Archive for January, 2012
Helping the House Advance Data Transparency
The House of Representatives is poised to make great strides forward in transparency, and our work over the last year aims to help them do that. Here’s how this spreadsheet (.xls) will do that.
In December, the House Administration Committee announced a plan to improve the publication of House documents. In January, a new site—docs.house.gov—went live. (It’s attractive looking, but still bare-bones.) On Thursday this week, the Committee is hosting a “Legislative Data and Transparency Conference” to examine what data is out there and what data should be out there. Little information is on the Web yet, but you can sign up to attend at the link just above.
I’ll be speaking on the last panel of the day, which deals with measuring transparency success. Likely, they chose me for this panel because I’ve already been grading the government on its publication practices.
Last September, you see, we graded Congress on how well it publishes data that would assist the public in computer-aided oversight. The summary blog post is called “Needs Improvement.” And then in December, we graded the government on publication of budget, appropriations, and spending data. That’s a joint legislative-executive responsibility, but mostly executive. The message was: “‘Needs Improvement’ is Understatement.”
How do you grade Congress and the government on their data publication?
You start out by modeling the data government should publish. We put together a data model for legislative process, for example, and then a data model for budgeting, appropriating, and spending. We got a great deal of help from folks at the Sunlight Foundation, OMB Watch, and others such as the National Priorities Project, as well as data guru Josh Tauberer, whose latest project is PopVox.
Even with all this help, these models won’t be the last word—there is much to learn yet about the data structure that will serve every use the public may want to make of information. But it’s a strong start.
Then we compared the data that’s actually out there to the practices described in my paper, “Publication Practices for Transparent Government,” and out popped the grades! They were pretty bad…
The House of Representatives aims to fix that—for its part, at least.
Now to this spreadsheet: it’s a list of the things that should be identified in congressional documents so that computers can find the most salient information in them. It also indicates the “vocabularies” that already exist for identifying many of them: members of Congress, bills, laws, statutes, committees, agencies, programs, and so on. We’ve talked about how to identify “budget authority” and appropriations (spending) so that computers can capture that information from bills and committee reports. Locations, state and foreign governments, times, meetings—all these things can be put into electronic versions of documents to allow computer-aided public oversight.
Once documents contain data like this in the proper structures, literally thousands of questions about Congress will be answered instantly.
- How much new budget authority has each member of Congress proposed? Voted for? Voted against? Allowed to go through on voice vote or unanimous consent? How about this same information by state? By region? Or by seniority?
- What title of the U.S. code do members of Congress most often propose to amend? What title do they actually amend the most?
- What bills affect my state specifically, such as by naming buildings, creating wilderness areas, changing boundaries on parks, or giving land to localities?
- How often do my member of Congress and senators break with their party?
These are just a few examples. In the hands of varied users, the data will be converted to hundreds or thousands of uses. It will go into studies performed by political scientists and it will supercharge news reporting. But more importantly, it will go into services that inform people directly and quickly about how their own representatives in Congress are acting and what they’re saying.
It will give people insight into where the money goes—from the moment new spending is proposed all the way through to when Congress spends it—or declines to spend.
Credit is due to the leadership in the House of Representative for starting this work. There is a lot to do before they show clear success. But they are way ahead of President Obama, whose Sunlight Before Signing transparency promise lags badly, and who has yet to put together a machine-readable organization chart for the executive branch of the federal government. He can easily do the latter, and coordination with Congress is essential for transparency success. The sooner that happens the better.
The EU Summit Will Fail to Calm Markets
The European leaders’ meeting in Brussels yesterday will likely fail to reassure the financial markets. First, the intergovernmental agreement on stricter budget controls among the members of the eurozone will still have to be approved by national parliaments and could potentially face legal challenges in one or more countries. Second, there is no guarantee that the agreed penalties for countries that run excessive budget deficits are either enforceable or sufficiently onerous to limit government spending. Third, the European leaders failed to make progress on the most important issue facing the EU economies—slow growth. Indeed, it is difficult to see how EU leaders—many of whom backed higher taxes and support more regulation—can be trusted to do anything useful to spur economic growth and private sector job creation in Europe.
