Pre-pandemic trends offer clues of how this might play out across state capitals.
Public schools are facing massive enrollment declines, with at least 19 states losing 3% or more of their students compared to pre-pandemic levels. New York’s 5.9% plunge is the biggest, and California isn’t too far behind at 4.4%. Because K-12 education funding is tied to student counts in most states, this trend will have major policy implications.
Before the COVID-19 pandemic, public education spending was at record levels, averaging $15,656 per pupil in the 2018-19 school year and exceeding $20,000 per pupil in states such as New York, Connecticut, and Pennsylvania. Education funding plummeted during the Great Recession of 2007 to 2009, but most states had replenished or exceeded their previous inflation-adjusted K-12 spending highs by 2019, thanks to strong economic growth and policymakers’ eagerness to boost funding as state budgets recovered.
At the onset of COVID-19, state lawmakers and school district leaders feared the years of balanced budgets were over, but, thankfully, most dire economic forecasts never materialized. In fact, stronger-than-expected state tax revenue plus $190 billion in federal K-12 relief have left many school districts with more dollars than they can spend. Per-pupil spending growth in states such as New Hampshire, Oklahoma, and Texas surpassed 7% in 2020-21 even though the bulk of the federal relief funds remain unspent.
This influx of cash, combined with states’ hold-harmless policies that base school funding on prior year enrollment counts, have largely protected districts’ bottom lines in the face of declining enrollment. For instance, Houston Independent School District lost 12,759 students in 2020-21 — 6.1% of its enrollment — but its total revenue increased by 1.7%, while per-pupil spending jumped by $1,032. It was a similar story for Dallas Independent School District, which lost 5.64% of its students but still got $1,002 more per pupil.
But once federal relief funding expires in 2024, school districts will have to rely on state funding to plug budget holes caused by student losses and sustain long-term commitments made with the one-time funding, such as new hires and salary increases. The billion-dollar question is to what extent state policymakers will continue their hold-harmless policies once federal funding dries up.
Pre-pandemic trends offer clues of how this might play out across state capitals.
Between 2016 and 2019, 30 states had enrollment losses, and eight of them — New Hampshire, Illinois, Mississippi, Vermont, Louisiana, West Virginia, Connecticut, and Massachusetts — saw substantial declines of 2% or more. Of these states, only three (Mississippi, Louisiana, and West Virginia) saw inflation-adjusted cuts in total education revenue, and all increased real per-pupil funding. Notably, Illinois’ enrollment fell by 3.9%, yet its total education budget increased by 8.4% with a $2,158 spike in per-pupil revenue.
Clearly, aggregate education spending doesn’t track neatly with enrollment declines. But revenue is only half of the school finance equation, and the fiscal fate of districts will also depend on how dollars are allocated through state formulas and related policies. Generally, districts lose state funding when enrollment declines, with prominent examples in the last decade including Los Angeles, Detroit, and Baltimore. But pandemic policies have muddied this relationship.
For instance, in the past two years, Texas policymakers have overridden their student-based funding system with various hold-harmless policies that use outdated student counts to fund school districts. Illinois has also already committed to using pre-COVID enrollment counts for funding calculations through at least 2024. Despite having a relatively strong student-centered education funding formula that allocates dollars to schools based on real student needs, policymakers in California are now considering ways to weaken the link between funding and enrollment changes.
But these hold-harmless policies are expensive to maintain and divert resources away from students in districts with steady or increasing enrollment. After all, every dollar spent protecting districts from the fiscal effects of declining enrollment is a dollar not spent supporting students in the schools they attend. If states removed hold-harmless policies, these funds could be spread fairly among all schools, based on the actual number of students they are serving.
While it will be a painful process, states need to acknowledge that school districts losing students should not get more funds to teach fewer kids.
Districts that spend their one-time funding irresponsibly could face an unprecedented fiscal cliff when the money runs out and won’t be able to avoid layoffs, school closures, and other cuts. Rather than wait and see, school districts should get their fiscal houses in order now, while they have flexibility in their budgets.
Our predictions about the law’s effects on business investment, wages and tax revenue were correct.
As Karl Popper demonstrated, evaluating a scientific proposition requires falsifiability—theories or hypotheses can’t be proved or disproved if they can’t be subjected to empirical tests. When the 2017 Tax Cuts and Jobs Act was passed, we were criticized for being overly optimistic about the effects we predicted it would have. Now the evidence is in. Our critics were wrong, and the economic data have met or even exceeded our predictions.
In 2017, we predicted that reducing the federal corporate tax rate to 21% from 35% and introducing full expensing of new-equipment investment would boost productivity-enhancing business investment by 9%. Though growth in business investment had been slowing in the years leading up to 2017, after tax reform it surged. By the end of 2019 it was 9.4% above its pre-2017 trend, exactly in line with the prediction of our models. Looking solely at corporate businesses—those most directly affected by business-tax reform in 2017—real investment was up by as much as 14.2% over the pre-2017 trend, slightly more than we expected. Among S&P 500 companies, total capital expenditures in the two years after tax reform were 20% higher than in the two years prior, when capital expenditures actually declined.
