Feed aggregator

Budget Smackdown: Krugman vs. Portman and Epstein

Cato Op-Eds - 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”

Cato Op-Eds - 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!

Cato Op-Eds - 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

Cato Op-Eds - 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"

Cato Op-Eds - 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

Cato Op-Eds - 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

Cato Op-Eds - 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]

Year

 Legalizations of Unauthorized Immigrants

1959

4,321

1960

4,773

1961

5,037

1962

3,399

1963

2,680

1964

2,585

1965

2,064

1966

2,595

1967

3,195

1968

2,148

1969

1,565

1970

1,520

1971

1,190

1972

1,653

1973

1,254

1974

875

1975

556

1976

796

1977

546

1978

423

1979

262

1980

428

1981

241

Total

44,106

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

Cato Op-Eds - 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

Cato Op-Eds - 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.

Cato Op-Eds - 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

Cato Op-Eds - 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

Cato Op-Eds - 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?

Cato Op-Eds - 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

Expanding Educational Opportunity in the Bay State

Cato Op-Eds - Thu, 07/24/2014 - 15:06

Jason Bedrick

One of the central promises of educational choice is expanding equality of opportunity.  When students are assigned to schools based on where they live, access to higher-performing schools depends on a family’s ability to afford a home in a more expensive community. This disparity between higher- and lower-income families persists even in academically high-performing states like Massachusetts.

Though the Bay State consistently ranks among the very top performers on the National Assessment of Educational Progress (NAEP) and is internationally competitive in math and science, these aggregate scores obscure the reality that performance varies considerably across districts, particularly along socio-economic lines.

In wealthier towns and cities like Dover and Weston, where the median household income is $184,646 and $180,815 respectively, students perform well. On the 2013 state assessment (the MCAS), 99 percent of Dover-Sherborn Regional High School students scored ‘proficient’ or ‘advanced’ in math, and 100 percent scored ‘proficient’ or ‘advanced’ in English. Likewise, 97 percent of Weston High School students scored ‘proficient’ or ‘advanced’ in math and 99 percent scored proficient or advanced in English. 

By contrast, students from lower-income communities like Chelsea and New Bedford, where the median household income is $43,155 and $37,493 respectively, often do not perform nearly as well. On the most recent MCAS, only 61 percent of Chelsea High School students scored ‘proficient’ or ‘advanced’ in math and 77 percent scored ‘proficient’ or ‘advanced’ in English. So too, only 49 percent of New Bedford High School students scored ‘proficient’ or ‘advanced’ in math, and 76 percent scored ‘proficient’ or ‘advanced’ in English. 

This pattern is repeated across the commonwealth – in the 10 poorest cities and towns in Massachusetts, only 40.6 percent of students scored ‘proficient’ or ‘advanced’ on the MCAS score compared to a statewide average of 65.1 percent. In 2013 the percentage of low-income students who scored ‘proficient’ or ‘advanced’ in English or math in all grades was approximately 33 points below the percentage for higher-income students.

One might assume that the differences in performance across income groups reflect disparate funding levels, yet there is scant evidence that increased school resources lead to increased student performance. Indeed, after adjusting for inflation, K-12 spending in the United States has tripled since 1970, but NAEP scores have remained essentially flat.

Wealthier families already have educational choice. They can afford to live in communities with higher-performing schools, like Dover and Weston, or they can send their children to private schools. Since they have the ability to exit, the district schools must be responsive to their children’s needs. By contrast, lower-income families often have only one viable option: the district school to which their children are assigned. They are a captive audience, so their schools become de facto monopolies. And while some low-income families are able to send their children to METCO or charter schools, there are more than 10,000 students on waiting lists for METCO schools and more than 40,000 students on waiting lists for charter schools, demonstrating both the demand for and lack of additional educational options.

Poverty certainly plays a significant role in the varied performance, but high quality studies consistently show that educational choice programs improve academic outcomes for low-income students, often to a greater degree than for higher-income students. While educational choice programs are not a panacea, they are a precondition to ensuring equality of opportunity.

A scholarship tax credit (STC) program tailored to Massachusetts’ needs could expand educational opportunity for thousands of students from low-income families while remaining revenue neutral or even saving the commonwealth money. In a new study, jointly published by Pioneer Institute and Cato Institute, “Giving Kids Credit:  Using Scholarship Tax Credits to Increase Educational Opportunity in Massachusetts,” Professor Ken Ardon and I propose a state tax credit worth 90 percent of the amount a corporate or individual taxpayer donates to a qualified scholarship organization.  The organization would then use the money to provide scholarships averaging between $4,000 and $4,500 for students whose family income is below 200 percent of the federal poverty line.  Families would use the money toward the cost of attending non-public or out-of-district public schools.