New Congressional Budget Office Numbers Once Again Show that Modest Spending Restraint Would Eliminate Red Ink
Back in 2010, I crunched the numbers from the Congressional Budget Office and reported that the budget could be balanced in just 10 years if politicians exercised a modicum of fiscal discipline and limited annual spending increases to about two percent yearly.
When CBO issued new numbers early last year, I repeated the exercise and again found that the same modest level of budgetary restraint would eliminate red ink in about 10 years.
And when CBO issued their update last summer, I did the same thing and once again confirmed that deficits would disappear in a decade if politicians didn’t let the overall budget rise by faster than two percent each year.
Well, the new CBO 10-year forecast was released this morning. I’m going to give you three guesses about what I discovered when I looked at the numbers, and the first two don’t count.
Yes, you guessed it. As the chart illustrates (click to enlarge), balancing the budget doesn’t require any tax increases. Nor does it require big spending cuts (though that would be a very good idea).
Even if we assume that the 2001 and 2003 tax cuts are made permanent, all that is needed is for politicians to put government on a modest diet so that overall spending grows by about two percent each year. In other words, make sure the budget doesn’t grow faster than inflation.
Tens of millions of households and businesses manage to meet this simple test every year. Surely it’s not asking too much to get the same minimum level of fiscal restraint from the crowd in Washington, right?
At this point, you may be asking yourself whether it’s really this simple. After all, you’ve probably heard politicians and journalists say that deficits are so big that we have no choice but to accept big tax increases and “draconian” spending cuts.
But that’s because politicians use dishonest Washington budget math. They begin each fiscal year by assuming that spending automatically will increase based on factors such as inflation, demographics, and previously legislated program changes.
This creates a “baseline,” and if they enact a budget that increases spending by less than the baseline, that increase magically becomes a cut. This is what allowed some politicians to say that last year’s Ryan budget cut spending by trillions of dollars even though spending actually would have increased by an average of 2.8 percent each year.
Needless to say, proponents of big government deliberately use dishonest budget math because it tilts the playing field in favor of bigger government and higher taxes.
There are two important caveats about these calculations.
1. We should be dramatically downsizing the federal government, not just restraining its growth. Even if he’s not your preferred presidential candidate, Ron Paul’s proposal for an immediate $1 trillion reduction in the burden of federal spending is a very good idea. Merely limiting the growth of spending is a tiny and timid step in the right direction.
2. We should be focusing on the underlying problem of excessive government, not the symptom of too much red ink. By pointing out the amount of spending restraint that would balance the budget, some people will incorrectly conclude that getting rid of deficits is the goal.
Last but not least, here is the video I narrated in 2010 showing how red ink would quickly disappear if politicians curtailed their profligacy and restrained spending growth.
Other than updating the numbers, the video is just as accurate today as it was back in 2010. And the concluding message—that there is no good argument for tax increases—also is equally relevant today.
P.S. Some people will argue that it’s impossible to restrain spending because of entitlement programs, but this set of videos shows how to reform Social Security, Medicare, and Medicaid.
P.P.S. Some people will say that the CBO baseline is unrealistic because it assumes the sequester will take place. They may be right if they’re predicting politicians are too irresponsible and profligate to accept about $100 billion of annual reductions from a $4,000 billion-plus budget, but that underscores the core message that there needs to be a cap on total spending so that the crowd in Washington isn’t allowed to turn America into Greece.
‘Destroy America’ = Suspicion Fail
News that incautious comments on “tweeter” got British tourists excluded from the United States had Twitter alight yesterday. (Paperwork given to one of the two, on display in this news story, refers to the popular social networking site as a “Tweeter website account,” betraying some ignorance of what Twitter is.)
It’s a good chance to review how suspicion is properly—and, here, improperly—generated.
The Department of Homeland Security has been vague as yet about what actually happened. It may have been some kind of “social media analysis” like this that turned up “suspicious” Tweets leading to the exclusion, though the betting is running toward a suspicious-activity tipline. (What “turned up” the Tweets doesn’t affect my analysis here.) The boastful young Britons Tweeted about going to “destroy America” on the trip—destroy alcoholic beverages in America was almost certainly the import of that line—and dig up the grave of Marilyn Monroe.
