Archive for the 'the states' Category

Occupational licensing and ex-cons


Matt Yglesias has had a great series of posts up about how little sense it makes for state governments to require certification before someone can provide simple services like haircuts. The silliness of occupational licensing is one of my pet issues, and I’m stunned by how many intelligent people spend time justifying the status quo instead of applying the free market principles they otherwise claim to support.

For an indication of just how ridiculous some of this licensing gets, check out this list of occupations in North Carolina requiring government licensing. Along with Yglesias’s hobbyhorse, barbers, North Carolina also requires government charters for athletic agents, chick and egg dealers [presumably referring to chickens], geologists and soil scientists [but no other scientists], interpreters, landscape contractors, manicurists, refrigeration contractors, seed dealers, and scores of other workers.

Those of us who question the extent of occupational licensing in America usually argue that it is just a tool that helps currently-licensed providers limit competition and thus artificially raise prices and profits — all while hiding under the guise of consumer protection. To be sure, licensing is a good idea for certain classes of services in which market forces and lawsuits don’t provide sufficient deterrent to and remedies for harm. But how does “landscape contractor” fall into that category? Anyone who believes that landscape contractors clearly need a government license to operate, while gardeners are good to go without public imprimatur, is probably letting their preexisting beliefs and status quo bias guide their ‘principles’.

But back to Matt Yglesias. His final post in the series praises Barack Obama for making some positive moves towards liberalizing Illinois’ licensure regime.

And Yglesias is partly right. Barack Obama, as a state senator in Illinois, was the primary sponsor behind a bill that eased occupational licensing restrictions for convicted felons. The felon, after living crime-free for a period of time and documenting certain pro-social behaviors, could apply for a ‘Certificate of Relief from Disabilities’ (CRD) that would remove certain legal disabilities all felons face when released into the world. No longer would a single felony conviction bar someone from getting a license to cut hair; the licensing board would have to come up with some other excuse, instead.

Yglesias is skeptical about the broader impact of the CRDs:

“The problem here is that when you set up these boards, they have incentives to think up any kind of halfway plausible reason to bar people from entering the field.”

Remove the felony bar, the logic goes, and the boards will just come up with other flimsy excuses.

He’s almost certainly right about most licensing boards and most occupations. But in the particular case of Illinois, the problem isn’t that the licensing boards don’t approve ex-cons despite their Certificates. It’s that few ex-cons end up applying for licensing in the first place. As this report (PDF) indicates, only 47 applications for CRDs were made within the first 2 years of the program’s implementation. Of that extremely low number, 81% of applications for CRDs were approved. But none of those recipients ended up applying for occupational licenses within the observation period. That said, a very few ex-cons without CRDs did apply for occuptional licenses, and 67% of those applicants were eventually approved during the same period.

The bottle-neck in Illinois, then, isn’t necessarily the board rejecting felons, but qualified felons not knowing about or not applying for CRDs or occupational licenses in the first place.

I guess the take-home lesson here is that occupational licensing boards really can be nothing more than thinly disguised guilds covering their own economic interests. But occupational licensing reform isn’t exactly the key to rehabilitating felons. Connecting felons with existing benefits and procedures is the easy low-hanging fruit there. That doesn’t mean that making it easier for ex-cons to become barbers isn’t worth doing … it’s just not the kind of major reform that should get our blood pumping. It turns out that the actual benefit of CRDs may just be the perception among private employers that the state says these guys (and they are mostly guys) are safe(r).*

* No, I didn’t closely follow Barack Obama’s occupational licensing and recidivism reform policies in the Illinois state legislature. I came by this knowledge honestly, as part of a much larger research project this summer.


Vote for the smart, hardworking one

[by JSC5]

For a couple unrelated reasons, I’ve watched more legislative committee hearings in the past week (about 20 hours worth) than the average political junky will watch in a lifetime. It wasn’t an experience I’d really recommend to anyone else, so let me save you the trouble and summarize the take-home lesson: the vast majority of legislators in this country don’t know the first thing about anything. If we really understand that, then we should start changing the way we vote.

It’s true that your average voter dislikes a number of things about politicians. They’re perceived as being  slightly above used car salesmen in terms of trustworthiness. They’re seen as baby-kissing blowhards, shills, ideologically extreme, and creatures of special interests. But I don’t think voters usually think of politicians as dumb, ill-informed, or lazy. The stereotypical pol is far too devious and calculating to be dumb or ignorant!

But I’m here to tell you that your average politician actually is ill-informed and not very interested in learning. It’s true on the federal level, where the entire saga from the crash in 2008 to the financial regulation bill today has been hampered by a basic ignorance of how financial markets work, how they interface with the real economy, and how government policies work in this sphere. The (relatively) informed debate on health care reform is the one exception that highlights the general rule. Health care has been item #1 in progressive politics for several decades. Any politician that wanted to get progressive support had to get educated on it. And once it became a live debate on the federal level — ie, in the last 17 years or so — every politician that wanted conservative support had to bone up on the subject as well. But there aren’t many issues out there with that kind of electoral importance. In fact, it’s hard to think of a single one right now that carries the same import among the groups that determine what politicians care about.

