Archive for June, 2011
Tax Cuts, Loopholes, and Government Size
President Obama wants to raise revenues by reducing tax deductions and other tax breaks, which the administration calls “spending in the tax code.” Donald Marron of the Tax Policy Center argues that “hundreds of billions of dollars of spending are disguised as tax cuts.”
Don is a very good economist, and he is concerned that special interest tax breaks can misallocate resources the same way that spending subsidies do. I agree. But I’m also concerned that tax breaks and spending subsidies have different implications for the size of government, which is where I part ways with Don and the president.
The following Tax Policy Matrix helps sort out which sorts of tax cuts make economic sense when government size is also a consideration.
The government distorts the economy and reduces GDP through both its taxing and spending actions. One reason is that both taxes and spending cause individuals and businesses to change their behaviors and reallocate resources in suboptimal ways. The table has columns for tax and spending distortions. It also has a column for government debt because running deficits today may translate into higher levels of distortionary taxes tomorrow.
The table includes two Starve-the-Beast scenarios. “With Starve-the-Beast” means that tax cuts will reduce government spending to some extent over time. A narrow tax base shot full of loopholes creates allocation distortions, but if starve-the-beast works that sort of tax base also limits the government’s size creating a counterbalancing benefit to GDP.
In the short run, starve-the-beast may or may not work. Bill Niskanen says that it does not, but I think the effectiveness of it changes over time as political culture changes. In the 1980s and 1990s, policymakers took corrective actions when deficits rose, but the revival of Keynesianism in recent years changed the political culture and, for a while, nullified the fear of deficits for many politicians.
In the long run, it seems obvious that the inflow of tax revenues to the government is a hard check on spending because there are financial market limits to government borrowing.
Let’s go through the rows in the table:
Thursday Links
- Few GOP presidential candidates have proposed specific budget cuts.
- “Peace is in the interest of Taiwan, China, and the U.S. … But the U.S. should view continuing arms sales to Taipei as perhaps the best means to maintain stability and peace across the Taiwan Strait.”
- Market liberalization has transformed newly independent states that formerly comprised Yugoslavia.
- President Obama is simply the new standard-bearer for the bipartisan contempt for constitutional limits on power.
- Cato chairman Robert A. Levy makes the libertarian case for marriage equality:
“But He’s Our Imperial President”
My Washington Examiner column today closes out a three-part series this week on “Obama’s Imperial Presidency” (also running at Reason.com). Tuesday’s column covered Obama’s expansion of executive power abroad, and Wednesday’s looked at the ways in which Obama has turned the Imperial Presidency inward against the private sector.
Today’s column begins with a recap of the powers 44 holds:
Abroad, Obama claims the power to start wars at will; scoop up your email and phone records without answering to a judge; assassinate you via drone strike far from any battlefield, and — should your relatives complain — keep the whole thing secret in the name of national security.
At home, Obama has summarily fired the CEO of General Motors, America’s largest automaker; flouted bankruptcy law to shaft Chrysler’s creditors and pay off his union allies; pressured half-nationalized car companies to produce pokey little electric cars, had his National Labor Relations Board assert veto power over a private company’s decision to move a factory to a “right to work” state; and, via imperial edict, began restructuring the industrial economy by imposing restrictions on carbon dioxide emissions despite Congress’ refusal to pass cap-and-trade legislation.
Left or Right, Red or Blue, no American should be comfortable with any one man wielding that much power. Yet too many Americans embrace a philosophy of “situational constitutionalism”: they only get disturbed about the menacing concentration of power in the executive branch when they don’t care for the guy who has the scepter and the crown:
Conservatives who defended every excess of the Bush administration now rail against Obama’s Imperial Presidency, and liberals who considered the Bush era one long descent into the dark night of fascism seem blithely indifferent to the present Oval Office occupant’s multiplying executive power grabs.
Apparently, phrases like “he killed his own people” only grate when pronounced in a clipped, West Texas accent — otherwise, “wars of choice” against third-rate dictators go down smoothly.
