Mandatory Liability Insurance for Gun Owners

MANDATORY LIABILITY INSURANCE FOR GUN OWNERS

The debate over the right to possess a firearm has been waged at varying levels of intensity for years. Recently, the U.S. Supreme Court “discovered” in the 2nd Amendment to the U.S. Constitution an individual’s right to own a gun — choosing to ignore words like “a well-regulated militia” in defiance of basic rules of constitutional/statutory interpretation.

If the Court were really interested in the Founding Founders’ original intent, they would have ruled that U.S. citizens could have muskets and flint-lock pistols.  The legal door being closed requires other approaches to various aspects of gun control — specifically, the consequence of violence in our society.

Mandatory liability insurance for every firearm would shift the discussion from the right to own a gun to accountability for the harm ensuing from that ownership. Insurance would allocate to gun owners the economic harm resulting from the use of personal property they elected to own.  While no guarantee against the harm itself, the financial risks well may trigger heightened caution with respect to the trading in and use of guns. A reduced potential for random acts of gun violence may be the additional benefit.

Car insurance is the apposite analogy. According to the Property Casualty Insurers Association of America, automobile insurance is mandatory in 47 states.  The right of states to have such a requirement is not challenged.  A similar requirement for gun insurance, preferably at the federal level for purposes of uniformity in law and enforcement, is no less legitimate.

Although specific figures are hard to come by, the consensus is that the medical costs resulting from gun injuries exceed $100 billion annually. Even a portion of such a staggering figure justifies a change in the status quo. The human cost is, of course, incalculable.

Gun buyers could be required to obtain, say, $1 million of coverage for harm suffered by persons not engaged in the commission of a crime who are injured as the result of a discharge — accidental or intentional —- of the owner’s firearm.

Victims of gun violence would have the right to sue gun owners for their negligence (if the owner pulled the trigger) or negligent entrustment (if the owner lent the gun to the shooter or the gun was stolen).  In all instances except legitimate self-defense, and consistent with long-standing doctrine, strict liability should be the legal standard given that firearms are inherently dangerous.

Legislation will have to address the fact that a very large share of gun violence is committed with firearms that are stolen or otherwise illegally obtained.  The requirement that owners take measures necessary to prevent the theft or unlawful use of their guns is imperative, but will not fully solve the problem of violence committed with stolen weapons. The scope of liability might be lessened if a gun owner reported the theft of his firearm.

As state motor vehicle bureaus have done for decades with cars, the Bureau for Tobacco, Alcohol and Firearms could create and maintain a database with the names and addresses of the insureds and their insurers, an inventory of guns (by serial number and type) listed by owner, and the insurance policy expiration dates.

Insurers would have to notify the authorities about expired policies that were not renewed. Access to this information would be limited to law enforcement officials, gun sellers, and individuals harmed by guns.

As with car insurance, a certificate of insurance would verify a gun owner’s compliance with the law. Failure to obtain and maintain coverage would lead,  in the first instance, to a fine. A substantially larger fine and suspension of the right to own guns would punish a second offense. Any subsequent failure to comply would result in the loss of the right to own a gun and, possibly, jail time.

Similarly, a buyer would be required to confirm to the gun seller that insurance was being procured. As with a car purchase, the gun seller and insurer would work together to generate the requisite proof. Sellers supplying guns to buyers without insurance would be subject to a suspension (e.g., six months) of their license to sell guns. An additional sanction might be jail time for the seller’s employee (and if appropriate, the employee’s superior) who allowed an uninsured buyer to purchase a gun.

This regulatory regime has several benefits. First, the insurance premiums paid would generate a pool of funds to compensate the injured, including police officers, crime victims, and children hurt playing with guns. These funds could help alleviate the devastating financial consequences to victims who lack health, disability, or life insurance and face astronomical hospital, rehabilitation, and long-term care costs. They also would address the problem of gun owners who, if held liable, do not have sufficient assets to compensate the victim.

Second, such a system would result in a fairer allocation of the economic burden of gun injuries, which today is overwhelmingly imposed on taxpayers. Liability insurance would shift the burden, now borne disproportionately by the public, to the people with some degree of culpability for those injuries.

