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Snow's job: Selling the Bush agenda in Term 2
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Snow's job: Selling the Bush agenda in Term 2

BY Thomas Kostigen

SANTA MONICA, Calif. (CBS.MW) -- In what is a surprising move to many, John Snow will remain as U.S. Treasury secretary for President Bush's second term. There had been widespread speculation that Snow would not be asked to stay on, and rumors were rampant on Wall Street as to who would be his successor. Forbes magazine publisher Steve Forbes and former Texas Senator Phil Gramm had been considered as candidates, according to reports.

12/14/2004
Don't Feel Sorry For States: They Caused Their Deficits
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Don't Feel Sorry For States: They Caused Their Deficits

BY JASON M. THOMAS

State budgets have rarely, if ever, been in worse condition than they are today. According to the National Association of State Budget Officers, the total deficit for state budgets nationwide stands at $40 billion in this fiscal year, with another $40 billion shortfall expected for 2003. Such a glaring disparity between revenues and outlays has led legislatures and governors across the nation to retrench and meet for special sessions to address the problem. Since nearly every state's constitution requires a balanced budget, the states lack the budget flexibility afforded to the federal government. But with capital spending kept off balance sheets, "rainy day funds" and refinancing of debt service obligations, states have lots of room to maneuver before real cuts have to be made. Not to mention the states' ability to return to the politically expedient well of cigarette tax revenues and the settlement money from the 1990s Medicaid class action against the tobacco industry. Yet budgetary obfuscation has its limits, and during this past year 39 states have cut enacted budgets by a total of $15 billion. This spending reduction more than tripled 1992's previous record $4.5 billion in enacted budget reductions. Most of these cuts have been across-the-board general fund reductions, with schooling and security spending exempted in many states. Federal Bailout? The size of these budget cuts has led many commentators, including Paul Krugman of The New York Times, to advocate the federal assumption of state deficits so "necessary services" aren't compromised. While good-natured, this would have the same effect as giving candy to a child for sticking a fork into an electrical socket. Today's record cumulative state budget deficit of 7.8% of aggregate general fund revenues did not just happen. It's the product of irresponsible budgeting and overly sanguine revenue forecasts. By rewarding states' fiscal negligence, the federal government would encourage -- and get -- more of the same. In the past decade, state budgets increased by 88%, which led total state government spending to eclipse $1 trillion in 2001. During the economic boom of the late 1990s, state spending grew 35% even though nearly a quarter of total state spending is need-based, which should fall during a period of prosperity. While welfare (Temporary Aid toNeedy Families) spending fell from 4.9% of state spending in 1992 to 2.2% in 2002, Medicaid's share rose from 17.8% to 20.5% during that same period. Elementary and secondary education spending grew roughly 85% during the past decade, as did higher education spending, with few, if any, criteria put in place to determine if the money was well spent. Unimpeachable in public discourse, higher education spending has fed a thriving public employees' union and done little, if anything, to address the faltering scholastic performance of American youth. Increased higher education spending has also gone to entrenched interests and established public universities instead of being targeted to needy families and prospective students. Higher education spending has become an entitlement for the upper middle class, who are able to send their sons and daughters to public universities at a fraction of the actual cost of the education. This has created excess demand for public universities, which has forced states to issue more bonded debt to build new dormitories and classrooms to house and teach these mostly middle-class students. The struggling economy has provided a welcomed check on extravagant state spending, but in some areas, like Medicaid, spending increases continue unabated. Medicaid spending is expected to rise by 13% in 2002 after an 11% increase in 2001. Health Care Nightmare While most states have blamed increases in prescription drug spending (18% in 2002), the problem is the system itself. It needlessly separates patients from doctors by erecting a dependent health care bureaucracy. Some hospitals and clinics win funding, others lose it; some treatments and drugs win Medicaid reimbursement, others do not. Through it all, the premium is placed not on quality of care and winning the trust and patronage of Medicaid beneficiaries, but on political sponsorship and lobbying. As a result, much of the Medicaid budget is squandered on the political funding contest and the inefficient allocation of resources. Patients not only have little choice among caregivers, but also absolutely no incentive to be discriminating health care consumers. Millions are lost each year on unnecessary treatments, emergency room visits and excess capacity. Until states start addressing these problems in a serious fashion, and stand up to the demands of the bureaucratic power centers of health care and education, the federal government should not take the cries of state lawmakers seriously. And state voters should remember well when lawmakers hike taxes and sacrifice their take-home pay at the altar of public employee unions. Jason M. Thomas is a staff economist with the nonpartisan Citizens for a Sound Economy. Today's record cumulative state budget deficit . . . didn't just happen; it is the product of irresponsible budgeting and overly sanguine revenue forecasts.