Citing an extensive empirical literature, we also predicted that by enhancing worker bargaining power and increasing new investment in domestic plant and equipment, the average household would see real income gains of $4,000 over three to five years. In 2018 and 2019 real median household income in the U.S. rose by $5,000—a bigger increase in only two years than in the entire eight years of the preceding recovery combined. In 2019 alone, real median household income rose by $4,400, more than in the eight years from 2010 through 2017 combined.
Those extra wages contributed extra tax revenue as well. We predicted that despite a short-term drop in corporate income-tax revenue as companies expensed new-equipment investment, the combination of increased economic growth and reduced incentives to shift corporate profits overseas would result in a long-run net positive revenue effect. Before the reform, U.S. firms moved their profits overseas to avoid the highest tax of any advanced economy. After the reform, we predicted that more profits would be booked at home. For each dollar booked at home there would be a gain for the U.S. Treasury, since 21% of a positive number is much larger than 35% of zero.
Commentators have recently noticed that in the 2021 fiscal year, not only did federal corporate tax revenues come in at a record high, but corporate tax revenue as a share of the U.S. economy rose to its highest level since 2015. Actual corporate tax revenue in 2021 was $46 billion higher than the Congressional Budget Office’s post-reform forecast. Even though the U.S. economy was only slightly larger in 2021 than the CBO had projected, corporate tax revenue as a share of gross domestic product was 21% higher (1.7% versus 1.4%).
Some have attributed this good news to transitory effects related to the pandemic rather than 2017 tax reform. Yet in President Biden’s latest budget, the administration’s own baseline forecast for corporate tax revenue (i.e., before the revenue effects of its budget proposals) is now above the CBO’s pre-2017 forecast for every year from 2023 through 2027. This is true for both the level of corporate tax receipts and as a share of GDP. This optimistic forecast is consistent with our views about the long-run nature of the effects of tax reform and inconsistent with critics’ claim it has no effects.
Why are corporate tax receipts coming in not only at much higher levels, but also as a bigger share of the U.S. economy? The reason is exactly as we foreshadowed in the 2018 and 2019 Economic Reports of the President. By neutralizing the favorable tax treatment of selling intellectual-property services overseas via a foreign subsidiary, and by taxing past corporate earnings previously sheltered in those foreign subsidiaries, the 2017 tax law effectively created an incentive for multinational enterprises to move their profits home.
As a result, not only did domestic pretax earnings grow by a greater percentage than total pretax earnings between 2019 and 2021, they also grew by more for companies with greater foreign-derived income from intellectual property, meaning these firms were either repatriating intellectual property to the U.S. or locating less new intellectual property outside the U.S.
This is reflected in aggregate international transactions data from the Bureau of Economic Analysis, which shows that firms were repatriating only 36% of prior-year foreign earnings, and reinvesting 70% abroad, in the years leading up to 2017. Since 2019 they have on average repatriated 57%, and reinvested only 47% abroad. Overall since 2017, firms have repatriated $1.8 trillion in past overseas earnings.
In addition, the average annual dollar value of acquisitions by U.S. companies of foreign assets in 2018 and 2019 was 50% higher than in the two preceding years, while acquisitions of U.S. assets by foreign companies declined by 25%. Multinationals find the idea of domiciling in the U.S. and pursuing outbound acquisitions increasingly appealing. U.S. companies, on the other hand, are increasingly uninterested in being acquired by foreign multinationals and domiciling in lower-tax jurisdictions.
One of the exciting aspects of academic discovery is the opportunity to test theories and hypotheses against real-world data. In 2017, we put our hypotheses about the effects of corporate tax reform in the public record and have passed the test. The White House and Democrats in Congress should think twice about undoing the corporate tax reform and partisan economic pundits should point their criticisms at something else.
The administration wants to double the funding for a federal program that has failed in its aim to close achievement gaps between low-income and higher-income students.
This week, President Joe Biden released his $5.8 trillion budget proposal for 2023 which included a plan to more than double Title I education funds for low-income students. Biden’s 2022 budget proposal included the same plan to double federal Title I spending, but in the end, Congress only approved a 6% increase, about $19 billion less than what the administration requested.
While Congress is equally unlikely to pursue the president’s proposal this year, it’s important to note why doubling down on Title I funding would be such a flawed strategy. Research consistently shows the program, intended to provide federal funding for schools with higher percentages of children from low-income homes, has failed in its aim to close achievement gaps between low-income and higher-income students since its inception in 1965 as part of the Elementary and Secondary Education Act. For example, a study by researchers at George Mason University concluded:
“Given the modest evidence on academic gains and gaps closure attributable to Title I, and considering that the program costs about $15 billion per year, we conclude that Title I compensatory program has been largely ineffective in accomplishing its goal of closing the achievement gaps between disadvantaged and non-disadvantaged students.”