Third, mandatory insurance would inspire gun owners to exercise greater care over the use and storage of their guns. In addition to locked cabinets and separate secured storage for ammunition, insurers would demand prompt reporting of missing or stolen guns. A gun owner’s knowledge that his failure to exercise due care might negate coverage and expose him to civil liability should make him especially vigilant about his firearms. It stands to reason that, if guns become harder to steal, gun violence will drop.

Fourth, requiring insurance might result in fewer guns being sold and fewer opportunities to wreak havoc. Insurance premiums presumably would reflect the number (and caliber) of guns owned, as well as the owner’s prior gun safety record.

And fifth, a mandatory insurance program probably would make coverage unaffordable for certain high-risk individuals, such as those with criminal records, the mentally ill or histories of lax storage habits. The advantage of this approach is that the market, not government fiat, would prevent these individuals from owning guns.

Initially, insurers are likely to resist mandatory gun coverage given the lack of data with which to determine premiums.   Insurance companies will overcome this problem through trial and error, making adjustments in the cost of their policies until they are able to earn a reasonable profit.

Gun liability insurance will not, in and of itself, prevent criminal or reckless behavior, but it will more accurately and equitably allocate its costs. The potential for reducing crime would be an additional salutary benefit.  It also would shift the entire gun-control argument from fruitless Second Amendment debates to something more practical, something that will benefit gun owners and the public alike.

The recent killings at universities and high schools in the U.S. (yes and Canada), suggest that this is an area of public policy relating to safety and economic consequences, rather than an abstract principle that is so controversial.

Higher Education & the Financial Crisis

It is indeed frightening to think about the long-term implications of the current financial crisis will have on education and the country’s long-term future.

As unemployment increases, home values, and the jobs that people feel compelled to take will result in a reduction in revenue for most states.  President Obama’s stimulus plan helps a bit, but the problem is huge.

Traditionally, public schools are financed by local real estate taxes.  Of course, this introduces inequities in the cost spent per student in the public system.  This is not a topic I will address here.  But it is worth noting that state governments are generally not in a position to help with the shortfalls.  Many localities are increasing the rates at which real estate is taxed as a way of offsetting the decline in housing prices — often placing homeowners in the same place as  before the financial crisis.

I have always believed that it is improper to increase property tax based on recent home sales (as we are not taxed on the values of our 401-Ks and retirement accounts).  Instead, people should be taxed only according to the price they paid for their homes and states and localities should tax new home sales through transfer, recordation and other methods of taxation.  A large percentage of the U.S. population cannot afford the homes they bought before.  There is another aspect to financing education through property tax — it may give an unfair benefit to renters.  Instead, school taxes should be generated on a progressive state-wide income tax.  It may not be popular, but it is more equitable and the education of the nation’s children is a high priority.

With the decline in individuals’ portfolios (either due to falling values or the need to tap into them for current expenses) along with the disappearance of pensions, MANY people are discovering they lack the funds necessary to finance their children’s higher education, help their elderly parents who savings are now proving inadequate,  and save for their own retirement.

Furthermore, most institutions of higher education have seen a decline in the value of their endowments along with a decline in giving by their alumni.  This cannot help to have a harmful impact on the quality of education they can provide.  It also may force them to de-emphasize merit and take students who can afford to pay most if not all of their educational expenses.  Thus, student bodies will consist of the wealthy, those who are able to obtain student loans (which is becoming increasingly difficult), and a decreasing number of scholarship/work study students based on need.  The role of merit in likely to be reduced.

I have a proposal to help deal with this situations.  It is of a general nature as I am not an economist or finance expert, but the premise is sound.  The government should be willing to loan to undergraduate and graduate students the funds needed to pay for their TUITION in exchange for their students agreeing to pay a higher percentage of their future income in taxes.  Thus, with doctors and MBAs the government is likely to benefit from such a program — persons willing to going into less remunerative professions would pay less in absolute amounts, of course.

Other issues should be considered.  Private schools will find fewer students able and willing to attend them.  State schools and community colleges will become increasingly competitive.  Again, there will be pressure to finance the costs of educating these students.  Some state schools may choose to charge higher tuition to out of state or out of county students.  This is understandable.  At the same time, one would have to wonder about whether it is constitutional and whether students will be required to graduate from an “in-state” high school to qualify for a state-sponsored institution or merely live within the state for a given period of time.  This may give rise to problems with existing state/local statutes.

