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Pensions “could be adjusted,” says bankruptcy judge

Across the country, states and cities face difficult fiscal situations, aggravated by the fact that they have over-promised and under-funded pension plans. As cities and other units of government consider bankruptcy, judges and others must ask whether those promises have a superior standing over promises made to vendors, bondholders, or citizens as a whole.

The city of Stockton, California, is in bankruptcy court, and offered Franklin Templeton Investments one cent on the dollar, while doing nothing to reduce payments owed to pensioners. Franklin filed an action with a federal bankruptcy court, and accused the city of picking and choosing winners, pleading poverty to some while making others whole.

In an opinion released this week, federal bankruptcy judge Christopher Klein said, “I’ve concluded the pension could be adjusted.” Though this is a significant statement, it’s not a formal ruling, which will come later this month. Klein also said “California public employee retirement law … is simply invalid in the face of the supremacy clause of the United States Constitution.” He went so far, in his oral presentation, to ask, “Is CalPERS [the state pension administrator] a state unto itself?”

The question in California and elsewhere is this: Should pensions receive a superior status over all other claims on city finances? There are several factors to consider, including prudence: The city has said it cannot attract and retain workers without an iron-clad guarantee. But a city also needs functioning capital markets to work, and Franklin Templeton has financed the city’s firehouses and some of its parks, as well as financed a move of its dispatch center, things from which all citizens benefit. If lenders get burned often enough, the results will not be good for the public at large, as they will require higher interest rates, or in the extreme, choose to not lend money.

As for the legal argument, “pensions,” the LA Times reminds us, “have no specific protections under the [federal bankruptcy] code, but they do often get favorable treatment during bankruptcy negotiations, both for practical reasons — they are usually a large, sometimes the biggest, creditor — and for emotional ones.” The “emotional” reasons, of course, have to do with the problem of concentrated benefits (due to pensioners) and diffused costs (to citizens as a whole). Once again, a financial problem caused by political logic may end up being “fixed” by … yet more political logic.

This is certainly a case that concerned citizens everywhere should keep an eye on.

First published by the Center of the American Experiment

Ideas versus people

Remember the cliche about stopped clocks? When it comes to public policy–or anything involving some thought, for that matter–we ought to keep that in mind.

Three recent incidents illustrate some unhealthy habits, in which we focus on people and not the ideas they express.

The first incident involves the Common Core States Initiative. There are reasonable arguments to be made for and against it, and overall, I oppose it. On the other hand, Bill Bennett recently penned an op-ed in which he said conservatives ought to support it. Out came the knives: Bennett was paid to say what he did, so conservatives (or anyone for that matter) ought to ignore him. Never mind examining the substance of his argument. He got paid to say it; toss his essay in the trash!

Bennett, though, worked as the secretary of education for the U.S. government, and has written books on education. Doesn’t this suggest that he can make an informed judgement on the merits of the Common Core–and that his argument should be examined based on whether or not it is logical and true?

When it comes to public policy, the question of “who benefits” is not entirely out of bounds. When we consider a policy option, it’s reasonable to ask whether this politician, that union, or a business over there will financially benefit as a result. Bring it out to the open in the interest of knowing as much as we can about the costs and benefits of the policy. But don’t discard the idea out simply because so-and-so will reap a financial reward. We need to apply some other principles, too. (Example: Don’t say “I don’t like Coca-Cola; Coca-Cola supports the Export-Import Bank and reaps financial gain from it. The bank is a bad thing.” Instead, it’s possible to build an opposition to the bank on the broader principle that government should not substitute its judgment for those of private-sector financial actors.)

The second incident involves Peter Bell, a black man (it’s relevant, just wait) who recently penned an essay about disciplinary policy in the Minneapolis public schools. He’s concerned that recent changes by the school system will drive middle-class families away. When the Center of the American Experiment (where Bell and I both serve as policy fellows) posted the essay  on Facebook, one public commenter simply dismissed Bell as an Uncle Tom. No matter that his argument could be criticized on several grounds–or might even be right. Nope. Shout “Uncle Tom,” and close down the theater.

