How Debit Card Swipe Fee Regulations Hit Consumers

jpye — Tue, 21 May 2013 15:02:34 -0500

Perhaps one of the most brilliant things about a free market is law of supply-and-demand. Businesses or financial institutions set a price for their good and/or services based on demand. But Congress often interferes with this basic economic law, often masquerading it as some sort of “victory for consumers.”

And while there are countless instances, last Monday was the birthday of one of the more recent recent examples. Before passing Dodd-Frank — frequently referred to as the “financial reform law” — the Senate added an amendment by Sen. Dick Durbin (D-IL) that capped how much financial institutions could charge for debit card transactions.

Jason Hughey of Americans for Prosperity marked the birthday of this regulation last week, noting that financial institutions are still getting their money, despite having the fee capped. They’re just doing what every other business does when they’re hit with a new regulation — they’re passing the costs along to account holders (emphasis mine):

Before Durbin, banks were charging roughly 44 cents per debit card transaction. In the aftermath of the market crash, congressional leaders thought that this price cap would help struggling consumers.
Consequently, champions of the Durbin Amendment declared a victory for the American people. However, AFP opposed the Durbin Amendment. The victory for consumers was falsely proclaimed. Durbin’s amendment was actually a boon to retail companies who wanted the government to force debit card transaction costs downward. This did not change the real price of debit card transactions—that remained at 44 cents. Instead, it artificially lowered the price, leaving banks with a loss of 20 cents per transaction.
Because the Durbin Amendment ignored basic supply-and-demand economics, banks had to figure out how to cover their costs. In order to comply with the law, they had to figure out where to make up the losses. They found their answer in free checking accounts and debit rewards programs. According to the Heritage Foundation last July, the number of large banks offering free checking to their consumers declined from 96% in 2009 to 34.6% in 2011. In the months after the Durbin Amendment took effect, J.P. Morgan, Wachovia, and Wells Fargo also ceased offering debit reward programs.
None of these developments can honestly be called a victory for consumers. Using the federal government to “stick it to the banks” does nothing to help consumers. Banks have bottom lines that they have to meet. If the government tries to force banks to lower their costs in one service, they will have to eliminate or reduce some other service in order to comply.

It’s amazing that Congress thinks that it can avoid one of the most fundamental laws of economics. They pass regulations like this, pat themselves on the back, and act like there won’t be any consequences. As Milton Friedman once said, there’s no such thing as a free lunch. That’s even truer when Congress is involved.

Restaurant Franchisees Feel ObamaCare's Bite

jpye — Tue, 21 May 2013 14:20:56 -0500

There have already been a number of stories written on the effects of ObamaCare on many small businesses. Perhaps no enterprise has felt the impacts of the law worse than the restaurant industry.

ObamaCare requires employers with over 50 employees to offer insurance coverage to those who work 30 hours or more, which is considered to be “full-time” under the law, or otherwise pay a $2,000 fine per worker. This is known as the “employer mandate.” Opponents of ObamaCare warned that this mandate would hurt investment and many workers, who would either lose their jobs or face scaled back hours. Supporters of the law obviously didn’t care enough listen.

Last week, the Wall Street Journal highlighted the plight of restaurant franchisees who are struggling to remain profitable as the realities of ObamaCare hit their businesses:

Sam Ballas, chief executive of ECW Enterprises Inc., owner of East Coast Wings & Grill, a 26-unit chain in North Carolina and Texas, in March imposed a three- to five-unit limit, for the time being, on the number of restaurants that franchisees can own, because of worries about health-care costs.
[…]
Mr. Ballas said several East Coast Wings franchisees are up against that limit now and that one is considering selling a restaurant to remain below the threshold.
Mr. Ballas’s company studied the past two years of financial data from its restaurants, and modeled how many units a franchisee could own and remain profitable after covering full-time workers. The model showed that franchisees who operate three or fewer stores are likely to remain under the mandatory insurance threshold, while an owner who manages five restaurants efficiently would have just enough scale to offset the cost of paying for insurance or the penalty. Beyond that number, Mr. Ballas said, his company isn’t sure how many restaurants a franchisee could profitably operate under the new law.
“There is no question that the Affordable Care Act has thrown a wet blanket on franchise development,” said Stephen Caldeira, CEO of the International Franchise Association. In a recent survey of its members, the trade group found that 64% of franchisers and almost 72% of franchisees said the health law creates some uncertainty or significant uncertainty in long-term planning.
“Small-business people are telling us they’re afraid to take on any more debt until they know the full cost of the Affordable Care Act,” said Richard Hunt, CEO of the Consumer Bankers Association.

