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Playing Tourist in Beijing: Communing with the Greatest Mass Murderer in History

Wed, 07/30/2014 - 12:44

Doug Bandow

It isn’t often that I get to spend time with mass murderers, let alone the greatest mass murderer in history.  But in playing tourist in Beijing I had a chance to hang out with the Great Helmsman himself, Mao Zedong.

His mausoleum sits at the center of Tiananmen Square, facing the Gate of Heavenly Peace with its famous Mao portrait.  The facility’s hours of operation are few and the number of visitors many.  When I joined the line mid-morning it began at the building’s side, headed to the rear, then reversed course back toward the front.  The line moved at a steady slow walk, with individuals and groups constantly attempting to push by and gain a couple feet. 

The lines split apart going through a security check-point—no doubt, al-Qaeda has placed the mausoleum high on its target list.  The line then reformed and moved forward again.  Vendors sold flowers which people deposited on entering the mausoleum, in front of a statue of a sitting Mao, backed by a painting of a peaceful mountain scene.  He looked thoughtful, as if plotting his next madcap scheme, a la the “Great Leap Forward,” actually into the abyss, and the Cultural Revolution, which consumed even the most dedicated communists. 

In the next room the Great Man—assuming it really is him—lies under glass beneath a blanket decorated by a hammer and sickle. Two soldiers stood guard behind him, while mausoleum staff urged onlookers to move along.  No time to look at the body of the greatest mass murderer in history, who caused decades of human carnage.

The two lines reunited in the final room before exiting the mausoleum.  Outside were a variety of vendors offering Mao tchotchke. What home should be without a Mao picture, or even better, a Mao statue?

Then the viewers flowed back into Tiananmen Square.  How many revered the man, whom the government today claims was 70 percent right, 30 percent wrong, is impossible to know.  A number bought flowers, an obvious sign of respect.  The mausoleum reportedly is a favored destination of rural folks.  

Eventually the People’s Republic of China will have to confront Mao’s legacy.  The country has moved dramatically beyond him—he wouldn’t recognize his nation’s capital, highlighted by wide boulevards, modern office buildings, and frenetic economic activity.  His ruthless, unpredictable dictatorship has disappeared, but in its place has emerged a blander, more prosaic and bureaucratic authoritarian system.  Some day the Chinese people will bury Mao along with his legacy.  Then they truly will be free.

Categories: Policy Institutes

The EU’s Anti-Austerity Hypocrites

Wed, 07/30/2014 - 12:19

Steve H. Hanke

The European Union (EU) is still in the midst of an economic slump. Many members of the political class in Brussels claim that fiscal austerity is to blame. But, this diagnosis is wrong. The EU’s problem is one of monetary, not fiscal, austerity. Money matters. Just look at the accompanying chart. Private credit in the Eurozone has been shrinking since March 2012.

Never mind. The EU fiscal austerity bandwagon keeps rolling on with Matteo Renzi, Italian Prime Minister and current President of the EU, holding the reigns. Indeed, Renzi recently went so far as to form an anti-austerity coalition with France and Spain. According to the coalition, its members simply cannot impose further spending cuts. They assert that their budgets have been cut to the bone. This claim is ludicrous. 

There is nothing to cut in Italy? Get real. Senior civil servants are being paid over 12 times the national average salary. As for France and Spain, their civil servants are “well paid,” too. It’s time for the public to stop listening to the EU’s anti-austerity hypocrites and start looking at the numbers.

Categories: Policy Institutes

Raising Big Money to Fight Big Money?

Wed, 07/30/2014 - 11:25

David Boaz

In the latest of many enthusiastic National Public Radio reports on Professor Lawrence Lessig and his efforts to remove money from politics, Lessig outlines big plans:

In 2016, we want to raise a substantially larger amount of money - could be 200 million, could be 800 million - so that we can win a Congress committed to fundamental reform in the way campaigns are funded.

Well, if spending $800 million in billionaires’ contributions to “win a Congress” won’t knock out big money, what will?

But even if he does raise this kind of money, Lessig might find himself disappointed. You can’t always get what you want, even if you’ve got a lot of money to throw around. From John Connally’s “$13 million delegate” in 1980 to Ross Perot’s $65 million campaign in 1992 to Meg Whitman, Linda McMahon, and Jeff Greene in 2010, the candidates with the most money sometimes fail badly. Or take the billion dollars that Republican groups planned to spend in 2012 to take back the Senate and the White House. 

Given the consistently low priority Americans have placed on “campaign finance reform” for decades and up to the present – the lowest priority in this 2012 Pew poll, save for global warming – even $800 million may not be enough to sway the voters.

John Samples has raised many questions about the advisability of campaign spending restrictions in articles such as this one.

Categories: Policy Institutes

Second Verse, Same as the First

Wed, 07/30/2014 - 10:13

Jim Harper

Twitter fight!

Yesterday morning, a line in a New York Times article by Nick Confessore offered me the opportunity for mirthful needling that turned into a full-blown, impossibly brief exchange of views on Twitter.

The article was on Harvard Law Professor Lawrence Lessig’s plan to elect candidates who are committed to his version of campaign finance reform. It quoted Lessig saying, “Inside-the-Beltway people don’t think this issue matters, they don’t think voters vote on the basis of this issue, and they advise their politicians not to talk about it.”

So I tweeted: “I don’t think this issue matters.” Then I tweeted: “Voters don’t vote on the basis of this issue.” (I didn’t bother with the rest because I don’t advise politicians.)

I’m inside the beltway! I’m a people! How could I not?!

Responding to another NYT reporter’s question, I touted my own work as “speech-friendly reform,” linking to our upcoming event on congressional Wikipedia editing. Just think of the prospects if legislative staff—some of the foremost experts about the bills in Congress—contributed information about notable bills to Wikipedia for the public to peruse ahead of congressional debates.

Professor Lessig took the crumb of bait, asking me “how is more speech not speech friendly #Escapethe1990s.” (I still don’t know what the hashtag means.) Assuming he was still working on public/taxpayer funded campaigns—I’m not a follower of Lessig’s in the Twitter sense or any other—I tweeted about the wrong of forcing people to pay to money to support speech with which they disagree.

Lessig’s plan is not detailed on the website of his “Mayday PAC,” which only offers gauzy promises of “fundamental reform.” After some back and forth, I learned that Lessig’s reform plan is not direct public funding, in which taxpayer money goes from the Treasury to campaigns, but indirect. He would rebate $50 in taxes in the form of a “democracy voucher.” The taxpayer could give the voucher to any candidate who pledges only to take such vouchers, it could go to the political party of the taxpayer, or “if an independent, back to this public funding system.”

It seems clear from the description to which Lessig pointed me that if your preferred candidate is none of the above, your money will be used to fund political candidates that you don’t support. This is the evil of direct taxpayer funding of campaigns—taking money from a person to support speech of which he or she disapproves. But even when used, the voucher is thinly disguised taxpayer funding of campaigns.

With the federal government financing much of its activity through debt, a tax foregone, such as through this proposed voucher program, results directly in greater debt. That debt is a liability of all taxpayers, which must be financed and repaid by all, including the ones who prefer to support no candidate.

Progressives refer to this kind of thing as a “tax expenditure” because it’s so like spending. (I don’t use the term because it’s premised on the idea that all of society’s wealth is the property of the government, which, in failing to collect it, spends it.) The “democracy voucher” is a tax break that subsidizes political speech, something about which the Constitution says Congress shall make no law.

