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Ilya Shapiro

To encourage the purchase of health insurance, the Affordable Care Act added a number of deductions, exemptions, and penalties to the federal tax code. As might be expected from a 2,700-page law, these new tax laws have the potential to interact in unforeseen and counterintuitive ways.

As first discovered by Michael Cannon and Jonathan Adler, one of these new tax provisions, when combined with state decision-making and IRS rule-making, has given Obamacare yet another legal problem. The legislation’s Section 1311 provides a generous tax credit for anyone who buys insurance from an insurance exchange “established by the State”—as an incentive for states to create the exchanges—but only 16 states have opted to do so. In the other states, the federal government established its own exchanges, as another section of the ACA specifies. But where § 1311 only explicitly authorized a tax credit for people who buy insurance from a state exchange, the IRS issued a rule interpreting § 1311 as also applying to purchases from federal exchanges.

This creative interpretation most obviously hurts employers, who are fined for every employee who receives such a tax credit/subsidy to buy an exchange plan when their employer fails to comply with the mandate to provide health insurance. But it also hurts some individuals, such as David Klemencic, a lead plaintiff in one of the lawsuits challenging the IRS’s tax-credit rule. Klemencic lives in a state, West Virginia, that never established an exchange, and for various reasons he doesn’t want to buy any of the insurance options available to him. Because buying insurance would cost him more than 8% of his income, he should be immune from Obamacare’s tax on the decision not to buy insurance.  After the IRS expanded § 1311 to subsidize people in states with federal exchanges, however, Klemencic could’ve bought health insurance for an amount low enough to again subject him to the tax for not buying insurance. Klemencic and his fellow plaintiffs argue that they face these costs only because the IRS exceeded the scope of its powers by extending a tax credit not authorized by Congress.

The district court rejected that argument, ruling that, under the highly deferential test courts apply to actions by administrative agencies, the IRS only had to show that its interpretation of § 1311 was reasonable—which the court was satisfied it had. On appeal, a panel of the U.S. Court of Appeals for the D.C. Circuit held that the plain language of the ACA precluded the federal government from subsidizing the premiums of insurance policies obtained through federally established exchanges. Later that same day, the Fourth Circuit in King v. Burwell took the opposite position on the same question—from which ruling there is now a cert petition pending in the Supreme Court.

This circuit split did not last long, however, as the D.C. Circuit decided to vacate the panel opinion and rehear Halbig en banc (meaning all the court’s judges, not just a three-judge panel). Federal appellate rules say that such review “is not favored” and the D.C. Circuit has a particularly high bar, on average taking only one case per year en banc. Judge Harry Edwards, who dissented in the Halbig panel ruling, has taken great pains to reduce the number of en banc hearings. Even before he served as the D.C. Circuit’s chief judge, Edwards wrote in Bartlett v. Bowen (1987) that “the institutional cost of rehearing cases en banc is extraordinary” and that it “substantially delays the case being reheard, often with no clear principle emanating from the en banc court.” Nevertheless, the court took this step, vindicating President Obama’s strategy of packing the underworked D.C. Circuit after the Senate eliminated the filibuster for judicial nominees.

Cato and the Pacific Research Institute have filed a brief continuing our support for the plaintiffs on their appeal. While it is manifestly the province of the judiciary to say “what the law is,” where the law’s text leaves no question as to its meaning—as is the case here with the phrase “established by the State”—it’s neither right nor proper for a court to replace the laws passed by Congress with those of its own invention, or the invention of civil servants.

If Congress wants to extend the tax credit beyond the terms of the ACA, it can do so by passing new legislation. The only reason for executive-branch officials not to go back to Congress for clarification, and instead legislate by fiat, is to bypass the democratic process, thereby undermining constitutional separation of powers.

This case ultimately isn’t about money, the wisdom of individual health care decision-making, or even political opposition to Obamacare. It’s about who gets to create the laws we live by: the democratically elected members of Congress, or the bureaucrats charged with no more than executing the laws that Congress passes and the president signs.

The en banc D.C. Circuit will hear argument in Halbig v. Burwell on December 17.

Jason Bedrick

Yesterday, Democrats for Public Education (DFPE) released the results of a poll that supposedly shows a high degree of public support for their agenda:

All of the progressive reforms elicit solid majority endorsement (ranging from 60% to 80% buy-in), while none of the conservative reforms come remotely close to a majority (ranging from 40% to 10% buy-in). Note the steep drop-off from the last progressive reform (increase teacher pay) to the top conservative reform (test scores for teacher evaluations). [Emphasis in the original.]

What an amazing coincidence! The public favors exactly what DFPE proposes!

But let’s look at how they phrased the “proposed reforms”:

Notice how all the so-called “progressive reforms” sound positive (“engaging curriculum” “overcome challenges”) and sometimes even explicitly connect the reform to some positive outcome (“help disadvantaged students”). Are teachers’ “due process rights” (read: tenure) really about their ability to “advocate for the things that students need” or more about protecting incompetent teachers from being fired

And of course voters favor increased spending and higher teacher pay in the abstract. That’s consistent with the more credible polling from Education Next, but leaves out the key fact that Americans vastly underestimate how much we now spend on schools. As the EdNext polling shows, public support for increasing spending and teacher salaries drops precipitously when informed of how much is currently being spent.

Likewise, the public supports “smaller class sizes” in the abstract, but in the real world there are tradeoffs and limited resources. The research on reducing class size is mixed, and hiring more inexperienced teachers to lower the class sizes can actually have a net negative effect. Indeed, the evidence suggests that having superior teachers with somewhat larger classes will produce better outcomes on average than having more mediocre teachers with slightly smaller classes.

By contrast, the poll describes so-called “conservative reforms” with negatively charged words like “eliminate” and “at taxpayer expense” and omit any connection to the outcomes that “reducing costs” or tenure reform seek to accomplish (never mind running schools “like businesses”). One could easily rewrite all of the polling questions and come up with entirely different results. As I noted in the wake of a similar, union-funded poll:

Fortunately, we don’t have to imagine how the public would respond to fairly worded questions. Harvard University’s Program on Education and Governance conducts an annual survey of the public’s views on education policy that meets the highest standards for fairness and rigor. The survey eschews language designed to push respondents in a certain direction and often asks the same question with multiple wordings. According to the 2012 Harvard poll:

  • 54% of parents favor giving all families a “wider choice” to “enroll their children in private schools instead, with government helping to pay the tuition” compared with 21% opposed.
  • 46% of parents favor giving low-income families a “wider choice”  to “enroll their children in private schools instead, with government helping to pay the tuition” compared with 21% opposed.
  • When not given a neutral option, 50% of parents favor giving low-income families a “wider choice”  to “enroll their children in private schools instead, with government helping to pay the tuition” compared with 50% opposed.
  • When the question omits the words “a wider choice” and only asks about using “government funds to pay the tuition of low-income students who choose to attend private schools,” 44% of parents are in favor with 32% opposed.

Note that while support fluctuates depending on the wording, no matter how Harvard asked the question there was still more support among parents for school choice than opposition.

Moreover, when asking about scholarship tax credits instead of vouchers, the support was even higher:

  • 57% of parents supported “a tax credit for individual and corporate donations that pay for scholarships to help low-income parents send their children to private schools” compared with 16% opposed.
  • When not given a neutral option, 73% of parents supported “a tax credit for individual and corporate donations that pay for scholarships to help low-income parents send their children to private schools” compared with 27% opposed.

As with the earlier poll, the DFPE poll produced the results that its sponsors wanted.

