Kudos to Rand Paul for addressing this issue. It’s a textbook case of “moral hazard” when government rewards people for making imprudent choices.
Heck, even Crazy Bernie understands that these subsidies are misguided (though I wonder whether he would be on the right side if Vermont had lots of flood plains, just as I wonder whether Sen. Kennedy would be bad on the issue if he was from Vermont).
The left-leaning Washington Post also understands there’s a problem. Here are some excerpts from a new editorial.
Hurricane Helene likely caused more than $30 billion worth of damage. Less than two weeks later, Hurricane Milton inflicted almost $50 billion more. …Who pays for all of this? …Because private home insurers generally find this sector of the business unprofitable, the federal National Flood Insurance Program shoulders the burden of providing homeowners inundation coverage — and it has problems. The NFIP is managed by the Federal Emergency Management Agency… The program provides nearly $1.3 trillion in coverage to more than 5 million policyholders. It’s funded by the premiums collected from policyholders but borrows from the U.S. treasury when claims it’s obligated to pay outpace revenue, as is often the case. …And yet Congress has made no fundamental reforms to the program since its inception nearly six decades ago. That cannot continue. …Moral hazard took hold…as developers and other real estate interests gamed the system to suppress premiums and permit building in low-lying areas and beachfronts exposed to storms. …Heavily lobbied by the interested industries, Congress has taken little action to rectify these long-standing issues, which have been festering for decades. …The one attempt at genuine reform in recent history — the Flood Insurance Reform Act of 2012 — would have ended subsidized rates for second homes and properties that repeatedly flooded. After Hurricane Sandy, however, coastal-state representatives reversed even these modest improvements. …It’s simply unfair to ask the entire population to provide deep subsidies for properties that, by definition, only a portion of Americans can occupy and enjoy.
I’ve only said this a handful of times, but the Washington Post is correct.
Federal flood insurance is a way for some rich people to shift costs on to the rest of us. And it’s a way for insurance companies to shift their risks on to taxpayers.
The entire programs should be eliminated. Though, like Rand Paul, I’m willing to start by getting rid of the subsidies for rich people’s vacation homes.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
