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Further to Ilya’s overview of today’s Supreme Court decision in Horne v. Dept. of Agriculture, it should be noted that it’s taken Marvin and Laura Horne over a decade to vindicate their rights in the raisins the government sought to take “for their benefit,” under one of the many economically foolish New Deal and later agricultural marketing schemes Congress has seen fit to enact. But in this lengthy process, the Hornes have helped the Court to settle a fundamental principle, namely, that the Fifth Amendment’s Takings Clause prohibits the government from taking both real and personal property for public use without just compensation.

At the same time, the Court is still confused in its effort to distinguish and adjudicate what have come to be called “physical” and “regulatory” takings. In Horne, the Court held, the government sought to “physically” take 47 percent of the Hornes’ raisins, much as ten years ago to the day, in its infamous Kelo decision, the Court upheld the City of New London, Connecticut’s “physical” taking of Suzette’s Kelo’s little pink house. In other words, the government sought to take title to the Hornes’ property in their raisins.

By contrast, in a regulatory taking, the government, through regulation, takes certain otherwise legitimate uses an owner has in his property. The owner retains the title; but it’s usually a much devalued title. For almost a century, the Court has struggled to fit these regulatory takings under the Takings Clause—ever since Justice Holmes in 1922 wrote that a regulatory restriction that goes “too far” amounts to a taking requiring compensation. The three-part test the Court set forth in 1978 in its Penn Central decision only muddied those waters. In fact, we see that here when Chief Justice Roberts tries to drive home the point that in Horne we have a physical taking. In response to a point made by the dissent he writes that in such cases “‘we do not ask … whether [the taking] deprives the owner of all economically valuable use’ of the item taken”—citing one of the three Penn Central criteria.

Roberts is right: we don’t ask that when title is taken, as here. But in labeling Horne a “physical” taking, and distinguishing it from a taking that “‘deprives the owner of all economically valuable use’ of the item taken,” Roberts opens up a question: Just what does “the item” refer to? Clearly, Roberts means to refer to “the property” in the sense of the whole parcel or the underlying fee. But that is not “the item” that is taken in a regulatory taking. The owner still owns the fee. What is usually taken is certain “economically valuable uses”—but not all such uses. Indeed, in many regulatory cases the owner is entitled to compensation only when all the uses are taken. That was the case in the Court’s 1992 Lucas decision, where the regulatory restrictions left the owner with an effectively worthless title.

The nub of the matter here is really quite simple, and it was stated by James Madison in his famous 1792 essay, Property: “In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.” In other words, it’s not simply the underlying fee that is our property. All the legitimate uses that go with it are our property as well. Thus, a taking occurs and compensation is due not simply when that last use is taken, which is what the Lucas Court effectively held, but when the first use is taken and the title is accordingly devalued. Those uses—those “items”—are our property too. Perhaps the Court will one day give us an integrated theory of property of a kind that Madison understood—before the rise of the modern regulatory state.

The Senate leadership is working hard to find the votes needed to support the trade agenda. Key to progress is passage of trade promotion authority (TPA), also known as “fast track”, which would commit Congress to vote up or down on a trade agreement rather than offering amendments. Opposition to trade liberalization has been a comfortable policy stance for senators beholden to organized labor and to the anti-growth left. Opponents on the right profess concern about the possible loss of national sovereignty and generally are reluctant to give President Obama greater authority of any kind.

Political realities sometimes require offering sweeteners to make a difficult vote more palatable. Trade adjustment assistance (TAA) has been legislated in the past to help workers and firms that are having difficulty dealing with competition from imports. Even though the economic and equity arguments in favor of trade-related unemployment benefits are relatively weak (Why treat people who are unemployed due to international competition differently than those who lose their jobs due to changes in technology, for instance?), the political rationale for TAA at times has been compelling. It’s not surprising that both the House and Senate have been searching for a way to pass both TPA and TAA. The president has expressed his preference to sign them at the same time.

With the outcome of the Senate vote on TPA not yet clear, it’s not surprising that there has been a search for additional sweeteners. The steel industry has pushed to include Sen. Sherrod Brown’s (D-OH) poorly named “Leveling the Playing Field Act” as part of the TAA package.  (My op-ed on the Act is available here.) Given the need to woo as many votes as possible, the Senate leadership has agreed to this request.

It’s not my intention to criticize pro-trade senators who are doing their best to pass TPA. Life can be complex, and political life all the more so. However, it may be worthwhile for free-trade proponents to think carefully about the implications of adding Sen. Brown’s measure as part of this effort to provide the president with negotiating authority.

Here’s the rub: the protectionist provisions of the “Leveling the Playing Field Act” would take effect as soon as the president signs the TAA legislation, but potential trade liberalization (if any ever gets enacted) would not be realized until sometime well in the future. The Trans-Pacific Partnership (TPP) – the first agreement that might be concluded once the president has negotiating authority – would not begin to be implemented until 2017 at the earliest, perhaps much later. Although details of the agreement are not yet public, restrictions on politically sensitive imports are likely to be phased in over perhaps as many as 20 years. Thus, the United States would be making its antidumping/countervailing (AD/CVD) regime more protectionist immediately in exchange for future liberalization that may or may not ever occur.

If possible, Senate leaders should remove the Leveling the Playing Field Act from TAA and let adjustment assistance be considered on its own merits. If that isn’t feasible, the effective date of Sen. Brown’s legislation should be changed so that it does not become operational until the eventual implementing legislation for TPP also becomes effective. That way there will at least be some growth-promoting liberalization to help offset the reduced economic welfare caused by the Leveling the Playing Field Act.

Making short work of the idea that facial challenges aren’t available under the Fourth Amendment, the Supreme Court ruled today in Los Angeles v. Patel that a city may not require its hotels to turn over their business records without some opportunity for review of the government’s demands. It’s the right result, but the Court was too quiet about its treatment of Fourth Amendment doctrine, and it did not take the opportunity to fully address situations like the case presented, in which the government dragoons private businesses into surveillance on its behalf.

Justice Sotomayor, writing for a 5-4 majority, held: “the provision of the Los Angeles Municipal Code that requires hotel operators to make their registries available to the police on demand is facially unconstitutional because it penalizes them for declining to turn over their records without affording them any opportunity for pre-compliance review.” Justice Scalia lead one bloc of dissenters believing it was reasonable to institute this kind of regulation on business owners suspected of no substantive crime because their facilities are sometimes used for crime. Justice Alito dissented as well, arguing that there should be no facial challenge to the statute because constitutional applications of it exist.

