– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

Republicans and Democrats in Congress, along with President Obama and Treasury Secretary Geithner, have been raking AIG over the coals in hearings and speeches for paying employees bonuses totaling $165 million. But today’s Los Angeles Times reports that the Treasury Department specifically agreed to the bonuses in a 586-page agreement signed on November 25. The deal allows AIG to pay out bonuses for the 2009 year that equal bonuses paid for 2007.

It stands to reason that the contracts to pay bonuses would have been known to Treasury officials a half-year ago, when they reviewed AIG’s financial position before funneling $85 billion into the firm to prevent its collapse. Basic due-diligence scrutiny of the firm’s books would have revealed the contractual obligations to make bonus payments to retain talented staff. What is puzzling is why the administration pretends not to know.

According to documents from AIG, the bonuses are compensation owed to employees under Connecticut law. Under the Connecticut Wage Act, the company said, if the bonuses are not paid, AIG becomes liable for legal costs of employees who try to collect, as well as penalties that could equal twice the bonuses owed. AIG might also leave itself liable to shareholder suits.

Despite the show trial in Congress and the sense of public outrage, it would be unwise for the government to go back on the contracts and sue to recover the money, especially when they agreed to it in November. This could make America resemble Russia, where trumped-up charges are used to prosecute companies that fall out of favor with the ruling elite.

Members of Congress are also discussing emergency legislation to tax away part or all of the bonus. This would set a precedent—corrupting if not unlawful—of using the IRS and the tax code as weapons of the state to go after individuals whom the administration and Congress want to punish. Such sanctions might amount to ex post facto punishment, legislation that makes unlawful behavior that was lawful when it occurred. The Constitution prohibits such legislation. Even President Nixon, who had an enemies list, never dreamed of this.

The wave of public sentiment against the AIG bonuses presents the government with a choice. It can try to run companies that receive bailout funding in a way calculated to win public approval, micromanaging every detail. This is impossible, because the government cannot even manage its own federal agencies efficiently, with episodes of wasted resources surfacing regularly.

Better, the government should get out of the business of rescuing ailing companies. The bailouts have won little support among Americans. In a CBS poll published on March 16, 53 percent of Americans disapprove of the government giving money to banks and financial institutions even as a way to help the economy and only 37 percent approve.

When TARP began in early October, it was supposed to resolve the problems of the financial sector and avert an economic slump. In late September, President Bush warned that if a bailout bill did not pass: “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. “

Even though TARP passed, 28 more banks have failed, the stock market has dropped by almost one-third, and median home prices have declined by 9 percent. It’s natural that Americans have become disillusioned.

The attack on AIG is being used by the administration and Congress to bolster sinking approval ratings and hide the failures to date of the $700 billion TARP and the $787 billion stimulus package, as well as their lavish future spending plans: the $275 billion housing bailout plan, the $634 billion health fund, and higher individual and carbon tax increases. The outrage would be put to better use abandoning bailouts altogether.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

When people think of what to do to help the U.S. economic recovery, admitting more immigrants into America isn’t what usually comes to mind. But a new study by Arlene Holen, an economist and senior fellow with the Technology Policy Institute, could contribute to resolving the current economic crisis.

The study finds that letting in more highly-skilled immigrants would generate more tax revenue, and over time raise labor earnings and national income. (Click here for the study in PDF format.)

Coincidentally, this week the Wall Street Journal reported that bankers are quitting due to onerous conditions imposed by the federal government on banks receiving public funds. Yet the new economic stimulus bill specifically makes it harder for banks to hire foreign workers, thereby limiting the flow of talent to a troubled industry.

If Congress had not imposed a tight lid on green cards, according to Ms. Holen, America in 2008 might have had up to 300,000 more highly educated engineers and graduate students performing path breaking research. They would have added about $23 billion to GDP, and the federal government would have gained about $5 billion more in tax revenues.

Based on Congressional Budget Office estimates, Ms. Holen (who used to be associate director at CBO) said that if comprehensive immigration reform had been enacted in 2007 then GDP would have been $180 billion greater over the next decade, and federal revenues would have been higher by $40 billion.

A similar argument was voiced by Representative Zoe Lofgren, a California Democrat and chair of the House Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law in a speech on March 10. She said that “we need to jump start our growth through immigration.”

