Archive for March, 2009
Week in Review: Bailout Bonuses, Marijuana and Eminent Domain Abuse
House Approves 90 Percent ‘Bonus Tax’
Sparked by outrage over the bonus checks paid out to AIG executives, the House approved a measure Thursday that would impose a 90 percent tax on employee bonuses for companies that receive more than $5 billion in federal bailout funds.
Chris Edwards, Cato’s director of tax policy studies, says the outrage over AIG is misplaced:
While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion — an amount 7,200 times greater than the $165 million of AIG retention bonuses.
So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.
Cato executive vice president David Boaz says this type of selective taxation is a form of tyranny:
The rule of law requires that like people be treated alike and that people know what the law is so that they can plan their lives in accord with the law. In this case, a law is being passed to impose taxes on a particular, politically unpopular group. That is a tyrannical abuse of Congress’s powers.
On a related note, Cato senior fellow Richard W. Rahn defended the use of tax havens in a recent Wall Street Journal op-ed, saying the practice will only become more prevalent as taxes increase in the United States:
U.S. companies are being forced to move elsewhere to remain internationally competitive because we have one of the world’s highest corporate tax rates. And many economists, including Nobel Laureate Robert Lucas, have argued that the single best thing we can do to improve economic performance and job creation is to eliminate multiple taxes on capital gains, interest and dividends. Income is already taxed once, before it is invested, whether here or abroad; taxing it a second time as a capital gain only discourages investment and growth.
Obama to Stop Raids on State Marijuana Distributors
Attorney General Eric Holder announced this week that the president would end federal raids on medical marijuana dispensaries that were common under the Bush administration.
It’s about time, says Tim Lynch, director of Cato’s Project on Criminal Justice:
The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.
The Cato Institute hosted a forum Tuesday in which panelists debated the politics and science of medical marijuana. In a Cato daily podcast, Dr. Donald Abrams explains the promise of marijuana as medicine.
Cato Links
• A new video tells the troubling story of Susette Kelo, whose legal battle with the city of New London, Conn., brought about one of the most controversial Supreme Court rulings in many years. The court ruled that Kelo’s home and the homes of her neighbors could be taken by the government and given over to a private developer based on the mere prospect that the new use for her property could generate more tax revenue or jobs. As it happens, the space where Kelo’s house and others once stood is still an empty dustbowl generating zero economic impact for the town.
• Daniel J. Ikenson, associate director of Cato’s Center for Trade Policy Studies, explains why the recent news about increasing protectionism will be short-lived.
• Writing in the Huffington Post, Cato foreign plicy analyst Malou Innocent says Americans should ignore Dick Cheney’s recent attempt to burnish the Bush administration’s tarnished legacy.
• Reserve your spot at Cato University 2009: “Economic Crisis, War, and the Rise of the State.”
Update: Obama on Iran
In response to President Obama’s video message to the Iranian people this morning, Iranian presidential aide Aliakbar Javanfekr is quoted as saying, “The Obama administration so far has just talked. By words and talking the … problems between Iran and America cannot be solved.”
I wish we knew the reaction of Khamene’i, but I do find myself fearing that the CIA may continue its major covert operations to undermine Tehran’s clerical regime. The administration has yet to repudiate this official policy. If Obama decides to repeal it, and dialogue with Iran falls through, Bush administration officials will trumpet that their policy could have had a chance to succeed.
Obama may be in a tough spot, but history is on his side. As we witnessed in 1953 with the overthrow of Mossadegh, covert activities, at least in the long-term, hold no promise of achieving our desired objectives.
Republicans Rediscover Their Big-Government Principles
Sen. Chuck Grassley, who can always be counted on to stick the federal government’s nose where it doesn’t belong, is criticizing Attorney General Eric Holder’s teeny-tiny steps toward a less oppressive enforcement of drug prohibition. Holder said on Wednesday “that federal agents will target marijuana distributors only when they violate both federal and state law. This is a departure from policy under the Bush administration, which targeted dispensaries under federal law even if they complied with the state’s law allowing sales of medical marijuana.”
Grassley says that marijuana is a “gateway” drug to the use of harder drugs and that Holder “is not doing health care reform any good.”
