Paul Krugman on last week’s Supreme Court arguments:
I was struck, in particular, by the argument over whether requiring that state governments participate in an expansion of Medicaid … constituted unacceptable “coercion.” One would have thought that this claim was self-evidently absurd. After all, states are free to opt out of Medicaid if they choose; Medicaid’s “coercive” power comes only from the fact that the federal government provides aid to states that are willing to follow the program’s guidelines. If you offer to give me a lot of money, but only if I perform certain tasks, is that servitude?
Wrong question. The right question is:
If you take a lot of money from me and then offer to give it back, but only if I perform certain tasks, is that servitude?
Because, you see, the federal government is not handing out its own money to state governments — it’s handing out money that it takes from the citizens of those very states for the purpose of (conditionally) handing it back. (Of course “handing it back” isn’t exactly right either, because the payments go not to taxpayers but to their state governments — but it’s a lot closer to right than Krugman’s formulation.)
Let’s be even clearer about this: In order to hand out these generous block grants, the federal government must raise either present or future taxes on the very same people who constitute the tax bases of the state governments who are supposedly getting a “free gift”. It’s a lot like giving your kid a “free bicycle”, paid for with what would have been his allowance. If you first withhold the allowance, then make the bicycle contingent on the performance of enhanced chores, and the kid cries “coercion”, I’m going to say he’s got a reasonable case.
This in the same column where Krugman complains, with no little justification, that many of the Supreme Court Justices “don’t understand, or choose not to understand, how insurance works”. Here we have a Nobel-prize-winning economist who doesn’t understand, or chooses not to understand, the source of government revenue. My money’s on the latter.
David Henderson over at Econlog makes exactly the same argument
Thank you for this post. I thought the same thing when I read Krugman’s column, and was hoping you and others (like Henderson) would jump on this.
Krugman’s objective for his columns and blogs is so different from yours. You try to educate. He tries to obfuscate. He fires up his base by misleading and confusing them in a way that makes them think they are being informed.
Eh. Surely we can all recognize that there are various frameworks in which one could evaluate this issue, and each framework would support a different conclusion. (Ironically, I would expect a macro guy to embrace Landsburg’s view and a micro guy to be more receptive to Krugman’s; go figure.)
1. From the narrowest perspective (which Krugman is championing), the feds offer a simple quid pro quo: if you want the money, provide the service. This analysis considers the act of the feds using resources as independent of the feds gathering resources. And there is some justification for this view. The tie between government revenue collection and government spending is tenuous. And even if you embrace the idea that the feds can’t spend without gathering, it still remains the case that your choice to provide the quid pro quo has no necessary relationship to your obligation to pay taxes. Unless you can show a relationship between your tax burden and your choices, Krugman is justified in regarding them as unrelated.
2. A broader perspective (which Landsburg is championing) notes that the feds can’t dispense money without gathering it. Landsburg argues that federal debts are the equivalent of taking money from taxpayers. No, an individual state would not necessarily reduce the amount that its citizens must pay in taxes by refusing to participate in Medicaid. But we expect that this relationship exists in aggregate – on a macro level, if you will.
3. A still larger perspective would find fault with both prior perspectives. No, we shouldn’t treat any expenditure as if they are not causally related to the need to raise revenues. But neither should we ignore the relationship between the expenditures and other outcomes. Is it relevant to the analysis whether Medicaid and ObamaCare make people healthier and therefore more productive than the status quo? Is it relevant to the analysis whether Medicaid and ObamaCare bend the cost curve for health care that we would otherwise bear? In short, it is not obvious to me that we’re in a zero-sum game; that states do not recover more than they contribute to this system.
I pay my kid to mow the lawn—and I’m depleting my resources at an unsustainable rate as I do this. I expect my kid may not appreciate that we’ve been engaged in an unsustainable financial practice; I’m sure he has built a lot of expectations that the status quo can continue indefinitely. But does my kid’s ignorance about the unsustainability of the status quo grant him some kind of property right?
However, I also know that as I pay him to mow the lawn, he’s learning a marketable skill. With that, I’ll be able to subcontract him out to earn money by which to finance the revenue stream to which he has become accustomed. Yes, the need to mow other people’s lawns may well come as a shock to him; doubtless he’ll complain about how he’s being oppressed. But I expect he’ll complain less than if our household’s finances collapse.
We are a “government of the people, by the people, for the people”….
I think that reduces your question as follows:
“If you take a lot of money from me and then offer to give it back, but only if I perform certain tasks, is that servitude?”
to
“If we agree by voting for representatives to take a lot of money from each other and then offer to give it back to ourselves, but only if we perform certain tasks, is that servitude?”
Would the taxpayers of some states allow the state government to refuse the money, even though they know that they would still pay the tax? I think not. Absent the federal government involvement would the taxpayers of some states choose to spend less than the expanded amount on Medicaid, probably true.
I think a better way to resolve the coercion issue is to ask if the crack dealer giving you free crack Monday and then charging for it Wednesday is coercive, and if you really have the ability to walk away.
Is servitude bad?
I’m reminded of people who ask, Is prostitution bad? Arguably poverty is bad. And prostitution may be one means by which people help alleviate the problems of poverty. (And, ok, some not-so-poor people engage in prostitution, too.) But if we’re worried, we should address the problem of poverty. Generally we don’t help people by taking away their options – including the option of prostitution.
