Because community rating forces insurance companies to
cover the sick below cost, which simply isn’t sustainable. The only
solution ObamaCare supporters offer is to keep throwing more money
at the problem – which also isn’t sustainable.

ObamaCare is community rating. The AHCA does not repeal
community rating. Therefore, the AHCA does not repeal ObamaCare. In
fact, Republicans are modifying ObamaCare’s community-rating price
controls and other regulations in ways that will accelerate
ObamaCare’s race to the bottom.

Why?

Republicans are salivating at the bill’s $1 trillion dollars of
tax cuts and cuts to government spending. So would I, if I thought
those cuts would last. In reality, the AHCA gets the health policy
wrong in ways that create armies of pro-tax voters who undo the
bill’s tax cuts and spending cuts.

Preserving community rating will preserve so much of the
instability in ObamaCare’s Exchanges (and guarantee that
Republicans will take the blame) that voters will demand bailouts
(and will vote for candidates who provide them).

The AHCA’s Medicaid cuts are also unlikely to stick. Despite
official projections, health care providers could avoid those cuts
and keep Medicaid spending on its current, unsustainable path by
banding together to lobby states to expand eligibility to
able-bodied adults. Like ObamaCare’s Medicaid expansion, the AHCA’s
“reforms” create incentives for states both to expand Medicaid to
able-bodied adults while cutting benefits for the truly
vulnerable.

Nevertheless, Republicans, Democrats, and the media all have an
incentive to pretend the AHCA would repeal ObamaCare. Republicans
don’t want their base to know they are reneging on their promise of
repeal. Democrats want to frighten their voters into opening their
checkbooks and turning out at the polls in 2018. The media love to
sell ads.

But the reality is that the Republicans are not repealing
ObamaCare. They are making it worse, and offering to take the blame
for its failures, which will ultimately cement that law in
place.

Michael F. Cannon is
“ObamaCare’s single most relentless antagonist” (The New Republic)
and director of health policy studies at the libertarian Cato
Institute.

Share |

Tax Reform: Don’t Forget Personal Savings

Ryan Bourne and Chris Edwards

President Trump’s tax plan released last week reaffirmed his
goal of slashing tax rates on businesses. The plan also proposed
overhauling individual income taxes by simplifying the rate
structure, increasing the standard deduction, and eliminating
breaks such as the state and local tax deduction.

What was missing from the Trump plan were reforms to the tax
treatment of personal savings. The plan would repeal the 3.8
percent investment tax imposed by Obamacare, but it was silent on
the underlying dividend and capital-gains tax rates.

Meanwhile, the House Republican leadership plan would reform
taxes on personal savings in two ways. First, it would drop the top
dividend and capital-gains tax rates to 16.5 percent from the
current 20 percent (23.8 percent when including the Obamacare
investment tax). Second, it suggests adopting legislation by
Senator Jeff Flake (R., Ariz.) and Representative Dave Brat (R.,
Va.) to create Universal Savings Accounts — USAs.

All-purpose savings
accounts, with high contribution caps, work well for people of all
income levels.

USAs would be like supercharged Roth Individual Retirement
Accounts (IRAs). Individuals could contribute up to $5,500 a year
in after-tax income into the accounts, and then the earnings would
grow, free of any taxes on interest, dividends, or capital gains.
At any time for any reason, people could withdraw money from the
accounts without paying taxes or penalties, which would make the
accounts simple, flexible, and liquid.

Such all-purpose savings accounts have been road-tested in
Britain and Canada, as we discuss in a
new Cato Institute study
. British Individual Savings Accounts
(ISAs) and Canadian Tax-Free Savings Accounts (TSFAs) are popular
with people at all income levels and all age groups. The accounts
encourage people to save as much as they can, knowing that they
will have easy access to the funds if needed.

About 20 percent of Americans own Roth IRAs, but 43 percent of
the British hold ISAs and 54 percent of Canadians own TFSAs. Also,
while one-quarter of Roth IRA holders contribute to their accounts
each year, more than half of the British and Canadian account
holders do so.

Why the big difference? Roth IRAs and other U.S. savings
vehicles — such as Education Savings Accounts (ESAs) —
are for single purposes and have many rules on withdrawals. By
contrast, USA-style accounts have no rules on withdrawals and can
be used for all saving purposes. The high ownership and
contribution rates of TFSAs and ISAs show that these factors make a
difference.

The goal for U.S. tax reform should be to create equal treatment
for different economic choices, including the choice between
consumption and saving, and between different types of saving. Our
tax code double-taxes saving in general but then gives targeted
relief to certain types of saving. USAs are the solution to these
distortions: They would end double-taxation for all types of
saving.

People of all ages would use USAs. A Federal Reserve survey
found that “retirement” is the primary reason people say they are
saving only after the age of 40. Younger people have other savings
needs that USAs would fulfill, such as saving to buy an automobile
or start a business. The British and Canadian accounts enjoy high
contribution rates by young people.

