The Campaign To Preserve Obamacare Turns To Fraud

In the previous post I relied on my own memory of the extensive public debate in 2009/10 for the proposition that the limitation of the Obamacare subsidies to policies purchased on exchanges  created by a state was a very intentional feature designed to coerce the states into creating exchanges.  Today, various web denizens have been going out and doing some homework as to exactly who said what when. 

My favorite comes from Jonathan Gruber.  For those who don't know him, he is a professor at MIT who is often described as the "architect" of Obamacare (and, for that matter, also of Romneycare in Massachusetts before that).   Gruber is known for having worked closely with the White House in coming up with the structure of Obamacare, and then moving over to work with the Congressional staff to come up with the language.  Gruber gave a speech on January 18, 2012 describing how the Obamacare structure works to coerce states to set up exchanges.  Here's some video from the speech:

Here's the key quote:

I think what’s important to remember politically about this, is if you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits. But your citizens still pay the taxes that support this bill. So you’re essentially saying to your citizens, you’re going to pay all the taxes to help all the other states in the country. I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these Exchanges, and that they’ll do it. But you know, once again, the politics can get ugly around this.

Others have additional video of Gruber at other times making similar statements to the same effect.  Well, that was then and this is now.  Earlier this week on MSNBC, now striving for a favorable decision in the D.C. Circuit Halbig case, Gruber said of the limitation of subsidies to state-created exchanges:

It is unambiguous this is a typo. Literally every single person involved in the crafting of this law has said that it's a typo, that they had no intention of excluding the federal states.

With multiple videos of himself saying exactly the opposite of what he is saying now, you would think that this guy would be too embarrassed to show his face in public.  Instead he's taking the offensive.   Of course, he is uttering these bare-faced lies to give some cover to the courts in the hope that they will endorse hundreds of billions of dollars of taxes and spending not approved by the Congress.  And also to fool those of the people who were not paying attention back in 2009.  Some might call this "fraud."   Elsewhere in the MSNBC transcript, Gruber now calls the reading of the statute that the subsidies are only available on the state-created exchanges "criminal" and "insane."  Silly me -- I had somehow thought that even when a statute contains an obvious typo (like referring to the year 3015 instead of 2015) that they still need to send a correction bill back through Congress and get it passed to fix the thing.   Don't they enact a "technical corrections" bill a few months after every complicated new tax law goes into effect?

So are the courts really going to rule in the end that the statute says exactly the opposite of what we all know it says and thereby give the IRS the ability without Congressional authorization to impose hundreds of billions of dollars of taxing and spending on the economy?  So far, every Democrat-appointed judge to rule on the matter says that's how it works.

In case you aren't reading the stuff, I've collected a couple of examples of the statist thinking on why it's OK to do away with our republican form of government in favor of rule by the whim of unelected and unaccountable bureaucrats.    For example, here is Andy Koppelman in the New Republic:

If the argument is ultimately accepted by the Supreme Court, then about 4.5 million low- and middle-income workers in those states who are already receiving assistance from Obamacare will abruptly lose their benefits—not because they did anything wrong, but because this destruction furthers the political war. Their personal disasters are not unintended side effects of the litigation, but the very goal that the challengers are seeking.

Or here is Tim Jost blogging at the American Constitution Society (a little irony in the name there?) site:

Should the plaintiffs ultimately win, millions of Americans will lose their premium assistance and probably their health insurance. The individual health insurance markets may collapse in several states. This is mean-spirited litigation, intended to deny health insurance to those who Congress intended to help. It is to be hoped that in the end the courts will interpret the law as it was meant to be interpreted, and uphold the IRS rule. 

So in this world view, the most important value is that favored members of the elite get to pass out  taxpayer-funded "benefits" to those officially designated as poor and downtrodden.  The bureaucrats get to decide how much money they get to pass around and how much taxes to impose, with Congress cut out of the loop.  Having "low and middle income workers" "lose their benefits" leads to "personal disasters," and seeking such a result is "mean-spirited."  There's no particular room here for any value to be placed on our Constitution or on maintaining our republican form of government.  And do these people see any problem in having the IRS -- formerly thought to be a "non-political" agency -- lead the charge on this hyper-partisan attempt to rescue a failing statute not supported by one single Republican?  Not that I have seen.

