Archive for January, 2011
Behind the Political Rhetoric Are Profound Differences
Today POLITICO Arena asks:
Post-Tucson will campaign trail rhetoric change in any discernible way? Should it change? What phrases or words should be considered out of bounds? Or is that approach a way of silencing legitimate criticism of political candidates?
My response:
Post-Tucson campaign trail rhetoric won’t change because, as Charles Krauthammer put it brilliantly in yesterday’s Washington Post, fighting and warfare are routine political metaphors for obvious reasons: “Historically speaking, all democratic politics is a sublimation of the ancient route to power — military conquest. That’s why the language persists,” why we speak of “battleground states” or “targeting” opponents.
That doesn’t mean that no charge is “out of bounds.” It’s perfectly all right for Sarah Palin to “target” 20 potential swing districts — Democrats do the same. And her use yesterday of “blood libel,” as Alan Dershowitz explains, is entirely acceptable too. What is out of bounds is the kind of scurrilous charges we’ve seen from The New York Times, the Paul Krugmans, E.J. Dionnes, Jonathan Alters, and their ilk, that the Tea Party and the political discourse around it contributed to the Arizona shooting — when there isn’t a shred of evidence to support that, and every indication that a lone mentally disturbed individual was responsible.
But far deeper issues are at play here, and they’re brought out in a penetrating piece by Daniel Henninger in this morning’s Wall Street Journal, “Why the Left Lost It.” He points first to the devastating, potentially sea-changing midterm elections — “Republicans now control more state legislative seats than any time since 1928” – which “came atop the birth of a genuine reform movement, the tea parties.” And the debt crises, state and federal, that animate the Tea Party pose a mortal threat to a liberal agenda that stretches back at least to Goldwater.
As Henninger writes, the divide between today’s left and its conservative opponents “is deep, and it will never be bridged. It is cultural, and it explains more than anything the ‘intensity’ that exists now between these two competing camps.” Read it.
Disastrous U.K. Tax Hike Unleashes a Steroid-Pumped Version of the Laffer Curve
The Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to convince left-leaning people that the Laffer Curve exists. I use common-sense explanations. I cite historical examples. I even use information from left-of-center institutions in hopes that they will be more likely to listen.
The other half of my time is spent trying to educate right-leaning people that the Laffer Curve does not mean that “all tax cuts pay for themselves.” I relentlessly try to make them understand that there is a big difference between pro-growth tax cuts that increase incentives for productive behavior and therefore lead to more taxable income and other tax cuts such as child credits that have little or no impact on economic performance.
Given my focus on this issue (some would say I’m tenacious, others that I’m bizarrely fixated), I was excited to see a column from the editor of a business paper in the United Kingdom about a tax increase that backfired in a truly spectacular fashion. It deals with the taxation of rich foreigners, called “non-doms,” who often choose to live in London because the U.K. government does not tax them on their foreign income. But then the Labor Party, with the support of spineless Tories, imposed an annual fee of £30,000 (about $45,000-$50,000) on these highly productive people.
The rest, as they say, is history. Here’s a long extract, but you should read the entire article.