As Tim Lynch and I wrote in the Cato Handbook for Policymakers:
President Bush . . . has spoken of the importance of the constitutional principle of federalism. Shortly after his inauguration, Bush said, “I’m going to make respect for federalism a priority in this administration.” Unfortunately, the president’s actions have not matched his words. Federal police agents and prosecutors continue to raid medical marijuana clubs in California and Arizona.
And as Justice Clarence Thomas wrote in dissenting from the Supreme Court’s decision to uphold the power of the federal government to regulate medical marijuana:
If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything — and the Federal Government is no longer one of limited and enumerated powers.
That’s the principle that Chuck Grassley defends. Republicans claim to be the small-government party — and President Obama’s policies on taxes, spending, and regulation certainly justify a view that the GOP is, if not a small-government party, at least the smaller-government party — but they forget those principles when it comes to imposing their social values through federal force.
A Far Cry from ‘Axis of Evil’
Hoping to derail the re-election of Iranian President Mahmoud Ahmadinejad, President Obama today gave an unprecedented appeal to the Iranian people in a special video message. In it, he offers a “new beginning” of engagement to end the nearly 30 years of hostile bilateral relations.
This video comes less than a month after the administration wrote a letter to the country’s Supreme Leader Ayatollah Ali Khamene’i, who, as opposed to Ahmadinejad, truly controls the apparatus of government and has the final say on the country’s nuclear ambitions. Khamene’i sent a congratulatory letter to Obama after he won the presidency.
My colleague, Justin Logan, has written extensively on U.S. policy toward Iran, such as here and here, to name a few. He argues — and I agree — that U.S. policymakers must press for direct diplomacy with the Iranian leadership and have a plan “B” in case that diplomacy fails.
In response to those (usually neoconservatives) who fear Israel will be wiped off the map, Logan argues persuasively that attempting to deduce Iranian intentions from public statements is not helpful in ascertaining whether the clerical regime values self-preservation. Instead, we must evaluate what the regime has done when confronted with overwhelming force. For example, rather than wage the Iran-Iraq War (1980–88) to the bitter end, Supreme Leader Ruhollah Khomeini, one of Iran’s most radical Ayatollahs, saved his country from more suffering by accepting a disadvantageous ceasefire with Saddam Hussein.
Overall, the track record of Iranian behavior shows pragmatism and calculating temperament when attempting to advance their interests in the region. As I’ve written here, occasionally the interests of Tehran and Washington have overlapped, most recently when Iran quietly supported America’s effort to oust the Taliban regime in Afghanistan. Thus, it would be prudent for Washington to engage Tehran and allow it to produce uranium and plutonium if the regime agrees to IAEA safeguard regulations in compliance with United Nations resolutions.
National self-preservation has figured prominently in modern Iranian diplomacy. President Obama and his subordinates appear to understand that. Hopefully, this new strategy will work.
Selective Taxation Is Tyranny
The House of Representatives has passed a 90 percent tax on the bonuses paid to AIG employees, seemingly forgetting President Obama’s admonition “that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment.”
Everybody’s angry. But anger doesn’t make good law. And there are real questions about both the wisdom and the legality of such legislation. Bloggers like Conor Clarke, Megan McArdle, and Eugene Volokh have asked if the bonus tax is legal or constitutional. And thank goodness for bloggers who ask the questions that members of Congress and print journalists seem to ignore!
The bloggers wonder if after-the-fact taxes on specific people violate the constitutional ban on bills of attainder and ex post facto laws. (Ex post facto = after the fact.) Good questions indeed. But they should go further and ask, Are laws like this tyrannical? Ex post facto legislation isn’t just bad because it’s unconstitutional. It’s unconstitutional because it’s bad. (Nate Silver did raise these broader questions, arguing that the bonus tax bill was like the congressional intervention into the Terri Schiavo case: quite possibly legal and constitutional, but “it represented a gross overreach of the chamber’s authority, and ultimately undermined, at least a little bit, the rule of law.”)
Harvard law professor Laurence Tribe tells Conor Clarke, “It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge. …The fact that the individuals subject to the tax in its retroactive application would in principle be readily identifiable would not suffice to doom the tax either from a bill of attainder perspective or from a due process perspective.”
Which led liberal blogger Kevin Drum to this conclusion:
it looks like the answer here is simple: even though the purpose of this tax would pretty clearly be punitive with extreme prejudice, we need to carefully pretend that it’s not. And we need to make sure the legislative history shows that it’s not (it should be “manifestly regulatory and fiscal” Tribe says).