That means politicians are free to be as ignorant as they want. And as uninformed as your average pol is on the federal level, it’s even worse in the state capitol: the elections aren’t as competitive, the activist and lobbying interests aren’t as well organized, the agendas are thinner, and elite politicians usually leave as soon as possible, dropping the average.

This leads to two unfortunate outcomes: (1) staff and lobbyists fill in the gaps left by politicians’ ignorance, letting them drive much of what happens in the legislature, and (2) most politicians are bench warmers, with only a few engaged pols taking an active role in the process. As a professor in college used to say, 90% of the work in Congress is done by 10% of the people.

This surely isn’t news to those of you who have any experience in legislative politics. But for the rest of the gin-swilling*, unwashed** masses: do yourself a favor and vote for the hardworking, smart guy/gal in the race. It’s hard for me to tease out how important competence is compared with policy positions, but it’s definitely in contention. A willingness to do your homework and come to a committee hearing prepared is rare, but the rewards for those who do — and for their constituents — are great.

As a post-script, let me say that while I’m as critical (if not more so!) of politicians as the next guy, I’m actually with Jonathan Bernstein in saying that I actually like politicians as a group. At least part of it, for me, is the fascination with a set of people who have basically said, “I’m opening up myself to be absolutely despised, denigrated, and mistrusted by a broad swath of society because” … well, fill in the blank. There are lots of ways to finish that sentence, but nearly all of them at least make for an interesting character.

* Not that there’s anything wrong with swilling gin! It’s just a catchy way of describing the general public I picked up from a fun, pompous professor I once had.

** Being unwashed actually is something of a problem. Luckily hygiene standards have improved greatly since the 19th century. But there’s still those select few, primarily hipsters, who have yet to discover ironic bathing.

It’s called ‘VAT’, guys

Reporting from the NYT indicates that states across the country, facing huge fiscal deficits they must close, are going to institute a number of new taxes “on virtually everything: garbage pickup, dating services, bowling night, haircuts, even clowns.”

The Times tries to explain this as a move to widen the tax base to match the modern economy:

In the 1930s, with property tax revenues shrinking because of the Great Depression, states began taxing the sales of items. It was simple, and at the time, the tax matched an economy largely based on goods. But as the nation’s economy shifted to one focused more on services, the tax system mostly did not budge. And so, in 2009, states raised $230 billion in sales taxes; had they taxed all services, too, according to Joseph Henchman of the Tax Foundation, a nonpartisan research group, they might have raised twice that.

It’s certainly true that, given the modern service economy, state sales taxes don’t cover nearly as much of total economic activity as they once did. But the new state taxes are in no way a serious attempt to widen the tax base and fix the problems of the sales and income taxes.

How do I know this? Well, if you’re really and truly interested in doing this right, then you implement a VAT, or a Value Added Tax. VATs are what many European states use to solve the problem of a narrow sales tax. They have the benefit of taxing both goods and services , putting the cost of compliance on the company instead of the state, and taxing only the value-added at each stage, instead of having the cascading effect of a traditional sales tax.

The most important point about the VAT is that it applies at an equal rate to everything you buy. No chance to game the system, no way lobbyists can say, “Don’t tax clowns, tax those evil armored car services instead”. But imposing a VAT would be too politically difficult in most US states right now, given our puerile political culture. Socialism! So instead, our state governments are imposing specific taxes on specific services that just happen to be politically weak, or easy targets, or deemed ‘bad’ in some moral framework. Just so we’re clear, this is a terrible way to impose taxes. It will artificially shift consumption away from the services unlucky enough to be taxed and towards the services that had a better lobbying operation in the state capital. From the standpoint of justice and free markets, it’s probably better to impose a lower VAT that covers everybody than it is to tax the bejeesus out of a grab-bag of targeted services. After all, clowns are people, too.

Leviathan on hold

The Affordable Care Act (ACA) is now law, and as much as this is a big victory for 30 million people without insurance and anyone else who will get sick in the future and need insurance, it’s also a victory for Executive power. “I believe this commission is the largest yielding of sovereignty from the Congress since the creation of the Federal Reserve,” says administration budget director Peter Orszag, via Ezra Klein. And given how ineffective Congress is these days, that may actually be good thing.

Orszag is specifically referring to the Independent Payment Advisory Board created under ACA. The Board’s job is to propose cost-saving measures for Medicare to keep cost inflation no higher than the average 5-year GDP growth rate plus 1%. And the Board has a great deal of power. Here’s Ezra explaining:

If Congress approves the board’s recommendations and the president signs them, they go into effect. If Congress does not vote on the board’s recommendations, they still go into effect. If Congress votes against the board’s recommendations but the president vetoes and Congress can’t find the two-thirds necessary to overturn the veto, the recommendations go into effect. It’s only if Congress votes them down and the president agrees that the recommendations die.

My guess is that the political equilibrium will be for the Board to make proposals and for the Congress and President to ignore them and thereby allow them to go into effect without being personally responsible. That gives the IPAB quite a bit of actual power to cut costs in what will soon become the largest item in the federal budget. And who decides who will be on the IPAB? The President, with the advice and consent of the Senate. The Board’s 15 members will all have 6-year terms, renewable once.