Is the government qui pro quo bad? Arguably poverty is bad – including poverty induced by federal taxes. Providing the qui pro quo of Medicaid services may be one means by which states mitigate problems of poverty. But if we’re worried, we should address the problem of the taxes. Generally we don’t help states by taking away their options – including options contained in a quid pro quo.
Under nobody.really’s first framework there is nothing wrong with Congress taxing the populace and distributing the proceeds to itself. However Congress is bound by the Taxing and Spending clause which says that
Initially the General Welfare Clause was meant to be a statement of purpose for the tax, i.e. the tax could only be spend in pursuit of some enumerated power (such as providing for the military). This narrow view prevailed until US v Butler where the power to tax was deemed an independent enumerated power. Even then the then Court found the tax in Butler unconstitutional (The tax was on processors of farm products, the proceeds to go to farmers who reduce their output, thereby raising prices). This was later enlarged in South Dakota v. Dole regarding the threat by Congress to withhold 5% of highway funds to states who did not up their minimum drinking age to 21. The Court sided with Congress, saying that states were not compelled (coerced) by Congress since the amount withheld was so low (The withholding was later increased to 10%). According to the Court the incentive must not be significant enough to turn cooperation into coercion.
For the program Krugman is supporting, the Federal government threatens states that it will withhold the entire amount due to a state (which is overwhelmingly large since the states only provide a fraction). This may fall foul of the Dole standard.
@Jerry
But then what about those people whose representatives were not elected?
Jerry’s second analogy is even better
Another analogy,
Due to the number of employees showing up to the company potluck dinners empty handed, $5.00 will be deducted per week from each employee’s pay to fund catering for these events.
Employees in departments that fail to enforce the company dress code will not be allowed to attend these company functions.
@Polevaulter Donkeyman,
“But then what about those people whose representatives were not elected?”
It’s a representative government. To quote the political scientist Mick Jagger,
“You can’t always get what you want”
He went on to expand on that:
“You can’t always get what you want
You can’t always get what you want
But if you try sometimes well you might find
You get what you need”
@Jerry
And how far are you willing to take Prof. Jagger’s logic?
It seems to me that the Federal gov’t has the clear constitutional right to collect the taxes that it does under the 16th amendment.
As for the General Welfare of the United States, it seems to me there are mixed cases where the good or service in question serves both the local and the national interest. Children’s health care seems to be such a service since those children are citizens of the nation and can locate wherever they want later in life.
On that basis, it seem wholly appropriate that such services be jointly financed by the national and local authorities.
And the Federal government, by offering to jointly finance, should the local authority agree, is doing exactly the right, proper and constitutional policy.
Actually I think we wish it were only block grants…I believe Medicaid reimburses on a % basis which encourages states to spend more, and the Ryan Plan proposed to change this to actual block grants.
Jerry – if we were really just taking from and giving back to ourselves, what would be the point? (Ah yes, federal control.). It’s always some people voting for the representative who promises to take something from someone else. You’re fine with that as long as 51% pull it off, no matter what it’s for?
Actually I think we wish it were only block grants…I believe Medicaid reimburses on a % basis which encourages states to spend more, and the Ryan Plan proposed to change this to actual block grants.
Jerry – if we were really just taking from and giving back to ourselves, what would be the point? (Ah yes, federal control.) It’s always some people voting for the representative who promises to take something from someone else. You’re fine with that as long as 51% pull it off, no matter what it’s for?
Thanks, Polevaulter Donkeyman! I was under the impression that Congress’s taxing power was basically unconstrained. Any maybe it is in fact — but maybe not.
This assumes he’s entitled to his allowance. Since it’s your money to distribute to him as you see fit, I wouldn’t call this coercion. Taxation, on the other hand, is debatable.
“@Jerry
And how far are you willing to take Prof. Jagger’s logic”
His statement that as citizens in a democratic representative government we don’t always get what we want?
That’s an axiom, right?
And I do take very seriously the suggestion to honor Jesus by running twenty red lights in his honor.
@jerry,
His point, when asking how far you want to take it, is that your (Jagger’s) line of reasoning literally justifies EVERYTHING and anything that the state does. It is ALWAYS true that “we have an elected government, so guess you’re stuck.”
Of course the state should not be allowed complete and ultimate power, but to take it to the other extreme and not permit the government to do anything unless every single person agrees would limit the government’s power to virtually nothing in a country as large and heterogeneous as the United States.
Clement neatly trapped Kagan with this point.
Wow, wow, like she’s stunned.
Ken B: Wow, wow. If I didn’t know better, I might think Kagan was trying to help Clement make his point. That is a great exchange.
The feds are violating an old principle of equity. They agreed to a contract. The other party has expended considerable capital dependent upon the terms of that specific contract, for example the construction or upgrade of hospitals, urban centers, roads and the like. The feds now wish to unilaterally change the terms of that contract and if the states do not wish to abide by these new terms, they lose benefits upon which they rely. In contract law the feds might be required to make the states whole, while at common law they might be held to specific performance of the original terms if alternate compensation is not acceptable, but of course common law does not apply directly.
Regardless, it is a breach of trust and an abuse of their superior position. This doesn’t make me feel good about collecting my Social Security in 20 years.