ISAs and TFSAs also have broad usage across income levels,
including people with moderate incomes. Whereas just 7 percent of
U.S. households with incomes of less than $50,000 have Roth IRAs,
55 percent of British ISA holders have incomes of less than
$25,000, and 55 percent of Canadian TSFA holders have incomes of
less than $37,500.

In fleshing out its tax plan, the Trump administration should
start with the Flake-Brat legislation but go bigger by lifting the
annual contribution cap to $10,000 or more. Such large accounts
would cover all the non-retirement savings that most families need.
The annual contribution cap on the successful British ISAs is
20,000 pounds, or about $25,000.

What about the politics of USAs? One thing we know is that the
base of support would be very broad — a wide range of people
would use USAs to meet a diversity of savings needs.

The tax, simplification, and liquidity benefits of ISAs and
TFSAs have revolutionized personal savings in Britain and Canada.
We think USAs would do the same in the USA.

Ryan Bourne
and Chris
Edwards
are economists at the Cato Institute.

Share |

The Discrimination Dog That Didn’t Bark: Trump’s Religious Liberty Executive Order Is Much Less Threatening Than Critics Feared

Walter Olson

Do you ever get the feeling that some commentaries are written a
little too far in advance of events?

On Wednesday, social media was filled with outcry about the
sweeping, “Handmaid’s Tale”-like provisions of
the executive order on religious liberty President Trump was
preparing to sign Thursday.

Churches and believers would be set up as above all law.
#LicenseToDiscriminate trended all day on social media, reflecting
predictions that the President would somehow (as if he could) use
his pen to nullify a wide range of federal and even state
anti-discrimination laws, on the supposed basis that they impair
the rights of religious believers.

Most of the wild speculation played off a leaked draft back in
January of an executive order that amounted to a wish list of what
some organized religious conservatives were hoping Trump would do.
Even then, there were indications that these were not the views of
Trump himself and that they faced stiff opposition within the White
House.

Maybe bigger victories
for organized religious conservatives lie ahead — but if so,
they are likely to come from the agencies, not from the Oval
Office.

What the White House unveiled Wednesday night was far more
modest. In fact, it dropped about 96% of the controversial stuff
that had circulated in the January draft, including many provisions
that in my view were misconceived and would quite rightly have come
under withering criticism.

Gone were new rules making federal contracting even more of a
complicated legal mess, gone was language proposing to protect
conscience-based views on sexuality when they were theologically
conservative but not otherwise, and so on.

Instead, the new order has three parts.

One, it prescribes that deference be observed to speech rights,
consistent with law, in enforcing the law’s 1950s-era prohibition
on extensive campaign activity by churches.

Whatever one thinks of the Johnson Amendment, this change looks
like small ball. Nothing in the law itself will change, and nothing
will become lawful that is now unlawful. There is already little if
any enforcement activity based on the amendment. Maybe the IRS will
relax its vigilance further.

But tax law is ultimately backed by the Department of Justice:
Did Jeff Sessions actually need a presidential go-ahead to spell
out that he can assert a full range of discretion?

There is also a cryptic reference to having agencies defer more
broadly to speech rights beyond the context of the IRS and
campaigns, which lawyers are likely to look at closely in coming
days just in case it proves to be something big.

Two, it directs that certain accommodations be made to some
employers on Hobby Lobby-type issues of contraceptive benefit
provision. Maybe this will consolidate ground already gained by the
Supreme Court’s ruling and Congressional sentiment, but
pro-Hobby-Lobby groups are already saying they got much less than
they hoped for on this front.

Three, it offers a general statement of policy support for
religious liberty. This might help the pro-accommodation side
prevail more often in future debates at the agencies. If so, the
Trump White House will have joined all its predecessors in the
practice of taking credit for fine-sounding, vague statements of
principle while leaving to the agencies the messier and inevitably
less popular responsibilities of implementation.

Significantly, according to advance reports, a White House
official indicates that there are no plans for any additional
executive order on LGBT discrimination issues.

Organized gay groups, committed to keeping their base in a
constant state of alarm, will be reluctant to admit that this is a
big win for their cause. Even so, it fits the theory I’ve argued
for some time that lifelong New Yorker Trump doesn’t want to go
around picking fights with the gay community.

To sum up, then: There is every indication that President Trump
does want to make a gesture toward one of his important electoral
constituencies that they did not waste their time in voting for him
(other than as a way to keep Hillary Clinton’s Democrats out of
office). But he does not see fighting this particular set of
culture war issues as central to his goals as President. Hence this
mostly symbolic announcement, timed for the National Prayer
Breakfast. Maybe bigger victories for organized religious
conservatives lie ahead — but if so, they are likely to come
from the agencies, not from the Oval Office.

Walter Olson
is a senior fellow at the Cato Institute’s Center for
Constitutional Studies.

