Trump Administration Should Address Federal Policies That Limit Opportunity And Hurt Poor – Analysis

By Daren Bakst and Patrick Tyrrell*

There is a simple way to promote economic opportunity that helps the poor without using any taxpayer money: The federal government can eliminate numerous misguided policies. Policymakers too often think that big government is the only solution to creating opportunity and reducing poverty. They fail to ask how government might itself be the problem.

This Backgrounder answers that question and focuses on federal policies that hurt the poor,1 with an emphasis on economic regulation. The policies identified are merely the tip of the iceberg. An interagency task force is needed to identify and eliminate policies throughout the federal government that are making it more difficult to achieve the American dream.

Policies that Limit Opportunity and Hurt the Poor

Heritage Foundation scholars identified many harmful policies at the federal, state, and local levels in a recent Special Report.2 (See the appendix for the full list). There are two recurring themes to these policies, including the federal policies. First, they limit the opportunities for poor and other Americans to secure jobs or otherwise advance their economic status. Second, they drive up consumer prices for goods and services that meet basic needs, which has a disproportionate impact on lower-income households. As shown in Chart 1, low-income households spend a greater share of their after-tax income than higher-income households on meeting basic needs, such as food and electricity.A special interagency task force could evaluate, and consider ending, the following federal policies—and other similarly harmful ones:

  • Climate Change Regulations. The Obama Administration issued a wide range of climate change regulations that would drive up electricity prices. Based on a Heritage Foundation analysis, electricity expenditures could increase between 13 percent and 20 percent, hitting America’s poorest households hardest.3 These significant costs would be imposed despite the climate return on these regulations, if any, being negligible.4
  • Energy Efficiency Regulations for Appliances. The Department of Energy imposes energy efficiency regulations on over 60 different household appliances, from showerheads to toilets.5 The higher up-front costs and reduced choices that result from such regulations can have a significant impact on the poor.6
  • Fuel Efficiency Mandates and Tier 3 Gas Regulations. As required by Congress, the U.S. Department of Transportation and the Environmental Protection Agency (EPA) recently finalized new fuel-efficiency standards for cars and light-duty trucks (Corporate Average Fuel Economy, or CAFE, standards) that will require an average fuel economy of 54.5 miles per gallon (mpg) for 2025 model-year vehicles that will drive up prices for new vehicles.7 If the agencies involved eliminated future targets, people who buy new cars could save up to $3,400 for model year 2025.8 The EPA also set new standards on gasoline (Tier 3 gasoline standards) in order to lower sulfur and other tailpipe emissions from gasoline starting in 2017, with smaller companies required to comply by 2020.9 Industry estimates that the new gas standard could raise the cost of formulating gasoline by six cents to nine cents per gallon.10
  • Stricter Ozone Standards. The EPA again tightened the ozone standard on ground-level ozone in 2015,11 even though states have had insufficient time to implement the strict 2008 standard. Further, the national average ground-level ozone levels have fallen 32 percent since 1980.12 The ozone standard has become increasingly controversial as it has become more expensive to meet tighter standards with smaller margins of tangible benefits.
  • Renewable Fuel Standard (RFS). The RFS mandate that requires renewable fuels to be mixed into America’s gasoline supply has led to higher food and fuel prices. According to separate analyses by University of California–Davis economists and a Heritage Foundation economist, the mandate accounts for an increase in corn prices of 30 percent, or even as much as 68 percent, respectively.13
  • Tennessee Valley Authority (TVA). Counter to its original purpose of providing affordable electricity to an economically depressed region, the TVA does not sell the cheapest electricity in the region, and in recent history has had some of the highest rates in the Tennessee Valley.
  • Federal Sugar Program. As a result of government attempts to limit the supply of sugar, the price of American sugar is consistently higher than world prices: Domestic prices have been as high as double that of world prices.14 This policy may benefit the small number of sugar growers and harvesters, but it does so at the expense of sugar-using industries15  and consumers.16
  • Fruit and Vegetable Marketing Orders. Marketing orders are ostensibly aimed at helping to provide stable markets for certain commodities.17 The most egregious problem with marketing orders18 is the volume controls. These controls allow representatives from a specific industry to intentionally limit the supply of commodities, thereby driving up food prices and disproportionately harming the poor.19
  • U.S. Department of Agriculture’s (USDA) Catfish Inspection Program. While the Food and Drug Administration is generally charged with inspecting seafood for safety, a special exception was created in the 2008 farm bill to have the U.S. Department of Agriculture inspect catfish.20 This special exception will likely reduce competition for domestic catfish producers. Foreign exporters will be blocked from selling catfish in the U.S. unless their countries develop new and unwarranted regulatory inspection schemes. This policy is a textbook example of cronyism and trade protectionism in order to help a very small interest group (domestic catfish producers) at the expense of everyone else, including the poor.21
  • Import Restraints on Food and Clothing. A 2013 report by the International Trade Commission estimated annual welfare benefits from liberalization of import restraints for various sectors, including food. Between 2012 and 2017, liberalization of import restraints would benefit U.S. consumers annually by an average of $50 million for cheese, $277 million for sugar, and $8 million for tuna.22
  • The Merchant Marine Act of 1920 (Jones Act). The Jones Act requires the use of domestically built ships when transporting goods between U.S. ports. The law drives up shipping costs, increases energy costs, stifles competition, and hampers innovation in the U.S. shipping industry.23 It costs about $2 per barrel to ship crude oil from the Gulf of Mexico to Canada, but due to the Jones Act it costs between $5 and $6 to ship it to the U.S. East Coast.24
  • Smart Growth. This anti-development urban planning philosophy drives up housing prices.25 “Smart growth” plays a significant role in agencies, such as the EPA26 and the U.S. Department of Transportation,27 which have been leading drivers of these policies that are so harmful to the poor.
  • Payday Lender Rules from the Consumer Financial Protection Bureau (CFPB). The proposed payday lending rule is written in a manner that will likely force many lenders to stop offering these small-dollar loans. By the CFPB’s own admission, these rules could effectively destroy the payday lending industry, eliminating up to 85 percent of the loans currently made.28 More than 12 million people per year use short-term loans, and the majority are those who have emergency credit needs and lack other forms of credit.29