Profoundly stilted literalism took this to be threatening language. And a failure of even brief investigation prevented DHS officials from discovering the absurdity of that literalism. It would be impossible to “dig up” Marilyn Monroe’s body, which is in a crypt at Westwood Memorial Park in Los Angeles.
I testified to the Senate Judiciary Committee in 2007 about how one might mine data for terrorists and terrorism planning, in terms that apply equally well to Twitter banter and to any criminality or wrongdoing. For valid suspicion to arise, the information collected must satisfy two criteria:
(1) It is consistent with bad behavior, such as terrorism planning or crime; and (2) it is inconsistent with innocent behavior. In . . . the classic Fourth Amendment case, Terry v. Ohio, . . . a police officer saw Terry walking past a store multiple times, looking in furtively. This was (1) consistent with criminal planning (“casing” the store for robbery), and (2) inconsistent with innocent behavior — it didn’t look like shopping, curiosity, or unrequited love of a store clerk. The officer’s “hunch” in Terry can be described as a successful use of pattern analysis before the age of databases.
Similarly, using the phrase “destroy America” is consistent with planning to destroy America. (You want to be literal? Let’s be literal!) But it’s also consistent with talking smack, which is innocent behavior. These Tweets fail the second criterion for generating suspicion.
Twitter is nothing if not an unreliable source of people’s thinking and intentions. It’s a hotbed of irony, humor, and inside jokes. Witness this Tweet of mine from yesterday, which failed to garner the social media guffaw I sought (which is why I link to it here). Things said on Twitter will almost never be suspicious enough to justify even the briefest interrogation.
Other facts could combine with Twitter commentary to create a suspicious circumstance on extremely rare occasions, but for proper suspicion to arise, the Tweet or Tweets and all other facts must be consistent with criminal planning and inconsistent with lawful behavior. No information so far available suggests that the DHS did anything other than take Tweets literally in the face of plausible explanations by their authors that they were using hyperbole and irony. This is simple investigative incompetence.
If indeed it is a “social media analysis” program that produced this incident, the U.S. government is paying money to cause U.S. government officials to waste their time on making the United States an unattractive place to visit. That’s a cost-trifecta in the face of essentially zero prospect for any security benefit. I slept no more soundly last night knowing that some Brits were denied a chance to paint the town red in L.A.
In case it needs explaining, “paint the town red” is archaic slang. It does not imply an intention or plan to apply pigments to any building or infrastructure in Los Angeles, whether by brush, roller, or spray can.
CBO Study on Federal Pay
CBO has released a study comparing the wages and benefits of private sector and federal non-military workers. The study uses statistical techniques to make comparisons with adjustments for education level, experience, and other factors.
Here are the overall results:
- The wages of federal workers are 2 percent higher than similar private-sector workers, on average.
- The benefits of federal workers are 48 percent higher than similar private-sector workers, on average.
- The total compensation (wages plus benefits) of federal workers is 16 percent higher than similar private-sector workers, on average.
CBO finds that the federal compensation advantage varies by education level. People with low and middle levels of education generally do better in the government, while people with doctorates generally do better in the private sector.
CBO’s results are generally in sync with my observations on federal pay. For example, I’ve pointed to the excessive pension and health benefits received by federal workers. The CBO says:
The federal government provides retirement benefits to its workers through both a defined-benefit plan and a defined-contribution plan, whereas many large private sector employers have replaced defined-benefit plans with defined-contribution plans. The federal government also provides subsidized health insurance to qualified retirees, an arrangement that has become uncommon in the private sector.
I’ve also noted that high job security is an important federal benefit that should be considered when deciding on federal pay levels. Federal workers get laid off and fired at much lower rates than private-sector workers. That benefit has value, and thus federal pay rates should be set somewhat lower than for otherwise comparable jobs in the private sector. The CBO notes:
…greater job security and less uncertainty about the size of pay raises tend to decrease the compensation that the federal government needs to offer, relative to compensation in the private sector, to attract and retain employees.
Given these results, I’ve proposed these action items for Congress:
- Continue the federal pay freeze for a number of years.
- Repeal the federal defined-benefit pension plan.
- Hire an outside accounting firm to audit the Federal Salary Council’s apparently erroneous “pay gap” method, which always seems to find that federal workers are grossly underpaid.
- Privatize as many federal activities as possible so that markets can figure out the appropriate levels of compensation.