Had the stars lined up, the Court might have used the Patel case to address simmering issues around current Fourth Amendment doctrine, as the Cato Institute’s brief for the Court suggested. The Court indeed eschewed the backward “reasonable expectation of privacy” test, which finds that Fourth Amendment interest exists when people reasonably feel that it does. It instead examined whether the government’s scheme was reasonable, which is where the language of the Fourth Amendment focuses courts’ attention. But the Court did not broadcast the inapplicability of “reasonable expectation” doctrine, so most lawyers and lower courts will probably not realize that another in a growing line of cases is applying the Fourth Amendment in a new and better way, by hewing more closely to the text.

Part of the reason the Court didn’t take all the constitutional bait was the unusually narrow challenge the hoteliers brought. They attacked the collection of information by the government, granting for the sake of argument in this case that the government has the power to require them to collect information about their customers for the government’s later use. Had the Court considered the totality of what we called “the warrantless search scheme,” it would have had to assess whether it is reasonable in our constitutional system for private businesses to be dragooned into wholesale, comprehensive surveillance on behalf of the government. That scope might have brought the Court’s conservatives off the sidelines and into defending the degree of privacy against government that existed when the Fourth Amendment was adopted. (Surely, the government couldn’t have conscripted businesses into mass surveillance of the public at the time of the framing.)

Folks who are paying attention will recognize that the “reasonable expectation of privacy” test continues to recede in importance. We will continue to wait, though, for the case that clearly and articulately applies the right against unreasonable seizures and searches to information as such. While Patel is a technical win, some later case or cases will have to truly address how the Fourth Amendment is to be administered in the modern era.

In 2010 I blogged about which states have the strongest libertarian constituencies, using some data from political scientist Jason Sorens, founder of the Free State Project, and also 1980 Libertarian Party results from Bill Westmiller. That column can be found here, complete with graphics.

Now Sorens has updated his results with 2012 data added to 2004 and 2008. As he notes, the results are fairly similar. You still find the most libertarians in the rugged individualist states of the mountain West plus New Hampshire. The mountain states were also best for Ed Clark, the Libertarian nominee back in 1980. As I noted previously, New Hampshire was in the bottom 10 for Clark, but near the top in Sorens’s ranking in 2010 and a bit higher this time. I’m not really sure what caused the change. 

Sorens notes that “Vermont, Maine, Kentucky, and Texas have gained, while Michigan, Idaho, Indiana, and Georgia have fallen” in the later calculations. I pointed out previously that Kentucky, my home state, was dead last for the Libertarian candidate in 1980. And it didn’t do very well in Sorens’s 2010 ranking either. Since June 2010, of course, Kentucky has elected the most libertarian member of the Senate, Rand Paul, and one of the most libertarian House members, Thomas Massie. So it’s about time the state’s voters started moving up the libertarian rankings, albeit only slightly. 

Here’s Sorens’s latest ranking:

state libertarians
Montana 5.504036
New Hampshire 4.163368
Alaska 3.586032
New Mexico 3.319092
Idaho 2.842685
Nevada 2.477748
Texas 1.632528
Washington 1.568113
Oregon 1.180586
Arizona 1.0411
North Dakota 0.7316829
Indiana 0.6056806
California 0.5187439
Vermont 0.4731389
Utah 0.2056809
Colorado 0.1532149
Kansas 0.107657
South Dakota 0.0328709
Maine -0.0850015
Pennsylvania -0.2063729
Iowa -0.3226413
Georgia -0.3296589
Virginia -0.3893113
Maryland -0.4288172
Rhode Island -0.470931
Tennessee -0.4882021
Missouri -0.4912609
Arkansas -0.5384682
Louisiana -0.5897537
Nebraska -0.6350928
Minnesota -0.7662109
Michigan -0.7671053
North Carolina -0.811959
South Carolina -0.8196676
Illinois -0.9103957
Ohio -0.9599612
Delaware -1.057948
Florida -1.072601
District of Columbia -1.091851
New York -1.225912
Kentucky -1.330388
Massachusetts -1.342607
Wisconsin -1.410286
New Jersey -1.431843
Connecticut -1.606663
Alabama -1.863769
Oklahoma -1.93511
West Virginia -2.244921
Mississippi -2.519249

Lots of technical background can be found at Sorens’s post on the Pileus blog. More on the broader libertarian vote here and especially in this ebook.

The AP reports some good news out of Texas over the weekend: 

A long-standing Texas law that has sent about 100,000 students a year to criminal court - and some to jail - for missing school is off the books, though a Justice Department investigation into one county’s truancy courts continues.

Gov. Greg Abbott has signed into law a measure to decriminalize unexcused absences and require school districts to implement preventive measures. It will take effect Sept. 1.

Reform advocates say the threat of a heavy fine - up to $500 plus court costs - and a criminal record wasn’t keeping children in school and was sending those who couldn’t pay into a criminal justice system spiral. Under the old law, students as young as 12 could be ordered to court for three unexcused absences in four weeks. Schools were required to file a misdemeanor failure to attend school charge against students with more than 10 unexcused absences in six months. And unpaid fines landed some students behind bars when they turned 17.

Unsurprisingly, the truancy law had negatively impacted low-income and minority students the most. 

In the wake of the arrest of a Georgia mother whose honor role student accumulated three unexcused absences more than the law allowed, Walter Olson noted that several states still have compulsory school attendance laws that carry criminal penalties:

Texas not only criminalized truancy but has provided for young offenders to be tried in adult courts, leading to extraordinarily harsh results especially for poorer families.  But truancy-law horror stories now come in regularly from all over the country, from Virginia to California. In Pennsylvania a woman died in jail after failing to pay truancy fines; “More than 1,600 people have been jailed in Berks County alone—where Reading is the county seat—over truancy fines since 2000.”)

The criminal penalties, combined with the serious consequences that can follow non-payment of civil penalties, are now an important component of what has been called carceral liberalism: we’re finding ever more ways to menace you with imprisonment, but don’t worry, it’s for your own good. Yet jailing parents hardly seems a promising way to stabilize the lives of wavering students. And as Colorado state Sen. Chris Holbert, sponsor of a decriminalization billhas said, “Sending kids to jail—juvenile detention—for nothing more than truancy just didn’t make sense. When a student is referred to juvenile detention, he or she is co-mingling with criminals—juveniles who’ve committed theft or assault or drug dealing.”

