Policy Institutes

Tax Reform Error #2: Phasing-in Lower Tax Rates

Cato Op-Eds - Sun, 03/09/2014 - 14:20

Alan Reynolds

Since 1981, Republican legislators have shown a strong penchant for phasing-in tax rate reductions over several years.  That tradition is maintained in Ways and Means Committee Chair Dave Camp’s proposed 979-page “simplification” of the U.S. tax system.  The Camp draft retains a very high top tax rate of 38.8 percent on businesses that file under the individual income tax as partnerships, proprietorships, LLCs or Subchapter S corporations. For those choosing to file as C-corporations, by contrast, the Camp proposal would gradually reduce the corporate tax rate by two percentage points a year over five years, eventually reducing it from 35 to 25 percent. 

The trouble with phasing-in lower tax rates is that it creates an incentive to postpone efforts and investments until later, when tax rates will be lower.  Reducing the corporate tax rate by two percentage points a year would create an incentive to repeatedly delay reported profits, year after year, holding back the economy and tax receipts.  Sensible tax planners would write-off expenses soon as possible, including interest expenses, but defer investment until future years when the tax rate would be reduced on any resulting added earnings.  

Meanwhile, the widening gap between corporate and noncorporate tax rates (a difference of 13.8 percentage points after five years) would encourage many small businesses, farms and professionals to set up C-corporations to shelter retained earnings.  Owners of closely-held private corporations can defer double taxation indefinitely by not paying dividends and taking most compensation in the form of tax-free corporate perks. Many enterprises contemplating the new incentive to shift income from individual to corporate tax forms after five years would postpone expansion plans until after they made that switch, further depressing the economy and tax receipts.

The Republican Party’s proclivity for phased-in tax cuts may have originated with former Federal Reserve Chairman Alan Greenspan.  In his January 25, 2001 testimony before the Senate Budget committee, Chairman Greenspan said, “In recognition of the uncertainties in the economic and budget outlook, it is important that any long-term tax plan … be phased in.”  That was the same advice he gave in January 1981 when Greenspan and I served on President Reagan’s transition team.  Unfortunately, his advice to phase-in lower tax rates was followed both times, with disastrous results.

During the deep recession from July 1981 to November 1982, Congress opted to postpone most tax relief until the 1983-84 tax years.  Individual tax rates were ostensibly reduced by 5 percent in October 1981, but with only three months left in the year that meant just 1.25 percent.   Rates were again reduced by 10 percent in July of 1982, but that applied to only half of that year’s income.  Meanwhile, bracket creep from high inflation kept pushing people into higher tax brackets (until indexing took effect in 1985), negating much of the intended effect.  The final 10 percent reduction in July 1983 was not fully effective until calendar year 1984. 

Oddly enough, the painful blunder of phasing-in the Reagan tax cuts after a recession was repeated by the Bush administration in March 2001, three months after the economy slipped into recession.  Aside from the fiscal frivolity of adding a 10 percent tax bracket on the first $12,000 of income (cutting taxes $300-600 at all incomes), reductions in the four highest tax rates were originally scheduled to be very gradually phased-in by 2006.  Congress later came to its senses in May 2003 and reduced marginal tax rates. Yet substantial damage was already done.   University of Michigan economists Christopher House and Matthew Shapiro found, “The phased-in nature [of lower tax rates] contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003.” The harmful impact of the phase-in was confirmed by Cornell University economist Karel Mertens and Morton Ravin of University College London. 

Mertens and Ravin also found that lower corporate tax rates do not reduce U.S. tax revenues, partly because lower tax rates increase domestic investment while reducing tax incentives to take on excess debt.  The Camp plan to phase-in a 25 percent corporate tax rate over many years would be as unnecessary as it would be counterproductive.  Most other countries reduced their corporate tax rates to 25 percent or less long ago – creating marginal effective rates on new investment that are commonly less than half the U.S. level – with clearly beneficial effects on their economies and tax receipts.  

The important, unlearned lesson of 1981 and 2001 is that phased-in reductions in marginal tax rates can make things worse before they make things better.

An uncompetitive U.S. corporate tax rate fosters excessive tax-deductible debt and gives a big cost advantage to foreign enterprises.  There is nothing to be gained, and much to be lost, by improving the U.S. tax climate slowly rather than quickly.

Categories: Policy Institutes

Police Misconduct: The Worst Case in February

Cato Op-Eds - Fri, 03/07/2014 - 16:16

Tim Lynch

Over at Cato’s Police Misconduct web site, we have identified the worst case for February. It is a case from Towson, Md., where the local police seem to think they can suspend the First Amendment.

A young man was video recording a late-night altercation involving arrests in downtown Towson when Baltimore County police noticed him recording, roughed him up, and threatened him with arrest if he continued to record the ongoing arrests. When the man cited the First Amendment right to record the police (which Baltimore County Police policy fully recognizes), the officer accosted him and shouted “You have no rights!”

Earlier in the recording, another officer tries to justify ordering the man to leave the scene, shouting “you diverted my attention from that … LEAVE!” Then the officer immediately resorted to physical force to push the recorder away from the scene. The video shows multiple officers reacting violently to being recorded. The fact that they are flaunting the law and their department policy so willfully, while knowing they are being recorded, makes these Baltimore County police officers our prime candidates for the worst police misconduct for February.

For additional background, go here.

Categories: Policy Institutes

Live Free and Learn

Cato Op-Eds - Fri, 03/07/2014 - 16:12

Jason Bedrick

Earlier this week, the Show-Me Institute released my study “Live Free and Learn,” the first analysis of New Hampshire’s trailblazing scholarship tax credit program, which is the first in the nation to include homeschoolers. The study found that participants in the program were overwhelmingly low-income and nearly universally satisfied. Some of the key findings include:

  • 97 percent of parents of scholarship recipients are satisfied with their chosen private or home school.
  • 68 percent of parents reported that they noticed measurable academic improvement in their child since receiving the scholarship.
  • 91 percent of scholarship recipients had a household income that would qualify for a free or reduced-price lunch program under the federal National School Lunch program (185 percent of the federal poverty line, or $43,568 for a family of four).
  • 74 percent of private school parents reported that they would have been unable to afford tuition without the scholarship.

I discuss the findings of the study in greater detail at the Education Next blog.

Categories: Policy Institutes

Tax Reform Error #1: Confusing Tax Expenditures with Revenues

Cato Op-Eds - Fri, 03/07/2014 - 15:39

Alan Reynolds

House Ways and Means Chairman Dave Camp has released a complex 182-page “discussion draft” called The Tax Reform Act of 2014. Rather get bogged down in details, I will take this opportunity to review several fundamental errors that repeatedly plagued most past and present efforts to reform the federal income tax, including the Camp proposal.

One of the most pernicious errors among would-be tax reformers is to assume that, as the Tax Policy Center asserts, “tax expenditures are revenue losses” attributable to various “loopholes.” On the contrary, the Joint Committee on Taxation (JCT) clearly states that the estimated dollar value of any “tax expenditure … is not the same as a revenue estimate for the repeal of the tax expenditure provision.” As the JCT explains, “unlike revenue estimates, tax expenditure calculations do not incorporate the effects of the behavioral changes that are anticipated to occur in response to the repeal of a tax expenditure provision…. Taxpayer behavior is assumed to remain unchanged for tax expenditure estimate purposes … to simplify the calculation.”