(It’s different from school vouchers. There is no First Amendment objection to funding of schooling like there is to government funding of political campaigning. Voucher-funding of religious schools that might offend the establishment clause can be sufficiently attenuated from government action by private choice.)

I know and work with a lot of good people who prioritize campaign finance reform of various stripes. Campaign finance transparency is a valid political demand, of course, because voters are entitled to draw negative inferences from opacity and from campaign funding that comes from sources they don’t like. But Lessig’s proposal is old wine in new bottles, barely masking the fact that it puts the government in the business of promoting political speech. There is just no role—no role—for the government in managing the terms of debate over who shall be elected. A thumb under one scale is no different from a thumb atop the other.

Why is this one process reform—campaign finance—so fascinating to such a large community? The funding of campaigns certainly does influence the experience, perceptions, and priorities of elected officials. But it is far from the only influence or even the most important one, and there is a limited foundation for the idea that campaign finance reform actually matters. I attended a dinner last night hosted by a member of Congress, at which his staffer—surely no high-dollar contributor—goaded the room into talk of war with China using bogus dollar-figures for U.S. intellectual property losses.

Rather than one input to policymaking—how representatives are elected—why not focus on improving the public’s access to information about outputs? At Cato, we’re producing data that reflects the content of bills.  It seems to me—and I lack validating research as well—that a public made aware of what is happening in Congress would be more inclined to get involved and take some position on legislation. People might even intervene with their legislators during their terms of office to seek the policies they want. Election day is not the one time the public gets to oversee the government.

Professor Lessig has advocated against transparency, though, because it might “push any faith in our political system over the cliff.” That’s rigging the game. Faith in our political system is not a legitimate goal. It might be produced by a political system that serves the American people better, of course. Is Lessig working to give the people what they want or to give the people what Lessig wants? Top-down rules aimed at controlling which “voices” have more and less power in electoral politics are highly suspect.

Professor Lessig’s pitch for “democracy vouchers” cites Cato Institute estimates on corporate welfare. But agreement on the ills of corporate welfare should be no sign that Cato or its scholars align with the campaign for government management of political speech. Professor Lessig has sought to portray Cato as an ally before. Others can speak for themselves, but I think that government transparency is far preferable to government participation in any part of electioneering.

Categories: Policy Institutes

Tonight, "Penn & Teller: Fool Us"

Wed, 07/30/2014 - 09:20

David Boaz

Cato Mencken Fellows Penn Jillette and Teller launch a new hour-long show, “Penn & Teller: Fool Us,” tonight at 8 p.m. on the CW television network. Here’s an enthusiastic review from Slashfilm:

Magician duo Penn & Teller are finally set to bring one of my favorite UK TV series, Penn & Teller: Fool Us, to broadcast in the States….

One of my favorite UK television television series was a show called Penn & Teller: Fool Us. It was basically a competition series where the world’s best magicians would perform in hopes of fooling Penn & Teller. After the performance, the magic duo would try to vaguely explain how the trick was done (without fully exposing the magic). If they were fooled, the magicians would get a gig as their starting act in Vegas.

Each show would also have Penn & Teller do a trick or two for the television audience. I’m a magic geek and this is probably one of my favorite magic series to ever air. I’ve shown it to a lot of non-magic geek friends, and they all ended up loving it. 

Until 8 p.m., you can listen to Cato’s podcast with Penn Jillette recorded in 2011.

Categories: Policy Institutes

Are Public Schools Safer Than Private Schools?

Wed, 07/30/2014 - 09:01

Jason Bedrick

There is no clearer sign that foes of educational choice have lost the battle of ideas than the Daytona Beach News-Journal’s desperate attempt to smear Florida’s choice law.

Annie Martin’s front-page story in the Sunday edition of the News-Journal contains numerous inaccuracies about Florida’s scholarship tax credit law, which helps tens of thousands of low-income kids attend the school that’s best for them. For example, Martin claims in the second paragraph that the scholarship law “diverted $1.3 billion from state coffers,” which is irresponsibly misleading given that the Florida legislature’s nonpartisan Office of Program Policy Analysis and Government Accountability found that the law saves $1.44 for every $1 in reduced tax revenue. She also repeatedly refers to “publicly-funded” scholarships, though the U.S. Supreme Court ruled that the scholarships consist private funding.

But Martin’s most shameful attack on the educational choice law is her insinuation that children at Florida’s private schools are less safe than children at government-run schools, based solely on a recent case of a private school teacher caught with child pornography:

Yet, the South Daytona school isn’t subject to the same public records laws as the public schools. Although the FBI said fifth-grade teacher Matthew Graziotti had thousands of sexually explicit images of children on his home computer, the school did not have to make his personnel file public.

But is it reasonable to expect private organizations to make their employee files public, even if they receive public funding? Mark Tress, the superintendent of the private school where Graziotti had worked, argues that it is not:

The public records law no more applies to private schools than it does to The News-Journal itself. Hundreds, perhaps thousands, of private businesses receive money from the state and from school districts for services rendered and are not subject to the law. In this case, we are gratefully cooperating with law enforcement officials and have handed over, among numerous school records, the teacher’s personnel file. It sheds no new light.

After briefly noting that private school teachers must go through the same background checks as goverment school teachers, Matin ominously quotes a professor from the University of North Florida:

Aside from the initial background check for private school teachers, parents generally must trust their private school is exercising due diligence when deciding who to hire, said Luke Cornelius, an associate professor of higher education administration at the University of North Florida.

“Unfortunately, it does create a situation of ‘buyer beware,’” said Cornelius, who also is an attorney. “I think a lot of parents assume private schools, especially a religious one, is an inherently safe place.”

But because they’re not required to be as transparent as the public schools, parents at private schools are “going on faith,” he added. 

Martin’s article contains no rebuttal to the professor’s absurd allegation, leaving readers with the impression that private schools are riskier than government schools. Yet the sad fact is that these sorts of crimes are not exclusive to any one type of school. The difference is that whereas the private school employing Graziotti promptly fired him, it is much more difficult to fire teachers from Florida’s government schools. Private schools are directly accountable to parents, which provides a strong incentive for private schools to take swift action when teachers engage in misconduct. By contrast, government schools are not directly accountable to parents, and misbehaving teachers can often count on multiple layers of bureaucratic red tape to protect them.

Indeed, had Martin spent just a few minutes on Google, she would’ve learned about numerous incidences of teacher misconduct in Florida’s government schools that went unaddressed for years or resulted in mere slaps on the wrist or even reinstatement.  

For example, it took 15 years of documented problems before a Florida school board took the “first steps” to fire a high school teacher:

He is described as a nightmare teacher, one who called his students idiots and morons, made racially insensitive remarks, and locked them out of class.

And school administrators knew about it. Even though problems involving Broward math teacher Steven Yerks surfaced more than a decade ago, he was allowed to remain a teacher.

After his first unsatisfactory evaluation at Cooper City High in 2000, administrators let him transfer to Boyd Anderson in Lauderhill, where he had one troublesome incident after another, including:

•Yelling at a student to shut up before grabbing her and causing an injury;

•Allowing students to sleep in class;

•Making hostile remarks to coaches in front of students;

•Being accused by students of throwing some of them out of class for asking questions. 