The ineffectiveness should come as no surprise to those familiar with how Title I works. After Biden proposed the 2022 Title I windfall last year, my colleague Christian Barnard and I highlighted just a few of the program’s faults in National Review:
“The current formulas are riddled with complexity, including political provisions that have nothing to do with students’ needs. For example, states are guaranteed a minimum amount of funding even if their share of Title I–eligible students doesn’t warrant it. As a result, Title I dollars are delivered like buckshot, ranging from Idaho getting $984 per eligible student in 2020 to Vermont getting $2,590 per eligible student — 163 percent more per pupil than Idaho. Title I spending needs to be fixed, not increased.”
Keep in mind that President Biden’s Title I proposal comes at a time when many public schools are already flush with cash, thanks to $190 billion in federal COVID-19 relief funding that is supposed to prioritize students in high-poverty school districts. Not only that, but public schools are also facing sharp enrollment declines, meaning the budget proposal calls for spending more money on fewer kids when K-12 spending is already at record levels.
Policymakers should be skeptical of continuing to pour more money into a broken federal program. Instead, they should pursue reforms that make Title I dollars flexible, so they support giving families more opportunities and the ability to customize their education. For example, Congress could update the program’s allocation rules and ensure the aid follows students to their public or private school of choice.
Lawmakers could also overhaul the program’s complex web of formulas and non-transparent compliance rules that contribute to school districts’ ineffective spending of the federal funding.
There are a lot of needed reforms to reduce achievement gaps and improve outcomes for low-income students, but pouring more money into Title I isn’t one of them.
The veteran community is facing numerous crises in this country and as geopolitical tensions continue to rise, America must make the hard choices to ensure we properly take care of the men and women who defend our freedoms around the globe.
While there are many issues that plague our veterans, the assistance programs that the government provides when our troops return home are falling short. More specifically the benefits and housing programs need to build upon past success and not further disrupt any progress that has been made to date.
The veteran’s benefits program is our obligation to the brave men and women who have served this country. Unfortunately, the current system is both underfunded and confusing, leaving veterans at a disadvantage when seeking the benefits, they are ethically, medically, and legally entitled to.
The U.S. Department of Veterans Affairs (VA) is one of the largest and most complex agencies in the U.S. government. The last two decades of war have produced the greatest number of veterans since the Vietnam War, and the system’s cracks are starting to show as backlogs get longer and backwards incentive programs emerge.
Congress is set to take up a key bill that would speed health care and benefits to millions of veterans exposed to burn pits during deployments to Iraq and Afghanistan. Veterans diagnosed with cancer, lung disease, and other respiratory problems suspect they were caused by the toxic exposure, and we should support efforts to identify and help those that need assistance and provide key benefits they have earned.
President Biden mentioned this bill and the need to provide better benefits and services to our veterans in his State of the Union speech, but in his latest VA budget request, his administration proposed the elimination of veterans choice on benefits claims by attempting to revive ill-advised VA “reforms” considered in the last Congress. This request would remove the ability for private claims agents to be accredited and process VA benefits claims, robbing our veterans of the freedom to choose.
Also recently, during a joint Veterans Affairs Committee hearing some members of Congress were attacking companies that help veterans navigate the VA, simply because they make a profit. That’s not how we should judge VA consultants – we should judge VA consultants on whether they do a good job of securing better and needed benefits for our vets.
While good intentioned, volunteer organizations who support the VA disabilities benefits program cannot do it all. Veterans need help and we need a change. Current law allows for veterans to seek fee-based consultation on their benefit claims if they choose. Any legislation around this issue must ensure a veteran’s right to choose is not jeopardized.
Another key issue that we need to focus on is housing. Veterans experience homelessness at a disproportionately high rate compared with the rest of the population. In 2019, 21 out of every 10,000 veterans were homeless. While these numbers are improving, the COVID-19 pandemic has hit the veteran population hard due to many of them having disabilities that can limit their employment options and segment them into industries that were hit hardest by the pandemic.
In its 2022 budget request last year, the VA asked Congress for $2.2 billion for homelessness programs, a 16% increase from 2021. While I am often critical of increases in government spending; we cannot abandon our men and women in uniform once they leave the service. We owe them a debt of gratitude.
We have a lot of work to do to live up to the promises politicians make when the TV cameras are on, and it is on the American people to stay vigilant and ensure we follow through for our brave men and women. Many veterans have sacrificed much for our freedoms — it is time we paid them back, rather than shortchanging them.
President Joe Biden’s plan to build America back better is much more costly than most everyone anticipated. The budget reconciliation bill currently stuck in the House is perhaps the most expensive single piece of legislation in history. Even a few members of his own party are uncomfortable voting for it.
According to some estimates, the new taxes, spending, and borrowing involved total out at about $10 trillion over 10 years. At one-half U.S. annual GDP pre-COVID, that’s not chump change. Biden says not to worry because it’s paid for, something only someone who’d spent 50 years in Washington could say with a straight face. He’s unfamiliar with how the private economy functions. The higher corporate taxes he touts, for example, are considered a cost of doing business that is mostly passed along to the consumer.
It’s not his fault he doesn’t get it. He’s spent almost his entire adult life in politics. Any wealth he’s amassed comes from belonging to “the aristocracy of pull,” not business acumen. The people around him, however, know better.
