Archive for September, 2010
Consistency
Justice Breyer appeared on Good Morning America today, telling George Stephanopoulous that burning the Koran may not be protected by the First Amendment. As Breyer puts it, this may be akin to “shouting fire in a crowded theater,” since internet-driven publicity could bring retaliatory violence here or abroad.
Let me get this straight – burning a Koran isn’t protected the same way that burning a Bible or the American flag is, or a neo-Nazi march through a neighborhood of Holocaust survivors. The “crowded theater” is now global, and all someone has to do to diminish the First Amendment rights of all Americans is threaten to use violence if an offending word is uttered.
That’s not a consistent interpretation of the First Amendment, but Breyer’s record of consistency isn’t very good when constitutional rights may put lives at risk.
Obama’s Plan to Raise Tax Rates
President Obama wants to raise the top two individual income tax rates for 2011. The top rates will rise from 33% to 36% and from 35% to 39.6%, unless the president and Congress agree to extend the current rate structure.
Before taking action on this issue, policymakers should consider the following facts and data. (All information is cited in my related congressional testimony).
- President Bush cut the top federal tax rate by 5 percentage points, but the average top rate in the 30 OECD nations has also fallen by 5 percentage points since 2000.
- Unless policymakers extend current tax relief, the combined U.S. federal-state top rate will increase from 41.9% to about 46.5%, based on OECD data. That will give us about the tenth highest rate among the 30 OECD nations.
- The chart shows that the average top OECD rate fell from 46.7% in 2000 to 41.5% in 2009. If we let the Bush tax cuts expire, we won’t be simply going back to our situation in 2000—the world has changed since then as other countries have adopted more competitive tax rates.
- President Obama’s proposed top federal rate of 39.6 percent is 41-percent higher than the 28-percent top income rate achieved in the late 1980s after the bipartisan Tax Reform Act of 1986.
- Higher marginal tax rates will reduce incentives for working, investing, and expanding businesses, and they will increase incentives for tax avoidance and evasion.
- If income tax rates rise, some high-income workers will work fewer hours and retire earlier. Some spouses in two-earner families will stay out of the workforce. Some angel investors will have less cash to invest in start-up ventures. And some small businesses will decide not to buy new equipment or hire new workers.
- Higher-income taxpayers often have a lot of flexibility on their working and investing decisions—tax them more and they will reduce their reported income alot. Robert Carroll finds that this effect of raising the top rate from 35% to 40% would offset about 40 percent of the government’s otherwise expected revenue gain.
- Today’s highest-earners are generally not passive inheritors of wealth, but are usually self-made and entrepreneurial. Glenn Hubbard notes, “when you look at data, you see that people who are rich almost entirely are rich because of entrepreneurial risk taking.”
- Many people with high incomes are angel investors, who help to fuel small business expansion. If their taxes go up, they will have less money and fewer incentives to invest, and they will park more of their money in tax-free municipal bonds.
- More than half of all business income in the United States is reported on individual returns, not corporate returns. This income is reported by proprietorships, partnerships, LLCs, and S corporations. If the top two individual income tax rates are increased, it would hit a substantial amount of this business income.
- Robert Carroll looked at individual tax filers who derived more than half of their income from a business. He found that one-quarter of these taxpayers were in the top two tax rate brackets, and thus would be hit by the proposed tax increases.
- The Joint Committee on Taxation found that about 25 million individual tax returns will report about $1 trillion of net positive business income in 2011. Of that total, 44 percent is in the top two income tax brackets and thus would be hit by the proposed tax increase.
- In an empirical study, Glenn Hubbard and William Gentry found that higher marginal tax rates discourage entry into self-employment and business ownership. A study by Donald Bruce and Tami Gurley for the SBA similarly found that marginal tax rates affect entrepreneurship.
- Once a small business is up and running, empirical research by Robert Carroll, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen found that higher individual income tax rates negatively affect hiring, investment, and expansion.
Those are the facts, and here are my views. It’s very sad that a nation that has been a bastion of free market growth and individual achievement has a tax code that is becoming very hostile to high-earners, entrepreneurs, and businesses.
Let’s keep the Bush tax cuts, cut our corporate tax rate from 40% to 20%, and cut government spending. Rather than the government filling its coffers at the expense of families, that policy would make the economy boom, and fill government coffers as a side effect of rising family incomes.
