WASHINGTON, April 12 (UPI) -- The UPI think tank wrap-up is a daily digest covering brief opinion pieces, reactions to recent news events and position statements released by various think tanks.
The Cato Institute
WASHINGTON -- Don't "Enron" Social Security? It already is
By Andrew G. Biggs
Don't "Enron" Social Security, Senate Majority Leader Tom Daschle, D-S.D., cries, attacking President Bush's reform plans to let workers invest part of their Social Security taxes in personal retirement accounts. Sen. Joseph Lieberman, D-Conn., is less subtle, holding a press conference recently where he and some fellow Senate Democrats beat the Enron-Social Security analogy like a drum.
But guess what, senators? Social Security is already "Enron-ed." And personal account-based reform plans are the way to prevent all Americans from losing money as many Enron workers did.
Daschle compares Bush's personal account reform plans with the collapse of the giant energy corporation, which took many workers' 401(k) retirement savings with it.
"I don't want to 'Enron' the people of the United States," said Daschle. "I don't want to see them holding the bag at the end of the day, just like Enron employees have held the bag. I don't want to destroy their Social Security system."
Democratic strategists think that tarring personal accounts with the Enron brush can defeat Bush's Social Security reform plans as well as bring electoral success in the fall.
In truth, it's not the president's personal account reform plans that most resemble Enron -- it's the current Social Security system itself.
Enron's murky "off balance sheet" accounting practices highlighted its assets and downplayed its debts -- as does Social Security's "trust fund" accounting. While the trust fund's trillion dollars in government bonds are "assets" to Social Security, they are debts to the rest of the government -- which will have to raise taxes or cut other programs to repay them, just as if there had been no trust fund at all. That's why the non-partisan Congressional Research Service stresses that "the trust funds themselves do not hold financial resources to pay benefits."
Making matters worse, politicians regularly exclude liabilities to the trust fund when referring to the public debt; the Social Security trust fund is apparently an asset to everyone but a liability to no one. The fund is like a private corporation financing its pension plan with bonds issued to itself -- a practice that is illegal in the private sector.
Making matters worse, Enron's employees were dangerously undiversified; some held all of their 401(k) contributions in Enron stock, a step no financial advisor would recommend.
Similarly, 60 percent of Americans receive the majority of their retirement income from Social Security benefits; one-third receive 90 percent or more from Social Security, and for almost 20 percent, Social Security is all they've got.
Worst of all, Enron itself went bankrupt, taking many workers' pensions down with it. Likewise with Social Security: Its own trustees declare the program insolvent. And Social Security's bankruptcy won't just affect the very young: A 49-year-old woman today can expect to see her benefits cut by one-quarter during her lifetime. Younger workers will not receive even a single year of full promised benefits. For Social Security to pay full benefits payroll taxes must rise by 50 percent, yet payroll taxes are already the biggest tax burden for most households.
The president's commission, headed by former Democratic Sen. Daniel Patrick Moynihan and AOL/Time Warner head Dick Parsons, proposed letting workers invest part of their Social Security taxes in personal investment accounts. Workers would know exactly how much they have saved for retirement, and the government could not "raid" those funds to pay for non-Social Security spending.
The commission's plans are certified by Social Security's actuaries to pay substantially higher benefits than the current system is capable of doing. And lower-income retirees would receive more than Social Security promises. The commission also added special protections for widows and a new anti-poverty benefit for minimum-wage workers.
Moreover, workers could invest only in highly diversified stock and bond mutual funds. That's why reform opponents' scare tactics are ridiculous. At Enron's height, it constituted less than 1 percent of the $13.4 trillion U.S. equities market. Even if a worker invested in nothing but stocks, his savings would have been only minutely impacted by Enron's demise. A worker diversifying his account with overseas equities, corporate, or government bonds probably wouldn't have noticed.
Lack of diversification. Opaque accounting. Imminent bankruptcy. These terms describe Social Security much as they do Enron's foggy finances. The president has laid his reform cards on the table. It's time for personal account opponents to do the same.
The Social Security reform debate today is an event at which only one team has shown up. Until reform foes put forward real proposals of their own, we can only conclude that they favor the Social Security status quo. And under the status quo the system goes broke. That's the real "Enronization" of Social Security.
(Andrew G. Biggs is a Social Security analyst at the Cato Institute and was a staff member for the President's Commission to Strengthen Social Security.)