Some might question whether scholarships of that size might be useful to low-income families in a state where the average private school tuition is nearly $20,000. However, that figure is skewed by the presence of numerous expensive boarding schools. When reviewing the published private school tuitions in the five poorest of Massachusetts’ 10 largest cities – Springfield, Fall River, New Bedford, Brockton, and Lynn – we found an average tuition of $4,470 for kindergarten, $4,173 for grades 1-5, $4,510 for grades 6-8 and $9,125 for high school. Moreover, those figures do not include all the tuition assistance that private schools already provide to low-income families.

In addition to benefiting low-income students, an STC program produces savings for taxpayers when the amount of money that would have been spent on the scholarship students had they attended a district school exceeds the reduction tax revenue from the tax credits. We estimate that our proposed STC law would save the commonwealth of Massachusetts approximately $41 million in year one and the savings would grow to approximately $222 million by year five.

Few proposals promise to simultaneously expand educational opportunity for low-income students and save money while doing so. Yet this is no pipe dream. There are currently about 200,000 students attending the school of their choice using tax-credit scholarships in more than a dozen states, and the available evidence suggests that these programs are saving money. Though Florida’s STC law is the least likely candidate for savings because it offers a 100 percent tax credit and the most generous scholarships of any state, the Florida legislature’s nonpartisan Office of Program Policy Analysis and Government Accountability estimated that Florida saved $1.44 for every forgone dollar of state tax revenue.  

The Constitution of the Commonwealth of Massachusetts declares that the preservation of its citizens rights and liberties depend upon “spreading the opportunities and advantages of education” to all children, no matter their income. An education system that determines a child’s school based on the home her parents can afford fails to achieve the constitution’s vision. True equality of educational opportunity requires breaking the link between education and housing. The proposed scholarship tax credit would move the Commonwealth toward that vision by helping tens of thousands of low-income students attend the school of their choice. 

Categories: Policy Institutes

Was the Halbig Decision Political?

Cato Op-Eds - Thu, 07/24/2014 - 13:59

David Boaz

Writing in the Washington Post about the D.C. Circuit’s decision in Halbig v. Burwell, E. J. Dionne Jr. bemoans 

a conservative judiciary that will use any argument it can muster to win ideological victories that elude their side in the elected branches of our government.

There are several problems with his argument. First, of course, the argument accepted by two judges on the D.C. Circuit is pretty strong: the IRS can’t rewrite a law just because because the law isn’t working out so well.

Second, it’s not so clear that it’s conservatives who couldn’t “win ideological victories … in the elected branches of our government.” Democrats in Congress and other ACA supporters wanted states to establish exchanges, so they wrote the law with subsidies for state exchanges. (See also this original paper by Michael Cannon and Jonathan Adler, especially pp. 142ff.) But because of widespread opposition to the law, many states chose not to set up exchanges. That is, supporters of the law were unable to “win ideological victories … in the elected branches of our government,” so they turned to the unelected bureaucracy to rewrite the law, and now they want the courts to uphold their end run around the legislative process.

Third, I wonder if E. J. Dionne Jr. really wants a judiciary that rolls over for the political branches, whether legislative or executive. Does he believe that the Warren Court should not have struck down school segregation, which was clearly the will of the people’s elected representatives–and no doubt the people–in Kansas, as well as in South Carolina and Virginia, whose similar cases were combined with Brown? Does he believe that the Supreme Court was wrong to strike down Virginia’s law against interracial marriage in 1967? The Texas law outlawing sodomy in 2003? Does he regret the Supreme Court’s reining in of the Bush administration’s claimed powers in several terrorism cases? Or the court’s 2013 rulings on gay marriage?

Probably not. And that’s why we should judge judicial decisions on the basis of their adherence to the law and the Constitution, not on political grounds. Three cheers for judges who uphold the rule of law without fear or favor and without political intent.

Categories: Policy Institutes

Who Is Transit for?

Cato Op-Eds - Thu, 07/24/2014 - 08:55

Randal O'Toole

Rail advocates often call me “anti-transit,” probably because it is easier to call people names than to answer rational arguments. I’ve always responded that I’m just against wasteful transit. But looking at the finances and ridership of transit systems around the country, it’s hard not to conclude that all government transit is wasteful transit.

