Since the foundational administrative law case of Chevron v. Natural Resources Defense Council (1984), courts have given significant deference to executive agency interpretations of federal law. United States v. Home Concrete & Supply tests whether there are any meaningful limits on such deference.

The case involves a group of taxpayers who initiated a number of transactions designed to reduce their tax liability by allowing a financial entity they created, Home Concrete, to increase its tax basis and reduce its taxable gain from the sale of certain assets. In June 2003, the IRS ruled that the taxpayers’ use of Home Concrete in this way was improper and issued an adjustment to their tax return (requiring payment of back-taxes). Having missed the standard three-year limit for such actions, however, the IRS argued that the adjustment was timely under a tax-code provision that extends the statute of limitations to six years if the taxpayer “omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return.”

Despite the Supreme Court’s having long ago held otherwise, Colony v. Commissioner of Internal Revenue (1956), the IRS argues that an overstatement of basis qualifies as an omission under that tax provision. Further, during the course of this litigation, the Treasury Department issued a new regulation “clarifying” the provision in a way that supports the IRS’s argument. The IRS now argues that this new regulation is controlling and should be retroactively applied to Home Concrete’s 1999 returns.

After (mostly) winning at the district court, the IRS lost before the Fourth Circuit and asked the Supreme Court to review the case—which involves one of many similar applications of the relevant tax provisions. The Court took the case and now Cato has joined the National Federation of Independent Business on an amicus brief supporting the taxpayers, arguing that sanctioning this sort of ad hoc rule-making would undermine the rule of law and the separation of powers.

We note that “[t]he government’s position is that this regulation is due judicial deference” but the Supreme Court has “consistently held that where a statute has an unambiguous meaning, an agency’s contrary interpretation is not entitled to deference.” As Judge J. Harvie Wilkinson noted in his Fourth Circuit concurrence, “agencies are not a law unto themselves” and the government’s position in this case “seems to [be] something of an inversion of the universe and to pass the point where the beneficial application of agency expertise gives way to a lack of accountability and a risk of arbitrariness.”

In deciding Chevron, the Supreme Court surely never intended to undermine the very structure of the Republic and unleash an administrative state wholly a law unto itself.

The Supreme Court will hear United States v. Home Cincrete & Supply on January 17.

The IRS Can’t Overrule the Supreme Court is a post from Cato @ Liberty - Cato Institute Blog

Not long ago a journalist asked me what freedoms we take for granted in America. Now, I spend most of my time sounding the alarm about the freedoms we’re losing. But this was a good opportunity to step back and consider how America is different from much of world history — and why immigrants still flock here.

If we ask how life in the United States is different from life in most of the history of the world — and still  different from much of the world — a few key elements come to mind.

Rule of law. Perhaps the greatest achievement in history is the subordination of power to law. That is, in modern America we have created structures that limit and control the arbitrary power of government. No longer can one man — a king, a priest, a communist party boss — take another person’s life or property at the ruler’s whim. Citizens can go about their business, generally confident that they won’t be dragged off the streets to disappear forever, and confident that their hard-earned property won’t be confiscated without warning. We may take the rule of law for granted, but immigrants from China, Haiti, Syria, and other parts of the world know how rare it is.

Equality. For most of history people were firmly assigned to a particular status — clergy, nobility, and peasants. Kings and lords and serfs. Brahmans, other castes, and untouchables in India. If your father was a noble or a peasant, so would you be. The American Revolution swept away such distinctions. In America all men were created equal. Thomas Jefferson declared “that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God.” In America some people may be smarter, richer, stronger, or more beautiful than others, but “I’m as good as you” is our national creed. We are all citizens, equal before the law, free to rise as far as our talents will take us.

Equality for women. Throughout much of history women were the property of their fathers or their husbands. They were often barred from owning property, testifying in court, signing contracts, or participating in government. Equality for women took longer than equality for men, but today in America and other civilized parts of the world women have the same legal rights as men.

Self-government. The Declaration of Independence proclaims that “governments are instituted” to secure the rights of “life, liberty, and the pursuit of happiness,” and that those governments “derive their just powers from the consent of the governed.” Early governments were often formed in the conquest of one people by another, and the right of the rulers to rule was attributed to God’s will and passed along from father to son. In a few places — Athens, Rome, medieval Germany — there were fitful attempts to create a democratic government. Now, after America’s example, we take it for granted in civilized countries that governments stand or fall on popular consent.

Freedom of speech. In a world of Michael Moore, Ann Coulter, and cable pornography, it’s hard to imagine just how new and how rare free speech is. Lots of people died for the right to say what they believed. In China and Africa and the Arab world, they still do. Fortunately, we’ve realized that while free speech may irritate each of us at some point, we’re all better off for it.

Freedom of religion. Church and state have been bound together since time immemorial. The state claimed divine sanction, the church got money and power, the combination left little room for freedom. As late as the 17th century, Europe was wracked by religious wars. England, Sweden, and other countries still have an established church, though their citizens are free to worship elsewhere. Many people used to think that a country could only survive if everyone worshipped the one true God in the one true way. The American Founders established religious freedom.

Property and contract. We owe our unprecedented standard of living to the capitalist freedoms of private property and free markets. When people are able to own property and make contracts, they create wealth. Free markets and the legal institutions to enforce contracts make possible vast economic undertakings — from the design and construction of airplanes to worldwide computer networks and ATM systems. But to appreciate the benefits of free markets, we don’t have to marvel at skyscrapers while listening to MP3 players. We can just give thanks for enough food to live on, and central heating, and the medical care that has lowered the infant mortality rate from about 20 percent to less than 1 percent.

A Kenyan boy who managed to get to the United States told a reporter for Woman’s World magazine that America is “heaven.” Compared to countries that lack the rule of law, equality, property rights, free markets, and freedom of speech and worship, it certainly is. A good point to keep in mind this Thanksgiving Day.

This article originally appeared in the Washington Times in 2004 and was included in my book The Politics of Freedom.