I don’t know, I think it’s a bit simplistic to assume it’s the state’s money unless the federal government taxes it. And it’s certainly not coercive; states can opt out, and vote to raise their state taxes, and get the money that way.
What is really sad about many of the laws and regulations the government advances is that many citizens, and I include myself, don’t really care in the long run — we have no intention of following them as designed. The workarounds and restructuring begins before their ink is dry. Saying something is so doesn’t make it so.
This theory breaks down somewhat when you consider which countries are net tax contributors. The states that tend to complain about this sort of thing also tend to be the states that are getting back far more tax dollars than they send to Washington.
Steve, you make a lot of good criticism of Paul but this isn’t one of them.
If giving the state government money counts as giving you money then the federal government should count as you too. So the bike story is more like:
“It’s a lot like giving yourself a “free bicycle,” paid for with your credit card. If you first withhold the bike, then make the bike contingent on chores, and you cry coercion, I’m going to say” … you should probably say you are either using stickkk.com or are an idiot.
Yes, I like Steve White’s analogy. It doesn’t make sense to identify the taxpayer with a state government, unless you also identify the taxpayer with the federal government. Perhaps the correct analogy is :
It’s a lot like giving your son a “free bicycle”, paid for with what would have been his younger sister’s allowance. If you first withhold the allowance, then make the bicycle contingent on the elder brother giving his sister a bicycle of her own and teaching her how to ride, and the brat cries “coercion”, I’m going to say that the provision of cycling services to the sister needs to be taken over by the parental government, ignoring the complaints of the brother or private cycling insurance companies. Put like this, perhaps it should be anyway.
” And it’s certainly not coercive; states can opt out, and vote to raise their state taxes, and get the money that way.”
And pay twice the taxes then. And this can be quite a substantial fraction of the taxes too.
Ya know, the point of an analogy is to explain one idea by reference to a parallel but more intuitive idea. When I get the urge to simplify the Bicycle discussion by making analogy to the health care plan, I think the Bicycle discussion has reached the limits of its utility.
@Thomas Bayes: You might be right! Look how she interjected her wow wow right over him as he was (presumably) about to refer to his own bank account and make the point simply. This is a common dramatic technique to heighten the irony. How much more memorable it is this way!
@nobody.really: Ok, so imagine that America is riding a unicycle, and the wheel of the unicycle represents the uninsured, and the fourth spoke clockwise of the air nozzle represents the employer deduction. Now if you imagine the air pressure as the mandate, and the left pedal st the corhusker kickback you can plainly see …
You have point :)
I don’t care for the allowance part of the free bicycle analogy, mainly b/c it implies the resources first comes from the taxing authority.
I think it’d be better if the free bicycle was paid from the kid’s birthday gift loot.
“It’s a lot like giving your son a “free bicycle”, paid for with what would have been his younger sister’s allowance.”
A better comparison would be where you’re giving both your son and daughter “free bicycles”, but you dock their allowance to pay for them. *And* you say “You can’t claim that you’re paying for the bicycles because as a parent I can dock your allowance any time I feel like it anyway; the docking and the buying of bicycles are not connected. It’s just coincidence that the amount by which I’m docking it matches the cost of the bicycles. See, they really are free bicycles.”
“It doesn’t make sense to identify the taxpayer with a state government, unless you also identify the taxpayer with the federal government.”
Yes it does. In this specific scenario, the states are doing what the citizens want, and the federal government isn’t. Obviously, the citizens should only be identified with the part that is acting in accordance with their wishes.
“Wrong question. The right question is:
If you take a lot of money from me and then offer to give it back, but only if I perform certain tasks, is that servitude?
Because, you see, the federal government is not handing out its own money to state governments — it’s handing out money that it takes from the citizens of those very states for the purpose of (conditionally) handing it back. (Of course “handing it back” isn’t exactly right either, because the payments go not to taxpayers but to their state governments — but it’s a lot closer to right than Krugman’s formulation.) “
The echo chamber on both sides is amazing.
Your question completely misses the point.
The federal government absolutely has the power to tax income from the people of each and every state. Do you disagree? The power to tax is basically absolute. After all, we had tax rates far north of 70% for long periods of time.
Now, the federal government has all this money and it can spend it on virtually anything it wants. Using that money to “bribe me” to do what the federal government wants me to do is also perfectly legal. If I borrow money secured by my principal residence as opposed to secured by my car then I get different tax treatment. Is that not a bribe to use one type of collateral over another type of collateral? If I buy a Chevy Volt then I get a bribe from the government while I don’t get a bribe to buy a Chevy Aveo.
You could argue that they are using my own money to bribe me but we all know that is not true. Money is fungible and we can never tell whose dollar is going where. This is true even when they are giving me a refundable tax credit.
I think we have a fundamental disagreement over the definition of “own money” is.
If I provide you a service and you pay me the agreed upon amount then I think the money is my “own money”. This is true even if you really had little choice in paying me the money. You need to pay a utility bill and you don’t have the internet and can not get to an office to pay it. You go to the post office and buy a stamp. That money is now the post office’s “own money.” You pay your taxes and now that money is the federal government’s “own money.”
Obviously, you disagree but I have blinders on and can’t see your point.
The federal government doesn’t just take your money. You have an implicit agreement with the federal government to give them some of your money in order for the federal government to supply you with services. You voted for the people who wrote the laws to take your money and you always have the opportunity to leave the country and go someplace else.
