Michelle Rhee and Eva Moskowitz on School Choice
Rhee, the former chancellor of DC Public Schools, and Moskowitz, head of a NYC charter school, were asked at an event last week what they thought of the Supreme Court decision upholding Arizona’s K-12 scholarship donation tax credit program. The program offers a dollar-for-dollar tax cut to anyone who donates to a non-profit Scholarship Tuition Organization (and the STOs then help families pay for private school tuition).
Children’s Scholarship Fund president Darla Romfo asked the question, and here’s the answer she received.
Credits for Crucifixes. Or: What’s the Matter with Kagan?
Justice Kagan’s dissent yesterday in the Supreme Court ruling upholding Arizona’s education tax credits seems to me so obviously mistaken on both the facts and the law that I feel I must be missing something. I offer my initial analysis briefly below, and if anyone can tell me if/where I’m going wrong, my e-mail address is just a Google away.
First, Kagan and her fellow dissenters express dismay at the putative novelty of the majority’s distinction between tax credits and government spending. But, more than a decade ago, this very same distinction was acknowledged by the Arizona Supreme Court in Kotternman v. Killian, and that AZ Court ruling itself cites a string of precedents from around the country supporting it. Clearly, the majority’s ruling is far from novel, and Kagan and the dissenters should know that.
Next, Kagan claims that the majority’s ruling would preclude taxpayers from suing the government for operating a program that gives tax credits exclusively to one religious group. She claims that taxpayers of other faiths would lack standing. That seems quite wrong. The pivotal issue is that taxpayers would have to show a specific personal harm resulting from the government’s actions in order to have standing. In the case of Arizona’s tax credits, as the majority acknowledged, there is no harm to taxpayers. Everyone is eligible for the credit and credits can be claimed against donations to any type of scholarship organization, of any faith or no faith. By contrast, under Kagan’s straw man example of a credit for the purchase of crucifixes, non-christian taxpayers would suffer a specific personal harm: they would be denied the right to use the credit to purchase religious symbols of their own faith (or to buy “Who is John Galt?” posters if they happened not to be religious). This harm would be the direct result of government action–specifically, of the government’s decision to favor Christians over members of other faith groups and secular taxpayers.
A program that discriminates based on religion causes harm to taxpayers by virtue of excluding them from participation. That, in turn, is a clear equal protection violation, not to mention a violation of at least two of the three prongs of the First Amendment Lemon Test, and so such taxpayers would not only have standing to sue they would win the suit.
Again, the AZ tax credit program causes no such harm, because anyone, regardless of faith, can participate, and no one is compelled to support any kind of religious education. Why could Kagan and her co-dissenters not see this?
Obama’s New Stimulus Schemes: Same Song, Umpteenth Verse
Like a terrible remake of Groundhog Day, the White House has unveiled yet another so-called stimulus scheme. Actually, they have two new proposals to buy votes with our money. One plan is focused on more infrastructure spending, as reported by Politico.
Seeking to bolster the sluggish economy, President Barack Obama is using a Labor Day appearance in Milwaukee to announce he will ask Congress for $50 billion to kick off a new infrastructure plan designed to expand and renew the nation’s roads, railways and runways. …The measures include the “establishment of an Infrastructure Bank to leverage federal dollars and focus on investments of national and regional significance that often fall through the cracks in the current siloed transportation programs,” and “the integration of high-speed rail on an equal footing into the surface transportation program.”
The other plan would make permanent the research and development tax credit. The Washington Post has some of the details.
Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week… The business proposal – what one aide called a key part of a limited economic package – would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs. It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled.
These two proposals are in addition to the other stimulus/job-creation/whatever-they’re-calling-them-now proposals that have been adopted in the past 20 months. And Obama’s stimulus schemes were preceded by Bush’s Keynesian fiasco in 2008. And by the time you read this, the Administration may have unveiled a few more plans. But all of these proposals suffer from the same flaw in that they assume growth is sluggish because government is not big enough and not intervening enough. Keynesian politicians don’t realize (or pretend not to realize) that economic growth occurs when there is an increase in national income. Redistribution plans, by contrast, simply change who is spending an existing amount of income. If the crowd in Washington really wants more growth, they should reduce the burden of government, as explained in this video.
