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NYT Reports on Indigent Defense Vouchers in Texas

Cato Op-Eds - Mon, 01/06/2014 - 19:21

Tim Lynch

Yesterday, the New York Times reported on a pilot program involving indigent defense vouchers that will soon begin in Comal County, Texas.

Some background: Fifty years ago, the Supreme Court held that anyone accused of a crime who could not afford an attorney would have one appointed to him by the court. The Court did not say how these attorneys would be financed, but jurisdictions around the country have drifted toward the public defender model. To the extent that indigent defense is debated among policymakers, it has pretty much centered on how much money should be spent on the public defender offices.

That’s about to change. In Comal County, policymakers are going to try using a system of vouchers. Like the school voucher concept, the idea is to put money directly into the hands of the customers, who will then decide which attorney they would like to retain. If a certain law firm earns an excellent reputation for handling criminal cases, more customers will turn to them for help, and they will hire and train more lawyers. The attorneys who do a lousy job will get less and less business. The market process in action.

According to the NYT article, the Texas Indigent Defense Commission became aware of the voucher proposal when the Cato Institute advanced the idea in a 2010 paper:

The intellectual parents of the movement toward letting poor people choose a lawyer are the law professors Stephen J. Schulhofer of New York University and David D. Friedman of Santa Clara University, who first published their idea in American Criminal Law Review in 1993. A revised and compressed 2010 version, in Policy Analysis, a Cato Institute publication, caught Mr. Bethke’s attention.

Here is how the Cato paper summarizes the benefits to be realized from a voucher system:

We maintain that defense vouchers will improve the quality of legal representation for the poor. Better legal representation will, in turn, produce at least three benefits to the community:

  • Improving defense services will reduce the liklihood of mistakes. That is, it will be less likely that innocent persons will be wrongfully convicted of crimes.
  • Improving defense services will also minimize adverse consequences to the innocent persons who would have been acquitted under current systems of indigent defense. That is, a better defense means it is more likely that those innocents will be released from custody even sooner (pre-trial) and with less disruption to their lives and the lives of their family members.
  • Improving defense services will bring more complete information to the sentencing phase of the criminal justice system—making it more likely that just punishment will be imposed on those who are guilty of committing criminal offenses.

This is a good example of how think tank work can have an impact on policy. And one of the benefits of our decentralized criminal justice system is that jurisdictions can try different policies and we can then see what works well. 

Stay tuned on the defense voucher experiment.

Categories: Policy Institutes

'Worse Than We Thought' Rears Ugly Head Again

Cato Op-Eds - Mon, 01/06/2014 - 15:56

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

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

Our last post was a brief run-through of some items of interest from the recent scientific literature that buck the popular alarmist meme that human-caused climate change is always “worse than we thought.” But as we said in that post, finding coverage of such results in the dinosaur media is a fool’s errand. Instead, it thrives on “worse than we thought” stories, despite their becoming a detriment to science itself.

Not to disappoint, headlines from the first major climate change story of the new year claim “Climate change models underestimate likely temperature rise, report shows,” and it’s clearly Worse Than We Thought. In its January 5 (Sunday) paper, the editorial board of the Washington Post points to the new results as a call for action on climate change.

The trumpeted results appear in a paper published in the January 2nd 2014 issue of Nature magazine by a team led by University of New South Wales professor Steven Sherwood and colleagues which claims that the earth’s equilibrium climate sensitivity—how much the global average surface temperature will rise as a result of a doubling of the atmospheric carbon dioxide content—is being underestimated by most climate models. Sherwood’s team finds “a most likely climate sensitivity of about 4°C, with a lower limit of about 3°C.”

Sherwood’s most likely value of 4°C is about twice the value arrived at by a rather largish collection of other research published during the past 2-3 years and lies very close to the top of the likely range (1.5°C to 4.5°C) given in the new report from the U.N.’s Intergovernmental Panel on Climate Change (IPCC).

While there are a host of reasons as to why our understanding of the true value of the climate sensitivity is little better constrained now that it was some 20+ years ago (it was given as 1.5°C to 4.5°C in the IPCC’s first report issued, almost a quarter-century ago), it is widely recognized that our understanding of the role of clouds in a changing climate is central to the issue.