“Nowhere you work can you misbehave for 15 years and keep your job,” said School Board member Rosalind Osgood. ‘I try to be fair, and I know people need income, but some things are egregious, and he had gotten away with it so long.”

The School Board finally voted in June take the first steps to fire Yerks, whose salary is $75,000.

One Florida teacher’s reign of terror lasted more than three decades, even though so many parents complained about her misconduct that more than 80 of 130 students transferred out of her class in a single year:

In 33 years as a Pinellas County teacher, her performance has been repeatedly scrutinized and admonished. School officials terminated Whipple from her first teaching contract in 1978; nudged her out of an elementary school in 1984; pushed her out of a high school in 1997. In October, they began investigating her for undisclosed reasons.

Yet until she went on medical leave on Jan. 24, she was still teaching (at $60,798 a year) and, at least through last fall, still drawing a barrage of complaints.

It took another Florida school more than a year to fire a middle school teacher who ordered students to physically attack a 7th grader:

Dehart is accused of encouraging six students to fight with Williams after the boy allegedly threatened her. The male students, ranging from ages 11 to 15, were arrested for “hitting” and “kicking” Williams, WPBF-Tv reported at the time.

Radravious claims that after he told his teacher that he “wished he could curse out teachers someday,” Dehart encouraged the attack, even telling the group to “teach him a lesson.”

“They picked him up, carried him, holding him by the neck, took him down to her classroom and forcibly made him apologize to her,” Latasha Darrisaw, Williams’ mother, told the station after the attack. “And [Dehart’s] remarks to him were, ‘I’ve got my eighth-grade boys on you; you’re not so tough now.”

Last December, a Florida judge reinstated a special needs teacher who had been fired for force-feeding hot-sauce laced crayons and Play-doh to an autistic child. The teacher claims that she only used the hot sauce “to deter the student from eating art supplies,” but the National Autism Society of America says that’s no excuse:

“There are also hundreds of school teachers and professionals across the country who can handle challenging behaviors such as pica [eating inedible objects] in a sensitive, human manner that upholds the dignity of each child,” said the Autism Society’s spokeswoman Ashley Parker. “A behavior like eating crayons in a child with autism should not automatically be viewed as a delinquent behavior.”

Last year, another judge reinstated a Florida teacher who had been fired for “ignoring an episode of oral sex in her kindergarten classroom.”

Earlier this month, a Florida middle school teacher was merely suspended after being “accused of drinking alcohol, twerking with students and receiving a lap dance from a student” at a soccer team party, even though the lap dance was caught on video.  

Though subject to laws supposedly granting greater transparency and accountability, Florida’s government schools nevertheless failed to protect students from their teachers’ misconduct. Even worse, once the misconduct was discovered, the schools too often also failed to take swift enough action to protect additional students. Yet Annie Martin and the News-Journal not only failed to provide this context, but they also misleadingly depicted such misconduct as a problem exclusive to the private sector—a charge that is completely unsubstantiated by any evidence.

Such “journalism” is reckless at best.

[Hat tip to Ron Matus of and Matthew Frendewey.]

Categories: Policy Institutes

DACA Did Not Cause the Surge in Unaccompanied Children

Tue, 07/29/2014 - 15:41

Alex Nowrasteh

In June, 2012 the Obama Administration announced that it had authored a memo deferring the deportation of unauthorized immigrant childhood arrivals in the United States, a program known as deferred action for childhood arrivals (DACA).  The memo directed then Secretary of the Department of Homeland Security to practice prosecutorial discretion toward a small number of unauthorized immigrants who fulfilled a specific set of characteristics.  In essence, some unauthorized immigrants who had come to the United States as children were able to legally stay and work–at least temporarily. 

Did DACA Cause the UAC Surge?

Some politicians contend that DACA is primarily responsible for the surge in unaccompanied child (UAC) migrants across the border in recent years.  A recent House Appropriations Committee one-pager stated that, “The dire situation on our Southern border has been exacerbated by the President’s current immigration policies.”  Proponents of this theory argue that DACA sent a message to Central Americans that if they came as children then the U.S. government would legalize them, thus giving a large incentive for them to come in the first place.  Few facts of the unaccompanied children (UAC) surge are consistent with the theory that DACA caused the surge.

First, the surge in UAC began long before the June 15, 2012 announcement of DACA.  It is true that DACA had been discussed in late May 2012 but the surge was underway by that time.  From October 2011 through March 2012, there was a 93 percent increase in UAC apprehensions over the same period in Fiscal Year 2011.  Texas Governor Rick Perry warned President Obama about the rapid increase in UAC at the border in early May 2012 – more than a full month before DACA was announced.  In early June 2012, Mexico was detaining twice as many Central American children as in 2011.  The surge in unaccompanied children (UAC) began before DACA was announced.

Second, the children coming now are not legally able to apply for DACA.  A recipient of DACA has to have resided in the United States continuously from June 15, 2007 to June 15, 2012, a requirement that excludes the unaccompanied children coming now.   

Third, if DACA was such an incentive for UAC to come from Central America, why are so few Nicaraguan children coming?  They would benefit in the same way as unaccompanied children from El Salvdaor, Honduras, and Guatemala.  The lack of Nicaraguans points to other causes of the surge.

The timing, legal exclusion of the UAC from DACA, and lack of Nicaraguans indicate that DACA was not a primary cause of the surge.  Of the 404 UAC interviewed by the United Nations High Commissioner for Refugees since 2011, only 9 mentioned that U.S. laws influenced their decision to come to the United States.  Other American laws could have influenced the unaccompanied children to come but DACA is not the main culprit.           

Details on DACA

The DACA beneficiaries, at the time of the memo, would have to fulfill all of these requirements to have their deportations deferred:

  • Under the age of 31,
  • Arrived to the United States before reaching their 16th birthday,
  • Entered the United States without inspection or overstayed a visa prior to June 15, 2012,
  • Continuously resided in the United States from June 15, 2007 to the time of the memo,
  • Physically present in the United States on June 15, 2012, as well as at the time of requesting deferred action from United States Citizenship and Immigration Services (USCIS),
  • Been in school at the time of application, or have already graduated or obtained a certificate of completion from high school, or have obtained a general education development (GED) certificate, or are an honorably discharged veteran of the U.S. Coast Guard or the U.S. Armed Forces
  • Not been convicted of a felony, significant misdemeanor, or three or more other misdemeanors, and do not otherwise pose a threat to national security or public safety.

Beneficiaries of DACA were also allowed to apply for employment authorization according to the Code of Federal Regulations.  There is a debate amongst legal scholars over whether the administration’s grant of deferred action was legal.  Those who argue that DACA was illegal contend that the President overstepped his constitutional authority to defer the deportation of some unauthorized immigrants.  Those who argue that DACA was legal point to the general power of the Secretary of the Department of Homeland Security to defer enforcement action.  They argue that the Supreme Court has ruled that decisions to initiate or terminate enforcement proceedings fall within the authority of the Executive – an enforcement power used since the early 1970s.  Here is more of their argument.  This disagreement has not been settled.     

By the end of September, 2013, 580,000 requests for DACA were accepted by the U.S. government and 514,800, or 89 percent, were approved.  Seventy-six percent of the requests came from Mexicans.  Twenty-nine percent of the requests were filed from California, 16 percent from Texas, and 6 percent from Illinois.