The best that can be said about the new White House proposals is that they’re probably not as poorly designed as previous stimulus schemes. Federal infrastructure spending almost surely fails a cost-benefit test, but even bridges to nowhere carry some traffic. The money would generate more jobs and more output if left in the private sector, so the macroeconomic impact is still negative, but presumably not as negative as bailouts for profligate state and local governments or subsidies to encourage unemployment – which were key parts of previous stimulus proposals.
Likewise, a permanent research and development tax credit is not ideal tax policy, but at least the provision is tied to doing something productive, as opposed to tax breaks and rebates that don’t boost work, saving, and investment. We don’t know, however, what’s behind the curtain. According to the article, the White House will finance this proposal by “closing other corporate tax loopholes.” In theory, that could mean a better tax code. But this Administration has a very confused understanding of tax policy, so it’s quite likely that they will raise taxes in a way that makes the overall tax code even worse. They’ve already done this in previous stimulus plans by increasing the tax bias against American companies competing in world markets, so there’s little reason to be optimistic now. And don’t forget that the President has not changed his mind about imposing higher income tax rates, higher capital gains tax rates, higher death tax rates, and higher dividend tax rates beginning next January.
All that we can say for sure is that the politicians in Washington are very nervous now that the midterm elections are just two months away. This means their normal tendencies to waste money will morph into a pathological form of profligacy.
Is an Education Free Market Really ‘Totally Insane’
Matt Yglesias thinks my assertion that we would be better off economically if education money stayed with taxpayers rather than going to public schools and universities is “totally insane.” Ouch!
Now, I can actually understand this, because many people have difficulty envisioning things other than what they’ve always known. But have I really gone all Crazy Eddie? If government didn’t spend taxpayer dough on education, would the poor be much worse off than they are today? Can we never over-invest in schooling because education is just so important? Does the college wage premium mean we should never ratchet down subsidies for college education? And is it at least possible that spending more and more public dough doesn’t lead to more or better education — by which I mean actual, valuable learning — as much as more waste?
Unfortunately, it seems Ygelsias didn’t follow any of the links I provided in the post containing the line he objected to, which furnished some valuable data answering these important questions. And, by the way, it really was just one line he seemed to dislike – the point of the post was to argue against spending yet more taxpayer dough on an education-centered stimulus, not for complete separation of school and state. And, of course, tax-credit-based school choice leaves taxpayers in control of their money without eliminating support for education.
But let’s start answering our questions in more depth so that Mr. Yglesias and others can start to think outside of the “how we’ve always done it” box.
Supreme Court Will Hear Appeal of School Choice Case
The SCOTUS Blog reports this morning that the United States Supreme Court has agreed to hear an appeal of the Ninth Circuit’s ruling in the Arizona k-12 scholarship tax credit case. This is great news, and paves the way for the Court to ultimately overturn the 9th Circuit’s credulity-straining legal misadventure.
For the details, see the Cato brief in this case, which was joined by the American Federation for Children and Foundation for Educational Choice.
A Double Dip for Housing?
Washington is fretting this week over news that mortgage applications fell dramatically in November. Coupled with earlier indications of renewed softening in the housing market, there is growing fear that housing is headed for a “double-dip downturn” that could further damage the economy. As a result, Federal Reserve policymakers are considering additional stimulus, while the National Association of Realtors is suggesting an(other) extension of the “temporary” homebuyer tax credit.
Remarkably, neither policymakers nor the media are asking the obvious question: Given all of the emergency interventions in housing that government has undertaken, and the fact that the housing market continues to erode, do such interventions do much good?
Since the bursting of the bubble in 2006, the great unknown has been whether housing prices will revert to their historical trend (and possibly to below trend for a short period), or stabilize at some permanently higher level because a portion of the bubble (aided perhaps by public policy) would prove enduring. There is good reason to expect reversion to trend, but the economy can surprise us.
