Archive for March, 2010
Tuesday Links
- Gene Healy on the “Al-Qaeda Seven”: Republicans who assail President Obama for his allegedly “soft-on-terror policies” are running a campaign that is based on phony charges, and is a dangerous distraction from the fight for limited government.
- Doug Bandow on the costs of war.
- This week, Sen. Chris Dodd (D-Conn) discussed imposing massive new regulations on the financial sector. Mark Calabria explains the potential impact.
- If the House enacts the Senate health care bill without voting on it, are we under obligation to obey it? The answer may be no.
- Podcast: “Reagan and the Tyranny of the Status Quo” featuring John Samples, author of the forthcoming book, The Struggle to Limit Government.
The President Comments on Sunshine Week
It is “Sunshine Week,” a time for attending to government transparency issues. And the president issued a statement today commemorating the occassion. Norm Eisen, the president’s special counsel for ethics and government reform, put a more detailed “Happy Sunshine Week” post on the Whitehouse.gov blog today as well.
The administration has done some good things, and there is no doubt that it means to do well. My pet transparency issue is one on which the news is not so good, however: the “Sunlight Before Signing” promise to post bills received from Congress for five days before they are made law.
When I last reported, the president was seven for 142 on fulfilling this promise. Of 142 bills subject to Sunlight Before Signing, only seven have been posted for five days. Since then another law has passed—H.R. 1299/P.L. 111-145, which was presented to the president on March 2nd, posted on Whitehouse.gov on March 4th, and signed into law the same day.
No emergency excuses the “United States Capitol Police Administrative Technical Corrections Act of 2009” from the sunlight treatment. Had it been posted, Americans may have had the opportunity to ask why a bill of that name establishes a “Corporation for Travel Promotion” to encourage international travel to the United States.
(Answer: S. 1023 was rolled into it, obscuring what Congress was doing in a common but insidious way. Cost of S. 1023 per U.S. family: about $24.)
The White House’s fulfillment of the Sunlight Before Signing promise now stands at seven for 143, or .049.
In his post, Norm Eisen said, “We are proud of our successes, but we of course recognize that much remains to be done, and we intend to redouble our efforts to make government as transparent, collaborative and participatory as possible.” And in his statement, the president said, “We are proud of these accomplishments, but our work is not done. We will continue to work toward an unmatched level of transparency, participation and accountability across the entire Administration.”
The successes touted by Eisen and the president are real. We’re looking forward to more!
Wyden-Gregg Tax Plan
Senators Ron Wyden and Judd Gregg recently introduced the “Bipartisan Tax Fairness and Simplification Act.” There is a lot of interest in this plan, so I’ve put together some “pros” and “cons” from my small-government, flat-tax perspective.
INDIVIDUAL TAX CHANGES – PRO
- Scraps the alternative minimum tax.
- Cuts the number of rates from six to three.
- Reduces the tax subsidy for municipal bonds.
- Creates Lifetime Savings Accounts (LSAs)–like Roths IRAs except better because all withdrawals are tax-free. This is a very important reform, and by the way, one that Canada has enacted already. See here.
INDIVIDUAL TAX CHANGES – CON
- Keeps the top tax rate at 35 percent, which is quite a bit higher than the 28 percent acheived by the Tax Reform Act of 1986.
- Increases the top capital gains and dividend tax rate from 15 percent to 23 percent.
- Triples the standard deduction, which would likely take more people at the bottom end off the income tax rolls. That would simplify the code, but at the expense of increasing the demand for big government.
- Repeals the exclusion on income earned abroad by U.S. citizens, which would likely damage the operations of U.S. multinational companies.
- Retains all the most distortionary tax breaks under the individual code, including the mortgage interest deduction.
CORPORATE TAX CHANGES – PRO
- Cuts the top corporate tax rate to 24 percent. This is a crucial reform.
- Cuts corporate welfare spending, which Wyden-Gregg notes is about $90 billion a year, based on a Cato Institute analysis.
CORPORATE TAX CHANGES – CON
- Subjects the foreign income of U.S. multinational companies to immediate taxation. That tax approach is not followed by any major advanced economy, and it would put U.S. firms at a disadvantage in global markets.