But “situational constitutionalism” is the constitutionalism of fools: there’s something absurd–or at least insincere–about people who decide to worry about the Imperial Presidency only every four to eight years, and only when the “other team” holds the office.
Blame power-hungry presidents and feckless Congresses all you want. We’ll never solve the problem of the Imperial Presidency until more Americans manage to pry their eyes away from the Red-Team/Blue Team sideshow and recognize that who holds the office is less important than the powers the office holds.
‘Gainful Employment’ Regs Softened, Still a Diversionary Sideshow
The hotly anticipated — and dreaded — “gainful employment” regulations aimed at for-profit colleges were released this morning, and based on media reports the big news is that they are a little more lenient than originally expected. Most importantly, schools that fail to meet debt-to-income and debt-repayment requirements will not be cut off from federal student aid — the financial crack on which almost every college and university depends — until 2015.
That’s the big news, at least as reported. But it isn’t the important story.
The real story remains that the Obama administration, and at least the education leadership in the Senate, continues to divert the public’s eye towards for-profit schools when the entire higher education system is a waste-engorged, parasitic mess.
Yes, for-profit schools have low program completion rates, but the overall six-year completion rate for four-year programs is just around 57 percent. And yes, for-profit schools leave many students with big debt, but the average debt for all four-year undergraduate students who have taken loans is around $24,000. And yes, students at for-profit institutions draw heavily on the public treasury to pay for the studies they don’t complete, but higher education overall is a gigantic leech feeding off taxpayers, taking in hundreds of billions of dollars every year from all levels of government. And it is ever-growing aid to students from vote-hungry federal politicians that is likely the most potent force enabling rampant price inflation and massive college overconsumption. After all, the price becomes a lot less important – and extravagances more enticing – when someone else is footing much of the bill.
Now that these rules have been published, let’s move on to what really needs to happen: Phasing out government subsidies for the entire draining Ivory Tower.
Sweet Commerce
A study on anti-Semitism in Germany offers the disturbing finding that “communities that murdered their Jewish populations during the 14th-century Black Death pogroms were more likely to demonstrate a violent hatred of Jews nearly 600 years later,” during the Nazi era. But cities
with more of an outward orientation—in particular, cities that were a part of the Hanseatic League of Northern Europe, which brought outside influence via commerce and trade—showed almost no correlation between medieval and modern pogroms. The same was true for cities with high rates of population growth—with sufficient in-migration, the newcomers may have changed the attitudes of the local culture.
Free trade helps lead to peace, prosperity, and the erosion of prejudice.
The (Beginning of the) End of the Shameful U.S. Cotton Deal?
Heartening news from the Appropriations Committee yesterday: they voted to cut aid to farmers generally, and to make significant changes to an egregious cotton program. But first, some background. You’ll recall the embarrassing deal made by the Obama administration last year to head off Brazil’s right to impede American exports in retaliation for WTO-illegal cotton support. The United States is, in other words, now sending almost $150m worth of “technical assistance” and “capacity building” funds to Brazil, just so we can continue to subsidize American cotton growers without penalty (so much for U.S. promotion of the rule of law in international commercial relations). Rep. Ron Kind (D-WI) tried to end that deal earlier this year, but to no avail. Big Ag’s friends in Congress argued, unfortunately successfully, that any changes to the cotton bribes should be dealt with in the context of the 2012 Farm Bill, and by the agriculture committees (good luck with that).
But yesterday, the Appropriations Committee approved by voice vote an amendment from Rep. Jeff Flake (R-AZ) to take the fiscal 2013 payment to Brazil from funds that would normally go to supporting U.S. cotton growers. According to an article [$] in the Congressional Quarterly, Rep. Flake argued that “American cotton growers should pay the bill since the United States was making the payment on their behalf.” Well played, sir. Rep. Rosa DeLauro (D-CT) filed an amendment that would send the FY2012 cotton payment to the Women’s, Infants and Children nutrition program instead.
The Committee also voted to lower the income eligibility cap to $250,000 AGI.
