Tag: crony capitalism

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How Government-Imposed ‘Net Neutrality’ Is Recipe for Crony Capitalism

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How Government-Imposed ‘Net Neutrality’ Is Recipe for Crony Capitalism
Alden Abbott / @AldenAbbott1 / March 30, 2015

The Federal Communications Commission’s Feb. 26 regulation imposing highly restrictive regulations on the Internet (“Open Internet Order”) threatens to undermine the vibrant economic growth and innovative consumer offerings that have characterized the largely unregulated Internet sector.

Unless and until the Open Internet Order is thrown out by the courts or displaced by a new law of Congress, it will place Internet Service Providers (ISPs) and firms with which they interact under a regulatory cloud, with the heavy hand of government a real threat to curb novel business practices that until now have spawned the emergence of countless new beneficial services, such as iTunes and Netflix.

As Heritage Foundation Senior Research Fellow James Gattuso recently put it:

Devised for the static monopolies, public-utility regulation will be corrosive to today’s dynamic Internet. There’s a reason the phrase “innovative public utility” doesn’t flows easily from the tongue. The hundreds of rules that come with public utility status are geared to keeping monopolies in line, not encouraging new or innovative ways of doing things. (The FCC has indicated it will refrain from enforcing the bulk of these rules, but if you believe that, I have a water-front property in Wyoming to sell you.)

Even worse, by imposing burdens on big and small carriers alike, the new rules may actually stifle chances of increasing competition among broadband providers.

The Open Internet Order is, however, more than just another Obama administration burden (admittedly a huge one) placed on the American private sector and on economic growth.

Like so many other Obama administration programs, it is an invitation to cronyism. As Heritage Foundation President Jim DeMint and Heritage Action President Mike Needham have explained, well-connected businesses use lobbying and inside influence to benefit themselves by having government enact special subsidies, bailouts and complex regulations. Those special preferences undermine competition on the merits firms that lack insider status, harming the public.

The Federal Communications Commission has a long record of shielding powerful incumbents from competition.

The Open Internet Order encourages cronyism by establishing an extremely broad “no unreasonable interference or unreasonable disadvantage” standard for Internet conduct, to be applied on a “case-by-case” basis that balances the benefits of innovation against harm to end users and “edge providers” (firms like Google, LinkedIn and Facebook that provide Internet content and related services). The Federal Communications Commission will provide guidance through “enforcement advisories” and “advisory opinions,” and the Commission’s Enforcement Bureau can request written opinions from outside organizations.

Cutting out the Washington speak and bureaucratese, the Federal Communications Commission is saying that the inherently vague and malleable language that determines whether an Internet business practice is given a thumbs up or thumbs down will turn on “opinions” that will require the input of high-priced lawyers and advisers.

Smaller and emerging firms that cannot afford to pay for influence may be out of luck. Moreover, large established companies that are experts at the “Washington game” and engage in administration-approved activities or expenditures (such as politically correct green projects or the right campaign contributions) may be given special consideration when the Federal Communications Commission sages decide whether an Internet business practice is “unreasonable” or not.

This means that firms that are willing to pay more for better Internet access to challenge such powerful firms as Netflix in video services or Google in search activities or Facebook in social networking may be out of luck, if they are less effective at playing the Washington influence game than at competing on the merits. Those who doubt this need to know that the Federal Communications Commission has a long record of shielding powerful incumbents from competition. For decades the Commission maintained AT&T’s telecom monopoly by keeping out of the market new cellular service and telephone equipment providers, and protected dominant broadcasters by preventing cable companies from providing competing video services.

In sum, the benefits to American consumers and the overall American economy generated by a regulation-free Internet—not to mention the ability of entrepreneurs to thrive, free from cronyism—may soon become a thing of the past, unless action is taken by Congress or the courts. American citizens deserve better than that from their government.

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Tax Reform at Last?

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Tax Reform at Last?

Stephen Moore

February 26, 2014 at 6:48 am

Today, House Ways and Means Committee Chairman Dave Camp (R) of Michigan jumpstarts the tax reform debate. It’s about time. The tax code stables in Washington haven’t been cleaned out since 1986—more than a quarter century ago, when Ronald Reagan was President.

Since then, year after year, the tax code gets engrafted with more special interest loopholes, credits, and carve-outs. Not only is this unfair to those without lobbyists, it makes the tax code mindlessly complex—a job security program for tax lawyers and accountants.

Worse yet, back in the 1980s, the U.S. had among the lowest income tax rates on businesses in the world. Today, our small and large businesses pay among the highest rates.

Our corporate tax rate is now the highest in the industrialized world at 35 percent—because almost all other nations have slashed their business taxes to attract jobs and businesses. This high corporate rate in practice acts as a tariff on the goods and services we produce in the United States. Our analysts at Heritage find that this lowers wages of American workers. Want to give U.S. workers a raise? Cut the tax rates on businesses so they invest more here.

Camp aims to fix all of this by rewriting the tax code, and that starts with lowering tax rates across the board and eliminating loopholes.

He would shrink the current seven income tax brackets down to three: 10 percent, 25 percent, and 35 percent for those families with incomes above $450,000. That highest rate of 35 percent is still too high and an unnecessary nod to the class warriors on the left, but it would be an improvement on the current Obama rate of more than 40 percent.

The corporate tax rate would fall from 35 percent to 25 percent, which is at least closer to the world average. Camp would also allow companies to bring capital stored abroad back into America at a low tax rate of less than 10 percent, which will mean more investment and insourcing of jobs on these shores—as well as more revenue for the Treasury.

Camp’s plan also simplifies the tax code by allowing millions of tax filers a larger standard deduction, which means they can forgo the hassle of itemizing deductions and go straight to the EZ form. For those who do itemize deductions, many of the carve-outs will be gone—but not the mortgage or charity write-offs.

Expect the White House to lambast this plan as a “tax cut for the rich,” but the evidence from history shows that lower tax rates are usually associated with higher overall tax receipts and more taxes paid by the rich. In the 1980s after two rounds of Reagan tax rate reductions, income tax receipts doubled, and the share of taxes paid by the top 1 percent, 5 percent, and 10 percent rose as the economy expanded.

This is an important history lesson. Now,  congressional revenue estimators are using “dynamic scoring” to estimate what happens to the economy and revenues if the new plan is implemented. This yields a “growth dividend” for the economy of at least $700 billion, our sources tell us. A word of advice to Chairman Camp: Use that extra money for better treatment of capital investment or to lower tax rates still further to get even more growth.

The U.S economy has slogged along at just a little over 2 percent growth during this recovery—and last year, less than that. Imagine 4 percent growth for the next decade, and you’ve added nearly $2 trillion more in tax revenues to pay the government’s bills.

I’d prefer to see something closer to a pure flat tax with one tax rate, a postcard-sized return, and no double tax on saving and investment—much like what Steve Forbes proposed back in 1996. And there are some bad ideas buried in the Camp plan, such as a tax on the assets of big banks that received bailout funds in 2008-09. That seems more at home in the Obama redistribution budget than in a pro-growth tax reform vision.

But on balance, this is a gutsy and courageous first attempt to take on the beehive of special interests in Washington and grow the economy while making the tax system fairer and more comprehensible.

The tax system we have is absurd in the 21st century. It’s as if we were trying to operate our businesses and compete in global markets with clunky computers and an operating system built in 1985. If Republicans want to be the party of solutions, the party of growth, and the party of reform, they ought to rally behind the spirit of Mr. Camp’s initiative—and even make it bolder.