Oh, to Be Politically Favored!
Yesterday, the U.S. Department of Education released the latest student-loan default data, and along with it offered some good ol’ fashioned profit-bashing. Meanwhile, politically favored schools got off with nary a negative word.
The FY 2008 default rates certainly aren’t good. Overall, 7 percent of borrowers whose first payments were due between October 1, 2007, and September 30, 2008, had defaulted by September 30, 2009. And yes, for-profit schools had the highest rate out of non-profit private, public, and for-profit schools, which came in at 4 percent, 6 percent, and 11.6 percent, respectively.
To what did Secretary of Education Arne Duncan attribute these results? The overall default rate, he suggested, was but the sad consequence of ”many students…struggling to pay back their student loans during very difficult economic times.” The for-profit rate, however, had a very different cause: “[F]or-profit schools have profited and prospered thanks to federal dollars” and many have saddled “students with debt they cannot afford in exchange for degrees and certificates they cannot use.”
Already, you can see that for-profits are largely just an easy political target: All defaulting borrowers are portrayed as victims; wasteful, money-hoarding, non-profit institutions get no mention; and for-profits are painted as predators.
Of course, for-profits do have higher default rates, so maybe they really are predators. But there’s more from yesterday…
At roughly the same time Duncan was dumping on for-profit schools, his boss was feting another subset of higher education: historically black colleges and universities (HBCUs). Indeed, he was kicking off National HBCU Week, and lauding the schools’ work. But guess what? While the Education Department doesn’t release default rates for HBCUs as a group, quickly pulling those schools’ data together and averaging their default rates indicates a rate even higher than for-profit schools: almost 12 percent. Moreover, for four-year, private, non-profit HBCUs — which like for-profit colleges don’t get big state subsidies to help keep tuition artificially low – the default rate is nearly 13 percent.
So why no criticism by Duncan of HBCUs? Heck, why was his boss celebrating them?
Because they are politically favored, that’s why. Of course, this is in part because of their very important historical mission to furnish higher education to long-oppressed African Americans. It is also, though, because like all “non-profit” colleges and universities, HBCUs act as if their employees have no interest in higher salaries, nicer facilities, easier workloads — all the rewards that the people in not-for-profit schools give themselves instead of paying profits out to shareholders. But there’s no evidence that people in HBCUs or other non-profit schools are any less self-interested than people working or investing in for-profit institutions.
Why do I point this out? Not to pick on HBCUs, but to further illustrate the point that the attack on for-profit schools isn’t really about saving taxpayer dollars or protecting students, but going after the easiest target to demagogue – people honest about trying to benefit themselves as much as “the students.” It is also to illustrate, once again, that when we let government fund something, it is political calculus – not educational benefits, economic effectiveness, or what’s best for taxpayers – that ultimately drives the policies. Which is why government needs to get out of the higher ed business that it has made both bloated and, ultimately, a net drain on the economy.
Personal Accounts for Social Security an Election Killer — Not Quite
You can tell its election season because Democrats are once again attacking Republican’s for daring to propose reforms to Social Security. These attacks come despite the fact that Social Security is already running a temporary deficit, and that deficit will turn permanent in just five years. Overall, the amount the system has promised beyond what it can actually pay now totals $18.7 trillion.
But the latest Pew Poll suggests that attacking Republicans for wanting to “privatize” Social Security might not be such an effective tactic after all. According to the poll, Americans support proposals to “allow workers younger than age 55 to invest a portion of their Social Security taxes in personal retirement accounts that would rise and fall with the markets” by 58 – 28 percent. Younger voters supported personal accounts my an astounding 70-14 percent margin, but every age group except seniors was supportive. Seniors split evenly. Independents, widely believed to be the key to the upcoming election, supported personal accounts by 61-27, and even Democrats favored the idea by 50-36.
Maybe this will finally give the Republicans some courage on the issue.
John Stossel, the ADA, and the Art of Selective Outrage
On September 3 John Stossel’s Fox Business show took an unsparing look at the seldom-criticized Americans with Disabilities Act on its 20th anniversary (I was a guest commentator during part of the show, including this segment.) Now the American Association of Persons with Disabilities has reacted with outrage and urged its constituents to fire off protest letters to Stossel, to Fox, and also to me since my criticisms of the law were featured on the show.