12/27/2002
Have Gov't Antitrust Actions Made Airlines' Woes Worse
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Have Gov't Antitrust Actions Made Airlines' Woes Worse

BY Joseph Gointo

What hurts consumers more, a merger or a bankruptcy? That's what some are asking after financial woes at US Airways and United Airlines. The two carriers scrapped a merger last summer after the Justice Department threatened to sue. It's hard to imagine now, but at the time Washington frettedthe combined carrier would be too dominant. Dozens of lawmakers complained that deal would hurt constituents. Sen. Charles Schumer, D-N.Y., for one, said it would mean a cutback in flights to New York, especially daily service from Washington's Dulles International to upstate cities. But times have changed. US Airways is bankrupt. It's cut more than 30% of its schedule. United, veering toward Chapter 11, has slashed flights by 20% andlaid off thousands. And flights between Dulles and upstate New York? United has cut daily departures to Albany from nine to four, to Syracuse from nine to three, and to Rochester from 11 to four. More cuts may be coming. Should Have Merged That has some asking if Justice was wrong to block the deal. "While the effects of Sept. 11 on airline travel cannot be underestimated . . . much of (United's and US Airways') financial turmoil could have been averted had the Bush administration allowed the two airlines to merge," said Jason Thomas, economist at Citizens for a Sound Economy. Few dispute that. But there's no consensus the Justice Department erred in opposing the deal. "The merger would have saved US Airways from the bankruptcy courts," said Richard Gritta, an industry expert at the University of Portland. "But it certainly would have done so at a price to the consumer." Experts may disagree whether Justice made the right decision. But they do agree the decision is important, because airlines are talking partnerships again. So President Bush's trustbusters must again decide whether to allow the deals or squelch them. And this time around, the airlines' finances clearly are worse, while the partnerships are more vague. Instead of merging, US Airways recently said it will "code share" with United. That will let passengers book a flight on one airline but connect to a flight on the other, all through one ticket. Northwest, Continental and Delta announced a similar pact last week. Financial Necessity The Transportation Department is reviewing both code-sharing plans. And the Justice Department may conduct its own review. In the meantime, neither agency has much to say on the subject. While the decisions await, some speculate the financial upheaval in the airline industry may mean a smoother ride through the review process than the US Airways-United deal got last year. "It is accepted by all sides, including the Department of Justice, that whena company is in financial trouble, exceptions (to antitrust rules) are made," said Nicholas Economides, an antitrust expert at New York University. The exceptions fall into a couple of categories. Both the "failing firm" and"existing assets" theories of antitrust law let otherwise anti-competitive deals proceed if one of the parties may go out of business. No one is sure whether those theories would apply to the code-sharing deals,though, since none involves actual mergers. Even if they do, the exceptions might not help. To qualify as a "failing firm," a company has to be in real danger of disappearing from the marketplace. And airlines have a long history of surviving after declaring Chapter 11. Continental has done that twice. Plus, some think the Justice Department may not consider concepts like "failing firm." Rather, it may limit a review to specific parts of the code-sharing deals that may be anti-competitive. That might mean looking at where one carrier's flights overlap with another's to see if code sharing on that route will reduce competition and boost prices. "Justice has a very narrow focus," said Luke Froeb, an economist at Vanderbilt University and an antitrust official under President Reagan. "Broader concerns . . . rarely enter into their analysis. They take it one caseat a time." Still, that can mean problems. When the US Airways-United decision was made,well before Sept. 11, the airline industry already was slumping. At the time, some analysts said a United-US Airways merger was the only way out of bankruptcy. But the contraction of the industry was not key for Bush's trustbusters at the time, many say. Creative Destruction Even if it had been, some experts argue, it's better to let firms fail even if that means short-term harm to consumers -- like the service reductions and price spikes that can happen after an airline goes broke. Economists call that "creative destruction." That idea, from Austrian economist Joseph Schumpeter, suggests markets must cycle through failure to achieve "perfect competition." Sick, dying firms are replaced by healthy, vibrant ones. By those terms, Justice arguably made the right choice in nixing the United-US Airways deal. "There are definitely short-run ramifications if an airline fails," Gritta said. "But ultimately the free market works. The airlines wanted deregulation. They got it. In a deregulated market, if you fail, you fail."