It’s encouraging to see movement away from criminalized truancy, but it’s not enough. As Neal McCluskey has noted, compulsory government schooling is as American as Bavarian cream pie. We shouldn’t be surprised when the one-size-fits-some district schools don’t work out for some of the students assigned to them. Instead, states should empower parents to choose the education that meets their child’s individual needs.

Yesterday was the first day of Summer, and you know what that means? Sun, sand, the great outdoors…and a new issue of Regulation magazine. This issue contains a number of interesting articles that will be discussed in the coming months.

The cover articles provide perspective on the FCC decision to impose traditional public utility regulation on the internet. “What Hath the FCC Wrought”, by University of Pennsylvania professor and former FCC chief economist Gerald Faulhaber, argues that service quality will suffer to the extent that service providers can’t charge more for streams that require greater provider resources. Kansas State professor Dennis Weisman argues that internet regulation will likely protect competitors from competition rather than serve consumer interests just like the old telephone regulatory scheme.

A pair of articles discuss healthcare policy. West Texas A&M’s Neil Meredith and Heritage Foundation scholar Robert Moffit examine provisions of the Affordable Care Act encouraging the development of multi-state health plans (MSPs) intended to provide larger insurance pools while overcoming some of the regulatory burdens of state-regulated plans. They argue that eliminating questionable requirements would give consumers more opportunities to use MSP insurance.  University of Arizona professors Christopher Robertson and Keith Joiner propose two changes to health insurance to improve efficiency.  The first would set the stop-loss limit as a constant percent of wages rather than a fixed dollar amount.  The second would pay patients directly a portion of the cost of high-cost low-evidence-of-benefit procedures regardless of whether they obtained the procedure.  This would induce patients to think more carefully about the benefits of expensive uncertain-benefit procedures.

This issue continues Regulation’s long history of examining housing policy. Some Federal housing programs subsidize developers through tax credits to build affordable rental housing while other programs provide assistance directly to tenants in the form of vouchers. Edgar Olsen of the University of Virginia makes the case for moving to an all-voucher housing assistance program.

The Social Security Disability Insurance (SSDI) fund will run out of money in 2016. Consultants A. Bentley Hankins and Jeffrey Joy propose five reforms that would update the program to reflect increased life expectancy and the changing skill requirements of jobs.

For many decades, articles in Regulation have referenced work of the late Gordon Tullock to explain the political economy of regulatory policy. Zachary Gochenour examines Tullock’s legacy, and speculates about future trends in the field of public choice economics that he helped build.

For these articles and many more, read the full issue of Regulation here.

The near-unanimous Supreme Court decided today in favor of the farmers whose raisins the federal government wanted to take as part of a cockamamie New Deal-era regulatory scheme. The Court ruled 8-1 in support of Cato’s position that taking personal property is a compensable action, regardless of whether the government purports to act on the property owner’s behalf, and 5-4 on the question of compensation for that taking. (This is two years after the Court ruled 9-0 that the Marvin and Laura Horne could have their day in court and raise their constitutional challenge, rather than being stuck in some byzantine administrative purgatory.)

Of course, it should be rather obvious that when the government takes your property, its actions are subject to the Fifth Amendment’s Takings Clause, which requires that such taking be (a) for a “public use” and (b) subject to the owner receiving “just compensation.” And it should be equally obvious that the Constitution doesn’t distinguish between real property (your house) and personal property (your car). Yet the government insisted here that, at least in the context of agricultural-marketing/price-setting programs, it can take your crops and do whatever it likes with them so long as it’s all hypothetically for your own benefit.

Chief Justice Roberts swatted away that contention. Here are the key paragraphs (pages 4-5 of the slip opinion):

There is no dispute that the “classic taking [is one] in which the government directly appropriates private prop­erty for its own use.” Nor is there any dispute that, in the case of real property, such an appropriation is a per se taking that requires just compensation.

Nothing in the text or history of the Takings Clause, or our precedents, suggests that the rule is any different when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensa­tion when it takes your car, just as when it takes your home. (citations omitted)

There are some other nuggets in the opinion, including a riff on the government’s contention that raisin farmers, to avoid the Raisin Administrative Committee’s attentions, could simply sell wine: “ ‘Let them sell wine’ is probably not much more comfortable to the raisin growers than similar retorts have been to others throughout history.” Moreover, “[r]aisins are not like oysters: they are private property – the fruit of the growers’ labor – not “public things subject to the absolute control of the state.”

In any event, thus the Hornes’ multi-year fight against the U.S. Department of Agriculture ends in a definitive ruling that the USDA cannot assess them nearly half a million dollars for the value of the raisins they refused to relinquish (nor a $200,000 civil penalty that added insult to injury). Let’s not forget that this epochal battle involved two trips to the Supreme Court, where the government only got one of a possible 18 votes.

For more background on the case, see Trevor Burrus’s commentary when we filed our brief. For early reaction to the ruling, see Ilya Somin’s post at the Volokh Conspiracy.

Yesterday’s Supreme Court ruling regarding Confederate-flag license plates isn’t the last word on First Amendment protection for “offensive” speech. Indeed, it doesn’t even resolve all the issues related to government-insinuated expression. One case working its way through the lower courts regarding a controversial trademark – but not this one! – illustrates some of the pitfalls inherent in allowing the government to act as censor, for whatever reason.

A musician named Simon Tam wanted to “take back” and “own” what had previously been used as an ethnic slur by calling his Asian-American rock band “The Slants.” The Patent and Trademark Office found that this trademark was disparaging to Asians, however, so refused to register it under § 2(a) of the Lanham Act. This provision says, among other things, that the PTO may refuse to register a trademark that “[c]onsists of … matter which may disparage … persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”

This refusal to register the trademark was affirmed by a three-judge panel of the U.S. Court of Appeals for the Federal Circuit. But then the entire Federal Circuit—without being asked!—decided to erase that decision and consider whether § 2(a), or at least its application here, violates the First Amendment.

Cato and the Rutherford Institute have filed a brief supporting Tam’s trademark petition at this expanded appellate stage.

Registration, although not required to use a particular logo or other mark, provides a variety of benefits, such as the assumption of nationwide notice, extra damages and attorney fees during litigation, and other intellectual property-related advantages. But § 2(a) conditions these benefits on not using expressions with which the government disagrees, which is clear viewpoint discrimination. The government’s position effectively gives pride of place to hypothetical people who may be hypothetically offended—but even offensive speech is protected by the First Amendment and courts have prohibited the use of a heckler’s veto to allow the restriction of protected speech.