But it didn’t play fair. In a related syndicated column, after recounting some of the abuses and excesses associated with ADA litigation — including settlement mills that file assembly-line suits against Main Street businesses and Equal Employment Opportunity Commission demands that alcoholics in rehab be put back on safety-sensitive jobs — Stossel says prolonged litigation over such matters means “more money for the parasites”. Harsh words, perhaps, but in context he’s clearly referring to those who profit from ADA litigation, and in particular opportunistic lawyers.
Now observe how the AAPD edits his words. By cutting most of what precedes “more money for the parasites,” it encourages readers to assume that Stossel is somehow referring to disabled persons themselves as parasites. And in case readers don’t pick up on that implication, AAPD makes it explicit: Stossel, it charges, “sees people with disabilities as manipulative parasites.” For the past day, disabled persons have been dashing off furious emails to Stossel (and cc’ing them to me) on variations of the theme, “How dare you call me a parasite!?”
But that’s not what he said. And AAPD owes both its readers and Stossel an apology for pretending otherwise. There’s nothing wrong with having a public debate over the ADA, but wouldn’t it be more constructive to respond to what Stossel actually did argue?
Cops on Camera
The past six months have given us a number of police excesses caught on camera. Police officers savagely beat University of Maryland student John McKenna and filed false felony assault charges against him. Video of the event set the record straight. Prosecutors dropped the charges against McKenna, and four officers have been suspended and are facing state and federal investigations.
The McKenna case showed the value of video as an honest witness. Yet Maryland police officers continue to make the claim that the state wiretapping law forbids recording in public. I discuss this issue in a new Cato video, Cops on Camera, along with attorney Clark Neily of the Institute for Justice and Cato adjunct scholar Radley Balko.
We are hosting an event next Wednesday, September 22, on the right of citizens to record on-duty police, and the prosecutor in the high-profile Maryland wiretapping case against Anthony Graber will be on the panel. Registration available here.
On Changing Strategy in Afghanistan
I have a post responding to some of the critics of the recent Afghanistan Study Group report (in which I participated) over at at the National Interest. A snip is below:
I am forced to conclude that neither [Joshua] Foust nor [Andrew] Exum understands what strategy is. It is not, pace Foust, induced by piling up mounds of granular operational and tactical detail and then seeing what one can shape out of the pile. Instead, those engaged in strategy must attempt to discern and state clearly the interests at stake (in this case those the United States has in Afghanistan or the region more broadly) and then to attempt to connect the complex chain of ends, ways, and means in order to explain how best to pursue those interests. I thought the report was fairly clear on the task force’s views on America’s interests and in proposing to bring America’s exertions better into line with its interests. Thoughtful critiques would engage either on the grounds that the authors have misconstrued (a) America’s interests, (b) how best to pursue them, or (c) both.
But for the life of me I cannot find evidence that either Foust or Exum recognizes strategic thought. Both appear to believe that they are engaging in it by picking nits with various aspects of the report’s analysis, but none of their critiques of the smaller claims does anything to knock down the report’s conclusion: that America has limited interests in Afghanistan; that those interests are actually reasonably easy to achieve; and that our current efforts there are at best wasteful and at worst counterproductive…
If you have interest, give it a read. Bernard Finel has more here.
Is the Fourth Amendment Really About ‘Privacy’?
Back in June, the American Civil Liberties Union launched a new Web hub called Spy Files, which promises to be an invaluable resource for those of us who make a point of watching the watchers. Probably the most interesting document available on the site at launch was a thorough state by state survey of law enforcement surveillance of protected political and religious association over the past decade. They rounded up a truly disturbing number of instances, spanning 33 states, just from press reports, of undercover officers infiltrating anti-war groups and mosques without obvious grounds to suspect wrongdoing. In the aggregate, as the report itself notes, the effect is eerily reminiscent of the FBI’s infamous COINTELPRO operation, which targeted groups deemed “subversive” in the 1960s and 70s.
Following the exposure of COINTELPRO and a spate of related intelligence scandals uncovered by Senate investigations during the 70s, the latitude of federal investigators to covertly infiltrate domestic groups was somewhat constrained by Executive Order 12333, signed by President Reagan in 1981. But state and local law enforcement often have a relatively free hand, because under the modern understanding of the Fourth Amendment, the Constitution is concerned only government actions that violate a “reasonable expectation of privacy,” which courts have generally understood as limited to the exposure of what was previously secret. When we entrust sensitive records to third parties—be they banks, Internet Service Providers, or other members of our churches or political organizations—we “assume the risk” that they will reveal the information to the government, according to the courts’ logic, and so waive our expectation of privacy.