This country can probably get by with fewer artists and lawyers.  It certainly cannot with fewer doctors, engineers, nurses, persons with traditional skills such as electricians, plumbers, etc.).  This situation might ordinarily make persons want to explore immigration policy changes.  Unfortunately, this may not be politically feasible.

An education is human infrastructure on which this country’s future depends.  Do we have the creativity to develop plans that will not fall victim to special interests and the unwillingness of politicians to discuss new programs?  These same politicians are the first to brag about the role of financing putting additional policemen on the street — yet they are more reluctant to call for increased personnel for the Customs Service, Internal Revenue Service, and Securities and Exchange Commission, and others who combat economic crime in financial makers.  One would have to wonder who will defend making economic crime easier.  One might think these would be popular sources of revenue.

Without new education programs and a viable plan to finance them, the present financial crisis will have a long legacy from which it will take decades to recover from.

All Politics Are . . . .

The late Speaker of the U.S. House of Representatives Thomas “Tip” O’Neil is most remembers for his observation that “all politics are local.”  It would be absurd to provide a national weather report.

Nationalism and ethnocentrism are facts of life.  That is why U.S. citizens refer to themselves as Americans (at times to the chagrin of Canadians and Argentines).  The concept of “hyphenated Americans” is becoming an anachronism with respect to second and third generations.  Of course, it is entirely appropriate to refer to Louisiana Governor Bobby Jindal as an “Indian-American” and President Obama as an “African-American” because at least one of their parents is an immigrant.

Americans have always had a problem distinguishing between nationality and citizenship — which may be a positive phenomenon.  Still, even though our President had an African father and a white American mother, the press feels that it is appropriate to describe him as a “Black American” as opposed to a mixed race individual.  A focus on individuals would be preferable, but the human tendency is to view people within the context of groups — for example by religion or region of the country.

It seemed as if the Europeans were ahead of us in this area.  With the formation of the European Community, tariff free trade, no need for entry visas for citizens of member states and the adoption of the Euro by most of its members, the “European Man” had emerged.

This appears to be a misconception or idealism over reality.  Few French nationals living in Lyon would describe themselves as “Europeans” but as Frenchmen (or if they have parents having different citizens, they might refer to that fact).  When will Indians or Jamaicans living in London simply be described as British?  Probably not in the near future.

When the Euro was first unveiled, I predicted that it would not last more than 15 years (and the British have not given up the pound).  I doubted that national governments would abandon fiscal policy as a policy tool.  The EU leadership has not enforced their requirements with respect to the size of the deficits its members may have.  By being “flexible,” the European Union survived but what where the consequences.  The needs of the people of Portugal and Greece are not the same as that of France, Germany and Italy.

Now with the current financial crisis, country identification is back.  I dare call it “nationalism” since I cannot predict the future of Britain or Belgium.  Borders are not eternal.  The EU made them less important — but Tip O’Neil was not being chauvinistic when he made his remark.   People need an external threat or commonality of concern (e.g. global warming) to feel connected to persons unlike themselves.  Perhaps an invasion from outer space would be helpful at this time, provided we prevail.  In science fiction movies we usually do.  Suddenly the United Nations functions.  Inevitably the aliens die because they are allergic to pollen.  I have never read a book about what happens after the common enemy is defeated.

It is Time to Federalize Aspects of Corporate Governance — Don’t Blame the Judges

A Delaware Chancellery  recently dismissed all but one of the claims in a derivative suit against CitiGroup’s officers and directors for failing to “monitor and manage” the risks of the sub-prime lending market.  Granted, there is a tendency for shareholders in a company to blame the Board of Directors and Management of business entities for poor economic performance.

Nonetheless, many courts too easily apply the “business judgment rule” when reviewing the actions of corporate officers and directors.  It would be most fortunate if the current economic crisis would galvanize Congress and/or the SEC to set FEDERAL rules governing how boards of directors operate.

Far too often, members of boards of directors serve on too many boards to effectively monitor the corporation they are required to do.  Many of these board members have been named by management, which has a conflict of interest in suggesting the individuals who should oversee it.  These individuals are usually elected since many individual and institutional shareholders do not play active roles in the corporation’s governance.