Share |

Turkey’s Erdogan Destroys His Nation’s Liberty as His Popularity Wanes

Doug Bandow

Turkey’s president, Recep Tayyip Erdogan, secured near
dictatorial powers in a recent constitutional referendum. Yet the
would-be sultan barely broke 51% of the vote after rigging the
ballot, destroying a free press, and criminalizing criticism.

The Republic of Turkey was created amid the wreckage of the
Ottoman Empire. The state eventually evolved into an authoritarian
democracy.

Erdogan relaunched the principal Islamic party, winning the 2002
election. He liberalized the economy, sought peace with the
Kurdistan Workers’ Party, or PKK, and revamped Turkish laws to
pursue European Union membership.

Turkey has abandoned its
long-standing affinity for the West. The Erdogan government now
violates America’s moral and strategic interest.

He won the backing of liberals, secularists and women.
Journalists enjoyed greater freedom and Europeans believed he could
bring Turkey into their continent’s orbit.

Alas, many observers, this writer included, overestimated
Erdogan’s commitment to a Western model. What looked too good to be
true turned out to be so.

Once Erdogan felt unchallengeable, he abandoned democracy.
Around 2010 or so Erdogan began using his rule in a more
authoritarian fashion, punishing the academics, businessmen and
journalists in particular who challenged him.

Erdogan prosecuted even his most harmless critics, including
children, for insulting him on social media. He morphed into an
egocentric narcissist outraged that anyone would tar his
dignity.

His political brutality grew along with challenges to his rule.
In 2013 Erdogan purged police and prosecutors linked to Hizmat, the
movement headed by Muslim teacher and cleric Fethullah Gulen, a
former ally.

Two years later Erdogan’s Justice and Development Party (or AKP)
lost its parliamentary majority. Erdogan responded by restarting
the conflict with PKK and hyping security issues. He forced another
election five months later, which restored AKP’s majority.

Democracy was in dismal shape, though not quite dead. Then last
July some members of the military attempted to stage a coup.
Erdogan treated the failed plot as his Reichstag Fire, allowing him
to aggrandize his power.

Erdogan immediately charged that Gulen, who had lived in rural
Pennsylvania for years, was the mastermind. A committee of the
United Kingdom’s parliament as well as German and European
intelligence officials found no evidence backing Erdogan’s claim.
Rep. Devin Nunes, chairman of the House Intelligence Committee, was
similarly dismissive.

After the coup’s collapse Erdogan closed publications and jailed
journalists. He charged opposition leaders and lawmakers who had
opposed the coup with backing terrorism.

He restricted freedom of assembly and punished critics. He
purged government universities, closed private schools, and
shuttered civic organizations.

So far some 47,000 people have been imprisoned, 113,000 detained
at least temporarily, and another 140,000 or more ousted from
public-sector jobs and banned from civil life more generally.
Equally devastating private firings go uncounted. For many people
Turkey now is an open-air prison.

The Turkish authorities did not bother attempting to demonstrate
that those punished had anything to do with the coup. Nor did
Erdogan only target Gulenists. Anyone critical of him or linked to
someone critical of him is at risk.

Turkish prosecutors even are investigating leading Americans for
their alleged roles as closet Gulenists and coup plotters,
including Senate Minority Leader Chuck Schumer, former CIA Director
John Brennan, and former U.S. Attorney Preet Bharara. Erdogan’s
paranoia brings to mind Josef Stalin.

Freedom House rates Turkey as only “partly free” and moving in
the wrong direction. The State Department’s human-rights assessment
cites “inconsistent access to due process,” “government
interference with freedom of expression,” “inadequate protection of
civilians,” and a potpourri of other issues.

Nevertheless, after taking over the presidency Erdogan proposed
changing Turkey from a parliamentary system into a
hyperpresidential government, akin to the one dominated by Russia’s
Vladimir Putin.

Erdogan placed a package of 18 constitutional amendments on the
ballot last month to expand his power. The campaign occurred during
a state of emergency. The Stockholm Center for Freedom cited
“widespread and systematic election fraud, violent incidents and
scandalous steps taken by the biased Supreme Board of
Election.”

Yet the measure barely passed. Even the Istanbul district of
Uskudar, in which Erdogan owns a home and where he voted, came out
against him. So the Turkish government expanded its crackdown.

Turkey’s saga of liberty lost is not only a tragedy for the
Turkish people. It further undermines the country’s relationship
with the West.

Erdogan’s government helped arm, sell oil from, and open Turkish
territory for use by ISIS. More recently his military targeted the
Syrian Kurds, U.S. allies against ISIS. Erdogan’s government has
snuggled close to Putin’s Russia.

Turkey has abandoned its long-standing affinity for the West.
The Erdogan government now violates America’s moral and strategic
interest.

Doug Bandow is
a senior fellow at the Cato Institute.