Recommendation: The Trump Administration Should Create an Interagency Task Force

On April 25, 2017, President Trump issued an executive order30 creating an interagency task force to promote agriculture and rural prosperity. The President should issue a similar executive order creating an interagency task force to identify and eliminate federal policies that limit opportunity for all Americans, including the poor.

A leading economic official in the Administration, such as the Chairman of the Council of Economic Advisers,31 should lead the task force. The task force, through a public comment process, should develop a comprehensive report that lists policies for elimination that would be submitted to the President and widely disseminated to the public, congressional leadership, and relevant committees. While the report should focus on federal policies, the task force should identify harmful state and local policies that the federal government perpetuates through federal funding. The report should also identify which policies could be eliminated by the Administration on its own, and which changes would require legislation.

Conclusion

President Trump can help lead the nation to an era in which federal policies become less harmful to those who want to advance their lives and the lives of their families. This leadership could help to transform the lives of the poor, in particular, by allowing them to have the necessary freedom to improve their lives without the government standing in their way.

*About the authors:
Daren Bakst is Research Fellow in Agricultural Policy, and Patrick Tyrrell is Research Coordinator, in the Center for Free Markets and Regulatory Reform, of the Institute for Economic Freedom, at The Heritage Foundation.

Source:
This article was published by The Heritage Foundation

Notes:

[1] This Backgrounder does not address the harms caused by the distorted incentives of the current welfare system, which discourages work and self-sufficiency, nor cover some critical areas, such as education and health care policy.

[2] Daren Bakst and Patrick Tyrrell, eds., “Big Government Policies that Hurt the Poor and How to Address Them,” Heritage Foundation Special Report No. 176, April 5, 2017, http://www.heritage.org/sites/default/files/2017-04/SR176.pdf.