In describing the why climate models have such different climate sensitivity values, the IPCC writes, in the 2013 edition of it’s science compendium,

There is very high confidence that uncertainties in cloud processes explain much of the spread in modelled climate sensitivity.

Sherwood and colleague set out to see if they could help nail down the specific cloud processes involved in the model spread and to see if recent observations could help better understand which models were handling  processes related to cloud behavior better than others.

The rate of vertical mixing in the lower atmosphere has a direct role in the formation of clouds. In a broad sense, according to the authors, the more vertical mixing that takes place in the lower atmosphere, the more drying that occurs in the lowest levels of the atmosphere, and therefore cloud amounts must decrease. 

Sherwood and colleagues then compared the amount of mixing simulated by a collection of climate models with some observations of the mixing rate derived from weather balloon observations and other observation/model hybrids (called “reanalysis” products). They found that the climate models which most closely match the observations turned out to be the climate models with the highest climate sensitivity. Climate models with low sensitivities largely failed to contain the observations at all.

Based on this general finding—that climate models with a greater sensitivity to carbon dioxide increases produce a better match to observations of low level mixing rates—Sherwood and colleagues conclude that future global warming is going to progress much faster than is generally accepted.

This is the EEBE (“everything else being equal”) trap in big print.

While Sherwood et al., and press coverage of their paper, emphasize model comparisons with the “real world” they fail to show the “real world” comparison that makes the most sense—how do the climate model projections of global temperature changes compare with observations of real world temperature changes?

If they aren’t strongly related to vertical motion changes, then everything else is most decidedly not equal.

Our Figure 1 below shows the observed global surface temperature history from 1951-2013 compared with the temperature evolution projected by the collection of models used in the latest IPCC report. We broke the climate models down into two groups—those  which have a climate sensitivity greater than 3.0°C (as suggested by Sherwood et al.) and those with a climate sensitivity less than 3.0°C.  Figure 1 shows that while neither model subset does a very good job is capturing evolution of global temperature during the past 15-20 years (the period with the highest human carbon dioxide emissions), the high sensitivity models do substantially worse than the lower sensitivity models.

How in God’s getting-greener earth did the reviewer boffins at Nature miss this? (Hint:  it messes up the meme.)

Figure 1. Observed global average temperature evolution, 1951-2013, as compiled by the U.K’s Hadley Center (black line), and the average temperature change projected by a collection of climate models used in the IPCC Fifth Assessment Report which have a climate sensitivity greater than 3.0°C (red line) and a collection of models with climate sensitivities less than 3.0°C (blue line) (climate model data source: Climate Explorer).

Sherwood et al. prefer models that better match their observations in one variable, but the same models actually do worse in the big picture than do models which lack the apparent accuracy in the processes that Sherwood et al. describe.

It’s Worse Than We Thought all right—but for the climate models, not the real world.  The result can only mean that there must still be even bigger problems with other model processes which must more than counteract the effects of the processes described by Sherwood et al. After all, the overall model collective is still warming the world much faster than it actually is.

Predictably, such a conclusion is absent from popular coverage of these results and from call-to-action editorials based upon them.

 

Reference:

Sherwood, S. C., S. Bony, and J-D. Dufresne, 2014. Spread in model climate sensitivity traced to atmospheric convective mixing. Nature, 505,37-42, doi:10.1038/nature12829.

Categories: Policy Institutes

Even the Establishment Media Is Now Admitting the French Economic Model Is Fatally Flawed

Cato Op-Eds - Mon, 01/06/2014 - 12:37

Daniel J. Mitchell

Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Geesh, looking at that list, I guess I’m guilty of - in the words of Paul Krugman - being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

Many of the nation’s most capable people are escaping - ranging from movie stars to top entrepreneurs.

What I find most amusing is that France’s parasitical political elite is whining and complaining that these people won’t remain immobile so they can be plundered.

And when the people who have the greatest ability leave, that has an impact on economic performance - and ordinary people are the ones who suffer the most.

…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it’s more like 5 million.

The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.

Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me “organize my nursery.” …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.

Government-subsidized “toned” stomachs. Hey, maybe big government isn’t all bad. Sort of reminds me of the taxpayer-financed breast augmentation in the United Kingdom (British taxpayers also have paid for sex trips to Amsterdam).

More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.

I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. “Why not? I deserve it,” she said when I questioned her. “I paid my benefits into the system.”