Steve H. Hanke

Bulgarians will go to the polls on October 5th to elect new members of its parliament and thus a new government. Before casting their votes, voters should reflect on the economic records of Bulgaria’s governments since 1995.

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index for each of Bulgaria’s six governments since 1995 (see the accompanying table).

The first government documented in the table is that of Zhan Videnov’s socialist government. It was a disaster. Hyperinflation occurred on Videnov’s watch, with the monthly inflation rate reaching 242% in February 1997. The misery index soared by 529% during Videnov’s short-lived reign.

Bulgaria clearly lacked an “economic constitution”—one that would provide fiscal discipline and monetary stability. So in the midst of the turmoil of the 1996–97 hyperinflation episode, Bulgaria took an important first step toward what would become an economic constitution.

As an adviser to President Stoyanov, I played a role in ending Bulgaria’s hyperinflation nightmare. Six short months after I presented my blueprint for a Bulgarian currency board to the president, the currency board was born (July 1997). With the currency board in place, Bulgaria’s misery index fell like a stone, falling by 97% during the conservative Kostov government’s tenure. Fiscal discipline and monetary stability were finally established.

Since the Kostov years, Bulgaria has had four governments and the misery index has fluctuated around a reading of 20. The currency board has clearly given Bulgaria fiscal discipline and monetary stability. The misery index readings in the table attest to that fact. The other thing that the misery index readings make clear is that the socialist-led governments in Bulgaria have delivered misery (Videnov 1995–97, Stanishev 2005–09, and Oresharski 2013–14).

Nicole Kaeding

Cato’s “Fiscal Policy Report Card on America’s Governors” focuses on short-term tax and spending decisions made by governors. But governors and legislatures also make important decisions that will affect state budgets over the longer term.

As Chris Edwards and I discuss in the Report Card, one area of particular concern is compensation for state workers, particularly retirement benefits.

Total wages and benefits for state and local workers was $1.3 trillion in 2013, which accounted for 53 percent of all state and local spending. That is a huge cost that could rise substantially in coming years, particularly in those states that have large funding gaps in their retirement plans. Governments have promised their workers generous pension and retirement health benefits, but most states have not put enough money aside to fund them.

In recent years, many states have modestly trimmed benefits and increased worker contributions for retirement plans. However, more reforms are needed, as recent studies have shown. A study by the Center for Retirement Research (CRR) at Boston College found that the average funding level—the ratio of assets to liabilities—for public employee pensions was just 72 percent in 2013 after declining substantially over the past decade. Based on the usual accounting for these plans, the unfunded liabilities in state and local pensions total $1.1 trillion, according to CRR.

Those numbers understate the size of the problem. Most financial economists think that the discount rate used in official valuations of government pension liabilities is too high, or too optimistic. When CRR used a lower discount rate of 4 percent instead of the average official rate of 7.7 percent, the value of unfunded state and local pension liabilities skyrocketed to $3.8 trillion. Our Cato colleague, Jagadeesh Gokhale, argues even that is too conservative as it only includes currently accrued pension costs. He estimates that the funding gap for accrued benefits plus future accruals under today’s generous pension rules is about $10 trillion.

Many states have made modest reforms to pensions in recent years, but larger reforms are needed. Without reforms, state budgets will be put under increasing stress and part of the burden of pension benefits will land on future taxpayers.

Simon Lester

After I complained recently that arguments for including intellectual property (IP) in trade agreements needed to specify what level of protection is desirable, Tom Giovanetti responded by asking for my view on a more basic question: Should IP—regardless of the level of protection—be in trade agreements at all? My colleague Bill Watson has previously set out a political argument for removing it, which is that achieving free trade is becoming very difficult when IP issues get inserted into trade negotiations. Let me add to his argument the following: If IP is in, then there is really no boundary to what can be in, and the result is trade agreements that look like “global governance” agreements.

Returning to Tom’s question, I should say at the outset that Tom doesn’t really say explicitly why IP should be in trade agreements. He doesn’t explain how IP rules fit within the general concept of trade liberalization, or what scope he sees for trade agreements. What are his limits for what should be covered in trade agreements? I’m really not sure. Instead, the main focus of Tom’s argument for including IP in trade agreements seems to be that the United States exports lots of IP-related goods, and therefore it is in the nation’s interest to have IP rules in there.

With this argument, it seems to me that Tom is trying to portray strong IP protection as something that helps U.S. industry at the expense of its foreign competition. This doesn’t have a very trade-liberalizing feel. Moreover, looking at the bigger picture, what stronger IP protection does is help U.S. industry at the expense of consumers (U.S. and foreign). In terms of appropriate IP policy, it seems to me, the focus should be on giving incentives to innovate, but not to the detriment of consumers. Some argue that stronger IP protection promotes innovation, but others contest this.

Turning back to trade agreements, Tom’s argument misses a fundamental point: What is the purpose of trade agreements? For decades, this purpose was fairly clear: to provide a framework of mutual restraints on protectonist trade barriers, such as tariffs, quotas, and discriminatory laws and regulations.

But in the 1980s and early 1990s, the scope expanded. Suddenly, any issue that had some effect on, or relationship with, trade was being put forward as a candidate for inclusion in trade agreements. The business community pushed for IP rules and provisions that offer compensation for expropriation, and left-leaning NGOs responded with demands for rules on labor and the environment. They all won, in the sense that all of those issues are now standard parts of trade agreements.

Here’s the problem, though: While these policy areas do affect trade, so does every policy to some extent. If these policies are included, is there any line as to what should be in, or do we just regulate everything through global trade rules? That seems like a big mistake to me.

Let me offer two examples of how far this could be taken. The examples come from different sides of the political spectrum, to make the point that no matter what your politics are, and what role you see for international law, you shouldn’t clutter up trade agreements with other issues.

Tom’s posts seem very focused on exports, so let’s think about policies that could lead to an increase in exports, focusing on industries where the United States is very competitive. Here’s one:

U.S. firearms manufacturers will export some $4.4 billion worth of guns and ammunition to other countries this year. The biggest customers are Canada, the United Kingdom, and Australia, who accounted for nearly 40 percent of exports in 2012 (it’s mainly law enforcement and military agencies doing the buying, as private gun ownership is heavily regulated in those nations). IBIS World expects exports to keep surging in the coming years, with ammunition and ordnance being an especially popular item overseas.

No doubt, those export numbers are limited by tough gun control laws in other countries. One could argue, and many libertarians do, that such laws are too strict and should be liberalized. So should trade agreements have provisions guaranteeing gun rights, in order to increase U.S. exports of guns? You certainly could make that argument, using the inclusion of IP protection as a model.

Shifting to the other side of the political spectrum, another area where U.S. exports are strong is goods and services related to health. As a result, U.S. industry would benefit if people in other countries used more of those goods and services. To further that goal, it could be argued that foreign governments should subsidize or mandate certain medical care, perhaps through a right to health (not a libertarian view, obviously!). This would be another way to boost U.S. exports.

Are those examples realistic? Of course not. No one is proposing anything remotely like this. Neither one would be politically viable.  

Perhaps, then, Tom would say this is the factor that limits the scope of trade agreements: You can’t just throw anything in there. It has to be able to generate political support, which IP protection can.

Or could, anyway. These days, it’s becoming quite challenging to get IP protection in trade agreements. The critics are starting to overwhelm the supporters. The politics are changing. Conceptually, gun rights, health care rights, and IP protection are very similar as they relate to trade. The question of including them in trade agreements is just about how the politics play out.