Raising taxes on personal incomes over $400,000 a year, raising the corporate tax rate, and establishing a global corporate minimum tax won’t raise the revenue needed to cover the cost of the plan Biden is trying to sell to the American people, not to mention holdouts in his own party like West Virginia’s Joe Manchin. The big spenders know other sources of revenue will need to be tapped, if not now then later. That makes anything not taxed currently fair game, which puts changes in the private individual retirement account system on the table.
Most IRAs are treated favorably in the tax code. Either the funds are taxed when they are invested and withdrawals are made tax-free or investments are tax-free and, after the accounts have increased in value over time because of the magic of compound interest, the funds are taxed when they’re drawn down. Changing that will have downstream impacts especially harmful to investors in the middle-class.
It won’t punish the rich. It will hit the new investor class, especially the millennials entering the workforce, hard. What’s on the table limits investment options while subjecting the income they set aside for retirement to retroactive taxation. “It’s like a fisherman’s net,” IRA expert Ed Slott said. “The net picks up a lot of small fish that are unintended targets.”
This proposal to eliminate Roth 401K Conversions for IRAs and employer-sponsored plans for single filers making $400,000 or more and joint filers making $450,000 or more is bad policy and bad politics. What the Bidenites are proposing would be devastating to retirement incomes and should be anathema to senators from states with large retirement populations like Mark Kelly and Kyrsten Sinema in Arizona and Nevada’s Catherine Cortez Masto. These ideas and the proposed ban on the conversion of after-tax contributions to Roth account regardless of income would likely wreck the retirement plans of millions of average Americans.
Moreover, the ideas are absurd from a revenue perspective. According to early estimates, the changes under consideration would only raise $4 billion over the next 10 years. That’s not even a drop in the bucket of what’s needed to pay for the Biden plan. Does that mean future changes that are even more radical? Probably. Once we’re down that road it will be hard to stop even if it hurts Baby Boomers and Millennials alike.
Attempting to limit the amount people can put into Roth IRAs will reduce the national savings rate, complicate retirement planning for millions of Americans, and constitute another broken promise by the politicians in Washington. Some folks have indeed used these accounts as a tax dodge, setting up as many as they need to reduce their annual tax burden, but you don’t use a howitzer to kill a housefly.
For most Americans, IRAs are a pathway to a comfortable, secure, perhaps even prosperous retirement. The proposals currently under consideration to eliminate the Mega Roth and other independent retirement account options are an attack on the middle class that Congress should reject.
If it doesn’t, the voters will remember.
The back-and-forth over the so-called infrastructure bill working its way through the U.S. House of Representatives is helping perpetuate a myth that is distorting the people’s perception of where we as a country are. That perception is that there is, somehow, within the House and Senate and sprinkled throughout the Biden administration, a substantial cadre of moderate Democrats who are doing all they can to block a leftward lurch toward big-government socialism pushed by one wing of the party.
It makes for nice reading and it’s an easy story to write. Unfortunately, it’s inaccurate. As far as national politics is concerned, the Democratic Party has been running the moderates out for years. As former House Speaker Newt Gingrich pointed out in a recent policy document that’s making the rounds, virtually every Democrat in the U.S. House and Senate voted for the budget outline produced by Senator Bernie Sanders—a self-identified socialist.
The Sanders document, which includes $3.5 trillion in new and higher spending, $3 trillion in new and higher taxes, and a host of radical regulatory proposals intended to roll back 40 years of deregulatory reform that started with Ronald Reagan, is a left-winger’s pipe dream. The only objections to it Democrats have had—Senators Joe Manchin of West Virginia and Arizona’s Kyrsten Sinema excepted—have centered on the cost, not on what the proposed legislation would do.
The division among Democrats is real, but it’s not based on ideology. All but one Democrat recently voted for a bill that would eliminate state restrictions on late-term abortions and codify the Supreme Court‘s decision in Roe v. Wade. Democrats are united on policy but opposed (or at least some of them are) to doing things that will cost them their seats the next time they run.
It’s not principle that’s keeping the Democrats apart—it’s politics. Why were Nancy Pelosi and Chuck Schumer insisting on Republican votes to pass an increase in the debt ceiling? Because some members of their party who are up for re-election in 2022 need to be able to vote “no” on that issue—and they can only do that if a few GOP lawmakers can be persuaded to vote “yes.”
The “moderate” myth is useful for those Democrats who want to go home and pretend they fought against the largest expansion of government since LBJ gave us the Great Society. They’ll promise their voters they’ll continue to fight for pro-business policies and might even again earn the endorsement of the U.S. Chamber of Commerce. But it will all be a fallacy. The Democratic Party has been taken over by people who take their cues from the British Labour Party circa 1960—not the free-enterprise entrepreneurs who built this great nation.
The polling, the Gingrich document said, “is clear and devastating” for those who think the federal government needs to be bigger and do more. “Americans in general favor Free Market Capitalism over Big Government Socialism by a huge margin (59 percent to 16 percent),” Gingrich wrote while, among so-called independent or “swing” voters, the advantage for those who oppose the Sanders/Biden agenda grows to 82 percent to 18 percent.
