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Belmont Club

Money For Nothing

February 14th, 2012 - 4:32 pm

Richard Epstein at the Hoover Institution looks at whether government can require companies or the States to give things away for free.   The idea is nothing as crazy as one might think. There’s an argument that it can already mandate behavior as a condition for receiving government money, a subject which has recently created tension between the administration and the Catholic Church. Epstein says, “that mandate requires all religious institutions that partake of the health-care benefits under the Patient Protection and Affordable Care Act (PPACA) to supply—against their moral beliefs—contraceptive, sterilization, and abortion services to all persons whom they treat at their facilities in order to continue receiving government benefits, some fraction of which have been raised by tax revenues from persons of similar religious beliefs.”

But giving away money is just a specific kind of behavior. If government can mandate behavior, why can’t government mandate that kind of behavior? Epstein says that is exactly  what it is trying to do. “But now bitten with the statist bug, he just announced that all insurance companies who participate in programs funded through the PPACA will be required to offer the same suite of women’s health-care services for free.”

Government has always promised to give away something for nothing. But the accepted way of doing this was by collecting money through taxes and redistributing it through programs.  This had the virtue of requiring a spending bill that had to pass the people’s representatives in Congress. Because otherwise, why if government could just require a company or state to hand things out then they could mandate anybody into bankruptcy. Epstein says:

The proper procedure for distributing free goods … is by way of taxation, which requires the Congress to step up to the plate to make the necessary fiscal appropriations. Circumvent that process and there is no reason why the government will not use its fiat to drive these companies into bankruptcy.

But suppose it was really important to give stuff away for free because it promoted fairness. Shouldn’t the government use whatever power it had to force others to ‘help’ those deemed deserving?  Ok, maybe the better word is ‘persuade’ as it sounds so much better.

And the government could be very persuasive because Federal programs have become so extensive that very few could risk offending the administration by refusing a ‘request’. Therefore they would comply ‘voluntarily’ with requests even if under considerable duress.

This is actually how it is done and Epstein explains how the doctrine of persuasion developed. It began, as many things did, to protect the children. “The federal government wanted to impose a minimum drinking age for alcohol. But the Twenty-First Amendment, which repealed prohibition, explicitly withheld from Congress the power to regulate the manufacture and consumption of alcoholic beverages.”

So Congress looked for a way around and found it in highway funds. “To get around that direct prohibition, Congress passed legislation in 1984 to withhold 5-percent of the highway funds allocated to a state if it did not raise its minimum drinking age to 21.” The case came before the Supreme Court, which found that such hardball tactics were not coercion but “encouragement”.

Rehnquist also stressed that the small 5-percent withholding meant that this case involved only “encouragement” not “coercion.” Would the same logic apply if a thief told his victim “you need to give me only 5-percent of the money in your wallet”? And what is the point at which encouragement becomes coercion? In effect, the states are at the mercy of the federal government. They can forego the revenues, but they can never escape the taxes.

Now that they had their stick, government used it. And there was no practical defense. As Epstein noted, once the taxpayer paid his taxes into government coffers he was the mercy of the the men who held the purse strings, obliged to jump through whatever hoops were held up to get any of it back.  If he angered government by refusing a ‘request’ it would take the money collected from him elsewhere.  So if government wanted you to give away stuff for “free”, you had to do it if you ever wanted to see any of your money back again.

Epstein says that Obamacare has turned this stick into a club. States that didn’t provide the suggested health services could opt out but …

The kicker here is brutal but effective. The states that do not sign on to this program will lose all their federal payments for existing Medicaid recipients, which for a large state like California amounts to $25 billion per year. The state residents will, however, continue to pay into the program. Whatever the merits of the government’s financial projections, it is clear that opting out is impossible for many states.

The proper way to evaluate this program is to ask, therefore, whether a direct mandate that the states spend these additional sums for the various classes of Medicaid recipients would be consistent with the equal sovereignty of the states.

Yet whatever the Constitution said, the operation of the actual power meant that the effective answer is probably that government cannot really really force you to do things, but actually they can. It’s a neat way, Epstein argues, of avoiding the need to pass unpopular tax measures and debate spending bills.  Just tell the deserving fellows to eat off the arm and watch whoever is mandated provide.  Not everyone will be happy to do this.

If the deal is as good as the federal government claims it is, we would not see 26 states in open rebellion, as there are today. The way to avoid all these difficulties is to have the government pick up the entire tab for these Medicaid expenditures and to pay the states the costs needed to cover the programs.

The use of taxation requires the Congress to bear full and open responsibility for the funds that it appropriates. The conditional grant allows Congress to shift that burden down to the states, without having to confront explicitly and annually the revenue costs that it imposes. Right now, it is anyone’s guess exactly how this game will play out.

But who said life was fair for the people who had to find the money? And in fact, isn’t that the whole point of Obamacare? To make things fair?

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