Board member frequently lack the expertise needed to adequately perform their functions.  They rely on information provided to them by management and do not always perform independent research.  They are often victims of “group think” particularly when there are members of management serving on the board in any capacity (not simply situations when a corporation’s CEO is also Chairman of its Board of Directors).

The current economic crisis should make us challenge the fundamental assumptions about the way our corporations operate.  Since corporations are generally regulated by state law, we have the problem of the race to the bottom.  Special interest groups can lobby legislatures to give corporation managers and directors maximum freedom.  Judges can only apply the law that is written.

Hence it is time for Congress to write new laws (and the SEC to issue new regulations).  All members of Boards of Directors should be required to be licensed and take continuing education courses (as is the case with lawyers).  Persons should be limited to serving on four corporate boards at a single time.  All members of Boards of Directors must be “independent” and that term has to be broadly defined.

The U.S. is a single country.  State borders are of limited importance with respect to business transactions.  States engage in short-sighted competition to grant tax breaks to corporations to bring them to one state vs. another (it would be another thing if all U.S. states could only offer the same package when competing with foreign countries).  Unfortunately, each situation is unique in terms of infrastructure, level of regulation, composition of the work force, cost of doing business, etc., so care has to be exercised in making allowances for certain circumstances.

We should not blame Delaware judges for imposing an unfair result, when the laws they are applying are the problem.  It is time to federalize the rules on corporate governance.

I look forward to receiving your comments.  If you are in general agreement with the idea presented above, please write your Congressman and Senators as well as to the new Chairman of the U.S. Securities and Exchange Commission — Mary L. Schapiro (www.sec.org).

NAFTA — Time for Immigration Reform

One of the casualties of the present economic crisis has been immigration reform.  This is most unfortunate since the country was moving in the direction of a consensus on this issue.

The North American Free Trade Agreement dealt primarily with the tariff free movement of goods.  While there were certain provisions covering the movement of people, the U.S. missed a huge opportunity.

The U.S. feared a massive migration of Mexican citizens to the U.S. where they would undercut the wage structure in this country and potentially create certain social problem.

Had NAFTA also covered labor there would have been some distinct advantages for the U.S.  First, U.S. factories rather than moving south in pursuit of cheap labor and hurting the stores that had sold to the factory workers — the factories would probably have staid where they were — there would be fewer “Flint,” Michigans.  Thus, the “rust belt would be smaller (but not eliminated due to globalization).

Second, these workers could not be exploited by their employers.  It could be required that such workers not only paid income tax, but payroll taxes as well to the jurisdiction in which they worked.

Third, we would not be faced with the moral issues of whether to allow the children of illegal workers go to school, or be eligible for other programs (e.g. subsidized meals).

I believe that although there are currently some unhappiness  in European Union countries of foreign workers taking the jobs of “natives,” this could be addressed in two ways.  Of greatest importance is that the National Labor Relations Act not only would have to be enforced but given more teeth to allow workers to unionize.

In addition, a living reasonable minimum wage should be set so that persons who worked 40 hours a week would be above the poverty line (where exactly, would have to be determined).  Again, this law would have to be rigorously enforced.

Enforcement of the U.S.’s labor laws would reduce a good deal of the opposition by U.S. citizens to the presence of Canadian and Mexican workers in the U.S.

Still, this proposal will still have its opponents.  It would make the labor market more competitive by increasing supply and this cannot be denied.  Possibly, if illegal workers were brought within the legal work force tax revenues would increase.  If immigration reform where linked to expanded health programs, lower income American workers might not fear the competition to the same extent.  I might also expand the quota of visas for treaty investors and highly skilled individuals from elsewhere in the world whose income would be in the highest brackets — which would act as a stimulus to the U.S. economy.

I cannot make this proposal acceptable to everyone, but I believe the concept would be an improvement on the present situation.

Crime and Punishment

There are essentially two categories of crimes: (i) universal and (ii) relativistic.  Acts that constitute “Universal Crimes” are prohibited by almost all states.  For example, with the exception of those places that apply Sharia law, one cannot murder another human being (honor killing) and to be fair mercy killings are not prosecuted in certain jurisdictions.   Similarly, one would be hard pressed to identify a country where it was legal to steal and sell a car belonging to another person, commit armed robbery, or burglary.  Of course, stoning and slavery during Biblical times was an everyday fact of life.

