Archive for May, 2011
What Immigration Reform Would Look Like
Utah’s done it (great editorial in the WSJ):
Passed by the state’s GOP legislature and signed by Republican Governor Gary Herbert in March, Utah’s plan is notable because it’s the first in the country that would allow undocumented immigrants to get a permit and work legally, after paying a fine of up to $2500 and meeting other conditions. The program is part of a larger package that includes increased scrutiny of immigrants who break the law. The compromise allows the state to address the economy’s demand for workers—thus reducing the incentive for illegal immigration—while satisfying voters who don’t want to reward those who arrived illegally.
Of course, states can’t just announce their own guest-worker programs — the federal government has plenary power over immigration — so Utah may need a waiver from the feds. Which might not be forthcoming, given politically tone-deaf and legally dangerous statements like this:
In a Senate Judiciary hearing on Wednesday, Attorney General Eric Holder said the law, which combines enforcement measures with a guest worker program, needs to be adjusted or face federal lawsuits. Pressed on whether the Administration planned to sue Utah, Mr. Holder said the Department of Justice “will look at the law, and if it is not changed to our satisfaction by 2013, we will take the necessary steps.”
“To our satisfaction?” What does Holder think an eventual federal immigration solution would look like? Here’s Cato’s proposal, but anything that gets through Congress will have to expand employment opportunities for both skilled and unskilled immigrants, normalize the status of current illegals, and otherwise refocus resources on criminals and terrorists.
But it’s not just the government that’s up in arms about Utah’s sensible legislation:
Like Arizona, Utah is already fending off lawsuits from the left. On Tuesday, the American Civil Liberties Union and the National Immigration Law Center sued to stop the portion of the law similar to the one in Arizona that enlists state and local police in the effort to identify illegal immigrants. In Utah’s version, anyone who is arrested for a felony or serious misdemeanor has to show proof of citizenship.
Good grief! State officials do not violate the Supremacy Clause — or engage in unconstitutional racial profiling — when they enforce federal law, which is what Utah’s enforcement measures, like most of Arizona’s, do. Critics naturally maintain that such enforcement decisions should be left to the feds but that only gets it half right: the federal government, particularly its executive branch, has discretion over how to prioritize enforcement priorities, but those discretionary decisions (which, after all, can change from one administration to another and even within one presidency) cannot preempt state law. Only federal law can do that.
This not a question of policy; while I generally like Utah’s plan, I’ve written before that Arizona’s (very different) SB 1070 is constitutional but mostly bad policy. The larger issue is states wanting to do something in the face of federal abdication. Some of Utah’s laws — the “plan” is actually five separate laws, covering the spectrum of immigration issues from expanding legal immigration (HB469, HB466) to addressing those already here for economic reasons (HB116) to addressing serious criminals (HB116, HB497) — may well end up losing in court, but they at least get national attention and to try to push federal action (SJR12).
As Rep. John Dougall, Vice Chair for Appropriations (#2 on the state budget), has explained to me, a major goal Utah had was to shift the dialogue from “enforcement only” to something more comprehensive, especially expanding legal immigration. A more controversial purpose was to plant the federalism flag, arguing that states share some of the jurisdiction over immigration. For example, Dougall wrote in an email to me that I quote with his permission, “HB469 rests on the belief that citizens should have the right to freely associate with anyone in the world, who don’t pose a public safety threat to others, and those citizens should be able to sponsor those immigrants in UT. A belief that the state should defend a citizen’s right to freely associate from an overly expansive federal government.”
I’m not fully convinced that some of this isn’t preempted — by federal law, not by what attorneys general or secretaries of homeland security say or do – but the goal is laudable and the classical liberal first principles are unassailable. The Utah model could work for other states looking to split the Gordian knot between the extremists on both sides whose “debate” generates into ”amnesty” versus “racism.” Texas Republicans have introduced similar legislation and other states’ lawmakers are also apparently interested.
That’s all to the good: even if you can’t enjoy the “greatest snow on earth” during the summer, anyone interested in innovative immigration reform should book a flight to Salt Lake City.
Martin Feldstein on the Defense Budget
Martin Feldstein, a distinguished economist and a former colleague, made a surprising case for maintaining a large U.S. defense budget, despite a huge federal budget deficit, in the annual Irving Kristol lecture Tuesday night at the American Enterprise Institute.
On one point, he was clearly right: we can afford it. “There is no danger of bankrupting ourselves by so-called ‘imperial overreach’ when we spend less than 5 percent of GDP on defense” (in fact, 5.6 percent of GDP in 2010).