Legal scholars have long been critical of the reasoning behind this “third party doctrine,” in particular the “assumption of risk” argument, but traditionally they’ve accepted the basic frame that the Fourth Amendment should fundamentally be understood as concerned with protecting “privacy”—though the term itself does not appear in the Constitution—and argued that the court has interpreted the concept too narrowly. Yet a growing number of investigative techniques—from GPS location tracking to DNA analysis—allow the government to conduct an intuitively troubling degree of monitoring, potentially on a vast scale, by targeting information that is at least in some sense “public.”
The ‘Tea Party’ Smear
One sign of the tea party movement’s success is that the term “tea party” is becoming an all-purpose smear term for any more-or-less right-wing person or activity that the writer doesn’t like. In fact, I think “Tea Party” is replacing “neocon” as an all-purpose word for “the people I hate.”
Take a look at this article, teased on the cover of Newsweek as “France’s Tea Party” and online as “What a Tea Party Looks Like in Europe.” When I saw the cover on the newsstand, I thought, “A tax revolt in France? Cool! And about time!” But what is the article actually about? It’s about the National Front party of Jean-Marie Le Pen, who
for decades has played on the inchoate fears, xenophobia, knee-jerk racism, and ill-disguised anti-Semitism of many of his supporters.
Is that Newsweek‘s view of the “tea party”? The article went on to explain that at 82 Le Pen is yielding party leadership to his daughter, who is “a passionate advocate of its core message: strong French nationalism, relentless Euro-skepticism, and a lot of hard-nosed talk about fighting crime and immigration.” And lest that you think that such culturally conservative and unsavory attitudes simply go hand in hand with a belief in lower taxes and smaller government, the authors point out that
she’s also a big believer in the state’s ability and obligation to help its people. “We feel the state should have the means to intervene,” she says. “We are very attached to public services à la française as a way to limit the inequalities among regions and among the French,” including “access for all to the same level of health care.”
That combination of nativism and welfare statism seems very different from the mission of the tea party movement. The Tea Party Patriots website, the closest thing to a central focus for tea party activists, lists their values as “Fiscal Responsibility, Limited Government, Free Market.” In fact, I note that writers Tracy McNicoll, Christopher Dickey, and Barbie Nadeau never use the term “tea party” in the body of the article. So maybe we should only blame Newsweek‘s headline writers and front-page editor.
In another example, the Guardian newspaper of London wrote sensationally about “Lobbyists behind the rightwing Tea Party group in the US” arriving in London for “an event organised by the UK’s controversial Taxpayers’ Alliance.” (Why is it controversial? Apparently because it agitates for lower taxes.) These groups, it is said, have “close links to the billionaire brothers David and Charles Koch” and “have lobbied . . . to maintain tax breaks for the rich” — and for everyone else, a point that author Phillip Inman inadvertently omitted. And, contrary to the article, Cato didn’t sponsor a taxpayers’ conference in London; we cosponsored the venerable European Resource Bank, a networking conference for free-market think tanks across Europe.
Inman writes, “The Cato Institute, which promotes its views on Fox News and other rightwing media, is one of the Tea Party’s main backers.” That’s sort of true, except for the point that our scholars have appeared more often on CNBC than on Fox. And that we don’t back any political or grass-roots movements, though many of our scholars have written generous — and sometimes more cautious — articles about the tea party movement.
My colleague Aaron Powell suggests that that many left-liberals, including many journalists, have a Manichean worldview that posits a fundamental conflict between corporations and government. And so if you dislike corporations, you perforce stand on the side of government. And when it’s energy corporations, like the Kochs, then anything they touch becomes The Enemy. And “Tea Party” is now, to some people, the generic name for The Enemy.
For more sensible views of the tea party movement from journalists, see this John Judis article that I praised before and a new analysis from Jonathan Rauch in National Journal.
What If Cuccinelli Had Sent that Letter to Planned Parenthood?
The following analogy may help to explain why everyone should be troubled by HHS Secretary Kathleen Sebelius’ efforts to intimidate insurance companies who say unflattering things about ObamaCare.