The incredible thing is that 36 states continue to resist a statutory structure that had been thought to be so coercive that they would be forced to crumble immediately.  More than a few able-bodied Americans find the whole idea of the government paying for their health care to be insulting and demeaning.  I sure do.  

Obamacare And The Demise Of The Constitution

The first I learned about the U.S. Constitution was back in high school in the 60s, where in addition to getting introduced to the document itself we read some excerpts from the Federalist Papers.  I'm pretty sure we read Madison's very famous Federalist 45, from which the money quote is:

The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected.

In my high school, nobody mentioned that during the New Deal the federal government had slipped free of the bonds of this tedious limited powers thing, largely (but not entirely) through a Supreme Court case called Wickard v. Filburn.   I figured that out when I got around to learning constitutional law in a semi-serious way in law school eight or so years later.  I say "figured it out" because it was never put quite that way in Larry Tribe's con law class.  Hey, of course the Constitution has had to be adapted to the modern world; now can we please move on to 43 cases applying footnote 4 of Carolene Products?  Funny, Madison et al. somehow thought this limited powers thing was pretty important.  How old fashioned!

Well, even without limited powers, we do still have the bedrock principle that to be binding on the people a law must be passed by both houses of Congress and either signed by the President or passed by two-thirds majorities of both houses over his veto.  Or has that principle also been declared inoperative?  Actually, that principle has been under severe attack as well, again going back to the New Deal.  First it was the profusion of "agencies," some of them not even answerable to the President (try to find that one in the Constitution), and then the even greater profusion of statutes turning over more and more authority to one or another agency to add to the laws by creating "regulations."  But really only in the last few years has it become the fashion for Congress to pass multi-thousand page statutes taking over vast swaths of the economy, and where the statutes despite their length omit most of the operative provisions and delegate the task of coming up with those to unelected agency bureaucrats.  Dodd-Frank and Obamacare are the two archetypes.

And so we have Congress in passing Obamacare putting in provisions designed to bludgeon the states into participating by making spending subsidies available and imposing taxes for non-compliance only in those states that cooperated by setting up their own insurance exchanges.  That was followed by 36 of the 50 declining to do it and daring the federal government to step in.  And in the next move the IRS declared by regulation that it could impose the taxes and disburse the spending on its own as a supposed "interpretation" of the statute.   This is now taxing and spending amounting to some hundreds of billions of dollars over short time periods, trillions if you go a little longer. 

In saying that the provisions of Obamacare were "designed to bludgeon the states into participating," I am mindful of the proposition that attributing an "intent" to Congress is a perilous thing, and I am also mindful of the limitations of statutory history.  On the other hand, I was around for this one.  Obamacare was the number one subject of the public discourse in this country in the year plus period up to its passage, and right in the middle of that discussion was the question of how Congress would attempt to make reluctant red states go along.  Newspapers, opinion journals and web sites were filled with discussions of this topic.  Surely, it is not possible for anyone alive then to claim to have forgotten.

Reading the dissent of Judge Edwards in the D.C. Circuit, I would summarize his position as "the IRS can do whatever it takes to make this statute work." 

Appellants’ proffered construction of the statute would
permit States to exempt many people from the individual
mandate and thereby thwart a central element of the ACA. As
Appellants’ amici candidly acknowledge, if subsidies are
unavailable to taxpayers in States with HHS-created
Exchanges, “the structure of the ACA will crumble.” Scott
Pruitt, ObamaCare’s Next Legal Challenge, WALL ST. J.,
Dec. 1, 2013. It is inconceivable that Congress intended to
give States the power to cause the ACA to “crumble.”

So according to Judge Edwards, the IRS can impose hundreds of billions of dollars of taxing and spending on the people when those things were never voted by the Congress, on the ground that the IRS has broad discretion to implement its view of how to make the statute work better.  If this is right, then I guess Congress could have just passed a statute saying "Congress hereby declares that there shall be affordable health insurance available to all; IRS to implement."  And with that, the IRS can impose whatever taxes and spending it wants without further authorization.