Because the Trademark Office’s action directly burdens speech, to sustain it, the government needs to a show that it’s the only way to achieve a compelling interest. But even if the putative trademark were considered to be purely commercial speech—which currently enjoys less constitutional protection than other kinds—the registration-rejection would still fail because people can use the mark without registration (i.e., it’s not fraudulent or misleading). And nobody is saying that registering a trademark represents government speech or even government endorsement of private speech.

In short, limiting Tam’s ability to enjoy all the fruits of his trademark because the government thinks the band’s name is lame violates the First Amendment. The Federal Circuit should let The Slants rock on!

Contrasting Chinese and American perspectives were on display at the recent Shangri-La Dialogue, during which Defense Secretary Ashton Carter challenged Beijing over its island expansion program. Privately the possibility of war has emerged as a serious topic in Washington. Both nations should draw back from their increasingly dangerous game of chicken.

China’s territorial claims involve a complex mix of control, historical practice, international law, and treaty. In the view of most observers, Beijing’s claims are extravagant. Yet they are not unprecedented.

The early American republic made aggressive claims against both Canada and Mexico. The United States won its claims in the first case through conquest and in the second instance through negotiation. Great Britain’s decision to accommodate the United States yielded long-term peace and future friendship.

As territory most of the islands are worthless rocks. However, they carry with them control over surrounding waters and underlying resources.

While Washington lays claim to no land, it insists on free transit in surrounding waters. Equally important, with China expanding many Americans want the United States to contain Beijing.

Indeed, there is increasing comment among the chattering classes about the importance of making China “pay a price” for its aggressive behavior. The administration is more vigorously advancing claims than the claimants themselves. The United States created particular controversy flying over islands claimed by China, courting a corresponding challenge from the latter.

The problem is not asserting American navigational freedoms, but doing so in a way seemingly designed to provoke a response. In 2001 similar military gamesmanship resulted in an aerial collision which killed a Chinese pilot and brought down an American spy plane, leading to an extended bilateral stand-off.

Since then both nations have become even more concerned over credibility and reputation, which means neither will readily back down when challenged. This creates a real danger of a military confrontation.

Rather than working to prevent such an eventuality, however, a number of officials, pundits, and analysts appear to view it as almost inevitable. I recently attended a gathering which mixed policy and non-political professionals. Without a neoconservative at the table there was broad agreement that Beijing had tossed down the gauntlet, so to speak, and had to be confronted.

Most sobering was the acknowledgement that an aggressive reaction could trigger a Chinese response in kind and a confrontation such as a ship collision or plane shoot-down. The consensus was that Washington would have to act immediately and firmly by, for instance, sinking a vessel or destroying a runway.

As I point out on China-US Focus: “The unspoken presumption was that the confrontation would end there, with Beijing duly chastened. But the obvious question is what if the Chinese made a similar calculation and escalated in turn? Some “damn fool thing” in the Asia-Pacific just might trigger war between the two nations.”

Washington enjoys military superiority but must disperse its forces around the globe. More important, the PRC views its interests in nearby waters as important if not vital. In contrast, American domination is not necessary for America’s defense. Beijing knows that and will risk much more than the United States in handling nearby territorial issues.

The possibility of miscalculation and misjudgment makes it even more important that all participants step back from confrontation. The fuse to war may be long, but no one should risk lighting it.

All parties should look for creative solutions to the plethora of territorial disputes. Countries could set aside deciding on sovereignty while jointly developing resources. Neighbors could share sovereignty and resources. Beijing could pledge to maintain navigational freedoms irrespective of the islands’ ultimate disposition. 

The disputed territory is important, but not worth war. Yet a dangerous dynamic appears to have taken hold. Instead of sleepwalking into a shooting war while assuming the other party will bend, both America and China should renew their determination to defuse territorial controversies peacefully.

Last September, I wrote about some very disturbing 10-year projections that showed a rising burden of government spending.

Those numbers were rather depressing, but a recently released long-term forecast from the Congressional Budget Office make the 10-year numbers look benign by comparison.

The new report is overly focused on the symptom of deficits and debt rather than the underlying disease of excessive government. But if you dig into the details, you can find the numbers that really matter. Here’s some of what CBO reported about government spending in its forecast.

The long-term outlook for the federal budget has worsened dramatically over the past several years, in the wake of the 2007–2009 recession and slow recovery. …If current law remained generally unchanged…, federal spending rises from 20.5 percent of GDP this year to 25.3 percent of GDP by 2040.

And why is the burden of spending going up?

Well, here’s a chart from CBO’s slideshow presentation. I’ve added some red arrows to draw attention to the most worrisome numbers.

As you can see, entitlement programs are the big problem, especially Social Security, Medicare, Medicaid, and Obamacare.

Even CBO agrees.

…spending for Social Security and the government’s major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created by the Affordable Care Act—would rise sharply, to 14.2 percent of GDP by 2040, if current law remained generally unchanged. That percentage would be more than twice the 6.5 percent average seen over the past 50 years.

By the way, while it’s bad news that the overall burden of federal spending is expected to rise to more than 25 percent of GDP by 2040, I worry that the real number will be worse.

After all, the forecast assumes that other spending will drop by 2.2 percent of GDP between 2015 and 2040. Yet is it really realistic to think that politicians won’t increase - much less hold steady - the amount that’s being spent on non-health welfare programs and discretionary programs?

Another key takeaway from the report is that it is preposterous to argue (like Obama’s former economic adviser) that our long-run fiscal problems are caused by inadequate tax revenue.

Indeed, tax revenues are projected to rise significantly over the next 25 years.

Federal revenues would also increase relative to GDP under current law… Revenues would equal 19.4 percent of GDP by 2040, CBO projects, which would be higher than the 50-year average of 17.4 percent.

Here’s another slide from the CBO. I’ve added a red arrow to show that the increase in taxation is due to a climbing income tax burden.

These CBO numbers are grim, but they could be considered the “rosy scenario.”

The Committee for a Responsible Federal Budget (CRFB) produced their own analysis of the long-run fiscal outlook.

Like the CBO, CRFB is too fixated on deficits and debt, but their report does have some additional projections of government spending.