One glaring difference between revenue estimates and tax expenditure estimates involves taxation of capital gains if those gains are realized by selling assets from a taxable account (unlike IRAs or most home sales). Estimated tax expenditures from not taxing realized capital gains at the top income tax rate of 43.4 percent is listed as a big revenue-losing tax expenditure, even though Treasury, the JCT and the Congressional Budget Office (CBO) revenue estimates would rightly predict that the behavioral response to such a high tax would crush asset sales and thus lose revenue. 

Mainly because the artificially estimated “tax expenditure” from a lower capital gains tax is wrongly equated with estimated revenues, the Simpson-Bowles plan hopes to raise an extra $585 billion over ten years. In reality, investors realize fewer gains when the tax rate goes up, so the higher tax on fewer transactions means revenues fall rather than rise.

The same Simpson-Bowles confusion of tax expenditures with tax revenues recently led Washington Post columnist Robert Samuelson to recommend, “ending preferential rates on capital gains (profits on the sale of stocks and other assets).” Samuelson has a noble goal: to use the expected revenue windfall from “taxing capital gains at full income tax rates” to reduce the top tax rate to 25 percent on salaries and small business profits. But that raises an unresolvable  dilemma: The top capital gains tax was already increased to 23.8 percent in 2014, so raising it to 25 percent wouldn’t matter. The only reason this “tax expenditure” would vanish under Samuelson’s plan is not the trivially higher tax on capital gains but the much lower 25 percent tax rate on income. The tax expenditure would indeed be gone, by definition, but eliminating the tax expenditure would not provide more revenue with which to lower tax rates or the deficit. 

Contrary to hoary tax reform mythology, most of the reduction in estimated tax expenditures after the 1986 Tax Reform was likewise the result of reducing the top marginal tax rate to 28 percent, not from trading fewer itemized deductions for a larger standard deduction. Most of the unexpectly strong revenue gain was also from more taxable income earned and reported at the 28 top tax rate (called the “elasticity of taxable income”). Higher tax rates on capital gains clearly reduced revenue until that rate was lowered in 2007. Higher effective rates on corporate profits also produced much less revenue than projected. There was no “tax preference” when the top tax was 28 percent on both capital gains and income, but that certainly does not mean the higher tax rate on capital gains provided revenue with which to lower the marginal tax rate on income. All that was required to lower the top tax rate was the political courage to do so. 

Suppose the individual tax on realized capital gains was raised to the current top rate of 43.4 percent or the Camp proposal’s top rate of 38.8 percent. In either case, the Treasury Department, JCT, and CBO would rightly estimate that revenues would fall not rise. The “tax expenditure” would again disappear by definition, but so would a lot of tax revenue.

Getting rid of tax expenditures is not at all the same as raising more revenue. Confusing tax expenditures with revenue is the first of many persistent fallacies that hamper effective tax reform.

Categories: Policy Institutes

The Water Bed Effect in Drug Prohibition

Cato Op-Eds - Fri, 03/07/2014 - 08:41

Jeffrey Miron

If you lie down on a water bed, the amount of water does not change; it just moves elsewhere.

A similar phenomenon occurs with drug prohibition; targeting one drug reduces its use, but that displaced demand shows up somewhere else.

According to a new WaPo story, this is exactly what has occurred over the past ten years with respect to prescription opiates and heroin. As enforcement cracked down on Oxycontin and similar medications, demand shifted to heroin. And since purity information is noisy for an illicit good, heroin deaths increased noticeably.

Prohibition advocates will presumably respond with calls for greater enforcement against both prescription opiates and heroin, but the right response is the opposite. While opiate use carries risks, opiate prohibition makes these worse. Higher prices caused by prohibition, for example, encourage users to inject to get a big bang for the buck.  But then prohibition-induced restriction of clean syringes fosters needle-sharing, spreading HIV.

The right test for policy is never whether some good or activity is “risky,” but whether government intervention reduces those risks, and at what costs.  Drug prohibition fails this test.

Categories: Policy Institutes

The Need for Discretionary Spending Restraint

Cato Op-Eds - Fri, 03/07/2014 - 08:39

Chris Edwards

The Obama administration released its 2015 budget this week. The budget shows federal debt held by the public falling from 74 percent of gross domestic product (GDP) this year to 69 percent by 2024. That reduction occurs even though entitlement and interest spending are projected to rise substantially as a percent of GDP.

One of the tricks behind the projected falling debt is that the administration assumes that discretionary spending falls sharply as a percent of GDP in later years. Congressional Budget Office (CBO) projections show a similar decline in discretionary spending in coming years.

I favor large discretionary reductions, and I have proposed many specific cuts. But does the Obama administration really favor the reductions down the road shown in its own budget? I doubt it. After all, the administration’s new spending proposals would break existing budget caps, and that would come in the wake of both parties breaking caps under the Ryan-Murray budget deal. So projecting declining discretionary spending in later years is an accounting ploy to make the fiscal outlook look better than it really is.

If policymakers don’t restrain discretionary spending, deficits and debt will be higher in coming years than shown in official projections. Let’s call this the “business as usual discretionary spending” scenario.

Here are the implications of the scenario, based on the CBO baseline and my calculations. Let’s suppose discretionary spending remains at the 2014 level of 6.9 percent of GDP through 2024, rather than falling to 5.2 percent as shown by CBO. That higher spending results in interest costs 0.4 percentage points of GDP higher by 2024.

Under this scenario, total outlays would rise from 20.5 percent of GDP today to 24.5 percent by 2024. The deficit would rise to a dangerous 6.2 percent of GDP.

Under the CBO baseline, federal debt rises from 74 percent of GDP today to 79 percent by 2024. But under my business as usual scenario, debt would soar to 91 percent by 2024, as shown in the chart. It would keep rising rapidly after that.

In sum, I hope that discretionary spending as a percent of GDP falls, as shown in the CBO and Obama projections. But without proactive efforts to cut and terminate programs, that may not happen. Of course, entitlement spending also needs to be cut.

However, if business as usual prevails in Washington with entitlement spending gobbling up more of GDP and discretionary spending not cut, we’ve got a really big fiscal crunch coming.

Categories: Policy Institutes

When Tolerance Becomes Intolerance

Cato Op-Eds - Thu, 03/06/2014 - 14:29

Doug Bandow

Individual liberty took another hit with Arizona Gov. Jan Brewer’s veto of legislation enhancing protection for people’s religious principles while doing business. Gov. Brewer suggests that if you hang out a shingle you should leave your deepest beliefs at home. 

The issue in Arizona was not a lack of tolerance by those in business. There is no dearth of firms across the state willing to serve gays.

Instead, the question was tolerance for those in business. Should you be expected to abandon your conscience the moment you step into the commercial world? 

Indeed, why would a gay couple insist that a Christian opposed to gay marriage photograph their wedding or prepare their cake? There’s no need to force those with unfashionable views to affirm what they reject. 

ObamaCare’s contraception mandate has a similar effect—and almost certainly received vigorous support on the left for precisely this reason.  As I pointed out in the American Spectator online:

the point was always state-mandated intolerance rather than health care. The objective was to force Catholics, mostly, and the few fundamentalist Protestants who hold similar theological views, to pay for what they oppose. In fact, there is no better way to humiliate those you dislike. It is pure and unadulterated intolerance, the ultimate Washington triumph: Make those you despise pay for what they despise.