Ms. Lofgren explained that the billions of dollars allocated to scientific research in the 2009 economic stimulus bill cannot be effectively spent without more H-1B (temporary) visas for foreign scientists, “because all this spending needs people to do research.”

She said that comprehensive immigration reform, which was rejected by Congress in 2007, can pass this year if President Obama supports it.

To invoke a familiar truism, America’s immigration system is broken. Every year, the U.S. Center for Immigration Services issues only 65,000 H-1B temporary visas for skilled workers out of over 600,000 applications from employers.

A similar backlog exists for permanent residence visas sought by individuals both in America and abroad, with applications often close to ten times the number of “green cards” that may by law be issued. In 2006, more than 12,000 newly-arrived workers received green cards to work in the United States, and 53,000 temporary workers already in America were granted green cards.

For fiscal year 2009, the H-1B visa cap of 65,000 was reached in a few days. This is not to say H-1B visas have always fallen short of demand. During the 1990s, Congress temporarily raised the quota to 195,000, a number that did not exceed demand, but the quota reverted to 65,000 in 2004.

This quota represents a small fraction of the U.S. labor force of 154 million. Even if the quota were raised to 150,000 a year, that would still be less than one tenth of 1% of the labor force, hardly a source of the mass depicted by anti-immigration xenophobes.

By limiting visas, America is hurting itself, because the number and percentage of PhDs in science and engineering awarded to Americans and permanent residents have declined dramatically over the past decade. Fifty-eight percent of PhDs in physics are awarded to foreigners in 2007, compared with 48 percent a decade earlier. Foreigners earn 66 percent of PhDs in computer science and 53 percent of PhDs in chemistry.

Columbia University professor Amar Bhidé has shown in his new book “The Venturesome Economy” that it’s efficient for Americans to get advanced degrees in law and business rather than in science and math if they prefer these fields. However, we need to issue more immigrant visas so that we have enough scientists.

Issuing more green cards and H-1B visas can provide effective economic stimulus—and this can happen at little or no cost to Uncle Sam or working Americans.

You can reach Diana Furchtgott-Roth at dfr@hudson.org.

– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor.  The views expressed are her own. —

Marriage is hard enough without the tax system making it even harder.

Look at Jeanne’s upcoming wedding to Rick.  Rick owns a plumbing firm and has taxable income of $160,000, and Jeanne’s taxable income as a teacher is $50,000.  Unmarried, he is in the 28 percent bracket and she is in the 25 percent bracket.  When they get married, they will be taxed at 33 percent — rising to 36 percent in 2011 if President Obama’s proposed tax hikes take effect.

By raising taxes on upper-income Americans, Congress would worsen our tax system’s marriage penalty on dual-income married couples, and Jeanne and Rick would pay even more tax married than single.

It doesn’t have to be this way.  Men and women could be taxed on their income separately, as is the case in Britain. Since 1990, British married couples have been taxed independently, with deductions and allowances split between them.

It’s a revolutionary idea.  A married woman has her own tax return, with only her income, deductions, and capital gains.  She pays her own tax and has tax refunds returned to her.  If she makes mistakes, she pays her own penalties.

Rather than moving in the direction of Britain to reduce the marriage penalty, the penalty may rise further in 2011.  In President Obama’s new budget for 2010, he outlined plans to allow the top two tax rates to rise from 33 percent to 36 percent and from 35 percent to 39.6 percent in 2011.

Taxes would rise for singles with taxable income over $172,000 and married couples over $209,000.  Even if Jeanne and Rick weren’t immediately affected by higher rates, those rates might well hit them when they earn more.

Unless, of course, Jeanne and Rick decide to have children, and Jeanne left the workforce to care for them.  Say that Jeanne’s taxable income rose to $60,000, so she and Rick had a combined income of $220,000, placing them in President Obama’s new 36 percent bracket.  But with Jeanne at home looking after the children, their federal tax rate would be 28 percent.

Tax systems shouldn’t make it harder for women to work.  The penalty falls most heavily on married women who have invested in education, hoping to shatter glass ceilings and compete with men for managerial jobs, and the Obama plan would exacerbate the penalty.

When mothers take jobs, earnings are reduced by taxes paid at their husbands’ higher rates, in addition to costs for childcare and her transportation. This discourages married women not just from working, but also from striving for promotions, from pursuing upwardly-mobile careers.

Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.

Labor Department data show that as average number of earners per household rise, so do income levels.