Other industries are looking to avoid the fines by offering what the Wall Street Journal calls “bare-bones” health insurance plans, which would “qualify as acceptable minimum coverage under the law, and let most employers avoid an across-the-workforce $2,000-per-worker penalty for firms that offer nothing.”

But there is a consequence to employers offering such bare-bones plans and it will lead to higher health insurance premiums for everyone, as Michael Cannon, director of health policy studies at the Cato Institute explains.

“To the extent ObamaCare’s employer mandate pushes firms to offer bare-bones plans, premiums for plans offered through Exchanges will rise,” wrote Cannon on Monday. “The healthiest workers will enroll in their employers’ bare-bones plans, but workers who have expensive illnesses (or with dependents who have expensive illnesses) will seek more-comprehensive coverage through the Exchanges.”

“The influx of sick consumers will increase the premiums for Exchange-based plans,” he added. “Many of these sick workers won’t receive any premium-assistance tax credits or cost-sharing subsidies because their employer’s bare-bones plan will likely satisfy ObamaCare’s definition of adequate – and because the statute forbids those entitlements in the 33 states that have declined to establish an Exchange.”

Despite this very real threat to employers and their workers, there appears to be little movement in Congress toward fixing it.

Pundits Realize Broader Ramifications of IRS Scandal

jpye — Tue, 21 May 2013 13:03:58 -0500

The IRS serving as a political tool isn’t exactly a new concept. The agency has long-been used by administrations to target political and ideological opponents. But the latest incident involving the agency and its target of Tea Party groups has made some pundits to have an epiphany — that government abuses lend weight to concerns over other areas of public policy where sensitive information is obtained.

Citing concerns that expanded background checks would eventually led to a national gun registry, Sens. Ted Cruz (R-TX), Rand Paul (R-KY), and Mike Lee (R-UT) promised to filibuster a procedural motion to bring the gun control measures to the floor. While they were initially unsuccessful in filibuster, the trio was able to rally enough support to kill the Manchin-Toomey amendment.

Many talking heads slammed those who voted against background checks during last month’s gun control debate in the Senate, but a couple of pundits have realized that maybe opponents of background checks had a point.

Joe Scarborough, host of the MSNBC’s Morning Joe, conceded on Friday that his argument in support of background checks is “less pursuasive today due to these scandals.”

“My argument has been, ‘Don’t worry, background checks aren’t going to lead to a national registry.’ The government is never going to create a national registry. Right? And there is even something there that says its a felony,” Scarborough said to fellow pundits during a roundtable discussion. “My argument is less persuasive today because of these scandals. Because people will say, “Hey, if they do that with the IRS asking people what books you read then how can I trust them with information about my Second Amendment rights?’”

“This is devastating,” he added. “This IRS scandal is devastating.”

Sam Stein, a reporter at the Huffington Post, agreed. “I think you’re absolutely right,” he told Scarborough. “I think it feeds into this notion that government is either inept or it’s corrupt. And, you know, it’s hard for me to see how the White House gets out of this without coming off a little bit damaged in other elements of legislation.”

Here’s the segment:

H/T: NRO

GOP's Path to a Senate Majority

jpye — Tue, 21 May 2013 12:21:56 -0500

There is little chance that Republicans will lose the House next year. There doesn’t seem to be much worry there. In fact, many Republican strategists believe that they may even pick up a few seats.

What has evaded them over the last two cycles is control of the Senate. Some bad candidates and poorly run races prevented them from gaining seats that they would have otherwise won. And while it’s far from a sure thing, Republicans have a an opening for 2014 that could lead them to a majority in the Senate, according to Nathan Gonzales of the Rothenberg Political Report:

Democrats are defending seven states that President Obama lost in 2012 and Republicans need a net gain of six to reclaim the majority. That also means in the very unlikely event that Democrats somehow knock off Maine Sen. Susan Collins, the only Republican senator up for re-election in an Obama state, the GOP could be in the majority without her by sweeping the Romney states currently held by a Democrat.