The infrastructure bill was held up because too many Democrats refused to risk their seats by voting for it. It’s not a “moderate” piece of legislation even if it was written with Republican support. It includes such intrusive measures as the establishment of a pilot program that is supposed to come up with the best way to tax cars and trucks by the number of miles driven.
The reconciliation package? Even worse.
As Gingrich and others have observed, the Democrats in Congress were all-in at the beginning when it counted—when the process of getting these bills through began. The framework for each mostly survives, whether or not any given bill emerges from the legislative process intact. What cannot be accomplished in a day will be pushed by Democrats for weeks, months and years. President Joe Biden has said he has it in mind to correct 40 years of policy mistakes that, in his view, hobbled this formerly great nation. Biden’s objective: Roll back the Reaganite revolution that brought America back from the brink. What a foolish objective—and certainly not a moderate one.
Let’s start with the internet.
It has its roots in a program called the ARPANET, which was established by the Defense Advanced Research Projects Agency. Private sector entrepreneurs then transformed the internet from an obscure government experiment into the cultural and economic success that it is today. It has made our technology sector the envy of the world and enables us to keep innovating and competing with the likes of South Korea, Canada, Japan, Switzerland, and China.
This matters in light of President Joe Biden’s recently unveiled American Jobs Plan. While billed as a $2.3 trillion infrastructure plan, less than 10% of allocated funds are actually for traditional infrastructure such as roads, highways, bridges, ports, airports, etc. Instead, Biden redefines infrastructure to include all sorts of things, including research and community colleges, that, while they are possibly meritorious investments, have nothing to do with infrastructure. On broadband internet services, which both parties agree isinfrastructure, Biden’s plan has a stated goal of 100% U.S. connectivity.
One problem: The plan wouldn’t actually help connect more people to the internet.
That’s because it relies on government-run broadband to improve America’s internet experience. Government-run networks have a history of failure. They tend to drive out private investment and leave taxpayers holding the bag when the plans fail — without the better broadband they were promised. A perfect example of how government often stymies innovation and entrepreneurship is found in Kentucky. Kentucky Wired, a $1.5 billion plan to improve connectivity across the state was announced under Gov. Steve Beshear. Andy Beshear, Steve Beshear’s son and the state’s current governor, vowed to complete the project by October 2020. But Kentucky Wired has failed. Lesson: Investing public money in laying cable when increasingly affordable satellite networks are at our doorstep is not only counterproductive but irresponsible.
Biden’s plan ignores the dynamics of the marketplace in a similar manner. It also signals rate regulation and arbitrary speed mandates that would discourage satellite providers such as Amazon and SpaceX (Starlink) from investing in infrastructure and creating new jobs. Instead of bridging the digital divide, Biden would widen it by hampering the free market.
Biden’s plan focuses exclusively on a single technology for providing internet access: fiber. To be clear, fiber is often the backbone of the internet and works well in densely populated areas. Private industry has invested billions in deploying fiber across the country. Yet, laying thousands of miles of fiber optic cable is very expensive. Many factors affect the cost of fiber infrastructure, but, on average, the cost of deploying fiber runs between $18,000 and $22,000 per mile. In rural areas, it is often far too expensive for most businesses to recoup their fiber deployment costs. The good news is that America uses a mix of technologies to get online — from cable and fiber to 5G and NextGen satellites. If Biden chooses not to impose a one-size-fits-all solution, the private sector can meet the challenge of closing the digital divide. But as it now stands, Biden’s plan would stop this competition between technologies. Instead, it would replace that competition with a top-down approach in which government picks the winners and losers rather than letting consumers make the choices.
A better idea would be for Biden to expand Broadband Opportunity Zones and encourage billions in investment where it is needed the most. Private enterprise will invest in solutions that work for underserved areas.
Put simply, Biden’s infrastructure bill is a bad deal for America. It is entirely reasonable to fund the building and maintenance of interstate roads, bridges, ports, and highways. It is also good to incentivize innovation and investment. Sadly, Biden’s bill discourages those imperatives without good cause and at great risk.
Freelancers are rising up in opposition to the state’s new law regulating “gig workers.”
By City Journal•
Are California Democrats—responsible for the state’s new anti-gig-worker law, AB5—so out of touch that they’re not aware of the growing anger of their constituents? It appears so.
Since AB5 took effect on January 1, hundreds of thousands of Californians are finding their businesses in tatters. Musicians can’t join bands for a one-night gig, chefs can’t join forces with caterers, nurses can’t work at various hospitals, and writers must cap their submissions per media outlet to 35 per year. Under the law, these freelancers can no longer conduct the same business-to-business transactions they have for years or even decades. Clients with whom they fostered valuable relationships are gone—as are their successful careers and incomes. An overwhelming majority of professionals in fields affected by AB5 identify as liberals and have generally voted along the blue line. Today, however, many are so disillusioned with their representatives that they’re changing political loyalties.
When Gloria Rivera, a San Diego-based, Peruvian-born translator and interpreter, achieved U.S. citizenship, the first thing she did was register as a Democrat. “Now I’m seeing a lot of people like me who are either going Independent or Republican,” she says, “myself included. The Democrats are not listening to us.”