The CQ article did contain this worrying footnote, however:
Support for the amendments may be tenuous — especially if lawmakers cannot hide behind the anonymity of a voice vote. After winning the voice vote in committee, Flake sought a roll call, prompting appropriators of both parties to suggest that he did not need the recorded vote. Flake took their advice and demurred.
Leglislators are usually shy about publicizing their positions only when they think it could get them in political hot water, so let’s not uncork the champagne yet.
Herman Cain and Individualism
Many political pundits have dismissed presidential hopeful Herman Cain as a long shot. However, coinciding with a Washington Post exclusive of the recently announced presidential candidate, a new IBOPE Zogby Interactive Poll shows Herman Cain, businessman and radio talk show host, edging out other leading GOP presidential candidates among Republican primary voters. Cain garnered 19% of vote, the plurality response, finally surpassing Governor Chris Christie who received 16% of the vote. A new Gallup poll shows Herman Cain with the leading Positive Intensity Score among potential GOP contenders at 25%, among those who recognize him. His name recognition has jumped from 21% in March to 37% in May.
Cain began receiving substantial media attention due to his popularity with the Tea Party; he recently won a Tea Party Patriots convention straw poll and has garnered 25% of voters most likely to vote for the Tea Party presidential candidate, with Chris Christie at 18%. In addition, GOP pollster Frank Luntz found Cain to be the winner of the first Republican presidential debate in the FOX News-sponsored focus group.
Cain’s recent popularity has brought to the forefront controversial statements he made earlier this year starting with an interview discussing the role of Muslims in American Society with ChristianityToday. ThinkProgress followed up with Cain during the Conservative Principles Conference in Des Moines, IA, asking him whether he would be comfortable appointing a Muslim to his Cabinet or as a federal judge. Herman Cain responded that he would not:
CAIN: No, I will not. And here’s why. There is this creeping attempt, there is this attempt to gradually ease Sharia law and the Muslim faith into our government. It does not belong in our government. This is what happened in Europe. … and now they’ve got a social problem that they don’t know what to do with hardly….I get upset when the Muslims in this country, some of them, try to force their Sharia law onto the rest of us.
In a subsequent Fox interview, Cain clarified his statement:
CAIN: …I did say no. And here’s why…I would have to have people totally committed to the Declaration of Independence and the Constitution of this United States, and many of the Muslims … are not totally dedicated to this country or our Constitution and many of them are trying to force Sharia law on the people of this country. …I don’t have time to be watching someone in my administration if they are not totally committed to the Declaration and the Constitution of the United States and the laws of this country.
Cain’s blanket condemnation of Muslims as generally unpatriotic is troubling. For starters, Cain’s view of Islam as a disqualification for public office runs contrary to the very Constitution that he claims to cherish: “no religious test shall ever be required as a qualification to any office or public trust under the United States.” (Constitution Article VI)
Second, Cain’s public statement of his prejudice—and the fact that such a statement is not widely condemned by both sides of the political spectrum—perpetuates stereotypes, increases religious tension, and contradicts the notions of freedom and individualism upon which this country was founded. People are more than the religion they profess. Individuals are a complex combination of environmental factors, choices, personal experiences, will, and culture. Prejudice such as Cain’s emphasizes the group over the individual. In a prejudiced society, individuals are not held accountable for their own actions, but instead are responsible for the actions of other members of the group with which they are identified—irrespective of the fact that these actions are entirely out of their control.
Individuals pursue their ambitions with hopes of happiness and success. Individuals face the costs and benefits of their decisions, and individuals take risks and reap the losses or rewards of those risks. Individualism unlocks an engine of innovation and prosperity, as people—as individuals—are incentivized and motivated to seek out new ventures. Collectivism in all its forms—from communism to racism—is antithetical to individualism and supplants an individual’s drive to better herself with a sense of hopelessness, since her opportunities are not determined by her own merits, but her group identity.
Cain’s remarks about Muslims are a regrettable perpetuation of religious stereotypes and an affront to the founding principles of this country. Such a worldview runs counter to the conditions under which opportunity and prosperity may flourish. Cain should have known better. More importantly, none of Cain’s Tea Party supporters—if they truly understand the principles behind the Declaration of Independence and the Constitution—should support such statements.