Figures out last night confirmed yet again that crippling tax hikes are driving people and economic activity away from Britain. Rather than raising extra tax receipts to plug Britain’s budget deficit, there is growing evidence that the raids are actually reducing the amount of money collected by the taxman, thus inflicting even greater debt on the rest of us. Our predicament is depressing almost beyond words. The number of non-doms living in the UK collapsed by 16,000 in 2008-09, the most recent year for which data is available, according to yesterday’s figures. This is a dramatic decline: an 11.6 per cent drop from 139,000 in 2007-08 to 123,000. When in April 2008 Labour – egged on by the Conservatives – introduced an annual levy of £30,000 for those who had claimed non-dom status for seven years, pundits dismissed the tax as too low to make a difference. …Non-doms are people who originated overseas and pay UK tax on their UK earnings but no tax on their foreign income. The original non-doms were Greek shipping moguls who fled their socialist country to base themselves (and their businesses) in London. Until recently, the UK fought to attract such people; they pay a lot of UK tax and are often employers or high spenders. Yesterday’s figures actually underplay the true extent of the exodus: the departure of non-doms is bound to have accelerated in 2009-10 and will continue in the coming years as a result of the 50p tax rate, the hike in capital gains tax, the extra national insurance contributions and the near-hysterical war on financiers and myriad other attacks on wealth-creators and foreign investors that are now routine in this country. …The Treasury told us 5,400 non-doms opted to pay the fee. This means that the taxman raised an extra £162m. The Treasury wouldn’t or couldn’t give us any more information, so I’ve made a few guesstimates to work out the net cost of the tax raid. Being over-generous to the government, it might be that half the missing non-doms are now full taxpayers. Let’s assume they are paying an extra £15,000 in tax each. That would make another £120m in tax, taking the total to £282m. Let’s then assume that the 8,000 missing non-doms would have paid £50,000 each in UK income tax, capital gains tax, VAT and stamp duty – the gross loss jumps to £400m, which means that the Treasury is £118m worse off. The real loss is almost certainly much higher.
In other words, this is one of those rare cases where a tax increase is so punitive that the government winds up losing money. In a logical world, this should be an opportunity for the left and right to unite for lower taxes. The left would get more money to spend and the right would get the satisfaction of better tax policy. This assumes, however, that the left is more motivated by revenue maximization than it is by a class-warfare impulse to punish the rich. As Obama said during a Democratic debate in 2008, he didn’t care whether higher taxes raised more revenue.
Rep. Brady’s CUTS Act
Rep. Kevin Brady (R-TX) has introduced the Cut Unsustainable and Top-heavy Spending Act, which would cut spending by $44 billion annually. Brady’s effort moves in the right direction but it is a very modest fiscal reform effort.
The legislation, which Brady calls a “down payment on getting America’s financial books in order,” chooses targets that have already been proposed by the Obama administration or the president’s Fiscal Commission. Therefore, the proposal should have bipartisan appeal. For example, Brady’s bill would cut Pentagon spending and eliminate subsidies to the Corporation for Public Broadcasting.
Many of the targets represent “house cleaning cuts” that would reduce spending on bureaucratic activities such as printing and federal travel. The legislation would also reduce the federal workforce by 10 percent per the Fiscal Commission’s recommendation. While there’s nothing wrong with a little house cleaning, these types of cuts would occur on their own if entire government agencies and programs were eliminated.
Eliminating federal agencies and programs should be the ultimate goal. Annual savings of $44 billion only amounts to about 3 percent of the project budget deficit this year, and less than 10 percent of the annual amount needed to be cut to stabilize the debt by 2020. (See this Cato spending cut plan for more details on what is needed to get our budgetary situation under control.)
Education and Society
The Washington Post‘s Valerie Strauss asserted yesterday that “public education is a civic institution” and laments that it is seldom talked about as such (kindly citing our upcoming Cloning “Superman” event in the process).
Certainly the way children are educated can have a powerful impact on the kind of society they go on to build. And there are many social goals on which Americans strongly agree: that schools should prepare children for the responsibilities of citizenship as much as for success in private life; that they should encourage harmonious relations among people of different backgrounds (or at least not foment conflict); and that they should ensure that every child, regardless of background, has access to a quality education.
But does anyone seriously believe that our existing school system is doing a satisfactory job in any of these areas? I doubt that Ms. Strauss herself believes that, and suspect that she was merely expressing the view that our education system should do these things rather than claiming that it already was. Consider the hundreds of community conflicts around the country documented by my colleague Neal McCluskey as having been caused by public schools in a single year. Consider, too, the literature review performed by the University of Arkansas’ Patrick Wolf showing that the civic outcomes of freely chosen (usually private) schools are consistently superior to those of public schools, after controlling for differences in student and family background. And one needn’t have seen the documentary Waiting for Superman to realize that public schools have been failing far too many children, especially poor and minority children, for far too long.