One characteristic of the highest-earning one-fifth of households is that they have an average of two earners per household.  The middle fifth averages 1.4 earners per household, and the lowest-earning fifth averages half an earner per household—more part-time and unemployed workers, or retirees.  More married working women, more households in the top fifth of the income distribution. (See BLS Consumer Expenditure survey in pdf format.)

For President Obama to announce that he is raising taxes on those at the top end of the scale adversely affects the married working women who voted for him by a substantial majority.  There has to be a better way.

Diana Furchtgott-Roth can be reached at dfr@hudson.org.

–Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –

Today President Obama submits his budget outline to Congress, and, with it, a $634 billion fund for health care drawn from higher individual and small business taxes and lower reimbursements to medical providers.

Reform of our health care system is long overdue.  If you’re unemployed, or work for a small business that offers no health plan, or someone in your family has an existing illness known as a “pre-existing condition,” your main concern might be how to get health insurance.

As Obama said on Tuesday night in his address to the nation, “We can no longer afford to put health care reform on hold.”  But setting up a $643 billion fund and raising taxes in the middle of a recession isn’t necessarily affordable either.

In testimony yesterday before the Senate Committee on Finance, Congressional Budget Office Director Douglas Elmendorf presented options for controlling health care costs.  He warned that “reducing or slowing spending over the long term would probably require decreasing the pace of adopting new treatments and procedures and limiting the breadth of their application.”  That’s rationing by another name, not a comfortable concept to Americans. (To read the testimony in pdf format, click here.)

Mr. Elmendorf pointed to the current employer-based health insurance system, where health insurance premiums are untaxed income to workers, as one of the main causes of price increases.  He suggested replacing the tax exclusion or restructuring it, so that patients have more incentives to control costs.  In that way the purchase of health insurance would be similar to the purchase of home insurance or auto insurance, services that consumers appear able to purchase without major problems.

President Obama has said he will consider all proposals.  During his campaign, the centerpiece of his health reform effort was to set up a new health insurance plan, similar to the Federal Employees Health Benefits Program. It would be open to all, with “affordable” premiums and co-payments.

In addition, he proposed a new National Health Insurance Exchange to set standards and regulate private insurance underwriters. Those who could not meet the standards would close.

In a third provision, some employers who offer health insurance now would have to pay higher premiums in order to raise benefits to the level of the new public plan.  Those employers who don’t offer health insurance would be required to pay into the new plan, a new tax.

One way President Obama proposes to save health care dollars would be to encourage or require doctors and hospitals to use electronic health records.  Although privacy concerns have stalled this effort, it could save billions of dollars a year in medical error.  The stimulus bill allocates $20 billion to this effort.

Yet setting up an electronic data base raises many questions.  Can people opt out of the national database?   Should the federal government or individual states mandate one type of standard that can be shared between institutions? Can private companies be allowed to compete among themselves to offer the most convenient method to the medical community?  These questions need debate.

Obama plans to fund his $634 billion fund through higher income taxes on those making over $250,000 as well as limiting itemized deductions by 20 percent. This would be a substantial increase in tax for those households, as well as for small businesses who file under the individual tax code.

Yet even these numbers might be understated.  The insurance program for federal employees is of a higher quality and more costly that typical private-sector coverage.  Expanding health insurance and providing better care costs more money, not less.

Everyone agrees that health insurance needs to be easily accessible and portable, like auto and home insurance.  The question facing us is how to get there and how to pay for it.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The views expressed are her own. —

The discovery of the salmonella-tainted peanut butter produced and sold by the Peanut Corporation of America at one of its plants, at Blakely, GA, raises a vital question for all Americans.  Does the Food and Drug Administration have the resources to ensure the safety of America’s domestic and imported food supply?

The Agriculture Department does a good job of inspecting animal-based products such as meat, poultry, and dairy, but the remaining part of the food supply that falls under the jurisdiction of the FDA is a different kettle of fish.  The FDA is failing to oversee adequately its share of food and cannot guarantee the safety of foreign food imports.

Former FDA Deputy Commissioner William Hubbard, now of the Alliance for a Stronger FDA, testified before the Senate Committee on Agriculture earlier this month that the FDA’s responsibilities have grown as its resources have diminished.  In the 1970s the FDA performed 35,000 inspections a year, with 70,000 food processing plants subject to regulation.  Today, the FDA conducts only 7,000 inspections a year, yet the number of plants has grown to 150,000.

