Consumer Protection Usually Doesn’t Live Up to its Name

It seems as if the folks in Washington don’t have enough to do with taking over the American financial, automobile, and health care industries. The talk now is about creating a new consumer protection agency to “protect … the financial well-being of American consumers.”

While this may sound like a good cause, a review of the recently adjourned 81st Texas Legislature raises the question whether government “protection” helps or harms the financial well-being of consumers.

The big news this session was what didn’t happen. Politics in the waning days of session killed hundreds of bills. So-called consumer groups bemoaned the loss of many of them, also assigning blame to big business.

One advocate crystallized the perspective of these groups when he said that this session amounted to “nibbling around the edges without making any fundamental changes that will really improve the lives of Texas consumers.”

The truth of the matter, however, is that consumers fared pretty well this session. And the reason for this is because all the Legislature did was “nibble around the edges.”

Continue reading

Quote of the Day

“Some scholars believe that the spread of democracy, which then put land ownership and wealth in the hands of many, and the Industrial Revolution, which made the mass production of goods possible and spread wealth throughout society, are at the root of the environmental crisis,” and “By destroying paganism, white Christianity helped to exploit nature.” – Environmental Science: Creating a Sustainable Future, a high school textbook published in 2001 by Jones and Bartlett

TX Legislature in Review: Financial Regulation

It is not high finance, but short-term lending helps a lot of consumers out of tight places. This session, multiple bills would have significantly reduced or banned short-term lending.

Banks and credit unions generally won’t make short-term loans, so people in need of quick access to funds have to turn higher cost alternatives. While critics claim these higher fees harm consumers, many short-term borrowers could have been devastated if the Legislature had banned these loans.

The higher fees are necessitated in part by the small size of the loans but also driven by consumer demand.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Telecommunications

The good news about telecom taxes is that they won’t be going up this session. The bad news is that they won’t be going down. Texas has some of the highest telecommunications taxes in the nation. We’ve made progress recently in reducing those taxes, but there is still plenty of room for improvement.

Our recent policy perspective, Telecommunications Taxes in Texas, explains where we should go next to reduce these taxes and improve the competitiveness and efficiency of the telecommunications market in Texas.

Texas still needs to: reduce not only the local telecommunications franchise tax, but also franchise taxes for electricity, cable and natural gas lines; eliminate sales taxes on telecom manufacturing equipment; change the way property taxes are appraised on many of the legacy telecom providers; and reduce the overall taxes on consumers’’ telephone bills.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Tort Reform

There were numerous attempts this session to reverse the achievements of the last ten years or so that have reduced abuse of Texas’ civil justice system, reduced excessive litigation costs, and increased access to the courts for those who are truly injured.

These included: reducing access to workers compensation (the Entergy bill); lessening causation standards in mesothelioma cases; allowing recover of phantom damages in medical cases (paid or incurred); diminishing use of highly effective multi-district litigation panels; and interfering with indemnification agreements.

However, none of them passed—making this session a big win for consumers and citizens in need of access to justice through the court system.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Electricity and Renewable Energy

Most of the electricity bills this session had one thing in common—they were going to make electricity more expensive for Texas consumers or taxpayers. Fortunately, most of them didn’t pass.

The major bill that did pass provided incentives, i.e. subsidies, for electricity generation plants equipped with carbon capture technology. But it may not wind up costing consumers anything, since the technology for carbon capture is so expensive that even subsidies may not make such a project feasible.

Consumers were saved from at least tens of millions of dollars in increased electricity rates when several renewable energy and energy efficiency bills died at the end of session. Though there is talk of including solar subsidies on the call for the upcoming special session—the Center will be releasing a paper on this issue detailing the high cost of solar.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Property Rights

Eminent Domain reform moved forward for the first time since 2005. HJR 14 will stop local governments from using blight designations to condemn blocks of perfectly good homes and businesses for economic development projects. That is good news—El Paso and other cities may be out of the downtown redevelopment business when it comes to using eminent domain.