If we are to remedy these profound shortcoming in American education, our best hope is to set aside our preconceptions about what kind of school systems should produce the social goods we seek, and instead ask which systems actually do produce them.
Having reviewed the worldwide econometric literature of the past 25 years, I’ve found that it is the most marketlike education systems that have consistently done the best job of serving disadvantaged children (indeed, all children) both here and abroad. Wolf’s literature review also favors private schools in their civic outcomes. And when people can get the sort of education they value for their own children without being compelled to impose their preferences on their neighbors, the conflicts caused by public schooling are avoided. Even with regard to meaningful integration among children of different racial and ethnic backgrounds, the private education sector performs as well or better than the state sector.
If Ms. Strauss or anyone else has compelling evidence to the contrary, I’ll be interested to hear of it. And if she or anyone else would like to know what the social impact of decades of private school choice has been in a communitarian nation like Sweden, they’re welcome to come to Cato and ask Peje Emilsson on the 28th of this month.
Judicial Takings and Scalia’s Shifting Sands
Last term, the Supreme Court decided what could end up being an important precedent for protecting property rights — even as the Court ruled unanimously against the property owners in that particular case! How is this possible? Read the new article by Cato legal associate Trevor Burrus and me, “Judicial Takings and Scalia’s Shifting Sands.”
Here’s the background: Seeking to restore beaches damaged by hurricanes, the Florida Department of Environmental Protection began dredging sand from the Gulf of Mexico ocean floor and transporting it to Florida’s gulf coast. The expanded area of the beach became state property, depriving beachfront landowners of their littoral rights. In reviewing the landowners’ lawsuit against the state, the Florida Supreme Court (SCOFLA, if you remember your Bush v. Gore trivia) departed from long-established state law principles protecting littoral property rights and held that littoral rights are an ancillary concept subsumed by the right of access. In so doing, the court effectively discarded 100 years of property law and rewrote the definition of property.
The U.S. Supreme Court had never formally addressed whether state court rulings eliminating formerly established property rights can effect a taking, or violate an owner’s due process rights, under the Fifth and Fourteenth Amendments to the U.S. Constitution. Cato joined the National Federation of Independent Business Small Business Legal Center and the Pacific Legal Foundation on a brief supporting the landowners.
In June, Court finally decided Stop the Beach Renourishment v. Florida Department of Environmental Protection. The decision waded through a jumbled mass of arcane waterfront law to reach a very simple and unanimous holding: the Florida Supreme Court did not subvert an existing property right to such an extent that its decision constituted a “judicial taking.” The state won. The property owners lost. SCOFLA was vindicated.
Still, while all eight justices ultimately ruled for the state — Justice Stevens recused himself because his Florida property is subject to the renourishment program — six accepted the idea that judges can violate the Constitution by reinterpreting pre-existing property rights (albeit under two different theories), and the other two declined to reach the question. Although the Stop the Beach Court found that SCOFLA had not departed from sufficiently established state property law to constitute a taking, the idea of a judicial taking — whether through the Fifth Amendment’s Takings Clause or the Fourteenth Amendment’s Due Process Clause — is very much alive.
And that’s where our article in the Vermont Law Review picks up. In this article, Trevor and I examine the background of the judicial takings doctrine, react to the Court’s decision here in light of Cato’s amicus brief, and contrast Justice Scalia’s views of Substantive Due Process as expressed in Stop the Beach with that in another high-profile case whose plurality opinion he joined, McDonald v. City of Chicago, to argue that the judicial takings doctrine is necessary to a robust constitutional protection of property rights.
How the Term ‘Tax Expenditure’ Leads to Bigger Government
The Center for American Progress has a new weekly feature examining “tax expenditures” in the Internal Revenue Code. As I’ve written before, there ain’t no such thing as a tax expenditure. Or a tax subsidy. Targeted tax breaks are bad because, on balance, they expand government’s control over the people. But they are not “expenditures” or “subsidies.” Using either of those terms implies that the money not collected by the IRS because of a targeted tax break actually belongs to the federal government, rather than the people who earned it.