Inspection of imported food is worse.  The FDA inspects only a fraction of one percent of the 216,000 foreign facilities exporting food into America.

What can be done?  The FDA could persuade Congress to give it more authority to mandate, money and staff.  Congress has not even granted the FDA permission to block entry of food from foreign firms that refuse to allow overseas inspection by FDA officials. Nor has it allowed the FDA to mandate preventive controls to hinder terrorists, such as locks on tankers carrying juice or trucks parked at rest stops.

If another $500 million were allocated to inspections, then spending on food would once more equal half the FDA’s budget, the same as it was in the 1970s.  American taxpayers and consumers would gain by avoiding illness, thereby increasing productivity at work, school, and home.

Another alternative is to authorize private companies to inspect food, along the lines of Underwriters Laboratories for electrical appliances or kosher certification for food. UL sets standards, tests products, provides certification, and conducts follow-up tests for a wide range of products and services all over the world.

Food producers would apply to be certified by independent organizations, and the FDA could monitor those organizations.  In time, independent firms would develop their own brand recognition with the public for reliable certification of food products.  Rather than inspecting food producers, the FDA would check that the independent organizations were doing a good job.

Such a system is already in place in the form of kosher foods eaten by observant Jews.  Rabbis inspect food production and grant food products the right to display a symbol to say that it is kosher.  The producer pays the rabbinical organization for the inspection, and the price of the food can be higher.

Companies that rely heavily on their brand name, such as McDonald’s and Coca Cola, already do a good job of inspecting their products.  If a rodent’s tail were found in a can of Coke or a McDonald’s hamburger it would do indescribable damage to the brand, and so companies have an incentive to put strong systems in place to preserve quality.

Unfortunately, that was not the case with the Peanut Company of America, which shipped peanut butter under other brand names and as ingredients to other products, such as cookies and crackers.  Although the Virginia-based, family-owned corporation filed for voluntary bankruptcy, it sickened hundreds and may have killed nine people.

Sickness and death are not the way to regulate America’s food supply.  If the government takes on the role of food inspector, it needs to do a better job.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The views expressed are her own. –

This week Treasury Secretary Tim Geithner unveiled a financial stabilization plan that could cost $2 trillion, in addition to the $790 billion that Congress plans to spend on economic stabilization. All this without any consultation with Congress.

That’s financial stability?

The Dow Jones Industrial average fell almost 400 points Tuesday on the news, and the Asian equity markets followed. This steep decline is symptomatic of the unease that permeates financial markets.

It’s not just the amount of money that is troubling. The markets were also distressed by a lack of detail, especially on how to deal with so-called toxic assets - loans with diminished and uncertain value. The previous Treasury secretary, Henry Paulson, proposed to buy toxic assets, then discovered the difficulties of pricing and so switched to purchases of banks’ preferred stock to infuse capital into the banks.

Geithner promised “to consult closely with Congress” as he moved forward, but Congress has not held hearings on implementing the program, even though it would leverage $1 trillion of Federal Reserve funds and close to that in private-sector funds. The public fears that the $2 trillion dollar bank bailout fund would be just throwing good money after bad.

Last October Congress allocated $700 billion to the Troubled Asset Relief Program. But TARP, with roughly half the funding disbursed, has not yet delivered on its promises. Then, on February 10, it was déjà vu all over again. Geithner declared, “Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses.” He didn’t say how long it would take - because no one knows.

The Geithner plan is another version of TARP, but with more bells and whistles. Banks with assets over $100 billion would be subject to an intensive audit, to measure their capabilities. A Public-Private Investment Fund would purchase troubled assets, although how private money is to be mobilized was unclear.

Carnegie Mellon economics professor Allan Meltzer disagrees with Geithner’s approach. He proposes to allow banks access to government funds only if they can first raise an equivalent sum on their own. If not, it’s off to bankruptcy court they must go, with their competitors free to snap up any worthwhile assets at bargain prices.

The idea behind TARP was not new. Similar programs had successfully been put in place in the Asian banking crisis of the late 1990s. A government agency, a so-called “bad bank,” would buy the toxic assets, paying for them with fresh capital so that the banks could continue to function.

By definition, if the government is purchasing distressed assets it is paying more than the “market price,” more than a private buyer would pay.