- Broadens the business tax base in other ways that move in the wrong direction, such as repealing the expensing of energy exploration and development costs. Note that some of the plan’s corporate base broadening ideas make sense–such as reducing the value of interest deductions–but only if the revenue raised is used to reduce the statutory rate (which it does seem to be here).
Overall, I would take the Wyden-Gregg plan over the current code. But Wyden-Gregg is a very limited reform compared to the Paul Ryan two-rate individual tax or the recent National Academy of Sciences tax plan, which features individual rates of 10 and 25 percent and a corporate rate of 25 percent.
Wyden-Gregg is a start, but it hardly simplifies the tax code at all and it doesn’t reduce individual rates. However, it does cut the corporate rate and it includes LSAs, which would revolutionize personal savings. So we can take heart that supply side tax policies still garner some support on Capitol Hill.
For more on tax reform, see here.
Higher Education Subsidies
A battle over higher education loans is coming to a head as Democrats consider including the ill-titled Student Aid and Fiscal Responsibility Act in reconciliation legislation. In one corner, we have private education loan lenders who enjoy the generous subsidies and loan guarantees provided by Uncle Sam. In the other, we have policymakers who want to cut out the middleman by having the Department of Education provide direct loans.
Critics of SAFRA correctly point out that the alleged savings of nationalizing student loan subsidies are a sham. The Congressional Budget Office has scored the nationalizing portion of the bill as saving $67 billion over ten years. However, in a letter to Sen. Judd Gregg (R-NH), the CBO acknowledged that when the cost of default risk is factored in, the alleged savings drop by $33 billion. Yet, taxpayers won’t realize any savings because the legislation adds $80 billion in additional spending for Pell grants and other programs.
For taxpayers, the unpalatable choice is nationalization or crony capitalism—subsidizing private businesses. The real answer is for the federal government to get out of the higher education subsidy business altogether, as a Cato essay argues.
The following are some key points from the essay:
- The effect of subsidy programs, in part, is to impose taxes on blue collar workers—who have not attended college—to pay for the tuition of future white-collar professionals. Why should the government subsidize future high earners at the expense of average working people?
- Federal student aid programs transfer wealth from taxpayers to academic institutions. That’s because the rise in student subsidies over the decades appears to have fueled inflation in education costs. Tuition and other college costs have soared as subsidies have risen. College cost inflation induced by federal aid probably hurts low-income families—the people that federal aid was supposed to target—more than others.
- Federal aid has probably helped increase student enrollment, but many of those additional students may not have been ready, or suited, for college. This is evidenced by the rising shares of college students who require remedial work, and the fact that institutions have lowered their standards to adapt to the rise in second-rate students.
- Increasing top-down control and subsidization of higher education from Washington is creating a threat to the strength of the American system. As we have seen in K-12 education, the growth in federal subsidies is usually accompanied by calls for more oversight, micromanagement, and rising levels of red tape imposed by Washington.
- Federal student loan and grant programs have been subject to waste and fraud for decades. The Pell grant program (which SAFRA would enlarge) costs taxpayers hundreds of millions of dollars per year in fraud. Another ongoing problem is the high default rate on student loan programs.
Currency Issue Still a Red Herring
Following are some thoughts from a broader analysis of mine on the state of U.S.-China relations, which will be published in the near future.
Between July 2005 and July 2008, the Chinese RMB appreciated by 21 percent against the dollar. But over that 3-year period, the U.S. trade deficit with China increased from $202 to $268 billion. Why, then, do policymakers think revaluation is the key to reducing the trade deficit? Why do they even care about the bilateral trade deficit, which is meaningless in the context of our globalized economy. Only one-third to one-half of U.S. imports from China is Chinese value added. The rest is Japanese, Taiwanese, Korean, Australian, American and other countries’ value added. The bilateral figures tell us nothing important.
During the aforementioned period of RMB appreciation, U.S. exports to China increased by $28 billion. But U.S. imports from China increased by $94 billion. Americans continued to purchase Chinese imports–despite the currency-induced price increase–for two primary reasons. First, there aren’t many substitutes for the Chinese products U.S. consumers tend to purchase. Second, Chinese exporters, by virtue of a stronger RMB, were able to reduce their costs of production because many of those costs are for imported inputs (made cheaper because of the stronger RMB), which subsequently enabled them to lower their prices for export to the United States.