So what’s the bottom line? Well, the author sums up the issue quite nicely.

…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …“The best thinkers in France have left the country. What is now left is mediocrity.” From a chief legal counsel at a major French company: “France is dying a slow death. Socialism is killing it…”

As the old saying goes, this won’t end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will “merely” suffer long-run stagnation and decline.

Which is a shame because France is a beautiful country and is ranked as one of the best places to live, at least if you happen to already have a considerable amount of hard-to-tax wealth.

But bad government can screw up a country, even if it does have lots of natural advantages.

And that’s exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.

The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America’s Vice President and asserted that it’s patriotic to pay higher taxes.

That’s why I’ll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country’s statist initiatives.

P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?

Categories: Policy Institutes

Criminalizing "Emotional Blackmail"

Cato Op-Eds - Mon, 01/06/2014 - 09:50

Walter Olson

From Britain: “Domestic abuse involving ‘emotional blackmail’ – but no violence – could become a criminal offense carrying a heavy jail term under tough new measures published for the first time.” While the cross-party group of Members of Parliament who are introducing the bill do not speak for the Cameron administration, notes David Barrett in the Telegraph, they have a track record of some success at getting their ideas on domestic abuse enacted into legislation:

“Critically, its [the draft’s] definition of abuse includes “controlling or coercive behavior” which would “encompass but is not limited to physical, financial, sexual, psychological or emotional abuse”.

“Controlling behavior” would also lead to criminal charges, including when a partner makes another person “subordinate”, “exploits their resources” or “deprives them of the means needed for independence”.

The offense would apply to abuse committed against any spouse, partner or former partner, regardless of gender.

Offenses will carry a sentence of up to 14 years in prison. As Pamela Stubbart notes at the Daily Caller, when based on purely psychological and emotional interactions and states of dependence, concepts like “control” and “coercion” are at best a highly subjective affair, inviting unpredictable legal application as well as he-said-she-said legal battles in the wake of breakups or other relationship failures. The measure would also threaten criminal liability for some speech (e.g., emotionally hurtful insults not involving threats of violence) that would often be included in definitions of free speech. Meanwhile, a ban on exploiting partners’ resources or denying partners financial independence threatens to throw a shadow of criminal liability over many marital and romantic arrangements long deemed unproblematic, whether or not egalitarian. What’s most obviously “controlling or coercive” here is the proposed law itself.

Related: periodic proposals in state legislatures and elsewhere to ban “workplace bullying” (more) raise some of the same issues, as do enactments (like “Grace’s Law” in Maryland) endeavoring to ban “cyber-bullying.” [cross-posted and slightly adapted from Overlawyered]

Categories: Policy Institutes

Bernanke’s Fallacious Fiscal Facts

Cato Op-Eds - Mon, 01/06/2014 - 08:38

Chris Edwards

In a speech on Friday, outgoing Fed Chairman Ben Bernanke defended his record of extraordinary policy interventions. One of his framing techniques is to claim that extreme monetary efforts were needed in the last few years—from his Keynesian perspective—to offset “contractionary” fiscal policy.

Here’s what Bernanke said about federal fiscal policy:

To this list of reasons for the slow recovery … I would add one more significant factor—namely, fiscal policy. Federal fiscal policy was expansionary in 2009 and 2010. Since that time, however, federal fiscal policy has turned quite restrictive.

Here I show that federal deficits in 2011, 2012, and 2013 were an enormous $1.3 trillion, $1.1 trillion, and $680 billion, respectively. In Keynesian terms, those deficits are the farthest thing from “quite restrictive” fiscal policy. To Keynesians, those deficits should have made the economy boom, yet the United States has had the slowest recovery since World War II.

Here’s what Bernanke said about state fiscal policy:

In addition, throughout much of the recovery, state and local government budgets have been highly contractionary, reflecting their adjustment to sharply declining tax revenues. To illustrate the extent of fiscal tightness, at the current point in the recovery from the 2001 recession, employment at all levels of government had increased by nearly 600,000 workers; in contrast, in the current recovery, government employment has declined by more than 700,000 jobs, a net difference of more than 1.3 million jobs. There have been corresponding cuts in government investment, in infrastructure for example, as well as increases in taxes and reductions in transfers.