Plaintiffs Should Be Cautiously Optimistic about Latest Obamacare Appeal
CINCINNATI — Now for something completely different, and not just because the spirited Sixth Circuit judges were much more skeptical of the government’s position than the Fourth Circuit was last month. Unlike the panel in Richmond — Virginia Attorney General Ken Cuccinelli probably started outlining his cert petition as soon as court adjourned — here there will be at least one vote to strike down the individual mandate, and maybe even all three. And this panel should produce one or more opinions in which there will be much for the Supreme Court to grapple with.
The appellate argument didn’t even begin until after a skirmish over standing provoked by the motion to dismiss the government filed last week. That mini-argument — what Judge Martin likened to his time in Jefferson County (KY) circuit court — will likely not prove decisive. Nor will the Anti-Injunction Act, the tax statute on which the court requested supplemental briefing but which the government conceded didn’t apply.
Not surprisingly, this case, brought by the Thomas More Legal Center, will almost certainly be decided on the issue of whether the federal government can compel people to engage in commerce — “regulate inactivity.” The government’s theory that “health care is unique” came under harsh attack from Judges Graham and Sutton because it didn’t seem to offer a constitutional (as opposed to factual) limiting principle for federal power. Judge Martin was more circumspect, but he’s considered among the most liberal circuit judges in the country, so all things being equal would probably try to uphold the law (or find a way to decide the case on procedural grounds so as to avoid losing on the merits). Judge Sutton — one of the more conservative jurists nationwide — was also scrupulously neutral, picking at weaknesses in both sides’ presentation and appearing open to a narrow technical decision.
All in all, it was a fascinating day in court that proved again that no matter how much one studies the Obamacare challenges, there’s always something new to learn. Be sure to read Cato’s amicus brief in this case for more background.
The New—Cardless!—National ID
Your chance to comment on a Department of Homeland Security plan to tap into state drivers’ license databases and create a new national ID system expires next week. It’s the groundwork for a cardless national ID, which threatens liberty even more than card-based schemes like REAL ID.
The E-Verify program’s move to merge federal background checks and state driver license data sets the stage for satisfying all three elements of a national ID. (Two years ago, I discussed what constitutes a national ID in some detail.) E-Verify has not satisfied these criteria up to now, but the pieces are coming together quickly.
First, it is national. That is, it is intended to be used throughout the country, and to be nationally uniform in its key elements. If its proponents have their way, E-Verify will indeed soon go national, a requirement on every employer to vet new workers past the federal government’s databases.
Second, its use is either practically or legally required. This is a judgment call, but in two diferent ways, E-Verify appears to meet this element. First, not having data in the E-Verify databases means not having legal work, so “participation” in E-Verify can be fairly called practically required. Second, try to opt out of the system and you will meet a dead end. The program includes no opportunity I know of to refuse participation. It’s legally required if the state or federal governments have got your identity data.
I could be wrong, of course. Interested researchers should try contacting their state motor vehicle bureaus (cc: your state legislators) and ask not to have data about you transferred to the federal government for E-Verify. Please let me know what you learn.
The final “element” of a national ID is that it is used for identification. Up to now, E-Verify has largely worked by comparing identifiers. (I.e., Does this name match this Social Security number?) The current plan is to tap into state databases for more identifiers: name, date of birth, driver’s license/permit number, and so on. From there, it’s a short ride to gathering drivers’ license photos and biometric descriptors. (E-Verify already uses federally acquired photos in its “Photo Screening Tool.”) With the inclusion of your driver’s license photo, the E-Verify system will be able to display your picture on the screen of anyone who looks you up, allowing for positive identification.
This is a national identification system. If every employer has to use E-Verify—or even every major employer—it will become the all-purpose security device, used for cashing checks, confirming the name on credit cards, and looking you up at the prescription counter. Of course, it will be used at airport checkpoints. You’ll be screened through E-Verify at entrances to government buildings—maybe private buildings, too. And why not for random, “instant” checks at the subway or bus station?