When you live in a small town and can only shop at one store, you are not forced to shop there and give them your money. You realize that the best thing for you to do is to shop there and give the store your money because the other choices appear even worse to you. You give it to them in exchange for some good or service.
I understand that the fundamental difference between a liberal and a conservative is that we think of the government as “US” and you think of the government as “THEM”. You seem to forget that we created the government and elected the officers of the government. I seem to forget that the government does not always reflect the interests of the people and is more concerned with power and self-preservation than actually helping the citizens.
Getting back to your main point. It seems obvious to me that a single payer system that requires contributions from everyone is constitutional since Medicare appears to be constitutional. It seems ironic that creating a system with far less coercion, ObamaCare, might be ruled unconstitutional.
@Neil Wilson: So when Jefferson said the power to tax is the power to detroy your response is ‘And a good thing too.’ Have i got that right?
A single payer system might be constitutional. That does not make any less coercive system constitutional. To repeat an example I gave on just this point. The federal gov’t can institute a draft. It cannot force 18 year old men, or even just me, to attend Bob Murphy’s church, even though that is less coercive.
As Tony K put it, the source of the authority matters.
@ Ken B–
“And pay twice the taxes then. And this can be quite a substantial fraction of the taxes too.”
How are the states paying the taxes twice?
“Yes it does. In this specific scenario, the states are doing what the citizens want, and the federal government isn’t. Obviously, the citizens should only be identified with the part that is acting in accordance with their wishes.”
No, you’re only equating what people want = what the states want, because you don’t like the federal government. The people elect the federal representatives, so what the federal government does is what the people want, believe it or not.
@nobody.really try broccoli then.
@Ken Arromdee “Obviously, the citizens should only be identified with the part that is acting in accordance with their wishes” No. The individual citizens, the individual state governments and the federal government are all separate entities. It doesn’t make sense to identify them. You’ll make all sorts of silly errors if you do.
You’ve already made that mistake when you say “the state government is doing what the citizens want, and the fed is doing what they don’t want” – you’ve identified all the individual citizens as a single bloc with one set of desires, and made a silly statement. The truth is “the state government is doing what some citizens want and others don’t want, and the federal government is doing what some citizens want and others don’t want”. Therefore, it doesn’t make sense to identify these entities.
@Ken B
Close. That quote was Jefferson’s cousin’s, not Jefferson’s.
People keep suggesting that. But every time I shift gears I end up in a terrible mess.
How is using my tax dollars for people I don’t know in my state coming back to me more than helping people I don’t know in other states.
Maybe I should care more about people I don’t know in my state than people I don’t know in other states.
I would think if people really thought that money coming back to the states was more important, people in New York, California, and Illinois would be the ones complaining the most about federal taxes and people in the deep south would be complaining the least.
Mike H, Neil Wilson — the fungibility cuts both ways. We don’t have to trace serial #s to know that every $ the Feds take reduces the taxing capacity at the state level. Let’s stick with the two parties to the suit and forget about which one is doing the people’s work. How about mom has some egg $ to get the kid a bike, but dad takes it and says she can have it back after she can provide quotes from 5 bike dealers and certifies the kid has passed a safety course. So mom cancels her Saturday book club to comply, cause he has the $ (whether she can sell more eggs is irrelevant). Clearly there is coercion, the only question is whether it’s acceptable. Did I make a silly mistake? My understanding is most people consider this part of the case a long shot for the states, but still seems like bad faith.
PS Neil – some would say the govt has no ‘own money’. People earn it and sometimes govt transfers it to someone else — because that’s what the recipient voted for. (But hey all’s fair and anything goes right?) If only we were just talking about everyone paying for and receiving public good services there would be little to debate. And this has come up before but the ‘if you don’t like it you can always leave’ argument for implied consent is circular (begs where the govt got the right to make you leave).
@Iceman – your analogy doesn’t eggsactly fit the details of the case at hand – since the money being withheld from the states is not money they earned (or derived via taxation) themselves.
“some would say the govt has no ‘own money’”, but are mistaken, since (unless they live in, say, the Principality of Hutt River) all the money anyone else has is merely a power, granted by law, to extinguish their own debts. The government certainly does have the power to legally extinguish its debts with the money it has.
@Neil: Indeed! Marshall. Cool.
@Will A: It’s not maoney coming genreically into your state, maybe to your neighbor; it is money coming to your state government. That might be used to pay for things for you. Like roads. It might be used to defray costs that would devolve on you. Like paying for the roads, or like any cost mandated by the federal government.
Here’s a hypothetical. The feds require each state to pay anyone named Ken. The feds tax you and give my payment to the state govt to pay me. The only hiotch is the feds require the state to ban pink tofu. Your state refuses to ban pink tofu. The feds withhold the ken funds. The state still has to pay me, and will tax you for that purpose.
Ken B:
There is no doubt that there are good analogies also to education where states are required to fund public education and where federal block grants come with ways the funds have to be spent.
Is your argument is that all block grants are coercion?
Do you think that most conservative legal scholars would feel that all block grants are unconstitutional on this basis?
Of is your concern similar to the concern I have with the federal government being able to prevent me from growing broccoli for my children. I don’t like the fact that it is constitutional that the the government could pass laws to prevent this.