In contrast relativistic crimes are punished in certain jurisdictions and allowed in another.  Alcoholic beverages may not be bought, consumed or sold in some countries.  At the same time, many restaurants in the U.S. earn significant profits from the sale of wine and mixed drinks.  The use of certain narcotics is permitted in certain countries, but selling the very same substance can land you in prison.  Canada and Britain prohibit “hate speech,” while the U.S. places a premium on “freedom of speech” which is protected in the 1st Amendment to the U.S. Constitution.

In the British movie “Layer Cake,” the main character refers to the prohibition on the sale of cocaine as “prohibition.”  If cocaine were legal, it probably would not cost much more than most spices and might even have a price as low as sugar.  The costs to society of criminalizing its use is huge — running into the billions of dollars and giving rise to violence and the placing of non-violent individuals in jail.  Bootlegging can be profitable — just ask any member of the Kennedy family.

As an analytic exercise, it is interesting to contemplate how reprehensible a particular crime is (rape is often at the top of most people’s list) and which cause the greatest crime (perhaps, large scale economic crime).  In devising the punishment of each, which of the two factors should lead to a harsher sentence?  I am leaving aside the questions of whether criminal sentences should be motivated by a desire to deter, punish, or take the individual out of society.

Personally, I would like to see greater proportionality in the manner by which crimes are punished (and totally eliminate the concept of imposing criminal penalties against legal entities).  When a punishment involves the imposition of a fine (in addition to seizure of any ill-gotten gains), it is astounding to see how light are many white collar crimes.

White collar crime if properly done not only is profitable but entails limited risks.  If the sums involved are sufficiently high and the criminal successfully launders some of the proceeds of his acts, even being sentenced to jail might be a good investment.  This is why many corporations regard the knowing violation of laws and regulations the cost of doing business.

When Martha Stuart and Michael Miliken went to prison, upon their release, they essentially resumed their lives.  They were not shunned by society or their former friends.  Perhaps, we need a new model for punishing white collar criminals.  Some have suggested making them work for the benefit of society.  While there may be some merit to this view, I have a vindictive streak — I favor retribution in addition to deterrence.

Perhaps Nathanial Horthorne’s Scarlet Letter may offer the solution.  If white collar criminals knew that if they were found guilty of crimes, upon release from prison they would not return to the lifestyle to which they had grown accustomed, but permanently forced to live just above the poverty line.  They would be prohibited from receiving large salaries, purchasing property, going on expensive vacations, etc.  Now that would be real deterrence.

Granted, there would be numerous ways to get around such restrictions through family and friends (just ask Al Sharpton what he owns in his personal capacity).  Nonetheless, the victims of financial fraud must suffer the consequences of the perpetrator’s actions for the rest of their lives (e.g. lost money for retirement).  Consequently, why should a punishment need to be set at a fixed amount at the time of sentencing.

While persons are not punished for the sins of of their fathers, do have persons benefited from their father’s actions in the past?  Does this strike one as fair?

Lastly, Congress when it sets penalties and fines in criminal or regulatory legislation, it usually sets fixed amounts.  With the passage of time as a consequence of inflation, these amounts are often rather small.  I remember when a slice of pizza cost 25 cents.  Perhaps, such amounts should be set as a multiple of something that it increased on a regular basis — for example, 1000 times the median wage in the U.S.  Some countries with a history of inflation have done just this.  Many of their criminal penalties are set as a multiple of the minimum monthly wage.  Who said that we have nothing to learn from Russian law?

How to Steal A Billion Dollars or Two

Former SEC Chairman Bernard Madoff could not have accomplished his massive financial fraud without the active assistance, reckless behavior and/or complicity of numerous accountants, attorneys, bankers, financial analysts, and others individuals.   It is not a matter of improving “ethical conduct” among such persons.  Congress must enact financial crime statutes with real teeth, which will both punish and deter such illegal conduct.  So-called “white collar” crime causes greater harm to society than almost all forms of violent crime.  We urgently need improved investigative and enforcement capability at the national and international levels.  Finally, query whether the large size of the institutions under which the aforementioned “professionals” practice their trades is a contributing factor to Mr. Madoff’s multibillion dollar fraud — the larger the entity the more difficult it is to ensure regulatory compliance and detect improper actions of colleagues.  Unfortunately, we have learned little from the Arthur Andersen/Enron affair.