But he failed to make a convincing case that we should spend this much for defense, especially given the dire outlook for federal deficits and the debt. In 2010, U.S. real (inflation-corrected) spending for national security was over twice the annual spending during the Ford and Carter administrations and over 40 percent of total current world defense spending. What conditions, what national objectives, might justify continued U.S. defense spending of this or a higher magnitude?
Feldstein first plays the China card, arguing that “The United States should maintain a military capability such that no future generation of Chinese leaders will consider a military challenge to the United States or consider using military force to intimidate the United States or our allies,” maybe forgetting that a much weaker China successfully challenged us in Korea in the early 1950s. He next makes the case for the importance of a global military presence, arguing that “We have to make it clear by our budgets and by our actions that we are the global force now and will continue to be that in the future.” And finally, “we have to ask ourselves whether we have a moral obligation to defend our allies. …. There are those who say the United States should not be the global policeman. But if not us, who? As the only democratic superpower with the ability to defend and punish, do we not have a moral obligation to be willing to use that power?” All of this assumes without argument or evidence that it is important for the world to have a global policeman, that we can play this role effectively, and that it is a moral obligation for the United States to serve in this role.
The U.S. military had a central role in the most important strategic development since World War II — prevailing in the Cold War against the (former) Soviet Union. But it is critical to recognize that our military has not been very effective as a global policeman or nation builder. The Korean War ended in a draw, leaving a despotic communist government, now with nuclear weapons, in control of North Korea. After 20 years of a U.S. military presence, we abandoned Vietnam to a communist government that now controls most of southeast Asia. The U.S.-sponsored invasion of the Bay of Pigs was defeated, leaving a communist government in control of a large island 90 miles from Florida. U. S. forces have now been in Afghanistan for nearly 10 years without securing it from lightly armed local forces without significant external support. And U.S. forces have now been in Iraq for over eight years without securing it from frequent terrorist attacks.
I wonder what evidence Feldstein or anyone else would offer to support a view that the United States has a comparative advantage as the global policeman. Most of our allies can afford higher defense spending if our support is reduced. The total GDP of the European Union is higher than the U.S. GDP. The GDP of South Korea is many times that of North Korea. There is no obvious calamity that would result if the U.S. contribution to the collective defense with our allies were reduced.
Yes, we can afford a large defense budget, and national security is one of the few federal programs for which there is clear constitutional authority. But like the budgets for most other federal programs, the defense budget is too large. So a substantial reduction of the defense budget should be on the table in any serious effort to avoid a fiscal collapse, a threat that is more serious and more urgent than any that might be effectively countered by trying to maintain the role of a global policeman.
When Fighting ObamaCare, the Pen Is Mightier…
On Wednesday, the opening brief for the 26 states challenging ObamaCare was filed in the Eleventh Circuit. Also filed was the brief for the co-plaintiff, the National Federation of Independent Business. (Ilya Shapiro previously blogged about the filings here.) The government is appealing from Judge Roger Vinson’s stirring decision striking down all of the Affordable Care Act (ACA). (An edited version of that decision is available here.)
Because the challenge to Obamacare is the most important constitutional question in many decades, and because the case will have substantial ramifications for the health of our citizens as well as the health of our system of supposedly limited government, Cato is breaking protocol (we usually just get involved at the Supreme Court level) and filing amicus briefs in nearly every circuit in which a challenge is being made, at nearly every stage of litigation. Next week, we will also be filing in the Eleventh Circuit.
The states’ brief and the NFIB brief are excellent examples of persuasive writing, nuanced legal reasoning, and in-depth research. After 70+ years of judicial abdication and constitutional misinterpretation, we need good lawyering on our side. With the first principles of the Constitution largely forgotten, we have to play the hand that the Court has dealt us.
In these briefs, the lawyers have played their hands exceptionally well. Effective legal writing will maintain momentum while remaining persuasively rooted in law. A good turn-of-phrase doesn’t hurt either. The briefs are replete with great examples of both.
Recall that the litigation mostly concerns whether the so-called “individual mandate” — a part of the act that requires every citizen, with a few narrow exceptions, to maintain a qualifying health insurance plan or suffer a fine — is within Congress’s power to regulate interstate commerce. Even with the breadth that the Commerce Clause has been given since the New Deal, no case has allowed Congress to conscript citizens into commercial transactions, regulate them, and then blithely call it an ordinary regulation of commerce.