09/03/2002
Real Debt Relief: Paying Back The American Taxpayer Should Be Job One
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Real Debt Relief: Paying Back The American Taxpayer Should Be Job One

BY James C. Miller III

For nearly three decades, annual outlays of the U.S. government exceeded annual receipts, and the federal debt rose steadily - until 1998. Since then, the federal government has run significant annual surpluses. Paying off a major portion of the debt within a decade appears not only feasible but altogether likely. This presents a set of questions heretofore not addressed. For example, what proportion of the national debt could be paid off without incurring unreasonable costs? At present, the public debt is $ 3.4 trillion. Even if the Treasury Department were to end the Savings Bond program, the state and local series, and other such programs, as well as suspended the issuance of longer-term debt, some $ 500 billion would mature after 2011. To pay down more, Treasury would have to engage in very aggressive "buy-back" strategies, and these can be costly. Using more reasonable assumptions about policy and economics, the Office of Management and Budget and the Congressional Budget Office project that roughly $ 1 trillion would be unavailable for redemption in 2011 - a concept Fed Chairman Alan Greenspan recently labeled the "irreducible minimum." Even assuming you could pay off the national debt, it would not make sense to end the program completely. First, the federal government needs to borrow in order to cope with month-to-month variances in receipts and outlays. Furthermore, it needs the ability to borrow on a substantial scale if circumstances demanded it. How much debt it would be prudent to pay down and whether to end the program forever are matters over which experts can endlessly disagree. But the more vital issue is what the federal government might do with this surplus once the debt was paid down to this "irreducible minimum." There are really no good answers to this question. The federal government could place these hundreds of billions, or even trillions, of dollars in bank accounts. The government presently maintains bank accounts in order to facilitate thousands of transactions each and every day. But it doesn't load up these accounts with massive balances, nor should it. Purchasing assets appears the obvious answer. But as Chairman Greenspan has cautioned, "It would be exceptionally difficult to insulate the government's investment decisions from political pressures." Moreover, disposing of such huge surpluses in this fashion would mean government controlling or outright owning substantial portions of the U.S. economy. Under CBO's and OMB's base lines, more than $ 3 trillion in such "excess surpluses or excess cash" are projected by 2011. If all were invested in equities, the U.S. government would be able to control roughly 10 percent of the total stock market in 2011. The prospects for harmful effects on economic efficiency, not to mention the potential for political chicanery, are chilling. If surpluses were to continue after the debt was retired, another course would be to create a system of personal investment accounts. These could be for the purpose of augmenting individuals' retirement accounts, health care coverage or even promoting other worthy goals like education. In effect, the government would be forcing people to pay according to the canons of the tax code and then guiding them in their purchase decisions. Our choice would be between creeping communism and creeping socialism! But the question has to be asked: Why run a surplus once the debt is paid? Why should the U.S. government, not to mention the American taxpayer, be put in such a bind? What reason is there for the government to accumulate substantial cash balances? It could create some sort of "rainy day fund," as some states have done. But surely the kind of balances we are talking about far exceed any reasonable need along those lines. Moreover, the "rainy day" device is not so important for the national government, which is subject to far less swings in revenues and outlays, and which has a much easier time of issuing debt if warranted. The obvious answer is to phase out the surplus in a thoughtful and cost-effective manner. As Chairman Greenspan recently testified, "it is far better . that the surpluses be lowered by tax reductions than by spending increases." In fact, to avoid a return to deficits, Congress and the president must take action to lower spending in the future. As for the debt, it should be placed on a glide path to reach the "irreducible minimum," and the remaining surplus should be returned to whom it belongs - the American taxpayer. James Miller is a former director of the Office of Management and Budget. He is now counselor to Citizens for a Sound Economy Foundation, a market-oriented research and education organization in Washington, D.C.