[3] Kevin D. Dayaratna, Nicolas D. Loris, and David W. Kreutzer, “Consequences of Paris Protocol: Devastating Economic Costs, Essentially Zero Environmental Benefits,” Heritage Foundation Backgrounder No. 3080, April 13, 2016, http://www.heritage.org/environment/report/consequences-paris-protocol-devastating-economic-costs-essentially-zero.

[4] David W. Kreutzer et al., “The State of Climate Science: No Justification for Extreme Policies,” Heritage Foundation Backgrounder No. 3119, April 22, 2016, http://www.heritage.org/research/reports/2016/04/the-state-of-climate-science-no-justification-for-extreme-policies.

[5] U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, “Appliance and Equipment Standards Program,” http://energy.gov/eere/buildings/appliance-and-equipment-standards-program (accessed June 19, 2017).

[6] According to Bureau of Labor Statistics survey data for 2015, the lowest-income households expend 1.15 percent of their annual after-tax income on major appliances, compared to just 0.33 percent for the highest-income households. (See sources listed in Chart 1.)

[7] News release, “Obama Administration Finalizes Historic 54.5 MPG Fuel Efficiency Standards,” The White House, August 28, 2012, https://www.whitehouse.gov/the-press-office/2012/08/28/obama-administration-finalizes-historic-545-mpg-fuel-efficiency-standard (accessed June 19, 2017).

[8] Salim Furth and David W. Kreutzer, “Fuel Economy Standards Are a Costly Mistake,” Heritage Foundation Backgrounder No. 3096, March 24, 2016, http://www.heritage.org/research/reports/2016/03/fuel-economy-standards-are-a-costly-mistake.

[9] News release, “EPA Sets Cleaner Fuel and Car Standards, Slashing Air Pollution and Providing Health Benefits to Thousands,” United States Environmental Protection Agency, March 3, 2014, https://archive.epa.gov/epapages/newsroom_archive/newsreleases/ce8984957ffefa6a85257c90004fe802.html (accessed June 19, 2017).

[10] Jessica Coomes, “EPA Tier 3 Rule Cuts Sulfur in Gasoline, Strengthens Vehicle Emissions Standards,” Bloomberg BNA, March 4, 2014, https://www.bna.com/epa-tier-rule-n17179882576/ (accessed June 19, 2017).

[11] The EPA tightened the standard to 70 parts per billion from the existing standard of 75 parts per billion.

[12] U.S. Environmental Protection Agency, “Ozone Trends,” https://www.epa.gov/air-trends/ozone-trends (accessed June 19, 2017).

[13] Colin A. Carter and K. Aleks Schaefer, “U.S. Biofuels Policy, Global Food Prices, and International Trade Obligations,” American Enterprise Institute Economic Perspectives, May 2015, https://www.aei.org/wp-content/uploads/2015/05/US-biofuels-policy.pdf (accessed June 19, 2017); and David W. Kreutzer, “The Renewable Fuel Standard, Ethanol Use, and Corn Prices,” Heritage Foundation Backgrounder No. 2727, September 17, 2012, http://www.heritage.org/research/reports/2012/09/the-renewable-fuel-standard-ethanol-use-and-corn-prices.

[14] Agralytica, “Economic Effects of the Sugar Program Since the 2008 Farm Bill & Policy Implications for the 2013 Farm Bill,” June 23, 2013, http://sugarreform.org/wp-content/uploads/2013/06/AgralyticaEconomicEffectsPaperJune2013.pdf (accessed June 19, 2017).

[15] International Trade Administration, “Employment Changes in U.S. Food Manufacturing: The Impact of Sugar Prices,” February 2006, http://www.ita.doc.gov/media/Publications/abstract/sugar2006desc.html (accessed June 19, 2017).

[16] Agralytica, “Economic Effects of the Sugar Program.” See also John C. Beghin and Amani Eloibeid, “The Impact of the U.S. Sugar Program Redux,” Iowa State University Center for Agricultural and Rural Development, May 2013, http://www.card.iastate.edu/products/publications/synopsis/?p=1183 (accessed June 19, 2017).

[17] Agriculture Marketing Service, “Marketing Orders and Agreements,” http://www.ams.usda.gov/rules-regulations/moa (accessed June 19, 2017).

[18] Ibid.