Another big win for executive power in the ACA is the role given to the Secretary of Health and Human Services, currently Kathleen Sebelius. The text of the Affordable Care Act says that the secretary shall define, determine, or create 1,697 things. New powers accruing to the Secretary include the ability to define specific benefits and regulate insurance options on the exchanges.

There are two lessons here. First, for Republicans: this is what happens when you adopt a complete rejectionist strategy instead of negotiating to improve the bill. Certainly many liberals were never interested in bipartisanship, but House Blue Dogs and Senate centrists like Baucus, Landrieu, Lieberman, Lincoln, and Nelson were dying for some bipartisan cover. Left to negotiate amongst themselves, Democrats came up with a bill that expands the discretionary powers of the presidency over the congress and the states. Presumably some authentic conservatives may have liked to avoid this situation. So next time, Republicans, try playing the game instead of taking your ball and going home.

Second, this may just push the Democrats to reform Senate procedure. As Prof. Bernstein has been saying since ACA passed, Republicans are likely to start blaming every single problem in the health care system on the newly-passed law, much like they blamed Obama and the stimulus for every economic problem after January 2009. That gives the administration and its party a large incentive to make sure the law is implemented as professionally as possible. The problem is that all the key figures for implementation (the Health Secretary, dozens of other sub- and assistant-secretaries, and the IPAB) are administration appointees, and the appointment process is broken. At this point in his presidency, Obama has had far fewer of his nominees approved by the Senate than his predecessor. Because of arcane Senate rules like unanimous consent and the anonymous hold, staffing up a modern administration turns out to be very, very difficult in a climate of partisan obstruction. The administration and the party have clearly been annoyed by this for a while, but the need to implement the ACA should give them an extra push to do something about the problem at the beginning of the next congress.

Taxes, exceptional trees, and government waste

April 15 is just around the corner — a mere 1 month away! — and that means it’s time to break out your abacus and legal dictionary, and start reading the fine print. I’m always amazed at how unnecessarily complicated the US’s income tax system is. One irate taxpayer compiled this funny list of all the various esoteric tax breaks in state tax codes across the country. My favorite is the Exceptional Trees Deduction in Hawaii, which applies to state tax form line 17:

Exceptional Trees Deduction: You may deduct up to $3,000 per exceptional tree for qualified expenditures you made during the taxable year to maintain the tree on your private property. The tree must be designated as an exceptional tree by the local county arborist advisory committee under chapter 58, HRS.

First, there’s the obvious question: what kind of tree is so exceptional it needs up to $3,000 in maintenance each year?

But more importantly, why on earth is this in the tax code in the first place? If the good people of the state of Hawaii decide that they want to incentivize private property owners to maintain and protect what must be some really awesome trees, cool. Apparently the state already has a system of local arborists, so why not have the arborist team up with the treasurer of the local government to cut people checks for taking care of their fabulous trees?

Because that would be evil, evil ‘government spending’, which is a big no-no in the modern political climate. So instead, we’ve turned to the tax code for a big chunk of our policy implementation. The end result is the same — more money in the hands of people who care for exceptional trees — but instead of directly spending the money by cutting a check, we use tax expenditures. We reduce the dendro-samaritan’s tax burden from what it normally would be and then necessarily keep everyone else’s taxes just slightly higher than they’d need to be, in order to pay for the original tax expenditure. And this is just one of a million other examples: mortgage write-offs, health care benefit write-offs, business investment write-offs, dependent write-offs, blind person write-offs, etc., etc., etc. .

I’m actually a fan of robust government, and I think it’s a net positive thing to incentivize people to do good things they wouldn’t otherwise do enough of, like investing and create new jobs, or providing health insurance to employees. But our myopic and infantile politics means that if we do this by cutting people checks, then we’re socialists. But if we do it through tax expenditures, we’re just good pragmatic capitalists.

When choosing between direct spending and tax expenditures, the net social effect is exactly the same. But which one we choose matters, because the result of our love of tax expenditures is a hodgepodge of refunds, exemptions, write-offs, exclusions, that even forces experts to use TurobTax when they file. Americans now spend a total of 6.6 billion hours and $194 billion every year just to file their taxes. Clearly it’s better for all those normal, non-exceptional-tree-owning, Hawaiian tax payers to not have to waste their time reading through the rules about Line 17 deductions, and to just have the local arborists cutting checks while everyone else gets on with their lives. But I wouldn’t hold my breath waiting for that socialist utopia.

The Catholic Church’s strategy for America: fewer members, one voice

The Catholic Church has been busy getting involved in US politics in the last few weeks. The Church’s decisions, however, are incompatible with a ‘big tent’ strategy aimed at growing membership. Like the Republican Party, the Catholic Church’s move towards ideological purity risks further alienating the moderate parishioners it needs to grow.

Continue reading ‘The Catholic Church’s strategy for America: fewer members, one voice’

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This is a group blog. JSC5 currently writes from the US. JSC7 writes from behind the Great Firewall of China.

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