Bernanke is trying to pull the wool over your eyes here. He calls state/local budgets “highly contractionary,” but notice how he does not give the actual budget numbers, and instead jumps to employment and infrastructure.

The following chart shows total state/local government spending from BEA Table 3.3. Spending in recent years has been “flat,” not “highly contractionary.” (For 2013, I used the average of the first three quarters). By the way, this BEA table also shows that state/local deficits have been up in recent years compared to before the recession, which is also not “contractionary.”

On employment, Bernanke resorts to the convoluted statistic of 1.3 million and provides no context. Total employment at all levels of government is available here from the BLS. In November, there were 21.9 million government workers in the United States. As Bernanke notes, that is down about 700,000 since the end of 2009. But that’s only a cut of three percent, which surely is not “highly contractionary.”

Besides, the government worker reduction is “contractionary” to Keynesians in the sense that wage payments are ended for 700,000 workers. But those aggregate wage payments are tiny in the $17 trillion U.S. economy. If those workers had earned, on average, say $60,000 a year, that amounts to only $42 billion less in government spending. And those wages are part of overall state/local spending, which the chart showed has been flat, not declining.

The bottom line is that efforts by Keynesian economists to blame the slow U.S. recovery on government fiscal contraction is not supported by the facts, even if such a theory made any sense.

Categories: Policy Institutes

Is Warmer Better? Florida Soon to Surpass New York as Nation’s Third Most Populous State

Cato Op-Eds - Fri, 01/03/2014 - 11:57

Paul C. "Chip" Knappenberger

Hmmm. A pounding blizzard hits the Northeast, followed by an Arctic cold blast. All the while, Florida is set to oust New York and join California and Texas as the top 3 most populous states in the U.S.

Here is the story according to the Associated Press:

Florida to Surpass New York in Population

So while some folks yammer on about the perils of a warming climate (and try to force regulations upon us aimed at “doing something” about it), a great many others are actively seeking out warmer places to live. Perhaps not entirely for the climate, but that factor is almost assuredly not out of mind.

Maybe the public doesn’t think that its “health” is as “endangered” by a warmer climate as the U.S. Environmental Protection Agency contends.

Categories: Policy Institutes

Emergency UI Benefits: Reasons Against

Cato Op-Eds - Fri, 01/03/2014 - 11:29

Chris Edwards

The Senate is considering legislation to revive the emergency unemployment insurance program. These federally funded benefits were in place from mid-2008 to the end of 2013.

Federal policymakers like to spend money helping people in need, but there are large and less visible costs to such welfare legislation. Here are some reasons why new UI spending is not a good idea:

  • The U.S. economy has been out of recession and growing for more than four years. The unemployment rate is down to 7 percent and jobs are being created. The time for “emergency” UI benefits has passed and it’s time for us to go back to the regular benefit structure of 26 weeks. We all want the economy to grow faster and create more jobs, but the way to do that is to enact free market policies, not more welfare spending.
  • There is no free lunch. Extending UI benefits for another year would cost approximately $25 billion, which is money the federal government does not have. It would have to borrow every cent of the added spending, and thus impose those costs (plus interest) on working Americans in the future. Proponents of more UI spending point to sad stories of individuals out of work, but there will be far more pain inflicted on millions of Americans in coming years unless we get federal spending and debt under control.
  • Large UI benefits are counterproductive because they push up unemployment, as discussed here. Long-term unemployment has been particularly high in recent years. Meanwhile, employers may have a bias against hiring people who have been unemployed a long time. The upshot is that if generous UI benefits discourage people from taking less-than-optimal job offers early on, it ends up hurting them later when it is harder to find any job. Government “help” often backfires.
  • States can fund their own benefits. Nevada Sen. Dean Heller wants to “shrink the size” of the federal government, yet he is co-sponsoring legislation to revive emergency federal UI benefits because his state has high unemployment. But there is nothing stopping Nevada from funding its own extra UI benefits, and thus no need for Heller to try to impose the cost of his state’s problems on the other 49 states.
  • From a political perspective, it would be a big mistake for Republican leaders to go along with the push to spend more on UI. GOP leaders already caved in with more spending on the recent Ryan-Murray budget deal. If they cave in on UI, cave in on the costly farm bill, and cave in on upcoming debt-limit legislation, there would be no reason for fiscal conservatives to show up and vote Republican in November.    