Just to be clear, I don’t have much of an opinion on international agreements in gun rights or health care. If people in those fields, from whichever side of the spectrum, think there are benefits to having a treaty, they can try to work out an international consensus on the issue. I’m just saying, if you put everything into trade agreements, you get one big global governance entity, and I don’t think that’s the right path. So, any such treaties should be separate from what’s going on in the trade arena.

There’s also a broader issue: Even if you believe IP should be included in trade agreements, the reality is that you can’t get just IP in there. If the business community gets its tougher IP protections, the left-wing critics will have to get something of their own in order for there to be a deal. What they want is enforceable labor and environmental rules. Thus, IP is part of a bigger package. So even if you favor strong IP rules, you may not want governments bringing complaints that labor and environmental rules are too weak, but that’s a price you will pay. Furthermore, another price you pay by demanding stronger IP protection is less trade liberalization. If you use up your political capital on IP, you get less in terms of reducing tariffs.

Summing up, the basic point is this: If you think of trade agreements as covering issues related to trade, or areas that could increase U.S. exports, there’s just no limit to what could be included. The agreements lose their focus as agreements to reduce protectionism, and become tools for global governance. We have already gone down that road quite a way, and turning back is proving difficult. But in recent years, the prospects for success based on this model have dimmed. It may be time to rethink the current approach.

Jim Harper

In mid-August, using Cato Deepbills data, the Legal Information Institute at Cornell University started alerting visitors to its U.S. Code pages that the laws these visitors care about may be amended by Congress.

The most visited bills are an interesting smattering of issues.

Getting top clicks is H.R. 570, the American Heroes COLA Act. Would it surprise you to learn that beneficiaries of Social Security’s Old Age, Survivors and Disability Insurance program are looking to see if veterans’ disability compensation will get the same cost-of-living increases? The relevant section of the Social Security Act on the Cornell site points to the bill that would grow veterans’ benefits in tandem with Social Security recipients’.

S. 1859, the Tax Extenders Act of 2013, is the second bill with the most referrals from Cornell. People looking into federal regulation of health insurance—or myriad other statutes—are finding their way to this complex piece of legislation. We know visitors to the Cornell site are legally sophisticated. They just might be able to follow what S. 1859 does.

Immigration is a hot-button issue, and Deepbills links at Cornell such as the code section dealing with reimbursement for detaining aliens are sending people to S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act.

Another hot-button issue and top source of clicks from Cornell’s site: federal gun control. People looking at gun control law are following links to Senator Dianne Feinstein’s (D-CA) bill to ban assault weapons.

As of Thursday morning, 674 people had clicked 855 times on links to the bills in Congress that affect the laws they’re interested in. Those numbers aren’t going to instantaneously revive public oversight of the government. But usage of these links is rising, and Tom Bruce at Cornell says he plans changes that may increase clicks by 3 to 5 times. He guesses that people see Cato’s sponsorship of the data they can access 20,000 times a day. (“I should have asked you for a penny per impression ;),” he says. Funny guy.)

A lot more people are aware of work Cato is doing to increase government transparency, but, more importantly, a small but growing cadre of people are being made aware of what Congress is doing. This positions them to do something about it. Public oversight of Congress is increasing one click at a time.

Daniel J. Ikenson

Some exaggeration notwithstanding, Harold Meyerson, with whom the occasion to agree is rare, does a reasonably good job describing some of the pitfalls of the so-called Investor-State Dispute Settlement mechanism in his Washington Post column yesterday.  ISDS has become a source of growing controversy, which threatens to derail the Transatlantic Trade and Investment Partnership negotiations, which are reported to be floundering during the seventh “round” of talks taking place this week in Chevy Chase, Maryland.

“Under ISDS,” Meyerson writes, “foreign investors can sue a nation with which their own country has such treaty arrangements over any rules, regulations or changes in policy that they say harm their financial interests.”  That is more or less correct, but the implication that the threshold for bringing a suit is simple harm to a foreign investor’s financial interests is misleading.  What is being disciplined under ISDS is not harm to financial interests of foreign investors, but harm that comes from discriminatory treatment of foreign investors.  Thus, ISDS avails foreign investors (i.e., U.S. companies invested abroad, foreign companies invested in the U.S.) of access to third-party arbitration tribunals as venues for determining whether and to what extent the plaintiff suffered economic damages on account of host-government actions or policies that fail to meet certain minimum standards of treatment.

Meyerson suggests that ISDS provisions be purged from the TTIP negotiations because they subordinate U.S. courts to unaccountable tribunals, which “invites a massive end-run around national regulations.” Though I firmly believe the U.S. economy is racked with superfluous and otherwise unnecessary regulations, I do believe that a successful foreign challenge of U.S. laws, regulations, or actions in a third-party arbitration tribunal (none has occurred, yet) would subvert accountability, democracy, and the rule of law.  For those and several other reasons, I’m on board with Meyerson’s suggestion to purge ISDS from TTIP, and would extend the purge to all trade agreements.  In fact, I developed eight reasons for purging ISDS from the trade negotiations in this paper earlier this year.

First, ISDS is overkill. Investment is a risky proposition. Foreign investment is usually more risky. But that doesn’t necessitate the creation of institutions to protect multinational corporations – who are among the most successful and sophisticated companies in the world – from the consequences of their business decisions. They are quite capable of evaluating risk and determining whether the expected returns cover that risk. Moreover, MNCs can mitigate their own risk by purchasing private insurance policies.

Second, ISDS socializes the risk of foreign direct investment. When other governments oppose, but ultimately concede to, U.S. demands for ISDS provisions, they may be less willing to agree to other reforms, such as greater market access, that would benefit other U.S. interests. That is an externality or a cost borne by those who don’t benefit from that cost being incurred. In this regard, ISDS is a subsidy for MNCs and a tax on everyone else. Moreover, what may be too risky an investment proposition without ISDS for Company A is not necessarily too risky for Company B. By reducing the risk of investing abroad, then, ISDS is a subsidy for more risk-averse companies. It is a subsidy for Company A and a tax on Company B.

Third, ISDS encourages “discretionary” outsourcing. While ISDS may benefit U.S. companies looking to invest abroad, it neutralizes what was once a big U.S. advantage in the competition to attract investment. Respect for property rights and the rule of law have been relative U.S. strengths, but ISDS mitigates those U.S. advantages. Access to ISDS could be the decisive factor in a company’s decision to invest in a research center in Brazil, instead of the United States. Why should U.S. policy reflect greater concern for the operations of U.S. companies abroad than for the operations of U.S. and foreign companies in the United States? While we should not denigrate, punish, or tax foreign outsourcing, neither should we subsidize it.  ISDS subsidizes “discretionary” outsourcing.

Fourth, ISDS exceeds “national treatment” obligations, extending special privileges to foreign corporations. An important pillar of trade agreements is the concept of “national treatment,” which says that imports and foreign companies will be afforded treatment no different from that afforded domestic products and companies. The principle is a commitment to nondiscrimination. But ISDS turns national treatment on its head, giving privileges to foreign companies that are not available to domestic companies. If a U.S. natural gas company believes that the value of its assets has suffered on account of a new subsidy for solar panel producers, judicial recourse is available in the U.S. court system only. But for foreign companies, ISDS provides an additional adjudicatory option.

Fifth, U.S. laws and regulations will be exposed to ISDS challenges with increasing frequency. The number of cases is on the rise. Most claims have been brought against developing countries—with Argentina, Venezuela, and Ecuador leading the pack—but the United States is the eighth-largest target, having been the subject of 15 claims over the years. As the percentage of global Fortune 500 companies domiciled outside the United States continues to increase, U.S. laws and regulations are likely to come under greater scrutiny.