Finally, from the left side of the political spectrum is Ezekiel Emanuel, who wrote an essay with the provocative title, “Why I hope to die at 75.” Emanuel discusses American attitudes toward sickness and death, and concludes that at some points in his life–sometimes at 75, sometimes sooner–he will refuse medical treatment. He’s careful to say that this is his idea and not necessarily for anyone else.

The headline aside, there’s really nothing unusual going in in the essay; questions about when and why to obtain treatment have been with us for a long time. But here again, I’ve seen an honest evaluation of an argument short-circuited by something external to it. In this case, it’s politics.

Emanuel was an intellectual godfather of the Affordable Care Act (“ObamaCare”). Therefore–so some of my conservative friends say–we should simply dismiss the essay. Worse, some of my friends turn snarky, invoking the idea that “I’d be happy to be on HIS death panel.” (For my Christian friends, I’d remind you of someone who said “love your enemies.”)

Regardless of how you view his conclusion, Emanuel raises some interesting points that can be considered quite apart from politics alone. American lifespans increased a lot in the last century, mostly because we have reduced childhood mortality. We’ve also increased the portion of time that we spend with chronic diseases and disabilities; is this an unalloyed good? One may wave this latter observation off as a quality-of-life ethic, but it’s a startling one nonetheless.

Fear of ObamaCare and death panels aside, Emanuel is right: we’re all going to die sometime, of something. It would be best if we think ahead of time of what we want for treatment for as well as what we want to accomplish with our lives–two thoughts Emanuel dwells on. But we lose the opportunity to wrestle with those questions by shouting “Death panels! Death panels!”

When I chided one Facebook acquaintance of mine for camping on the politics of ObamaCare rather than address the merits of specific arguments in the essay, his response was, to paraphrase, “you may not care about politics, but politics cares about you.” He refused to go deeper into the article. Again, that’s a pity. For one thing, it interjects politics into everything–something a conservative should reject.

I understand that ideas have consequences. So let’s discuss them, and point out why they’re right–or wrong–instead of ending the examination with a cursory attack on the person bringing forth an idea.

There’s an “all over the Internet” quote that applies, and it comes from Eleanor Roosevelt: “Great minds discuss ideas; average minds discuss events; small minds discuss people.” I don’t know when or where she said that, but I like it, and I wish more people would take it to heart. Instead, our discourse too easily resorts to team colors and personalities.

Freedom and vitality of religion

While Jesus said, “Render unto Caesar what is Caesar’s and to God what is God’s,” Germany practices what might be dubbed “Render under God what is God’s, through Caesar.”

A recent article in the Wall Street Journal describes an unpopular move by government to increase the enforcement of the church tax. Church tax? Yes. People who “registered” with a church pay a church — Catholic or Protestant– a tax of 8 or 9 percent. The government–at the behest of the churches– has taken steps to strengthen the enforcement of the tax. Banks, according to the journal, “”will be required to report their customers’ religious affiliations, rather than wait for customers to volunteer the information.”

The change has caused a spike in the number of people who have left their churches.

Leave the church? Yes. While some American preachers stress the importance of tithing, German churches do more than exhort: “Church membership hinges on a citizen’s willingness to pay the tax. Refusing to pay it can lead the clergy of both Christian churches to withhold rites such as baptism, communion and funeral rites.” Now, I’m not an expert on Catholic theology, but this sounds like paying this particular tax could send you to hell.

 

There are a lot of questions the Journal article leaves unanswered–or asked. Which units of government collect the tax? Is it the federal government or the state governments? How much of a cut does the tax man keep? The tax collects $13.2 billion last year, but how much money have people given voluntarily to churches?

But the Journal notes something odd: “Despite emptier pews across Europe, the church tax is a hallmark of the close financial bond that remains between church and state on many parts the Continent.”

Might it be the “close financial bond” is one reason why the pews in Europe are empty?

Tax credits for bicycles

Should I get a tax exemption for my new bicycle pedals?

The Patient Protection and Affordable Care Act (ACA), or ObamaCare, allegedly expands the number of people who have health insurance. While the law has many troubling qualities–including its command to “buy insurance or get taxed!”– the goal of getting more people to have health insurance insurance is not new.