Categories: Policy Institutes

Budget Smackdown: Krugman vs. Portman and Epstein

Tue, 07/29/2014 - 15:17

Chris Edwards

In a recent column, Paul Krugman dismissed concerns about the federal debt as a “false alarm,” a “disaster that wasn’t,” and an “imaginary budget and debt crisis.”

Krugman thinks that new CBO projections don’t look too bad. He says, “debt in 2039 — a quarter-century from now! — is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II.” He concludes that “we don’t have a debt crisis, and never did.”

Gene Epstein of Barron’s looked at CBO’s numbers and Krugman’s claims. He noted that Krugman only looked at CBO’s “baseline” projection, which shows federal debt held by the public rising from 74 percent of GDP today to 106 percent by 2039. Unlike Krugman, I find that increase alarming, especially because there is little political will right now to reverse course and bring down the debt—unlike after World War II.

Also, as I charted here, World War II debt was stunningly high, so I don’t know why Krugman would take comfort in the government becoming that indebted once again. The chart shows that aside from WWII, federal debt has never been anywhere near as high as it is now.

There is more to the story. Budget wonks know that—unless we have major reforms—CBO’s baseline is a very optimistic projection. Krugman surely knows that to, but he decided not to tell his readers. CBO’s “alternative” projection is more politically realistic because, for example, it assumes that a slew of “temporary” tax breaks and the “doc fix” continue to be extended, as they have been in the past.

Under the CBO alternative, federal debt will rise to 163 percent of GDP by 2039. But it is even worse than that because CBO does not take into account the negative feedback effects of rising spending and debt on its basic long-range projections. With such feedbacks, the debt rises to 183 percent by 2039, according to the CBO (data for Figure 6.3).

All of the CBO projections are optimistic for reasons I mention in my USA Today op-ed and in this recent testimony. CBO projections, for example, do not include the budget effects of possible wars or deep recessions in the future. I’m not saying that they should, but users of the projections should be aware that unplanned contingencies could push the government into a financial crisis much faster than the decades-long projections show.

In a recent op-ed [$] in the Wall Street Journal, Senator Rob Portman examined the more realistic CBO alternative. But determined to undermine anyone who suggests that debt is a serious problem, Krugman decided to take a whack at Portman: “One thing you need to know is that none of Portman’s numbers refer to the CBO‘s baseline scenario; instead they refer to a much more pessimistic alternate scenario. That’s something he should have shared with readers.”

So Portman “should have shared with readers” the unrealistic scenario, but it’s OK for Krugman not to tell his readers that the one he is using is artificially sunny. Wow, that’s ironic, as Epstein notes.

Categories: Policy Institutes

D.C. Circuit Rules that Obamacare Is a “Tax” but Not a “Bill for Raising Revenue”

Tue, 07/29/2014 - 14:16

Timothy Sandefur

The D.C. Circuit Court of Appeals today tossed out the latest constitutional challenge to Obamacare, which argues that if the individual mandate is a “tax,” as the Supreme Court said it is, it’s still unconstitutional because it did not originate in the House of Representatives, as the Constitution requires. I argued the case on behalf of entrepreneur Matt Sissel in May.

Today’s decision, written by Judge Judith Rogers and joined by Judges Cornelia Pillard and Robert Wilkins, holds that while the mandate may be a “tax,” it isn’t a “bill for raising revenue,” and is therefore exempt from the Origination Clause.

What’s the difference between a tax and a bill for raising revenue? Some court decisions have held that there are things that may appear to be taxes but are actually only penalties designed to enforce other kinds of laws. For example, in a 1943 case called Rodgers v. United States, the court of appeals said that a tax that was imposed on people for growing more wheat than the government allowed (that’s the same wheat law that was at issue in the infamous Wickard v. Filburn) wasn’t really a tax, but just an enforcement penalty or a fine. Such penalties aren’t “bills for raising revenue,” so they don’t have to start in the House.

The problem with that line of argument is that in NFIB v. Sebelius, the Supreme Court said that the individual mandate, whatever else it might be, is not a penalty or a fine. That’s just why Chief Justice Roberts concluded that it was a tax! And that means that no such exemption should apply.

Today’s D.C. Circuit decision acknowledges this, but holds that there is another variety of tax that isn’t a “bill for raising revenue.” And that is, taxes whose “main object or aim” is something other than generating income for the government. According to this “purposive approach,” the court says, the court should look to “the primary aim” of the bill to decide whether the Origination Clause applies—without regard for whether it will “generate substantial revenues.”

But the Supreme Court has never endorsed this vague “purposive approach,” and for good reason. Laws often have many “objects or aims”—particularly in an era of massive omnibus bills. The ACA is over 2,000 pages long, with provisions on all sorts of different subjects. Which one is its “main” object? What is the “main” object of a “stimulus package” or a general appropriations bill? What about a tax imposed to support the military? Is its “main object” to raise money—or to support the military? If judges are free to decide what the “main object or aim” of a bill is, and to apply the Constitution or not accordingly, then they should at least have some objective criteria for making that call…and the court can point to none. That’s because the Constitution makes no distinction, and the constitutional analysis does not hinge on what the “main object or aim” of a bill is. Instead, the question is whether the bill levies a tax, and puts that money into the general treasury for Congress to spend at will—which Obamacare’s individual mandate tax does.

Worse, the vague “purposive approach” creates a loophole that the Senate can easily walk through to originate revenue-raising bills. All it needs to do is originate a tax by saying that its main purpose is some other thing. One reason we know that isn’t what the Constitution says is that the Framers rejected a proposed draft of the Origination Clause that would have applied only to “[b]ills for raising money for the purpose of revenue.” The reason is obvious: because the vague “purpose” test would allow Congress to evade constitutional limits too easily.

There’s remarkably little Supreme Court precedent interpreting the Origination Clause. It seems likely that the Sissel case will change that eventually.

Categories: Policy Institutes

Core Supporters: We’ve Just Been Too Darned Principled!

Tue, 07/29/2014 - 12:43

Neal McCluskey

According to Politico, supporters of the Common Core have come to a realization: they are losing the public relations war. And what do they think the problem has been? They’ve just been too darned factual:

“The Common Core message so far has been a head message. We’ve done a good job talking about facts and figures. But we need to move 18 inches south and start talking about a heart message,” said Wes Farno, executive director of the Higher State Standards Partnership, a coalition supported by the U.S. Chamber of Commerce and the Business Roundtable.

Um, no.

The argument for the Core – to the extent one has even been given – has mainly been a simple one of “build high standards and success will come.” See, for instance, this recent op-ed from former Tennessee Representative Harold Ford (D), or these superficial videos from the U.S. Chamber of Commerce Foundation. For the most part, they simply assert that the Common Core represents high standards, and that’s what we need to vault near top place in the world educational and economic competition. This ignores the major empirical evidence I and many others have brought against the Core, and national standards generally, showing that standards – much less the Core itself – have demonstrated no such power. But Core supporters have very rarely engaged that crucial evidence, including before Washington did their bidding and coerced lightning-quick state adoption of the Core.

Of course, most of the pro-Core strategy has not been to rigorously defend the Core or nationalization generally, but to denigrate opponents. And perhaps there is some good news in that regard: some Core advocates are rebuking that strategy. This could simply be because the effort has not worked – indeed, much of the repentance in the Politico article seems to be a back-handed compliment about how principled and high-brow Core advocates have been – but if nothing else, at least dropping the cheap shots will make the debate a bit less acrimonious.