Sixth, ISDS is ripe for exploitation by creative lawyers. There is a lot of latitude for interpretation of what constitutes “fair and equitable” treatment of foreign investment, given the vagueness of the terms and the uneven jurisprudence. Thus, ISDS lends itself to the creativity of lawyers willing to forage for evidence of discrimination in the arcana of the world’s laws and regulations. Among the complaints worldwide in 2012 were challenges related to “revocations of licenses, breaches of investment contracts, irregularities in public tenders, changes to domestic regulatory frameworks, withdrawals of previously granted subsidies, direct expropriations of investments, tax measures and others.”

Seventh, ISDS reinforces the myth that trade primarily benefits large corporations. A persistent myth that has proven hard to dispel permanently is that trade benefits primarily large corporations at the expense of small businesses, workers, taxpayers, public health, and the environment. The fact is that trade is the ultimate trustbuster, ensuring greater competition that prevents companies from taking advantage of consumers. Lower-income Americans stand to benefit the most from trade liberalization, as the preponderance of U.S. protectionism affects products and services to which lower-income Americans devote higher proportions of their budgets. But by granting special legal privileges to multinational corporations, ISDS reinforces that myth and is a lightning rod for opposition to trade liberalization.

Eighth, dropping ISDS would improve U.S. trade negotiating objectives, as well as prospects for attaining them. Dropping ISDS would assuage thoughtful critics of the trade agenda, who do not oppose trade, but who believe trade agreements should be more modest and balanced. Meanwhile, what now appears to be an angry mob protesting trade generally will be thinned out, exposing the unsubstantiated arguments of the professional protectionists who benefit by impeding Americans’ freedom to trade.

The TTIP has run into a firestorm of opposition – particularly in Europe where there seems to be growing support for dropping ISDS.  Doing that, in my estimation, is a necessary but insufficient condition for rescuing TTIP.  Going back to square one, as has been suggested as a possibility by EU trade commissioner-designate Cecilia Malmström, might also be a good idea.  In case fresh thinking become contagious, perhaps this “Roadmap” for TTIP success will come in handy.

Nicole Kaeding

This morning, Cato released the 12th edition of the “Fiscal Policy Report Card on America’s Governors.” The report card uses statistical data to grade the governors on their tax and spending performance from a limited-government perspective. The governors who cut taxes and spending the most receive an “A,” while the governors who increase taxes and spending the most receive an “F.”

Four governors were awarded an “A” on this report card: Pat McCrory of North Carolina, Sam Brownback of Kansas, Paul LePage of Maine, and Mike Pence of Indiana.

The common theme among these Republican governors is fiscal restraint. All four proposed or signed into law large tax cut packages in their state while also holding the down the growth of state spending.

At the other end of the fiscal spectrum, eight Democrat governors were awarded an “F.” These governors substantially increased taxes and spending within their states. They were: Mark Dayton of Minnesota, John Kitzhaber of Oregon, Jack Markell of Delaware, Jay Inslee of Washington, Pat Quinn of Illinois, Deval Patrick of Massachusetts, John Hickenlooper of Colorado, and Jerry Brown of California.

Over the years, the data-driven Cato report cards have shown that Republican governors are more fiscally conservative, on average, than Democrats. However, there are some Democratic centrists who have recently made important tax reforms, including Andrew Cuomo of New York and Lincoln Chafee of Rhode Island, who both earned a “B.”

Fiscal decisions made by governors matter to state economies. Much attention is paid to the uncompetitive federal corporate income tax, which collected $274 billion in 2013. But state and local taxes cost businesses $671 billion in 2013. The largest state taxes on businesses are property taxes of $242 billion and sales taxes on business inputs of $140 billion. The good news is that some governors are working hard to reduce these job-killing burdens.

The airwaves are full with pundits making observations about the political situation of various governors. The Cato report card allows you to sidestep the noise and see what the data shows about whether a governor is growing or restraining government.

Curious how your governor scored? Check out the full rankings.

Daniel R. Pearson

On September 12, Cargill, a major commodity trading and processing firm, filed a lawsuit in a Louisiana state court against Syngenta Seeds for selling genetically engineered MIR 162 (also known as “Agrisure Viptera®”) seed corn to farmers. China has not yet approved importation of corn containing MIR 162, so U.S. exports to that country of corn and corn products have come to a halt. Demand for U.S. corn has fallen. Cargill believes its losses exceed $90 million. 

Syngenta’s view?  “Syngenta believes that the lawsuit is without merit and strongly upholds the right of growers to have access to approved new technologies …”. The company’s position is that it has been legally selling seeds containing MIR 162, a trait that provides useful insect resistance, to U.S. farmers since 2010.  Other major corn importers – including Japan, South Korea, Mexico, Colombia and the European Union – have approved importation of corn with the MIR 162 trait. Syngenta has been seeking approval in China since March 2010. MIR 162 has not raised any health or environmental safety issues. 

Cargill’s view is that Syngenta has rendered U.S. corn supplies ineligible for export to China. Corn containing MIR 162 has spread throughout the U.S. marketing system to the extent that it would be expected to be present in any ocean vessel loaded for export:

“Cargill is a supporter of innovation and the development of new GMO seed products.  But we take exception to Syngenta’s actions in launching the sale of new products like MIR 162 before obtaining import approval in key export markets for U.S. crops.  Syngenta’s actions are inconsistent with industry standards and the conduct of other biotechnology seed companies.” 

China’s decision to inspect imports for MIR 162 has led to the rejection of several corn cargoes since November 2013.  In January 2014, the National Grain and Feed Association (NGFA) and the North American Export Grain Association (NAEGA) issued a joint statement urging Syngenta not to sell seed with the MIR 162 trait for planting until such time as China had granted the required regulatory authorization.  Syngenta continued to sell MIR 162 for planting in 2014.  NGFA followed up in April with an economic analysis indicating that grain-handler losses from MIR 162-related trade disruptions in the 2013-14 marketing year would amount to between $1.0 and $2.9 billion.  In addition, the study estimates a $1.1 billion loss to U.S. corn farmers in 2013-14 due to an 11-cent-per-bushel decline in the price of corn in response to reduced demand. 

As recently as September 2013, USDA had projected Chinese corn imports of 7.0 million metric tons (MMT) in the 2013-14 marketing year.  The final figure now is expected to be about 3.5 MMT, with most of the decline representing lost sales opportunities for U.S. corn.  Exports to China of distillers dried grains with solubles (DDGS), a co-product of ethanol production, also have stopped due to MIR 162.  In 2013, China was the largest foreign buyer of DDGS, accounting for one third of U.S. exports–more than 3 MMT.  Loss of this much business genuinely hurts the corn sector. 

So why is China being so difficult regarding importation of MIR 162?  That country has a process for reviewing and approving biotechnology products that often has worked fairly well; lack of progress with MIR 162 is noteworthy.  Perhaps the most likely explanation is that China’s domestic corn production has been expanding rapidly. The crop in the world’s second-largest producer has grown 37 percent over five years; USDA projects it to reach 217 MMT for the harvest now underway. (By comparison, the current U.S. crop is projected to be 365 MMT.)  Chinese policies have had the effect of raising domestic corn prices to more than twice the level in the United States. Farmers have responded to that strong incentive by boosting output, and the government has kept the market price from falling by buying and storing surplus supplies. The Chinese government now has the dubious distinction of holding 77 MMT of corn in its grain stocks, some 40 percent of the world’s total.