Things to Be Thankful For is a post from Cato @ Liberty - Cato Institute Blog

Former Vice President Dick Cheney appeared at AEI today to promote his book and again made the claim that waterboarding detainees is not torture because we use this technique on our own troops. As he put it:

“Another key point that needs to be made was that the techniques that we used were all previously used on Americans,” Cheney went on. “All of them were used in training for a lot of our own specialists in the military. So there wasn’t any technique that we used on any al Qaeda individual that hadn’t been used on our own troops first, just to give you some idea whether or not we were ‘torturing’ the people we captured.”

This isn’t a new argument. Plenty of other folks have argued that, because we subject members of the military to waterboarding in Survival, Evasion, Resistance, and Escape (SERE) School (the military’s POW prep course), waterboarding detainees is not mistreatment.

It’s also a nonsensical argument.

The difference is consent. What one person consents to in one set of conditions does not make the same treatment, without consent and in other conditions, somehow less invasive or less illegal under domestic and international law. I was not waterboarded when I attended SERE school, but I endured treatment I wouldn’t willingly accept in other circumstances. If you want to waterboard me, you’d best be ready for a fight.

Export Cheney’s logic to sex. Consenting adults have sex and it’s legal, enjoyable, and essential to the survival of the species. If you accept the premise that, because you can have sex with someone with consent, it is always legal and moral to have sex with others, you’ve just declared that rape is not a crime.

Setting aside the issue of consent, waterboarding was clearly recognized as a criminal act by the laws of war and domestic statute well before we interrogated KSM. We prosecuted our own soldiers for using controlled drowning (the “water cure” and waterboarding) in the Spanish-American War and in Vietnam. We prosecuted Japanese soldiers for using waterboarding after World War II. We prosecuted a sheriff in Texas for waterboarding confessions out of prisoners.

I wrote a piece for the Los Angeles Times a few months back spelling out how Cheney isn’t arguing with Obama here. He’s reliving a battle he lost within the Bush administration:

The legal framework underlying waterboarding collapsed during President George W. Bush’s tenure. The White House Office of Legal Counsel in 2004 withdrew the memoranda that authorized waterboarding. The Detainee Treatment Act of 2005, sponsored by former POW and torture victim Sen. John McCain (R-Ariz.), barred “cruel, inhuman, and degrading” treatment of any detainee in military custody. There may be an argument that waterboarding isn’t torture, but there’s no argument that it’s not cruel, inhuman and degrading…

The Supreme Court put the nail in the coffin with its Hamdan vs. Rumsfeld decision in 2006. The real import of the ruling was not that Congress had to authorize military commissions (it quickly did) but that the Geneva Conventions apply to the armed conflict with Al Qaeda. The application of the laws of war, which allow broad power to kill your enemy but provide no authority to mistreat him, brought down the legal house of cards that authorized coercive interrogation. Bush issued an executive order the next year that banned the bulk of enhanced interrogation techniques. Obama followed suit with his own order applying stricter military standards to the intelligence community.

Read the whole thing. Read some more on waterboarding and detainees here, here, and here.

Waterboarding, Consent, and Rape is a post from Cato @ Liberty - Cato Institute Blog

The liberties we Americans enjoy were hard-won over the centuries. Today we mark a major event in that struggle, the day in 1215 when English barons presented King John with a written list of rights they demanded he recognize. Known ultimately as Magna Carta, the Great Charter, it was a compact between the barons and their king, a political effort by subjects to secure their liberty by placing their ruler under the rule of law, thus limiting arbitrary power.

The charter has gone through several iterations, but it drew in part from the common law rights, especially rights of property, that judges in the king’s courts had been finding from reason and custom as they decided controversies the king’s subjects brought before them. What Magna Carta did was bring those same rights against the king. Most important for us today was the promise found in clause 29:

No freeman shall be taken or imprisoned or deprived of his freehold or of his liberties or free customs, or outlawed, or exiled, or in any manner destroyed, nor shall we go upon him, nor shall we send upon him, except by a legal judgment of his peers or by the law of the land.

Note first the broad terms of clause 29: that enabled it to apply not just to the issues at hand but to varied future situations. Second, notice that only “freemen” were protected. The barons came to realize, however, that if their rights were to be maintained against the king, they would need the cooperation of all classes. Thus, the charter came in time to protect “common” liberties.

Each of those issues has informed the American experience. First, Magna Carta itself inspired our Founders to limit power through a written document, our Constitution. Second, clause 29 is captured in the Fifth Amendment, which provides that no person shall be deprived of life, liberty, or property, without due process of law. And third, Magna Carta’s capacity to grow is reflected by the post-Civil War inclusion of the Due Process Clause in the Fourteenth Amendment. That brought the Bill of Rights to bear not only against the federal government, its original limit, but against the states as well. We owe much to this English inheritance.

Cross-posted at the National Constitution Center’s Constitution Daily.

Magna Carta Day is a post from Cato @ Liberty - Cato Institute Blog

When can the executive lawfully kill?

The rule of law itself depends on getting the answer right. Clearly that answer can’t be “never,” because then even defensive wars would be impossible. And it can’t be “whenever,” because that would be the very antithesis of lawful government. As F. A. Hayek wrote, “if a law gave the government unlimited power to act as it pleased, all its actions would be legal, but it would certainly not be under the rule of law” (p. 205).

The answer must be “sometimes”—but which times are those? In wartime? In peacetime? Against aliens? What about citizens? What role do the courts play? And what about the legislature?

In answer to these questions, Cato Unbound lead essayist Ryan Alford draws on the Anglo-American constitutional tradition, arguing that the killing of a citizen or subject without judicial authorization was so far opposed to our traditional legal safeguards that the American Founders didn’t even bother to prohibit it in the Constitution. And yet, he argues, the case of Anwar al-Awlaqi shows that our government now claims this power anyway. The themes of his essay are explored in much more detail in his forthcoming article in the Utah Law Review.