Top ten civil liberties abuses of income tax
Any tax system creates a threat to individual liberty because "the power to tax involves the power to destroy," as Chief Justice John Marshall observed. But the federal income tax and its enforcement harm civil liberties much more than necessary to raise needed funds for the government.
Certainly, the IRS performs poorly and too easily abuses the rights of citizens. But ultimately Congress is to blame for creating an excessively complex and high-rate tax system. New laws to increase taxpayer protections and replacement of the income tax with a simpler, flatter consumption-based tax could greatly reduce the following 10 areas of civil liberties abuse.
1."Vertical" inequality: Although equality under the law is a bedrock American principle, the income tax treats citizens unequally. "Vertical" inequality is created by hugely different tax burdens on citizens at different income levels. For example, households earning between $30,000 and $75,000 pay an average 10 percent of their income in federal income taxes, compared to 27 percent for households earning more than $200,000.
Fully 36 percent of U.S. households pay no income tax. Besides violating the spirit of equal protection guarantees of the Constitution, such unequal burdens distort perceptions about the costs and benefits of government because programs appear to be free of cost to many.
2. "Horizontal" inequality: Even people with similar incomes are treated unequally by the many exemptions, deductions, credits, and other intricacies of the income tax. For example, there are 59 income tax provisions that vary, depending on marital status. Likewise, the tax differences between homeowners and renters with the same incomes can be thousands of dollars because of itemized deductions for property taxes and mortgage interest. Another disparity is the unequal access to savings vehicles in the tax code depending on individuals' work situations and other factors. If all individual savings were exempt from tax, as under a consumption-based system, individuals would be treated more equally.
3. Complexity, ambiguity and uncertainty: Certainty in the law is a bulwark against arbitrary and abusive government. But there is no certainty under the income tax because it rests on an inherently difficult-to-measure tax base, uses no consistent definition of "income" or other concepts, and is a labyrinth of narrow and limited provisions created by politicians intent on social engineering.
The current Internal Revenue Service commissioner concedes that the income tax has become too complex for accurate administration, which is evident in the 28 percent IRS error rate on phone inquiries and 60 percent error rate on audits. Business tax rules are so ambiguous that many disputes drag on for years and are valued in the hundreds of millions of dollars. Individuals are baffled by the complex rules on capital gains, pension and savings plans, and a growing list of targeted incentives. Those complexities would be eliminated under a flat consumption-based tax system.
4. Huge size and instability of tax law: Citizens are required to know the nation's laws and comply with them. Yet federal tax rules are massive in scope and constantly changing. Tax laws, regulations, and related documentation span 45,662 pages. There were 441 changes to tax rules in last year's tax-cut law alone. That law guaranteed a decade of tax instability with phased-in changes lasting until 2010.
Income tax instability is typified by changes in taxes on capital. There have been 25 substantial changes in the treatment of long-term capital gains since 1922. Pension tax laws have been substantially changed nearly every year since the early 1980s, creating regulatory backlogs and leaving employers unsure about how to comply. Last year's tax-cut law alone had 64 separate rule changes for pension and saving plans.
5. Lack of financial privacy: The broad-based income tax necessitates a large invasion of financial privacy that a low-rate consumption-based tax could avoid. The IRS regularly gains access to a myriad of personal records, such as mortgage records, credit card data, phone records, banking and investment records, real property transaction data, and personal correspondence. This broad IRS authority to obtain records without court supervision has been referred to by the Supreme Court as "a power of inquisition."
6. Denial of due process: The fifth amendment right to due process is ignored in many respects by the federal income tax regime. Due process requires that government provide accused citizens a clear notice of a claim against them and allow the accused a hearing before executing enforcement action. But the IRS engages in many summary judgments, and enforces them prior to any judicial determinations.
Moreover, the very complexity and ambiguity of the income tax seems to violate due process. In 1926, the Supreme Court noted that a statute that is "so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates that first essential of due process of law."
7. Shifting of the burden of proof. For non-criminal tax cases -- the vast majority of cases -- the tax code reverses the centuries-old common law principle that the burden of proof rests with the accuser. Except in some narrow circumstances, the IRS does not have to prove the correctness of its determinations. When the IRS makes erroneous assessments, as it often does, citizens carry the burden to prove that they are wrong. Efforts to shift the burden of proof to the IRS in the 1998 IRS Restructuring and Reform Act did not accomplish that goal. In addition, the new rules do not apply to the 97 percent of IRS actions that are deemed administrative in nature.