Republicans do have to worry about nominating candidates who are less popular than Romney and, in some states, deal with Democratic incumbents who are more popular than President Obama.

But Republicans have considerable room for error.

President Obama lost six of the seven states with a Democratic senator by an average of 19 percentage points. Some of the states were uglier than others for the President, including West Virginia (Obama minus 27 percent), Arkansas (minus 24 percent), South Dakota (minus 18 percent), Louisiana (minus 17 percent), and Alaska and Montana, which he lost both by just under 14 percent.

The outlier is North Carolina, where Sen. Kay Hagan (D) is running for a second term and President Obama lost by just a couple of points last year.

As it stands right now, incumbent Democrats are running in four states that Romney won — Alaska, Arkansas, Louisiana, and North Carolina. Republicans are still looking for candidates in most of those states. But they don’t necessarily need top-tier names to win these seats, given that mid-terms are historically bad for a president’s party and the political atmosphere in those states isn’t necessarily amenable to Democrats.

The scandal effect may also come into play. Republicans now have some extra ammunition to throw at Democratic incumbents running in traditionally red states, even if President Barack Obama’s number stay reasonably close to where they are now.

That also assumes things don’t get worse. The IRS scandal, in particular, could hit home for voters. Democrats will also have to contend with ObamaCare, which has been a source of concern due to rising premiums and poor implementation from the Obama Administration.

If Republicans managed to win a majority in the Senate next year, many Democrats could wake up on the morning of November 5th and ask themselves if Romney win in 2012 would have been all that bad for them.

IRS Staffer on Targeting of Tea Party: "Everything Comes from the Top"

jpye — Tue, 21 May 2013 11:17:19 -0500

There are a couple different stories that have brought a twist in the story of the Internal Revenue Service’s targeting of Tea Party and conservative groups. Both The New York Times and Washington Post noted that the directives given to lower-leven staffers in the agency’s Cincinnati office came from from management, perhaps even higher.

Here’s excerpt from The New York Times:

During the summer of 2010, the dozen or so accountants and tax agents of Group 7822 of the Internal Revenue Service office in Cincinnati got a directive from their manager. A growing number of organizations identifying themselves as part of the Tea Party had begun applying for tax exemptions, the manager said, advising the workers to be on the lookout for them and other groups planning to get involved in elections.

The Washington Post told a similar story:

“We’re not political,’’ said one determinations staffer in khakis as he left work late Tuesday afternoon. “We people on the local level are doing what we are supposed to do….That’s why there are so many people here who are flustered. Everything comes from the top. We don’t have any authority to make those decisions without someone signing off on them. There has to be a directive.”

Now, the claim has been that the IRS was singling out organizations due to an influx of tax-exempt applications. That claim was debunked in the report from the Treasury Department’s Inspector General. After that didn’t check out, the White House and IRS officials said that the discrimination came from a couple staffers who were acting on their own.

There are so many mixed messages that it’s hard to know what to believe. The Obama Administration and IRS clearly don’t have their story straight. Once again, this is why an independent investigation is needed. This isn’t about President Obama or Democrats or Republicans — it’s about gathering facts. Americans and the parties involved in the discrimination deserve to know what happened and who knew about it.

While the lack of support for an investigation isn’t proof of wrong-doing further up in the Obama Administration, one can’t help but think that there may be some reason that the White House has for not supporting a closer look at the scandal.

Also, it provides us with a lesson, one that David Axelrod touched on last week — this government has grown so large and out of control that it’s apparently impossible to find out who is responsible for a severe breach of the public trust. This abuse is the product of a bloated, big government bureaucracy. And to make it worse, there are politicians and lobbyists in Washington who want more of it.

White House Didn't Tell Obama About IRS Investigation

jpye — Tue, 21 May 2013 10:27:59 -0500

There is a reason that President Barack Obama found out about the Internal Revenue Service’s targeting of Tea Party and other conservative groups on the news — his senior staff opted not to tell him.

White House lawyers were told about the Treasury Department’s investigation into the politically-motivatived targeting of the groups in April. During the daily press briefing yesterday, White House Press Secretary Jay Carney admitted that senior staff also knew about the investigation, but decided not to tell President Obama because they wanted to wait for the final report:

With the knowledge of an investigation, the White House held to a “cardinal rule” that it should not get involved in an external investigation, Carney said during his daily briefing. “No one in this building intervened in an ongoing independent investigation or did anything that could be seen as intervening,” he said.