Here's the most discouraging thing of all:  It appears that how a judge regards the constitutionality of these IRS actions is a completely partisan thing.  In the two Obamacare decisions that came out yesterday (D.C. Circuit here and 4th Circuit here), the four judges appointed by Democratic presidents all voted to uphold the IRS actions, while the two judges appointed by Republicans (both in the D.C. Circuit) held that the IRS had exceeded its authority.  Will that perfect partisan divide continue?

Again, it's two visions of how the world should work.  If your vision is that the world should be run by unelected, neutral "experts" who can impose perfect fairness in human interactions by writing enough regulations, then I guess you think what the IRS did is just fine.  If you think that the functioning of our republic through the mechanisms spelled out in the constitution has great importance, then you will have a very different view.

LIRR Unions Gradually Putting The Railroad Out Of Business

Last week the big news was that the Long Island Railroad workers were going to begin a strike over the weekend.  Then, as reported everywhere in the press, at the last minute Governor Cuomo swept in and "brought the two sides together."   A deal was reached.  Monday morning the trains were running, with a new deal, including raises of 17% over 6 1/2 years.  This deal bridged the gap between previous offers of 17% over 7 years from the railroad, and 17% over 6 years from the union.  What statesmanship!

As usual, all the reporting was about the drama of the threatened strike and the relief of the settlement.  Here's an example from Andrew Tangel in the Wall Street Journal on July 17:

"Everybody seems to have won something, and the governor won the most because he brought about the settlement," said Ken Margolies, who teaches labor relations at the Worker Institute at Cornell University.  Riders were relieved.  "I'm very happy," said Jerry Noble, 61, a sales representative from Suffolk County and a LIRR commuter who said he would have had to drive to Queens and then take a subway to work if a strike had shut down the railroad.  It wasn't immediately clear how much the agreement might cost the MTA in added labor expenses.

And as usual, they miss everything important.  The big story about the LIRR is the pitifully low productivity of its labor.   Farebox revenue pays only about 35% of operating costs per MTA 2013 data here, and undoubtedly that ratio is about to go down with the new contract.  This is a considerably lower ratio than even on the New York MTA's other main entities, the New York City subway and the Metro-North railroad.  Why?  I can't find any real information about this in any major press stories.  But then there's a site called The Long Island Railroad Today, run by a guy named Patrick O'Hara.   There, they actually do some real digging.

Back in April, and also last October,  O'Hara did in-depth stories on some of the LIRR work rules and how they affect the operations and costs of the railroad.  You really need to read some of this stuff to believe it.  I suggest reading both articles in full.  Here are some excerpts from the October article:

"Co-mingling" is probably one of the most blatant ones.  As per a rule that has been on the books since the 1960's, if an engineer operates both diesel and electric equipment during the same shift, he or she is entitled to an entire extra day's pay.  So if an engineer that starts out on an electric run moves a diesel, even for a couple of feet, they get an entire extra day's worth of pay.  As you might imagine, the penalty pay resulting from this rule can be pretty staggering at times when the railroad is recovering from service disruptions or when a piece of equipment malfunctions.  . . .

Another example of these union work rules is a rule that has been on the books since 1924 and involves a crew doing something outside their normal assignment.  If an engineer operates a train that is other than his or her regularly assigned train, then that engineer can get an additional straight-time hour of pay for every hour spent operating that train. . . .

"Rule 24," that racked up an immense amount of overtime for a handful of mechanics at the Richmond Hill facility, and only the Richmond Hill facility, stipulates that the LIRR is required to fill all vacant work slots at the LIRR's main diesel facility regardless of weather or not the manpower is actually needed.  This archaic rule means that if an employee were to be away on vacation or out sick, the LIRR would have to get someone else to fill his place, even if that person would have to be paid overtime.  There have been multiple instances where mechanics have worked shifts as long as 32 hours straight (all the while getting time and a half or double time for their troubles) all because the spots had to be filled.  This rule netted several mechanics who work at "Rich Man's Hill"  almost three times their base salary.