Geithner might be better off admitting that these assets will have to be purchased by the Treasury at prices higher than market, and then going to Congress and the American people to make his case. He could say that this will be expensive, but will allow banks to clear underperforming assets off their balance sheet, enabling banks to start lending again. With revived credit markets, the economy can grow.

The implicit reason for going beyond Congress is: “Trust us, we know what we are doing.” Yet Geithner undermined that message by stating that all of this is uncharted territory and that mistakes would certainly be made. Neither the message nor the messenger reassures financial markets. Quite the opposite.

Indeed, Geithner and the Administration may have done what the Democratic leaders, Senator Harry Reid and Speaker Nancy Pelosi have consistently failed to do - make Congress appear to be the last best hope for responsible government in Washington.

Diana Furchtgott-Roth, dfr@hudson.org, is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor.

– Diana Furchtgott-Roth, is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The views expressed are her own. –

At the very time that the Senate is debating whether to spend $800 billion or $900 billion to stimulate the economy, the government is considering other legislative and regulatory initiatives that would impede economic recovery.

Growing Protectionism

By inserting protectionist provisions that require some goods financed by the stimulus bill to be made in America, Congress is risking a trade war with important trading partners in Europe and Asia. A trade war would reduce exports, potentially destroying millions of American jobs.

Cutting Defense Spending

Although Congress is trying to revive the economy by expanding domestic spending, the Pentagon is reportedly facing budget cuts next year. But with President Obama promising to deploy more troops to Afghanistan, America needs more defense spending, not less.

America needs to purchase more weapons, ordnance, vehicles, and body armor so that our troops have the best equipment possible. Defense supplies are generally made in America, and production employs Americans with a wide range of skills.

If America increases regular forces by 100,000 and hires 100,000 more civilians to support them, these individuals would acquire useful skills when they leave the Defense Department for the private sector. Their presence would enable the Pentagon to bring home reserve and National Guard troops, some of whom have been deployed for over a year.

Individual Emissions Standards for States

Earlier this week auto companies revealed that sales had reached a 27-year low. Yet, under a new directive from President Obama, states such as California would be able to set their own emissions standards, which will be—you guessed it—stricter than federal law. This would complicate engineering and production, raise costs, and send the industry into an even greater decline.

Since California is America’s largest car market, companies would have to make lighter, more fuel-efficient cars that consumers might not want to purchase. Domestic companies would be particularly hard-hit because they make larger cars. It makes no sense for Congress to bail out Detroit with loans and give tax deductions for purchases of new cars and trucks, while at the same time decimating the market of the Big Three. More red ink for the auto industry, and more layoffs across America.

Employee Free Choice Act

This misnamed bill would change the law to allow workplaces to be unionized without secret ballots. A workplace could be unionized if a majority of workers sign an open card in favor of unionization — a process known as “card check,” exposing workers to union intimidation. This bill passed the House in the 110th Congress and will be soon brought up in this congressional session.

One of the bill’s House sponsors was House Committee on Education and Labor Chairman George Miller. In 2001, he and five colleagues wrote to the state arbitration board of Puebla, Mexico, saying, “we feel that the secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise choose.” If Mexicans deserve a secret ballot, so do Americans.

States where employees do not have to join a union in order to work have lower average unemployment rates than other states, so it would not be surprising if increased unionization would raise unemployment rates.

As well as protectionism, cuts in defense spending, unionization by intimidation, and arbitrary environmental standards, the economic stimulus bill would open the floodgates of deficit spending. The ensuing debt would burden Americans far into the future.

The Democrats, who control both the White House and Congress, should know better. No wonder consumers are scared, financial markets are tumbling, and unemployment continues to rise.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. –

On January 29, the U.S. Senate passed the reauthorization of the State Children’s Health Insurance Program (SCHIP), originally enacted in 1997 as an addition to Medicaid. It would have expired on March 31, potentially leaving over 7 million children without health insurance.

The bill passed 66 votes to 32, with several Republicans joining Democrats to pass the bill. The Republican leadership wanted to expand SCHIP spending by $5 billion over five years, an annual increase of 20 percent. In contrast, congressional Democrats succeeded in increasing SCHIP by $32 to $39 billion over five years, according to estimates by the Congressional Budget Office, almost tripling the program by 2013.

Democrats seek to move the government toward national health insurance that is not a low-income program but would be like national defense—available to everyone, and paid for by the taxpayers, as in Europe and Canada. This is a fundamental philosophical difference.