[19] Daren Bakst, “The Federal Government Should Stop Limiting the Sale of Certain Fruits and Vegetables,” Heritage Foundation Issue Brief No. 4466, September 29, 2015, http://www.heritage.org/agriculture/report/the-federal-government-should-stop-limiting-the-sale-certain-fruits-and.

[20] Food, Conservation, and Energy Act of 2008, Public Law 110–246, § 11016.

[21] For helpful information on the USDA catfish inspection program, see the Energy and Commerce Committee, Subcommittee Health, 114th Congress, “Waste and Duplication in the USDA Catfish Inspection Program,” December 7, 2016, https://energycommerce.house.gov/hearings-and-votes/hearings/waste-and-duplication-usda-catfish-inspection-program (accessed June 19, 2017).

[22] United International Trade Commission, “The Economic Effects of Significant U.S. Import Restraints,” Publication 4440 (December 2013), p. viii, Table ES.1, https://www.usitc.gov/publications/332/pub4440.pdf (accessed June 19, 2017).

[23] Brian Slattery, Bryan Riley, and Nicolas D. Loris, “Sink the Jones Act: Restoring America’s Competitive Advantage in Maritime-Related Industries,” Heritage Foundation Backgrounder No. 2886, May 22, 2014, http://www.heritage.org/research/reports/2014/05/sink-the-jones-act-restoring-americas-competitive-advantage-in-maritime-related-industries.

[24] Matthew Philips, “U.S. Law Restricting Foreign Ships Leads to Higher Gas Prices,” Bloomberg, December 16, 2013, https://www.bloomberg.com/news/articles/2013-12-12/u-dot-s-dot-law-restricting-foreign-ships-leads-to-higher-gas-prices (accessed June 19, 2017).

[25] See, for instance, Randal O’Toole, “The Planning Penalty: How Smart Growth Makes Housing Unaffordable,” Independent Institute, June 12, 2006, http://www.independent.org/publications/article.asp?id=1746 (accessed June 19, 2017); and Randal O’Toole, The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future (Washington, DC: Cato Institute, 2007), p. 122. See also Laura Kusisto, “What if Urban Sprawl Is the Only Realistic Way to Create Affordable Cities?” The Wall Street Journal, September 14, 2016, http://blogs.wsj.com/economics/2016/09/14/what-if-urban-sprawl-is-the-only-realistic-way-to-create-affordable-cities/ (accessed June 19, 2017).
[26] See, for instance, U.S. Environmental Protection Agency, “Smart Growth,” https://www.epa.gov/smartgrowth (accessed June 19, 2017).
[27] See, for instance, Federal Transit Administration, “Transit-Oriented Development,” https://www.transit.dot.gov/TOD (accessed June 19, 2017).
[28] Norbert J. Michel, “CFPB’s Payday Lender Rules: Markets Exploit, Government Saves,” Forbes, June 14, 2016, http://www.forbes.com/sites/norbertmichel/2016/06/14/cfpbs-small-lender-rules-markets-exploit-government-saves/#996042c4602a (accessed June 19, 2017).
[29]Norbert J. Michel, “Government: We Must Destroy Payday Lenders Because Americans Are Stupid,” The Daily Signal, October 9, 2015, http://dailysignal.com/2015/10/09/government-destroy-payday-lenders/?ac=1 (accessed June 27, 2017). See also Norbert J. Michel, “Google Joins the Ranks of the Condescending,” Forbes, May 12, 2016, http://www.forbes.com/sites/norbertmichel/2016/05/12/google-joins-the-ranks-of-the-condescending/#b8f4745c8207 (accessed June 19, 2017).
[30] The White House, “Presidential Executive Order on Promoting Agriculture and Rural Prosperity in America,” April 25, 2017, https://www.whitehouse.gov/the-press-office/2017/04/25/presidential-executive-order-promoting-agriculture-and-rural-prosperity (accessed June 19, 2017).
[31] Council of Economic Advisors, “About CEA,” https://www.whitehouse.gov/cea/about (accessed June 27, 2017). 


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Founded in 1973, The Heritage Foundation is a research and educational institution—a think tank—whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

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