NEA to Dems: HEY! We Paid Good Money for You!!!
Here’s an interesting letter penned by Dennis Van Roekel, president of the National Education Association — the largest union in the country (hat tip to Cato’s own Neal McCluskey). It reads, in part (boldface added, ALL CAPS “shouting” in the original):
Letter to the Democrats in the House and Senate on DC Vouchers
March 05, 2009
Dear Senator:The National Education Association strongly opposes any extension of the District of Columbia private school voucher (“DC Opportunity Scholarship”) program. We expect that Members of Congress who support public education, and whom we have supported, will stand firm against any proposal to extend the pilot program. Actions associated with these issues WILL be included in the NEA Legislative Report Card for the 111th Congress.
Vouchers are not real education reform. Pulling 1,200 children out of a system that serves 65,000 doesn’t solve problems – it ignores them. Real reform will put a qualified teacher in every classroom, keep their skills up to date with continuing education, and raise pay to attract and retain the best teachers. Rather than offering a chance for a few, we should be ensuring that every child has access to a great public school.
Opposition to vouchers is a top priority for NEA. Throughout its history, NEA has strongly opposed any diversion of limited public funds to private schools….
According to his bio, president Van Roekel used to teach high school math, so I assume he is an able number cruncher. But as someone who used to be a computer software engineer, I think an old comp. sci. adage is apropos: “Garbage-in, Garbage-out.” It doesn’t matter how good your number crunching is if the numbers you crunch are nonsense.
As I have previously pointed out, enrollment in DC this year is nearly 20,000 students lower than Van Roekel imagines. The “limited public funds” he seems to think are allocated to k-12 education in DC amount to $26,555 per pupil. The DC voucher program’s enabling legislation actually increases funding to DC public schools by $13 million per year, and the average tuition charged by voucher-accepting private schools was $5,928 last year.
So the DC voucher program is 4 times more efficient than DCPS, and gets far more positive reviews from parents in the bargain, according to the Dept. of Education’s own study of the program. If it were expanded to serve every student in the district, it would save on the order of half a billion dollars, even allowing for a higher average tuition.
Now let’s see… what other reasons might president Van Roekel have for wanting to kick 1,700 poor kids in DC out of schools they love?
New Era of Unlimited Federal Power
The House has passed a measure imposing a special punitive tax of 90% on certain employee compensation in response to the AIG scandal. As others have noted, this raises serious constitutional issues. Article I, Section 9, Clause 3 says simply and directly: “No Bill of Attainder or ex post facto Law shall be passed.” The congressional bill being considered in response to the AIG bonuses seems to violate both those prohibitions at least in spirit.
The Constitution’s Framers apparently considered (page 154) this clause to be very important in guarding against legislative tyranny, and James Madison noted in Federalist 44:
Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation.
Aside from the dangers to liberty from overzealous members of Congress, there are issues of priorities here. While Congress has been busy with this particular inquisition, the Federal Reserve is moving ahead with a new plan to shower the economy with a massive $1.2 trillion cash infusion–an amount 7,200 times greater than the $165 million of AIG retention bonuses.
So members of Congress should be grabbing their pitchforks and heading down to the Fed building, not lynching AIG financial managers, most of whom were not the ones behind the company’s failures.
Thursday Podcast: ‘Bureaucratic Inertia and Fighting Terrorism’
Regardless of whether the threat of terrorism is still real and eminent, bureaucratic inertia will keep the so-called war on terror on auto-pilot for years to come, says John Mueller, professor of political science at Ohio State University.
Author of the book, Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats and Why We Believe Them, Mueller spoke at Cato’s January Counterterrorism conference. In Tuesday’s Cato Daily Podcast, he discusses why terrorism is no longer the prominent issue in the nation and how the government should react to the perceived threat:
My concern is that the threat that we’re trying to protect ourselves against has been massively exaggerated. Al Qaeda consists of about 150 people riding around in the hills in Pakistan…It’s not clear, in fact, that Al Qaeda has done anything really since 9/11 except put out a lot of videos…Mostly, Al Qaeda has not really done much of anything except do a lot of publicity for itself.
RAND: Charter Schools Raise Ed’l Attainment
I am not a particularly avid fan of charter schools. As I’ve previously written on this blog, I see reason to fear that their long term result will be the growth rather than the contraction of the state schooling bureaucracy. That said, RAND has just published a relatively positive new study about their short-term effects.