Here’s the key table from the CRFB report. Not only do they show the CBO numbers for 2065 and 2090 under the baseline scenario, they also pull out CBO’s “alternative fiscal scenario” projections, which are based on more pessimistic (some would say more realistic) assumptions.

As you can see from my red arrows, federal spending will consume one-third of our economy’s output based on the “extended baseline scenario” as we get close to the end of the century. So if you add state and local spending to the mix, the overall burden of spending will be higher than it is in Greece today.

But if you really want to get depressed, look at the “alternative fiscal scenario.” The burden of federal spending soars to more than 50 percent of output. So when you add state and local government spending, the overall burden would be higher than what currently exists in any of Europe’s welfare states.

In other words, America is destined to become Greece.

Unless, of course, politicians can be convinced to follow my Golden Rule and exercise some much-needed spending restraint.

This would require genuine entitlement reform and discipline in other parts of the budget, steps that would not be popular from the perspective of Washington insiders.

Which is why we need some sort of external tool that mandates spending restraint, such as an American version of Switzerland’s Debt Brake (which you can learn more about by watching a presentation from a representative of the Swiss Embassy).

Heck, even the IMF agrees that spending caps are the only feasible solution.

In the context of discussing the Trans Pacific Partnership (TPP), and the U.S. role in the Asia-Pacific region, Robert Kagan of Brookings raises the specter of competition with China and says this:

Economically, China would like to turn Asia into a region of Chinese hegemony, where every key trade relationship is with Beijing.

Along the same lines, law professor Noah Feldman says:

China is using its close economic relationship with its neighbors as leverage to build its geopolitical position. Its ultimate goal is to displace the U.S. as the regional hegemon.

I’m puzzled by statements like these.  What do Kagan and Feldman think Chinese economic “hegemony” in Asia would look like?  What exactly do they fear?

I don’t know the answer to what’s going on in their minds, but I have tried to look at what China is actually doing.  One thing it is doing is signing trade agreements with other countries in the region.  So are these trade agreements part of a scheme to dominate its neighbors?  Well, the text of the agreement China signed with Australia was just released, so let’s take a look at some of what it says.  As described by the Australian government, China would liberalize a lot of its trade with Australia, including the following:

  • Health and aged care services: China will permit Australian service suppliers to establish profit-making aged care institutions throughout China, and wholly Australian-owned hospitals in certain provinces. This will greatly expand the Australian private health sector’s offering of medical services through East Asia.

So Australia is touting the agreement as a way to build hospitals in China, and more generally to sell products there. (Australia also notes that 92.9 per cent of China’s imports of resources, energy, and manufactured products from Australia will enter duty free right away, with most remaining tariffs removed within four years.) This makes the whole idea of China’s “economic hegemony” sounds a lot less scary. Rather than setting up a system to compete with the United States, China seems to be participating in the same rules-based, liberalizing trading system that the United States and just about everyone else is in.

I wrote more about this issue in a recent Free Trade Bulletin.

Senator Lindsey Graham likes to march onto war, and off into economic swamps, as well. Recently, Senator Graham mounted a counter attack on fellow Republicans who opposed the reauthorization of the Export-Import Bank. Indeed, the Senator said “…I’m not going to unilaterally disarm.” Yes, it is clear that the senator has mounted a surge.

The Export-Import Bank (Ex-Im) provides financing and loan guarantees at below-market rates to foreign purchasers looking to buy products from American exporters. For example, if Emirates Air wants to buy planes from Boeing, Ex-Im can provide a loan guarantee, reducing the interest rate Emirates will pay, and thus incentivizing Emirates to buy from Boeing rather than Airbus.

Ex-Im’s supporters claim that these subsidies create jobs and finance domestic economic growth. But, they fail to consider the ensuing downstream effects. As Cato scholar Daniel Ikenson makes clear, every dollar Ex-Im provides to subsidize foreign purchasers of U.S.-produced products discriminates against U.S. consumers of the same products. For example, when Emirates receives a subsidy for planes because it is a foreign company, Emirates gets a leg up on Delta.

An edifying account of how this system works was presented many years ago by the late Prof. Yale Brozen in his foreword to Prof. Leland Yeager’s classic Proposals for Government Credit Allocation (1977):

Whom you know and with whom you have influence becomes more important in obtaining capital than how productively you can use it. Capital is diverted from more productive uses to politically determined applications […]. The national income pie shrinks as an increasing proportion of our capital is allocated by the political process – not only because of its diversion from more productive uses but also because more and more of our resources are devoted to winning political influence, as that becomes the road to access to available capital and subsidies.

For the record, Ex-Im isn’t small potatoes. In FY 2015, Ex-Im’s loans and loan guarantees will total $30.9 billion, or 6.7% of all non-housing federal credit programs. The Ex-Im’s total cumulative loans and guarantees outstanding (read: credit exposure) currently sits at $112 billion. Because the loans are granted at below-market rates, the Ex-Im does not receive fair compensation for the $112 billion of risk it takes on.

Instead of adopting a policy that makes a few U.S. exporters winners at the expense of many losers, there is a way to make all U.S. firms more competitive: just lower the grueling corporate tax rate. Yes, according to the Organization for Economic Co-operation and Development (OECD), the U.S. has the highest corporate tax rate of the 34 OECD member countries.

There is clearly a better way to unburden U.S. corporations and make them more competitive internationally than to sponsor a “bank” in which politicians and bureaucrats, not capital markets, choose winners and losers. It is time to move away from a mercantilist view of trade towards one that puts the market back in control.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

The Papal encyclical Laudato Si’ is so rife with messages spun to fit the Pope’s liking that we hardly know where to begin.

The general theme of the encyclical is that in much of the world, a devotion to free market capitalism (i.e., profits) has disturbingly replaced a devotion to Mother Nature and such misplaced adoration is leading the world to deviate from God’s will and into poverty and ruin.

In doing so, the Pope downplays the myriad and remarkable technological achievements that have arisen in the developed world and have led to an improved standard of living, abundant food, greater well-being, longer lifespans, and a protected and healthier environment. It is from these existing and future technologies—largely made possible by free market conditions—that the solutions to poverty and accompanying environmental degradation will be rooted.

Going forward, we should not seek to rejoin with Nature (as the Pope urges), but rather decouple from it. This concept has been described recently in the Ecomodernist Manifesto. While we think this manifesto needs a bit of tweaking (e.g., less reliance on government actions), it seems decidedly on the right track (and one in nearly opposite direction of current state of environmentalism—which the Pope seems to be an adherent). For more on the Ecomodernists’ take on the papal encyclical, this collection of tweets from Michael Schellenberger of The Breakthrough Institute is especially enlightening.