Record Number of Americans Targeted by National Security Letters
The latest report to Congress on the Justice Department’s use of foreign intelligence surveillance powers has just been released, and it shows a truly stunning increase in the number of Americans whose sensitive phone, Internet, and banking records were obtained by the FBI — without judicial oversight — pursuant to National Security Letters. In 2009, a total of 14,788 NSL requests were issued targeting U.S. persons — a number that excludes requests for “basic subscriber information” as opposed to phone or e-mail logs — and 6,114 different Americans were affected by those demands for information. In 2010, the number of NSL requests targeting Americans rose to 24,287.
What’s really shocking, however, is the number of people affected. A whopping 14,212 American citizens and permanent residents had records of their financial, telephone, and online activity seized last year. The previous record, set in 2005, was 9,475. Were you one of those 14,212? If so, what did the FBI get? Thanks to the gag orders that come with NSLs, you will almost certainly never get to find out. But even if the Bureau decides there’s no reason to continue investigating you, whatever data they obtained — lists of phone numbers, credit card purchases, financial transactions, e-mail correspondents, or IP addresses visited — are likely to remain in a massive government database indefinitely
This pattern suggests that the Bureau is doing broader but shallower investigation — sweeping more people into the information vacuum, but issuing fewer requests per person, presumably because the results of the initial request provide few grounds for further scrutiny. Needless to say, the overwhelming majority of those people are not terrorists — and, indeed, are probably guilty of nothing more than a second- or third-degree connection to the subject of an investigation. Remember, as expiring Patriot Act provisions come up for reauthorization at the end of this month: These tools are fundamentally not about spying on terrorists. The government has always had ample power to do that. They’re about authority to spy on the innocent.
New Job Numbers
The Labor Department released its latest job numbers today and they remind me of Clint Eastwood’s 1966 classic, The Good, the Bad, and the Ugly.
The good news is that the economy created 244,000 new jobs, the biggest gain in almost a year. And the jobs were in the productive sector of the economy rather than government, so the added employment means more taxpayers rather than more tax-consumers.
The bad news is that the jobless rate increased to 9.0 percent, up from 8.8 percent last month. This means that the number of people looking for work is increasing at a faster rate than the number of jobs being created.
The ugly news, at least from the perspective of the Obama administration, is that the latest data is yet another piece of evidence that the White House was grossly mistaken when it claimed that bigger government would translate into better economic performance.
The blue line in the chart below shows the administration’s prediction of what would happen to unemployment if the so-called stimulus was enacted. The dots represent the actual unemployment rate.
As you can see, the unemployment rate is easily more than two percentage points higher than the White House said it would be at this time.
This Week in Government Failure
Tad DeHaven has gone fishing with his dad, so I’ve got weekly wrap-up duties.
We focused on the following issues at Downsizing the Federal Government this week:
- Randal O’Toole talks high-speed trains.
- Tad says that he’s “hot and bothered” by politics on Capitol Hill.
- Tad compares budgeting in 1995 and 2011.
- Dan Griswold describes the idiocy of federal sugar policies.
- I discuss fiscal policy and royal weddings. Obama is talking corporate tax cuts and Republicans are talking spending cuts. I’ve got a great idea for a bipartisan deal!
To close out, Tad would usually say something tech-savvy such as ”follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.”
The Boundless Executive State: From Global Warming to Sexual Harassment
Two days ago Cato held a book forum to mark the publication of an excellent new book, Climate Coup: Global Warming’s Invasion of Our Government and Our Lives, edited by Pat Michaels. I coauthored chapter one, which shows how the modern executive state arose over the 20th century such that today the Environmental Protection Agency is able to regulate vast areas of life without ever having to go to Congress for authority to do so. It’s a remarkable inversion of the Founders’ vision. With emphasis added, the very first sentence of the Constitution, after the Preamble, reads as follows: “All legislative Powers herein granted shall be vested in a Congress …” — not in the executive branch, not in the courts, but in Congress. Yet today we are governed mainly by over 300 executive branch agencies that themselves exercise legislative, executive, and judicial powers, leaving the separation-of-powers principle in tatters.
And the executive’s reach extends, of course, far beyond environmental regulations. Thus we now learn from the Foundation for Individual Rights in Education (FIRE) — a fine organization dedicated to defending students and faculty caught in the jaws of higher education’s obsession with political correctness — that just last month the United States Department of Education’s Office for Civil Rights (OCR), all on its own, issued regulations requiring that colleges and universities receiving federal funding must employ not the beyond-a-reasonable-doubt standard, nor even the clear-and-convincing-evidence standard, but the low preponderance-of-the-evidence standard (a 50.01 percent, “more likely than not,” evidentiary burden) when adjudicating student complaints concerning sexual harassment or sexual violence. Institutions that fail to comply face federal investigation and the loss of federal funding.