Let’s use an example to understand this better. The graph below depicts the course of house prices for my hometown of Hagerstown, MD, an area within commuting range of suburban DC that was hit particularly hard by the bubble and its deflation. The black line is a house price index computed by the Federal Housing Finance Agency for 1989–2009. The red line is an extended linear trendline drawn using index data from the period 1989–2002. (You can do the same analysis for your area using these FHFA data.) The question, then, is whether house prices will fall all the way back to the trendline or will stabilize at a level above the trendline.
Vermont Could Save Millions with Private School Choice
The Ethan Allen Institute has just published a report suggesting that Vermont could save $80 million a year by voucherizing its education system. What’s most interesting is how generous the prospective vouchers would be: $10,000 for K-6, and $14,900 for grades 7-12. How could such a system save money? The main reason is that Vermont was already spending $14,000/pupil on public schools across all grades four years ago. Taking into account the inevitable increase since then and the effects of inflation to 2009 dollars, the state is no doubt spending well over $15,000 per pupil today, so EAI’s ample voucher funding would still cost far less than the status quo.
The only problem is that, as the EAI report notes (see p. 10), Vermont’s state supreme court has ruled against state funding of sectarian schools. So tax credits would be a better option for that reason, among others.
Homeownership Myths
In a recent Washington Post op-ed, Professor Joseph Gyourko, chair of the Wharton School’s Real Estate Department, lists what he sees as the five biggest myths about homeownership. Given the central role of federal housing policy, particularly Fannie Mae and Freddie Mac, in our recent financial crisis, it is worth following Professor Gyourko’s suggestion and question whether a national policy of ownership, all the time for everyone, really makes sense.
Professor Gyourko’s five myths:
1. Housing is a great long-term investment.
2. The homebuyer tax credit makes buying a house more affordable.
3. Homeowners are better citizens.
4. It’s safe to buy a house with a very low downpayment.
5. Owning is always cheaper than renting.
You’ll have to read the op-ed to see his explanations. An important qualification on his analysis is that in many cases what can be good for the buyer, such as putting no money down, may not be good for the economy if it results in additional foreclosures.
New Paper: Why Sustainability Standards for Biofuel Production Make Little Economic Sense
The U.S. sustainability standard currently requires ethanol production to emit at least 20% less CO2 than the gasoline it is assumed to replace. In a new study, authors Harry de Gorter and David R. Just argue that sustainability standards for ethanol are, by definition, illogical and ineffective. Moreover, say de Gorter and Just, those standards divert attention from the contradictions and inefficiencies of ethanol import tariffs, tax credits, mandates, and subsidies, all of which exist whether ethanol is sustainable or not.
Bob McDonnell: The Modern Republican
This is from the Reagan administration’s deregulatory 1981 energy plan: “All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”
Many modern Republicans claim devotion to Ronald Reagan’s ideas, but they often seem to forget about the “minimum of government” thing. The following points are from Republican Virginia gubernatorial candidate Bob McDonnell’s “More Energy, More Jobs” plan:
- “McDonnell was the chief sponsor of legislation creating the Virginia Hydrogen Energy Plan.”
- “McDonnell also supported grant programs for solar photovoltaic manufacturing, tax exemptions for solar energy and recycling property, and tax credits for solar energy equipment.”
- “In order to protect Virginia’s citizens from the skyrocketing wholesale prices of electricity seen in other states, McDonnell brought together all the necessary stake holders to re-regulate electricity in Virginia.”
- “Currently, Virginia is the second largest importer of electricity behind California. This is unacceptable.”
- “Bob McDonnell will establish Virginia as a Green Jobs Zone to incentivize companies to create quality green jobs. Qualified businesses would be eligible to receive an income tax credit equal to $500 per position created per year for the first five years.”