05/17/2001
Foes Of Tax Cuts, Fans Of Big Gov't
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Foes Of Tax Cuts, Fans Of Big Gov't

BY James C. Miller III

Amid the controversy over House action on President Bush's tax cut, it's easy to miss the bigger battle. Whether Bush is moving too fast or too slowly, whether government should address revenue before outlays or vice versa, whether there should be a "trigger" on the tax cut - these are all tactics in the larger battle over the size and scope of the federal government. Take the argument that the president has "rushed through" the tax cut. Any new administration can get more done in the first day than in the next week, and more in that week than in the next month. Also, it is easier to defeat a bill than to get one passed into law. So fail to act quickly, and your tax cut is toast. Not surprisingly, those making the charge that the House acted precipitously and ignored "democratic processes" are found on the side of bigger government. Or take the debate over deciding revenue before outlays. Should Congress first decide how much of the taxpayers' money it can "afford" to spend and then budget accordingly? Or should it decide how much to spend and then adjust tax revenue? The second approach leads to greater revenue and spending than the first. So is it any wonder that those whose vision is an ever-larger government are among the most vocal critics of addressing revenue first? Finally, take the proposal to incorporate a "trigger" that would suspend the tax cut if the surplus fell below forecast. Such triggers do work. In the 1980s we had one called Gramm-Rudman-Hollings (GRH). In the first year of its operation, the growth in the federal deficit was reversed and came down a record $ 71 billion. Government spending, adjusted for inflation, actually fell for the first time in nearly two decades. In fact, GRH worked so well that it came under intense fire from members of Congress who simply could not live within its restraints. The GRH trigger was on the spending side. If the deficit failed to be eliminated according to schedule, a "mechanical robot" would cut spending across the board. Under the trigger being promoted today, if the surplus weren't maintained, tax rates would go up. But if the concern is really about the surplus, a spending trigger would suffice just as well. In fact, a spending trigger would work better. The tax cut is designed to put the economy back on its expansionary course by lowering marginal tax rates and giving investors more incentives to expand production. A tax trigger would add uncertainty and dampen the response the tax cut is meant to create. Naturally, proponents of the tax trigger tend to be aligned with larger government. What is surprising is that the proponents of the tax cut don't counter with a trigger of their own - one that would cut spending and thus focus the debate on the real issue, the size and scope of government. James Miller is a former director of the Office of Management and Budget. He is currently counselor to Citizens for a Sound Economy Foundation, a market-based education organization in Washington, D.C.

03/22/2001
Keynes Is Passe: Both Parties Say Goodbye To His Stimulus Concept
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Keynes Is Passe: Both Parties Say Goodbye To His Stimulus Concept

