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How U.S. Export-Import Bank Taxes Indiana's Manufacturers, Workers

March 29, 2015 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

If you count yourself among the majority of Americans fed up with the unsavory, business-as-usual, back-room dealing that continues to define Washington, take heart in the fact that the charter of the scandal-prone U.S. Export-Import Bank is set to expire on June 30. 

Ex-Im is a government-run export credit agency, which provides below market-rate financing and loan guarantees to facilitate sales between U.S. companies and foreign customers. In 2013 roughly 75 percent of Ex-Im’s subsidies were granted for the benefit of just 10 large companies — including Boeing, Bechtel, and GE — that could easily have financed those transactions without taxpayer assistance.

Supporters characterize the bank as a pillar of the economy, undergirding U.S. export sales, which allegedly create more and higher-paying U.S. jobs. But a fatty sheath of willful ignorance has insulated the bank from the scrutiny it deserves. Like all Washington subsidy programs, Ex-Im gives to the few, but takes from the many.

A fatty sheath of willful ignorance has insulated the bank from the scrutiny it deserves.”

When the government subsidizes your competitor’s sales but not yours, you are made worse off because your competitor can now offer lower prices or better sales terms than he otherwise could. Call these the “intra-industry” costs. Likewise, when the government subsidizes your suppliers’ sales to your competitor, you are made worse off because your competitor’s costs are artificially reduced, enabling him to charge lower prices or offer better sales terms than he could without the subsidy. Call these the “downstream” costs.

Ex-Im’s management and its Washington-savvy supporters have been running a shell game, dazzling Congress with the shiny new export sales it finances, while drawing policymakers’ attention away from the costs those activities impose on everyone else. Last year, Delta Airlines finally had enough and complained about Ex-Im loans to Air India, which were granted to enable the foreign carrier to purchase aircraft from Boeing. Delta officials demonstrated how those taxpayer subsidies, made for the benefit of Boeing’s bottom line, put Delta at a competitive disadvantage by reducing Air India’s capital costs, enabling it to lower fares and compete more effectively with Delta for international travelers. Why should taxpayer dollars be used to promote the interests of one U.S. company over another?

The problem isn’t limited to Delta. A recent Cato Institute study estimated the net costs imposed on firms in downstream industries on account of Ex-Im’s subsidies to …read more

Source: OP-EDS

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Why the Supreme Court Will Overrule the IRS

March 29, 2015 in Economics

By Michael F. Cannon, Jonathan H. Adler

Michael F. Cannon and Jonathan H. Adler

Kevin Pace is a jazz musician who teaches music appreciation in Northern Virginia. When the IRS announced it would impose the Affordable Care Act’s employer mandate here in the Old Dominion, Pace’s employer cut hours for part-time professors in order to avoid steep penalties. Pace lost $8,000 in income. That would be bad enough if the penalties the IRS is now imposing on Virginia employers were legal. Yet two federal courts have held they are not.

In King v. Burwell, four Virginia taxpayers are challenging the IRS’s decision to impose Obamacare’s major taxing and spending provisions in states that refused to establish a health-insurance “exchange.” As provided in the Affordable Care Act, the federal government established fallback exchanges (HealthCare.gov) in those states.

Not a single member of Congress ever claimed the ACA authorized subsidies in federal exchanges. Not. Even. Once.”

But the act authorizes premium subsidies — and certain taxes that those subsidies trigger — only “through an Exchange established by the State.” In spite of that clear statutory requirement, the IRS is issuing premium subsidies and imposing those taxes in 34 states, including Virginia, that did not establish exchanges. The King challengers allege the IRS is subjecting them, Kevin Pace and 57 million other Americans to illegal taxes in the form of Obamacare’s individual and employer mandates. The Supreme Court heard oral arguments earlier this month, and will likely rule by June.

Times-Dispatch columnist A. Barton Hinkle’s “The case against Obamacare is looking weaker,” March 23 — is skeptical of the challengers’ claim that Congress intended to authorize the disputed taxes and spending only in states that established exchanges. I used to share his skepticism. I no longer do.

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In 2011 and 2012, I researched and wrote — along with Case Western Reserve University law professor Jonathan H. Adler — a law-journal article that explains why the IRS’s actions are illegal. Our work laid the foundation for King and three similar cases. To our knowledge, we have done more research on the question of what Congress really meant than anyone.

When we began, we knew Congress routinely conditions benefits to individuals on states implementing federal programs. The Supreme Court has held that Congress cannot compel states to implement such programs, but it can create incentives for states to do so. Medicaid is an example. Congress offers states billions of dollars — but only if the states run health-care programs …read more

Source: OP-EDS