While the RAND study finds no significant difference in achievement gains in charters versus regular public schools, it finds that charter students for whom they have the necessary data are 7 to 15 percentage points more likely to graduate from high school and 8 to 10 percentage points more likely to enroll in college, after controlling for student characteristics.
While this is wonderful news, it will be a Pyrrhic victory if charter schools gradually succumb to regulatory encroachment and stultifying unionization, as seems likely.
Fortunately, as I blogged a couple of days ago, there is no need to run this risk. Truly market-like education systems show the same or better effects on students educational attainment, and show significant positive effects on academic achievement, school efficiency, parental satisfaction, eventual student earnings, and other outcomes. Access to such marketplaces can be made universal through tax credit programs that are significantly more apt to resist regulatory encroachment than are state-funded school choice policies, as I document in a forthcoming book chapter for Clemson University.
Stop Wasting $Billions; Expand School Choice
The Philadelphia school system will spend over $3 billion for the first time next year. That works out to $18,500 per student in a failing school system and most likely leaves out significant costs like teacher health and retirement funds. Maybe it has something to do with the 84 administrative departments burning through funds that should be used to educate children.
In 2007 I highlighted the growing spending insanity in Philadelphia schools and noted that tens millions of dollars could be saved every year through even a small school choice program.
Pennsylvania’s small, successful, and popular donation tax credits system for private scholarships is already saving money and children from failing schools.
In this economy, Pennsylvania can’t afford not to have more school choice.
Freedom for Yang Zili
Congratulations to Yang Zili, a Chinese advocate for political pluralism and human rights who has been set free after serving eight years in prison.
As I noted in the Fall 2007 edition of Cato’s Letter, Yang was an admirer of the libertarian thinker F. A. Hayek and described himself as a political liberal. A computer engineer by trade, Yang quickly recognized the power of the internet to spread ideas, founding a website, the “Garden of Ideas” (www.lib.126.com), where he forcefully condemned communism and argued for democratic reforms. “I am a liberal,” he wrote, “and what I care about are human rights, freedom and democracy.” Yang also participated in a discussion group called the New Youth Society, where he discussed the potential for political reform in China with young people who were similarly passionate. In 2001, Yang Zili and three of his colleagues were jailed for conspiring to overthrow the Chinese Communist Party.
As the Washington Post reported in 2004, the small group met for only a few months, and during that time one of its members was reporting to the Ministry of State Security. Indeed, the Post reported:
What happened to the New Youth Study Group offers a glimpse into the methods the party uses to maintain its monopoly on power and the difficult moral choices faced by those caught in its grip. The fate of the study group also illustrates the thoroughness with which the party applies one of its most basic rules of survival: Consider any independent organization a potential threat and crush it.
The eight members of the New Youth Study Group never agreed on a political platform and had no real source of funds. They never set up branches in other cities or recruited any other members. They never even managed to hold another meeting with full attendance; someone was always too busy.
And yet they attracted the attention of China’s two main security ministries. Reports about their activities reached officials at the highest levels of the party, including Luo Gan, the Politburo member responsible for internal security. Even the president then, Jiang Zemin, referred to the investigation as one of the most important in the nation, according to people who have seen an internal memo summarizing the comments of senior officials about the case.
Such is life in a police state.
Yang Zili spent eight years in prison for being brave enough to speak out against an authoritarian regime, which is 8 years too many in my book. Still, we can take comfort that he got out, and that his colleagues are slated to be released from prison next year.
Unfortunately, many young internet activists brave enough to stand up for freedom still languish in jail.
Federal Enforcement Policy Is Up in Smoke
Attorney General Eric Holder’s announcement that the federal government will end raids on medical marijuana distributors is terrific news.
The Bush administration’s scorched-earth approach to the enforcement of federal marijuana laws was a grotesque misallocation of law enforcement resources. The U.S. government has a limited number of law enforcement personnel, and when a unit is assigned to conduct surveillance on a California hospice, that unit is necessarily neglecting leads in other cases that possibly involve more violent criminal elements.
This shift in policy is also more mindful of the constitutional principle of federalism by allowing the states to try different policy approaches, and it is more respectful of the division of opinion within the medical community about the benefits of marijuana for certain patients. This de-escalation of the drug war is good policy and is long overdue.
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