By George, I Think They’ve Got It: ‘Far Too Many Laws’
Occupy protesters come to Washington and finally notice what the problem is:
Timothy Evans, a D.C. taxicab inspector, . . . notices too many inside a taxi jerking slowly up Fifth Street NW — not the seven or eight passengers he sometimes sees sardine-stuffed into the Crown Victorias and Town Cars that make up the bulk of the city fleet, but still too many.
He pops on his car’s flashing lights. The cab stops, and out they come, six of them.
While Evans goes to chat with the driver, his partner, Carl Martin, calmly absorbs invective — not from the driver but from the riders, a group of activists from California who are in town for the Occupy Congress protest.
Nadine Hayes, 59, of Camarillo, is none too happy her driver ended up with $50 worth of tickets — $25 for overloading, $25 for an improper manifest. “He was doing us a service and taking us to where we wanted to go,” she said. “I think we’ve got far too many laws. I think the American people are being so oppressed.”
Labor Law Professors Defy Death Threats in Italy
Pietro Ichino, a professor of labor law at the University of Milan and a senator in the Italian legislature, is known as the author of several “neoliberal” books and studies recommending that the Italian government relax its extraordinarily stringent regulation of employers’ hiring and firing decisions. As Bloomberg Business Week reports, that means that Prof. Ichino must fear for his life: “For the past 10 years, the academic and parliamentarian has lived under armed escort, traveling exclusively by armored car, and almost never without the company of two plainclothes policemen. The protection is provided by the Italian government, which has reason to believe that people want to murder Ichino for his views.”
They’re not just being alarmist. In 1999 and 2002 leftist gunmen associated with the Red Brigades murdered two other reformist labor law professors, Massimo D’Antona and Mario Biagi. (Details here.) Prof. Biagi, a well-known figure nationally, was shot as he arrived at his Bologna home and dismounted his bicycle. While five members of the Red Brigades are serving prison sentences for his murder, sympathizers remain at large, and Ichino’s name appears on a Brigades hit list. A few years back, reports Bloomberg, police broke up a plot on his life that they said involved two students in his own department. Last year another reformist labor law professor, Carlo Dell’Aringa, “received a death threat, written in red ink on the wall of his university’s bathroom.”
Like his slain colleague Biagi, Ichino started out as a man of the Left — a Communist parliamentarian, in fact — who became convinced that the state-enforced equivalent of lifetime job security actually worked against the interests of ordinary young workers, who were increasingly frozen out from being offered jobs in the first place. Increasingly, moderate European opinion is coming to see that view as persuasive — even if few show as much courage as Prof. Ichino in voicing it. Reports Bloomberg: “For those promoting changes to Italy’s labor laws, the day of Biagi’s shooting has become a rallying point. Sympathizers gather every March 19 to ride their bicycles from the train station to the dead man’s house.”
Chinese Currency and the U.S. Financial Crisis
Some people might have been surprised to read in Sunday’s New York Times magazine that I believed “that all that easy money from China helped make the housing bubble much bigger and last longer, which created a far bigger crisis when the bubble finally burst.” As you might suspect, it was only those two little words “from China” that gave me pause. But I’m very grateful to Adam Davidson and his colleagues at NPR’s Planet Money for giving me a chance to elaborate on their blog. Here’s a brief excerpt:
China was eager to buy our debt, both Treasury bonds and Fannie and Freddie’s debt. But it was Congress that ran the deficits, and the Fed that kept interest rates artificially low. We don’t need to go to Beijing to find the villains in this piece….
Our economy could use plenty of reforms – lower, flatter, simpler taxes; a more stable monetary policy or even a move toward free markets in money; reduced regulatory burdens; the de-monopolization of services from education to mail delivery; and less government spending. In all those cases, the problem and the solution are right here in the USA.
Read it all! And special bonus links: Steve Hanke responds to the argument for a tougher policy toward China at Planet Money. And Adam Davidson talked with me about libertarianism in 2010 (plus a much longer version also featuring Mark Calabria).
New Academic Study Confirms Previous IMF Analysis, Shows that Lower Tax Rates Are the Best Way to Reduce Tax Evasion
Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.
Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.
- When tax rates increase, sometimes they engage in tax avoidance, lowering their tax liabilities legally.