Reducing unpleasantness, however, is not what the Common Core debate should ultimately be about. It should be about the logic, evidence, and facts behind national standards. And neither the past work of Core proponents, nor their impending pivot, appears designed to meaningfully deal in those essential things.

Categories: Policy Institutes

Iraq: No Military Redo a Decade Later

Tue, 07/29/2014 - 11:20

Doug Bandow

Little more than a decade ago the U.S. invaded Iraq.  The promised cakewalk turned out far different than expected.  Today the government—and entire state—created by Washington are in crisis.  Yet the same voices again are being raised calling for military intervention.  With the promise that this time everything will turn out well.

Social engineers never seem to learn.  It is hard enough to redesign and remake individuals, families, and communities in America.  It is far harder to do so overseas.

As I point out in my latest Freeman column:  “Nation-building requires surmounting often vast differences in tradition, culture, history, religion, ethnicity, ideology, geography, and more.  Doing so also requires suppressing the natural desire of people to govern themselves.”

Yet these days Washington continues to try to fix the world’s problems.  However, reentering Iraq would be unique, an attempted redo barely a decade after the first go. 

The original Iraq operation was supposed to be a quick, bloodless war that destroyed dangerous weapons of mass destruction and “drained the swamp,” eliminating terrorism.  The U.S. would guarantee a friendly, compliant government by imposing as president an exile who hadn’t lived in the country for decades.  The new Iraq would implement democracy, eschew sectarian division, protect women’s rights, and even recognize Israel, while providing America bases for use in attacking neighboring states, including Iran.

This wonderful wish list was pure fantasy. 

The conflict killed thousands and wounded tens of thousands of Americans, and killed hundreds of thousands and displaced millions of Iraqis.  The ancient Christian community was destroyed. 

The ultimate financial cost, including the expense of caring for those who sustained debilitating wounds, to America likely will run $3 trillion or more.  America’s reputation was stained, Iran was empowered, and terrorists were trained.  Finally, Baghdad’s sectarian misrule wrecked national institutions and fostered the rise of an ugly Islamic totalitarianism. 

The obvious—indeed, only—policy for Americans is to run, not walk, away from the mess.  Yet many of the architects of the original disaster are back, advocating a second shot.

The administration is putting in Special Forces.  Many others advocate drone and air strikes.  A few forthrightly call for boots on the ground. 

There’s no doubt that ISIL is a malignant force.  But the U.S. should make clear to Prime Minister Nouri al-Maliki that Americans will not bail him out after his policies led to the ongoing catastrophe.  Without political reform it is hard to see how Iraq can be saved.

Baghdad must engage Sunni tribes and former Baathists who allied with ISIL to oust the national government from Sunni areas of Iraq.  In any case, Washington should drop its insistence that Iraq stay together.  Extensive federalism/partition may be the only way to prevent endless killing.

The U.S. also needs to stop supporting Syria’s opposition.  Instead, the priority should be stopping ISIL.  President Bashar al-Assad is odious, but his dictatorship is not dedicated to destabilizing the entire region. 

Finally, American officials should invite allies, friends, and even adversaries to cooperate to contain ISIL.  Numerous nations have good reason to isolate, sanction, and even strike ISIL.

Turkey and Jordan have capable militaries. Iran, though no friend, shares Washington’s antipathy toward ISIL.  Lebanon is vulnerable. 

The Gulf States, including Kuwait, the emirates, Bahrain, and Saudi Arabia also are targeted for subversion.  Israel does not want to see a radical Islamist state, especially one which wrecks Jordan next door.  These nations have different capabilities and interests, but all could help contain and ultimately roll back ISIL’s gains.

The revival of civil war and veritable collapse of Iraq’s central state are tragedies, but not ones affecting vital American interests.  The lesson from 2003 is clear:  war truly should be a last resort, never just another policy tool to be used when convenient.  The Iraqi imbroglio beckons the usual policy suspects, but the right response is to say no, the Americans aren’t coming.

Categories: Policy Institutes

Biden: "I Should Have Had One Republican Kid To Go Out And Make Money"

Tue, 07/29/2014 - 10:03

Walter Olson

The Washington Free Beacon reports that Vice President Joseph Biden made his audience “burst into laughter” at the Urban League gathering in Cincinnati when he cracked “I should have had one Republican kid to go out and make money,” noting that instead he has a daughter who went into social work. 

And well should they have burst into laughter. It was a joke, folks! In real life, Biden’s son Beau has worked as an asbestos plaintiff’s lawyer, which is much more of a moneymaking venture than most “Republican kids” ever get near. Both he and another Biden son have been closely associated with one of the biggest such law firms in the nation. This fits a pattern noted by David Boaz a few weeks back, in which reporters keep acting surprised when Democratic politicians are found to be pals with zillionaires and attending fundraisers at mansions. 

Although Vice President Biden has not always been entirely forthcoming about his family’s longstanding ties to plaintiff’s law work, especially considering his own role as a guardian of trial lawyer causes while in the Senate, you might have seen them mentioned in places like the L.A. Times and USA Today a few years back. The L.A. Times story begins: 

When Joe Biden’s brother and son wanted to buy a hedge fund company two years ago, they turned for financing to a law firm that had lobbied the Delaware senator’s office on an important piece of business in Congress – and in fact had recently benefited from his vote. The firm promised James and Hunter Biden that it would invest $2 million, and quickly delivered half of it.

They wanted to buy a hedge fund? At least it presumably wasn’t a Republican hedge fund. 





Categories: Policy Institutes

Gray Lady Calls on Feds to Repeal Marijuana Prohibition

Mon, 07/28/2014 - 16:11

Tim Lynch

Yesterday, the New York Times ran a lengthy editorial, entitled “Let States Decide on Marijuana.”  Here is an excerpt:

Allowing states to make their own decisions on marijuana — just as they did with alcohol after the end of Prohibition in 1933 — requires unambiguous federal action. The most comprehensive plan to do so is a bill introduced last year by Representative Jared Polis, Democrat of Colorado, known as the Ending Federal Marijuana Prohibition Act. It would eliminate marijuana from the Controlled Substances Act, require a federal permit for growing and distributing it, and have it regulated (just as alcohol is now) by the Food and Drug Administration and the Bureau of Alcohol, Tobacco, Firearms and Explosives. An alternative bill, which would not be as effective, was introduced by Representative Dana Rohrabacher, Republican of California, as the Respect State Marijuana Laws Act. It would not remove marijuana from Schedule I but would eliminate enforcement of the Controlled Substances Act against anyone acting in compliance with a state marijuana law….

Congress is clearly not ready to pass either bill, but there are signs that sentiments are changing. A promising alliance is growing on the subject between liberal Democrats and libertarian Republicans. In a surprise move in May, the House voted 219 to 189 to prohibit the Drug Enforcement Administration from prosecuting people who use medical marijuana, if a state has made it legal. It was the first time the House had voted to liberalize a marijuana law; similar measures had repeatedly failed in previous years. The measure’s fate is uncertain in the Senate….

For too long, politicians have seen the high cost — in dollars and lives locked behind bars — of their pointless war on marijuana and chosen to do nothing. But many states have had enough, and it’s time for Washington to get out of their way.

Support for marijuana prohibition is collapsing.  And now that the Gray Lady has turned, many more people will conclude that it is now okay to join the cause (or at least stop opposing the cause).