Nationally, after adjusting for inflation, the APTA transit fact book shows that annual taxpayer subsidies to transit operations have grown from $1.6 billion in 1970 to $24.0 billion in 2012, yet per capita ridership among America’s urban residents has declined from 49 to 44 trips per year. A lot of that money ends up going to unionized transit workers, but the scary thing is that these workers have some of the best pension and health care plans in the world that are mostly unfunded–which means that transit subsidies will have to increase in the future even if no one rides it at all.

Capital and maintenance subsidies are nearly as great as operating subsidies, largely due to the industry’s fascination with costly rail transit. In 2012, while taxpayers spent $24 billion subsidizing transit operations, they also spent nearly $10 billion on maintenance, and more than $7 billion on capital improvements. In 2012, 25 percent of operating subsidies went to rail transit, but 56 percent of maintenance and 90 percent of capital improvements were spent on rails.

Who, other than rail contractors, union members, and other transit agency employees, is enjoying the benefits of all of these subsidies? To answer this question, I went to the Census Bureau’s American Community Survey page and downloaded table B08519, which shows how people get to work by income class, for states and metropolitan areas.

Nationwide, the data reveal, 5.0 percent of workers take transit to work. For low-income workers–those making less than $25,000 a year–the share is only slightly higher, at 5.9 percent. The shares are lower for other income classes except for people earning $75,000 a year or more, 6.1 percent of whom take transit to work. Where just under 1.2 million people who earn less than $10,000 take transit, more than 1.3 million people who earn more than $75,000 take transit.

About half of those high-earning transit commuters live in the New York metropolitan area. But this isn’t too surprising, as 40 percent of all American transit commuters live in the New York metro area. The high-income workers who take the most advantage of transit subsidies, relative to their low-income counterparts, seem to be mainly in the suburbs of New York, Chicago, Seattle, Washington DC, and–curiously–Idaho Falls.

Even in most places where low-income transit riders outnumber those who earn more than $75,000 a year, transit usage is not heavily weighted to the poor. In the Portland metro area, about 8.5 percent of low-income workers take transit to work compared with 6.1 percent of all workers. In the San Francisco Bay Area, it is 18.5 percent vs. 16.1 percent. In Tampa-St. Petersburg, it is 2.6 percent vs. 1.2 percent.

I’ve recently looked at data for Pinellas County, Florida, whose transit agency wants to build a $1.5 billion light-rail line. The county has more than 400,000 workers, but only 6,000 take transit to work. Of about 14,000 commuters who live in households with no vehicle, 41 percent drive alone (presumably in borrowed or employer-supplied vehicles), 12.5 percent carpool, and just 15 percent take transit to work.

This is not particularly unusual. In nearly 75 percent of the nation’s 315 largest urban areas, more commuters who live in households that lack a vehicle nevertheless drive alone to work than take transit. Nationwide, 21 percent of commuters who lack an automobile drive alone to work, but in some urban areas it is much higher: 51 percent in Riverside-San Bernardino, 42 percent in Raleigh, 40 percent in Kansas City and San Jose, 39 percent in San Diego, 36 percent in Indianapolis, and 31 percent in Tampa-St. Petersburg to name a few.

Most people believe we originally decided to have government take over transit to help low-income people who were transit-dependent. In fact, Congress first passed the Urban Mass Transit Act of 1964 to rescue commuter trains in New York, Chicago, Philadelphia, Boston, and San Francisco, whose private operators wanted to terminate service. In other words, transit was really a subsidy to big-city downtown property owners, not low-income workers.

Even if you want to help low-income workers, there doesn’t seem to be many left who are truly dependent on transit anymore. Between high rates of auto ownership even among low-income people, the growing use of shared rides, and the soon-to-arrive self-driving car, there doesn’t seem to be much use for transit anymore.

I’ve noted before that urban planning professor David King worries that transit is “not living up to its social contract” of providing “the social benefits of mobility for non-drivers.” This view is affirmed by my friend Wendell Cox in New Geography, not to mention this graph comparing subsidies to different Bay Area transit systems and the race of the patrons of each of those systems.

One reason transit agencies no longer worry about low-income people who lack automobiles is that there aren’t very many of them left. Most non-vehicle households may be that way by choice, not by circumstance. After all, more than 20 percent of no-vehicle households are in New York, a state that has only 6 percent of the nation’s population.