By James C. Miller III President Nixon once said, "We're all Keynesians now, " meaning that politicians had learned a lot from economists, including John Maynard Keynes. Liberal wags announced the intellectual debate over. Keynes had won, they said. Not so fast. Yes, Lord Keynes was a bright fellow who made important public contributions. He tried to salvage the post-World War I European economies, and he helped to orchestrate the post-World War II Bretton Woods agreement, which contributed enormously to the economic expansion of victors and vanquished alike. But it was his musing about a "general theory of employment, interest and money" that made him a household name. Other economists, especially some in the U.S., embraced his theory, using it to justify a large role for government. To the problem of recession or depression, they answered: Prime the pump, increase government spending. Later, pump-priming took the form of tax cuts, as in the initiative launched by President Kennedy (although it has become increasingly evident that he did this more for what are now called supply-side reasons). The domination of Keynesian fiscal policy reached its zenith during President Johnson's administration, with the ascension of Gardner Ackley to the chairmanship of the Council of Economic Advisers. By then, it was presumed by almost every professional economist that the way to ensure full employment was through demand management, and that the way to accomplish this was through fiscal policy. Monetary policy was presumed to be of little use, and was largely ignored. Then, over the next decade or so, there was an interesting and altogether unexpected development. Researchers, led most importantly by the research shop at the Federal Reserve Bank of St. Louis, began testing the relative effectiveness of fiscal policy vs. monetary policy and found the latter quicker and far more predictable in its effects on aggregate demand. In a rough-and-ready way, this was a debate over monetarism vs. Keynesianism, and monetarism won. The supply-side revolution, which emphasizes the need to maintain low tax rates and small government and pursue stable monetary policies to promote economic growth and maintain full employment, has carried the day. Notice that the Bush tax cut is being supported and opposed primarily as a moral matter. "It's not right for the government to keep so much of your money" - and "No one should have to give the government more than one-third of their income" - are mantras of its proponents. Opponents say it would "cost too much" and that it would "buy a Lexus for the millionaire, but just a muffler for the working person." Because of recent adverse economic news - last month Federal Reserve Chairman Alan Greenspan suggested the economy is probably at a standstill - some argue that an immediate tax cut is needed to stimulate the economy. But note, this debate is not really being framed in Keynesian terms. While Treasury Secretary Paul O'Neill has argued for putting "money into the hands of Americans quickly," this should not be considered evidence of a "revival of Keynesianism," as argued by Washington Post columnist Sebastian Mallaby. The real argument for making the tax cut immediate rests on history: The tax cut must avoid what happened with the Reagan tax cuts in the early 1980s, where the delay in their implementation caused people to shift taxable income to the future, making the recession more acute than it would have been otherwise. Cutting taxes immediately to increase confidence in the future, and thereby promote consumption and new investment, is an argument properly characterized as supply-side. Opponents fall back on their "can't afford" rhetoric. According to New York Times economics columnist Paul Krugman, "claims that tax cuts can be accelerated without reducing our soon-to-be-gone budget surplus are disingenuous." This may or may not be true, but it hardly qualifies as a demand-side argument. No longer is the debate over pump-priming. Gone are proposals for countercyclical spending increases and one-shot injections of consumer purchasing power - such as Sen. George McGovern 's offer to give everyone a cash grant, a notion revived under President Carter by Charles Schultze, then CEA chairman. If this intellectual turnaround seems a little breathtaking, keep in mind that it is breathtaking to professional economists as well. Once the staple of any course in macroeconomics, Keynesianism is now all but abandoned. We should not let deficiencies in Keynes ' general theory and what it spawned blind us to his important contributions. But the idea that made him a household name, "fiscal stimulus," is no longer taken seriously by either political party. James C. Miller III is a former director of the Office of Management and Budget. He is now counselor to Citizens for a Sound Economy Foundation, a market-based public policy organization in Washington, D.C.

02/22/2001
The Media's Coup: McCain 'Reform' Is A Win For Press, But Loss For Voters
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The Media's Coup: McCain 'Reform' Is A Win For Press, But Loss For Voters