The Left would love to convince everyone that, as the Center for American Progress writes, “Tax expenditures are really just federal spending programs administered by the Internal Revenue Service.” If everyone believes that this is really federal spending, then when Congress eliminates those “tax expenditures” maybe no one will notice that Congress is actually extracting resources from the private sector.
That very deception appears to be the aim of the Center for American Progress’ new feature. Their first “Tax Expenditure of the Week” is the exclusion for employment-based health insurance. They use the “tax expenditure” concept to argue that ObamaCare’s 40-percent “Cadillac tax” on high-cost health plans is actually a good thing:
The tax exclusion for employer-sponsored health care benefits is the largest tax expenditure and one of the most important. The Patient Protection and Affordable Care Act takes steps to make it more targeted and cost effective in the context of overall health care reform. Other tax expenditures should be similarly evaluated and considered in the context of the policy goals they serve.
See? ObamaCare doesn’t raise your taxes. It reallocates a tax expenditure. George Orwell, call your office.
(To be clear: I favor eliminating all targeted tax breaks, even the personal and dependent exemptions, and having everyone pay the same low, low, low rate. Eliminating tax breaks for health care is essential for bringing medical care within the reach of low-income people. But the exclusion for employer-sponsored insurance is a particularly sticky wicket, such that reform will need to happen in two steps. Here’s the first step.)
The Sun Never Sets on the PATRIOT Act
A year ago, the protracted wrangling in Congress over the re-authorization of several expiring provisions of the PATRIOT ACT made plenty of headlines. Most observers expected the sunsetting powers to be extended, but civil libertarians hoped serious and sorely needed reforms might be part of the package. The House and Senate Judiciary Committees held multiple hearings on the topic, and an array of competing reform and reauthorization bills (PDF) were proposed, adding extra safeguards (of varying stringency) to the greatly expanded surveillance powers Congress had approved in the aftermath of the 9/11 attacks.
But Congress had a full plate, and so it punted—approving a straight one-year reauthorization without any modifications at the last minute. (You’d be forgiven for not noticing: The extension passed under the heading of the “Medicare Physician Payment Reform Act.”) As I
noted in December, however, the Justice Department has promised Congress that it will voluntarily adopt some of the measures that had been floated in those reform bills—which would be a fine thing in itself, but I worried that the move seemed calculated to reduce the impetus for binding legislation.
Well, I’ve just noticed—quite serendipitously, as there doesn’t appear to have been a whisper in the press—that the new House Intelligence Committee Chair, Mike Rogers (R-Mich.), has introduced yet another one-year extension, which would push the sunset of the expiring provisions back to the end of February 2012. Given the very limited number of days Congress has in session before the current deadline, and the fact that the bill’s Republican sponsor is only seeking another year, I think it’s safe to read this as signaling an agreement across the aisle to put the issue off yet again. (I’ve asked Rogers’s office for a comment and will update this post if I hear back.)
In the absence of a major scandal, though, it’s hard to see why we should expect the incentives facing legislators to be vastly different a year from now. Heck, we’ve had a pretty big scandal involving the misuse of National Security Letter powers, but even right on the heels of the Inspector General’s report documenting those abuses, the mildest reforms proffered last year died on the vine. I’d love to be proven wrong, but I suspect this is how reining in the growth of the surveillance state becomes an item perpetually on next year’s agenda.
Marriage against the State
I’m pleased to announce the publication of my new Cato Policy Analysis, “Marriage against the State: Toward a New View of Civil Marriage.”
As I note in the introduction, it’s quite rare that Congress ever considers marriage as a policy area in its own right. There are comprehensive health care bills, defense spending bills, farm bills, and civil rights bills, but no really comprehensive marriage bills.