To discuss with him this month, we’ve lined up a panel of legal and historical experts: John C. Dehn of the U.S. Military Academy at West Point, Gregory McNeal of Pepperdine University, and Carlton Larson of the University of California at Davis. Each will offer a commentary on Alford’s essay, followed by a discussion among the four on this timely and important subject. Be sure to stop by often, or just subscribe to Cato Unbound‘s RSS feed.

As always, Cato Unbound readers are encouraged to take up our themes, and enter into the conversation on their own websites and blogs, or at other venues. Trackbacks are enabled. We also welcome your letters and may publish them at our option. Send them to jkuznicki at cato.org

June 2011 Cato Unbound: Targeted Killing and the Rule of Law is a post from Cato @ Liberty - Cato Institute Blog

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.

The (Beginning of the) End of the Shameful U.S. Cotton Deal? is a post from Cato @ Liberty - Cato Institute Blog

That’s what Michael Gerson, former speechwriter for President George W. Bush, writes in the Washington Post. I take a different view in my new column at the Encyclopedia Britannica Blog:

Libertarians want to live in what Adam Smith called the Great Society, the complex and productive society made possible by social interaction. We agree with George Soros that “cooperation is as much a part of the system as competition.” In fact, we consider cooperation so essential to human flourishing that we don’t just want to talk about it; we want to create social institutions that make it possible. That is what property rights, limited government, and the rule of law are all about….

The American, and libertarian, belief in freedom is not a “mania,” nor is it “selfishness.” It’s a philosophy of individual rights, the rule of law, and the institutions necessary for social cooperation. Read Locke, Hume, Smith, Tocqueville, Hayek—and yes, Rand—if you seriously believe that the philosophy of freedom can be summed up as “selfishness.”

Much more at the Britannica.

Is Libertarianism Selfishness? is a post from Cato @ Liberty - Cato Institute Blog

The astonishing changes sweeping the Arab world hold great promise for liberty and peace, but those goals are much less likely to be realized without the active input of libertarians.  Arab libertarians are organized in a number of networks, one of which held a series of programs recently in Cairo on building the institutions of liberty and development in a post-revolutionary society.  The director of the Arabic “Forum of Liberty” (Minbaralhurriyya.org), Dr. Nouh El Harmouzi (also a university professor of economics in Morocco) spoke at the massive rally on Tahrir Square April 8 with a clear message for Egyptians (in Arabic, with English subtitles):

Also speaking at the rally (on democracy and the rule of law) and in other programs in Cairo was Gurcharan Das, the former CEO of Procter and Gamble India, author of the best-selling books India Unbound and The Difficulty of Being Good, and chairman of India’s Centre for Civil Society.

Those who wish to contribute to the spread of liberty in the Middle East and North Africa can find more information here.

Libertarians and the Arab Spring is a post from Cato @ Liberty - Cato Institute Blog

I’m not a big fan of the IRS, but usually I blame politicians for America’s corrupt, unfair, and punitive tax system. Sometimes, though, the tax bureaucrats run amok and earn their reputation as America’s most despised bureaucracy.

Here’s an example. Earlier this year, the Internal Revenue Service proposed a regulation that would force American banks to become deputy tax collectors for foreign governments. Specifically, they would be required to report any interest they pay to accounts held by nonresident aliens (a term used for foreigners who live abroad).

The IRS issued this proposal, even though Congress repeatedly has voted not to tax this income because of an understandable desire to attract job-creating capital to the U.S. economy. In other words, the IRS is acting like a rogue bureaucracy, seeking to overturn laws enacted through the democratic process.

But that’s just the tip of the iceberg. The IRS’s interest-reporting regulation also threatens the stability of the American banking system, makes America less attractive for foreign investors, and weakens the human rights of people who live under corrupt and tyrannical governments.

This video outlines five specific reasons why the IRS regulation is bad news and should be withdrawn.

I’m not sure what upsets me most. As a believer in honest and lawful government, it is outrageous that the IRS is abusing the regulatory process to pursue an ideological agenda that is contrary to 90 years of congressional law. But I guess we shouldn’t be surprised to see this kind of policy from the IRS with Obama in the White House. After all, this Administration already is using the EPA in a dubious scheme to impose costly global warming rules even though Congress decided not to approve Obama’s misguided legislation.

As an economist, however, I worry about the impact on the U.S. banking sector and the risks for the overall economy. Foreigners invest lots of money in the American economy, more than $10 trillion according to Commerce Department data. This money boosts our financial markets and creates untold numbers of jobs. We don’t know how much of the capital will leave if the regulation is implemented, but even the loss of a couple of hundred billion dollars would be bad news considering the weak recovery and shaky financial sector.

As a decent human being, I’m also angry that Obama’s IRS is undermining the human rights of foreigners who use the American financial system as a safe haven. Countless people protect their assets in America because of corruption, expropriation, instability, persecution, discrimination, and crime in their home countries. The only silver lining is that these people will simply move their money to safer jurisdictions, such as Panama, the Cayman Islands, Hong Kong, or Switzerland, if the regulation is implemented. That’s great news for them, but bad news for the U.S. economy.

In pushing this regulation, the IRS even disregarded rule-making procedures adopted during the Clinton Administration. But all this is explained in the video, so let’s close this post with a link to a somewhat naughty – but very appropriate – joke about the IRS.

Reckless IRS Regulation Would Put Foreign Tax Law over American Tax Law and Drive Investment out of the United States is a post from Cato @ Liberty - Cato Institute Blog

Jeff Patch and Zac Morgan of the Center for Competitive Politics report on the storm that is brewing at the Federal Election Commission over regulations to implement Citizens United. The three Democratic appointees propose regulations that would impose significant elements of the DISCLOSE Act, a bill that failed to pass Congress last year. The three Republican appointees, in contrast, propose to clarify existing law and clear away defunct regulations, all with an eye toward the holdings in Citizens United. The FEC seems unlikely to adopt the proposals by the Democratic appointees. After all, the Democratic commissioners do not have and are unlikely to obtain majority support for their agenda.