There is no compelling reason to think things will be different this time. Thus, all of the hollering, name-calling, and finger-pointing can only worsen the state of bilateral relations.
There are less provocative alternatives.
If it is desirable that China recycle some of its estimated $2.4 trillion in accumulated foreign reserves, U.S. policy (and the policy of other governments) should be more welcoming of Chinese investment in the private sector. Indeed, some of China’s past efforts to take equity positions or purchase U.S. companies or buy assets or land to build new production facilities have been viewed skeptically by U.S. policymakers, and scuttled, ostensibly over ill-defined security concerns.
As of the close of 2008, Chinese direct investment in the United States stood at just $1.2 billion—a mere rounding error at about 0.05 percent of the $2.3 trillion in total foreign direct investment in the United States. That figure does not come anywhere near the amount of U.S. direct investment held by foreigners in most of the world’s medium-sized economies, nevermind the large ones. U.S. direct investment in 2008 held in the United Kingdom was $454 billion; it was $260 billion in Japan; $259 billion in the Netherlands; $221 billion in Canada; $211 billion in Germany; $64 in Australia; $16 billion in South Korea; and even $1.7 billion in Russia.
In light of China’s large reserves, its need and desire to diversify, America’s need for investment in the real economy, and the objective of creating jobs and achieving sustained economic growth, U.S. policy should be clarified so that the benchmarks and hurdles facing Chinese investors are better understood. Lowering those hurdles would encourage greater Chinese investment in the U.S. economy and a deepening of our mutual economic interests.
If the House Enacts the Senate Health Care Bill without Voting on It…
…are we under any obligation to obey it? The answer may be no.
Democrats are considering a scheme that would “deem” the Senate health care bill to have passed the House if a separate event occurs (specifically: House passage of a budget reconciliation bill). That strategy has been named after its contriver, House Rules Committee chair Louise Slaughter (D-NY). House Speaker Nancy Pelosi (D-CA) says of this scheme: “I like it because people don’t have to vote on the Senate bill” (emphasis added).
Not so fast, says former federal circuit court judge Michael McConnell in The Wall Street Journal:
Under Article I, Section 7, passage of one bill cannot be deemed to be enactment of another.
The Slaughter solution attempts to allow the House to pass the Senate bill, plus a bill amending it, with a single vote. The senators would then vote only on the amendatory bill. But this means that no single bill will have passed both houses in the same form. As the Supreme Court wrote in Clinton v. City of New York (1998), a bill containing the “exact text” must be approved by one house; the other house must approve “precisely the same text.”
Democrats have already hidden 60 percent of the cost of the Senate bill, effected an obscenely partisan change in Massachusetts law to keep the bill moving, pledged more than a billion taxpayer dollars to buy votes for the bill, and packed the bill with an unconstitutional individual mandate and provisions that violate the First Amendment. It’s almost as if, to paraphrase comedian Lewis Black, Democrats spent a whole year, umm, desecrating the Constitution and at the last minute went, “Oh! Missed a spot!”
And these people want us to put our trust in government.
Filed under: Cato Publications; General; Government and Politics; Health Care
Socialism at Jamestown
Washington Post columnist Dana Milbank chides Dick Armey today for having said that socialism caused starvation at Jamestown. “Who knew they had socialists in 1607?” Milbank asks.
Actually, lots of people know this. As I wrote three years ago:
Four hundred years ago today 105 men and boys disembarked from three ships and established the first permanent English settlement in North America. They built a fort along what they called the James River, in honor of their king.
The land was lush and fertile, yet within three years most of the colonists died during what came to be known as “the starving time.” Only the establishment of private property saved the Jamestown colony.
What went wrong? There were the usual hardships of pioneers far from home, such as unfamiliar diseases. There were mixed relations with the Indians already living in Virginia. Sometimes the Indians and settlers traded, other times armed conflicts broke out. But according to a governor of the colony, George Percy, most of the colonists died of famine, despite the “good and fruitful” soil, the abundant deer and turkey, and the “strawberries, raspberries and fruits unknown” growing wild.
The problem was the lack of private property. As Tom Bethell writes in his book The Noblest Triumph: Property and Prosperity through the Ages, “The colonists were indolent because most of them were indentured servants, expected to toil for seven years and contribute the fruits of their labor to the common store.”