Given this rather awkward juxtaposition of flawed policies and market realities, it isn’t hard to imagine Chinese officials looking for ways to discourage corn imports. After all, the price gap between domestic and world prices creates a strong commercial incentive to import.  Delaying approval of the MIR 162 trait makes most of the world’s corn supplies ineligible for importation into China. 

Now, back to the lawsuit. There is no commercial agreement between Cargill and Syngenta, so Cargill can’t sue for breach of contract.  Syngenta made a conscious decision to market MIR 162 despite knowing that such action had the potential to cause large losses to others involved in the supply chain. Does that constitute a legitimate basis for this legal action? It’s unclear, but the disgruntlement of Cargill and other grain handlers is not difficult to understand. Stay tuned as this case works its way through the court.

Stepping back a bit from the specifics of this situation, it’s reasonable to ask whether Syngenta can maintain a successful long-term biotech seed business if it insists on acting primarily to maximize its short-term earnings. Yes, the company no doubt spent several years and millions of dollars in developing MIR 162, so its interest in commercializing the technology is obvious. But the potential benefit to Syngenta from marketing MIR 162 in the current year likely would be measured in millions of dollars. The loss in value to the rest of the agriculture/food supply chain–including farmers– is being measured in billions. The potential costs could multiply quickly due to Syngenta’s decision to allow limited planting in 2014 of a newer trait–Agrisure Duracade–that is not approved for importation by either China or the European Union.  Syngenta seems to be rolling the dice.

Corn prices have fallen 35 percent in the past four months and are now at their lowest level since 2010. Low prices may prompt farmers to question the wisdom of seed companies acting in ways that reduce demand for corn. At a minimum, selling MIR 162 and Duracade under these conditions seems like a questionable strategy for promoting customer satisfaction. Syngenta may yet conclude that building a constructive relationship with growers over time could prove to be of more value than a year’s earnings from selling seeds not approved by importers.

Matthew Feeney

In the upcoming issue of Regulation magazine, Robert Scharff, associate professor in the Department of Consumer Sciences at the Ohio State University, and Sherzod Abdukadirov, research fellow in the Regulatory Studies Program at the Mercatus Center at George Mason University, argue that the FDA’s two proposed rules on food nutrition labeling are supported by little evidence and should be scrapped.

The food labeling rule would, as Scharff and Abdukadirov explain, result in a number of changes “involving both formatting and content changes to labels, increases in recordkeeping, and new analytic requirements.” The second rule, the serving size rule, would affect packages that contain a small number of servings. 

The FDA claims that implementing both of these rules will help Americans make healthier food choices. However, as Scharff and Abdukadirov point out, the FDA does not cite any work that supports the underlying assumption that consumers will change their short-sighted behavior if changes are made to food labels. In fact, an FDA-commissioned study found that increasing the font size for calorie information on food labels had no effect on consumer behavior. In addition, the FDA has provided little evidence that inserting a separate line on labels for “added sugars” will result in health benefits.

Aside from the lack of evidence cited by the FDA, Scharff and Abdukadirov explain that the study on the effects of regulations written to comply with the Nutrition Labeling and Education Act of 1990, which is used by the FDA to make the benefits calculations of its proposed rules, is flawed. Not only is the study unpublished and yet to be peer reviewed, its sample is limited to women aged between 19 and 50 years old, which artificially inflates the effects of nutrition labels on behavior because women are more likely to view nutrition panels than men.    

If the two proposed rules are implemented they will add billions of dollars in costs for consumers. Such an expensive change in regulations should have to be justified with good empirical data. Scharff and Abdukadirov show that the FDA’s proposed rules are justified mostly by good intentions, not data.  

Doug Bandow

President Barack Obama is channeling George W. Bush in launching a new Mideast war. Why is Washington involved? 

The Islamic State is evil, but the organization’s raison d’etre is establishing a Middle Eastern caliphate, or quasi-state, not terrorizing Americans. In fact, grabbing territory provided the United States with a target for retaliation in response to any attack, something lacking with al-Qaeda. 

The murder of two Americans captured in the region was horrid but opportunistic. Morally abominable, yes. Cause for war, no.

Washington has never had much success in fixing the Middle East. The United States has been bombing Iraq since 1991. ISIL would not exist but for America’s 2003 invasion. 

Washington has been battling al-Qaeda since 2001. While the national organization is largely kaput, the group has spawned multiple national off-shoots.

The Bush administration justifiably overthrew the Afghan Taliban as punishment for hosting al-Qaeda. But 13 years of nation-building has been far less successful.

Three years ago, the Obama administration declared that Syria’s Bashar al-Assad had to go. Since then, “moderates” have lost ground. The Islamic State’s capture of the city of Raqqa created a base for attacking Iraq.

Washington joined European states in ousting Libya’s Moammar Qaddafi in the name of the Arab Spring. Today the country is in collapse. Yemen, the subject of a lengthy and heavy drone campaign, appears headed in a similar direction.

Now Washington plans to rid the world of ISIL.

Targeting the “caliphate” removes the most important deterrent to terrorist attacks by the Islamic State. If it finds its conventional ambitions frustrated by Washington, the group might switch direction and cooperate with groups such as al-Qaeda.

The administration almost certainly will be drawn ever deeper into the conflict. Pinprick aerial bombing won’t wipe out ISIL adherents. 

U.S. policy in Syria, the scene of the group’s initial success, is bound to fail. The administration intends to step up efforts to train and arm the “moderates,” some of whom cooperate with ISIL. The likelihood of these groups defeating both Assad and Islamic State is small. While American bombing will hamper the latter’s efforts, the organization has been adapting and advancing. The administration could end up helping ISIL plant its flag in Damascus.

The administration’s campaign is particularly misguided because there are so many other candidates to take on the Islamic State. The organization is essentially at war with every major country in the Middle East. 

ISIL’s territorial claims directly threaten Iraq, Syria, Jordan, Turkey, and Lebanon, as well as autonomous Kurdistan. The group’s stance as self-proclaimed Sunni guardian challenges Iran and Israel. ISIL’s Sunni radicalism targets Saudi Arabia and the smaller Gulf kingdoms, as well as assorted Islamist and secular insurgents in Syria. 

No doubt, Washington’s allies prefer that the world’s superpower take care of the problem. But they obviously are capable of acting. Indeed, since its spectacular summer successes, the Islamic State has lost momentum and the element of surprise.

However, the United States is determined again to “lead.”  Other countries will help out a little, but most coalition members are likely to do only as much as they believe necessary to limit Washington’s kvetching.

America should leave ISIL to its neighbors. Only they can create stability.  As I wrote on Forbes online, “they must adopt economic and political reforms to satisfy discontented publics, nurture popular loyalties to thwart triumphal ideological and theological movements, and employ competent militaries to suppress security threats.” 

Obviously, such a regional effort would take time.  But administration officials are saying the same for the American-led campaign against an enemy that has not seriously threatened America.

Washington has made a hash of the Mideast. Yet President Obama is continuing Washington’s policy of endless war in the Middle East.  As Yogi Berra said, it’s “déjà vu all over again.”

Doug Bandow

Before becoming prime minister, India’s Narendra Modi was barred from receiving a visa to visit the United States.  A rising leader in the Hindu nationalist Bharatiya Janata Party (BJP), he was tied to deadly sectarian violence. But now he leads one of Asia’s most important powers and the Obama administration is rolling out the red carpet.

India long was ruled by the dynastic India National Congress Party, which enshrined dirigiste economics as the state’s secular religion.  Eventually, however, reality seeped into New Delhi. The Congress Party liberalized the economy. The BJP broke the Congress monopoly on power. 