Imagine if the Federal Election Commission were directed by a seven-member board where one party or the other held a working majority. Imagine also the Democrats had a majority on this fictional commission. The regulations proposed by the three current Democratic commissioners would become the law of the land. They would become so despite the fact that Congress itself did not pass the DISCLOSE Act and the regulations contravene the spirit and perhaps the letter of a major Supreme Court decision.

How would that (imagined) outcome be compatible with American constitutional democracy? How would it comport with the rule of law?

An Imaginary Federal Election Commission is a post from Cato @ Liberty - Cato Institute Blog

I’m not a big fan of the Internal Revenue Service, but I try not to demonize the bureaucrats because politicians actually deserve most of the blame for America’s complex, unfair, and corrupt tax system. The IRS generally is in the unenviable position of simply trying to enforce very bad laws.

But sometimes the IRS runs amok and the agency deserves to be held in contempt by the American people

Let’s look at a grotesque example of IRS misbehavior. It deals with a seemingly arcane issue, but it has big implications for the US economy, the rule of law, and human rights.

On January 7, the tax-collection bureaucracy proposed a regulation that, if implemented, would force American financial institutions to put foreign tax law above US tax law. Banks would be required to report to the IRS any interest they pay to foreigners, but not so the US government can collect tax, but in order to let foreign governments tax this US-source income.

This isn’t the first time the IRS has tried to pull this stunt. At the very end of the Clinton years, the agency proposed a rule to do the same thing. But the bureaucrats were thwarted because of overwhelming opposition from Capitol Hill, the financial services industry, and public policy experts. There was near-unanimous agreement that it would be crazy to drive job-creating capital out of the US economy and there was also near-unanimous agreement that the IRS had no authority to impose a regulation that was completely inconsistent with the laws enacted by Congress.

But like a zombie, this IRS regulation has risen from the grave.

I’m not sure what is most upsetting about this proposed rule, but there are five serious flaws in the IRS’s back-door scheme to turn American banks into deputy tax collectors for foreign governments.

1. The IRS is flouting the law, using regulatory dictates to overturn laws enacted through the democratic process.

Ever since 1921, and most recently reconfirmed by legislation in 1976 and 1986, Congress specifically has chosen not to tax interest paid to non-resident foreigners. Lawmakers wanted to attract money to the U.S. economy.

Yet rogue IRS bureaucrats want to impose a regulation to overturn the outcome of the democratic process. Heck, if they really think they have that sort of power, why don’t they do us a favor and unilaterally junk the entire internal revenue code and give us a flat tax?

2. The IRS has failed to perform a cost-benefit analysis, as required by executive order 12866.

Issued by the Clinton Administration, this executive order requires that regulations be accompanied by “An assessment of the potential costs and benefits of the regulatory action” for any regulation that will, “Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”

Yet the IRS blithely asserts that this interest-reporting proposal is “not a significant regulatory action.” Amazing, we have trillions of dollars of foreign capital invested in our economy, perhaps $1 trillion of which is deposited in banks, and we know some of which definitely will be withdrawn if this regulation is implemented, but the bureaucrats unilaterally decided the regulation doesn’t require a cost-benefit analysis.

During a previous incarnation of this regulation, the IRS’s failure to comply with the rules led the Office of Advocacy at the Small Business Administration to denounce the tax-collection bureaucracy, stating that “…there is ample evidence that the impact of the regulation is significant and that a substantial number of small businesses will be impacted.”

3. The IRS is imposing a regulation that puts America’s economy at risk.

According to the Commerce Department, foreigners have invested more than $10 trillion in the U.S. economy.

And according to the Treasury Department, foreigners have more than $4 trillion in American banks and brokerage accounts.

We don’t know how much money will leave America if this regulation is implemented, but there are many financial centers – such as London, Hong Kong, Cayman, Singapore, Tokyo, Zurch, Luxembourg, Bermuda, and Panama – that would gladly welcome the additional investment if the IRS makes the American financial services sector less attractive.

4. The IRS is destabilizing America’s already shaky financial system.

Five years ago, when the banking industry was strong, the IRS regulation would have been bad news. Now, with many banks still weakened by the financial crisis, the regulation could be a death knell. Not only would it drive capital to banks in other nations, it also would impose a heavy regulatory burden.

How bad would it be? Commenting on an earlier version of the regulation, which only would have applied to deposits from 15 countries, the Chairman of the Federal Deposit Insurance Corporation warned that, “[a] shift of even a modest portion of these [nonresident alien] funds out of the U.S. banking system would certainly be termed a significant economic impact.” He also noted that potentially $1 trillion of deposits might be involved. And a study from the Mercatus Center at George Mason University estimated that $87 billion would leave the American economy. And remember, that estimate was based on a regulation that would have applied to just 15 nations, not the entire world.

So what happens if more banks fail? I guess the bureaucrats at the IRS would probably just shrug their shoulders and suggest another bailout.

5. The IRS is endangering the lives of foreigners who deposit funds in America because of persecution, discrimination, abuse, crime, and instability in their home countries.

If you’re from Mexico you don’t want to put money in local banks or declare it to the tax authorities. Corruption is rampant and that information might be sold to criminal gangs who then kidnap one of your children. If you’re from Venezuela, you have the same desire to have your money in the United States, but perhaps you’re more worried about persecution or expropriation by a brutal dictatorship.

There are people all over the world who have good reasons to protect their private financial information. Yet this regulation would put them and their families at risk. The only silver lining is that these people presumably will move their money to other nations. Good for them, bad for America.

Let’s wrap this up. Under current law, America is a safe haven for international investors. This is good news for foreigners, and good news for the American economy. That’s why it is so outrageous that the IRS, unilaterally and without legal justification, is trying to reverse 90 years of law for no other reason than to help foreign governments.

By the way, you can add your two cents by clicking on this link which will take you to the public comment page for this regulation. Don’t be bashful.