Understandably, men who don’t benefit from their hard work tend not to work very hard.
But a new governor arrived and instituted a system of private property.
And then, the Virginia historian Matthew Page Andrews wrote, “As soon as the settlers were thrown upon their own resources, and each freeman had acquired the right of owning property, the colonists quickly developed what became the distinguishing characteristic of Americans – an aptitude for all kinds of craftsmanship coupled with an innate genius for experimentation and invention.”
John Rolfe, the husband of Pocahontas, said that once private property was instituted, men could engage in “gathering and reaping the fruits of their labors with much joy and comfort.”
I gotta go with Milbank, not Armey, though, on another point of contention: Alexander Hamilton was a big-government man. At least by the standards of 1787; no doubt he’d be appalled at the size, scope, and power of today’s federal government, though he might approve the imperial trappings and authority of modern presidents.
Bad Science and Capital Punishment
Radley Balko will be moderating a panel at Georgetown Law next week, “Bad Science: The Execution of Cameron Todd Willingham and the Case for Forensic Reform.”
Radley will be leading a discussion about the case of Willingham, who was executed by the state of Texas in 2004. Willingham was convicted in 1992 of murdering his three young daughters in a house fire that the state determined was arson.
A report issued in 2009 claimed that in convicting Willingham, the state used techniques and assumptions that were no longer recognized as scientifically valid and that the original finding of arson could not be sustained.
If you can’t attend in person, a webcast will be available.
Does Promising Iran Material Benefits Make a Nuke Deal Less Likely?
I regret not remembering where I found this and therefore not being able to thank the source for the link, but Scientific American writes about research on “sacred values” and negotiations. Describing “sacred values,” SciAm writes that when an object becomes sacred, it “becomes worthy of boundless reverence, commitment, and protection. As diverse as people are in ascribing sacred status to possessions, they are equally varied in which values they consider sacred, a diversity that can breed substantial conflict. The abortion debate, for example, often presents a divide between those who consider woman’s ‘right to choose’ sacred versus those who consider a fetus’ ‘right to life’ sacred.”
But the potentially important part for international politics is that
When people are asked to trade their sacred values for values considered to be secular…they exhibit moral outrage, express anger and disgust, become increasingly inflexible in negotiations, and display an insensitivity to a strict cost-benefit analysis of the exchange. What’s more, when people receive monetary offers for relinquishing a sacred value, they display a particularly striking irrationality. Not only are people unwilling to compromise sacred values for money—contrary to classic economic theory’s assumption that financial incentives motivate behavior—but the inclusion of money in an offer produces a backfire effect such that people become even less likely to give up their sacred values compared to when an offer does not include money. People consider trading sacred values for money so morally reprehensible that they recoil at such proposals.
If right, this is obviously an important challenge to those of us who have proposed offering Iran a grab-bag of goodies in exchange for opening its nuclear program to invasive international inspections. I haven’t read the study the article is drawn from very carefully, but I have a few immediate doubts.
- The authors’ discussion of the “sacredness” of the Iranian nuclear program is pretty nebulous. They reference how “the nuclear dispute is essentially framed as an ongoing resistance with deep historical context.” They talk about how Iran asserts its “inalienable rights” and how it pledges it “will not retreat one iota.” But lots of disputes are couched in these sorts of terms. Are they all over “sacred values”?
- They code respondents as holding Iran’s nuclear program as a sacred value if they select the statement that Iran shouldn’t give up its nuclear program “no matter how great the benefits are.” Isn’t it possible that the respondents see the United States as untrustworthy and fear that their country will get tricked into accepting a deal that can be easily broken? That there are no benefits that are great enough to offset an indigenous, autonomous nuclear capability?
- Most importantly, if the authors are right, we’re probably in big trouble. They write that “in conflicts involving sacred values, symbolic compromises which may lack any material benefits, such as apologies for past disrespects, may be key to solving the issue.” My sense is that the Right in America has been winding up American nationalism so high that the Obama people are in no mood to confront it head on. From lapel pins to “apology tours,” to claims that Obama may be an “alien” and therefore an inherently illegitimate president, to claims that he doesn’t recognize that al Qaeda is an Enemy, to the Nobel prize, and on and on, apologizing to Iran probably isn’t something the administration is particularly keen on. So if apologizing to Iran for something or other is the key to solving the nuclear puzzle, get ready for trouble.