When it comes to human poverty, there is a mountain of research dedicated to the topic. The role played by human-caused climate change (the particular focus of the encyclical) is virtually unidentifiable, much less quantifiable. Thus, an encyclical stressing a centrally coordinated (and compelled) international response to climate change—focused on eliminating the cheapest, abundant, and most reliable form of energy—as a solution to global poverty can only serve as a distraction from the issue.

There are lots of directed actions that can be effective at helping those around the world who live in poverty, but attempting to alter the course of the global climate isn’t among them. Bjorn Lomberg offers a few suggestions (and there are surely countless others):

These policies — ensuring freer trade, greater access to family planning, and nutritional interventions — cost a fraction of expensive, inefficient climate policies. When helping the world’s poorest is the goal, these are the investments that would truly make the biggest difference.

Instead of empowering, the policies being forwarded by the Vatican will lead to a worsening of the very social and environmental problems it seeks to address.

For this reason, we assign Pope Francis’ encyclical our highest rating—Permanent Press—“purposefully misleading commentary on science which will hinder actual scientific debate and credibility for generations to come, especially those with negative policy outcomes”—and award it five spin cycles.

I testified to the House Budget Committee yesterday on the history of federal debt and reasons to balance the budget. John Taylor, Jared Bernstein, and Ryan Silvey also testified.

The ratio of federal debt to the size of the economy has never been anywhere near as high during peacetime as it is today. Federal debt has often spiked during wars, but has always been reduced afterwards.

Before the 1930s, policymakers believed that high debt was immoral and bad for the economy. Those beliefs restrained the basic political instinct to spend more than the available revenue. Unfortunately, in recent decades, Keynesian theory has informed policymakers that deficit spending is beneficial. That has led to the “modern era of profligacy,” noted economist James Buchanan.

Federal borrowing imposes an unfair and damaging burden on future generations, and it should be avoided except during major crises such as wars. Paul Krugman and Steve Landsburg are completely mistaken when they urge people not to worry about government debt because we “owe it to ourselves.”

Cutting spending to balance the budget would reduce the damage from future taxes, increase macroeconomic stability, and potentially increase capital formation. Requiring the government to balance its budget would also curtail spending on lower-valued activities, create incentives to prune waste, and thus spur greater economic growth. 

The video and written testimony is here.

Today a narrow and unusual Supreme Court majority ruled that the DMV – of all government agencies! – is allowed to censor speech it considers to be “offensive.” To wit, the four “liberal” justices and Justice Clarence Thomas somehow found that the specialty license plates Texas drivers can choose to have on their vehicles actually constitute state speech – and of course the state can control its own messages, including rejecting a plate proposed by the Texas branch of the Sons of Confederate Veterans. This is so even though the specialty-license-plate program encourages Texans to come up with their own designs and slogans, which has resulted in around 400 plates that express support for a plethora of nonprofit organizations, commercial entities, affinity groups, and myriad other causes.

By this logic, Texas has long been endorsing Dr. Pepper, ReMax, and an assortment of burger and taco joints. Indeed, both Longhorns (UT-Austin) and Aggies (Texas A&M) will be dismayed to learn that the Lone Star State cheers for the Sooners (University of Oklahoma) and Cowboys (Oklahoma State). Surely at least one person is “offended” by each of the above examples, yet the DMV has refused to act in the face of such (macro)aggression. As the dissenting justices point out, it’s even more bizarre that, under the majority’s reading, “rather be golfing” is official state policy. It’s a wonder that the state has become America’s engine of economic growth!

To add hypocrisy to insult, the author of today’s decision, Justice Stephen Breyer, contradicted his own writing in the key recent precedent, a case regarding monuments in a city park. In the 2009 case of Pleasant Grove City v. Summum, Breyer concurred in the Court’s opinion “on the understanding that the ‘government speech’ doctrine is a rule of thumb, not a rigid category. Were the City to discriminate in the selection of permanent monuments on grounds unrelated to the display’s theme, say solely on political grounds, its action might well violate the First Amendment.”

Indeed. The ruling in Walker v. Texas Division represents a fundamental misunderstanding of what’s going on here. Texas doesn’t have to have specialty license plates, but if it creates this money-making program, it can’t then censor speech it simply doesn’t like.

As Cato wrote in our amicus brief, one man’s offensive speech is another’s exercise of social commentary or personal expression. And unlike, say, child pornography and “fighting words,” “offensive” speech is protected by the First Amendment.

It’s the Supreme Court that has offended the freedom of speech today. And now we know that the First Amendment is one thing that’s smaller in Texas.

In many areas of the tax system, loopholes create horizontal inequity in that two nearly identical people pay very different taxes for trivial differences in behavior. Tax schemes for the financially sophisticated abound, such as paying mortgages early, converting 401k funds, and even dodging death taxes.

Obamacare provides a particularly egregious loophole for reporting income. It is a very lucrative yet an unintended scheme. Despite Sen. Orrin Hatch calling it a “fraudster’s dream come true” back in 2013, the loophole still exists today.

To illustrate the Obamacare reporting loophole, consider the health insurance marketplace in Hialeah, Florida with two consumers. The first, Michael, is single, age 49, a non-smoker, and makes $46,000. The second, Lisa, makes $47,000 but is otherwise similar. Both find themselves ineligible for a taxpayer subsidy on HealthCare.gov and in searching more than 80 plans decide on a Humana Bronze plan with an annual premium of $4,092.

Where’s the reporting loophole? If Michael reports that he expects to make just $12,000 during 2015, he’ll ultimately pay $1,250 for his health insurance. If Lisa does the same, she’ll be on the hook for full amount. The Obamacare reporting loophole lowers Michael’s payment by more than $2,800, even though he wasn’t eligible for a taxpayer subsidy at all.

How does Michael profit from this? Obamacare offers sizable taxpayer subsidies to those with low income. Even so, many would have difficulty paying more than $4,000 in advance for health insurance. Instead, consumers can report their anticipated income and then have the subsidy advanced directly to the insurance company. Advanced reporting of income runs into a practical issue: Michael or Lisa might make an inaccurate report. If so, the advance subsidy would be incorrect. One might expect that Michael or Lisa would have to square up during tax filing season, a process the IRS calls reconciling. For single individuals like Michael with income under $46,680 (400% of the poverty line), the way in which the advance subsidy is reconciled encourages misreporting. Michael faces a repayment limit of at most $1,250, if the taxpayer advance to the insurance company was too large. In contrast, there is no upper limit on repayment for Lisa, because her income is above 400% of the poverty line.