New Delhi appeared ready to follow the People’s Republic of China to international superstar status. But then enthusiasm for economic reform ebbed, economic growth slowed, and conflict with Pakistan flared. 

However, on May 26, Narendra Modi became prime minister.  He is visiting the United States to speak before the United Nations and meet with President Barack Obama. The trip could yield rich benefits for both countries.

Of course, there was that embarrassing visa ban, the only one ever issued for that reason by Washington.  While serving as the chief minister of the state of Gujarat in 2002, Modi was implicated in Hindu riots which killed more than 1200 people, mostly Muslims. However, Modi escaped responsibility and the matter has been quietly forgotten in Washington.

The prime minister’s visit to America offers an opportunity for a reset in bilateral relations. The George W. Bush administration improved ties by accepting New Delhi’s development of nuclear weapons, but little progress has occurred during the current administration. Indeed, trade and diplomatic controversies have put the two governments at sharp odds.

The result is a lost opportunity for both nations. India, which trails only America and China economically in purchasing power parity, performs far below its potential.

Modi naturally hopes to expand his nation’s commercial ties throughout Asia, which increasingly is the world’s economic center of gravity. But America remains the most important single state—with the largest (depending on measure), most sophisticated, and wealthiest economy. 

Geopolitically, India has yet to play the international game as well as possible, though the new prime minister embarked upon an ambitious travel schedule abroad. New Delhi’s most persistent foreign antagonist is Pakistan.  In the long term, New Delhi’s desire to develop international counterweights to China, even while cooperating economically, is most important.

The greatest prize for New Delhi would be the strengthening relations with the United States.  The prime minister recently cited the improvement in bilateral relations and explained:  “Our ties have deepened.  India and the United States of America are bound together, by history and by culture.  These ties will deepen further.” 

Washington is thinking in similar terms. When Secretary of State John Kerry visited New Delhi in July, he said he wanted the two nations to become “indispensable partners.”

No one expects a formal military alliance, which would be in neither nation’s interest.  And important issues will continue to divide the two capitals.  But friendlier political relations, increased security cooperation, and enhanced trade and investment would remind the PRC that its growing power is matched by that of its wary neighbors. 

India has further to travel than China to geopolitical greatness, but it still matters today.  New Delhi will matter much more tomorrow, especially if Prime Minister Modi commits his political capital to eliminate barriers to entrepreneurship, investment, and growth.

The 21st century will be the Asian century, with a major assist from the United States. Most analysts presume Chinese dominance, but India could prove them wrong.  As I wrote in Forbes online:  “If Barack Obama and Narendra Modi make a serious effort to overcome past differences, their governments could find themselves, like Rick and Captain Renault in the movie Casablanca, at the ‘beginning of a beautiful friendship’.”

David Boaz

Today the People’s Republic of China is celebrating the 65th anniversary of its founding on October 1, 1949, which is likely to produce even bigger crowds of protesters in Hong Kong demanding democracy. China’s opposition to democracy in Hong Kong and in China itself is not just the recalcitrance of cranky old men. It’s part of the Chinese Communist state’s founding mission. 

Take the speech of Mao Zedong on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness”  in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

Fortunately, after Mao died in 1976, China changed rapidly. His old comrade Deng Xiaoping, a victim of the Cultural Revolution, had learned something from the 30 years of calamity. He began to implement policies he called “socialism with Chinese characteristics,” which looked a lot like freer markets—decollectivization and the “responsibility system” in agriculture, privatization of enterprises, international trade, liberalization of residency requirements.

The changes in China over the past generation are the greatest story in the world—more than a billion people brought from totalitarianism to a largely capitalist economic system that is eroding the continuing authoritarianism of the political system. On its 65th birthday, the CCP still rules China with an iron fist. There is no open political opposition, and no independent judges or media. And yet the economic changes are undermining the party’s control, a challenge of which the party is well aware. Six years ago Howard W. French reported in the New York Times:

Political change, however gradual and inconsistent, has made China a significantly more open place for average people than it was a generation ago.

Much remains unfree here. The rights of public expression and assembly are sharply limited; minorities, especially in Tibet and Xinjiang Province, are repressed; and the party exercises a nearly complete monopoly on political decision making.

But Chinese people also increasingly live where they want to live. They travel abroad in ever larger numbers. Property rights have found broader support in the courts. Within well-defined limits, people also enjoy the fruits of the technological revolution, from cellphones to the Internet, and can communicate or find information with an ease that has few parallels in authoritarian countries of the past.

The CCP remains in control. But it struggles to protect its people from acquiring information, routinely battling with Google, Star TV, and other media. Howard French noted that “the country now has 165,000 registered lawyers, a five-fold increase since 1990, and average people have hired them to press for enforcement of rights inscribed in the Chinese Constitution.” People get used to making their own decisions in many areas of life and wonder why they are restricted in other ways.

I hope that the protests in Hong Kong will not only succeed in their immediate aims, but will inspire the people of China to demand more political and speech rights than they have ever had. And that’s exactly what the leaders of the Chinese Communist Party fear.

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

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.”

Poof, it was gone.

Just like that, the human fingerprints on a century-long warming trend in Northwestern United States were erased and replaced instead by the telltale signs of natural variability. 

That is the conclusion of new research published last week by a pair of scientists from the University of Washington. James Johnstone and Nathan Mantua published their paper titled “Atmospheric controls on northeast Pacific temperature variability and change 1900-2012” in the Proceeding of the National Academy of Sciences (PNAS).

So as not to be accused of putting words in their mouth, here, in full, are the contents of a box labeled “Significance” from their paper:

Northeast Pacific coastal warming since 1900 is often ascribed to anthropogenic greenhouse forcing, whereas multidecadal temperature changes are widely interpreted in the framework of the Pacific Decadal Oscillation (PDO), which responds to regional atmospheric dynamics. This study uses several independent data sources to demonstrate that century-long warming around the northeast Pacific margins, like multidecadal variability, can be primarily attributed to changes in atmospheric circulation. It presents a significant reinterpretation of the region’s recent climate change origins, showing that atmospheric conditions have changed substantially over the last century, that these changes are not likely related to historical anthropogenic and natural radiative forcing, and that dynamical mechanisms of interannual and multidecadal temperature variability can also apply to observed century-long trends.

 

Translation: Natural variability in the atmosphere/ocean dynamics of the northern Pacific Ocean rather than human-caused global warming can largely explain the century-long rise in temperature in the Pacific Northwest.

And the authors have the figures to prove it.

The left-hand panel of Figure 1 (below) illustrates the observed trends over the period 19002012 for weather observing stations in the contiguous United States located west of longitude 116°W—this includes all of Washington and Oregon, most of California, and parts of Idaho and Nevada. Notice all the red, upward-pointing arrows indicating an overall temperature rise since 1900 across the entire region. The right-hand panel shows the trend in the same stations once the natural variability identified by Johnstone and Mantua has been removed.  If global warming were having an influence, it would be evident in both panels—more strongly so in the right-hand one.  Instead, in that panel, we have a mixed bag of up and down trends of very low magnitude—no strong signal of any kind, no sign of global warming.

 

Figure 1. (left)  Northeast Pacific annual temperature trends, 19012012.  Map of trends (°C/century) of annual (JulyJune) mean surface air temperature for observing stations west of 116°W. Triangles mark statistically significant (p < 0.05) trends (red, upward pointing: positive; blue, downward pointing: negative). Gray dots mark locations of insignificant trends.  (Right) Map of residual surface air temperature trends after removal of natural variability temperature signals  (adapted from Johnstone and Mantua, 2014).