Lorena Gonzalez, the San Diego assembly member who authored AB5, faces public condemnation wherever she goes. Online and in person, independent contractors are confronting Gonzalez and demanding a repeal of the law. Her condescending response: independent contractors need the protection of union-driven labor laws. In a damning KUSI news interview, Gonzalez denied that AB5 has resulted in widespread income loss. Her dismissive attitude has fueled outrage against Democrats. “Lorena Gonzalez is doing a great job turning everybody red,” says Rivera.
Gonzalez deserves much of the blame for the AB5 train wreck, but she had plenty of support from her party: nearly every assembly member who approved AB5 is a Democrat, including Governor Gavin Newsom. Those opposed: Republicans and Independents. Senator Patricia Bates, a Republican state senator representing parts of Orange and San Diego counties, has been hearing from constituents who had no idea that they were swept up in the AB5 net. “They’re asking, ‘Who did this to me?’” says Bates. “I don’t like to make it partisan, but I have to tell them the majority party that runs the show did it. There’s a new awareness about the anti-business environment and how it affects their right to work, to be free.”
Independent contractors are entering new territory. Suddenly, a more conservative approach seems more attractive. “My entire political mindset has changed drastically following the enactment of AB5,” says Cathy Hertz, a freelance copyeditor of STM (science-technology-medicine) books, from Loma Linda. Hertz campaigned for Barack Obama cross-country at her own expense in 2008; she campaigned for him locally, in Los Angeles, in 2012. “Now I feel that the rights of entrepreneurs are being stifled, trampled upon, violated,” she says. “Free enterprise is one of the main pillars of modern democracy.”
Apparently oblivious to the reaction in California, congressional Democrats have passed HR 2474, a national version of AB5, known as the “Protecting the Right to Organize” or “PRO Act.” The PRO Act, designed to boost union membership, will put 57 million independent contractors across the country out of work if it becomes law. These enterprising professionals will be forced into low-paying jobs—if they can find them—with none of the autonomy, flexibility, or opportunity that they currently enjoy. When the Trump administration denounced the bill, people who normally hiss at mention of the president’s name found themselves in a peculiar position: feeling grateful.
As for Gonzalez, she’s up for reelection this year and is aiming for secretary of state in 2022. Her campaigns will be tougher than she likely imagines. The movement against her is ramping up.
“I see a revolution on the horizon,” says David Mills, a musician from Lake Elsinore who created the Facebook group Freelancers against PRO Act. “This may be the final straw that breaks the camel’s back. But I think it’s leading to something good. The American people on all sides are waking up. We’ve gotten too caught up in partisan support. Now we’re paying attention. There is a huge uprising. People had to lose their jobs to find out what it was.”
Kevin Kiley, a Republican assembly member representing a large swath of Sacramento and a vocal ally of independent contractors, agrees. In January, he led a rally on the steps of the state capitol against AB5 and introduced a bill to repeal it. “We have a capital that’s controlled by special interests, and the public good isn’t even considered,” says Kiley. “That disconnect is stark. I’m more motivated to change this law than anything I’ve ever worked on because it has such a direct and negative impact on peoples’ lives. I believe very deeply in economic freedom, the right to pursue your calling. AB5 is a grave moral offense. So if there’s a silver lining to all this, it’s giving a diverse range of people a window into the dysfunctional nature of politics in Sacramento. For those who are disenchanted with the political majority, there is now an opportunity for alternatives.”
Such alternatives are popping up around the state. Evan Wecksell, a comedian and tutor by trade, is running for state senate as a write-in candidate for District 25, which encompasses parts of Los Angeles and San Bernardino county. He was registered as a Democrat until recently. Today, he’s a Libertarian.
“I definitely sense a change,” says Wecksell. “People who swore they would never vote for a Republican are doing it. We were not up to speed with knowing what was going on in Sacramento, but AB5 was a lesson and we’re learning from it. They’re taking away our natural human rights.”
Independent contractors are a unique bunch. Deeply committed to individual liberty, they’re becoming a unified group of fighters in California. They come from all walks of life and political persuasions, and if voting differently means that they can continue to run their businesses as they see fit, then so be it. Unless Democrats change course, the AB5 revolt may be the Brexit that the U.S. never saw coming. California certainly didn’t.
By Red State•
It’s bad enough when politicians rob from future generations by piling on debt to the nation’s ruinous finances. Now the Administration and Senate Republicans are considering paying for Nancy Pelosi’s exorbitant spending demands by decimating medical innovation.
But don’t worry, kids: sure it’ll kill future life-saving medicines from ever coming to market, but when you’re done paying for this Pelosi-scale largess, I’m not sure you’ll be able to afford anything nice, anyway.
The deal reportedly under discussion in the Senate would be to meet almost all of Pelosi’s spending demands — did I mention that Republicans control the Senate and President Trump is our chief executive? — and “paying” for it in part by installing crudely designed price controls on the drug industry.