- When tax rates change, sometimes they choose to alter their levels of work, saving, and investment.
- And when tax rates go up, sometimes they resort to illegal steps to protect themselves from the tax authority.
In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes.
Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.
Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.
Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.
Here are some key findings from the study.
According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].
Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.
The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance – not more power for the IRS.
Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.
The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.
Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.
…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.
And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.
On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.
All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.
Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.
Cannon’s Second Rule of Economic Literacy
…appears at the end of this a poor, unsuccessful letter I sent to the editor of the Washington Post:
After quoting a scholar who expresses the economic consensus that the rising cost of employer-purchased health benefits “means lower wages and salaries,” “New study shows health insurance premium spikes in every state” [Nov. 17] immediately contradicts that consensus by stating, “employers are attempting to shift health costs onto their workers” by “asking employees to shoulder a larger share of the premium.”
If workers bear the cost of employer-paid health benefits in the form of lower wages and salaries, then increasing the employee-paid portion of the premium is not a cost-shift. Workers would have borne those costs either way.
Employers cannot shift to workers a cost that workers already bear.
‘The Dangerous Gym Membership’?
Here’s a poor, unsuccessful letter I sent to the editor of the Washington Post:
“The dangerous gym membership” [Jan. 12] claims that in Medicare Advantage, “advertising a plan as the go-to health insurance source for marathoners could lure in a healthier subscriber base, disrupting the rest of the market place in the process.” Oh?
Does it disrupt the market for sneakers when running shops advertise themselves to marathoners? Since when does giving consumers something they want disrupt the market? That’s why markets exist.
What’s disrupting the market for seniors’ health insurance is government—in this case, Congress’ counter-productive attempt to cross-subsidize the sick via price controls that forbid carriers to consider each applicant’s risk when offering and pricing health insurance.
Obama’s Wistful Military Metaphor
George Will takes President Obama to task for the theme in his State of the Union Address that America should be more like the army:
War, said James Madison, is “the true nurse of executive aggrandizement.” Randolph Bourne, the radical essayist killed by the influenza unleashed by World War I, warned, “War is the health of the state.” Hence Barack Obama’s State of the Union hymn: Onward civilian soldiers, marching as to war….
The armed services’ ethos, although noble, is not a template for civilian society, unless the aspiration is to extinguish politics. People marching in serried ranks, fused into a solid mass by the heat of martial ardor, proceeding in lock step, shoulder to shoulder, obedient to orders from a commanding officer — this is a recurring dream of progressives eager to dispense with tiresome persuasion and untidy dissension in a free, tumultuous society.
Progressive presidents use martial language as a way of encouraging Americans to confuse civilian politics with military exertions, thereby circumventing an impediment to progressive aspirations — the Constitution and the patience it demands.
He reminds us that President Franklin D. Roosevelt pioneered such rhetoric, and that FDR supporters demonstrated appalling enthusiasm for actual dictatorship:
In his first inaugural address, FDR demanded “broad executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.” He said Americans must “move as a trained and loyal army” with “a unity of duty hitherto evoked only in time of armed strife.” …
Commonweal, a magazine for liberal Catholics, said that Roosevelt should have “the powers of a virtual dictatorship to reorganize the government.” Walter Lippmann, then America’s preeminent columnist, said: “A mild species of dictatorship will help us over the roughest spots in the road ahead.”
Ben Friedman deplored this theme in the speech as well:
There is an even bigger problem with this “be like the troops, put aside our differences, stop playing politics, salute and get things done for the common good” mentality. It is authoritarian. Sure, Americans share a government, much culture, and have mutual obligations. But that doesn’t make the United States anything like a military unit, which is designed for coordinated killing and destruction. Americans aren’t going to overcome their political differences by emulating commandos on a killing raid. And that’s a good thing. At least in times of peace, liberal countries should be free of a common purpose, which is anathema to freedom.
As did I, in the first few minutes of this post-speech interview on Stossel. Cato scholars have also quoted that appalling inaugural speech from FDR — asking for “broad executive power” at the head of “a trained and loyal army” — several times. Let’s hope that after George Will’s skewering, Obama will drop this theme. Hierarchy, centralization, common purpose, command, and control are appropriate for an army, not for a free people.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