“To the chagrin of some who would have liked us to get more in front of this, we appropriately waited,” Carney later added.
[…]
Though senior staff knew of the probe, Carney said [White House counsel Kathy] Ruemmler concluded that the investigation was “not a matter she should convey to the president” until the report was finalized.

Based on what we know, some staffers in the White House counsel office were made aware of the Treasury Department’s investigation into the matter on Thursday, April 16th. White House counsel Kathy Ruemmler was informed of the investigation on Wednesday, April 24th. Ruemmler then told White House Chief of Staff Denis McDonough, who answers directly to President Obama.

On Thursday, April 30th, Joseph Grant, acting-commissioner of the IRS Tax-Exempt and Government Entities Division, responded to the draft report from the Treasury Department’s Inspector General and acknowledges “some errors occurred.” But Grant attributed these “errors” to a “significant increase in the number of section 501(c)(3) and section 501(c)(4) applications from organizations that appeared to be, or planned to be, engaged in political campaign activity.”

Of course, that claim that the IRS had seen an influx of applications for tax-exempt status has been proven false. Grant later resigned his post.

The story broke on Friday, May 10th, as Jay Carney was being peppered by the White House press corp over Benghazi. Lois Lerner, director of the Tax-Exempt and Government Entities Division, was asked about the discrimination of these conservative groups. She admitted that the IRS had discriminated against the groups and apologized. It was later discovered that Lerner, who surprisingly still has a job, planted the question a day in advance.

On Monday, May 13th, President Obama addressed the matter for the first time. He told reporters that he learned of the story through news reports, but he spoke as though the matter hadn’t been confirmed.

Given how much power the IRS has and the likelihood that this would turn into a huge scandal, providing a movement that aided Republicans in their effort to take over the House — why wouldn’t White House staff let President Obama know about this?

It’s hard to grasp this because one would have to believe that staffers in the White House are so incompetent that they didn’t think about the potential for backlash. No one sneezes in Washington, DC without thinking about political ramifications.

The other side of the coin is “plausible deniability.” That angle only makes sense if President Obama knew about the targeting earlier, which is entirely possible, and is trying to distance himself from it.

Does it sound like a conspiracy theory? Sure. But it’s hard to fathom why White House staff would have kept their boss out of the loop on an issue of this magnitude.

Justice Department Targets Fox News Reporter, Puts Free Press At Risk

jpye — Tue, 21 May 2013 09:02:19 -0500

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.” — First Amendment

Those words are straightforward. The right to free speech was respected so fervently that the framers of the Constitution saw fit to ensure that it was a constitutionally guaranteed right.

Sadly, that fundamental civil liberty was threatened last week when it was revealed that the Justice Department had subpoenaed phone records of reporters at the Associated Press (AP), an action that the news agency’s president said was “unconstitutional.”

It appears that this scandal is worse than was previously feared. The Washington Post reported on Sunday that James Rosen, Washington correspondent at Fox News, was the target of a Justice Department investigation in 2010.

This is pretty creepy:

When the Justice Department began investigating possible leaks of classified information about North Korea in 2009, investigators did more than obtain telephone records of a working journalist suspected of receiving the secret material.

They used security badge access records to track the reporter’s comings and goings from the State Department, according to a newly obtained court affidavit. They traced the timing of his calls with a State Department security adviser suspected of sharing the classified report. They obtained a search warrant for the reporter’s personal e-mails.

The case of Stephen Jin-Woo Kim, the government adviser, and James Rosen, the chief Washington correspondent for Fox News, bears striking similarities to a sweeping leaks investigation disclosed last week in which federal investigators obtained records over two months of more than 20 telephone lines assigned to the Associated Press.
[…]
In the documents, FBI agent Reginald Reyes described in detail how Kim and Rosen moved in and out of the State Department headquarters at 2201 C St. NW a few hours before the story was published on June 11, 2009.

“Mr. Kim departed DoS at or around 12:02 p.m. followed shortly thereafter by the reporter at or around 12:03 p.m.,” Reyes wrote. Next, the agent said, “Mr. Kim returned to DoS at or around 12:26 p.m. followed shortly thereafter by the reporter at or around 12:30 p.m.”