This bright idea is the brain child of Sen. Ron Wyden (D-OR), the chairman, er, ranking member, of the Senate Finance Committee. (Sorry – it’s easy to get confused about who is running things over there).
The headline at Politico tells you everything you need to know: “Senate Republicans pray Trump will take budget deal.”
Imagine how that’s going to go:
“So you’re meeting Pelosi’s spending levels?”
“Yes, sir, Mr. President.”
“And raising the debt ceiling?”
“How the hell are you going to pay for it?”
“Price controls, sir.”
It’s a complete disgrace, and I expect Trump will not take kindly to an outcome where he gets taken for a ride by Nancy Pelosi.
The price controls under discussion are a “Squad”-caliber idea, the “Squad” being the quartet of Socialist Democrats led by Alexandria Ocasio-Cortez who spent last week attacking Pelosi as a racist for not being left-wing enough (you can’t make this up!).
I describe it that way because the proposal is the same combination of Che Guevera-t-shirt-wearing ideological zealotry and breathtaking economic illiteracy responsible for such gems as AOC’s comically melodramatic pronouncement that “the world is going to end in 12 years” because of global warming.
Price controls are already the economic equivalent of a child demanding a pony: they demand an outcome without any regard or awareness of the reality of making it so. We want lower prices, so we’ll order them lower! Except, the cost of production remained just the same, or even increased once the people putting nation-state-level amounts of capital on the line just noticed the infantile children bickering in Congress are about to make a big mess.
The cost of producing one new drug is typically $2.5 billion. Private companies have to pay that up front, without knowing if the effort will succeed or fail, or in this case whether Wyden and Pelosi will decide they need some of that moolah to pay for women’s studies departments, free abortions and sex changes, and only Heaven knows what other insanities they can dream up.
But, you know, some children at least know something about ponies. Some demand a Shetland, for example. The Wyden child doesn’t even know what a pony is, he’s just throwing a tantrum. That’s my best attempt at explaining how stupidly designed these particular price controls are.
First, the proposal punishes price increases of individual drugs compared to inflation. Not only does this ignore any particular circumstances (sudden spike in supply cost for a particular compound, for example), it creates a giant incentive to pad price increases across the entire product line, untethering the price of any individual drug from actual production costs.
Second, the vehicle for delivering these price controls is the Medicare Part D, otherwise known as the one part of the entire federal health care system that shows any sanity and cost-effectiveness — thanks to its use of market principles.
Part D is the only large government program in the history of humanity to come in 40% under budget, which is practically on par with feeding the crowd of 5000 from a basket when you think of the endless list of failed health care “reforms” that cost an eye-watering amount above their price tag.
Why did Part D work? Because it managed to install some semblance of a market, which consumer choice, and real competition, in the form of the plans that compete for patients. Exactly the opposite of the price controls we may be on the verge of adopting to “pay for” Pelosi’s world domination tour — sorry, the obscene spending she demanded and the Senate Republicans appear all too happy to accept.
It’s shameful. Something deep inside the chests of Senate Republicans should cause them to reject a bad Pelosi proposal — simply as a matter of self-respect! But if you believe that most politicians have anything more than trace amounts of self-respect, boy have I got some wonderful price controls to sell you!
A new proposal under discussion by the Senate Finance Committee is a perfect example of the folly of trying to centrally design the economy — in this case by a ham-handed attempt at price controls.
The proposal, from Sen. Ron Wyden (D-OR) and under consideration by Chairman Chuck Grassley (R-IA), would change the Medicare Part D prescription drug rebate to penalize drugs whose prices rise faster than the rate of inflation.
It’s ironic the proposal targets Part D, one of the few islands of economic sanity to be found in the health care sector, which, beset by rampant government intervention, suffers from a wide variety of perverse unintended consequences.
Part D is one of the few government health care programs to successfully foster price-based productivity increases. In most parts of the economy, over time, prices go down and quality goes up, due to increases in productivity. The underlying mechanism driving this is competition.
One sign of how successful Part D has been in wielding competition is that in its first decade of existence, it cost over 40% less than what the Congressional Budget Office estimated it would, a historical and underappreciated achievement.
Tacking on feel-good, one-off pricing rules like Wyden’s “faster than inflation” penalty could easily disrupt the market-based dynamics that enabled Part D to flourish in the first place.
It’s just silly to think that something as complex, distributed and organic as a worldwide market for pharmaceutical drugs could be controlled by something as ramshackle as a “faster than inflation” rule.
Consider the variety of pricing mechanisms that exist in well-functioning markets. In retail, there are coupons, package deals, membership plans and other discounts. In the stock market, there is the “continuous auction,” providing ongoing price discovery that can react to new information in a matter of seconds.
Amazon’s server rental business offers clients a tremendous range of pricing options, split by eighteen datacenter regions, dozens of server types, and several tiers of availability.
There is a whole world of financing, from store-offered, no interest payment plans to credit cards to mortgages. Stores employ all manor of psychological pricing tricks, such as charging 99 cents instead of $1. One of the more incredible such tricks, which would be hard to believe without the well-established research backing it up, is that prices that contain fewer syllables (when read out loud) are more attractive than those with more syllables. For instance, $28.16 (five syllables) is better than $27.82 (seven syllables).