By James C. Miller III The general public is far less concerned with campaign finance reform than journalists and incumbents are. During the recent presidential election, poll after poll found the issue ranked near the bottom of voters' concerns compared to matters such as health care, education and taxes. A Portrait of America poll found the public ranked campaign finance 24th of 28 issues in order of importance, and the Gallup Poll found a majority of Americans consider it either a low priority or no priority at all. Yet it is hard to turn on the TV or pick up a newspaper without being bombarded with arguments about the evils of campaign finance. The public's attitude toward politics is not one of disinterest. It is one of despair that any reform would improve the quality of political representation. Gallup reported last October that six out of 10 people believe "no matter what new laws are passed, special interests will always find a way to maintain their power in Washington." The interests of journalists and incumbents in campaign finance reform are transparent. By limiting the power of challengers to acquire the money to get their messages out, it increases the power of the media to be the conduit and interpreter of those messages and gives additional protection to incumbents. As amply demonstrated by my own writings and those of others, the salient characteristic of the current campaign law is its protection of incumbents against challengers. Various provisions make it very difficult for a challenger to raise enough money to overcome the incumbent's name recognition and access to funds. The incumbent 's dream, of course, would be a flat-out prohibition on campaign spending. Under that scenario, challengers remain unknown, incumbents get all the attention and volunteers and, barring some sensational scandal, citizens vote for the devil they know rather than the one they don't. So, with the media and elected officials driving the process, we are likely to end up with campaign finance reform that caters to their interests, not those of the voters. Determing how we select our representatives does matter. Having a competitive market for representation is just as important as having a competitive market for automobiles, groceries and, yes, computer operating systems. David Boies' characterization of Microsoft pales in comparison with any objective description of monopoly power in politics. Incumbents, not challengers, set the rules under which "competition" takes place. Incumbents establish the means to enforce those rules through the Federal Election Commission. They confirm some of its officials. They appropriate its operating budget, and they monitor its activities. The result is that political representatives on the whole are not nearly as responsive to voters' concerns as they would be if political markets were truly competitive. Why is the Postal Service the brunt of so many jokes about poor service? Not because it's a government enterprise, but because, at least until recently, its customers have had little choice. When did the U.S. automobile industry become significantly more responsive on quality and price - before the competition from imports, or after? Would the U.S. cell phone industry be anything like as dynamic as it is today if it were a monopoly? Do you think your fuel bills would be higher or lower if all energy sources - natural gas, oil, electricity, even wood - were owned by a single firm or managed by a cartel? Why expect anything different when it comes to politics? For the most part, well-meaning proposals such as the McCain-Feingold/Shays-Meehan legislation could make political markets less competitive, not more. The latest version of the Senate bill would increase the limit on "hard money" contributions to political parties (which tend to funnel money to incumbents), but would not raise the limit on direct contributions to candidates (which would be particularly helpful to challengers). Moreover, the bill would make it more difficult for outside groups to support candidates and would even limit (probably unconstitutionally) the ability of individuals and groups to promote or oppose issues - the effect of which might benefit one candidate over another. If campaign finance reform were to increase the overall advantage enjoyed by incumbents, it would not necessarily be the voter's friend. When it comes to campaign finance, the media may extol the vision and foresight of reform's champions, and elected officials may, with reluctance, say, "Throw me in that briar patch." But the voting public could be taken for a ride. James C. Miller III is counselor to Citizens for a Sound Economy Foundation, a market-based public policy organization in Washington, D.C. He is the author of "Monopoly Politics," published by the Hoover Institution in 1999.

01/07/2001
Legal Analyst Walter Olson On Tort Reform
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Legal Analyst Walter Olson On Tort Reform

BY Charles Oliver

Investor's Business Daily Presidential candidates Al Gore and George Bush will seek to define themselves as the campaigns pick up steam. One of the biggest policy differences between the two men is on the issue of tort reform. Cutting the costs of the legal system is a major issue of Bush's campaign. Gore has been largely silent on the topic this year, but generally resisted such efforts in the past. Investor's Business Daily spoke to legal analyst Walter Olson about tort reform and the role it may play in the coming election. IBD: Will tort reform be a hot issue in the upcoming election? Olson: The Republicans seem prepared to press it. I counted five mentions of it during speeches at the GOP convention, though Bush himself didn't mention it. IBD: So would it be correct to say that while it will be an issue, it won't be a major one? Olson: No, I think it is a major issue. Bush has stated repeatedly over the course of the campaign that this topic is a high priority for him. IBD: But he's talked about a lot of issues over the last year. Olson: Yes, but Bush has a track record on the issue. When he first campaigned for governor, he said he had a handful of issues that he wanted to focus on, including tort reform. He said that his opponents might want to debate other issues, but he was always going to bring it back to his own core issues. And observers were amazed at how well he kept that promise. IBD: What about after he took office? Olson: Even more remarkably, he continued to focus on those issues, and he got something on all of them. IBD: What did he get in the way of tort reform? Olson: He got quite a bit. In fact, the package of reforms passed in Texas is one of the most sweeping passed by any state. IBD: Was it a very radical package? Olson: No, all of it was in the mainstream of what has been done over the last decade. Texas took various things that other states have done and put them together into one big package. IBD: What was in that package? Olson: One of the big things Texas addressed was forum shopping. IBD: That's where lawyers search for the most favorable venue for their case, even if it has little relation to the case. Olson: Right. Before the changes, suits could be brought in Texas even though the plaintiff wasn't from Texas, the defendant wasn't in Texas and the act being sued over didn't occur in Texas. But under Bush, Texas required a connection to the alleged injury or to the defendant's place of business for a suit to be brought. This has reduced forum shopping. IBD: What else has Texas done? Olson: It's made it easier for judges to punish those who file frivolous suits by ordering them to pay the court costs of those they've sued. Texas also limited punitive damage awards. IBD: What impact did this have? Olson: A recent report from Citizens for a Sound Economy says the changes have reduced tort costs by about $ 7 billion. IBD: How much responsibility does Bush bear for those changes? Olson: Quite a bit. In other states, tort reform began in the legislature, and the governors either simply went along with the proposals or opposed them. But in Texas, Bush was a leader on the issue. IBD: What does Bush want to do at the federal level in terms of tort reform? Olson: Bush called for "three strikes" legislation that would disbar an attorney who files three frivolous lawsuits in federal court in three years. The plan also calls for lawyers who rejected a pretrial settlement and eventually lost their case, or received a much smaller settlement, to pay opponents' legal fees. He also proposed new rules to let clients challenge the fees of their own attorneys in federal court and prohibit federal agencies from paying lawyers with contingency fees. IBD: What about the other side? What is Al Gore's record on tort reform like? Olson: In his years in the Senate, Gore generally opposed efforts to curb lawsuits. IBD: But Gore has been largely silent on the issue during this campaign. Olson: He seems to have judged it an unpromising voter strategy to take the offensive on the issue. IBD: In contrast to Gore, his running mate, Sen. Joe Lieberman, has a long record in favor of tort reform. Olson: That's right. He has said that lawmakers have a duty to minimize disputes, and to encourage those who do have disputes to resolve them as efficiently and as quickly as possible. He joined Republican senators to sponsor legislation providing for small-business liability relief and asbestos-suit reform. And he was one of just four Democrats to vote to curb the huge fees of private lawyers hired by the states to sue tobacco companies. IBD: He also voted to keep the District of Columbia from suing gunmakers for deaths caused by firearms in the district. Olson: That's right, although Lieberman is generally a strong advocate of gun control.

08/16/2000
Gore's 'Social Security Plus' Proposal Offers New Funds, But Little Reform
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Gore's 'Social Security Plus' Proposal Offers New Funds, But Little Reform