8. No trial by jury in tax court: Despite sixth and seventh amendment guarantees of trial by jury, the federal tax system carefully sidesteps such protections. To contest an IRS tax calculation prior to assessment, one must file a petition in the U.S. Tax Court.
But since this is an administrative court, not an Article III court, no jury trial is required. To obtain a jury trial and related rights for civil tax cases, one must file suit in a U.S. District Court. But before that can happen, the alleged tax, penalties, and interest must be paid in full. And if the citizen wins, there is a burdensome route to retrieving the disputed money. For most people, those rules effectively eliminate the right to trial by jury in tax cases.
9. Unreasonable searches and seizures. In most situations, the fourth amendment guarantees that, before the government can search private property and seize records, it must demonstrate to a court that there is "probable cause" to believe that lawless conduct exists. However, the IRS's summons authority under tax code section 7602 allows it to obtain records of every description from any person without showing probable cause and without a court order.
There has also been an explosion in information reporting required by the IRS and a big expansion in its computer searching for personal records. Recently, the IRS won the power to access financial data on Visa cards issued by foreign banks. Many examples of abusive IRS searches and seizures were revealed in U.S. Senate hearings in 1997.
10. Forced self-incrimination. The requirement to file tax returns sworn to under penalty of perjury operates to invalidate the fifth amendment protection against self-incrimination. Citizens face a legal dilemma. On the one hand, refusing to file a return would expose a citizen to prosecution for failure to file. On the other hand, disclosing information sought in tax returns constitutes a waiver of fifth amendment protections. The IRS can and does release that information to federal, state, and local agencies for both tax and non-tax law enforcement purposes.
Competitive Enterprise Institute
(CEI is a conservative, free-market think tank that supports principles of free enterprise and limited government, opposes government regulation, and actively engages in public policy debate.)
CEI C:\Spin -- Nibbling away at spam: AOL wins one
By Maura E. McGonigle
Spam. Everyone hates it, though few agree on an exact definition or on appropriate countermeasures.
AOL last week claimed victory in its 16-month legal battle against Netvision Audiotext Inc. (also known as Cyber Entertainment Network), an adult Web site that used freelancers to spam AOL customers. Unsolicited e-mails directed users to porn sites through links, including graphic pictures. Word is that the agreement includes a permanent injunction against future spamming of AOL customers and significant fines.
AOL's case rested on federal and state laws giving Internet service providers power to fend off unauthorized use of their services, and on the anti-spam promise on Netvision Audiotext's Web site, even though it denied control over the freelancers.
The settlement sets no formal legal precedent, but it puts all on notice that companies can be held responsible for actions of third parties, and that the laws allowing Internet service providers to defend themselves and their customers should be taken seriously.
This was a fairly easy case. Such egregious violations of server-use agreements and Web policy statements fall under any definition of spam. More difficult cases will arise because of the difficulty of pinning down an exact meaning. Some define any and all unsolicited email as "spam." Others object only to unsolicited commercial email. Yet others call it spam only if it contains no clear opt-out mechanism.
"I know it when I see it" is not a definition conducive to sound policy or predictable law. To allow Internet service providers and/or users to bring suit against whatever they deem to be worthy of the title of "spam" will create a litigious nightmare. Furthermore, legislators are itching to get into the game, and we all know where that leads.
A better approach is to view spam as a result of economic forces and thus subject to market solutions, not as something for quick-fix legislative action.
Simply put, spam is a marketing device used by a wide range of legitimate and illegitimate companies. If the senders do not see a return of some kind on their investment, they will no longer find it worth their while. Now, that investment is practically zero. The cost to send thousands of e-mails is no higher than the cost of sending one.
The best ultimate solution, then, is for Internet service provider companies to change their pricing structure to shift the costs of spam to the sender. While such a change in service provider pricing would be easier said than done, that kind of business solution is worth working toward. It doesn't prevent all commercial use of e-mail by legitimate ventures making a good faith effort to target consumers who are really interested. It doesn't get a lot of lawyers involved.
Meanwhile, users can learn to take control of their mail by using filters, and checking the privacy policies of their Internet service providers and Web sites they visit. While these products aren't perfect, they are getting better all the time. Keeping a separate e-mail address for public postings on the Internet is also a good idea.
Yes, spam is an annoyance but hit the delete key and move on, because the problem will be solved in time. Do we really want the government deciding what goes into our inbox?
* Maura E. McGonigle us a research analyst at the Project on Technology and Innovation at the Competitive Enterprise Institute.)