And I mean Constitutional in the way our founding fathers meant it:
What at least five out of nine politically appointed people say is constitutional.
Will A asks me “Is your argument is that all block grants are coercion?”
Well, if you took the taxes from me — or anyone who didn’t volunteer — then THAT is coercion certainly. Biut let’s say the taxes were for an agreed purpose. The question is, is the use of block grants over and above that coercion? It can be, if there are conditions attached. Adding the conditions is extra, intended to er um coerce me into fulfilling them.
Another example. You hire me as a lifeguard. I see you drowning and swim out. I grab you but rather than pulling you to shore say I will let you go unless you buy me a pink tofu cone. Coercion?
@ Ken B:
I can understand someone agreeing with me with the following statement:
County block grants to city are as coercive as State block grants to counties and/or cities. State block grants to counties and/or cities are as coercive as Federal block grants to states.
I may feel that none are really that coercive. Someone may feel that all are very coercive, but we would agree that the level of coercion is the same.
I would have a hard time understanding the rationale behind why block grants at one level of government are less coercive than other branches of government.
“I would have a hard time understanding the rationale behind why block grants at one level of government are less coercive than other branches of government.”
Because some forms of government — i.e., state governments — are viewed by some as more legitimate or more aligned with the wishes of the people, whereas other forms (the federal government) are seen as more coercive, etc…
Of course this is simplistic and wrong. State governments have committed many wrongs which clearly were not in the wishes of its citizens (i.e., segregation), as has the federal government. To assert that states are necessarily more aligned with its citizens is naive.
Mike H – well I was thinking of the egg $ as taxing capacity at the state level. The bad faith = dad could trust mom to pick a decent bike; instead she has to give up her book club to meet his demands.
I’m glad we agree govts don’t earn $. We know they can print it.
Will A – I think you’re right the point applies at at levels. I’m glad we’re past saying it’s ‘self-evidently absurd.’
@Will A:”I would have a hard time understanding the rationale behind why block grants at one level of government are less coercive than other [levels] of government.”
So would I.
“I would have a hard time understanding… ” A slow fat one right over the plate Will.
@KS: when you create strawmen try to create ones that are on point. No-one argues that an action is inherently less coercive when done by a state government. It may be more permissable for a state. Some actions are permitted to the states by the constitution that are denied to the federal government. This is not based on vague notions of aligment or legitimacy. It is based on the explicit words of the constitution. And even on precedent.
Of course states all have their own constitutions, and the bill of rights has some applicability to the states, etc. It’s not anything goes even at the state level.
KS:
Is this a deliberate attempt to misunderstand? Taxpayers pay taxes. So when some writes ‘pay twice the taxes’ he is referring to taxpayers.
This seems directly on point: state vs federal bullying considered. http://volokh.com/2012/04/03/federalism-freedom-and-the-individual-mandate/
@ Ken B–
“Is this a deliberate attempt to misunderstand? Taxpayers pay taxes. So when some writes ‘pay twice the taxes’ he is referring to taxpayers.”
Okay, then, how are the taxpayers paying twice the taxes? If a state opts out of a federal program, the federal government has to raise less revenue than otherwise (since it’s no longer paying the costs of the state). Say this lost revenue is X. Then the stay can opt to raise taxes equal to X and do whatever it wants with it.
How exactly are the taxpayers paying 2X in this scenario?
@ KS:
Not knowing the specifics, it would depend on how it is funded.
Let’s say a state could opt out of social security. If this meant their citizens didn’t have to pay the social security tax, then double taxation probably wouldn’t apply.
If this meant its citizens still paid the social security tax, then this would almost be double taxation in a state like North Dakota.
Assuming North Dakota is less than 1% of the population, then North Dakotans social security taxes would drop by less 1%, but they would have then cover the citizens in their state.
“If this meant its citizens still paid the social security tax, then this would almost be double taxation in a state like North Dakota.”
Agreed, but usually analysis is done under the assumption all else is equal.
I.e., if a state opts out, then the federal government doesn’t have to pay for that state’s programs anymore, and so requires less revenue. That is the assumption under which I analyze this situation.
Of course, it’s possibly the federal government will tax the state’s residents anyway, but that’s an additional cost. If you argue that, I can also argue, hey, maybe the federal government will offer the program initially without taxing the state’s residents at all — a free lunch!
Feds raise $100M tax from taxpayer in state KS (Kansas). KS gets a federal block grant of $100M to pay Kens in KS. (There is a praiseworthy federal mandate that states pay Kens.) BUT now the feds, holding that money, insist KS must agree to change the state motto to “Booooooring”. KS refuses. Who wants to share Idaho’s slogan? Feds give the money to Kuwait. Now KS taxpayers must pay $100M in state taxes for those poor Kens.
@ Ken B–
Once again, you’re assuming the Feds will raise taxes the same amount independent of whether the state cooperates. That could be the case. It could also be the case that the Feds, since they don’t have to face the costs of that additional state, ultimately don’t raise taxes by as much (with the difference being that cost).
The ‘myth’ of double taxation only comes if you *assume* double taxation, basically. And sure, anyone can prove anything if you assume the conclusion to be the premise.
@ Ken B–
Let me try a simple example.