The Tax Changes the U.S. Needs

Since the onset of the Reagan era, the United States electorate developed an inexplicable hostility to taxes.  At the same time, the country’s population increasingly developed an insatiable appetite for personal entitlement.

Any college freshman who absorbed the substance of an introductory course in economics would understand that (i) the federal, state and local governments could not continue to spend money on expensive budgetary items without (ii) increasing tax revenue, without there being a day of reckoning.

Similarly, the U.S. population could not increase its consumption of foreign products indefinitely.  The country was operating on borrowed time.  Investment in infrastructure and education could not be delayed without there being harsh consequences.

Yet, if a politician were to propose various methods to raise taxes, that individual was unlikely to be re-elected.  There would be a chorus of voices decrying “class warfare” even though if the burden on those who would have their taxes increased would not experience a noticeable decline in their lifestyle.

For many years, it was possible for very, wealthy U.S. citizens who had earned billions of dollars to simply renounce their citizenship to avoid having their estates paying any taxes.  The number of people who benefited annually by this action was incredibly small — certainly less than 1/100 of 1% of the population.  Nonetheless, it took many years before Congress finally decided to close this loophole in the tax code and treat such an event as a “legal death.”

It would also be political suicide for a politician to suggest limiting in some fashion the mortgage interest deduction that homeowners enjoy.  The ability to deduct one’s interest on their home mortgage is not a God-given right — the Canadians do not allow it and the British set a low cap on the amount of interest that can be deducted over the entire period of ownership.  This deduction clearly is to the disadvantage of those who rent their homes or apartments, but no one seems particularly concerned about this inequity.

There are some tax changes that our country’s economists, commentators and maybe even politicians should examine that might help us to end our country’s worst economic crisis since the great depression.  Let me briefly outline some.

1)  Interest and dividends should be taxed as ordinary income.  Somehow it seems unfair that persons who earn their income by performing jobs are taxed at a higher rate.  This change would provide the government with billions of needed tax dollars.

2) There should be no cap on social security or FICA taxes, but these taxes would not be collected on the first $25,000 of income (or some other appropriate amount).  The savings would accrue both to the employer and the employee.  I estimate that this might result in an increase in employment by at least 6% and possibly more since the least wealthy segment of the population is most likely to spend their income.  I have never understood the logic for having such a cap and given the country’s demographics, eliminating it would postpone (or eliminate) the forthcoming social security crisis.

3) The marginal income tax brackets that were in effect before Ronald Reagan was elected president in 1980 should be re-instituted (with appropriate adjustments for inflation).  There is a widespread misconception that if this were done, persons in the top income bracket would pay 70% of their income in taxes.  This is simply not true — the overwhelming majority of such persons’ income would be taxed at lower rates.  Frankly, those who would be taxed at a 70% rate can afford it — furthermore, it might drive down the prices for luxury cars, mansions, and private jets.

Spending money on needed programs that we don’t pay for not only will burden future generations, it is likely to trigger inflation (brought about in part by a fall in the value of the dollar in international markets that would make imports more expensive and increase the cost of borrowing abroad).  Inflation is hard on people with fixed incomes (i.e. those retired) and for persons whose salaries do not keep pace with inflation.

4) Finally, the minimum wage should be permanently indexed to the cost of living or some other measure.  It should be set so that someone who works 40 hours a week receives twice the amount that is deemed to be the poverty line.  While this might marginally increase prices, it would also increase consumer power and hence employment.

Unfortunately, our political system seems designed to avoid debate on substantive economic policy questions. Generally, special interests and the wealthiest segment of the population are able to procure favorable legislation even if it harms the vast majority of the citizens and the country as a whole. This situation cannot be attributed to a belief in “rugged” individualism; rather it would be more appropriate to explain it by widespread apathy, the failure of our education system, and the mistaken belief of many that someday they too will become rich. Unfortunately, the last time I checked, those with the greatest wealth inherited it and few of us are fortunate enough to be able to choose our parents.

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