It’s well understood, of course, that allegations of sexual crime involve difficult proof issues. Given that, FIRE’s open letter to OCR’s assistant secretary points out that Supreme Court precedent argues strongly against using the preponderance-of-the-evidence standard in campus hearings concerning allegations of sexual harassment and sexual violence. Lowering the burden of proof, FIRE notes in its press release,
will reduce confidence in campus judiciary systems and inevitably result in more incorrect guilty verdicts. Rather than provide for the “prompt and equitable” resolution of student allegations, FIRE contends that OCR’s new requirement “serves to undermine the integrity, accuracy, reliability, and basic fairness of the judicial process.” Further, relying on the preponderance of the evidence standard in sexual violence claims “turns the fundamental tenet of due process on its head, requiring that those accused of society’s vilest crimes be afforded the scant protection of our judiciary’s least certain standard.”
Yet already, FIRE adds, OCR’s new regulations have prompted colleges and universities across the country
to abandon their commitment to due process protections for students accused of sexual harassment and sexual violence. Brandeis University, Stanford University, Yale University, and the University of Massachusetts Amherst all have announced revisions, either already instituted or forthcoming. Given the threat of federal investigation and the loss of federal funding for failing to comply with OCR’s directives, hundreds of institutions will follow.
Thus, the modern executive state is at work, in this and a thousand and one other ways, writing and enforcing rules that Congress alone has the authority to write. But Congress long ago abdicated that responsibility, delegating it to politically non-responsible bureaucracies and bureaucrats. And that is where power rests today.
A Fiscal Royal Wedding
The British royal wedding was splendid, and the bride and groom were a great match. As a fiscal wonk, my idea of a royal match-up would be marrying corporate tax cuts and business subsidy cuts. The Obama administration is talking about corporate tax cuts and Republicans are talking about cuts to farm subsidies. Might they get together over a cup of tea and work out nuptials?
The global average corporate tax rate has fallen over the last decade from 32 to 25 percent (KPMG, page 79). We have been stuck with a highly damaging 40% federal-state rate. Canada is chopping its combined federal-provincial rate to 25 percent. The Conservative government just won a parliamentary majority, which promises even more pro-investment changes for our largest trading partner.
Consider a Japanese car company deciding where to build its next North American plant. Should it choose a place with a 25 percent tax and stable government finances, or a place with a 40 percent tax and soaring government debt threatening major tax hikes?
The American economy is sputtering, and today we learned that the unemployment rate is back up to 9 percent. If the Obama administration wants to get the economy booming before next year’s election, it should push for a cut in the federal corporate tax rate from 35 percent to 20 percent or lower. And it should put aside all this stuff about “closing corporate loopholes.” A lot of supposed corporate loopholes aren’t loopholes to begin with, and as soon as you start trying to cut the real loopholes, half the business community lines up against reform and nothing gets done. Furthermore, if we chopped the corporate rate, the economic distortions caused by loopholes would decline.
Anyway, the largest corporate “loopholes” are probably “homemade loopholes,” which start disappearing automatically if we cut the tax rate. With a high tax rate, corporations have fashioned all kinds of financial structures to avoid taxes. Corporate tax experts agree that the mobility of the corporate tax base is high and rising. If we sharply cut our corporate rate, reported income would increase substantially as multinationals shift their profits into the United States. (For more on this, see my book).
A corporate tax cut would spur capital investment and economic growth. In 2005, the Joint Committee on Taxation used two macro models to look at the effects of various fiscal reform packages. By far, the largest positive impacts on GDP came from matching a corporate tax rate cut with federal spending cuts. (See charts 1c and 1d). The JCT found that:
A decrease in the corporate income tax rate primarily affects the economy through increasing the after-tax rate of return on corporate capital, which provides incentives for increased investment in corporate capital. Over time, this increased investment results in more goods and services and higher total output. It also results in higher labor productivity, leading to increased wages and employment.
So, let’s get cracking on a corporate tax rate cut. Forget about the corporate loopholes, and instead match a rate cut with cuts to business subsidies, such as farm handouts.
Let’s also put aside the idea of tying corporate tax reform to individual tax reform, as Ways and Means chairman David Camp has suggested. That’s just a recipe for gridlock. Obama is offering up corporate tax reform — for the sake of jobs and the economy, Republicans should jump on that opportunity right away.
Friday Links
- With both parties gearing up to battle over the debt ceiling, Republicans need to stop apologizing for spending cuts and argue for a smaller government.
