Regulatory Studies

September 6, 2019 11:03AM

Looming Doctor Shortage Demands Innovative Solutions

The Association of American Medical Colleges projects a severe physician shortage by the year 2032, particularly in the primary care fields, as the population of patients as well as doctors continues to age, according to a report today by AAMC projects the national primary care shortage will range from roughly 47,000 to 122,000.

The news report focused on Arizona, one of the fastest growing states in the union, which has a shortage of primary caregivers in every county. Arizona ranks 44thout of the 50 states in total active primary care providers (PCPs), at 77.9 per 100,000 population (the national average is 91.7 per 100,000) according to a recent report from the University of Arizona.

To deal with the problem efforts are underway in the state to expand residency training programs in order to produce more physicians. But that takes time and money. What is likely to have a more immediate beneficial effect is the state’s recent reform of its occupational licensing laws. Arizona this year became the first state to recognize occupational licenses in good standing granted by other states. This spares new migrants to the state who hold licenses in other states the hardship of repeating costly and time-consuming licensing procedures. As the CNBC report states:

Another way Arizona is hoping to help ease the shortage is by changing licensing laws. Republican Gov. Doug Ducey recently signed a Universal Licensing Recognition law that makes it easier for people licensed in other states to move to Arizona and gain similar accreditation. The measure is the first of its kind in the nation and impacts licensed occupations that range from barbers to physicians. Overall, 30% of occupations require a state-issued license.

This was indeed a good move on the part of the Arizona legislature and Governor and should be replicated in other states. But reforming scope of practice laws so that nurse practitioners, PAs, pharmacists, and other ancillary health care providers can provide services that are now the exclusive domain of people holding doctorate degrees will do even more to improve choice and access to patients in Arizona and across the country. One way to accomplish that would be to move to a system of private certification based upon proven proficiency and skill in a given area. In a recent paper from the Goldwater Institute, one of the co-authors, Murray Feldstein, MD, explains how this would work for health care practitioners:

A certified nurse practitioner, who has a bachelor’s in nursing, an RN license, and a master’s or doctorate in nursing, can do a vasectomy in Washington State. But in most states, that same individual must either fight a scope-of-practice battle in the legislature or go to medical school in order to perform a vasectomy. I am a board-certified urologist who has performed thousands of vasectomies. I am confident I could train an experienced, competent physician’s assistant or nurse practitioner to do the procedure within a few weeks and feel comfortable letting them do it independently.

It would also help for states to reform laws regarding the practice of telemedicine. Most states require telemedicine practitioners to obtain licenses in each state where they make their services available. Ironically, those states don’t prohibit their residents from traveling to the states where those practices are domiciled to receive treatment. Economist and Cato adjunct scholar Shirley Svorny investigated this issue in a Cato Policy Analysis, and suggested solutions. An easy reform would be to redefine the location of the patient-practitioner interaction from that of the patient to that of the practitioner, or for states to allow the practice of telemedicine by health care practitioners licensed by the state in which they are domiciled. 

The CNBC report featured comments by AAMC executive vice president Dr. Atul Grover, regarding the shortage. Dr. Grover called for more federal funding of training programs and for medical schools to expand their enrollments. It is unfortunate these other reform proposals were not mentioned. 

September 5, 2019 9:54AM

Michigan Bans Flavored E‑Cigarettes

By Jeffrey Miron and Erin Partin

Today, Michigan became the first state to announce an outright ban on the sale of flavored e-cigarettes. Governor Gretchen Whitmer (D) explained the decision by saying, “As governor, I’m going to do it unilaterally until I can get the legislature to adopt a statute and write it into law.”

This executive decision will impact nearly half a million Michiganders who use e-cigarettes. The ban prohibits the retail or online sale of flavored e-cigarettes or vaping liquid, including mint and menthol flavorings. Flavored e-cigarettes account for nearly three quarters of all e-cigarettes, so the impact will be widely felt.

The governor cites increasing youth use of flavored e-cigarettes and recent CDC reports of respiratory illnesses that may be associated with e-cigarette use in justifying the ban. However, this heavy-handed response goes far beyond what is necessary or acceptable.

Although youth use of e-cigarettes has increased in the past several years, the rate of cigarette use among young people has plummeted to near historic lows. Concerns that vaping may lead to respiratory illnesses are, as yet, unsupported by any robust research. The 215 cases of pulmonary disease under investigation by the CDC comprise less than one ten-thousandth of one percent of all e-cigarette users in the United States. Meanwhile, half a million people die each year from smoking cigarettes. Studies have shown that e-cigarette use is associated with a reduction in combustible tobacco consumption and an increase in smoking cessation efforts. A de facto ban on electronic cigarettes will drive consumers back to combustible tobacco products, ultimately leading to worse health outcomes.