Since the House of Representatives passed a similar bill on January 14, the two bills will be reconciled in conference. The bills are funded by increasing tobacco taxes (assuming the smokers don’t quit in response to the higher tax). The legislation will then go to President Obama, who indicated that he will sign it, unlike President Bush, who vetoed a similar SCHIP increase as excessive.

Senate Finance Committee Chairman Max Baucus declared, “When President Obama signs this bill, the real victory will belong not to politicians, but to kids. The winners today are the kids who need health care.”

The losers, however, might be the taxpayers. The bills are costly because they would raise income eligibility well into the middle class. Last year, SCHIP covered about 7 million low-income children and Medicaid covered an additional 23 million. The proposed bills would add another 6.5 million children to the SCHIP and Medicaid—and, according to Census Bureau data, 42 million children would be eligible.

In addition, the bill allows states to receive federal reimbursement for adding more immigrant children and pregnant immigrant mothers, and drops the five-year waiting-period now required for legal immigrants to be eligible for the programs. This would enable immigrants to come to the United States and qualify for benefits on day one.

The bills would raise family income ceilings for states to qualify for Federal reimbursement. The present limit is 200 percent of the poverty line, or $44,000 for a family of 4 (although individual states can and do fund higher levels without the Federal share). The new bills raise the Medicaid limit to 300 percent, or $66,000. An exception for New York will include families at 400 percent, or $88,000.

According to the Senate Minority Leader, Kentucky’s Mitch McConnell, “It’s grossly unfair that a family in Kentucky making $40,000 must pay for the health insurance of a family making double that — especially if the Kentuckian can’t afford it for his own family.”

The median U.S. household income is $50,000. Sixty percent of American households earn less than $62,000. By raising government insurance eligibility to embrace three fifths of households, Congress will change government-provided health care from a low-income to a middle-income program—even as middle-income households pay lower taxes under the pending economic stimulus plan. The fiscal consequences of this new entitlement will be felt far into the future.

The SCHIP bill prefigures crucial health-care questions for Americans of all ages in the next few years: Who should be insured under federal plans, and who under private plans? Do the American people want increased nationalization of health-care financing, as they have seen increasing nationalization of the banks?

The answer to these questions will determine the shape of American health care for years to come.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –

President Obama takes office facing the challenge of high expectations—of ending the recession, fixing the nation’s financial and housing problems, and withdrawing combat troops from Iraq within 16 months.

In addition, feminists expect him to end inequality in pay between men and women.

To this end the Senate will consider two bills, both passed by the House in early January, the Paycheck Fairness Act and the Lilly Ledbetter Fair Pay Act.  Their stated purpose is to reduce alleged discrimination against working women by making it easier for them to sue their employers.

If passed by the Senate, they will be sent to President Obama, who has said that he would sign them.  But whether these bills would actually help women to get hired and to advance in the workforce is dubious.

They would increase the risks and costs of hiring women, making it more likely that men rather than women would be hired.

The Paycheck Fairness Act would allow women to sue for unlimited compensatory and punitive damages under the 1963 Equal Pay Act. Current law does not allow for punitive damages.

Also, it would encourage class actions by requiring workers who do not want to participate to opt out, rather than opt in, a radical change from conventional law and practice.  Employers would have to collect data on the race, sex, and wage of all workers and give it to the Equal Employment Opportunity Commission.

The Lilly Ledbetter Fair Pay Act would overturn a 2007 Supreme Court decision, Ledbetter v. Goodyear Tire.

The Court upheld an Eleventh Circuit [Court] decision that Title VII of the Civil Rights Act of 1964 requires suits to be filed within 180 days (300 in some states)  of an alleged “discriminatory pay decision.”  Under Title VII “discriminatory pay decisions” mean employers’ decisions about pay made with discriminatory intent.

However, feminists say that women should be able to sue for discrimination beyond 180 days of receiving a paycheck—any paycheck, not just the first—because it can take longer than 180 days for employees to ascertain whether discrimination is occurring.

Under the Equal Pay Act, women can sue within two or three years of receiving allegedly discriminatory pay, because the Act does not require “discriminatory intent” for redress, just discrimination. Women have to show only that they are paid less than men for doing the same work.