Leaving people largely left alone to manage their own lives should be what a free society is all about. Of course, those who are on the receiving end of social disapproval understandably don’t like the result. But no one has a “right” to be served by any particular person. Forcing someone into servitude is infinitely worse than simply finding someone else to do the job. 

The right response is to change social attitudes. My friend Sheldon Richman at the Future of Freedom Foundation pointed to the use of “boycotts, publicity, and ostracism” to penalize those who refuse service. Such activism is why gay marriage has gone from a policy wish to dominant law in just a few years. 

Unfortunately, throughout history newly empowered minorities often learn the wrong lesson. Rather than create barriers to new state injustices, some people use law for their own advantage. Hence state persecution of the New Mexico wedding photographer who felt she could not promote gay ceremonies which she believed to be wrong.

The principle runs multiple ways. Argued my Cato Institute colleague Ilya Shapiro, “gay photographers and bakers shouldn’t be forced to work religious celebrations, Jews shouldn’t be forced to work Nazi rallies, and environmentalists shouldn’t be forced to work job fairs in logging communities.” Government should not force anyone to leave his or her conscience outside when arriving at work.

There obviously are complex aspects of the issue about which another Cato colleague, Walter Olson, also has thoughtfully written. In practice, advanced industrial capitalism allows most people to make most economic decisions without focusing on the background or character of the person with whom they are dealing, a major positive for all of us. Nevertheless, some activities may be more uncomfortable than others.  Covering a wedding—actively participating in and celebrating the ceremony—is different than taking a portrait for some photographers. 

Despite the public hysteria generated by the Arizona legislation, it merely expanded existing law which bars government from imposing a “substantial burden” on religious practice without a “compelling state interest.”  That hardly seems unreasonable. What is unreasonable is interfering with religious faith with which one disagrees. Some other state legislative proposals have been less neutral and more controversial.

Any large, diverse society will find people at frequent odds, believing and behaving differently. In the main, government should leave them alone to find their own way. Especially when most basic freedom of conscience is involved. Tolerance is a cardinal virtue.

Indeed, liberty of conscience undergirds all human freedom. Such liberty is inherent to the human person, not a privilege granted by the state.  Americans who believe in freedom should respect even unpopular religious beliefs, as in this case.            

Categories: Policy Institutes

Climate Insensitivity: What the IPCC Knew and Didn’t Tell Us, Part II

Cato Op-Eds - Thu, 03/06/2014 - 14:23

Patrick J. Michaels and Paul C. "Chip" Knappenberger

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

The bottom line from the new report from the Global Warming Policy Foundation (GWPF) is that the U.N.’s Intergovernmental Panel on Climate Change (IPCC) knew, but didn’t highlight, the fact that the best available scientific evidence suggests that the earth’s climate is much less sensitive to atmospheric carbon dioxide input than the climate models they relied upon  to forecast future global warming portray.

We covered the GWPF report and its implications in this post. But one implication is worth mentioning again, from the report’s conclusions:

The [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence.

While the report’s authors, Nicolas Lewis and Marcel Crok, are talking about the future, the same thing should apply to the past. In fact, a strong test of Lewis and Crok’s prediction is whether or not the same climate models predict too much warming to have already taken place than observations indicate.

There is perhaps a no better general assessment of past model behavior than the analysis that we developed for a post back in the fall.

The figure below is our primary finding. It shows how the observed rate of global warming compares with the rate of global warming projected to have occurred by the collection of climate models used by the IPCC. We performed this comparison over all time scales ranging from from 10 to 63 years. Our analysis ended in 2013 and included an analysis of the global temperature trend beginning in each year from 1950 through 2004. 

As can be clearly seen in our figure, climate models have consistently overestimated the amount of warming that has taken place. In fact, they are so bad, that over the course of the past 25 years (and even at some lengths as long as 35 years) the observed trend falls outside of the range which includes 95 percent of all model runs. In statistical parlance, this situation means that the observed trend cannot be reliably considered to be part of the collection of modeled trends. In other words, the real world is not accurately captured by the climate models—the models  predict that the world should warm up much faster than it actually does.

That the models don’t work when simulating the past is strong indication that they won’t work when projecting the future.

And judging from past performance, the conclusions of Lewis and Crok, that “[t]he [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence” seem right on the money.

Global climate disaster averted! Too bad the IPCC didn’t see fit to pass this important bit of information along to policymakers, but instead, attempted to sweep it under the rug.

Maybe there ought to be a congressional investigation. Staffers, start your engines!

Categories: Policy Institutes

Climate Insensitivity: What the IPCC Knew But Didn’t Tell Us

Cato Op-Eds - Wed, 03/05/2014 - 19:19

Patrick J. Michaels and Paul C. "Chip" Knappenberger

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

In a remarkable example of scientific malfeasance, it has become apparent that the IPCC knew a lot more than it revealed in its 2013 climate compendium about how low the earth’s climate sensitivity is likely to be.

The importance of this revelation cannot be overstated. If the UN had played it straight, the “urgency” of global warming would have evaporated, but, recognizing that this might cause problems, they preferred to mislead the world’s policymakers.

Strong words? Judge for yourself.

The report Oversensitive—how the IPCC hid the good news on global warming,” was released today by the Global Warming Policy Foundation (GWPF)—a U.K. think-tank which is “concerned about the costs and other implications of many of the policies currently being advocated” regarding climate change (disclosure: our Dick Lindzen is a member of the GWPF Academic Advisory Council).

The new GWPF report concluded:

We believe that, due largely to the constraints the climate model-orientated IPCC process imposed, the Fifth Assessment Report failed to provide an adequate assessment of climate sensitivity – either ECS [equilibrium climate sensitivity] or TCR [transient climate response] – arguably the most important parameters in the climate discussion. In particular, it did not draw out the divergence that has emerged between ECS and TCR estimates based on the best observational evidence and those embodied in GCMs. Policymakers have thus been inadequately informed about the state of the science.

The study was authored by Nicholas Lewis and Marcel Crok. Crok is a freelance science writer from The Netherlands and Lewis, an independent climate scientist, was an author on two recent important papers regarding the determination of the earth’s equilibrium climate sensitivity (ECS)—that is, how much the earth’s average surface temperature will rise as a result of a doubling of the atmospheric concentration of carbon dioxide.

The earth’s climate sensitivity is the most important climate factor in determining how much global warming will result from our greenhouse gas emissions (primarily from burning of fossil fuels to produce, reliable, cheap energy). But, the problem is, is that we don’t know what the value of the climate sensitivity is—this makes projections of future climate change–how should we say this?–a bit speculative.

Unsurprisingly, there has been a lot of recent scientific research aimed at gaining a better understanding of what the climate sensitivity may be. We have detailed much of this research in our ongoing series of articles highlighting new findings on the topic. Collectively, the new research indicates an ECS value a bit below 2°C. The latest in our series is here.

But in its Fifth Assessment Report (AR5) finalized this past January, the IPCC gave short shrift to the major implication of this collection of new research results—that the climate sensitivity is much lower than what the IPCC assessed it to be in its collection of previous assessment reports (issued every 6-7 years) and that the rate of climate change is going to be much less.