Prohibition does not work. Since the early 2000s, e-cigarettes have provided smokers with alternatives to combustible tobacco and facilitated cessation efforts. Banning products that have a proven track record of harm reduction, due to unsubstantiated fears, is not the way forward. Governor Whitmer’s ban is certain to face legal challenges. One can only hope that reason will prevail.

September 3, 2019 3:25PM

New York Times on Opportunity Zones

The Tax Cuts and Jobs Act of 2017 included capital gains tax cuts on investments in chosen areas called “opportunity zones.” There are about 8,700 O Zones across the country, which were selected by state governors based on rules in the federal statute.

O Zones are a bad idea and should be repealed. They actively divide the nation between winner and loser communities. They replace equal justice under law with differential treatment based on political pull. The main winners likely are landowners within the zones, not poor households.

Business investment and low capital gains taxes are good things. But tax policy should aim to create equal treatment for investments across the economy to maximize growth and fairness while minimizing corruption.

If cities want to subsidize investment in particular neighborhoods, they can do so. But O Zones create a dangerous precedent of using federal taxing power to micromanage local economies. The Republican O Zone law parallels failed Democratic efforts since the 1960s to top-down plan cities with federal spending subsidies.

Policymakers who want to fix particular neighborhoods in their hometowns should run for city hall, not the federal legislature. Even better, they should put their money where their mouths are and start businesses in poor neighborhoods themselves to create growth and opportunities.

The New York Times investigated O Zones in a lengthy article on the weekend. The article probably focused too much on the cultural aspects of wealth. It associated O Zones with high-end condos, rooftop pools, yoga studios, pet spas, shrimp tempura tacos, and sweeping views of Biscayne Bay.

Nonetheless, the main theme of the NYT piece was spot-on. O Zones were supposed to help low-income households, but they appear to be mainly benefiting developers, investors, lawyers, accountants, consultants, lobbyists, and other intermediaries. This is a common problem with government efforts at aiding poor communities. In addition to the program beneficiaries noted by the NYT, I would add landlords who owned property in O Zones when the legislation passed.

O Zones are discussed further here, herehereherehereherehere, and here.

Here are some highlights from the NYT article:

The stated goal of the tax benefit — tucked into the Republicans’ 2017 tax-cut legislation — was to coax investors to pump cash into poor neighborhoods, known as opportunity zones, leading to new housing, businesses and jobs.

The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they plow the proceeds into projects in federally certified opportunity zones. Any profits from those projects can avoid federal taxes altogether.

“Opportunity zones, hottest thing going, providing massive new incentives for investment and job creation in distressed communities,” Mr. Trump declared at a recent rally in Cincinnati.

Instead, billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects.

Many of the projects that will enjoy special tax status were underway long before the opportunity-zone provision was enacted. Financial institutions are boasting about the tax savings that await those who invest in real estate in affluent neighborhoods.

… Sean Parker, an early backer of Facebook, helped come up with the idea of pairing a capital-gains tax break with an incentive to invest in distressed neighborhoods. “When you are a founder of Facebook, and you own a lot of stock,” Mr. Parker said at a recent opportunity-zone conference, “you spend a lot of time thinking about capital gains.”

Starting in 2013, Mr. Parker bankrolled a Capitol Hill lobbying effort to pitch the idea to members of Congress. That effort was run through his Economic Innovation Group. In addition to Mr. Parker, the group’s backers included Dan Gilbert, the billionaire founder of Quicken Loans, and Ted Ullyot, the former general counsel of Facebook.

The plan won the support of Senators Cory Booker, Democrat of New Jersey, and Tim Scott, Republican of South Carolina. When Congress, at Mr. Trump’s urging, began discussing major changes to the federal tax code in 2017, Mr. Parker’s idea had a chance to become reality.

Mr. Scott, who sponsored a version of the opportunity-zone legislation that was later incorporated into the broader tax cut package, said it was “for American people stuck, sometimes trapped, in a place where it seems like the lights grow dimmer, and the future does, too.”

… But even supporters of the initiative agree that the bulk of the opportunity-zone money is going to places that do not need the help, while many poorer communities are so far empty-handed.

Some opportunity zones that were classified as low income based on census data from several years ago have since gentrified. Others that remain poor over all have large numbers of wealthy households.

… In some cases, developers have lobbied state officials to include specific plots of land inside opportunity zones. In Miami, for example, Mr. LeFrak — who donated nearly $500,000 to Mr. Trump’s campaign and inauguration and is personally close to the president — is working with a Florida partner on a 183-acre project that is set to include 12 residential towers and eight football fields’ worth of retail and commercial space.

In spring 2018, as they planned the so-called Sole Mia project, Mr. LeFrak’s executives encouraged city officials in North Miami to nominate the area around the site as an opportunity zone, according to Larry M. Spring, the city manager. They did so, and the Treasury Department made the designation official.

… Financial institutions are not even trying to make it look as if their opportunity-zone investments were intended to benefit needy communities. CBRE, one of the country’s largest real estate companies, is seeking opportunity-zone funding for an apartment building in Alexandria, Va., which CBRE is pitching to prospective investors as “one of the region’s most affluent locations.”

Media Name: new_orleans.png


September 3, 2019 9:43AM

New Roads for Marijuana Research

By Jeffrey Miron and Erin Partin

News that the DEA is moving forward to improve access to marijuana for research purposes should be cause for celebration. But, if history is any guide, marijuana advocates should remain cautious. It has been three years since the process of increasing the number of entities registered under the Controlled Substances Act to “facilitate research involving marijuana and its chemical constituents” began. Prior to the 2016 announcement, the DEA had a monopoly on growing marijuana for research purposes. That no progress has been made in the past three years is outrageous, yet not unexpected from the prohibitionist bureaucracy of the DEA.

Israel, the Netherlands, and Canada are leading the way in marijuana research. Studies show that marijuana is an effective treatment for pain, epilepsy, Alzheimer’s, glaucoma, and other medical conditions. By refusing to expand researcher access to marijuana, the DEA is taking an indefensible stand against medical progress.

This might be a turning point in the fight for marijuana research, or it may be just another empty promise. One way or another, time will tell.

August 30, 2019 10:30AM

What’s the Point of the Overtime Pay Regulation?

The Trump administration will reportedly raise the overtime pay salary threshold from $23,660 to $36,000 in the coming weeks. Anyone below the current threshold is eligible to be paid at least one-and-a-half times their regular wage for any hours worked above 40 per week. The proposed change would make approximately 1.3 million extra people eligible for overtime pay.

Economically, such a regulatory change is a great big nothing burger. It will do nothing to affect long-term overall compensation, but will bring mild labor market dysfunction and adjustment costs along the way.

Yes, in the short-run, employers have business practices and contracts with their employees that take time to change. Some workers will therefore benefit from higher total compensation in the immediate aftermath of the rule change, as employers are now legally obliged to pay them extra for overtime. This, no doubt, will be the outcome the Trump team trumpets.

But as time goes by, employers will adjust.

That might come initially through managing their workforce to minimize the likelihood of paying overtime rates - changing shifts patterns, recategorizing workers into exempt categories, outsourcing tasks, or trimming the workforce. Basic economics tells us, though, that what employers ultimately care about are the total costs of employment. In time, the overwhelming response will be employers cutting base pay rates or other perks and benefits (relative to where they would have gone) such that overall employment costs remain unchanged. This is exactly the response that empirical research has found.

So the broadened scope of the rule will do little for workers beyond the short-term. But we’d expect it to modestly reduce the efficiency of the economy in other ways. For example, more employers might decide to spend time tracking their employees’ hours closely, disallow “working from home,” or adjust contracts towards hourly wages that are less appropriate for the nature of their industries.

August 28, 2019 11:37AM

Arizona Levies Unconstitutional Tax to Pay for New Sports Facilities

Arizona needed to raise money to update its sports facilities, but polling indicated that a new tax for this purpose was politically unpalatable. The state legislature had an idea: it would tax the tourism industry through hotel and rental car surcharges. The initial draft of the tax exempted Arizonans from the surcharge, but a smart legislative counsel observed that this just might be unconstitutional because it treated in-staters differently than out-of-staters. Instead, when Arizona levied a new tax on rental vehicles, it exempted long-term rentals, replacement rentals, bus rentals, and a whole slew of other vehicle rentals that are used primarily by locals, leaving the tax in effect on the short-term rentals favored by visitors. This tax would be voted into place by individual counties.

On the day Maricopa County (Phoenix) voted to enact the surcharge, pamphlets circulated claiming, “it will cost Arizona residents next to nothing. As much as 95% of the new . . . taxes will be borne by visitors.” These predictions have borne true; businesses reported that 72-87 percent of surcharge tax revenue has come from out-of-staters.

Saban Rent-A-Car, a Maricopa County business, paid the surcharges and sued for a refund in Arizona Tax Court. It made arguments based on the Commerce Clause of the U.S. Constitution—that the law interfered with interstate commerce—as well as state constitutional claims. The Tax court rejected both grounds. Arizona’s intermediate appellate court affirmed the tax court decision on Commerce Clause grounds. A divided Arizona Supreme Court also affirmed. Saban now seeks review in the U.S. Supreme Court.

This case raises two issues. First: the power of the states to regulate within their borders. The history of the Commerce Clause shows that it was written specifically to address discriminatory state legislation targeting out-of-state commerce. A necessary corollary to Congress’s power to regulate interstate commerce is the Dormant Commerce Clause, which prohibits states and their political sub-units from discriminating against out-of-state commerce. Over the years, the Supreme Court has invalidated taxes on trains carrying freight out of state, laws allowing additional harbor fees on ships carrying out-of-state goods, and taxes on out-of-staters shipping liquor into a state.

The second issue, to quote a Revolutionary War slogan, is “no taxation without representation!” Arizona has passed a tax that disparately impacts visitors from out-of-state who are not represented in the Arizona legislature. This ordinarily is not a problem. When a tax applies equally to all, visitors’ objections will be readily voiced by residents, who are equally effected. But when the tax is designed to fall on visitors, their lack of representation becomes a problem because their interests are opposed to the citizens of the state. For out-of-staters, this amounts to taxation without representation.

Cato has thus filed an amicus brief supporting Saban Rent-A-Car’s petition. The Arizona rental-car surcharge violates the Commerce Clause and impermissibly taxes out-of-staters without adequate representation of their interests in the state legislature.

The Supreme Court will decide whether to take up Saban Rent-A-Car v. Arizona Department of Revenue when it returns from its summer recess.

Thanks to Cato legal associate Michael Collins for his assistance with this post.

August 20, 2019 1:27PM

Corporate Happy Talk and The Duty of Shareholder Loyalty

Yesterday the Business Roundtable released a “Statement on the Purpose of a Corporation” signed by 180 CEOs of major companies. It proclaims “a fundamental commitment to all of our stakeholders,” including customers, employees, suppliers, communities, and, finally, shareholders. It is being widely interpreted as a victory for anti-business campaigners and “corporate social responsibility” advocates, and perhaps also as a repudiation of the shareholder-primacy norm memorably defended (though in no way originated) by free-market economist Milton Friedman.

In reality, as I told Kevin Dugan of the New York Post, the text of the statement in itself signifies little beyond happy talk:

“It would be one thing if they said we’re endorsing having the Delaware courts change this particular legal doctrine, or we’re endorsing a bill in Congress,” said Walter Olson, a senior fellow at the libertarian Cato Institute. “It’s not really clear whether they’re intending to replace any part of the system or do the same things are before, but … smile more.”

Corporate law is a system of rights and corresponding duties that you can take to court. Of the multiple problems with proclaiming a new duty to a broad assortment of stakeholders, the main one, as UCLA lawprof Stephen Bainbridge has put it in a series of on-point articles, is that “managers who are responsible for everyone are responsible to no one.” A vague balancing test as to corporate officers’ and directors’ duties can leave them with more discretion than ever — if they want to close a high-cost plant, for example, they might regretfully decide the interests of customers, shareholders, and sales employees outweigh those of plant employees and communities, while if they choose to do the opposite they’ll have room for that too. Note that the BRT does not speak in terms of a duty that anyone in particular can sue to enforce. For that matter, familiar existing shareholder-primacy norms already allow plenty of leeway for decision-making that takes into account corporate reputation and image, political risk, and so forth — which is one reason the signatories to the BRT statement already engage in plenty of social-responsibility initiatives, some to be applauded and others less so.

Where a vague stakeholder-loyalty norm could really make a difference is in eroding the legal duty of loyalty currently owed to the investors who put up the capital. The chief battlefield is what is called the market for corporate control, as when a board decides whether to accept or spurn a lucrative takeover offer. The law of business organization has for centuries grappled with the “agency problem”: insiders can be strongly tempted to take actions that benefit themselves (by keeping them ensconced in managerial or controlling-owner positions, for example) even if an ownership change would benefit shareholders as a group as well as economic efficiency.

No wonder the Council of Institutional Investors — representing the pension funds, insurance pools, mutual-fund-owning retirees, and others whose interests depend on the duty of loyalty — doesn’t think much of the BRT statement.