Of course, this might be a good thing, but one of the side effects is that marriage policy can be haphazard in the extreme. Inconsistencies and surprises abound. Marriage influences welfare, immigration, tax law, child custody and support, and many others besides.
Are all of these things legitimate? A popular view among libertarians is that the federal government, and possibly the states, should get out of the marriage business altogether. It’s an approach with much to recommend it, but I can’t entirely agree. For at least some areas of public policy, marriage represents a barrier to government meddling in your financial, family, and intimate life. In these areas, it’s an unqualified good. Marriage is often a defense against the state, and as such, it’s something libertarians ought to want.
Rep. Frank Lucas (R-Farm Subsidies)
The Washington Times says that the upcoming farm bill re-write could “sow division in the GOP.” While House Republican leaders John Boehner, Eric Cantor, and Kevin McCarthy voted against the 2008 farm bill, the new chairman of the House Agriculture Committee, Frank Lucas (R-Okla.), is a dedicated supporter of farm subsidies.
The Times recalls Boehner’s comments on the 2008 farm bill:
“The farm bill has often been abused by politicians as a slush fund for bizarre earmarks and wasteful spending projects, and the latest version … is no different,” Mr. Boehner, then the GOP minority leader, said at the time.
It’s too bad then that the Boehner-friendly Republican Steering Committee, which decided the committee chairs, didn’t appear to blink at handing the agriculture committee gavel to a key supporter of the “slush fund.” And it’s not as if Lucas has been circumspect in his intentions. Lucas’s agriculture issues section on his website, which hasn’t been updated since the Republicans took back the House, makes that perfectly clear:
As Ranking Member of the Agriculture Committee, I have long been a champion of voluntary agriculture conservation programs. During the drafting of the 2002 Farm Bill, I worked to secure the largest ever increase in programs such as Environmental Quality Incentives Program, the Conservation Reserve Program, and many others. In the 2008 Farm Bill, I advocated for renewable energy provisions to be included in the farm bill which would allow rural areas to play a larger role in making the U.S. less dependent on foreign sources of energy. I am proud that the 2008 Farm Bill devotes a funding stream to renewable energy research, development, and production….
[I] will work closely with Chairman Peterson and other members of the committee to ensure that cuts are not made to agriculture producers – farmers and ranchers.
Lucas isn’t shy about touting his support from the myriad farm lobby groups either:
REAL ID Is Still Dead, But It Is Walking Dead
The cost and ease of implementing REAL ID are not shown by a new report from the anti-immigrant Center for Immigration Studies.
Nor does it establish why law-abiding American citizens should be required to carry a national ID. But the report is a good signal that the national ID effort continues. A coterie of national ID advocates are working with state motor vehicle bureaucrats to build a national ID. This is why repeal and defunding of REAL ID is so needed.
It’s been a while, so let’s review: REAL ID is the national ID law Congress passed in May of 2005. It gave states a three-year deadline to produce IDs meeting national standards and to network their databases of driver information together into a national ID system. In regulations it proposed in March 2007, the Department of Homeland Security extended that draconian deadline. States would have five years, starting in May 2008, to move all driver’s license and ID card holders into REAL ID-compliant cards.
At the time, DHS estimated the costs for this project at $17.2 billion dollars (net present value, 7% discount). Costs to individuals came it at nearly $6 billion—mostly in wasted time. The bulk of the costs fell on state governments, though: nearly $11 billion dollars.
To drive down the cost estimate, DHS pushed the implementation schedule way back. In its final rule of January 2008, it allowed states a deadline extension to December 31, 2009 just for the asking, and a second extension to May 2011 for meeting eighteen “benchmarks”—many of them things states were already doing or would have done anyway: taking pictures of license applicants, having them sign their applications, documenting their dates of birth, maintaining fraudulent document training programs, and so on.
Then states would have until the end of 2017 to replace all cards with the national ID card—just under ten years. DHS assumed that only 75% of people would actually get the national ID to drive the cost estimate down even further.