Last month, Virginia Attorney General Ken Cuccinelli (R), issued an opinion that state regulatory boards already have the authority to impose additional regulations on abortion clinics. Critics pounced, claiming that the measure could shut down 17 of the state’s 21 clinics. What if Cuccinelli responded with a letter threatening to investigate clinics that “misinform” the public about the costs of such regulation?
Keynes Was Wrong on Stimulus, but the Keynesians Are Wrong on Just about Everything
Dana Milbank of the Washington Post wrote this weekend that critics of Keynesianism are somewhat akin to those who believe the earth is flat. He specifically cites the presumably malignant influence of the Cato Institute.
Keynes was right, and in this case it’s probably for the better: Keynes didn’t live to see the Republicans of 2010 portray him as some sort of Marxist revolutionary. …These men get their economic firepower from conservative think tanks such as the Cato Institute… What’s with the hate for Maynard? Perhaps these Republicans don’t realize that some of their tax-cut proposals are as “Keynesian” as Obama’s program. There’s a fierce dispute about how best to respond to the economic crisis — Tax cuts? Deficit spending? Monetary intervention? — but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession. …With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. …There is an alternative to such “Keynesian experiments,” however. The government could do nothing, and let the human misery continue. By rejecting the “Keynesian playbook,” this is what Republicans are really proposing.
Milbank makes some good points, particularly when noting the hypocrisy of Republicans. Bush’s 2001 tax cuts were largely Keynesian in their design, which is one of the reasons why the economy was sluggish until the supply-side tax cuts were implemented in 2003. Bush pushed through another Keynesian package in 2008, and many GOPers on Capitol Hill often erroneously use Keynesian logic even when talking about good policies such as lower marginal tax rates.
But the thrust of Milbank’s column is wrong. He is wrong in claiming that Keynesian economics works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. It didn’t work for Bush in 2001 or 2008, and it didn’t work for Obama. The reason, as explained in this video, is that Keynesian economics seeks to transform saving into consumption. But a recession or depression exists when national income is falling. Shifting how some of that income is used does not solve the problem.
This is why free market policies are the best response to an economic downturn. Lower marginal tax rates. Reductions in the burden of government spending. Eliminating needless regulations and red tape. Getting rid of trade barriers. These are the policies that work when the economy is weak. But they’re also desirable policies when the economy is strong. In other words, there is no magic formula for dealing with a downturn. But there are policies that improve the economy’s performance, regardless of short-term economic conditions. Equally important, supporters of economic liberalization also point out that misguided government policies (especially bad monetary policy by the Federal Reserve) almost always are responsible for downturns. And wouldn’t it be better to adopt reforms that prevent downturns rather than engage in futile stimulus schemes once downturns begin?
None of this means that Keynes was a bad economist. Indeed, it’s very important to draw a distinction between Keynes, who was wrong on a couple of things, and today’s Keynesians, who are wrong about almost everything. Keynes, for instance, was an early proponent of the Laffer Curve, writing that, “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”
Keynes also seemed to understand the importance of limiting the size of government. He wrote that, “25 percent taxation is about the limit of what is easily borne.” It’s not clear whether he was referring to marginal tax rates or the tax burden as a share of economic output, but in either case it obviously implies an upper limit to the size of government (especially since he did not believe in permanent deficits).
If modern Keynesians had the same insights, government policy today would not be nearly as destructive.
Sebelius’ Prior Restraint on Speech
Here’s something else to consider about HHS Secretary Kathleen Sebelius’ threatening letter to health insurers who dare to tell their enrollees about how much ObamaCare is costing them.
Sebelius threatened insurers for claiming ObamaCare will increase premiums by as much as 9 percent. Yet there were no threats issued against the RAND Corporation when it estimated ObamaCare will increase premiums for young adults by an average of 17 percent beginning in 2014, or against Milliman Inc. when it likewise estimated premium increases of 10-30 percent for young adults. The reasons for the disparate treatment are fairly obvious. Sebelius has less power over RAND or Milliman, and bullies always find it easier to pick on the unpopular kid.
But an equally important implication is that Sebelius knows that ObamaCare’s largest premium increases are yet to come. Sebelius may be intimidating insurers now to prevent them from blaming those much larger premium increases on ObamaCare.
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