The federal government wants to start a program which costs $100 per state, with costs evenly distributed amongst all the states’ residents (ie, the citizens of each state must pay $100). Who cares what the program is. Let us call it ‘wasteful spending’, since that seems to be how many people view whatever the federal government does (until you try to cut their entitlements, of course).
The federal government goes to each state and says, hey, we want you to participate in ‘Wasteful Spending’. 49 states say yes; Arizona says no. The ultimate cost to the federal government is $4,900 now, instead of $5,000.
However the federal government decided to raise taxes to pay for ‘Wasteful Spending’ doesn’t matter. What matters is the difference between all 50 states participating, and 49 states participating, which is $100 exactly:
(1) If the feds already taxed everyone, then they already raised $5,000. Now they only need to spend $4,900. Hence they have $100 left to pay for something else. Ultimately, at the end of the line, the amount US citizens must pay for ‘Wasteful Spending’ is still… $4,900
(2) If the feds tax on a state-by-state basis, then they raise… $4,900.
Either way, it doesn’t matter. The citizens of Arizona don’t pay the $100. Now Arizona itself can raise it’s own taxes by $100 to pay for ‘Border Control’.
So how much do the citizens of Arizona pay? Is it $100 or $200?
– KS
PS Hint, it’s $100
@KS:
Can you quote any language from the ACA or the original MediCare act, or even from Barack Obama or Nancy Pelosi, where they offer a reduction in tax rates to residents of states that opt out of the program?
I understand the point here, but wouldn’t the same reasoning prohibit any (or at least most) conditions upon federal funding to the states (or even most private entities since the recipients presumably previously paid federal taxes)? I recall vaguely the Rust v. Sullivan case, in which the receipt of federal funding to promote family planning was conditional upon it not being used to pay for abortions. Since the federal government is returning the states’ own money, why wouldn’t any such condition be at least somewhat “coercive”?
Fun fact: Chief Justice Roberts was Solicitor General in the Rust case and argued the case for the government. There is a whole line of cases dealing with “unconstitutional conditions” that deal with this issue. I’m not an expert, but the reasoning in this post would seem to apply to conditions on almost any federal funding.
KS: “Let me try a simple example.”
Alas the example given does not fit the hypothesis under discussion. Which is that money is raised for a purpose by the feds, withheld for some other reason, and then reraised by the state. Those conditions were posited by you.
My remark about paying twice was in response to this statement by you:
” And it’s certainly not coercive; states can opt out, and vote to raise their state taxes, and get the money that way.”
So let’s review. Feds collect $n from state for purpose x. None of that comes back to the state (Steve’s conditional). State proceeds with x raising $n. Result: 2n collected. Looks fair to call that twice the taxes.
Your ‘simple’ example does not match the specified conditions.
@Reardon Steel: “Since the federal government is returning the states’ own money, why wouldn’t any such condition be at least somewhat “coercive”?”
Yes.
” wouldn’t the same reasoning prohibit any (or at least most) conditions upon federal funding to the states?”
Less clear. If we stipulate to ‘most’ you might be right. If however the feds raise taxes and make block grants conditional on the state providing its citizens a republican form or government, then that would be permissible and indeed seems obligatory.
Ken B.
To take concrete examples:
1) Federal highway funds to the states conditioned on lowering the speed limit to 55? Uncontitutional?
2) Education funds to the states conditioned on the the state schools refraining from teaching intelligent design?
3) NEA grants to the states conditioned on no funding for Maya Angelou poetry?
I don’t personally have a problem with severely restricting the conditions the federal govt. may attach, but we will be striking down many laws that have existed for awhile if we do.
@ Henri Hein —
“Can you quote any language from the ACA or the original MediCare act, or even from Barack Obama or Nancy Pelosi, where they offer a reduction in tax rates to residents of states that opt out of the program?”
They don’t need to offer reductions in taxes to citizens of states who opt out. The fact those states have opted out means the federal government’s expenditure is now reduced, by X. That means the federal government spends that X on something else. Which means that ultimately the federal government’s tax revenue is reduced by X, so ultimately the tax burden of the citizens is reduced by… wait for it… X.
@ Ken B–
“So let’s review. Feds collect $n from state for purpose x. None of that comes back to the state (Steve’s conditional). State proceeds with x raising $n. Result: 2n collected. Looks fair to call that twice the taxes.”
Once again, you assume double taxation… to prove double taxation! The money doesn’t have to come back to the state. The fact the federal government is spending less, means that future federal taxes are reduced by that amount, which means the tax burden on the citizens is reduced by the same amount.
Let me try a simpler example.
1. The federal government taxes everyone $1 to raise $300 million for a program.
2. The program gets nixed.
3. The federal government now has $300 million, which they spend on something else.
4. The citizens now need to taxed a total of $300 million less for whatever else the federal government decided to spend that money on.
Hope this helps,
KS
@Reardon Steel:
1. I dunno. Is this a ‘proper’ federal concern? I think so, constitutional. It seems like regulating interstate commerce covers this. Not a slam dunk.
2. I dunno. I doubt this should be a proper exercise of federal power, education seems a state thing.
3. I dunno. Cunning example in its relation to 2. My guess is not constitutional in violating the 1st amendment, and conceivably the proscription on attainder. Good idea though.
In all case I see the feds trying to use their taxing powers to extend their reach. I think those extensions must be judged by the standard of the X amendment and enumerated powers. Easier said than done of course.