For example, formerly, in its Fourth Assessment Report (AR4), released in 2007, the IPCC had this to say regarding the equilibrium climate sensitivity:

It [the equilibrium climate sensitivity] is likely to be in the range 2°C to 4.5°C with a best estimate of about 3°C, and is very unlikely to be less than 1.5°C. Values substantial higher than 4.5°C cannot be excluded, but agreement of models with observations is not as good for those values. [emphasis in original]

In its new AR5, the IPCC wrote this:

Equilibrium climate sensitivity is likely in the range 1.5°C to 4.5°C (high confidence), extremely unlikely less than 1°C (high confidence), and very unlikely greater than 6°C (medium confidence)16. The lower temperature limit of the assessed likely range is thus less than the 2°C in the AR4, but the upper limit is the same. This assessment reflects improved understanding, the extended temperature record in the atmosphere and ocean, and new estimates of radiative forcing. [emphasis in original]

And IPCC AR5 footnote 16 states:

No best estimate for equilibrium climate sensitivity can now be given because of a lack of agreement on values across assessed lines of evidence and studies.

So, facing mounting scientific for a substantially lower climate sensitivity, the best the IPCC could bring itself to do was to reduce the low end of its “likely” range by one-half degree, refuse to put a value on its best guess, and still cling to its high end number. Big deal.

The reason that the IPCC could only make these meager changes was that the collection of climate models that the IPCC employs to make the bulk of its projections of future climate change (and future climate change impacts) has an average ECS value of 3.2°C.  The IPCC couldn’t very well conclude from the scientific evidence that the real value was somewhere south of 2°C—if it were to do so, it would invalidate the climate models and, for that matter the meat of its entire report (that is, its climate change projections).

We described the situation the IPCC faced last summer (prior to releasing the final copy of the AR5) this way:

The IPCC has three options:

  1. Round-file the entire AR5 as it now stands and start again.
  2. Release the current AR5 with a statement that indicates that all the climate change and impacts described within are likely overestimated by around 50 percent, or
  3. Do nothing and mislead policymakers and the rest of the world.

We’re betting on door number 3.

As predicted, the IPCC chose option number 3.

The new GWPF report confirms, in detail, the IPCC’s choice and how it came to make it—by confusing the reader with a collection of evidence that was outdated, already disproven, based upon flimsy assumptions, not directly applicable, or flat-out wrong.

Putting it nicely, Lewis and Crok describe the situation thus:

The AR5 authors might not have wanted to declare that some studies are better than others or to adjudicate between observational and model-based lines of evidence, but we believe that this is exactly what an assessment is all about: using expert knowledge to weigh different sources of evidence. In this section we present reasoned arguments for a different assessment to that in AR5.

Lewis and Crok go, in detail, through each climate sensitivity paper considered (and relied upon) by the IPCC and identify its shortcomings. At the end, they are left with a collection of five papers that, while still containing uncertainties, are built upon the most robust set of assumptions and measurements.

From those papers the Lewis and Crok conclude the following:

A new ‘best observational’ estimate of ECS can now be calculated by taking a simple average of the different observationally-based estimates….This gives a best estimate for ECS of 1.75°C and a likely range of about 1.3–2.4°C. However, recognizing that error and uncertainty may be greater than allowed for in the underlying studies, and will predominantly affect the upper of the range, we conservatively assess the likely range as 1.25–3.0°C.

Now compare these figures with those in AR4 and AR5….Our new ‘best observational’ ECS estimate of 1.75°C is more than 40% lower than both the best estimate in AR4 of 3°C and the 3.2°C average of GCMs used in AR5. At least as importantly, the top of the likely range for ECS of 3.0°C is a third lower than that given in AR5 (4.5°C) – even after making it much more conservative than is implied by averaging the ranges for each of the observational estimates.

And as to what this means about the IPCC global warming projections, Lewis and Crok write:

The [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence.

This is a powerful and important conclusion.

We recommend that you read the full report. Not only is it a comprehendible and comprehensive description of the current science as it relates to the climate sensitivity, but it is an illumination of how the IPCC process does, or rather doesn’t, work.

The Obama Administration and its EPA will ignore this reality at their peril.

Categories: Policy Institutes

Whose Brother's Keeper? Obama Administration Denies School Choice

Cato Op-Eds - Wed, 03/05/2014 - 16:56

Jason Bedrick

The Obama administration’s proposed budget for 2015 would continue unsustainable spending growth at more than twice the rate of inflation and hike taxes by more than $1 trillion. It also includes $69 billion in education spending, much of it on programs that are unconstitutional, proven to be ineffective, or both.

And yet, in one area where the federal government has the constitutional authority to fund and manage education policy—the District of Columbia school system—the Obama administration’s budget cuts all funding to the Opportunity Scholarship Program (OSP), which has proven to be much more effective than the government-run school monopoly. This cut does not even save the taxpayers a dime, since the OSP only spends up to about $8,250 for elementary school students and $12,400 for high school students each year compared to the $30,000 per pupil per year that the government-run schools spend to produce some of the worst educational outcomes in the nation.

The administration’s proposal is particularly puzzling in the wake of the president’s announcement last week that he is launching a $200 million charitable initiative called My Brother’s Keeper to help young, male minorities. As Dr. Patrick Wolf of the University of Arkansas points out today at the Choice Words blog, there is solid evidence that school choice programs tremendously aid exactly that population:

Three evaluations of private-school choice programs have followed enough students for sufficiently long to determine their effects on the rates of high-school graduation, college enrollment, or both. A 2010 evaluation of the District of Columbia Opportunity Scholarship Program that I led for the U.S. Department of Education found that students offered private-school choice by winning a random lottery graduated from high school at the rate of 82 percent, compared with 70 percent for the control group. The impact of actually using an Opportunity Scholarship was to increase the likelihood of graduation by 21 percentage points, from 70 percent to 91 percent. Over 90 percent of the participants in the study were African American, and almost all of the rest were Latino American.

A similarly rigorous experimental study of the impact of privately funded partial-tuition K–12 scholarships on college-enrollment rates was conducted by Paul Peterson of Harvard University and Matthew Chingos of the Brookings Institution. They followed a large group of low-income elementary students in New York City for over a decade after half of them were awarded private-school scholarships by lottery, while the other half were randomly assigned to the control group. They determined that the impact of using a private-school scholarship was to raise the college enrollment rate for African Americans in the study from 36 percent to 45 percent, a gain of 9 percentage points that represented nearly a 25 percent improvement over the control-group rate. As with the DC Opportunity Scholarship Program evaluation, President Obama’s very own Department of Education assigned this study its highest rating for scientific rigor.

Finally, I worked with a large team of researchers to evaluate the effect of the nation’s oldest and largest urban school-voucher program, the Milwaukee Parental Choice Program, on student educational attainment in the form of high-school graduation, college enrollment, and college persistence. Over two-thirds of the students in our study were African American, and almost all the rest were Latino American. We found that low-income students who used a voucher to enroll in a private school in ninth grade subsequently graduated from high school, enrolled in a four-year college, and persisted in college at rates that were 4–7 percentage points higher than statistically similar Milwaukee students who started in public schools in ninth grade. These higher rates of educational attainment due to the Milwaukee voucher program represent improvements of 15–20 percent over the rates obtained by the comparison group of public-school students—nearly as large as those for the African-American students in the New York City study.