One last point. The Obama Administration says this regulation is part of a global effort to improve tax compliance. But unless Congress changes the law, the IRS is not responsible for helping foreign tax collectors squeeze more money out foreign taxpayers. Moreover, the White House has been grossly misleading about U.S. compliance issues (as this video illustrates), so their assertions lack credibility.

The IRS Run Amok is a post from Cato @ Liberty - Cato Institute Blog

On Saturday, inspired by Fareed Zakaria’s writings on “illiberal democracy,” I expressed concerns about the prospect of quick elections in Tunisia, a country that has not had a free press, an independent judiciary, or other elements of liberalism. Khelil Bouarrouj, a Tunisian-American libertarian, thinks I am overly pessimistic. Here’s what he wrote me:

While Tunisia has never been a true democracy, the largely educated middle class in the nation is well-learned when it comes to the principles of a free society. The regime’s authoritarianism does not speak for the courageous Tunisian lawyers, activists and students; along with the general professional class. Tunisians know what a free press looks like. They’ve seen it around the world when they travel and social networks have served as a dissident channel. And let me add without hyperbole that on Saturday Tunisians awoke to a free press. The usually propagandistic state television changed its logo (which was a regime ensign) and became a voice for free debate with call-ins from average Tunisians. The private media was hosting panel discussions and it was stunning: people have shaken off the fear, and educated journalists and other civil society individuals were openly debating and discussing a whole host of issues. The newspapers that were published that morning ceased with self-censorship, and their coverage and editorials became free forums. A casual reader and observer of the press/media would conclude that it is dominated by a liberal social class with strong democratic values and articulation. In short, the past absence of an institutionalized free press does not mean that Tunisians do not understand the merit of free debate and differing voices. They always have and needed only the opportunity to breathe, which they have now seized.

This lesson, I believe, applies to democracy as well. The fact is that liberal social norms have been ingrained in Tunisian culture: a secular state, equal rights for women, higher education, religious tolerance, etc. I do not state this as a patriot, who has certainly been emotionally moved in recent days, but as an observer who has numerous family and friends in the nation and been engaged in countless political discussions.

The images of the protesters themselves tell a story. Unlike in other Arab nations, the opposition was not uncouth Islamists but a liberal middle class and students. The demonstrations at colleges had Arab youth spell out the word freedom (which was widely evoked during the month), and this was not just a slogan but a genuinely understood ideal. The nation is ready to be a true democracy and truly entrench democratic values. The cultural ethos is already democratic and this is what led to the protests, defining their voice and even the demand that the transition government adhere to the very letter of the constitution. After the president fled, the prime minister took over but Tunisian lawyers immediately declared it unconstitutional (as it was), along with buzzing messages on Facebook by the newly energized populace, and within hours the premier handed power to the speaker of the parliament according to the constitution. The high court has declared that elections shall be held in 60 days per the constitution as well.

Tunisians wanted to start off right with respect for the rule of law. And that’s just it: this nation has been democratic at heart; the recipe for democracy if you will, and the rule of law is understood, respected by Tunisians and had been upheld even under the past regime with the obvious exception of the corrupt and now dethroned ruling elite. Tunisians precisely threw them out because of their repressive rule and flagrant abuse of the law. And the fact is that the people are so committed to a free, democratic Tunisia and the rule of law that they did not acquiesce to an unconstitutional transfer of power, even though they had achieved their main objective of expelling the president and the premier was going to reign solely as a temporary president until elections are held.

Again: people wanted to start a new dawn without compromise on the rule of law. It is no trivial matter that even in the excitement and shock of victory people still thought about the constitutional provision and demanded it be respected. One may have believed that the people would have been elated and surfeit to achieve a monumental victory, unprecedented in the Arab world for a popular revolt to bring down an Arab tyrant, and not bothered with a provision, which would appear to be minor in context of the historic day and new beginning, and which is ultimately inconsequential since the caretaker would leave after elections. But they were not, and that speaks volumes. I have been glued to Facebook updates, the best pulse of the nation right now, and after the premier assumed power Tunisians immediately noted that this is unconstitutional and began to demand his removal. Tunisians wanted the constitution to be respected from Day One and it was the people who made it happen, again. On Facebook, the sentiment is unanimous: a clean break with the ruling party, respect for the rule of law, free and fair elections, and upholding the constitution. After such a dear victory, the widely heard pronouncement is that the people will not be complacent and are ready and willing to eagerly guard their rights and see to it that a democracy worthy of its name will be planted in Tunisia.

After Friday, the Tunisia people have earned with great sacrifice their freedom, and the people are determined that their God-given rights shall not slip an inch and are closely watching the transition as the proverbial vanguards of liberty, and the people will see to it that their hope will be made concrete. The nation is ready and while no democracy is perfect and all democracies are often in a state of oscillation, Tunisia is the best bet and hope for the Arab world’s first real liberal democracy. And I believe it will be a model for the rest of the region.

Another View of Tunisia is a post from Cato @ Liberty - Cato Institute Blog

MIT Professor Simon Johnson recently argued that Bill Daley’s appointment as Obama’s Chief of Staff signals that “too big to fail,” as it relates to our largest financial institutions, is here to stay.  Personally I never thought it was in doubt.  With Geithner at Treasury and Dodd-Frank further codifiying “too big to fail,” its been clear for some time that the bailout net is larger than it’s ever been, and is not being pulled back. 

That said, Professor Johnson’s focus on Daley distracts from the real issue, which is changing our bank regulatory structure to end bailouts.  The focus on Daley has the potential to lead us down that path of “if we just had the right people in government…”  We shouldn’t be designing our regulatory structures with the “right” people in mind, but rather with the rule of law in mind.  In fact, one of the benefits of the Obama administration is that it serves as a great test of the “right people” hypothesis of government.  One is unlikely to see a more left-leaning White House than this one, so if this one gets captured by special interests, including Wall Street, than it’s a safe bet that any future administration will as well. 