The Center for Immigration Studies report, authored by national ID lobbyist Janice Kephart, ratchets back even further on what ”implementation” means to argue that REAL ID is a cost-effective success.
States like Maryland and Delaware, once committed, have completed implementation of the 18 benchmarks within a year for only twice the grant monies provided by the federal government. Extrapolated out, that puts total costs for implementing the 18 REAL ID benchmarks in a range from $350 million to $750 million, an order of magnitude less than estimated previously.
Again, these benchmarks are not the substance of REAL ID, which is uniform collection and sharing of driver information, and uniform display of driver information in the “machine-readable zone” of a national ID card. But meeting some of the benchmarks only costs twice as much money as the states don’t have to spare!
The report is an important signal, though. The national ID builders haven’t gone away, and Congress continues to fund the national ID project. DHS has allocated $176 million to building a national ID so far, and it has gaudily rattled states’ cages trying to get them to spend.
During the debate about spending for the current (2011) fiscal year, the House-passed “Full-Year Continuing Appropriations Act” defunded the network for driver information sharing known as the “REAL ID hub,” and it also rescinded $16,500,000 in previously spent funds. That rescission should be included when the current Congress takes up FY 2011 spending again in March. And Congress should put a stake through the heart of the REAL ID law. The liberty-crushing national ID plan should be repealed, eliminated once and for all.
Political Uncertainty and Investment: Empirical Results
An oft heard explanation for some of the weakness facing our economy, particularly investment and hiring, is that firms are concerned about policy uncertainty coming from Washington, be it health care, financial regulation, labor regulation, etc. For the most part, those arguments have been based upon anecdote or theory (see Bernanke’s 1983 QJE piece), with some difficulty finding strong empirical support either way. A forthcoming paper in the Journal of Finance helps to shed some light on the question, by providing more generalized estimates of the impact of electoral uncertainty on investment decisions.
The authors examine whether elections, particularly those that are close, have an impact on corporate investment. The logic behind the research: “if an election can potentially result in a bad outcome from a firm’s perspective, the option value of waiting to invest increases and the firm may rationally delay investment until some or all of the policy uncertainty is resolved.” Their sample is national elections in 48 countries from 1980 to 2005. These almost all developed, industrialized economies, as the unit of observation is a publicly traded firm. US companies constitute a large portion of their sample.
The results: holding all else equal, in terms of the economy and investment opportunities, elections “reduce investment expenditures by an average of 4.8%.” That’s a substantial hit to investment. The results are even larger when the incumbent is viewed as “market-friendly.” Of course one needs to be cautious in applying these results to non-election year political uncertainty. There are also reasons, some of which are touched upon by the authors, that political uncertainty in the US may have either larger or smaller effects. So while we might not know the exact magnitudes, I think its safe to say that the notion that political uncertainty depresses investment has both empirical and theoretical support (as well as a few anecdotes).
Surprise, Surprise
Last year I wrote about the intriguing proposal by the North Dakota Farm Bureau to do away with federal farm subsidies. I expressed at the time my doubt that the proposal would find much traction with the national American Farm Bureau Federation and, indeed, the group voted yesterday (at their annual conference in Atlanta) against the milder proposition to cut direct payments — the approximately $5.2 billion per year of your money that flows to farmers regardless of what, or even whether, they farm. Those payments are becoming increasingly politically contentious at a time of growing unease about record deficits, and some farm groups had said defending (let alone receiving) them was a threat to farmers’ broader interests.
Well, despite some discord among the group, the AFBF — you’ll be shocked, shocked to hear — voted largely for the status quo. From Brownfield (in an article that contains interesting analysis of how support for various programs breaks down on state/regional lines):
By a comfortable margin, the delegates passed a resolution calling for ‘a strong and effective safety net that consists of direct payments, crop insurance and a simplified Average Crop Revenue Election (ACRE) program.‘
Hopefully Congress can prove me wrong and cut farm subsidies when the farm bill comes up for renewal in 2012.
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