Just remember: If you have a tax dispute with the government, the Department of Homeland Security might flag you in the database—or it might de-identify you entirely—until you get right with the government.
Because it’s a database system, you won’t be able to argue your case like you can in the familiar card environment. With a card, at least, you can say, “No, look. This is me. This is my ID card. This is my picture. Give me my prescription.” With E-Verify, the answer will be, “Sorry, you have to talk to DHS or Social Security.” For good reason, I named my paper on electronic employment eligibility verification, “Franz Kafka’s Solution to Illegal Immigration.”
Arguments for the E-Verify system sounding in practicality and common sense do not hold up, but there are also principled reasons to oppose having a government background check system. Using E-Verify, the Department of Homeland Security is rapidly assembling a national ID system that can be converted to boundless uses. In addition to controlling employment, E-Verify can be put to use in regulating access to health care and housing, in gun control and registration, in monitoring travel and lodging—the list goes on and on.
I went through the arguments against having a national identification system in my book, Identity Crisis. In brief, a national ID would strip us of privacy even faster than is already happening, producing formal dossiers and increased surveillance. A national ID would transfer power en masse from individuals to governments. They would administer our rights by controlling the tools we need to navigate a “papers, please” society. A national ID would also be insecure, as it centralizes and homogenizes information assets (identity data) that are more secure if widely dispersed and heterogeneous.
As I noted last week, the federal government cannot and will not implement the REAL ID Act. So it’s on a new tack: E-Verify will soon be the new national ID.
Family Friendly DISCO Moves
I like the nightlife, and I’ve got to boogie, so I’m pleased to hear of a new organization called DISCO: Democrats Impatient for School Choice Organization.
There are many ways to shake, shake, shake that education policy booty, however, and if DISCO really wants to be family friendly, they would be better off skipping the voucher element of their choreography.
The organization’s goal is to extend real school choice to low income families. A crucial element in achieving that goal is to ensure that parents, not influential lobby groups or entrenched interests, get to decide the kinds of education they can choose. Based on both my review of the historical evidence and my recent regression study of modern school choice programs, vouchers are prone to regulatory proliferation. They centralize authority over what a voucher can buy, so that parents who need financial assistance cannot escape whatever limits the politically powerful wish to impose on them.
Tax credits are different. Scholarship donation tax credit programs, such as the one that already exists in Pennsylvania (and which the state House has voted 190 to 7 to expand) create a proliferation of different sources of financial assistance for low-income families. So if one of those sources decides to impose a particular set of rules on how the money is used, it doesn’t affect any of the others. Parents can choose to seek financial assistance from whichever scholarship granting organization most closely matches their own values and preferences, thereby preventing them from being forced into a particular set of choices.
I made this argument in a little more detail in Cato’s amicus brief in the ACSTO v. Winn case, in which the U.S. Supreme Court recently upheld Arizona’s scholarship donation tax credit program.
Harkin to Continue Ignoring that He’s the Problem
What an enigma American higher education is! It produces simultaneously far too many graduates and far too few. It gets hundreds-of-billions in taxpayer subsidies – subsidies that have almost constantly risen — and yet its main problem is said to be too little public support.
What interesting questions these problems raise!
Don’t, though, ask Sen. Tom Harkin (D-IA) about any of them. Even though he chairs the Senate Health, Education, Labor, and Pensions committee, which has jurisdiction over such huge laws as the Higher Education Act, all he cares about is one thing: slaying for-profit schools. Which is why he has scheduled yet another hearing — the fifth in a seemingless endless series – that will focus solely on for-profit institutions, and will almost certainly feature more lopsided testimony, self-serving speechifying, and, if we’re really lucky, more apparently dirty dealing masquerading as selfless public service.
Why is Harkin seemingly obsessed with for-profit schools while ignoring the really interesting — and urgent — questions about the entire Ivory Tower? Sadly, that is not a great riddle. It is because what ails higher education is Senator Harkin himself, and all the politicians who, for decades, have bought votes with massive aid to schools and students while taking no responsibility for the outrageous price inflation and waste that has fueled. In other words, Sen. Harkin is ignoring the problem because, to deal with it, he’d be the one who’d have to answer the tough questions.