These articles go on and on about this stuff.  So did the new contract achieve any meaningful reforms in these rules?  Here is O'Hara's comment from his latest article on July 17:

With this contract, however, there was no mention of any changes whatsoever in things like work rules or overtime practices, so the MTA has missed a big opportunity to make the LIRR more streamlined and efficient.

How could they possibly have let this opportunity slip by?  To be fair to them, it looks like their position was completely undermined by a mediation panel appointed by President Obama that, unbelievably, took labor's side on all the work rule issues.  From a Long Island source called Anton News on January 9:

President Obama’s three appointees sided, big-time, with the LIRR’s unions, when releasing its 51-page, non-binding report on the LIRR’s ongoing labor dispute. . . .  The LIRR management team’s bid to get the presidential panel to endorse any of its proposed work-rule changes also went nowhere, such as those governing staffing requirements at Richmond Hill, or ones that would make it easier to reassign LIRR track workers to undertake bridge and building maintenance.

I would rate this as total incompetence on the part of Obama and Cuomo. 

Meanwhile, in other LIRR news, work continues on the big project to bring Long Island trains into Grand Central Terminal.   When they really got started on this project back in 2008, the budget was $7.2 billion and the projected completion date was February 2015.  In the latest report (April 2014) the budget is $9.3 billion and for revenue service dates they give a range of September 2021 to September 2023.  That's right, after six years of work, and all the tunneling long since finished, they are actually farther away from completion than they were the day they started.

At The Atlantic here, Benjamin Kabak comments on the ridiculously high costs of building new rail transportation infrastructure in New York.  Our costs are double and triple the costs of building comparable facilities in European and Asian cities.  Again, the problem is ridiculously low labor productivity, driven by work rules.

If these were private businesses, they would be out of business by now.  As public entities, they continue operating, but for how long?  Not too much longer, if the likes of Cuomo continue to play for today's headlines and ignore the productivity problem.

How Not To Get Money Out Of Politics

An oft-repeated mantra of the last several decades is that "we need to get money out of politics."  I'm told that that mantra polls well among the public even today.  The proposed solution has been our campaign finance laws, which got started in a big way in the 70s and have been added to since.  Those laws restrict the amount of money that any donor can contribute to a political campaign, and often have also attempted to restrict how much a donor can contribute to a political party or an independent group, and even how much a campaign can spend in the aggregate.  Violate any of the restrictions, and you have committed a criminal act.  

Many, but far from all, of the restrictions have been ruled unconstitutional by the Supreme Court.  In brief summary, the position of the Court has been that independent political expenditures are a form of speech protected under the First Amendment, and therefore cannot be restricted.  However, the Supreme Court has also ruled that contributions directly to a candidate's campaign might be a disguised form of bribery, thereby posing a threat of corruption, and therefore subject to restriction.  There is currently a limit of $2600 for contributions by any one individual to the federal campaign of any one candidate; a married couple can contribute double that, or $5200.  More is a crime.  Many states have their own restrictions, generally of similar form, but subject to the same limitations coming from the Supreme Court case law.

With that background, I will now give the facts of three actual situations that are playing out even today, and your task is to guess which one has been the subject of a criminal investigation:

Scenario A.   Governor Scott Walker of Wisconsin faced a recall election in 2012.  No single donor gave the campaign more than allowed under the contribution limits of the state's campaign finance law.  However, some large independent groups (Americans for Prosperity, Club for Growth, Republican Party of Wisconsin) ran many TV ads during the campaign that, without directly supporting Walker, took Walker's side of certain issues.  Allegations were made that these expenditures were "coordinated" with the Walker campaign, although the independent groups paid for the ads with their own money and none of the money went to Walker or his campaign.  (From the Milwaukee Journal Sentinel of June 19:  Beginning in March 2011, there were "open and express discussions" of the need to coordinate the activities of entities like Americans for Prosperity, Wisconsin Club for Growth, the Republican Party of Wisconsin [and others].)   Some of the money may have come from the much-vilified Koch brothers.   Walker won the recall election.