The graph below shows how Michael or Lisa profit purely from misreporting, as income changes in relation to the poverty line. In technical terms, if the unsubsidized cost of the second lowest-cost silver plan for an individual exceeds $370 per month in 2015, the Obamacare reporting loophole can lead to misreporting subsidies of nearly $3,000. Similar incentives exist for married couples, but with different thresholds and amounts.

What can be done about this loophole? Misreporting arises because repayments are capped. Those above 400% of the poverty line have no incentive to misreport because they would have to fully repay the advance. Aligning incentives to report with actual income by uncapping repayments, as is done for those over 400% of poverty, would remove this loophole. As consumers, financial advisors, and healthcare navigators learn about the Obamacare misreporting loophole, it will be tempting for many people to abuse it, ultimately harming taxpayers.

The Vatican has released a new papal encyclical on the environment. Based on the version of Laudato Sii leaked ahead of time, the document is a highly political discussion of the theology of the environment.

Pope Francis mixes heartfelt concern for ecology with an often limited or confused understanding of the problem of pollution and meaning of markets. Humanity’s obligation for the environment is complex and the Pope discusses ecological values in the context of economic development and care for the poor.

Unfortunately, the document’s policy prescriptions sound like they were written by an advocate. The resulting factual and philosophical shortcomings undercut the larger and more profound theological discussion.

For instance, the encyclical complains much of capitalism as well as property rights, which, in the Pope’s view, allow selfish individuals to act against the public interest. Yet capitalism provides the resources and technology to improve environmental protection. Indeed, he acknowledges that “science and technology are a wonderful product of human creativity that is a gift from God.”

Market prices operate as signals. Laudato Sii complains that disproportionate consumption steals from “future generations.” Yet rising resource prices encourage people to use less, producers to find more, manufacturers to operate more efficiently, and entrepreneurs to create substitutes. Claims that humanity was running out of resources and destroying the ecology go back centuries and so far have been proved wrong.

Markets also compare the costs and benefits of different means to achieve a common end. In fact, markets and property rights are the most important means to provide people with what the Pontiff calls “a dignified life through work.” However, jobs are not created, like the earth, ex nihilio. The more regulatory dictates and higher energy prices, the fewer the jobs and lower the salaries.

The Pontiff asserts the “social function of any form of private property.” Property rights may not be absolute, but the legal right to land is most important for those who lack wealth and influence. Property rights also create incentives for environmental stewardship. Ownership vests both costs and benefits with a sole decision-maker who can be held responsible.

Most environmental problems occur because of what economists call externalities—costs and benefits that fall on others. Without an appropriate legal regime, industry can spew emissions far and wide. Drawing the line requires balancing complex interests: prosperity, liberty, ecology.

The encyclical lacks much sense of the flawed nature of government. The Pope is disappointed that environmental efforts “are often frustrated not only by the refusal of the powerful, but also by the lack of interest of the other.” However, public choice economists diagnosed this problem decades ago: concentrated benefits, diffuse costs.

Laudato Sii also argues for redefining progress. The Pontiff should encourage people to ask, “How much is enough?” But it is important that those living in comfort in the industrialized West not try to answer for those living in the impoverished Third World.

As I point out in American Spectator: “The Vatican’s comparative advantage is not legislation. At one point the encyclical asserts the importance of education on turning off ‘unnecessary lights.’ The discussion of climate change is partisan, even though the encyclical notes the Church’s obligation to ‘listen and promote honest debate among scientists, respecting the diversity of opinion’.”

In contrast, the Pontiff truly is acting as spiritual leader when he advocates a personal, social, and spiritual transformation in how people relate to the environment. His proposed “ecological conversion” should spark much discussion.

Moreover, Pope Francis wants to change behavior. He contends: “if we feel intimately united with all that exists, sobriety and care will arise spontaneously.” It is committed individuals who form the “innumerable variety of associations” advocating on behalf of the environment, cited by Laudato Sii, and whose reformed buying behavior can “change the behavior of firms.”

The Vatican is ill-equipped to assess environmental problems and develop policy solutions. The Pontiff’s duty is much more fundamental. Hopefully Laudato Sii, despite its practical shortcomings, will advance the larger and more important theological debate.

Education historian Diane Ravitch, in a recent Huffington Post piece, came out in support of school choice, but only choice in which you pay once for public schools, and a second time if you want or need something different than what those schools provide. In a familiar refrain, Ravitch argued that we pay through taxes for highways, police, firefighters, public beaches, and libraries even if we don’t use them, and schools should be no different. They are public goods.

Aside from the feel of circularity in Ravitch’s argument – these things are public goods, therefore you must pay taxes for them; because you pay taxes for them they are public goods – the crucial problem with Ravitch’s argument is the monumental difference between education and, say, building highways. Education is about shaping young people’s minds, something so intimately connected to values, identities, and basic freedom that it could never be tantamount to deciding whether to resurface roads or maintain a company to put out fires. And policing, most basically, is about ensuring one person doesn’t impose himself on another through force or fraud. That doesn’t come close to saying “we will require all people to pay for the inculcation of government-approved facts, ideas, and values in children.”

There is simply no meaningful equivalence between education and building roads or putting out fires. Except, perhaps, that when we force all people to support a single system of schools we ignite constant social conflagrations, fires that are often only put out when one side loses, or as Ravitch herself has documented, seemingly anything potentially flammable – but also often valuable – is removed.

Our nation very much needs fundamental tax reform, so it’s welcome news that major public figures - including presidential candidates - are proposing to gut the internal revenue code and replace it with plans that collect revenue in less-destructive ways.

A few months ago, I wrote about a sweeping proposal by Senator Marco Rubio of Florida.

Today, let’s look at the plan that Senator Rand Paul has put forward in a Wall Street Journal column.

He has some great info on why the current tax system is a corrupt mess.

From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.

And he explains that punitive tax policy helps explain why our economy has been under-performing.

…redistribution policies have led to rising income inequality and negative income gains for families. …We are already at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month.

So what’s his proposal?

…repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.” …establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.

Kudos to Senator Paul. This type of tax system would be far less destructive than the current system.