Unfortunately, the census tables don’t show vehicle ownership by income, but even to the extent that some low-income households lack cars, it would cost a lot less to give each one a car than to continue subsidizing transit at the rate we do. Considering that less than 5 percent of the households in many states lack autos, I estimate that no more, and probably far less, than 5 million low-income households are without a motor vehicle. Less than two years’ worth of transit subsidies could buy Nissan Versas or similar cars for all of those people.

So transit isn’t for low-income people anymore. We also know that transit isn’t particularly green: except in New York and a few other big cities, transit uses a lot more energy and emits a lot more pollution, per passenger mile, than driving. Nor, outside of New York, does transit carry enough people to relieve much congestion, especially when you consider that the real congestion problem is poorly priced roads, a problem that isn’t solved by providing transit alternatives.

All of which leads me to conclude that there is no longer any sound reason for giving $41 million in subsidies to transit each year. Transit has become nothing more than a source of political favors to unions, downtown property owners, and rail contractors. As self-driving cars will soon begin to provide mobility for the disabled and those too young or old to drive, it is time for regional planning agencies to stop building obsolete rail transit lines and start thinking about phasing out public transit subsidies over the next two decades.

Categories: Policy Institutes

Corporate Tax Inversions Made Simple

Cato Op-Eds - Wed, 07/23/2014 - 17:36

Chris Edwards

Numerous responses to my article in the New York Times yesterday about corporate tax inversions indicated a lack of understanding. Related articles by Levin, Johnston, and Huang similarly suggested that further enlightenment is needed.

The following chart should simplify the issue for NYT readers, columnists, and policymakers.

All data from KPMG. Global average is for 134 countries.

Categories: Policy Institutes

South Carolina Police Are Ready To Crack Down on Uber

Cato Op-Eds - Wed, 07/23/2014 - 14:47

Matthew Feeney

Earlier this month UberX, Uber’s rideshare service, launched in four cities in South Carolina. Residents of Charleston, Greenville, Columbia, and Myrtle Beach are free to download Uber’s app and request a ride from a driver using his or her own vehicle. However, police across South Carolina are planning on taking action against UberX drivers, who they believe are violating regulations.

According to the South Carolina Office of Regulatory Staff, Uber is illegally operating in the Palmetto State without state or local business licenses.

The Nerve, a project of the South Carolina Policy Council, reported that police officers in Greenville and Columbia could issue UberX drivers warnings and citations at their discretion.

Myrtle Beach officials claim that Uber is not licensed to work in the city, and Myrtle Beach police have said that they plan to cite UberX drivers for operating without a business license, which Myrtle Beach officials claim each driver needs. Uber believes that it does not need a business license because it is connecting passengers and drivers via its app and not providing rides.

From WPDE NewsChannel 15:

So why doesn’t Uber just get a business license? Taylor Bennett, an Uber spokesperson said they don’t think they need one.

He said Uber is a technology company that connects drivers and riders through an app. Because they don’t actually provide the ride, they say they don’t need a business license.

As for the city’s crackdown, Uber argued the city is limiting competition and hurting residents in the long run.

“What Uber provides is economic opportunity for drivers to make a living, to make some extra cash, to start their own business and to take it away they’re taking jobs away from cities. It’s taking opportunity away from drivers,” Benett [sic] explained.

It’s a shame that police in Myrtle Beach are planning on dedicating time and resources to citing UberX drivers when the city has a violent crime rate that has been historically much higher than the U.S. average. Don’t the police in Myrtle Beach have anything better to do than pursuing drivers willing to give a ride to consenting customers?

In Charleston, police are reportedly planning on sting operations. Undercover police will be handing out warnings to UberX drivers before eventually “handing them citations with a maximum fine of $1,049,” according to The Post and Courier. Uber plans to pay all of the fines issued to UberX drivers.

Similar sting operations targeting ridesharing company Lyft took place earlier this year in Miami.

Uber spokesman Taylor Bennett, who also commented on the news from Myrtle Beach, said that law enforcement discouraging UberX drivers from operating is the same as discouraging entrepreneurship:

“Any effort by law enforcement to discourage drivers from partnering with Uber is the equivalent of discouraging people from pursuing entrepreneurship, making a living, and contributing to the economy,” Bennett said. “Instead of listening to taxi companies complain about competition, authorities should listen to the people of Charleston who have embraced more choice and greater access to opportunity.”

Rather than trying to enforce regulations that cannot keep up with the changes in technology that allow Uber to function South Carolinian officials and police should perhaps concern themselves with actual nefarious behaviors and not passengers using an app to find a driver. 