The activity, Reyes wrote in an affidavit, suggested a “face-to-face” meeting between the two men. “Within a few hours after those nearly simultaneous exits and entries at DoS, the June 2009 article was published on the Internet,” he wrote.

There are a couple things that are very concerning about this story. First, it’s no secret that the White House doesn’t like Fox News. Back in 2009, then-White House Communications Director Anita Dunn called Fox News a “wing of the Republican Party” during an interview on CNN, a cable news competitor.

“What I think is fair to say about Fox — and certainly it’s the way we view it — is that it really is more a wing of the Republican Party,” said Dunn. “They take their talking points, put them on the air; take their opposition research, put them on the air. And that’s fine. But let’s not pretend they’re a news network the way CNN is.”

Secondly, based on what we know, the Justice Department wasn’t targeting AP reporters, but rather trying to found out who leaked information to reporters at the news agency. This was deemed to be just another aspect to the Obama Administration’s troublesome “war on whistleblowers.” But in Rosen’s case, he was just as much a target of this investigation as the alleged source.

Since when did journalists get treated like the Rosenbergs simply because they report the news? This sort of reporting has been going on as long as there has been a media, and it’s likely going on somewhere in Washington, DC right now.

So what did White House Press Secretary Jay Carney have to say about this troubling revelation at yesterday’s briefing? Nothing. He refused to comment.

It’s unlikely that Rosen will be found guilty of doing anything other than his job, as was explained by Judge Andrew Napolitano yesterday on Fox News. But this is another instance of the Obama Administration trying to silence its critics in the media or reporters who write stories that don’t necessarily paint it in flattering light.

WWE's Kane May Primary Sen. Lamar Alexander

jpye — Mon, 20 May 2013 15:03:38 -0500

Glenn Jacobs, perhaps better known as the wrestler “Kane” from WWE, may be considering a primary challenge to Sen. Lamar Alexander (R-TN).

Jacobs, who identifies philosophically as a libertarian and supported both of Ron Paul’s presidential campaigns, has made waves recently by challenging Tennessee Lt. Gov. Ron Ramsey, a Republican, to a debate over the online sales tax. On Thursday, however, Brian Doherty noted at Reason that Jacobs is weighng a primary bid against Alexander next year:

Still pure rumor mill for now, but sources close to the one-time World Heavyweight Champion World Wrestling Entertainment (WWE) superstar (among many other wrestling honors) who goes by the name “Kane” tell me that Glenn Jacobs (Kane’s legal name) is “open to the possibility of considering a primary campaign against Sen. Lamar Alexander” for the Tennessee Senate seat Lamar! has held since 2003.

That’s a whole lot of caveats and no announcement from the man himself, but it would be one of the more delightful GOP primary battles for the libertarian-minded to watch.

Jacobs, a resident of Knoxvill, Tennessee, has contributed commentary to LewRockwell.com, a website that frequently promotes paleo-conservative and libertarian economic theories. This free market point-of-view could be appealing to many Republican primary voters.

The Hill notes that fiscal conservatives have been down on Alexander, and with good reason. The two-term Senator from Tennessee has a 65% lifetime score with FreedomWorks, and his year score has never been higher than 83%, and he has a 68% lifetime score with the Club for Growth.

Over the years, Alexander has voted for Medicare expansion, the “Bridge to Nowhere,” wasteful farm bills, the Wall Street bailout, and for the online sales tax. Sadly, that’s just a sample of the anti-taxpayer votes Alexander has made in his almost 12 years in the Senate.

Rick Santorum's Role in the Making of an IRS Chief

jpye — Mon, 20 May 2013 14:17:37 -0500

By now, we’re all familiar with the scandal that has plauged the Internal Revenue Service and the Obama Administration. Many questions are left to answered, and there is some hope that we will discover more on Wednesday when the House Oversight and Government Reform Committee will question Douglas Shulman, former head of the IRS.

Some Americans may be asking themselves how the IRS got stuck with such inept leadership — it is, after all, a government agency, but that’s a topic for another post. The answer may lie with former Sen. Rick Santorum (R-PA).