For Cato scholarship on drug policy, go here.

Categories: Policy Institutes

Legalization or Amnesty for Unlawful Immigrants – An American Tradition

Mon, 07/28/2014 - 13:57

Alex Nowrasteh

Legalization of unlawful immigrants, commonly referred to as amnesty, has been hyperbolically described as an affront to U.S. national sovereignty, the rule of law, and even our Constitutional Republic.  However, the U.S. government has a long history of successfully legalizing violators of immigration laws.

In 1929, the year the Immigration Act of 1924 went in effect, Congress passed an amnesty to allow for the voluntary registration of all unlawful immigrants who wished to legalize their unrecorded entry.  Beginning a familiar pattern, Congress combined this 1929 amnesty with severe legal penalties on unauthorized immigrants who entered the United States without inspection after the amnesty was complete.[i]

As part of the reforms of the Bracero Program’s guest worker visa in the late 1940s and early 1950s, many unauthorized Mexican migrants were legalized and granted a visa on the spot.  According to Professor Kitty Calavita, 55,000 unlawful Mexican immigrants were legalized as Bracero workers in 1947 through a process derogatively referred to as “drying out” unlawful migrant workers.[ii] Under the auspices of an increase in immigration enforcement and the expansion of the Bracero guest worker visa, other unlawful Mexican migrants were driven down to the Mexican border and made to take one step across the border and immediately reenter as a legal Bracero worker, a process referred to as “a walk around statute.”[iii]

In 1958, the cutoff date for the 1929 amnesty was advanced to June 28, 1940 – meaning that unlawful immigrants who entered before that later date could legalize.  The Immigration Act of 1965 again advanced the cut off date for the 1929 amnesty to June 30, 1948.[iv]


 Legalizations of Unauthorized Immigrants

















































Source: Vernon M. Briggs Jr., Immigration Policy and the American Labor Force, The Johns Hopkins University Press, Baltimore, 1984, p. 66.

The Immigration Reform and Control (IRCA) Act in 1986 – the so-called Reagan Amnesty – legalized 2.7 million unauthorized immigrants who had been residing in the United States since 1982.  After IRCA, the Section 245(i) legalization passed in 1994 and was then extended again in 1997.  The 1997 Nicaraguan Adjustment and Central American Relief (NACARA) Act also legalized close to one million unlawful immigrants from Central America.  The Haitian Refugee Immigration Fairness (HRIFA) Act legalized around 125,000 unauthorized immigrants from Haiti in 1998.  The Legal Immigration Family Equity (LIFE) Act of 2000 reinstated the rolling 245(i) legalization provision. 

So long as there are immigration restrictions on the movement of peaceful and healthy people, and Americans want to continue to hire and sell products to immigrants, some will always come whether the immigration laws allow it or not.  To address the unlawful immigrant population, Congress periodically passes a legalization or amnesty bill, but the number of unlawful immigrants rises again because lawful immigration has not been sufficiently liberalized – despite vast increases in enforcement.

Past amnesties and legalizations of unauthorized immigrants didn’t destroy U.S. national sovereignty (the United States is still a sovereign country), the rule of law (in tatters for many reasons, including efforts to enforce our arbitrary and capricious immigration laws), or our Constitutional Republic.  It’s hard to see why another one passed by Congress and signed by the President would produce those grave harms.

[i] Vernon M. Briggs Jr., Immigration Policy and the American Labor Force, The Johns Hopkins University Press, Baltimore, 1984, p. 47.

[ii] Deborah Cohen, Braceros: Migrant Citizens and Transnational Subject in the Postwar United States and Mexico, University of North Carolina Press, 2011, p. 209, Kitty Calavita, Inside the State: The Bracero Program, Immigration, and the INS, Quid Pro Books, New Orleans, Louisiana, 2010, pp. 25-26, 34.

[iii] Kitty Calavita, Inside the State: The Bracero Program, Immigration, and the INS, Quid Pro Books, New Orleans, Louisiana, 2010, p. 43.

[iv] Vernon M. Briggs Jr., Immigration Policy and the American Labor Force, The Johns Hopkins University Press, Baltimore, 1984, p. 66.

Categories: Policy Institutes

We Shouldn’t Follow Germany on Minimum Wage

Mon, 07/28/2014 - 13:44

Charles Hughes

President Obama included a much discussed proposal to increase the national minimum wage to $10.10, from its current level of $7.25.  To date, the proposal has gone nowhere in Congress. In the meantime, some cities and states have introduced or approved increases in their minimum wage rates. Ten states and the District of Columbia have enacted increases in the 2014 session so far. In June, the Seattle City Council unanimously voted to increase their minimum wage to $15. In San Francisco, Mayor Ed Lee followed suit and has introduced a ballot measure to increase their minimum wage to $15 an hour.

Germany is currently grappling with the ramifications of imposing a national minimum wage, and the lessons we can learn from their experience should deter calls for raising the minimum wage here.

Earlier this month, the German parliament’s lower house adopted a new national minimum wage of €8.50 ($11.61) an hour, beginning in 2015. Before this, there had been no national minimum wage in the country, with trade unions and employers negotiating wages by sector. Just as the Congressional Budget Office estimated that raising the minimum wage here could reduce employment by 500,000 workers by 2016, one of Germany’s most respected economic institutes warned that Germany could lose the equivalent of 340,000 full-time jobs. While there are some factors, such as a high proportion of apprenticeships, which could dilute the harmful effects of such a minimum wage in Germany, this adoption is a step backwards for the country that is often an economic leader in the EU.

Young workers are disproportionately affected by the minimum wage as they are more likely to have jobs that pay below the new statutory minimum.

Currently, Germany’s youth unemployment rate is roughly a third of the euro area average, and Germany outperforms every other country in the EU on this metric. In fact, since 2007, Germany is the only country in the euro area to see a decrease in youth unemployment.

Source: European Commission, “Euro area unemployment rate at 11.8%,” Eurostat, May 2, 2014.

There is thus some concern that their new minimum wage could increase unemployment and limit opportunities for young people. As Cato’s Steve H. Hanke has pointed out, in “the twenty-one E.U. countries where there are minimum wage laws, 27.7% of the youth … was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven E.U. countries without minimum wage laws — 19.5% in 2012.”

This week the International Monetary Fund (IMF) released its latest report on the German economy, in which the authors raised numerous concerns about the imposition of a new national minimum wage (strange that they did not give voice to  these concerns when advocating that the US raise its minimum wage in an earlier report this year).

As previous work by the Cato Institute has shown, the benefits of a minimum wage increase are poorly targeted to households in poverty. The IMF report notes that the “effects of the minimum wage on income redistribution toward the working poor may be limited, as the population of minimum wage earners and that of the working poor overlap only partially.”

The IMF authors also seem to recognize that the imposition of the minimum wage could have outsized adverse effects in some regions of Germany because a higher proportion of affected low wage workers live in East Germany (27 percent in the East compared to 15 percent in the West). While the variation between U.S. states is not as clear cut as the difference between East and West Germany, the employment outcome would be the same were a higher national minimum wage implemented here: in poorer states, where many workers would be affected by the increase, there would likely be significant job loss.

Local minimum wage increases, like the one in Seattle, are not as affected by this last mechanism, but they face the added danger of losing jobs to nearby jurisdictions that have not raised the minimum wage, as it is easier to outsource jobs to a neighboring city than it is to another state or country in many cases.