KS: Simple is the word. Not for your example though.
Look, I am responding to your suggestion about how states can react to having the block grant denied:
” states can … vote to raise their state taxes, and get the money that way. ”
So state residents pay the federal tax, and then pay the raised state tax. Taxpayers have paid more taxes than had they got the block grant or had the feds not taxed them to fund it.
I have $200. I go to an insurance broker, named Fed, and ask him to get me a deal on life insurance. He says he can get a policy from an insurer, named State, for $100. I give Fed $100 and then he tells state he won’t actually pay for my policy. Fed sends the money to his cousin FarAway. I am just SOL, apparently Fed is entitled to do this. I cannot get my money back or force Fed to pay State. Sigh. I pay State $100 directly with a shrug.
How much do I have left? I think I have $0, but KS thinks I have $100: I forgot to count the $100 Fed gave FarAway; that apparently counts as mine.
@ KS:
You’re $ 5,000 example only works if the citizens of Arizona won’t be taxed for the services.
Do you know if this is the case for Medicaid? Do all of the federal matching funds for medicaid come only from a specific tax? And if the state opts out, will its citizen be exempt from this tax?
And the other point is does it matter whether this is double taxation?
This isn’t an issue of taxation, I believe it is a matter of contractual law.
Assuming the federal government is a legal entity that can enter into contracts with its money, and assuming that its money is obtained legally, it has the right to enter into contracts with other parties without negotiating those terms with other parties.
All phone/cable providers only agreeing to do business with customers who waive their rights to sue might be coercion, but it is legal coercion.
Just like I can choose to suffer the burden of no phone and/or internet service because I find the no sue clause so offensive, states can choose to suffer the burden of not getting federal funds if they feel that providing health care for single working age males offensive.
“I have $200. I go to an insurance broker, named Fed, and ask him to get me a deal on life insurance. He says he can get a policy from an insurer, named State, for $100. I give Fed $100 and then he tells state he won’t actually pay for my policy. Fed sends the money to his cousin FarAway. I am just SOL, apparently Fed is entitled to do this. I cannot get my money back or force Fed to pay State. Sigh. I pay State $100 directly with a shrug.
How much do I have left? I think I have $0, but KS thinks I have $100: I forgot to count the $100 Fed gave FarAway; that apparently counts as mine.”
The difference is, ‘FarAway’ is a policy that applies to the states which is already funded by the states. ‘Fed’ is not giving away your head-earned money to someone else which you’ll never see again. He is paying for another policy (i.e., national defense) which you benefit from. And since you’ve already paid the $100, you have to pay $100 less for this ‘FarAway’ program. So yes, you are not being double taxed.
It’s like. I pay the federal government $10, $5 for national defense and $5 for PPACA. I opt out of PPACA. The feds keep the latter $5 and shift it to national defense. Next time around, I have to pay $5 less for national defense.
Anyway, this is a silly exchange, because you and I are arguing on different premises. You are assuming the feds keep your hard-earned money anyway, whereas I am assuming they use it to pay for something else you would have had to anyway.
KS: “because you and I are arguing on different premises.”
I am arguing on your premises. The original ones; each of your comments brings new ones. We were discussing Steve’s question.
” I am assuming they use it to pay for something else you would have had to anyway.”
As Will A, Henri Hein, and I have noted your argument doesn’t work in that case anyway unless that something else is the same amount in the same state. Which is kinda irrelevant, because the whole point of the thread is to discuss whether the feds using conditions to withhold counts as coercive. That implies withholding. Under those conditions there would be none.
KS: “It’s like. I pay the federal government $10, $5 for national defense and $5 for PPACA. I opt out of PPACA. The feds keep the latter $5 and shift it to national defense. Next time around, I have to pay $5 less for national defense.”
It’s like. This just doeesn’t fit the hypothetical.
Say Kentucky taxpayers pay 1/50th of the cost of national defense and PPACCA. The taxes are $10 total for defense and $5 total for ACA. Now the Feds imnpose a condition, KY balks, and does not get the $5. UNDER YOUR HYPOTHESIS Ky now spends $5 of new taxes relicating ACA. Ky taxpayers are out $10 + $5 + $5.
Indiana taxpayers are out $10 + $5.
Ky residents have poneyed up for ACA teice as much.
Now you have a new premise something liket the feds bank it for next year. OK, let’s try that.
Next year 1/50 of that $5 is credited to Kentucky.
So I have to adjust my calculation. Effectively last year Ky taxpayers paid $10 + $5 + $4.90
We are NOT talking about Ky getting $5 credit as that corresponds to NO WITHHOLDING, contra the premises.
I must be missing something here. Since the Federal portion of Medicaid is funded from general tax revenues, it’s my expectation that the people receiving the benefits are not the same people who are paying for them (i.e. people on Medicaid aren’t likely to pay much, if anything, in Federal income tax). So it’s largely (at least at the Federal level) a redistribution of income. So if the Federal Government wants to tax me and give the money to someone else, how can conditions placed on that gift have any coercive effect on me?
@Andy B:
I think we’re discussing the broader principle, not just Medicaid. But re your question I think the coercion is being applied to the state government. This does affect some persons in the state even if you are indifferent. The state acts as an agent for its electorate. Say I belong to a union, pays dues, and the central union cuts off my local unless my shop steward endorses Rick Santorum. The shop steward is my agent; pressure applied to my agent is in some real sense applied to me. I think I’m entitled to feel a bit bullied here.