Just Give Us the Data! Transparency and Change
Yesterday my government transparency site WashingtonWatch.com rolled out a transparency campaign (along with many collaborators) called “Just Give Us the Earmark Data!”
Visitors to Earmarkdata.org are encouraged there to sign a petition asking Congress to publish data about earmarks in formats that are useful for public oversight. Developers can also participate in perfecting the data schema that will capture the “earmarks ecosystem” in the best possible way.
After a surprisingly successful effort at “crowdsourcing” earmark data last summer, the push for earmark transparency gained steam in January, when President Obama spoke about it in his State of the Union speech. A White House “fact sheet” issued the same day called for a “bipartisan, state-of-the-art disclosure database that allows Americans to examine the details of every proposed earmark.”
(We were going to ask for good earmark data anyway, but this gave the idea currency in a lot of quarters.)
The focus on earmarks and transparency got the political calculators whirring on Capitol Hill. “Is earmarking worth doing considering the political heat it is going to draw?”
One set of actors came up with their answer last week. House Democrats announced that they would restrict their earmarking only to non-profits. They want for-profit businesses seeking taxpayer money to go through conventional channels like competitive bidding.
The next day, House Republicans came back over the top of Democrats’ political bet. They announced that they would forgo earmarking entirely.
That’s House Democrats and House Republicans. Don’t assume that earmarking is going to go away. A good-government bidding war is on, though—spurred by the political challenge of transparency.
A couple of observations, least important first:
- If it wasn’t obvious before, this illustrates that politicians are very capable political risk balancers. Indeed, surfing political waves is arguably the primary task of elected officials, most especially at the national level, and without this skill, they are goners. (That’s why looking for a wellspring of principle in an elected official usually gets you swamped in disappointment.)
I’ve had a number of friendly cynics suggest that politicians wouldn’t mind earmark transparency—bringing home the bacon brings in the votes! This appears in general not to be true. There may still be earmarking from a hard core group who do perceive overall political benefits from it, but they’ll have to buck their parties, who do not.
(Alas, I can’t say “I told you so!” because I tended to just grin and say “Maybe you’re right!” For future reference, I agree with the tendency, but doubt the direct outcome described in the adage attributed to Benjamin Franklin, “When the people find that they can vote themselves money, that will herald the end of the republic.” Thankfully, it’s more complicated than that.)
- Notable: Elected officials’ political tuning is not just reactive. The anticipation of earmark transparency is what started this bidding war.This is especially worth noting with respect to President Obama’s “Sunlight Before Signing” promise, which I most recently reported on here. Skeptics have said that President Obama’s promise to post bills he receives from Congress online for five days before making them law wouldn’t make any difference because a bill that Congress has sent down Pennsylvania Avenue is already final. But a parochial amendment hanging out there for five days threatens to draw political discredit on its author and supporters—and their party. Sunlight Before Signing was a meaningful promise.
(SBS has two advantages over the creditable “Read the Bill” proposal to hold bills 72 hours before a vote in Congress: 1) SBS takes advantage of interbranch rivalry, and 2) it was a campaign promise of the president!)
- Broadly, this episode illustrates how transparency can bring welcome change. It’s correct to observe that earmarks represent only a tiny part of overall spending. But applying parallel transparency efforts to other parts of the legislative and regulatory processes are likely to elicit similar good behavior from government officials. There are manifold directions to go with government transparency. Each in its way stands to create political dynamics more congenial to good government and—more importantly—to liberty.
Why Is Obama Trying to Make America More Like Sweden when Swedes Are Trying to Be Less Like Sweden?
In this new video from the Center for Freedom and Prosperity, a Swedish economics student makes three important points.
- Sweden became a rich nation in the late 1800s and first half of the 1900s by relying a free markets and small government.
- Growth deteriorated beginning in the 1970s after the imposition of high tax rates and a big increase in the burden of government spending.
- For the last 20 years, Swedish lawmakers have been trying to restore prosperity by lowering tax rates and adopting pro-market policies.
So if Swedes have learned from their mistakes and are now trying to reduce the size and scope of government, why are American politicians determined to repeat those mistakes? This is something to keep in mind with a looming vote on a giant expansion of the welfare state.
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