Sponsors of the bills predict that they will raise women’s pay. On January 8, Senator Hillary Clinton, the sponsor of the Paycheck Fairness Act, declared: ” It is disgraceful that four decades after the Equal Pay Act was signed into law, women in this country still earn only 78 cents on the dollar. The Paycheck Fairness Act is an attempt to right this historic wrong and I am proud to reintroduce it today.”

That 78 percent figure is bogus because women’s and men’s occupations and hours of work differ. Comparing women and men who work 40 hours weekly yields a wage ratio of 87 percent — before accounting for different education, jobs, or experience, which brings the ratio closer to 95 percent (click here for Dept. of Labor’s full report). Percentages of 87 percent and 95 percent are less dramatic — and less likely to persuade Congress of the need for new laws.

America leads the world in job creation, and almost 60 percent of women work. Even in the current recession, the unemployment rate for adult women, at 5.9 percent, is lower than that for adult men, at 7.2 percent.

Women are closing the pay gap because their education is increasing. They earn well over half of all B.A.s and M.A.s, and half of professional degrees in law and medicine.

Lower pay can reflect individuals’ choices—by men and women–about field of study, occupation, and time in the workforce.  Those who don’t finish high school earn less.  College graduates who major in humanities rather sciences have lower incomes, and more women than men choose humanities majors.  Until these choices change, women’s incomes won’t rise, no matter how many bills are signed into law.

Rather than helping women, these bills would hurt both women and men by increasing the costs of hiring and reducing job creation in the midst of a recession. President Obama may well sign these bills, but the consequences won’t meet expectations.

For previous columns by Diana Furchtgott-Roth, click here.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. Any views expressed are her own. —

As President-elect Obama and his chief performance officer Nancy Killefer, formerly of McKinsey & Co., ponder how to make government more efficient, they could cast an eye on almost any federal agency and find savings for the American taxpayer.

One example is the Federal Communications Commission, which is failing to earn hundreds of millions of dollars annually for the taxpayers by undercharging for the private use of parts of the radio spectrum, notably the frequencies used for the links between cell phone towers and the integrated telephone network.

Congress and the incoming president are thinking of spending billions of dollars on economic stimulus, so saving a few hundred million may not sound like much.  But, to paraphrase the late Illinois Republican Senator Everett Dirksen, a few hundred million here and a few hundred million there and pretty soon you’re talking about real money.

The FCC makes money by leasing without competitive bidding high-frequency bands of the electromagnetic spectrum. Had the FCC auctioned off this spectrum to the highest bidders beginning over a decade ago, it would have generated hundreds of millions of dollars a year for the Treasury.  Instead, the FCC chose to lease individual parts of these bands, known in the industry as “links.”

The FCC may have had a noble purpose in trying to develop the spectrum, but this is no longer necessary. Many large companies who paid millions of dollars when the FCC did hold auctions on other bands of spectrum then leased some of their spectrum to third parties profitably at market-rate prices.

Leasing high-frequency spectrum non competitively rather than auctioning it does not have to be costly to taxpayers, because the agency can charge market rates.  However, the FCC has always priced the leases far below market rates.

For a point-to-point fixed wireless link, such as between a cell phone tower and a central telephone switching office, the FCC charges a one-time fee of $1,290 for a term of ten years.  That is absurdly low. The market rate varies, but in some instances even in today’s recessionary climate it is $200 a month in a mid-size market (Las Vegas and Denver are examples), and $250 or $300 a month for major markets (New York and Chicago).  Hence, at a minimum the FCC should increase by 20-fold its one-time charge for a 10-year link.

Beneficiaries include Sprint, AT&T, and Verizon.  These and many other companies are building their networks with subsidies from the American taxpayer because they are paying pennies for valuable infrastructure.

Such pricing could be remedied immediately, without legislation. The best solution would be to auction off either all of the spectrum in the high-frequency bands or the links.  But if the FCC cannot organize an auction because some 10-year leases on parts of the spectrum have already been issued, at least it should raise its pricing to the range of $24,000 a link for a 10-year period, or $12,000 a link for a five- year term.

Since there are now over 60,000 active links and new links are growing by almost 18,000 a year, the increased annual revenue realized by the government would likely be in hundreds of millions of dollars.

Congress and the new administration are focusing on broadband deployment as part of its new infrastructure stimulus package, but broadband deployment should not be based on undervaluation of government spectrum.

The Obama team is looking for money to save as well as for money to spend.  Memo to Killefer, the new efficiency czar: Charging full price for spectrum is one place to start.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.