Ever since World War II, the federal tax code has encouraged people to get health insurance (though only if it is done through an employer-based plan). So the ACA’s goal of using the levers of power to nudge people toward insurance is not new.

Having coverage, though, is not the same as getting care. For example, people who are enrolled in Medicaid are “covered,” yet increasingly they are having trouble finding a physician. Worse, actually getting health care can isn’t the same as getting healthy. In some cases, it can actually be fatal, as in the case of hospital-acquired infections.

So while health insurance can be helpful, the ultimate goal for public policy ought to be a health population. Insurance is a means, not — unless you work for an insurance company or a public agency that administers Medicaid or Medicare — the final goal.

If insurance is one way to promote health, what are some other ways? Diet and exercise, which brings me to my bicycle pedals. I recently spent $200 on some “clipless” pedals and the specialized shoes they require. True to the promise, they’ve made cycling easier and more enjoyable. It’s likely I will now get more exercise.

Should I continue to ride more frequently, I should then have a lower risk for diabetes, heart disease, and other maladies. That’s good for me and my family, and the insurance pool to boot. It’s also good for the public treasury, since I’ll be able to work (and pay taxes) longer.

Since my pedals should contribute to my health, with those positive effects for society, shouldn’t their purchase be treated like health insurance, lowing my taxable income?

That’s never going to happen, of course. How could government make sure that I’m not taking the tax break and then, instead of using the shoes, selling them on eBay?

Private insurance companies do take some steps to encourage people to exercise, with discounts for gym memberships and such. But again, there are compliance costs. Riding my bike outside (yay!) isn’t subsidized, but riding a stationary bike (ugh) indoors is. As for diet, I could get a small kickback from my insurance company for buying certain fruits and vegetables, but I’d rather not submit to that amount of snoopervision.

Attempting to nudge people through the tax code has already caused all sorts of problems such as healthcare inflation and being locked into a plan chosen by someone else. ObamaCare offers the hope of giving people greater choice, yet policies offered in exchanges are tightly regulated in what they can offer.

ObamaCare represents yet another effort to get the levers of power configured in a “just right” way to get a “just right” environment. Admittedly, giving me a tax break for a new bicycle would be committing the same mistake. Oh well. I sounded good while I was out pedaling.

What to do next? That’s a topic for another day.

 

Most minimum-wage jobs are also part-time ones

The minimum wage is in the news, so here’s an interesting chart from the Federal Reserve.

Minimum wage laws
Source: Minneapolis Fed

Since the minimum-wage law is in the news, it’s useful that the Minneapolis Fed provides a handy map that shows the various laws in place in the 50 states.

For more, see the articles, “Not all minimum wage jobs are created equal. The cover story of the July 2014 issue of FedGazette, “A minimalist picture,” has some interesting facts about the mimimum wage. For example, 72 percent of the people who receive that wage work part-time. It’s hard to earn a “living wage” if you work on a part-time basis, especially at the wages touted by any reasonable advocate of the minimum wage. (Sure, $200 an hour would make a nice “living wage,” but who credibly advocates such a view?)

To see the map in its original state, please click through to State Mimimum Wages, 2014.

First published at True North.

2 Judges on DC Court: “States” means “states”

While one federal court delivered the most significant rebuke to date of ObamaCare, another came to an opposite conclusion, setting the stage for more legal uncertainty.

First up,  the DC Court of Appeals ruled against the Obama Administration in Halbig v. Burwell. (The ruling is in this PDF link.)

At issue: Does the Affordable Care Act–particularly, its individual mandate and the means-tested subsidies to purchase insurance–apply to people in all 50 states, or only to some? The answer, according to the court, is “only to some,” and the implication is that the ACA has much less power than it would otherwise have.

Here’s a bit of the nitty-gritty on how this works. The text of the Affordable Care Act (ObamaCare) says that everyone must have health insurance. It also calls for taxpayer-funded subsidies to buy insurance, and sets out regulations to define acceptable forms of insurance. But the Act, through several provisions, defines that requirement and those subsidies in the context of people who live in states that have established (again, under the Act) insurance exchanges.