The incredible diversity in pricing practices stems from the decentralized nature of the market. You could never ask a single committee, or even a large organization, to come up with this level of creativity and variety on its own. It’s only from the organic interaction between millions of businesses and billions of customers, each expertly seeking their own interests, that it can ever arise.
You might compare Wyden’s “faster than inflation” proposal to the fences in Jurassic Park — “life finds a way,” as Dr. Ian Malcolm tells us, foreshadowing the inability of the park to contain the beasts contained within. Except, at least the 40-foot electric fences were a good faith effort. Wyden’s proposal is more like if they attempted to keep the T-Rex at bay with only the thin walls of the bathroom hut the hate-able lawyer ran and hid inside, shortly before becoming a dinosaur’s dinner.
In other word’s this “faster than inflation” rule is a laughable, pitiful attempt at something that isn’t even achievable by the most expert, determined effort — something like, say, the Soviet Union, which tried, and failed, to put price controls into practice at super power scale.
But that’s not to say it can’t do harm. At the very least, it will increase the cost of participating in the market, both in terms of compliance costs, and in the changed incentives and their inevitable unintended consequences. For example, a company that requires more revenue to survive might raise the prices slightly on all its products, instead of steeply on just one. How this all plays out is impossible to predict. What can be said for certain is the market’s “logic” would now be less about providing the most value for customers at the lowest price, and now more about the political ramifications of pricing decisions.
More specifically, as it relates to the Part D drug market in particular, the rule could crowd out existing rebates negotiated by the plans buying the drugs. Many plans have already secured “price protection rebates” which kick in if prices increase more rapidly than some agreed-upon threshold. In other words, the market has already invented, in a much more sophisticated and dynamic way, the “faster than inflation” rule on its own.
The worst case scenario is more dire. Generally speaking, fostering well-functioning markets in the health care sphere is exceedingly difficult, given the immense government intervention at every level. Part D’s success in doing so is nearly unique. Additional rules that make supply and demand less important to how the market functions could result in it ceasing to function as a market entirely. It certainly would not be the first time the government accidentally killed a market.
Wyden’s proposal exemplifies the folly of centrally-designed price controls. It will harm one of the only well-functioning parts of the federal government’s health care policy. For those reasons, Chairman Grassley and Committee Republicans should cast it in the dustbin of bad socialist ideas.
In the first two months of the new fiscal year, tax revenues are up. But so is the deficit. Why? Because spending continues to outpace revenues. So why do tax cuts keep getting blamed?
The latest monthly budget report from the Congressional Budget Office shows the deficit jumping $102 billion in just the first two months of the new fiscal year.
That sure looks like the deficit is “soaring,” as one news outlet claimed. But as the CBO makes clear, almost all that deficit increase was the result of quirks of the calendar. Depending on where weekends fall, significant sums of spending can get shifted into different months.
A true apples-to-apples comparison, the CBO says, shows that the deficit climbed by just $13 billion. Continue reading
By Michael Barone • National Review
The Republicans have passed their tax bill, without a single Democratic vote, despite low to dismal poll ratings. It’s reminiscent of the passage by Democrats, without a single Republican vote, of Obamacare in March 2010.
Democrats lost 63 seats and their House majority that fall. Republicans hope they won’t follow suit. They argue, accurately, that their bill will lower taxes for almost all taxpayers and that it will stimulate economic growth, which already has risen above the growth in the Obama years.
The effects of Obamacare, in contrast, were harder to model, and some backers’ claims — if you like your insurance, you can keep it — soon were revealed as glaringly untrue. We’ll see whether the greater simplicity of the tax bill makes a difference in political fallout.
One thing in common between the two bills is that voters have seemed congenitally skeptical about the claims of the party in power. Obamacare continued to be unpopular until, presto, Donald Trump took office and Republicans threatened repeal.
by Peter Huessy
The President’s Fiscal Year 2016 Budget makes a defense spending request that exceeds the Budget Control Act (BCA) spending cap for FY16 by $35 billion with a “base” defense spending request of $534 billion, while also asking Congress for an additional $51 billion for what is known as Overseas Contingency Operations(OCO) that are, under law, not subject to the spending caps.
Of the amount requested by the President, for what is known as the “base” defense budget, $209.8 billion is for operations and maintenance (O&M), $107.7 billion is for procurement, and $69.8 billion for research, development, test, and evaluation (RDT&E).The remaining costs (largely personnel) are exempt from any cuts.
For the OCO accounts, $40.2 billion is for O&M, and $7.3 billion is requested for procurement with half of that for the US Army. Continue reading
By Shawn Macomber
In the wake of the International Criminal Court’s controversial decision to allow Palestine join its ranks, Israeli Foreign Minister Avigdor Lieberman vowed to lobby nations friendly to the Jewish state to cut funding to the aspiring transnational entity.
That effort, it appears, is essentially DOA, but the threat such a move, if realized, poses to the Court is hardly trivial, as the following excerpts from a Reuters report makes clear: