Friday, March 31, 2017

Obamacare Replacement: Waiting for Godzilla

The for-now-defunct American Health Care Act (AHCA) had a lot to recommend it. But was it the only possible option? Why can't we take a radically different approach, instead of responding to one massive social engineering scheme with another radioactive sea monster that we must commission to stomp us without recourse?

Read the complete article by Howard Hyde at:

Monday, March 20, 2017

Repeal (and don't replace) TEFRA 1706

...and every other law that subjugates American entrepreneurs under bureaucrats.

With the election of Donald Trump and Republican majorities in the House and Senate, we have an unprecedented opportunity to roll back the worst economy-killing laws and regulations of the Obama and Bush eras. Obamacare, Dodd-Frank, and the Keystone pipeline top the list, but there are dozens if not hundreds more that no one outside specific industry niches has even heard of, which cumulatively are equally if not more destructive. Congress and the president need to take an axe to all of them.

Read the complete article at:

For a more in-depth discussion, here is an excerpt from my book Escape From Berkeley: An EX liberal progressive socialist embraces America (and doesn't apologize) (2016):

H-1B Visa Blues
American high-tech workers have to compete with Indians, whether they are here or in India; Russians, whether they are here or in Russia; Chinese, whether they are here or in China. It is plausible that they are a greater benefit to the U.S. economy working here where they generate additional jobs for Americans. In particular, it seems absurd to kick people out of the country after they have just graduated from one of our prestigious STEM (Science, Technology, Engineering and/or Mathematics) degree programs.

But is the H-1B Visa program the right way to do this?

The H-1B Visa program permits highly educated foreign professionals such as computer programmers and engineers to work in the United States for a limited time period. Ann Coulter has likened this program to indentured servitude because the foreign worker is not at liberty to quit a job he or she doesn’t like without losing the residency permit with it and having to start over from his/her home country. This essentially fosters a lose/lose proposition for both the foreign immigrant worker and the American who is obliged to compete against him/her; the employers have the employees and prospective candidates over a barrel .

Michelle Malkin and John Miano have made a substantive contribution to this discussion with their book Sold Out: How High-Tech Billionaires and Bipartisan Beltway Crapweasels Are Screwing America’s Best and Brightest Workers, singling out the H-1B program and its advocates for criticism and deconstruction.

As an American IT professional myself with a front-row seat to the issues that Malkin and Miano talk about, I could hardly be more receptive to their point of view. Malkin and Miano are 100% correct to point out that there is not now, nor has there ever been, a shortage of qualified native-born American workers and graduates in the STEM fields. And they have done a first-rate job of investigative journalism, exposing corruption, fraud and abuse in the programs.

Yet Malkin and Miano’s analysis and conclusions are not completely satisfactory. There are plenty of factors other than and larger than just immigration or the H-1B program which could be exerting a decisive influence on the outcomes that we agree that we deplore, such as American workers being coerced into training their cheap foreign replacement workers just before being laid off . There are hundreds of regulations that have turned our entire economy into one giant bureaucratic socialist post office, screwing ALL of us, not just techies. But there are no references in the book to Dodd-Frank, Sarbanes-Oxley or TEFRA (about which more below). These are not trivial omissions; to strain for a metaphor, it’s like blaming the speedboat wake for capsizing your sailboat while ignoring the tsunami behind the speedboat, caused by illegal offshore nuclear weapons testing.

America Has No Competitive Advantage in Bureaucratic Governance
Persons interested in what public policies have screwed American high-tech workers should take a hard look at Section 1706 of the Tax Equity and Fairness Reform Act (TEFRA) of 1986 (any time you see the word “fairness” in the title of any legislative project, be afraid; be very afraid). It was this act that put corporations under threat of having their independent contractors reclassified as employees by the IRS, with all the back pay and benefits that that implied, unless they met very stringent multi-point criteria of independence. As a result, corporations cut back severely on engaging cowboys like me and my colleagues unless there was a third-party agency buffer in between (taking a cut of between 10% and 33% of the hourly rate), driving a wedge between the cost to the client and the benefit to the consultant. That, probably more than foreign competition, killed the independent American programmer. Insane geniuses may break through, but mere “A-minus” techies are toast.
This one law has had a devastating impact on this sector of the economy, yet few prominent people have written about it, Steve Forbes (in 1998) being one notable exception:
Congress should repeal a particularly pernicious tax law that was enacted in 1986. The statute makes it unnecessarily difficult for computer programmers to operate as independent contractors because Congress and the IRS felt these contractors have more opportunity to cheat than individuals who are employees of regular businesses. The IRS thus treats these individuals as if they were engaging in tax scams and tries to shut them down. Corporate employers figure it is cheaper in the long run for these freelancers to become full-time employees than it would be to fight the IRS over whether they “qualify” as independent contractors.
Why were programmers singled out over a decade ago for this extreme treatment [my emphasis]? Because in those days they lacked the lobbying clout of doctors and lawyers. Talk about discrimination. This prohibition aimed at high technology should go the way of Prohibition.
In this high-tech age—when computer programmers are in short supply (don’t forget the Year 2000 problem) and when Congress may liberalize immigration laws to lure foreign programmers to our shores—this ban on programmers’ becoming individual entrepreneurs is absurd.
More and more Americans are getting the entrepreneurial itch. Why won’t Congress let them scratch? Operating on their own, many of these programmers would be more productive and inventive. The wealth of the nation would increase—and, as a result, tax receipts would be higher.

New York Times journalist David Cay Johnston nailed it when he wrote in 2010:
The law, known as Section 1706 of the 1986 Tax Reform Act, made it extremely difficult for information technology professionals to work as self-employed individuals, forcing most to become company employees.
Many software engineers and other such professionals say that the law denies them the opportunity to become wealthy entrepreneurs and that it makes it harder to increase and refine their skills, eventually diminishing their income.
Harvey J. Shulman, a Washington lawyer who represented companies that supported the desires of software engineers to be independent contractors, estimated that the law currently affects at least 100,000 such people.
“This law has ruined many people’s lives, hurt the technology industry, and discouraged the creation of small, independent businesses critical to a thriving domestic economy,” Mr. Shulman said in an interview Thursday. “That the law still exists—even after its original sponsors called for its repeal and unbiased studies proved it unfairly targeted a tax-compliant industry—shows just how dysfunctional and unresponsive Democratic and Republican Congresses and our political system have been, even on relatively simple issues.”
The law was sponsored by Senator Daniel Patrick Moynihan, Democrat of New York, as a favor to I.B.M., which wanted a $60 million tax break on its overseas business.

Their dead hands live on.

What terrible economic harm, what gross injustice, what egregious violation of the civil or private property rights of Americans has been remedied by this legislation (or, for that matter, 99% of the 1.5 million pages of the Federal Register)? All it has done is make the market less flexible, less creative and more regimented. Thousands—perhaps millions—of Americans have had their opportunities to become entrepreneurs cut off at the knees by this single law, yet no one seems even to know that it exists.

In other words and more broadly than just one clause buried in a single 30-year-old statute, what is probably more consequential to American high-tech workers—or any other Americans, for that matter—than immigration and the H-1B program, is the unprecedented burdensome and counterproductive regulatory environment under which businesses, especially banks, operate in the United States today.

In a free market, companies compete against each other on the basis of satisfying customers with the highest quality products and services at the lowest cost, which they can only accomplish by the most effective deployment and management of productive and satisfied employees and contractors. Companies that engage in myopic business practices, like hiring two “cheap” workers at $30 per hour only to discover that they are less productive combined than a single “expensive” worker who commands $50 per hour, will be severely punished in the marketplace and go out of business if they don’t change their practices. Put another way, the $50-per-hour worker is the one who provides the lower labor cost to the employer or client if he or she is more than twice as productive as two workers who “only” demand $30 per hour apiece. And multiple studies have demonstrated actual differentials of up to ten times the productivity between seasoned master programmers versus rookie coders. Such a dynamic would tend to reward American technologists who pioneered virtually all of the technologies that we depend upon today and are known for their creative initiative, risk-taking and out-of-the-box thinking.

But in a market where companies are forcibly focused on compliance with government regulatory agencies, such market dynamics and feedback mechanisms diminish to the vanishing point. The autonomy and decision-making authority of smaller organizational units is curtailed in favor of obedience to protocols and pre-established rules and workflows. Decentralized autonomy gets crushed by centralized autocracy . Softer multi-dimensional qualitative distinctions, like English communication skills, personal initiative, cultural affinity with colleagues and customers, willingness to take risks, creativity, etc., get overwhelmed in the management calculus by one-dimensional metrics such as hourly wage rates. Customers, contractors, managers and employees alike all see their range of options shrinking along with their incomes.

If we were to terminate the H-1B program tomorrow without addressing the destructive force of government interference in the market, the worst economic injuries to American high-tech workers—as well as all other American workers—will yet remain. Greater interference in the market by government agencies like the Department of Labor, to scrutinize companies’ hiring decisions and wage rates, will almost certainly do more harm than good. In any case, arguing for more government intervention, as Malkin implicitly does when she says such things as, “The toothless Labor Department has little authority to stop them,” is not a conservative, free-market position .

Freemen Can’t Compete with Slaves, so Maybe We Should Free the Slaves
A counterintuitive improvement to the H-1B program’s corrupting effects might actually be to give visa holders greater freedom than they currently have to quit or change employers without losing their residency status. Workers who have more choices are not as captive to their current employers and therefore exert less downward pressure overall on market wages, salaries and benefits. Giving them greater freedom might even liberate their repressed creative and risk-taking energies, making them more like what Americans pride themselves on being.

Ending indentured servitude in America doesn’t necessarily mean turning foreign workers away.

“Cheap Labor” and “Greed”
“Big business just wants cheap labor,” say some immigration critics. Well, that’s news, isn’t it? Actually, everyone wants cheap labor, at least when they are paying for it, and everyone wants their own labor to be as expensive and in high demand as possible. Indeed, from time immemorial it has been the classical art of the politician to simultaneously promise high milk prices to the dairy farmer (the seller) and low milk prices to everyone else (the buyers), while hoping nobody notices the inherent contradiction.