The law did not, however, require states to set up exchanges, so of the 50 states, only 14 have done so. So can the IRS dispense subsidies to people in the 36 states that have not set up an exchange? The short answer: No. What about the fines that businesses face for not paying for insurance for their employees? Gone. The individual mandate? Gone as well.

The three-judge panel of the Court, usually cited as the second highest in the land, decided that the IRS acted in a way that was “arbitrary, capricious, [and] an abuse of [its] discretion.” The Administration can and will ask the full Court to consider the matter, and you can expect that this will end up before the Supreme Court in a matter of time.

My favorite part of the ruling may be have come when the Court considers the argument that it ought to overlook the plain language of the relevant text (Section 36B) and instead consider the overall aim of the legislation. To quote the majority opinion, “the government and dissent in effect urge us to substitute our judgment for Congress’s. We refuse.” The opinion continues, “Section 36B plainly makes subsidies available only on Exchanges established by the states. And in the absence of any contrary indications, that text is evidence of Congress’s intent.”

In dissent, Judge Edwards leads off with this: “This case is about Appellant’s not-so-veiled attempt to gut the Patient Protection and Affordable Care Act (“ACA”).” To which the proper response might be: So what? The court needs to rule on whether the law was being properly administered, not whether the appellant’s motives were obvious or obscured. Judge Edwards also argues that it is “inconceivable” that Congress could enact a law in such a way that it could “crumble” absent state participation in exchanges. That strikes me as a naive understanding of the legislative process, overlooking the fact that in the sausage factory of lawmaking, strange things happen.

On the same day, though, the Fourth Circuit Court of Appeals came to the opposite conclusion, in King v. Burwell (link is in PDF). It said, “we cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated [federal] exchanges.” Thus it decided unanimously to “uphold the [IRS's] rule as a permissible exercise of the agency’s discretion.” The idea that the IRS should have a significant role in health insurance is … let’s just say it’s not comforting.

I’ll note that the various parties to the case show, once again, how “big health” is in favor of the ACA. Weighing in in support of the law in Halbig and King were not only officials from the U.S. government, but AARP (a major seller of health insurance), the American Cancer Society, the American Diabetes Association, the American Heart Association, and the American Hospital Association. Also on the pro-ACA side was America’s Health Insurance Plans, a trade association of insurance companies that have figured they would come out ahead from the law’s personal mandates and taxpayer subsidies.

For further reading, I commend to you Michael F. Cannon’s commentary in Forbes, Halbig v. Burwell would free more than 57 million Americans from the ACA’s individual & employer mandates. I’ve met Cannon several times, and he’s been a sharp critique of the ACA. CNN, meanwhile, observes that “The easiest fix — changing the law to specify that it allows subsidies for coverage purchased through the federal government as well as state exchanges” — won’t be happening anytime soon.

Search warrants required for cell phones: SCOTUS ruling

The Supreme Court has ruled a ruling with some significant implications for policing and personal privacy. To quote from a review from the Washington Post, “In a unanimous opinion by Chief Justice Roberts, the Court holds that searching a cell phone incident to arrest requires a warrant.”

A few comments on the ruling:

First, the analysis comes from Orin Kerr, a contributor to the Volokh Conspiracy (VC). The VC is a group of legal experts who for a long time maintained their own group blog, and I once had the task of editing a column maintained by one of its contributors. (He was, and is, an excellent writer.) The Post was wise to add VC to its stable of writers. Other legacy publications may find it wise to hire or otherwise establish branding agreements with non-journalistic experts with a proven track record of good writing and a healthy readership. (Any publication that works in the public policy or ski/snowboard space …. I’m here.)

Second, the Court observes that cell phones have many different functions: “The term ‘cell phone’ is itself misleading shorthand; many of these devices are in fact minicomputers that also happen to have the capacity to be used as a telephone. They could just as easily be called cameras,video players, rolodexes, calendars, tape recorders, libraries, diaries, albums, televisions, maps, or newspapers.” At the risk of endorsing the reasoning of the Court because I like the outcome, I think the Court got it right. It took the constitutional principles of the Fourth Amendment (printed in the next paragraph) and applied it to the society of today. By virtue of the data they can contain, cell phones have become the “houses, papers, and effects” of the digital age. The note that 12 percent of cell-phone users admit to taking their devices into the shower strikes me as a bit too much “jurisprudence by sociology.” I suppose the Court wanted us to know that it understands who connected we are to our phones.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Third, the decision is a good time to review some developments that inspired the Fourth Amendment. Eugene Volokh has those, on a companion blog post.