@KS – the math in your examples is all completely wrong. Do you not realise this?? The correction follows :
“The Fed plans to tax everyone $1 for a $300M program to be administered through the states. Nevada, Population 3M, fails to fulfil federal conditions attached to the funding. Nevada is forced to tax its citizens $1 each in order to fund the program. In the meantime, the federal government only needs to spend $297M now, so they collect 99c from each citizen. The tax burden on the citizens is now :
* Residents of Nevada : $1.99 (times 3M people totals $5.97M)
* Everyone else : $0.99 (times 297M people totals $294.03M)
I would call that double taxation on the poor Nevadans, since “centa-nonage-novum percentum taxation” is too hard to pronounce.
“It’s like. I pay the federal government $10, $5 for national defense and $5 for PPACA. I opt out of PPACA. The feds keep the latter $5 and shift it to national defense. Next time around, I have to pay $5 less for national defense”
This logic only works if you are the only taxpaying citizen. While the government has to pay $5 less for national defence, they won’t refund that $5 to you. The refund gets shared between all taxpayers, and your share is about 0.0000025c. So you still pay $9.9999975 in tax.
By identifying all citizens as a single bloc with a single uniform set of desires, you make the same mistake Steve did when he identified the citizens and their state governments.
Ken B, Steve’s assertion is that the right question is “If you take a lot of money from me and then offer to give it back, but only if I perform certain tasks, is that servitude?”. My point is that in this instance (Medicaid), the instance Steve specifically references, we take from one group of people and give to another. That makes irrelevant the whole issue of coercion and servitude. His point may well apply in other instances, or in a broader principal as you note, but not in this example.
@Mike H:
I was going to make a joke along the lines: “We are not Keynesians, we do not use decimal points. Maybe that is the source of the confusion.” Yours is better, so I will abstain.
@Andy B:
I find that an odd way to look at it. Medicaid is a welfare program. As such, it is a public service. Reasonable people can argue about the merits of the particulars, but if you are going to distribute the resources spent on the program on some arbitrary people not the intended recipients, the service is decidedly compromised.
@Andy B: Well I think Steve picked the more general and abstract question to look beyond just medicaid. However, even there, since states have to pay into it (one exception!!) my agent point still applies.
This story intersects with The Winner Is … from a few days ago.
because interstingly enough Clement is in court again, this time to argue DOMA is constitutional, andthe case involves conditions on federal bucks.
Some pertinent thoughts here http://althouse.blogspot.com/2012/04/this-week-paul-clement-argues-that.html
I guess I should lay my cards on the table. Not having given DOMA much thought my answer is thumbs down to both.
Andy B — I would agree that if the feds just tax you to run a federal program, there’s no relevant role for imposing further “conditions” (it’s simply ‘coercion’ in the normal libertarian sense). Of course they could also let states design and administer their own medical assistance programs. Instead they play this cute game of raising the tax money — reducing taxing capacity at the state level commensurately -– and then saying ‘hey if you want to participate in this optional program we have some matching funds’…i.e. if you don’t run a medical assistance program that follows these particular guidelines you will have fewer resources available (98% fewer under KS theory I guess) to run your own or do whatever else you were going to do.
@ Ken B:
What I find interesting are the conflicting arguments in the 3 days of argument on the ACA on both sides.
I think a majority opinion like the following would be pretty cool:
The federal mandate is constitutional. Health insurance is a unique market in which everyone participates. This is what sets it apart from say requiring people to buy brocolli.
The medicaid expansion is constitutional. The court can find no distinction between block grants for heath insurance and other forms of block grants.
@Will A:I think uniqueness is the best hope for the mandate to survive, because it provides some way to limit the commerce clause power. Absent some limit there is no way the mandate passes muster. I don’t think that’s good enough, but Kennedy might.
Federal government paying for intrastate services with income tax, is extremely anti-competitive.
Perhaps another thing to ponder — block grants. If it is a block grant, is this a polite means for the federal government to state that these programs are really a state responsibility? If they are truly a state responsability, then why are there any strings attached?
It’s not only Justices that don’t know how insurance works. Having sold insurance for a number of years, I can tell you that people understand the transfer of risk concept when it comes to life insurance, but do not when it comes to health insurance. I am reminded of the couple that I was meeting with regarding their life insurance, and the wife started in on me about their health insurance, which was offered by her employer. The complaint was that, due to increases in premiums, the employer had changed plans. The new plan provided more coverage for serious illnesses and accidents (90/10 coverage rather than 80/20), but co-pays for non-preventative office visits had increased from $15 to $25. In her mind, she and her family now had “junk” insurance. Anyone else see how this is backward? But it’s been my experience that the majority of the public takes this very same view, and we won’t even get into why insurance companies attach riders to conditions that are pre-existing.
Also, I believe that it is a fallacy to argue that the health insurance market is unique because non-participation affects premium costs. When you think about it, every market is affected by non-participation. Also, my grandfather died at the age of 93 without ever having been checked into a hospital. yes, he occasionally went to the doctor, but he paid cash for whatever treatment he received. He was a farmer who never netted more than $40,000 in any year (farm was too small to gain any benefit from the parade of farm subsidy bills).