Given the results of these three studies, one which was overseen by the U.S. Department of Education and two which were recognized with the Department’s highest award for rigor, we might expect President Obama to receive a swift response regarding his call for the federal government to search for programs that boost educational outcomes for African American men. The U.S. Department of Education need not search far and wide for such initiatives: they have already found one. Research shows that private-school choice through vouchers or scholarships is one of our nation’s most effective dropout-prevention programs for African Americans. It should be number one on the list of programs that President Obama encourages My Brother’s Keeper to support. But, apparently, it isn’t.

Not long ago, President Obama woefully misstated the research on school choice programs. The most charitable explanation is that he hasn’t seen the research from his own Department of Education. Fortunately, a few highly respected education policy gurus cut a short video to remedy that oversight:

School Voucher Researchers Respond to Obama

Let’s hope the president gets YouTube on his Blackberry.

Categories: Policy Institutes

Common Core End Game

Cato Op-Eds - Wed, 03/05/2014 - 16:43

Neal McCluskey

For far too long a big part of the Common Core debate has been about establishing simple fact: the federal government provided serious coercion to get states to adopt the Core, and the Core’s creators asked for such arm twisting. Indeed, just yesterday, Andy Smarick at the Core-supporting Thomas B. Fordham Institute lamented that the write-up for President Obama’s education budget proposal gives the administration credit for widespread Core adoption. Wrote Smarick: “The anti-Common Core forces will likely use this language as evidence that Common Core was federally driven.” Of course it was federally driven, by Race to the Top (RTTT) and No Child Left Behind (NCLB) waivers! But the budget proposal tells us far more than that.

The big story in the proposal is – or, at least, should be – that the president almost certainly wants to make the Core permanent by attaching annual federal funding to its use, and to performance on related tests. Just as the administration called for in its 2010 NCLB reauthorization proposal, POTUS wants to employ more than a one-time program, or temporary waivers, to impose “college and career-ready standards,” which–thanks to RTTT and waivers–is essentially synonymous with Common Core. In fact, President Obama proposes changing Title I of the Elementary and Secondary Education Act – of which NCLB is just the most recent reauthorization – to a program called “College- and Career-Ready Students,” with an annual appropriation of over $14 billion. 

This was utterly predictable. Core opponents, who are so often smeared as conspiracy mongers, know full well both what the President has proposed in the past, and how government accumulates power over time. RTTT was the foot in the door, and once most states were using the same standards and tests, there was little question what Washington would eventually say: “Since everyone’s using the same tests and standards anyway, might as well make federal policy based on that.” Perhaps given the scorching heat the Common Core has been taking lately, most people didn’t expect the administration to make the move so soon, but rational people knew it would eventually come. Indeed, the “tripod” of standards, tests, and accountability that many Core-ites believe is needed to make “standards-based reform” function, logically demands federal control. After all, a major lesson of NCLB is that states will not hold themselves accountable for setting and clearing high academic bars.

While it’s a crucial fact, the full story on the Common Core isn’t that the feds coerced adoption. It is that the end game is almost certainly complete federal control by connecting national standards and tests to annual federal funding. And that, it is now quite clear, is no conspiracy theory.  

Categories: Policy Institutes

Cambridge Resists a Changing World

Cato Op-Eds - Wed, 03/05/2014 - 16:38

David Boaz

The noted biographer Justin Kaplan, who won both a Pulitzer Prize and an American Book Award for his biographies of Mark Twain, Lincoln Steffens, and Walt Whitman, has died at the age of 88. He had a long and distinguished career in American letters, not just with his biographies but as an editor of such writers as Bertrand Russell, Will Durant, Nikos Kazantzakis, and C. Wright Mills.

He also edited the 16th edition of Bartlett’s Familiar Quotations, published in 1992. I wrote a review of that book. I can’t recall where it appeared, nor can I find it on the web. But along with praise for many of the changes he made, notably in making it fresher and more multicultural, I did note one concern with his selections, which I suggested was common among East Coast intellectuals:

The dozen years since the fifteenth edition have been marked by a worldwide turn toward markets, from Reagan and Thatcher to the New Zealand Labor Party’s free-market reforms to the fall of Soviet communism.  This historical trend seems to have escaped editor Kaplan, of Cambridge, Mass., who has given us more quotations from Karl Marx, Vladimir Lenin, and Robert Heilbroner, while virtually eliminating F. A. Hayek and Milton Friedman, the intellectual gurus of the free-market revolution.  A bust of Hayek now sits in the Kremlin, but Cambridge is holding out against the tide.

Hayek has been reduced to two quotations, neither of which reflects his particular contributions to social thought.  Friedman is represented by three, including the wrongly attributed aphorism, “There’s no such thing as a free lunch.”  Meanwhile, the towering figure of John Kenneth Galbraith receives 11 citations.  (William F. Buckley, Jr., is unrepresented.)

As in 1980, the Bible is second only to Shakespeare in the number of quotations included.  But Ayn Rand, who came in second to the Bible in a 1991 Gallup survey on most influential authors, gets only three citations.  Margaret Thatcher likewise is represented with three quotations, none of which captures her free-market radicalism.

Quotations from recent presidents offer a similar surprise.  John F. Kennedy leads the pack with 28 quotations, followed by Richard Nixon with 10, Lyndon Johnson and Jimmy Carter with 6, George Bush with 4, and Gerald Ford and Ronald Reagan with 3.  Again, Reagan’s impact on the world, not to mention his reputation as the Great Communicator, seems to have bypassed Cambridge.  However, when one tries to remember which Reagan phrases ought to be included, one is struck by how many of them are derivative: “city on a hill,” “Evil Empire,” “rendezvous with destiny,” “Where’s the Rest of Me?”  (Surely John G. Magee’s “I have slipped the surly bonds of Earth” was added to this edition because Peggy Noonan used those lines in the remarks she wrote for Reagan after the Challenger disaster, yet there is no reference to Reagan.)

Still, one would think that a few of his off-the-cuff remarks–“There you go again” or “We begin bombing in five minutes”–might warrant inclusion, along with some Reaganesque phrases about politics and government, such as “Mr. Gorbachev, tear down this wall” or “the ant heap of totalitarianism” or “The nearest thing to eternal life we’ll ever see on this earth is a temporary government agency.”

Which reminds me, where is Barry Goldwater’s “A government that is big enough to give you all you want is big enough to take it all away”?  (For that, you’ll need Bruce Bohle’s Home Book of American Quotations.)

One might assume that these curiosities don’t represent any conscious bias on Kaplan’s part, just a blindness to the political and economic changes going on in the world.  Dictionaries of quotations are perforce behind the times; they represent the distilled wisdom, or at least memorabilia, of centuries.  As market liberalism sweeps the world in the 21st century, its architects will get their due.  Still, it’s disappointing to see a 1992 edition offering fewer selections from thinkers such as Friedman and Hayek.  And Kaplan’s response to an earlier criticism about the lack of Reagan quotations suggests a determined refusal to grant Reagan an important place in the world.  Presumably the same animus is in fact reflected in the lack of quotations from Hayek, Friedman, and so on.