The new minimum wage in Germany will prove ineffective in improving the lot of low-income workers, and will likely lead to some job loss for the very people it is trying to help. Both countries would be better served exploring other means to improve outcomes for low-income workers. There are other, potentially more effective policy options to explore such as expanding apprenticeships (as Germany has already done) or  introducing a lower provisional minimum wage for teens and the long-term employed.  One thing is certain: in Germany, and the United States, a blunt policy instrument like the minimum wage is not the answer.

Categories: Policy Institutes

Another DC Handgun Ban Ruled Unconstitutional

Mon, 07/28/2014 - 09:56

Tom G. Palmer

The DC government ignored the Supreme Court’s ruling in the Heller case, so we had to take them back to court.  We won again.  The idea that they can simply ban the exercise of a fundamental and enumerated constitutional right is absurd. If the constitutional approach of the DC government were applied to the First Amendment, they would interpret the power to regulate the time, place, and manner of its exercise to include banning all churches, mosques, temples, and synagogues in the District.  That cannot be right and the court has set them straight on that matter.

Alan Gura, our lawyer, is a hero for his work on behalf of the rule of law.  I and the other plaintiffs are grateful to him and to the Second Amendment Foundation for this resounding victory.

Read the decision here.

Categories: Policy Institutes

Podcast: The Second Amendment Wins in D.C.

Mon, 07/28/2014 - 09:11

Caleb O. Brown

Saturday afternoon, a federal judge in the District of Columbia ruled that D.C.’s “complete ban on the carrying of handguns in public is unconstitutional.” Alan Gura is the attorney on the case, entitled Palmer v. D.C. We talked yesterday about the ruling and how D.C. might comply.

Gura, along with Clark Neily of the Institute for Justice and Cato Institute chairman Robert A. Levy, served as co-counsel to Dick Heller in the landmark case of District of Columbia v. Heller. The lead plaintiff in this case is Cato Institute senior fellow Tom G. Palmer.

On his blog, here’s how Gura characterized the win:

With this decision in Palmer, the nation’s last explicit ban of the right to bear arms has bitten the dust. Obviously, the carrying of handguns for self-defense can be regulated. Exactly how is a topic of severe and serious debate, and courts should enforce constitutional limitations on such regulation should the government opt to regulate. But totally banning a right literally spelled out in the Bill of Rights isn’t going to fly.

Categories: Policy Institutes

Krugman’s 'Gotcha' Moment Leaves Something to Be Desired

Fri, 07/25/2014 - 14:54

Daniel J. Mitchell

I’ve had some fun over the years by pointing out that Paul Krugman has butchered numbers when writing about fiscal policy in nations such as FranceEstoniaGermany, and the United Kingdom.

So I shouldn’t be surprised that he wants to catch me making an error. But I’m not sure his “gotcha” moment is very persuasive. Here’s some of what he wrote for today’s New York Times.

Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare. …Needless to say, conservatives predicted doom. …Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.”

Kudos to Krugman for having read Atlas Shrugged, or for at least knowing that Rand sometimes referred to “looters and moochers.” Though I have to subtract points because he thinks I’m a conservative rather than a libertarian.

But what about his characterization of my position? Well, he’s right, though I’m predicting slow-motion suicide. Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs.

Here’s some of what I wrote:

I’m generally reluctant to make predictions, but I feel safe in stating that this measure is going to accelerate California’s economic decline. Some successful taxpayers are going to tunnel under the proverbial Berlin Wall and escape to states with better (or less worse) fiscal policy. And that will mean fewer jobs and lower wages than otherwise would be the case.

Anyhow, Krugman wants readers to think that California is a success rather than a failure because the state now has a budget surplus and there’s been an uptick in job creation.

Here’s more of what he wrote:

There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels. …And, yes, the budget is back in surplus. …So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need.

I’m not persuaded, and I definitely don’t think this counts as a “gotcha” moment.

First, I’m a bit surprised that he wants to brag about California’s employment numbers. The Golden State has one of the highest jobless rates in the nation. Indeed, only four states rank below California.

Second, I don’t particularly care whether the state has a budget surplus. I care about the size of government.

Krugman might respond by saying that the tax hike generated revenues, thus disproving the Laffer Curve, which is something that does matter to supporters of small government. But the Laffer Curve doesn’t say that all tax hikes lose revenue. Instead, it says that tax rate increases will have a negative effect on taxable income. It’s then an empirical question to figure out if revenues go up a lot, go up a little, stay flat, or decline.

And what matters most of all is the long-run impact. You can rape and pillage upper-income taxpayers in the short run, particularly if a tax hike is retroactive. In the long run, though, people can move, reorganize their finances, and take other steps to reduce their exposure to the greed of the political class.

In other words, people can vote with their feet … and with their money.

And that’s what seems to be happening in California. Take a look at how much income has emigrated from the state since 1992.

Next we have a map showing which states, over time, are gaining taxable income and which states are losing income. Notice that the zero-income tax states tend to be very green.

The data aren’t population-adjusted, so populous states are overrepresented. But you can still see that California is losing while Texas is winning.

Here are similar data from the Tax Foundation:

So what’s all of this mean?

Well, it means I’m standing by my prediction of slow-motion economic suicide. The state is going to become the France of America—assuming Illinois doesn’t get there first.

California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.

But the number of people willing to pay will shrink as the premium rises.

In other words, this Chuck Asay cartoon may be the most accurate depiction of California’s future. And this Lisa Benson cartoon shows what will happen between now and then.

But I won’t hold my breath waiting for a mea culpa from Krugman.

Categories: Policy Institutes

ALEC Report on State Tax Expenditures

Fri, 07/25/2014 - 13:44

Nicole Kaeding

State policymakers often look for ways to attract investment, companies, talent, and residents to their states. Sometimes they do it with sensible and broad-based reforms, such as reducing business regulations, increasing school quality, or making taxes lower and simpler. Unfortunately, another way they try to do it is to provide narrow tax benefits and subsidies to particular businesses and industries.

Every state does it. Illinois provides a tax credit for the film industry. New Jersey Governor Chris Christie has frequently provided tax credits to resident companies that agree not to relocate to other states. Florida Governor Rick Scott has provided benefits to companies that agree to move to Florida. Many other states have similar policies.

These types of tax provisions are called “tax expenditures” or “tax incentives.” They include narrow breaks to income taxes, sales taxes, property taxes, and other taxes. Federally, the Joint Committee on Taxation (JCT) defines a tax expenditure as “any reduction in income tax liabilities that result from special tax provisions or regulations that provide tax benefit to particularly taxpayers.” The JCT estimates that the federal government provided approximately $1.3 trillion in tax expenditures in 2013.

Tallying  state tax expenditures is much more difficult because state tax systems are different and there is no official national scorekeeper. A new report from the American Legislative Exchange Council (ALEC) sought to accomplish that  task.  In the report, the authors totaled the  tax expenditures within every state based on state-published reports. According to their research, state tax expenditures total about $228 billion for personal and business taxes and $260 billion for sales taxes. 

ALEC’s report is an excellent first stab at calculating state tax expenditures. However, five states—Alabama, Alaska, Nevada, South Dakota, and Wyoming—do not report on the value of their tax expenditures. Other states, such as Arkansas and Missouri, publish “infrequent or incomplete” data. There are also varying levels of reporting data: California only publishes information on tax expenditures valued at greater than $5 million, while Arizona only includes ones valued at greater than $703.