Scenario B.   After winning election as Mayor of New York City in November 2013, Bill de Blasio pushed forward a signature initiative of universal pre-k education in the public schools.    A not-for-profit called Campaign for One New York was formed by de Blasio and his aides to advance this initiative, and after de Blasio was elected it began running television commercials aimed at building political momentum for the initiative.  A July 15 article from Crain's New York Business describes the next steps.  As of April 8 de Blasio was planning $1 million of television advertising through April in support of the the plan, but had only $100,000 on hand after having spent only about half of the planned amount.  On April 9, the City's teachers union, the American Federation of Teachers, contributed $350,000 to Campaign for One New York, thereby enabling it to complete the advertising blitz.  Then in early May the long-running labor dispute between the City and the teachers union was settled through the efforts of de Blasio, with a contract containing increases over the previous contract calculated at $9 billion, of which some $4 billion consists of retroactive raises that previous mayor Mike Bloomberg had said were unaffordable.  Meanwhile the adoption of public-school pre-k will result in the hiring of several thousand more unionized teachers, and thus several million dollars more per year of taxpayer revenue going to the teachers union.

Scenario C.  Hillary Clinton is considered the presumptive nominee of the Democratic Party for President in 2016.  But she has not yet officially launched a campaign.  Meanwhile, she makes frequent speeches, many on university campuses, and charges reputed "speaking fees" of approximately $250,000 per speech.  According to this Washington Post article, during the last several months she has given at least eight speeches at colleges and universities, for fees totaling some $1.8 million for just those eight.  When criticized by students for spending their tuition money on such high speaking fees for one speech, several of the universities have defended themselves by saying that they did not use tuition money, but rather took money from some kind of speakers fund that had been raised from one or more donors to the university.  For example, the Post article reports that Hillary's speech at Colgate was funded by a senior financial executive named Edward Kerschner; at UConn, her fee was underwritten by New Haven-based developer Edmund Fusco.  In other words, those guys (and others) have managed to send close to 100 times the campaign contribution limit to Hillary; but because they have arranged to characterize the payment as a "speaking fee" and to have a university as an intermediary,  they claim to be outside the campaign finance system and even take a tax deduction for the contribution.

One of these three scenarios has been the subject of a long-running and expensive criminal investigation.  Can you guess which one?  Of course it is Scenario A, involving Republican Scott Walker.  The theory behind the investigation is that the Walker campaign "coordinated" with the independent groups on the timing and themes of the ads, thereby making the ads a sort of in-kind contribution to the campaign itself, and making the groups subject to registration under Wisconsin campaign law.  The investigation is under the auspices of Democrat Milwaukee County District Attorney John Chisholm.  Two judges, one state and one federal, have weighed in, and both have been severely critical of the investigation.  The federal judge got involved when Club for Growth brought a lawsuit seeking to stop the investigation, and a ruling in that case appears to have shut the investigation down for now.  But the Journal Sentinel provides quotes from the complaint in that case that give an idea of the investigation's scope and tactics:  

[T]he judge who originally presided over the investigation authorized as many as 100 subpoenas "of breathtaking scope" and ordered raids "related to at least 29 organizations." . . .   "School-age children were home in at least two residences and school buses passed their houses during the course of the raids, which lasted over two and a half hours," O'Keefe's complaint said. "The searches were conducted by six armed sheriff's deputies with flak vests, bright lights were aimed at the houses, and multiple vehicles were parked on the lots, police lights ablaze."

I don't know how you may react to the three scenarios, but of the three I find the Walker situation to involve by far the least taste of corruption.  Yet I haven't heard or seen any hint of an investigation as to the situations involving either de Blasio or Clinton.  The biggest part of that could simply be that all the relevant prosecutorial offices in the federal government, New York, and Connecticut are currently headed by Democrats, who are just not going to go after their own.  Meanwhile, Walker is a Republican being pursued by Democrats.

The other piece may be that de Blasio and Clinton are just a little cleverer in how they structure their transactions.  Still, in the face of a $2600 campaign contribution limit, could it really be that giving $250,000 legally to Hillary (and getting a tax deduction for it no less) is as simple as laundering the money through a university and calling it a "speaking fee"?  If so, what possible function is served by these campaign finance laws, other than as a device to torture your adversaries when your side happens to control the prosecutorial offices at a particular moment?  