However, local government opposition weakened public use language in HJR 14, meaning more work needs to be done in 2011. Legislators should push for statutory changes that ban Kelo-style transfers of taken property from one owner to another, further reform blight laws, and end government land speculation by allowing original owners to repurchase any condemned property that hasn’t been used within five years.

When it comes to regulatory takings—which probably has a bigger negative impact on the Texas economy—nothing was accomplished. Cities are still free to take property by restricting its use with few limitations.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Windstorm Insurance

The windstorm insurance bill fixed the symptoms without solving the underlying problems with TWIA. General revenue is no longer at risk, but coastal policy holders are still stuck with the most expensive windstorm insurance possible and taxpayers and policyholders statewide will still have to pick up the bill

That will especially be true if we get another big storm, since the legislation this session punted how to handle storms with over $2.5 billion of claims to a future Texas Legislature.

This post was first published by the Texas Public Policy Foundation.

TX Legislature in Review: Homeowners’ Insurance

Texas Department of Insurance sunset legislation would have made modest improvements to the status quo, but the failure of the TDI sunset bill means consumers will still be subject to the regulatory confusion they’ve suffered thought over the last decade or so.

Unless, of course, the entire Texas Department of Insurance goes away. Something similar happened in Illinois years ago, and there hasn’t been any rate regulation of homeowners’ insurance since. Homeowners there have somehow survived, and now enjoy some of the best insurance rates in the country.

It is unlikely that TDI will go away, though. The Legislature will probably be back in special session soon to extend TDI until 2011 so the sunset process can continue on then.

This post was first published by the Texas Public Policy Foundation.

Tax Cuts Work

In his recent National Review Online article on the federal government’s deficit spending, Rich Lowry wrote, “The same way overzealous Republicans once argued that tax cuts paid for themselves, Obama Democrats argue that deficit spending pays for itself.”

Lowry’s statement is problematic on several levels.

For one, it essentially equates tax cutting and deficit spending, abandoning the moral high ground in an attempt to come across as reasoned. Even more importantly, it misrepresents the facts. In truth, tax cuts have paid for themselves time and time again: the Harding/Coolidge, Kennedy, Reagan, and Bush tax cuts all accomplished this.

As noted in the Foundation’s Thinking Economically lesson on the Laffer Curve, “In the four years prior to the 1965 (Kennedy) tax rate cuts, federal government income tax revenue, adjusted for inflation, had increased at an average annual rate of 2.1%, while total government income tax revenue (federal plus state and local) had increased 2.6% per year. In the four years following the tax cut, these two measures of revenue growth rose to 8.6% and 9.0%, respectively. Government income tax revenue not only increased in the years following the tax cut, it increased at a much faster rate.”

People claim the early Reagan income tax cuts didn’t pay for themselves. But they compare tax revenues between 1981 and 1982 when the tax cuts didn’t take full effect until July 1983. Look at the revenue before and after the cuts had been fully implemented, and they worked. The problem with the Reagan tax cuts is that they weren’t implemented fast enough. Just as predicted, people deferred income until after the tax cuts were fully implemented, delaying the growth in tax revenues. Tax cuts generally won’t increase revenue overnight, but they will increase revenue once the economy has a chance to respond.

The one tax where cuts (or increases) affect revenues almost immediately is the capital gains tax. “Following the 1981 capital gains cut from 28% to 20%, nominal capital gains tax revenues leapt from $12.5 billion in 1980 to $18.7 billion by 1983—a 50% increase.” After the rate went back up in the late 1980s, capital gains revenue collapsed. And, once again, “in 1996, the year before the tax rate cut (back to 20%) and the last year with the 28% rate, taxes paid on assets sold totaled $66.4 billion. A year later, tax receipts jumped to $79.3 billion, and they jumped again to $89.1 billion in 1998. … Seldom in economics does real life so closely conform to theory as this capital gains example does to the Laffer Curve. Lower tax rates change people’s economic behavior and stimulate economic growth, which can create more, not less, tax revenue.”

Tax cuts won’t always increase the incentives for people to earn or recognize more income. But we are a long way from a tax rate low enough for that to be the case.