Since I believe most of us actually want to end “too big to fail,” the real question is how to do it.  It strikes me that we have three options:  regulate the largest institutions to death (or competitive disadvantage), break them up, or credibly impose losses on their creditors.  Ultimately I think the regulation approach is bound to fail, if for no other reason than regulatory capture.   (Even Elizabeth Warren seems to get this: “Regulations, over time, fail. I want to see Congress focus more on a credible system for liquidating the banks that are considered too big to fail.”)  Breaking them up might sound attractive in theory, but I have a hard time seeing how it truly works in practice.  After all, few in Washington viewed Bear Stearns as “too big to fail.”  Accordingly, I believe the best approach would be to force creditors to take losses or be converted into equity.  To make this credible, we must bind the hands of the regulators.  As long as the Fed, Treasury, or the FDIC can inject money, then bailouts are always on the table.    

Sadly, what the Daley appointment reminds us is that any attempt to end “too big to fail” will likely have to wait until the next administration.  Not only is this one wed to bailouts, the President would likely veto any bill that really tied the hands of the Fed.

Bill Daley and ‘Too Big To Fail’ is a post from Cato @ Liberty - Cato Institute Blog

That’s the only message I can take away from the ATF proposal to require Federal Firearm License (FFL) holders to report the sale of two or more semiautomatic rifles that accept detachable magazines in states along the border with Mexico. In other words, this is gun control for the sake of Mexico.

Thing is, the proposal breaks the law. The ATF doesn’t have the authority to do this.

As David Hardy notes at Of Arms & the Law:

There are several violations of the Gun Control Act, as amended by the Firearm Owners’ Protection Act. First, 18 USC §926(b) provides “The Attorney General shall give not less than ninety days public notice, and shall afford interested parties opportunity for hearing, before prescribing such rules and regulations.” This is stricter than the Admin Procedure Act’s general provision for a “reasonable” comment period, and it has no emergency exceptions. ATFE is only giving 30 days’ notice.

Second, the FOPA amendments were intended to cut off future requirements of direct reporting — I say future because the existing regs (including reporting of multiple handgun sales were grandfathered in, but limited to those specific requirements. Thus far and no farther.

The ATF’s action provokes a court contest over the limits of the agency’s powers, which are clearly being exceeded. The litigation will provide another opportunity for Hardy’s excellent article about the legislative history of the Firearms Owners’ Protection Act to get cited in federal court.

All of this is unnecessary and lawless. There is a legitimate way for allowing the ATF to take this action: amend the law. Instead the Executive is ruling by regulatory fiat, damaging and degrading the rule of law. Unfortunately, there’s a lot of that going around these days.

ATF: Laws are for the Little People is a post from Cato @ Liberty - Cato Institute Blog

Last August I warned about the troubling signs coming from Panama’s president Ricardo Martinelli. Elected in 2009 on a free market platform, Martinelli has quickly embraced interventionist economic policies (particularly a sharp increase in public spending) that sooner or later will take a toll on Panama’s macroeconomic stability. More worryingly, I pointed at a disturbing pattern of cronyism, erosion of democratic checks and balances, and harassment of the media emanating from the Martinelli administration.

A cable released by Wikileaks this week seems to confirm many of these fears. Dated August 2009 and signed by then U.S. Ambassador to Panama Barbara Stephenson, it describes Martinelli’s “autocratic tendencies” such as asking the U.S. government for help to wiretap political opponents—a request that was promptly rejected by the U.S. embassy in Panama. Stephenson goes on to say that, after meeting the Panamanian president, she is under the impression that Martinelli “may be willing to set aside the rule of law in order to achieve his political and developmental goals.”

According to the cable, Martinelli has resorted to “bullying and blackmailing” of private businesses. Stephenson describes how the Panamanian president told her that “he had already met with the heads of Panama’s four mobile phone operators and discussed methods for obtaining call data.” A bill has also been introduced in the National Assembly (where Martinelli’s coalition enjoys a large majority) that would “require registry of prepaid cell phones and compel mobile operators to submit call data to the government for criminal investigations.” Martinelli also told Stephenson that “he had twisted the arms of casino operators and threatened to cancel their concessions if they did not pay their back taxes and cut their ties to the opposition political figures who had granted their generous concessions.”

The cable ends noticing how “[m]ost of [Martinelli’s] government appointments have favored loyalty over competence.” That is, the Martinelli administration is riddled with cronyism– as I wrote back in August.

There is new evidence outside of the Wikileaks cable which confirms Martinelli’s ominous autocratic inclinations. For instance, international media organizations have lambasted the Martinelli administration in recent months for its encroachment on independent media. Reporters Without Borders dropped Panama 30 spots in its latest Press Freedom Index, noticing that the country “has taken an opposite direction, in an atmosphere growing increasingly tense between the media and the authorities.” The Interamerican Press Association says in its most recent report on Panama that “[o]ver the past six months, freedom of the press has been threatened by actions by institutions belonging to the government of President Ricardo Martinelli, as well as from the Judicial Branch and the Prosecutors’ Office.” As I pointed out in my August op-ed, Martinelli has appointed loyal (and controversial) figures to both the Supreme Court and the Prosecutors’ Office.

The diplomatic cable leaked by Wikileaks as well as these reports by international organizations lend credibility to the argument that Ricardo Martinelli is a growing threat to Panama’s rule of law and democratic institutions. Panamanians have a lot to be worried about.

Wikileaks Cable: Martinelli Is a Threat to the Rule of Law in Panama is a post from Cato @ Liberty - Cato Institute Blog

The editorialists at the The New York Times are out of sorts this morning over a Tea Party backed constitutional amendment that would give state legislatures the power to veto any federal law or regulation if two-thirds of the legislatures approved. Despite the backing of incoming House majority leader Eric Cantor and legislative leaders in 12 states, the proposal has little chance of succeeding, the Times avers, “but it helps explain further the anger-fueled, myth-based politics of the populist new right.” Indeed, it expresses “with bold simplicity the view of the Tea Party and others that the federal government’s influence is far too broad.”

