The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 17, Issue 29: July 21, 2015

1. College Tuition, the Federal Reserve, and Love Gov
2. Congress Must Cut Spending to Justify Killing Medical-Device Tax
3. What the Greeks Can Learn from the Irish
4. Soda-Tax Health Claims Fizzle Out
5. New Blog Posts
6. Selected News Alerts

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It’s not often that we extol the virtues of the Federal Reserve—indeed, this might be a first—but a new report from the central bank’s New York branch echoes what we’ve long said about federal student aid: it’s been raising college tuition across the United States. Since 2001, annual student loan originations have more than doubled and tuition has climbed 46 percent. Correlation doesn’t prove causation, of course. But when the Fed’s researchers found that increases in student-aid limits from 2006 to 2008 were met with students taking out more loans and universities capturing most of the money, they thought that government aid’s role in causing tuitions to rise looked highly probable.

As a Wall Street Journal editorial explains, Independent Institute Senior Fellow Richard Vedder “connected these dots a decade ago, estimating in 2006 that every dollar of grant aid raised tuition 35 cents.”

Perhaps the Fed’s researchers have also been watching Love Gov, the new, satirical five-part video series produced by Independent Institute in association with Emergent Order. Episode 1 deals with the student-debt problem, as Scott “Gov” Govinski urges Alexis Smith to take on more debt than she can afford to pay. If you haven’t yet seen it on YouTube, please take a look and share it on Facebook. You’ll be joining the more than 800,000 combined viewings (and growing). Plus, it’s a lot more instructive than those cat videos you’ve been watching!

College Aid Means Higher Tuition (The Wall Street Journal, 7/19/15)

Love Gov: From First Date to Mandate

MyGovCost mobile app

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In June, the House of Representatives passed a bill to kill Obamacare’s 2.3 percent tax on medical devices; the legislation is now in the Senate. If Congress votes to kill the tax and manages to override President Obama’s promised veto—this would be good for the cause of limited government, correct? Not necessarily, says Independent Institute Senior Fellow John R. Graham.

Repealing the medical-device tax, Graham argues, would be fiscally irresponsible unless Congress cuts federal spending enough to offset the lost tax revenue. The Congressional Budget Office estimates that killing the tax would raise the federal deficit by $24 billion over the next ten years. So far Congress has not proposed the kind of spending cuts needed.

Yet even President Obama has proposed spending cuts that would nearly do the trick. In his February 2012 budget, he proposed reforms to a tax that hospitals pay to states. Because the federal government matches a portion of the “provider tax” collected by the states, slashing this tax would reduce federal spending $22 billion over ten years. Congress should take this idea from Obama’s playbook—and pass small additional spending cuts—if it wishes to kill the medical-device tax responsibly. “It is long past time for congressional Republicans to walk the talk on balancing the budget,” Graham concludes.

The GOP’s Fiscally Unsound Health Proposals, by John R. Graham (Real Clear Policy, 7/16/15)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

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The Greeks have been on a wild roller coaster ride with more downs than ups. Voters earlier this month celebrated passage of a referendum denouncing fiscal austerity, only to see Prime Minister Alexis Tsipras agree to a financial bailout with conditions that voters would have rejected. Unfortunately, confusion surrounds Greece’s ailment and its cure. What it needs isn’t austerity per se. What it needs are free-market reforms like the ones that revived Ireland’s economy in the late 1980s and 1990s, according to Independent Institute Senior Fellow Benjamin W. Powell.

In the Ireland of 1986, government accounted for 55 percent of the spending in the economy, compared to 52 percent in Greece today. And like Greece, Ireland’s total debt exceeded the value of its final output. But in 1987, Ireland’s government got serious about reversing course. It began making significant spending cuts in healthcare, schooling, and agriculture; cut back onerous business regulations; and even abolished entire government agencies. In the 1990s, the island nation began enacting tax cuts without increasing the public debt. The economy has since attracted workers from other corners of the European Union.

“Ireland’s courageous reforms and the economic growth that accompanied them fundamentally transformed the economy by significantly reducing the burden of government,” Powell writes. “Greece could make a similar transformation if it had the political will to do it.”

Greece Should Learn from Ireland, by Benjamin W. Powell (Detroit News, 7/8/15)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin W. Powell

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Thirty states in the nation have enacted taxes on soft drinks—ostensibly to curb obesity and diabetes. Even some cities are trying to get into the act. Berkeley, Calif., for example, now has a soda tax that proponents say will increase soft-drink prices by 20 percent and cut consumption by up to 20 percent. Such claims, however, are wishful thinking, according to William F. Shughart II.

Writing in the Wall Street Journal, Shughart argues that virtually all of the touted benefits of soda taxes are hogwash. They really don’t do much to reduce consumption, obesity, or health problems. Moreover, they help fuel a wasteful competition between pro-tax lobbyists and anti-tax lobbyists. The only thing that soda taxes are good for—if you can call it good—is quenching a government’s thirst for tax revenues.

“The argument that taxing sugary drinks helps to promote healthy lifestyles deflects attention from their actual effects,” Shughart writes. “We don’t normally expect politicians to be truthful. But if they want to impose these taxes, they should be honest enough to admit that they will not end obesity or diabetes, but rather will generate more of other peoples’ money for profligate state governments to spend.”

Should There Be a Tax on Soda and Other Sugary Drinks?, by William F. Shughart II (The Wall Street Journal, 7/12/15)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II (Editor)

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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Lawrence J. McQuillan continues radio blitz on the public-pension tsunami

Love Gov featured on WichitaLiberty.TV

Choice author Robert P. Murphy on The Tom Woods Show

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