Ike Brannon, a senior fellow and director of research at the R Street Institute, tells the story of how Santorum’s temper and objection to the removal of a tax deduction on charitable giving lead to the Senate passing on Dean Zerbe, who was slated to be come the nominee for the top post at the IRS:

When it came time to replace the retiring IRS commissioner in 2007, Senator Charles Grassley, ranking member on the Senate Finance Committee, offered up one of his senior staffers on the committee by the name of Dean Zerbe.

The president’s people had no real objection to the choice: Zerbe had been on the committee for a long time, and he was considered a tax code savant as well as a shrewd lawyer, albeit one with sharp elbows. But the elbows hit the ribs of people on both sides of the aisle because Zerbe was very aggressive (at his boss’s behest) at rooting out tax dodges and finding ways to raise revenue without increasing taxes.

But Zerbe lost his viability for the post when his aggressiveness flared into a shouting match with a U.S. senator.
[…]
One of those vociferously objecting was Senator Rick Santorum. At the time he was a dead man walking — the polls already showed him behind his challenger by double digits and few people gave him much of a chance to remain in the Senate. Staffers are acutely aware of such things.

That perception no doubt exacerbated the scene. The more that Santorum talked about how much he hated the tax break, the louder and louder he became, and the more direct he was at leveling the criticism at Zerbe himself.

Suddenly, Zerbe responded in kind and began yelling at Senator Santorum — a breach of decorum in a world where no one dares rebuke a senator. Their voices grew louder and they began to approach one another. Once they got near each other saner heads stepped in and separated the two. Grassley pulled Zerbe out of the room and the meeting abruptly ended.

Brannon notes that the confrontation cost Zerbe the nomination. President Bush appointed Shulman instead. The rest, as they say, is history. Santorum, who is nothing more than another big government Republican, lost his bid for re-election in 2006 by 18 points and failed to secure the GOP presidential nomination in 2012. Zerbe won $104 million lawsuit on behalf of an IRS whistlerblower just last year.

Would things have been different if Zerbe were running the IRS? It’s impossible to say, but you can’t help but wonder.

Obama's Gimmicky Budget to Increase National Debt by $5.2 Trillion

jpye — Mon, 20 May 2013 13:05:35 -0500

Many on the Left are praising a new report from the Congressional Budget Office (CBO) showing that President Barack Obama’s budget, which was submitted two months late, would lower deficits by $1.1 trillion over the next 10 years:

President Obama’s most recent budget request would reduce borrowing by $1.1 trillion over the next decade compared with current law — almost entirely through higher taxes on the rich, large estates and smokers, congressional budget analysts said Friday.

In addition to raising nearly $1 trillion in new taxes, the president’s blueprint would also cut spending modestly, according to the analysis by the nonpartisan Congressional Budget Office.

So…more tax hikes, which seems to be the end-all, be-all for this White House. Remember, the $1 trillion in new taxes that President Obama wants would come after a tax hike earlier this year that raised taxes on 77% of American households.And President Obama wants to raise your taxes again.

But while Democrats are fixated on the $1.1 trillion in reduced deficits, what they won’t tell you is that the national debt would rise by $5.2 trillion over the next 10 years, according to the CBO report. And, as House Budget Committee Chairman Paul Ryan (R-WI) said over the weekend, the $5.2 trillion in increased debt would come as the government receives a “record haul” in tax revenues.

The spending numbers in the budget are also rather odd. The Washington Post, the source of the story excerpted above, noted that President Obama’s budget cuts out the “contingency fund for the wars in Iraq and Afghanistan and nearly $300 billion in unneeded disaster relief.”

The contingency fund for Iraq and Afghanistan is frequently brought up as “savings.” But as Emily Goff of the Heritage Foundation explained last year, this is a budget gimmick, not actual savings.

The Washington Post noted that if these gimmicks were excluded, President Obama’s budget would “actually increase spending over the next decade by roughly $700 billion, according to CBO figures. And while Obama’s budget would still reduce projected borrowing by that measure, the 10-year total would shrink to around $255 billion.”

And while this is being spun as a “balanced approach” to the budget, there will be $6 of tax hikes for every $1 of spending cuts. Unfortunately, President Obama’s budget is more of the same. More empty rhetoric. More budget gimmicks. And more tax hikes on hard-working Americans.

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