Well? Isn’t that what the election last month was all about? But right there, for the Times, is the problem: “In past economic crises, populist fervor has been for expanding the power of the national government to address America’s pressing needs. Pleas for making good the nation’s commitment to equality and welfare have been as loud as those for liberty.” With the Tea Party, however, the tables have turned. What most troubles the Times, it seems, are Tea Party signs that say “We Want Less!”

And nowhere is that better captured than when the Times speaks of “the mistaken vision of federalism on which [this amendment] rests. Its foundation is that the United States defined in the Constitution are a set of decentralized sovereignties where personal responsibility, private property and a laissez-faire economy should reign. In this vision, the federal government is an intrusive parent.”

If that vision is “mistaken,” so too, apparently, were the Founders, because it was their vision as well. To be sure, the Constitution they crafted held “competing elements, some constraining the national government, others energizing it,” as the Times writes. And true also, the government they shaped was meant “to promote economic development that would lift the fortunes of the American people” — but mainly by securing the framework for liberty, the rule of law, not by pursuing prosperity through government programs. In particular, the Framers believed in personal, not government, responsibility; private, not collective, property; and a free, not a planned, economy. And they left most power with the states, where it would be exercised responsibly, or not — something to keep in mind as we watch our “failed states” asking Washington (read, the other states) to bail them out.

The Constitutional Vision of The New York Times is a post from Cato @ Liberty - Cato Institute Blog

The first item on this election campaign’s Contract with America was that, if elected (as they have been), the House Republicans would require that all laws that apply to the rest of the country also apply to Congress.  We’ll see if that and the other promised reforms materialize, but it does raise yet another issue in the context of Obamacare.

As my colleague Michael Cannon pointed out to me, the new health care law kicks congressmen out of the Federal Employees Health Benefits Program.  (The current FEHB is no different from the health coverage provided by any private employer -– federal employees choose from a series of private plan options (none of which is run by the government), and receive a subsidy from the federal government acting in its role as an employer.)

My first reaction to hearing this was:  Good — if the rest of us lose our health care freedom, so should those who forced this new atrocity on us.  But apparently this result was not intended, so the Obama administration has decided to ignore that part of the law.

No joke.  Here is the Congressional Research Service report on the provisions that oust members of Congress from their health insurance.  And here is the letter in which an Obama appointee announces that the administration will ignore the law.  These two articles also provide important information.

Now, assuming that something constitutionally problematic is going on here, what can anyone do about it?  To put it in legal terms, who has standing to sue for this apparent constitutional violation?  It’s a tough row to hoe — taxpayers cannot bring suit based on generalized grievances — but off the top of my head, I can think of two possibilities: (1) members of Congress suing the president or the Department of Health and Human Services for essentially passing new law and therefore infringing on congressional prerogatives (thereby violating the separation of powers); or (2) an insurance broker or carrier who would otherwise be signing up new clients.

And there are two additional related questions:

1. Why did Congress expand Medicaid while refusing to participate in it themselves?  Obamacare expanded Medicaid to an estimated 18 million new Americans, none of whom will have a choice of private plans, instead being dumped into Medicaid, a program notorious for access problems (and which in Arizona now doesn’t cover organ transplants).  Yet all Senate Democrats voted against an amendment enrolling members of Congress in the new Medicaid program (all Republicans voted for it, except one who was absent).

2. Will members of Congress use their own salaries to pay any fines assessed because their employees have “unaffordable” health coverage?  Obamacare includes a $2,000 per worker penalty for any employer that does not provide “affordable” coverage, beginning in 2014.  Many junior staffers have incomes below 400 percent of the federal poverty level ($43,320 for a single person, or $88,200 for a family of four), and thus could be subject to the new statutory test of whether their health insurance options are “affordable.”  While it’s unclear how this particular provision will be implemented for Hill staff – due to the “significant unintended consequences” of sloppy drafting — it’s entirely possible that member offices could be assessed a $2,000 penalty for every worker needing insurance subsidies because they have no “affordable” alternative.  If that scenario happens, will the members of Congress who voted for the law pay the penalty out of their own salaries or will they rely on taxpayer funds to finance an obligation they imposed on themselves?

Is Congress Above the Law? is a post from Cato @ Liberty - Cato Institute Blog

Not long ago a journalist asked me what freedoms we take for granted in America. Now, I spend most of my time sounding the alarm about the freedoms we’re losing. But this was a good opportunity to step back and consider how America is different from much of world history — and why immigrants still flock here.

If we ask how life in the United States is different from life in most of the history of the world — and still  different from much of the world — a few key elements come to mind.

Rule of law. Perhaps the greatest achievement in history is the subordination of power to law. That is, in modern America we have created structures that limit and control the arbitrary power of government. No longer can one man — a king, a priest, a communist party boss — take another person’s life or property at the ruler’s whim. Citizens can go about their business, generally confident that they won’t be dragged off the streets to disappear forever, and confident that their hard-earned property won’t be confiscated without warning. We may take the rule of law for granted, but immigrants from China, Haiti, Syria, and other parts of the world know how rare it is.

Equality. For most of history people were firmly assigned to a particular status — clergy, nobility, and peasants. Kings and lords and serfs. Brahmans, other castes, and untouchables in India. If your father was a noble or a peasant, so would you be. The American Revolution swept away such distinctions. In America all men were created equal. Thomas Jefferson declared “that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God.” In America some people may be smarter, richer, stronger, or more beautiful than others, but “I’m as good as you” is our national creed. We are all citizens, equal before the law, free to rise as far as our talents will take us.

Equality for women. Throughout much of history women were the property of their fathers or their husbands. They were often barred from owning property, testifying in court, signing contracts, or participating in government. Equality for women took longer than equality for men, but today in America and other civilized parts of the world women have the same legal rights as men.

Self-government. The Declaration of Independence proclaims that “governments are instituted” to secure the rights of “life, liberty, and the pursuit of happiness,” and that those governments “derive their just powers from the consent of the governed.” Early governments were often formed in the conquest of one people by another, and the right of the rulers to rule was attributed to God’s will and passed along from father to son. In a few places — Athens, Rome, medieval Germany — there were fitful attempts to create a democratic government. Now, after America’s example, we take it for granted in civilized countries that governments stand or fall on popular consent.