I should note that some of these criticisms were remedied in the 2002 edition, which Kaplan also edited, and in the most recent revision. Reagan, Thatcher, and Rand (though not Hayek) are better represented. And certainly these omissions in a massive reference work don’t detract from Kaplan’s great contributions to literature and biography. RIP.

 

Categories: Policy Institutes

End the Drug War: The American People are Not the Enemy

Cato Op-Eds - Wed, 03/05/2014 - 12:58

Doug Bandow

Drug use is bad. Arresting people for using drugs is worse. With the states of Colorado and Washington leading the way, the federal government should drop criminal penalties against those who produce, sell, and consume drugs.

The so-called Drug War has been a violent, often deadly, assault on the American people. There’s no obvious moral reason to demonize the use of mind-altering substances which are widely used around the globe. Obviously, drugs can be abused, but so can almost anything else. 

Some people still may abhor drug use as a matter of personal moral principle, but the criminal law should focus on inter-personal morality, that is, behavior which directly affects others. Basing criminal strictures on intra-personal morality essentially puts government into the business of soul-molding, a task for which it has demonstrated little aptitude. 

Moreover, whatever one’s moral sensibilities, drug prohibition has allowed extremely high use while yielding all of the counterproductive impacts of criminalization. The direct enforcement costs run more than $40 billion a year and affect every level of government. Forgone tax revenue is even greater. Attempting to suppress an enduring and profitable trade also has corrupted virtually every institution it has touched—police, prosecution, judiciary, Drug Enforcement Agency, and even military. 

As I point out in my article for the Intercollegiate Studies Institute,

Perhaps the most perverse impact of the Drug War has been to injure and kill users.  Far from protecting people from themselves, prohibition actually makes drug use more dangerous.  For instance, actor Philip Seymour Hoffman chose to use heroin, but he could never be certain as to its quality, purity, and potency.

Threatening addicts with jail also makes them less likely to seek assistance. The drug war encourages needle-sharing by IV drug users. Congressional lawmakers fight to keep marijuana off-limits to the ill.

Nor is there any way to run a war against tens of millions of Americans without sacrificing their and our constitutional liberties. Indeed, the crusade against drug use has turned the supposed “land of the free” into a prison state.  Drug offenders account for more than half of federal convicts. Roughly one fifth of state prisoners are in for drug crimes. 

Ironically, the Drug War creates more and more dangerous crimes.  As during Prohibition violence becomes the ultimate business guarantee in an illegal marketplace. Abundant drug revenues also underwrite criminal gangs and organizations.  Even the late James Q. Wilson, who supported drug prohibition, admitted that “It is not clear that enforcing the laws against drug use would reduce crime.  On the contrary, crime may be caused by such enforcement.” 

One still could imagine attempting to justify the Drug War if it eliminated drug abuse.  However, drug prohibition has the most impact where it is least needed—discouraging some casual use. 

Government figures indicate that nearly half of Americans older than 12 have tried illegal drugs. Tens of millions of people consume with some regularity. 

Frustration with the Drug War was manifested by the decision of voters in Colorado and Washington to legalize recreational marijuana use. Uruguay has done the same, with pressure rising in other Latin American nations to shift away from prohibition.   

Congress should allow America’s states to experiment. Drugs could be sold with varying restrictions (evident with both alcohol and cigarettes).  Greatest law enforcement efforts should remain directed at kids, which would be easier in a semi-legal gray market.

Legalization would not be a scary jump into the unknown. Portugal decriminalized all drugs a decade ago. Great Britain, the Netherlands, and Switzerland have permitted some legal drug use. A dozen American states previously decriminalized marijuana consumption and many more legalized the use of medical marijuana.  While these policies have not been problem-free, none have seen challenges approaching those caused by criminal prohibition. 

People should not abuse drugs. It might be best if they didn’t use them at all. However, that is no justification for a war against drug users, arresting many and endangering all. 

American governments at all levels should terminate the Drug War.  It is time to stop treating the American people as the enemy.

Categories: Policy Institutes

Supreme Court Appears Set to Rein-In Questionable Shareholder Class Actions

Cato Op-Eds - Wed, 03/05/2014 - 12:30

Andrew M. Grossman

In what may be the biggest business case of the term, the Supreme Court today declined to show its hand.

Halliburton v. Erica P. John Fund, Inc. takes aim at shareholder class actions, a field of law that the Court itself created in a 1988 case, Basic v. Levinson. A four-justice majority in Basic held that shareholders suing over misrepresentations may prove that they relied on the false statements—a necessary element of any fraud suit—by presumption: if the market for the stock in question is more-or-less efficient, their reliance on any misrepresentations that are baked into the price of the stock may be presumed. Without this presumption, each shareholder would have to individually demonstrate his or her actual knowledge of the misrepresentation and actual reliance upon it, precluding the kind of “commonality” required to bring a class action.

Basic came at the tail-end of the Court’s decades-long experiment in policymaking by creating and defining the contours of civil actions. Where Congress passed remedial laws—here, Section 10(b) the Securities Exchange Act of 1934—the Court would often read into them “implied” causes of action allowing private litigants to bring suit and seek damages over alleged infractions that would otherwise be left to regulators.

The test of time has shown that the Court is ill-suited to this function, particularly in the securities-law context. Since Basic, stock-drop class actions have boomed, and attaining class certification (merely by relying on Basic’s presumption that the issues at play are common to class members) just about guarantees a settlement. But there has been commensurately little benefit to shareholders, who are, in the end, the ones who wind up paying any damages or settlements, with the lawyers skimming off a good portion. In other words, these suits are very likely a net negative for shareholders—which may explain why Congress has never authorized them legislatively. And in a 2013 decision, four of the Court’s conservatives stated their willingness to reconsider Basic.

Chief Justice Roberts, however, kept his own counsel then, and that is what he did today. His few questions, most directed at the plaintiffs’ counsel David Boies and Malcolm Stewart, arguing for the government in support of the plaintiffs, focused on concrete results.

“Don’t most cases settle immediately following certification and so never reach the merits?,” the Chief Justice asked Boies. Similarly, Chief Justice Roberts asked Stewart, “And when the Court decided Basic, were high-quality “event studies” available by which plaintiffs could show that the heart of Basic’s presumption—that a given misrepresentation affected the stock price—holds true?”

Justices Alito and Kennedy, who led the questioning of the justices skeptical of Basic, took the Chief’s drift. They pushed hard on a fallback argument by the defendant (also made by several law professors) that would require shareholder plaintiffs, at the certification stage, to prove that all class members were injured in the same way by the misrepresentation—that is, to show that the misrepresentation caused a price impact. That showing, the defendant’s counsel Aaron Streett argued, is the “glue” that holds together the class. Even Justices Breyer and Sotomayor, assumed to be unlikely pickups for the defendants, expressed some sympathy for the idea that price impact is at least relevant to demonstrating commonality at the certification stage, though they wavered on whose burden it should be: plaintiffs to prove it, or defendants to rebut it. And Stewart conceded that requiring plaintiffs to make such a showing, such as through an event study, would not have any negative effects, given that (under any view of the law) plaintiffs are required to make such a showing at some point in the case—albeit, as currently understood, after certification during the merits phase if, that is, the case has not already settled.