Now, we’ll be among the first to admit that PNAS does not have the reputation of publishing the most robust of studies, but, still, this result is intriguing. We hope that it will be verified by publication in a more rigorous peer-reviewed journal in the near future.

In the meantime, we can only wonder what the authors of the recent U.S. National Climate Assessment (NCA) are thinking.  After all, they have an entire chapter of their new report (a report basically crafted to support President Obama’s Climate Action Plan) dedicated to present and future climate change in the Northwest. While the NCA authors coyly admit that the region’s “climate trends include contributions from both human influences (chiefly heat-trapping gas emissions) and natural climate variability” they are quick to add “[t]hey are also consistent with expected changes due to human activities.”

Hmm. While the observed trends may be “consistent with” the NCA authors’ “expected changes due to human activities,” in actuality they are, in fact, not caused by human activities.

This is a good lesson that “consistent with” does not equate with “a result of.”  Which means that all the other regional changes in the Northwest noted in the NCA—wildfires, insect outbreaks, changes in the timing of stream flow, etc.—are also largely a result of influences other than human-caused climate change.  And, it means that all the projections of future climate changes forwarded by the NCA are also nonrobust.

Somehow, we doubt a correction will be forthcoming.

After all, the NCA and the president are not particularly interested in what the science actually says about climate change and its causes and effects, but rather how it can be molded to support the climate change activism that will shape the legacy of the current administration. Inconvenient truths are too readily brushed aside.

Reference:

Johnstone, J. A., and N. J. Mantua, 2014. Atmospheric controls on northeast Pacific temperature variability and change, 1900-2012. Proceedings of the National Academy of Sciences, doi:10.1073/pnas.1318371111.

Michael F. Cannon

From Darwin’s Fool:

The U.S. District Court for the Eastern District of Oklahoma handed the Obama administration another – and a much harsher — defeat in one of four lawsuits challenging the IRS’s attempt to implement ObamaCare’s major taxing and spending provisions where the law does not authorize them. The Patient Protection and Affordable Care Act provides that its subsidies for private health insurance, its employer mandate, and to a large extent its individual mandate only take effect within a state if the state establishes a health insurance “Exchange.” Two-thirds (36) of the states declined to establish Exchanges, which should have freed more than 50 million Americans from those taxes. Instead, the Obama administration decided to implement those taxes and expenditures in those 36 states anyway. Today’s ruling was in Pruitt v. Burwell, a case brought by Oklahoma attorney general Scott Pruitt.

These cases saw two appellate-court rulings on the same day, July 22. In Halbig v. Burwella three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ordered the administration to stop. (The full D.C. Circuit has agreed to review the case en bancon December 17, a move that automatically vacates the panel ruling. In King v. Burwell, the Fourth Circuit implausibly gave the IRS the thumbs-up. (The plaintiffs have appealed that ruling to the Supreme Court.) A fourth case, Indiana v. IRS, brought by Indiana attorney general Greg Zoeller, goes to oral arguments in federal district court on October 9.

Today, federal judge Ronald A. White issued a ruling in Pruitt that sided with Halbig against King, and eviscerated the arguments made by the (more senior) judges who sided with the government in those cases…

Read the rest.

Walter Olson

We keep reporting in this space about how federal courts have slapped down the long-shot lawsuits and activist legal positions advanced by the Obama administration’s Equal Employment Opportunity Commission (EEOC). In the Freeman case last year, a Maryland federal judge used such unflattering terms as “laughable,” “unreliable,” and “mind-boggling” to refer to Commission positions, while in the more recent Kaplan case, in which Cato filed a brief, a Sixth Circuit panel was only slightly more polite about the systematic shortcomings in the commission’s case. Both of those cases arose from the commission’s controversial crusade against the use of criminal and credit background checks in hiring.

Since our report in April, the commission has extended its epic, cellar-dwelling record of federal court losses with at least three more defeats. 

* Yesterday a Second Circuit panel ruled on a case in which the EEOC had claimed that female and male lawyers at the Port Authority of New York and New Jersey had not received equal pay for substantially equal work. The problems with the commission’s case were many, including a seemingly “random” choice of comparison employees that tried to dodge the significance of substantial differences between them based on how long they had been practicing law and had been at the Port Authority. Above all, the EEOC chose to rest its case on the notion that “an attorney is an attorney is an attorney,” which meant it was entitled simply to assume that Port Authority lawyers “in practice areas ranging from Contracts to Maritime and Aviation, and from Labor Relations to Workers’ Compensation” were all doing the “same” work meriting the same pay. The panel of appeals judges barely concealed its impatience with this unrealistic assumption – judges are if nothing else experienced lawyers themselves – and upheld the dismissal

* The Obama EEOC had stirred wide alarm in the business community when it decided to take the position that many clauses used in garden-variety severance agreements, in which the departing employee agrees not to sue or disparage the employer, are in reality unlawful “retaliation” against protected activity. But in the first tryout of that position, the commission fell flat on its face, as InHouse Cafe relates

On September 18, 2014, Judge John Darrah of the U.S. District Court for the Northern District of Illinois dismissed the EEOC’s lawsuit against CVS challenging CVS’ standard separation agreement. The judge will issue a written opinion explaining his decision at a later date.

* In late June, a federal judge in North Carolina granted summary judgment against the agency in a disabled-rights case brought by a complainant who, the judge found, “cannot perform the essential functions of the job with or without a reasonable accommodation.” The case was notable in at least two ways. First, it had been brought against Womble Carlyle, one of the bigger law firms in the South, which seemed to betoken the commission’s hubris: not only will we bring weak cases, it seemed to be saying, but we’ll even bring ‘em against the sorts of law firms that have the means and will to fight such things. The second notable feature was that the court had earlier ordered the EEOC to pay $22,900 in sanctions to the law firm, over an episode in which the plaintiff admitted that after the commission had begun representing her, she had shredded and discarded job-search records relevant to Womble Carlyle’s case. Lawyers call that spoliation of evidence. 

Somewhere, I’m sure, someone is thinking the commission’s real problem must be with holdover Republican-appointed judges unwilling to cut civil rights complainants a break. So it’s worth noting that in the Port Authority case, two of the three judges on the appellate panel are Obama appointees, while the district judge who dismissed the case was an appointee of Bill Clinton. The district judges in Illinois and North Carolina who dismissed the commission’s claims are respectively Clinton and Obama appointees. The problems with overreaching, extreme, and just plain sloppy litigating at the EEOC go beyond differences between liberal and conservative judges. 

David Boaz

Hundreds of thousands of protesters are marching in Hong Kong under the banner of “Occupy Central for Love and Peace.” Have I got a book for them!

Cato Senior Fellow Tom G. Palmer has just edited Peace, Love, & Liberty, a collection of writings on peace. This is the fifth book edited by Palmer and published in collaboration with the Atlas Network, where he is executive vice president for international programs, and Students for Liberty, which plans to distribute some 300,000 copies on college campuses.

But don’t write this book off as a student handout. There’s really impressive material in here. Palmer wrote three long original essays: “Peace Is a Choice,” “The Political Economy of Empire and War,” and “The Philosophy of Peace or the Philosophy of Conflict.” These are important and substantial articles. 