Freedom of speech. In a world of Michael Moore, Ann Coulter, and cable pornography, it’s hard to imagine just how new and how rare free speech is. Lots of people died for the right to say what they believed. In China and Africa and the Arab world, they still do. Fortunately, we’ve realized that while free speech may irritate each of us at some point, we’re all better off for it.

Freedom of religion. Church and state have been bound together since time immemorial. The state claimed divine sanction, the church got money and power, the combination left little room for freedom. As late as the 17th century, Europe was wracked by religious wars. England, Sweden, and other countries still have an established church, though their citizens are free to worship elsewhere. Many people used to think that a country could only survive if everyone worshipped the one true God in the one true way. The American Founders established religious freedom.

Property and contract. We owe our unprecedented standard of living to the capitalist freedoms of private property and free markets. When people are able to own property and make contracts, they create wealth. Free markets and the legal institutions to enforce contracts make possible vast economic undertakings–from the design and construction of airplanes to worldwide computer networks and ATM systems. But to appreciate the benefits of free markets, we don’t have to marvel at skyscrapers while listening to MP3 players. We can just give thanks for enough food to live on, and central heating, and the medical care that has lowered the infant mortality rate from about 20 percent to less than 1 percent.

A Kenyan boy who managed to get to the United States told a reporter for Woman’s World magazine that America is “heaven.” Compared to countries that lack the rule of law, equality, property rights, free markets, and freedom of speech and worship, it certainly is. A good point to keep in mind this Thanksgiving Day.

This article originally appeared in the Washington Times in 2004 and was included in my book The Politics of Freedom.

Things to Be Thankful For is a post from Cato @ Liberty - Cato Institute Blog

That’s what the attorney for former CIA officer Jose Rodriguez is saying about his client. Rodriguez and other CIA personnel destroyed videotapes of detainee interrogations. The Justice Department announced that Rodriguez will not face criminal charges, but did not elaborate on the reasoning behind the decision.

Rodriguez’s decision to get rid of the tapes came after White House lawyers, responding to a court order, instructed the CIA not to destroy any evidence associated with detainee interrogations.

I know that the term “slippery slope” is overused, but it’s clearly evident here. Thwart the rule of law by declaring torture legal, thwart it again to cover up your actions.

Destroying Evidence = American Hero is a post from Cato @ Liberty - Cato Institute Blog

Here is the test of whether we still live in a society governed by the rule of law: Will anyone at the FBI be fired over the latest report out of the Office of the Inspector General?

Let’s review. Earlier this year, a comprehensive OIG report revealed that for years the FBI had ignored the paper-thin procedures demanded by our National Security Letter statutes to obtain sensitive telecommunications records of thousands of Americans, not just without a court order—because apparently we’re fine with that now—but without any kind of legitimate process at all. With nothing more elaborate than a Post-It Note requesting the data. As far as the public record is concerned, nobody has suffered any consequences for this massive abuse of the public trust.

Now we learn that an FBI supervisor, in an exercise of spectacularly poor judgment, sent a rookie out to monitor an antiwar rally—evading the charge of monitoring Americans based exclusively on the basis of First Amendment protected activity only because of the laughable pretext that said rookie was there to eye the crowd for any international terrorists who might be in attendance. Fine.  But when Congress got wind of this and began to inquire into why this had occurred—and why said rookie had filed a report on “antiwar activity” that focused on whether any persons of apparent “Middle Eastern descent” had been involved—the OIG found that someone at the FBI had utterly fabricated a retroactive justification for the investigation, involving dubious “terror suspects” that nobody had actually believed at the time might be present at this rally.

According to the FBI, this fabrication was then offered up by FBI Director Robert Mueller before the Bureau’s overseers in Congress. This leaves us with a limited number of possibilities. One is that the head of the FBI was aware of and welcomed what the OIG determined to be a complete invention designed to cover up for an improper investigation. If that’s what happened, the head of the FBI committed perjury and should be prosecuted for it. But the OIG doesn’t believe that’s how it went, and I’m inclined to believe them: It would be irrational to risk perjuring oneself before the Senate Judiciary Committee over a minor error like this, however foolish.

But then someone gave the FBI director a pack of lies to feed to Congress, and the OIG was inexplicably unable to trace this fabrication to its source—which even allowing for the FBI’s massively dysfunctional computer systems seems implausible. So now we have a pressing question: If we don’t think the head of the FBI decided to lie to Congress, who concocted the lies he told them? Are we to believe that the nation’s top cops are either so inept or so indifferent to the question that they can’t answer it? I suspect they very well could find out if they were so inclined. If they don’t, and if there are no consequences for this clumsy cover-up, why should we believe that congressional oversight of intelligence will ever discover or check abuse of investigative power? The message will be clear: Concoct lies to protect your bosses, and your colleagues will wink at your deception, perhaps grateful for having been spared the obligation of making up their own lies.  One lie out of a hundred might be called out in an OIG report—they only have so much time and so many resources—but even if it is, no harm will come of it. The investigators will be mysteriously unable to identify the liar, and everything will blow over. Why risk telling the truth? The initial fuss will subside, and Americans will soon enough be distracted by the next episode of Jersey Shore.

I think we’ve had quite enough of that.  Someone at the FBI decided that it was a good idea to lie to Congress in order to cover up improper monitoring of an unpopular political group.  In this case, it was pacifists, but who knows who’ll be next. If brazen lies aren’t punished the one case out of a dozen or a hundred that draw the attention of the overseers, why should they ever bother to observe the rules? So watch the Department of Justice.  If someone is fired over this, maybe we still live in a country governed by the rule of law. If not, they’re convinced we’re so dim and besotted by reruns of Friends that they no longer even feel obliged to put up a good show.

And Of Course They Won’t, No Not Until The Next Time is a post from Cato @ Liberty - Cato Institute Blog