- “The Virginia Alternative Fuels Revolving Fund was established to assist local governments that convert to alternative fuel systems . . . Bob McDonnell will expand the purpose of this fund to include infrastructure such as refueling stations, provide seed money and aggressively pursue additional grants.”
- “Bob McDonnell will make Southwest and Southside Virginia the nation’s hub for traditional and alternative energy research and development…To assist with the attraction, building and operation of major energy facilities in Southside and Southwest Virginia, we will also support the establishment of the Center for Energy.”
- “To help Virginia universities gain access to federal stimulus money, as Governor, Bob McDonnell will establish the Virginia Universities Clean Energy Development and Economic Stimulus Foundation.”
- “As Governor, Bob McDonnell will leverage stimulus funding to incentivize individuals and businesses to conduct energy audits and encourage public private partnerships between small businesses and government.”
It’s true that McDonnell’s plan has some free market elements, and also that Ronald Reagan supported some wasteful energy boondoggles. However, the degree to which the modern Republican wants to micromanage and manipulate the energy industry is remarkable. McDonnell is almost setting out a Soviet five-year plan for a substantial part of the Virginia economy. For goodness sakes, he wants to treat Virginia like a separate country and try to fix the supposed problem that it is “importing” too much energy from other states!
It’s not just energy. Look at the top-down central planning ideas that McDonnell has for “creating jobs”:
‘Tax Cuts’ and Welfare Spending
A story in the Washington Post today is headlined: “Obama Would Keep $85 Billion in Tax Breaks for Working Poor.”
The “tax breaks” in question are expansions in the earned income tax credit and the child tax credit. The Post story repeatedly calls the expansions “tax breaks” and “tax cuts.” The budget expert quoted in the story calls them “tax cuts,” and so does a House staffer and a spokesperson for the president.
But these are not tax cuts. They are expansions in the refundability of provisions in the tax code. That means that households that pay no federal income tax will receive larger welfare checks from the government under these Obama proposals.
Obama has proposed a slew of “tax cuts” that are partly welfare payments. The chart below shows the share of the 2010-2019 dollar values of these proposals that are actually increased federal spending, and not reductions in taxes. (Calculated from OMB’s May summary tables).
The Post reporter and the budget analyst quoted in the story are both fiscal experts, and they know that these “tax cuts” are not really tax cuts. But there is a growing problem in fiscal discussions that words are getting flipped upside down to mean the opposite of what a layman would understand them to mean. A classic example is how the dollar value of true tax cuts is nearly always referred to in news articles as a “cost” rather than a “saving.”
Steny Hoyer’s use of the phrase “paid for” in the health debate is another example of how Washington-speak is confusing the heck out of people.
Senators Want to Delay Housing Recovery
As discussed in a recent Bloomberg piece, several U.S. senators from both parties are pushing to almost double the recently enacted $8,000 tax credit for first-time homebuyers to $15,000. The same senators are also pushing to remove the current income restrictions — $75,000 for individuals and $150,000 for couples — while also removing the first-time buyer requirement.
The intent of the increase, and the original credit, is to increase the demand for housing and to create a “bottom” to the housing market. The flaw of this approach is that it creates a false bottom, one characterized by government-inflated prices and not fundamentals. It was excessive government subsidies into housing that helped create the housing bubble, additional subsidies to re-inflate the bubble will only prolong the actual market adjustment.
If it were only a matter of prolonging the adjustment, then the huge cost of the tax credit might be easier to justify. Yet by encouraging increased housing production, the tax credit will increase supply when we already have a huge glut of housing. Despite housing starts being near 50-year lows, there is still too much construction going on. The way to spur demand in housing is the same way you spur demand in any market: you cut prices.
Removing the income limits makes clear the real intention of the tax credit, to help the wealthiest households. About three-fourths of existing families already fall under the income cap of $75,000. As we move up the income latter, home equity makes up a smaller percentage of one’s total wealth. The richest families can make do with a decline in their housing wealth and continue spending; they have other substantial sources of wealth. If we have learned anything from the housing boom and bust, it should be that continued government efforts to rearrange the housing market have been costly failures.
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