The ALEC authors note that not all of these tax expenditures represent cronyism on the part of state policymakers. For one thing, there is disagreement over what tax items are distortionary or unjustified. Some provisions on official tax expenditure lists move a state’s tax system closer to a low, broad, and neutral tax base and are justified, such as allowing capital expensing. Lower rates on capital gains help offset the  double taxation of capital under the income tax system. Also, exempting business-to-business transactions prevents tax pyramiding.

A large portion of the provisions tallied by ALEC are narrow and distort the economy, such as Hollywood film tax credits. To make matters worse, some tax expenditures are “refundable,” meaning that recipients receive money from the government if they do not have a tax liability. Policymakers use this trick to hide the full cost of spending on the tax side of the budget.

The large-scale provision of tax credits, deductions, and exclusions to specific industries or companies is an  acknowledgement by state policymakers that taxes matter in business decision-making. But a much better way to grow a state economy is to reform tax systems by simplifying the tax codes and cutting marginal tax rates.

Categories: Policy Institutes

Does Sweden's Voucher Program Need Stricter Regulation?

Fri, 07/25/2014 - 10:13

Andrew J. Coulson

Slate recently published a badly misinformed piece about Sweden’s voucher program, which I addressed here. One of the other responses to the Slate piece was written by Swedish economist Tino Sanandaji for NRO. Sanandaji did an excellent job of showing that the voucher program cannot plausibly explain Sweden’s test score decline and usefully explored some of the more likely causes.

Though I agree with much of what Sanandaji wrote, his piece occasionally endorses heavier regulation of the program for reasons that are either not apparent or inconsistent with the evidence. For instance, he rightly observes that the Swedish government requires universities to accept high school grades as a key admissions criterion but does not permit them to take into account differential grading practices across high schools. This, he notes, puts significant external pressure on high schools to inflate grades. But despite acknowledging this, he later refers to “other problems caused by the [voucher/school choice] reform … such as grade inflation,” implying that this “corruption” is “caused by the lack of [state] control.”

And yet the evidence he presents points to the opposite conclusion: that grade inflation is particularly problematic in Sweden because of imprudent government intrusion into university admissions policy. Consider as a contrast the case of the United States, where universities are free to take high schools’ grading practices into account during admissions. We still have differential grade inflation across high schools, but it is less of a concern because universities can adjust for it. As the head of admissions at Brandeis University has observed, “It’s really not that hard [for colleges] to evaluate a school bearing in mind the differences in grading and weighting processes they employ.” In the absence of government meddling, high schools cannot secure admission to good colleges for their students simply by giving them all A’s.

Still more puzzling is Sanandaji’s criticism that “some private schools broke the rules to cherry-pick students.” This is curious because Sanandaji defends free markets on a number of other occasions, and a hallmark of free markets is that they rely on mutually voluntary exchange. So, naturally, schools in a relatively free marketplace want to enroll students they think they can successfully serve, just as families seek schools they believe can successfully serve them.

This does not mean that all private schools in a relatively free market will seek to serve only high-scoring or well-behaved students. In the United States, where the vast majority of private schools are free to admit students based on any criteria they like, many exist specifically to serve difficult-to-educate students that the typical public school is not well-equipped to teach. A study conducted in the mid-1990s found that public school districts were sending hundreds of thousands of students to the private sector for just that reason. Do some other private schools focus on serving high-performing students? Of course. But the largest share seem to place little or no emphasis on students’ prior academic performance, based on survey data from Arizona that I analyzed several years ago.

The same result can be seen in the for-profit Korean after-school tutoring market, which has complete autonomy over admissions and in which admission is hardly ever selective. Tutoring firms administer tests to their applicants, but they use those tests merely to identify the right classes for them, not to determine admission. When left to themselves, education markets do not focus exclusively on high performing students, well-behaved students, or indeed on any single subgroup of students. They respond to market demand.

What makes the “cherry-picking” criticism of Swedish schools even more strange is that the government actually requires high schools to accept students based on their elementary school grades. Thus, again, to the extent there is a systematic problem in this area, it is actually caused by the state, not by the schools.

Next Sanandaji acknowledges that a poorly managed for-profit school chain went bankrupt, closed down, and its students had to find new schools. Perhaps I misunderstand him, but he seems to present this as an example of market failure, adding that “some of this abuse has been stopped [by tighter regulation].” It is hard to reconcile this characterization with Sanandaji’s otherwise sound exposition of how markets work. The failure and exit of poorly managed businesses is not a bug in the software of capitalism, it is a feature. No economic system guarantees that all service providers are effective and efficient in perpetuity.

The same applies to systems of education. Having studied school systems around the world and across time back to Athens and Sparta in the 5th century B.C., I have never come across one that achieved perfection. The best that an education system can do is to provide incentives for effective and efficient operation, and to reliably force the exit of schools that fail to respond to those incentives.

So, in Sweden, a large, ill-managed school network went out of business in a few years, and its students are now enrolled in other schools that are at least well-enough managed to still be operating. Contrast this with how failure is dealt with in a system with many layers of government oversight and ostensible quality control: U.S. public schooling. In most of the nation’s big cities, performance has generally been regarded as ranging from mediocre to abysmal for at least several generations, despite high and rising real per-pupil spending. Schools and districts deemed “dropout factories” continue to operate indefinitely. This, it should be obvious, is an inferior way to deal with educational failure—allowing it to continue decade after decade, afflicting an endless stream of children, instead of bringing it summarily to a halt after just a few years.

But Sanandaji, in other contexts, understands all this. He can undoubtedly cite Schumpeter chapter-and-verse on the process of “creative destruction” that drives progress in free markets. It’s not clear why he doesn’t apply this knowledge here.

And lest readers assume that the above analysis is nothing more than economic theory, I encourage them to review the empirical research on within-country comparisons of different school systems. I surveyed that research for a 2009 paper and found that the least regulated, most market-like school systems—those in which parents pay at least some part of their own children’s tuition directly—are consistently the best at serving families’ needs across all outcomes that have been studied. In practice, in the real world, additional government “control” (i.e., regulation) of education markets is not associated with better outcomes. If anything, the reverse appears to be true.

Finally, Sanandaji reports poll results indicating that “Swedes have turned sour on for-profits’ running schools generally.” That people would offer this answer to pollsters is not at all surprising given the often confused and misleading media coverage of the subject. But, in talking to people in Sweden and Chile (another country with a national school choice program that allows for-profit schools), I’ve found that parents are often unaware which private schools are for-profit and which aren’t, and so cannot be placing much weight on that factor in choosing schools for their children. That is perhaps why two of the biggest school chains in Sweden, Kunskapsskolan and International English Schools (IES), are both operated for profit and both highly regarded. Indeed IES is perhaps the fastest growing chain in the country. Despite growing as fast as it is able, opening several new schools each year, it had a waiting list of 60,000 students as of last year. The minister of education himself sends one of his children to an IES school.

So while badly managed chains are failing, well-managed ones are growing. That is how markets work, and it is in the best long term interest of consumers.

All of the above said, there are certainly defects in the Swedish voucher program, centered on counterproductive regulations and the total reliance on third party government funding. I will be writing about those problems, but will have to leave that for another day.

Categories: Policy Institutes