The chief barrier to overturning Basic may not be its logic, its wisdom, or even its correctness as a matter of law, but instead stare decisis—that is, the Court’s respect for its prior decisions, particularly where they interpret statutes that Congress may subsequently reverse through legislation. Justice Kagan, in particular, seemed to suggest by her questioning that any changes since Basic have been minor and do not justify the Court’s upending settled law. The Chief Justice as well suggested that the Court is not well-suited to track developments in the field of economics that might undermine Basic and instead should leave that task to Congress.

If one had to make a prediction, it is that Basic’s presumption of shareholder reliance will continue in force, but with a new requirement of price impact engrafted upon it. While that result would not correct the Court’s initial mistake of creating and then expanding a kind of lawsuit that Congress never envisioned, it would at least limit the damage and do so in a way that is consistent with the Court’s overall jurisprudence on implied rights of action and class action certification. That would cut down on abusive litigation, while leaving the bigger questions of policy to Congress—where they rightly belong.

Categories: Policy Institutes

More Taxes than Meets the Eye in Obama’s Budget

Cato Op-Eds - Wed, 03/05/2014 - 10:44

Nicole Kaeding

Yesterday’s budget from President Obama claimed to raise taxes by $650 billion in addition to the $650 billion in tax hikes from January 2013. However, careful analysis shows that the president wants much more money from American’s pocketbook. The exact amount isn’t entire clear due to the games the Office of Management and Budget is playing with its various tables, but if the president had his way, more than $1 trillion in tax hikes would be coming.

Here is just a sample of the tax hikes the president proposes:

  • “Buffet Tax” ($53 billion): President Obama resurrected this tax that would require high-income individuals to pay at least 30% of their income in taxes.
  • Limiting tax teduction ($598 billion): President Obama would also limit the value of itemized deductions for high-income earners.
  • Changes to the “Death Tax” ($131 billion): The president suggests going back to the estate tax rules of 2009 which would increase the marginal tax rate on estates and lower the exemption, subjecting more assets to taxation.
  • Changes to oil and gas taxation ($44 billion): Frequently criticized by the president, these tax provisions are not subsidies to oil and gas companies, but instead ameliorate the tax code’s improper treatment of capital expenditures.
  • Changes to international taxation ($276 billion): Instead of moving the United States to a territorial tax system like the rest of the industrialized world, the president proposes further raising taxes on corporation with overseas earnings.
  • Cap on 401(k)/IRA Contributions ($28 billion): This provision would prohibit individuals from contributing to retirement accounts if the balance is greater than $3 million.
  • Increase in tobacco taxes ($78 billion): To pay for his universal pre-k proposal, President Obama would increase the tobacco tax from $1.10/pack to $1.95/pack.

Like so many other sections of the budget, the president is trotting out old, tired, blame-the-rich rhetoric instead of tackling the country’s real problems.

Categories: Policy Institutes

Supporting Marriage Equality in Utah and Oklahoma

Cato Op-Eds - Wed, 03/05/2014 - 08:25

Ilya Shapiro

Utah Constitutional Amendment 3, passed by referendum in 2004, states that no union other than one between a man and a woman may be recognized as a marriage. Derek Kitchen and five co-plaintiffs took issue with this definition and filed a lawsuit in federal district court last year to challenge the gay marriage ban. In a surprising and widely publicized December 2013 ruling, the court invalidated the amendment, finding that such a restriction was an affront to equal protection and the fundamental right to marry.

Meanwhile, Mary Bishop and Sharon Baldwin also filed a federal suit to challenge a similar provision that was added to Oklahoma’s constitution by referendum in 2004. Like Utah’s district court, the Oklahoma district court found the amendment unconstitutional. Following on the heels of last term’s Supreme Court ruling in United States v. Windsor—which struck down part of the Defense of Marriage Act—these ground-breaking red-state cases are now both before the U.S. Court of Appeals for the Tenth Circuit, which will consider the constitutionality of a state’s decision to exclude same-sex unions from the definition of marriage.

Reprising our collaboration in Hollingsworth v. Perry—the Prop 8 case in which the Supreme Court avoided ruling on the merits—Cato and the Constitutional Accountability Center have filed a brief supporting the Utah and Oklahoma plaintiffs’ fight for equality under the law in their respective challenges. We argue that the Equal Protection Clause of the Fourteenth Amendment was intended to protect from this same type of arbitrary and invidious singling-out that the Utah and Oklahoma marriage restrictions effect; that the original meaning of the Equal Protection Clause confirms that its protections are to be interpreted broadly; and that the clause provides every person the equal right to marry a person of his or her choice. We believe that the Utah and Oklahoma constitutional amendments conflict with the equal protection rights of those same-sex couples whose unions are treated differently than those of opposite-sex couples.

Every person has the right to choose whom to marry, and to have that decision respected equally by the state in which they live. Especially in the wake of Windsor, it is becoming clearer that laws like these that force same-sex unions into second-class status have no place in a free society. The Tenth Circuit should affirm the district courts’ decisions.

With briefing in Kitchen v. Herbert and Bishop v. Smith now complete, the Tenth Circuit will be hearing argument shortly, with a decision expected in late spring or summer.

This blogpost was co-authored by Cato legal associate Julio Colomba.

 

Categories: Policy Institutes

Why Would School Staff Force a Student to Freeze?

Cato Op-Eds - Tue, 03/04/2014 - 14:58

Jason Bedrick

It seems mind-boggling. Minnesota public school staff forced a barefoot teenage girl in a wet bathing suit to stand outside in sub-zero weather until she developed frostbite. 

It happened around 8:30 a.m. Wednesday at Como Park High School in St. Paul. Fourteen-year-old Kayona Hagen-Tietz says she was in the school’s pool when the fire alarm went off.

While other students had gotten out earlier and were able to put on dry clothes, Hagen-Tietz said she was rushed out with just her towel.

On Wednesday morning, the temperature was 5 below, and the wind chill was 25 below.

A teacher prevented her from getting her clothes from her locker because the rules stipulate that everyone must immediately leave the building in the event of a fire alarm. Shivering, the student pleaded to be allowed to go inside a car or another building but her request was denied.

Hagen-Tietz asked to wait inside an employee’s car, or at the elementary school across the street. But administrators believed that this would violate official policy, and could get the school in trouble, so they opted to simply let the girl freeze.

Students huddled around her and a teacher gave her a coat, but she stood barefoot for ten minutes before obtaining permission to sit in a vehicle. By that point, she had already developed frostbite.

How can something like this happen? Public choice theory offers an important insight: even in the public sector, people tend to act in their own self-interest and respond to incentives.

In this case, each of the rules makes perfect sense in the abstract. The fire alarm may signal a real danger so exiting the building with alacrity is essential. Likewise, rules about keeping students on school property and out of adultsvehicles reflect legitimate concerns about student safety. And yet, in enforcing these safety rules rigidly in an extreme case where they should not apply, the teachers and administrators violated the rules’ very intention. 

Government schools and their employees are not held accountable to parents, but to bureaucrats and their top-down rules. No doubt the school staff were well-intentioned—they recognized the harm this girl was suffering and almost certainly wanted to help her—but they were more afraid of violating the rules. Though the rules were written to protect students, in this case the rules were inimical to a student’s well-being, yet the staff still chose compliance over common sense.