BY Peter Cleary

This week Vice President Al Gore announced a proposal for a new plan that allows American workers to build up savings through new investment accounts. Called Retirement Savings Plus, the Gore plan would provide $ 200 billion in tax credits over 10 years to low- and middle-income workers who choose to participate. Gore offered his proposal as an alternative to a Social Security reform plan offered by Gov. George Bush. Bush's plan would let young workers put part of their payroll taxes into private investment accounts. "This (plan) is Social Security plus, not Social Security minus," said Gore. "It doesn't come at the expense of Social Security. It comes in addition to Social Security." Critics say Gore's plan has nothing to do with Social Security, but is rather an attempt to blunt the popularity of Bush's plan. Still, the plan could encourage more workers to save and invest - especially those workers who don't do much saving now. But at what cost, ask critics. They say Gore's savings plan would create a new entitlement that would further strain federal coffers, already facing big outflows when Social Security stops paying for itself in 2017. "Gore 's new plan has no effect on Social Security revenues or the future liabilities of the system," said Lawrence Kudlow, senior managing director of ING Barrings. Gore's retirement savings plan would offer tax credits for workers who make less than $ 100,000 a year. Those couples who make under $ 30,000 or individuals who make under $ 15,000 would get the biggest benefit: $ 3 for each dollar invested, up to $ 2,000 a year. These so-called matching funds are designed to spur more savings for retirement, home-buying, education and health care. "Gore's plan would protect Social Security as the bedrock of retirement, while adding a new option for people to save for their retirement tax free and even have their contributions matched by the government to build up their nest egg," said Gore spokesman Doug Hattoway. The plan's critics concede it would give those families who already save a big incentive to participate. But they note that the barrier to saving for low-income workers is discretionary income. In fact, only 2.4% of American households with incomes less than $ 30,000 now save through tax-favored individual retirement accounts, IRS figures show. One indication that it might not help the savings rate of low-income workers is that the fastest growing entitlement at the federal level is the earned income tax credit. That credit is refundable in much the same way as Gore's plan would be. "It is precisely at this low end - $ 17,000 to $ 25,000 in annual income - which has the worst savings rate," said Kudlow. "The saving rate in these households is actually negative. They already receive a refundable tax credit (EITC), and it is used primarily for consumption, not savings." The Gore plan's effects on savings rates is unclear. So is its claim on federal revenues. The Gore camp estimates the 10-year cost will come to $ 200 billion. Yet Gore adviser and former Federal Reserve Board member Alan Blinder had trouble explaining how they arrived at the figure. "Nobody should expect that this will hit 100% of the population, but it is the greatest incentive that has ever been offered. What we do not know is what would be the (participation) rate," said Blinder. Critics see the estimate, and the plan, as more political than economic. "They stuck a finger in the air and picked a number," said Marty Regalia, chief economist of the U.S. Chamber of Commerce. "Part of the reason that it came up at $ 200 billion is that that is what they figure the overage in the new numbers on the projected surpluses will be," he added. The government is expected to release higher surplus estimates starting next week. Kudlow agrees, noting that Bush's plan has struck a chord among some voters. "Gore is responding to the very favorable polling data concerning Bush's personal retirement accounts," he said. Gore is also banking on the political popularity of Social Security. He's charging that the Bush plan will undermine the system by removing revenues from it, to which Bush hasn't responded. Gore has sworn to protect Social Security, not necessarily reform it. Calls for reform have come from the likes of Sen. Daniel Patrick Moynihan, D-N.Y., and Rep. John Porter, R-Ill., because the system will start running a deficit in 2017. Gore has proposed a rescue plan that will tap general revenues when the system starts running in the red. First, he would use the Social Security surplus to pay down the national debt. He would then credit the payments to the system and use interest savings to shore it up. Gore says this would extend the life of the trust fund until 2050. But President Clinton's fiscal 2000 budget casts doubt on that approach. The budget report said, "(The trust funds) do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public or reducing benefits or other expenditures." In order to pay off those IOUs, the government will have to hike income taxes by at least 16%, or it will have to borrow over $ 10 trillion to bail out the system between 2017 and 2037, notes the Citizens for a Sound Economy using government figures. "Gore's (Social Security) plan, even if it were possible to protect the interest savings for Social Security, does nothing to address the solvency of the system," said Scott Hodge of Citizens for a Sound Economy. "The interest savings provided under his plan would only cover 12% of the unfunded liability." Hodge added, "By ignoring Social Security's impending financial collapse, Gore is implicitly raising taxes on tomorrow's workers or sticking them with a debt burden six times greater than today's national debt."

06/23/2000