The Kansas Pile-On

For the forces of government growth, the worst possible thing is a state that breaks ranks from the endless creeping government expansion and actually tries to cut taxes and spending.  In today's United States, that would be Kansas.  So suddenly this state you never read about deep in flyover country is getting a lot of attention in the national press.

In 2010 Kansas elected Republican former Senator Sam Brownback as its governor, following two Democrats (one of whom was Kathleen Sebelius).  With the support of a heavily Republican legislature, Brownback has set about to make big cuts in taxes as a way to jump-start the economy.  The top income tax rate was cut from 6.45% to 4.9% effective in mid-2013.  Further cuts are scheduled over the next several years (down to 3.9% in 2018), and Brownback has even talked about getting rid of the income tax entirely.  Heresy!

The New York Times weighed in on Sunday July 13 with an editorial titled "Kansas' Ruinous Tax Cuts."  The clear goal is to nip this tax cutting thing in the bud before it starts taking hold.  The Times editorial quotes Brownback in 2012 as saying "Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy."  And then it proceeds to cherry-pick some data to try to show that the whole thing isn't working and should be stopped right now:

But the growth didn’t show up. Kansas, in fact, was one of only five states to lose employment over the last six months, while the rest of the country was improving. It has been below the national average in job gains for the three and half years Mr. Brownback has been in office. Average earnings in the state are down since 2012, and so is net growth in the number of registered businesses.

As another example of the Kansas pile-on, here is Howard Gleckman from July 15 at the Forbes web site.  His conclusion:  "This is fiscal snake oil."  And Mark Peters in the Wall Street Journal on July 15 cites "more than 100 Republican officials" in Kansas as supporting Brownback's opponent for governor in the upcoming election, largely attributing the phenomenon to cold feet over the tax cuts.

A few comments on this.  First, I wouldn't be expecting very dramatic changes to be happening overnight as a result of what really are not-very-dramatic tax cuts.  The process of creating a good investment climate and then attracting the investors takes years, just as the process of destroying a good investment climate and driving business away takes years.  Here in New York, Bill de Blasio is doing everything he can to destroy the good investment climate created by his two predecessors, but you can't really notice any change yet.  It would be nice if clear results could be in within 12 months, but these things just don't work that way.  And then there are specific factors as to particular businesses and industries that can affect the results.  For example, Kansas is big in the private aircraft business, which is struggling.  That business would still be struggling even if they eliminated the income tax entirely.

So instead of cherry-picking some short term data about Kansas, let's take a look at a somewhat bigger picture.   Here is the recent data from the Commerce Department on GDP growth by state for 2013:

Click to enlarge

Surprise, it is the usual case of low tax low spend states far outperforming the high tax high spend states.   It's not a perfect correlation, and never is in any given year, but low tax states like Texas (3.7% growth) and Florida (2.2% growth) virtually always outperform the "blue states" (not blue in this chart), like New York (0.7%), New Jersey (1.1%), Connecticut (0.9%) and Illinois (0.9%).  Oh, and there's Kansas at 1.9% -- a lot better than New York.  Try to find that data in the New York Times!

For a little more long term perspective on things, take a look at demographer Joel Kotkin's op-ed from the Wall Street Journal on July 15, "Success and the City."  Kotkin documents the remarkable success of low tax Houston, now the fourth largest city in the country and continuing to outstrip all rivals.

Houston's economic success over the past 20 years—and, more remarkably, since the Great Recession and the weak national recovery—rivals the performance of any large metropolitan region in the U.S. For nearly a decade and a half, the city has added jobs at a furious pace—more than 600,000 since early 2000, and 263,000 since early 2008.  The much more populous greater New York City area has added 103,000 jobs since 2008, and Los Angeles, Chicago, Phoenix, Atlanta and Philadelphia remain well below their 2008 levels in total jobs. Los Angeles and Chicago, like Detroit, have fewer jobs today than they did at the turn of the millennium.

And from today's Wall Street Journal, we have "Weak Economy Dogs Christie On The Road."  With New Jersey having a top income tax rate now almost 9%, why should that surprise anyone?

So Kansas, have a little fortitude.  Success may take a little while, but it will come.