Fourth, it’s encouraging that this case, Riley v. California (PDF), was a unanimous decision. This shows a significant endorsement of the idea that the state’s police power must abide by constitutional limits. (Justice Alito, though, issued a concurring opinion, asking legislatures to consider laws of their own and not rely on the “blunt instrument of the Fourth Amendment” and federal courts.)

Finally, as is true in many cases, this particular case came out of the actions of a not terribly attractive individual–someone quite possibly a gang-banger. But if you’re not willing to abide by a principle when it hurts, you’re not terribly committed to it.

Saving money on college, extreme edition

Many people who attend college will be saddled with large debts and unmarketable degrees. One Minnesota man, though has found one way around it: Load up on college classes while still in high school.

The Northfield News reports on one local resident who has earned a high school diploma and a college diploma in the same year. David Greer used Post Secondary Enrollment Options (PSEO) a program under which high-school students can take college classes free of charge. Greer also earned college credits through CLEP. 

School districts face incentives to not fully inform students about PSEO, as they lose some money whenever a student shifts enrollment from the district to the college. Colleges, for their part, have an incentive to tell high-school students about the financial savings — free money for college! — but have been prohibited by state law, in what some people call a gag rule. Why? Consider this: School districts are loathe to lose “their” money to colleges. (The district loses some money when a student enrolls at a college.) It appears that the gag rule was removed during this last legislative session. That’s a boost for students. Arguably, it’s a good thing for taxpayers, too. I haven’t seen a financial analysis of this, but I suspect that it’s a case of money being diverted from one institution (high school) to another (college), with minimal increase in exposure for the taxpayer. If it helps students complete college without more debt, so much the better.

Oh yes, there’s something else that should be mentioned about this story: Greer has been homeschooled, which means that for much of his schooling he drew nothing from the public fisc at all. In other words, homeschooling benefits the public treasury.

 

National sovereignty is not a sufficient reason for “the ultimate sacrifice”

Today is Memorial Day. It’s common to confuse it with Veterans Day. One example comes from the Twitter feed of one business, “Today we honor all Veterans, including those on our Staff here, we thank all of those who have served our country, and we remember those who made the ultimate sacrifice.”

There was a letter-to-the-editor someplace that captures the distinction nicely. It was posted on Facebook, but given that platform’s penchant for playing hide-and-seek with updates, I can’t find it now. So I’ll paraphrase: Memorial Day isn’t about military service or all veterans. It’s about the lives that are never lived to completion, and in the case of men who died before they became fathers, babies who were never born. Here’s my solitary example from my family history: My grandmother had a brother who saw military service in the Asian theater of World War II. He contracted malaria or yellow fever or some such disease, and died, leaving no heir. What contributions would he, or his children, made to America in the 1950s, 1960s, and beyond? We will never know. Lives cut short, or not lived at all. That’s what we should think about on this day.

One of my blogging friends, Mitch Berg, takes on Memorial Day from a related though different angle. He writes on Facebook (ellipses in the original): “The two challenges of Memorial Day: Remembering those who died to keep this nation free (and thanking those who didn’t die, naturally) … and making sure this nation is worthy of that sacrifice.”

That in turn got me thinking of some lectures I heard yesterday, by the late J. Rufus Fears. He argued that there are three components to freedom: (1) National sovereignty; (2) Freedom to participate in politics; (3) Freedom to live your life as you wish, as long as you don’t harm others.

Which components of freedom have America’s veterans died for? One hopes the answer is “all three.” After all, the conventional wisdom is that the United States is defined not by bloodline, race, or clan, but by an idea, roughly that of personal and national self-governance, with a large dose of regard for others thrown in. Each element of freedom, Professor Fears said, can exist independently of each other. (Note here that I’m expanding on his remarks.) A country can have national freedom but lack political and personal freedom. Its government is sovereign and not subject to any other state–but the people lack political and personal freedoms. Fears cites North Korea as an example. Or, a country can have national freedom, and the people can have a great deal of personal/economic freedom, as long as they don’t question the government. (Imperfect examples of this “ideal type” may include Chile under Pinochet, Spain under Franco, and today, Singapore and some regions in China.) Finally, a country could have national freedom and political freedom but lack economic freedom. (Perhaps Sweden after World War II until fairly recently is an imperfect illustration.)