- Pat Michaels sat down with Caleb Brown to talk about the influence of politics on science.
- There are many answers that Osama bin Laden’s death does not provide.
- A scalpel is more effective than a sledgehammer against terrorists.
- Please join us on Monday at 4 p.m. as Prof. Amitai Etzioni of George Washington University Law School debates Cato vice president for legal affairs Roger Pilon on the moral implication of deficits, debt and the budget battles ahead. Cato executive vice president David Boaz will be moderating. Complimentary registration is required by noon, eastern, May 6, 2011. If you can’t join us in person, we hope you can join us online.
Want to Repeal ObamaCare? Stay On Message
Yesterday, I reluctantly dinged House Majority Leader Eric Cantor (R-VA) and House Budget Committee chairman Paul Ryan (R-WI) for veering off-message after bravely introducing and winning House passage of badly needed Medicare reforms. Each said ill-advised things to the media that undermined the long-term goal of Medicare reform. I even emailed some colleagues, “Why can’t they stay on-message, as they have with ObamaCare?”
As if on cue, it appears that House Ways & Means Committee chairman David Camp (R-MI) may have outdone both Cantor and Ryan. Huffington Post reports that Camp used the word “dead” to describe the effort to repeal ObamaCare.
I know, I know, he probably only meant that repeal is dead in this Congress. Yes, yes, he was backed into it by a reporter. Yeah, he will probably push for repeal in the next Congress, just as he did in this Congress. Is Huffington Post seizing on the word dead and painting an inaccurate picture of just how much Camp really, really wants to get rid of this intolerable law? No doubt all of this is true. None of it matters one bit.
Camp is the chairman of a powerful congressional committee. He should know that’s exactly what reporters are trying to do. And he should know how to stick to the script. Rather than use his comments to signal once again how committed he is to ensuring that ObamaCare never takes full effect in 2014, he gave us a news cycle — hopefully no more than one — where the words ObamaCare, repeal, and dead appear in the same sentence.
On Prisoner Treatment and Interrogation
Matthew Alexander, former senior military interrogator in Iraq, says the abuse and torture of prisoners hurt the U.S. by giving up the moral high ground. He says the policy also helped al-Qaeda recruit and very likely slowed the effort to find bin Laden.
More Trade, More Jobs
Our friends at the Economic Policy Institute are at it again, issuing another study this week that shows some particular trade agreement has cost X thousands of jobs over a certain number of years.
The latest target of EPI’s flawed model is the North American Free Trade Agreement. Enacted in 1994, NAFTA has created a free trade zone comprising the United States, Canada, and Mexico. According to the EPI report,
U.S. trade deficits with Mexico as of 2010 displaced production that could have supported 682,900 U.S. jobs; given the pre-NAFTA trade surplus, all of those jobs have been lost or displaced since NAFTA. This estimate of 682,900 net jobs displaced takes into account the additional jobs created by exports to Mexico.
The report’s author, Robert Scott, claims it foreshadows job losses if Congress passes pending trade agreements with South Korea, Colombia, and Panama.
The EPI model has little relevance to the real American job market. As I’ve pointed out before (here and here), its model is based on an overly narrow view of trade’s impact on the job market. Yes, some people do lose their jobs because of import competition, no news there, but trade also creates jobs through increased exports. And even if we run a trade deficit with a country such as China or Mexico, jobs are also being created by the net inflow of foreign capital, which spurs domestic job creation through lower interest rates and direct investment. The money we save from lower-priced imports also liberates consumer dollars to fuel growth elsewhere in our economy, and cuts costs for import-consuming businesses, boosting their sales and employment.
Next, consider the EPI numbers on their face. Those alleged 682,900 net jobs lost came over a 16-year period. That’s a bit more than 40,000 jobs lost per year. That is a drop in the bucket in a dynamic economy like ours that creates and eliminates about 15 million jobs each year. Even when unemployment is low, 300,000 or more Americans file for unemployment insurance in a typical week. So even if true, the EPI job loss numbers amount to less than one day’s worth of job displacement for the whole year.
When we look at the actual job market performance since NAFTA was enacted, the irrelevance of the EPI model becomes plain. In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs. In the 16 years since its passage, despite two recessions, our economy still employs 20 million more workers than it did the year before NAFTA passed. (Check out the employment tables in the latest Economic Report of the President.)
In my own April 2011 study of trade and the economy, “The Trade-Balance Creed,” I found that civilian employment in the past 30 years has actually grown quite a bit faster during periods of rising trade deficits compared to periods of declining deficits, just the opposite of what EPI’s distorted model would predict.
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