That being said, it’s not perfect. Here are three things I don’t like.

  1. The Social Security payroll tax already is a flat tax, so it’s unclear why it should be wrapped into reform of the income tax, particularly if that change complicates the possibility of shifting to a system of personal retirement accounts.
  2. There would still be some double taxation of dividends, capital gains, and interest, though the destructive impact of that policy would be mitigated because of the low 14.5 percent rate.
  3. The earned-income credit (a spending program embedded in the tax code) should be eliminated as part of a plan to shift all means-tested programs back to the states.

But it’s important not to make the perfect the enemy of the good, particularly since the debate in Washington so often is about bad ideas and worse ideas.

So the aforementioned three complaints don’t cause me much heartburn.

But there’s another part of the Paul plan that does give me gastrointestinal discomfort. Here’s a final excerpt from his column.

I would also apply this uniform 14.5% business-activity tax on all companies…. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.

You may be wondering why this passage is worrisome. After all, it’s great news that the very high corporate tax rate is being replaced by a low-rate system. Replacing depreciation with expensing also is a huge step in the right direction.

So what’s not to like?

The answer is that Senator Paul’s “business-activity tax” doesn’t allow a deduction for wages and salaries. This means, for all intents and purposes, that he is turning the corporate income tax into a value-added tax (VAT).

In theory, this is a good step. After all, the VAT is a consumption-based tax which does far less damage to the economy, on a per-dollar-collected basis, than the corporate income tax.

But theoretical appeal isn’t the same as real-world impact.

Simply stated, the VAT is a money machine for big government.

All of which helps to explain why it would be a big mistake to give politicians this new source of revenue.

Indeed, this is why I was critical of Herman Cain’s 9-9-9 plan four years ago.

It’s why I’ve been leery of Congressman Paul Ryan’s otherwise very admirable Roadmap plan.

And it’s one of the reasons why I feared Mitt Romney’s policies would have facilitated a larger burden of government.

These politicians may have had their hearts in the right place and wanted to use the VAT to finance pro-growth tax reforms. But I can’t stop worrying about what happens when politicians with bad motives get control.

Particularly when there are safer ways of achieving the same objectives.

Here’s some of what I wrote last year on this exact topic.

…the corporate income tax is a self-inflicted wound to American prosperity, but allow me to point out that incremental reform is a far simpler – and far safer – way of dealing with the biggest warts plaguing the current system.

Lower the corporate tax rate.

Replace depreciation with expensing.

Replace worldwide taxation with territorial taxation.

So here’s the bottom line. If there’s enough support in Congress to get rid of the corporate income tax and impose a VAT, that means there’s also enough support to implement these incremental reforms.

There’s a risk, to be sure, that future politicians will undo these reforms. But the adverse consequences of that outcome are far lower than the catastrophic consequences of future politicians using a VAT to turn America into France.

To wrap things up, there’s no doubt that Senator Paul has a very good proposal. And his heart is in the right place.

But watch this video to understand why his plan also has a very big wart that should be excised.

The Value Added Tax: A Hidden New Tax to Finance Much Bigger Government

For what it’s worth, I’m mystified why pro-growth policy makers don’t simply latch onto an unadulterated flat tax.

That plan has all the good features needed for tax reform without any of the dangers associated with a VAT.

P.S. You can enjoy some good VAT cartoons by clicking herehere, and here.

The Department of Veterans Affairs (VA) spends $60 billion a year providing health care benefits to service veterans. Its mismanagement is well-known and widespread. A recent letter provided to the Washington Post and Congress suggests that as much as 10 percent of the VA’s annual spending is in violation of federal contracting rules, representing billions of taxpayer dollars.

Employees of a New York VA facility used their government purchase cards to buy prosthetics for patients in a manner that violates standard operating procedures. Per the VA’s rules, purchasing cards are available to buy supplies costing less than $3,000. Items costing more require a contract and invoice.  The facility purchased at least 2,000 prosthetics for $24,999, well above the $3,000 limit and only $1 less than the card limit of $25,000. All told, $54 million was spent by this facility in violation of policy.

When congressional investigators heard about the questionable purchases at the Bronx facility, investigators asked for the accompanying contracts to prove the purchases were legitimate. VA employees tried to cover their missteps and blame the missing documents on Superstorm Sandy, according to the Washington Post.

VA officials had received an inquiry from Congress in September 2012 about the Bronx payments, but a letter signed by former secretary Eric Shinseki did not go out until July 2013. The agency had prepared to say that the records had been transferred to VA’s medical center in Manhattan, where they were destroyed in Hurricane Sandy, documents obtained by The Post show.

But in reviewing the claim that the records had been destroyed, a senior adviser in Shinseki’s office was skeptical. “Gemma — this isn’t going to work,” the adviser wrote in an e-mail obtained by The Post.

“The [congressman’s] letter was dated 26 Sept and the storm was 28 October. Yet we talk about visits in December 2012 and again in January. Not clear why we didn’t figure out in December that we lost the records and had to go back in January,” he wrote in April 2013.

“This is not cleared.”

Rice said in a statement Monday, “The damage caused by Superstorm Sandy was devastating and far-reaching, but the claim that all of these documents were destroyed strikes me as all too convenient and must be substantiated. We need to know exactly what happened to the documents, how and why this money was spent without written contracts, and who is accountable.”

This is just one instance of malfeasance. Jan R. Frye, VA’s deputy assistant secretary for acquisition and logistics, and now a VA whistleblower, found the actions at the NY facility were not an isolated event. Frye found a total of $1.2 billion in prosthetics purchases without a contract over an 18 month period in 2013 and 2014. Frye sent a 35 page memo to the VA Secretary, Robert McDonald arguing that laziness is the motivating factor behind the VA’s mismanagement. Purchasing cards are much easier than using the contract process.

Frye is not the first to criticize purchasing card usage by the VA. The Washington Post says:

Some of his [Frye’s] concerns were previously flagged by VA’s inspector general, who has reported for years that weak contracting systems put the agency at risk of waste and abuse. Thousands of pharmaceutical purchases were made without competition or contracts in fiscal years 2012 and 2013, often by unqualified employees, investigators found. And according to documents that have not been made public, the inspector general’s office has warned VA repeatedly that its use of purchase cards needs better oversight.

As much as $6 billion of VA’s annual spending violates federal contracting rules. Internal stakeholders have raised the issue in the past, now it is time for the VA to finally tackle the issue.

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