No school is perfect—no human institution is—but incidences like these are much less likely to occur when schools are held directly accountable to parents. The only way to make government schools directly accountable to parents, as their private counter-parts already are, is to enact educational choice programs that empower parents to vote with their (non-frostbitten) feet.

Categories: Policy Institutes

Obama's New Budget: Burden of Government Spending Rises More than Twice as Fast as Inflation

Cato Op-Eds - Tue, 03/04/2014 - 14:17

Daniel J. Mitchell

The President’s new budget has been unveiled.

There are lots of provisions that deserve detailed attention, but I always look first at the overall trends. Most specifically, I want to see what’s happening with the burden of government spending.

And you probably won’t be surprised to see that Obama isn’t imposing any fiscal restraint. He wants spending to increase more than twice as fast as needed to keep pace with inflation.

What makes these numbers so disappointing is that we learned last month that even a modest bit of spending discipline is all that’s needed to balance the budget.

By the way, you probably won’t be surprised to learn that the President also wants a $651 billion net tax hike.

That’s in addition to the big fiscal cliff tax hike from early last and the (thankfully small) tax increase in the Ryan-Murray budget that was approved late last year.

P.S. Since we’re talking about government spending, I may as well add some more bad news.

I’ve shared some really outrageous examples of government waste, but here’s a new example that has me foaming at the mouth. Government bureaucrats are flying in luxury and sticking taxpayers with big costs. Here are some of the odious details from the Washington Examiner.

What can $4,367 buy? For one NASA employee, it bought a business-class flight from Frankfurt, Germany, to Vienna, Austria. Coach-class fare for the same flight was $39. The federal government spent millions of dollars on thousands of upgraded flights for employees in 2012 and 2013, paying many times more for business and first-class seats than the same flights would have cost in coach or the government-contracted rate. …Agencies report their premium travel expenses to the General Services Administration each year. These reports were obtained by the Washington Examiner through Freedom of Information Act requests. …The most common reasons across agencies for such “premium” flights in 2012 and 2013 were medical necessities and flights with more than 14 hours of travel time.

By the way, “medical necessities” is a loophole that can be exploited. All too often, bureaucrats get excuses from their doctors saying that they have bad backs (or something similarly dodgy) and that they require extra seating space.

But I’m digressing. It’s sometimes hard to focus when there are so many examples of foolish government policy.

Let’s look at more examples of taxpayers getting ripped off.

One such flight was a trip from Washington, D.C., to Brussels, Belgium, which cost $6,612 instead of $863. Similar mission-required upgrades included several flights to Kuwait for $6,911 instead of $1,471, a flight from D.C. to Tokyo for $7,234 instead of $1,081 and a trip from D.C. to Paris for $6,037 instead of $477. …NASA employees also racked up a long list of flights that cost 26, 72 and even 112 times the cost of coach fares, according to Examiner calculations. Several space agency employees flew from Oslo, Norway, to Tromso, Norway – a trip that should have cost $65. Instead, each flew business class for $4,668. Another NASA employee flew from Frankfurt, Germany, to Cologne, Germany, for $6,851 instead of $133, a flight that cost almost 52 times more than the coach fare. …One flight from D.C. to Hanoi, Vietnam, for an informational meeting cost $15,529 instead of $1,649, according to the agency’s 2012 report.

Frankfurt to Cologne for $6851 and a domestic flight in Norway for $4668?!? Did these trips include caviar and a masseuse? Were the planes made of gold?

I do enough international travel to know that these prices are absurd, even if you somehow think bureaucrats should get business class travel (and they shouldn’t).

And as you might suspect, much of the travel was for wasteful boondoggles.

Department of the Interior employees, for example, flew to such exotic locations as Costa Rica, Denmark, Japan and South Africa in 2012. …The Department of Labor sent employees to places like Vietnam and the Philippines for “informational meetings,” conferences and site visits.

The one sliver of good news is that taxpayers didn’t get mistreated to the same extent last year as they did the previous year.

The agencies spent $5.7 million in 2012, almost double the $3 million they paid for premium travel in 2013.

The moral of the story is that lowering overall budgets - as happened in 2013 - is the only effective way of reducing waste.

Categories: Policy Institutes

Nothing to Celebrate in Obama’s Budget

Cato Op-Eds - Tue, 03/04/2014 - 12:09

Nicole Kaeding

Moments ago, the President released his fiscal year 2015 budget request. Sadly, for those who support smart, sensible budgeting, the President’s budget is nothing to celebrate. The budget increases spending and fails to tackle the true drivers of our budget problem—entitlement spending. All deficit reduction included in the budget is from revenue increases, not spending cuts.

Over the several days, we’ll be analyzing the President’s budget in full detail, but here are the top-line numbers from the President’s budget.

1-The President’s budget suggests spending more than the Ryan-Murray budget passed in December. Under the agreement reached by Budget Chairs Congressman Ryan and Senator Murray, and supported by the President, discretionary spending for fiscal year 2015 should be $1,014 trillion. The President’s budget includes a section that bumps that up by $56 billion, paid for mostly by tax increases.

2-Over the ten-year budgetary window, the President spends $171 billion more than Congressional Budget Office (CBO) projections. The budget also does not reach balance and runs deficits every single year.

3- According to Obama’s budget, the federal government will collect $3.3 trillion in tax revenue this year, more than any other year in history. The budget includes $650 billion in new revenue though various distortionary tax hikes. The President’s Office of Management and Budget also made rosier assumptions about the growth of the economy over the next ten years. As a result, over the ten-year budgetary window, the President’s collects an additional $3.1 trillion in revenue than CBO assumed in February.

Categories: Policy Institutes

Will Venezuela Be Next?

Cato Op-Eds - Tue, 03/04/2014 - 12:05

Steve H. Hanke

Last year, Nicholas Krus and I published a chapter, “World Hyperinflations”, in the Routledge Handbook of Major Events in Economic History. We documented 56 hyperinflations – cases in which monthly inflation rates exceeded 50% per month. Only seven of those hyperinflations have savaged Latin America (see the accompanying table).

At present, the world’s highest inflation resides in Latin America, namely in Venezuela. The Johns Hopkins – Cato Institute Troubled Currencies Project, which I direct, estimates that Venezuela’s implied annual inflation rate is 302%. Will Venezuela be the eighth country to join the Latin American Hall of Shame? Maybe. But, it has a long way to go.

The Hanke-Krus Hyperinflation Table
Latin American edition

Country Month With Highest Inflation Rate Highest Monthly Inflation Rate Equivalent Daily Inflation Rate Time Required for Prices to Double 1. Peru Aug. 1990 397% 5.49% 13.1 days 2. Nicaragua Mar. 1991 261% 4.37% 16.4 days 3. Argentina Jul. 1989 197% 3.69% 19.4 days 4. Bolivia Feb. 1985 183% 3.53% 20.3 days 5. Peru Sep. 1988 114% 2.57% 27.7 days 6. Chile Oct. 1973 87.6% 2.12% 33.5 days 7. Brazil Mar. 1990 82.4% 2.02% 35.1 days

Source: Steve H. Hanke and Nicholas Krus (2013), “World Hyperinflations”, in Randall Parker and Robert Whaples (eds.) Routledge Handbook of Major Events in Economic History, London: Routledge Publishing.

Categories: Policy Institutes

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