What is the scorecard of the United States? We have national sovereignty nailed down, so yes, military personnel who die in combat today preserve national freedom. (Mitch asks whether the existence of “open borders” undermines my claim. No. The U.S.A. has chosen to have semi-open borders; this was not a decision forced on it by other countries.) What about political freedom? We’ve had a checkered history of that. See, for example, the various efforts throughout the decades to deny the vote to blacks. We’ve made strides toward improving political freedom (the Civil Rights Acts, despite their numerous flaws, are one example). Conservative groups can complain about the abuses of the IRS, and liberals can look back in the 1960s to the Department of Justice. But overall, the country is still doing pretty well on this regard. Personal freedom? Well, the status of that depends on how you define personal freedom. If you define it the way FDR defined it — “freedom from want” and in brief, risk and hardship — we’ve enacted an enormous federal government to promote that, though its efficacy and wisdom can certainly be questioned, even on its own terms. If you define person freedom from the perspective of “leave me alone,” we’re not doing so well. Something like one-third of all employed people work in jobs that require a state license or certification, for example. Then there is the alphabet soup of agencies–EPA, FDA, USDA, EEOC, DOL, not to mention IRS–that stands ready to pounce on the non-compliant.

Traditional conservatism might say that national freedom is sufficient reason to die. The argument goes, roughly, that each person is embedded in a specific culture and society, and fealty to that society is worthwhile. Maybe they’re right, but that is emotionally and intellectually unsatisfying. Traditional conservatism also embraces natural law, the idea that there is a right and wrong that transcends cultures. So dying for a national government at the expense of a gross violation of natural law (Nazi Holocaust, anyone?) is not commendable.

Is death in the service of the United States today a foolish thing? Some people would say yes, saying that the country has gone far off the rails, that personal and political freedom is a mirage. Military personnel die, if they think about it, only for their comrades, and if there’s any larger beneficiary of their deaths, it’s the “empire.” The ideas that may have made “the ultimate sacrifice” have been squashed, squandered, or never there in the first place.

So is this a correct point of view? I can’t say that it is, not now. Yet, I do fear our national politics and national culture are pushing us in that direction. We chant “USA! USA! USA!” at the Olympic Games, while governments and the culture at large put the squeeze on personal freedoms.

So perhaps one way to honor those who have died in uniform is to be an advocate for political and even more importantly, personal freedom.

Divided we live: Political, economic, racial polarization in Milwaukee metro

One concept from graduate school (political science) that has stuck with me is the benefit of cross-cutting cleavages, which has nothing to do with “wardrobe malfunctions.” (See Wikipedia for an explanation: http://en.wikipedia.org/wiki/Cross-cutting_cleavage.)

The Milwaukee Journal-Sentinel, however, has produced an analysis of its readership area, showing that there are plenty of “reinforcing cleavages,” or as we might call it outside of academic journals, polarization. Republicans and Democrats live in separate worlds. So do conservatives and liberals, whites and blacks, poor and white, and so forth. Pigeon-holing — or if you will, stereotyping — has become more and more accurate.

Here’s an introductory paragraph from the scene in Milwaukee:

Metropolitan Milwaukee is the most polarized part of a polarized state in a polarized nation. It combines in one political hothouse an unusual constellation of divisive forces: deep racial segregation; an intensely engaged and sometimes enraged electorate; and the Balkanizing effects of serving over the past decade and a half as one of the most fought-over pieces of political turf in America.

How did we get this way? There are plenty of possible explanations. I’ll just say this: As government grows larger and the value of political victory increases, expect more contentious battles.

Read the whole thing here: http://www.jsonline.com/news/statepolitics/democratic-republican-voters-worlds-apart-in-divided-wisconsin-b99249564z1-255883361.html?ipad=y

 

 


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