Medicare Reform: Throwing Wasserman-Schultz ‘to the Wolves’
On CBS’s Face the Nation, Democratic National Committee chair Rep. Debbie Wasserman-Schultz (FL) said this of the House Republicans’ Medicare reform plan:
Republicans have a plan to end Medicare as we know it. What they would do is they would take the people who are younger than 55 years old today and tell them ‘You know what? You’re on your own. Go and find private health insurance in the healthcare insurance market, we’re going to throw you to the wolves and allow insurance companies to deny you coverage and drop you for pre-existing conditions. We’re going to give you X amount of dollars and you figure it out.
That ‘s the version of Wasserman-Shultz’s quote that the Washington Post‘s Glenn Kessler sent me. Kessler also told me that the DNC cited me as a source for Wasserman-Shultz’s claims:
Michael Cannon: The Ryan Plan Would Provide More Subsidies To Seniors With Pre-Existing Conditions But Wouldn’t Guarantee Coverage. Michael Cannon, the Director of Health Policy Studies at Cato said during congressional testimony on the Ryan plan, “Thank you for the opportunity, Congressman. I think that lots of — all seniors under the chairman’s proposal, as I understand it, will be able to obtain health insurance coverage. And that’s the — that is because the payment they receive from the federal government to purchase that coverage will be adjusted for income so that lower-income people will get larger vouchers if you will. He doesn’t call them that, I’ll use the V word. And they’ll also be risk-adjusted so that people with severe illnesses will get larger vouchers and be able to purchase insurance coverage that will cover a lot of people who have a pre-existing condition. [HEARING OF THE HEALTH CARE, DISTRICT OF COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES SUBCOMMITTEE OF THE HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE, 4/5/11]
The Actual Amount More Seniors With Pre-Existing Conditions Would Receive Had Not Been Set Out In The Ryan Budget. Michael Cannon, the Director of Health Policy Studies at Cato said during congressional testimony on the Ryan plan, “That would be a result of the rules, the specific risk-adjustment rule that haven’t been spelled out in his budget. But you would have sick people getting a lot more money.” [HEARING OF THE HEALTH CARE, DISTRICT OF COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES SUBCOMMITTEE OF THE HOUSE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE, 4/5/11]
Empasis in original.
Kessler judged Wasserman-Shultz’s claim to be “bogus.” FactCheck.org said it was “simply wrong.”
Kessler quoted me in his fact-check, but I think he left out the most important parts. So here’s my entire email response to Kessler:
This is some high-octane idiocy.
Ryan’s plan says that insurance companies could not turn away seniors. I’m not sure whether that means only (A) that insurers must issue a policy to all applicants (i.e., guaranteed issue) or whether Ryan’s plan would go further and (B) prevent insurers from charging sick enrollees more (i.e., price controls). I hope Ryan would not include such price controls, but I see hints that that’s where he’s leaning. If so, then the Ryan plan would include the very government guarantee that the DNC is complaining isn’t there. It’d be a lousy guarantee, but it’d be there.
Regardless, the DNC’s attacks are still bunk.
If insurers can charge sick Medicare enrollees whatever they want, and Medicare gives sick enrollees enough money to cover those higher premiums, who needs price controls? High premiums aren’t scary if you have the money to pay them. A fair question would be whether the vouchers would be large enough. The best evidence available (from the Dartmouth Atlas) suggests that one third of spending in traditional Medicare is pure waste. That is a huge margin of safety: it means that the vouchers could be one-third less than what a Medicare enrollee would otherwise spend without reducing access to necessary care. The quotes they took from me completely undercut their attacks on the Ryan plan. I hope they keep quoting me.
Experts widely acknowledge that traditional Medicare exposes seniors to unnecessary and even harmful services. And Medicare is rapidly consuming more and more of every American’s paycheck. I can’t imagine anything more irresponsible than defending Medicare as we know it.
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