Categories: Policy Institutes

A Needlessly Confrontational Trade Policy Pitch

Cato Op-Eds - Wed, 07/23/2014 - 13:36

K. William Watson

Thanks to an ad campaign by a U.S. agriculture group, Washington, DC, commuters—especially those who work on Capitol Hill—have been learning about Japan and the Trans-Pacific Partnership.  The agribusiness lobby group called “Keep Food Affordable” has covered one DC metro station with ads complaining about Japan’s effort to maintain some of its tariffs in the TPP negotiations. 

It’s rare to see public advertising about trade policy.  This is true even in the unique DC market where commuters encounter pitches for other strange things like fighter jets, tax reform, and museums dedicated to remembering genocide. 

When trade policy does make it into advertising space, it’s almost always bad.  Election campaigns and advocacy groups use emotionally charged language to push protectionist policies: ‘China is poisoning us,’ ‘international organizations are stealing our country,’ ‘small town life is fading,’ ‘baby seals are dying,’ etc. 

A sad consequence of seeing trade as a battle between “us” and “them” is that trade policies are often sold to the public through a lens of jingoism and xenophobia.  For example, the U.S. airline pilots union is campaigning against Norwegian Airlines by pointing out that it—shamelessly—hires employees from multiple countries.  Numerous ads during the last election cycle accused opponents of doing things that benefited Chinese people, including one bizarrely racist commercial.

Unlike those ads, the campaign to end Japanese tariffs is pro-trade. Even if it is about foreign protectionism, it is still a call to reduce trade barriers and further the natural course of economic globalization.  

Unfortunately, they fall into the same “us vs. them” rhetorical trap as the anti-trade campaigners.  As with all agriculture related lobbying, the ads show wholesome, intergenerational, white Americans and allude to the values of family and hard work.  They contrast that with “JAPAN”:

It’s worth noting that securing Japanese tariff reductions through the TPP will mean increased business opportunities, while failing to do so merely maintains the status quo—nothing is harming U.S. farmers here.  Nevertheless, if you go to their website, you’ll be treated to this ominous image:

Perhaps this campaign will convince congressional staffers who ride the subway to work that Japanese tariff elimination is an important goal in the TPP negotiations, but it will do so at the expense of constructive rhetoric about trade policy. 

The truth is that while lowering tariffs in Japan will help U.S. agribusiness, it will do a whole lot more to help the Japanese people. Japanese agriculture has much more political power than it has economic significance.  Japan has a thoroughly modern economy and the average Japanese farmer is about 70 years old. High tariffs on rice, wheat, sugar, meat, and dairy imports keep food prices high.  Because everyone eats, lowering these tariffs will decrease the cost of living for everyone in Japan, directly increasing their quality of life.

Free trade advocates don’t need to scare people with red-lettered warnings about Japanese farmers cheating the system and ruining American rural family life.  On the contrary, there is real potential for civil society groups to work together across borders to advocate for the common interests of U.S. farmers and Japanese consumers.  That’s the positive message about trade that Congress desperately needs to hear.

Thanks to Cato Institute trade policy intern Ethan Rutledge for the photos.

Categories: Policy Institutes

Inventions to Eagerly Await

Cato Op-Eds - Wed, 07/23/2014 - 10:24

Stephanie Rugolo

Humans are progress seekers. Those with an entrepreneurial drive use their intellect to invent novel solutions to our problems. Sometimes, their solutions alleviate widespread suffering and let us live better than kings of centuries past. Thomson Reuters released just such a list of welfare-enhancing inventions to expect by 2025:

Dementia, Alzheimer’s, cancer drug-induced deaths, and Type I diabetes should afflict far fewer individuals by 2025. See below that cancer–one of the most common causes of death in several countries–is already on the decline (with a graph made on HumanProgress.org):

Solar energy should be in widespread use by 2025. Consider this prediction in combination with dropping carbon dioxide emissions per dollar of GDP and flattening overall emissions in developed countries:

GMOs and lighting advances (for year-round crop growth) should make food shortages and food price fluctuations rare by 2025. We already know that food prices in the United States are dropping as food becomes more abundant:

Digital technology should be ubiquitous–even in Africa–and lightweight electric cars and planes should become more common by 2025. We already know that internet users and air passengers are quickly increasing:

Quantum teleportation (i.e., “Beam me up, Scotty!”) will be tested by 2025. (Unfortunately, HumanProgress.org doesn’t include data on teleportation—yet.)

Categories: Policy Institutes

Pages