But his aren’t the only impressive articles. The book also includes:

  • Steven Pinker on why we’ve seen a decline in war
  • Eric Gartzke on how free trade leads to peace
  • Rob McDonald on early Americans’ wariness of war
  • Justin Logan on the declining usefulness of war
  • Radley Balko on the militarization of police
  • Emmanuel Martin on how we all benefit if other countries prosper
  • Chris Rufer on a businessman’s view of peace
  • Sarah Skwire on war in literature
  • Cathy Reisenwitz on what individuals can do to advance peace

Plus classic pieces of literature including Mark Twain’s “War Prayer” and Wilfred Owen’s “Dulce et Decorum Est.”

And all this for only $9.95 at Amazon! Or even less from Amazon’s affiliates. If you want to buy them in bulk – and really, you should, especially for your peace-loving friends who aren’t yet libertarians – contact Students for Liberty.

Chris Edwards

This is a really bad policy idea: the U.S. Postal Service wants to get into the grocery delivery business. Economists will sometimes support government interventions in industries where there are serious market failures. But with grocery delivery, private businesses are already performing the service, and no market failure is evident.

The USPS grocery idea is a desperate attempt to save the agency’s hide, rather than to solve any problems in the marketplace. The Washington Post frames it correctly: “After nearly six years of multibillion-dollar losses, the U.S. Postal Service has developed a new plan to help turn its finances around: Daily grocery deliveries.”

The problem is that government expansion into an activity squeezes out private providers and deters entrepreneurs from getting in. As the government expands, the private sector shrinks. Such “crowding out” occurs in many areas. An op-ed in the Wall Street Journal [$] today on retirement savings in different countries notes, “OECD data show a strong negative relationship between the generosity of public pensions and the income that retirees collect from work and private saving.”

The decline in mail volumes is prompting the USPS to extend its tentacles. GovExec reports, “from banking to passport photos, nearly all postal reform stakeholders agree any legislation must unchain the Postal Service to leverage its unique, in-every-community network to create new sources of revenue.” By “stakeholders,” GovExec appears to mean groups—such as the labor unions—that benefit from the subsidized status quo.

The Wall Street Journal reports [$] that the grocery gambit “is the latest in a string of aggressive moves by the Postal Service to compete in the package-delivery market.” But why would we want the government “aggressively” undermining private businesses, especially in an industry like package delivery that is already efficient and competitive?

If the USPS expands into new areas such banking and groceries, we will end up with a mess of cross-subsidies between the agency’s different activities. Banks, for example, would complain that subsidized USPS banking was undercutting them, which would be inefficient and unfair. Such disputes would be chronic, and each dispute would descend into a battle over accounting between lobby groups in front of Congress.

For more efficiency and less lobbying, Congress should be encouraging the USPS to shrink, not expand. Does it make sense for a letter carrier to deliver groceries? The best way to find out is to privatize the letter carrier, repeal its legal monopoly, and then let it have a go. Postal privatization works. Britain, Germany, and the Netherlands have shown the way. 

Jason Bedrick

School choice programs expand educational opportunity, but at what cost?

Opponents of school choice frequently claim that vouchers and scholarship tax creditssiphon” money from public schools and increase the overall cost of education to the taxpayers. However, these critics generally fail to consider the reduction in expenses associated with students switching out of the district school system, wrongly assuming that all or most school costs are fixed. When students leave, they claim, a school cannot significantly reduce its costs because it cannot cut back on its major expenses, like buildings, utilities, and labor. But if that were true, then schools would require little to no additional funds to teach additional students. A proper fiscal analysis considers both the diverted or decreased revenue as well as the reduction in expenses related to variable costs.

A new study by Jeff Spalding, Director of Fiscal Policy at the Friedman Foundation for Educational Choice, does exactly that. The study examines the fiscal impact of 10 of the 21 school voucher programs nationwide, finding a cumulative savings to states of at least $1.7 billion over two decades. Spalding, the former comptroller/CFO for the city of Indianapolis, is cautious, methodical, and transparent in his analysis. He walks readers through the complex process of determining the fiscal impact of each program, identifying the impact of each variable and explaining equation along the way. He also makes relatively conservative assumptions, such as counting food service and interscholastic athletics as fixed costs even though they are variable with enrollment. Critically, Spalding accounts for those students who would have attended private school anyway, explaining:

One common complicating factor is student eligibility. If a voucher program allows students already enrolled in a private school to qualify, then those students do not directly relieve the public school system of any costs. Thus, there is a new public cost incurred for the vouchers provided to those students, but no corresponding savings for the public school system. Anytime voucher eligibility extends to students not currently enrolled in a public school, the net savings calculation must include that complicating factor.

States save money when the variable cost of each student to the district schools is greater than the cost of the voucher, accounting for the students who would have attended private school anyway. After wading through each state’s byzantine school funding formula, Spalding calculated that the voucher programs reduced expenditures across all 10 programs by $4.5 billion over two decades while costing states $2.8 billion, producing $1.7 billion in savings.

In the last 40 years, government spending on K-12 education has nearly tripled while results have been flat. Moreover, the Census Bureau projects that the elderly will make up an increasingly larger share of the population in the coming decades, straining state budgets with spending on health care and retirement benefits. Schools will have to compete with hospitals and nursing homes for scarce resources.

In other words, our education system needs to become more effective and financially efficient, fast. Large-scale school choice programs promise to do both.

Ilya Shapiro

Article One, Section One of the Constitution vests “all legislative powers” in Congress. The sovereign power to make laws comes from the people, so their representatives—Congress—should make those laws.

It sounds simple enough, but once the federal government started ballooning in size and regulating everything under the sun, that simple understanding had to go. There was too much governing for Congress to handle on its own, so the courts adjusted, allowing a proliferation of government agencies to exercise lawmaking power, within certain guidelines.&

We’ve now apparently gotten to the point, however, that there’s so much governing to do that it’s too much for the government to handle on its own. In a case now before the Supreme Court, Amtrak—the for-profit, quasi-public entity that the federal government has deemed private for these purposes—has been given a part to play in making laws to regulate its competitors in the rail transportation industry.

If you think this sounds like a far cry from “all legislative powers” being vested in Congress, you’re not alone. The Association of American Railroads, which represents the rail companies subject to these regulations, sued the Department of Transportation, arguing that the Passenger Rail Improvement and Investment Act of 2008 unconstitutionally vests federal legislative power in a private entity by giving Amtrak the ability to set rail standards (in conjunction with the DOT). AAR has battled through the federal courts, most recently winning in the U.S. Court of Appeals for the D.C. Circuit, and is now trying to preserve that victory before the Supreme Court.

Cato, joined by the National Federation of Independent Business, has filed a brief supporting AAR. We argue that this case is different from other cases where courts have found prudential reasons for not enforcing the nondelegation doctrine, the concept that Congress can’t delegate its own legislative powers. As we explain, the judicial administrability, political accountability, and necessity arguments in favor of liberal delegation of lawmaking powers are far less valid in the context of delegation to private entities. Further, apart from these prudential concerns, the Court has vigilantly enforced these important structural limitations on delegation and should continue to do so here.

It’s perhaps too late to expect the courts to meaningfully rein in the massive delegation of power to the administrative state—though we should limit that delegation to implementation of law rather than actual legislation—but, as our brief explains here, it could be much worse. Many agencies are already dominated by the private interests they’re supposed to regulate (a dynamic known as “regulatory capture”), but allowing a private entity to secure a legislative role in governing its competitors not only exacerbates the problems that the administrative state already poses, it makes a mockery of the Constitution and erodes one more important structural protection for liberty.

The Supreme Court will hear oral arguments in Dept. of Transportation v. Association of American Railroads on December 8, with a decision expected in the spring.

This blog post was co-authored by Cato legal associate Julio Colomba

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