Our current UI system is economically damaging, hugely complex, and fraud-ridden. Rather than adding to the system’s problems with higher benefits, policymakers should consider moving to a pro-growth savings-based UI system, as Chile has done.

Categories: Policy Institutes

Dean’s Dilemma: Capitalism or Welfare for Senator Heller?

Cato Op-Eds - Fri, 01/03/2014 - 08:15

Chris Edwards

Republican Senator Dean Heller of Nevada has co-sponsored a bill to revive the emergency unemployment insurance program. Senator Harry Reid is pleased as punch that Heller is breaking with the “tea party folks” on the issue.

What’s Heller justification for taking the big government side and jacking up welfare spending? He says: “Providing a safety net for those in need is one of the most important functions of the federal government. As Nevada’s unemployment rate continues to top the charts nationwide, many families and individuals back home do not know how they are going to meet their basic needs.”

Perhaps Heller should spend more time with the “tea party folks.” They would direct him to this document to see whether hand-outs are indeed “one of the most important functions of the federal government.” And they would explain to him the concept of federalism: If Nevadans want larger UI benefits, their own legislature could provide them without having to loot the national treasury.

Yet Heller styles himself as a staunch fiscal conservative—a tea partier—so he should know this. From Heller’s biography on his Senate website:

Since coming to Congress, Heller has fought for smaller government, the elimination of wasteful spending, and a balanced budget. He has been at the forefront of the fight for fiscal responsibility in Washington, voted against hundreds of billions in tax increases, and fought the expansion of government and out-of-control spending. Heller is also the only member of the Nevada delegation to vote against the Wall Street bailout. In addition, Heller has fought for fiscal policies that promote economic recovery and believes controlling government spending will create an environment where businesses can flourish and foster long-term economic growth.

Not only that, but Heller thinks that “big government is not the answer to fixing our economy. Congress needs to control wasteful spending and shrink the size of government … Capitalism is the foundation of America’s prosperity. We should embrace these principles, not run from them.”

Furthermore, Heller argues that “this government has been on a massive spending spree for too long, and it is time for this reckless behavior to end. As an opponent of the stimulus and the only member of the Nevada delegation to vote against the bailout, I believe it is critical to rein in spending, address the yearly deficits, and get government debt under control.”

These are all laudable goals. I couldn’t have said it better myself. But it is just empty rhetoric if one also goes around supporting borrow-and-spend welfare legislation.

Categories: Policy Institutes

Boost Worker Pay - and Make the United States More Competitive - by Gutting the Corporate Income Tax

Cato Op-Eds - Thu, 01/02/2014 - 12:15

Daniel J. Mitchell

The business pages are reporting that Chrysler will be fully owned by Fiat after that Italian company buys up remaining shares.

I don’t know what this means about the long-term viability of Chrysler, but we can say with great confidence that the company will be better off now that the parent company is headquartered outside the United States.

This is because Chrysler presumably no longer will be obliged to pay an extra layer of tax to the IRS on any foreign-source income.

Italy, unlike the United States, has a territorial tax system. This means companies are taxed only on income earned in Italy but there’s no effort to impose tax on income earned - and already subject to tax - in other nations.

Under America’s worldwide tax regime, by contrast, U.S.-domiciled companies must pay all applicable foreign taxes when earning money outside the United States - and then also put that income on their tax returns to the IRS!

And since the United States imposes the highest corporate income tax in the developed world and also ranks a dismal 94 out of 100 on a broader measure of corporate tax competitiveness, this obviously is not good for jobs and growth.

No wonder many American companies are re-domiciling in other countries!

Maybe the time has come to scrap the entire corporate income tax. That’s certainly a logical policy to follow based on a new study entitled, “Simulating the Elimination of the U.S. Corporate Income Tax.”

Written by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, Laurence J. Kotlikoff, the paper looks at whether it makes sense to have a burdensome tax that doesn’t even generate much revenue.

The U.S. Corporate Income Tax…produces remarkably little revenue - only 1.8 percent of GDP in 2013, but entails major compliance and collection costs. The IRS regulations detailing corporate tax provisions are tome length and occupy small armies of accountants and lawyers. …many economists…have suggested that the tax may actually fall on workers, not capitalists.

Regarding who pays the tax, shareholders bear the direct burden of the corporate tax, of course, but economists believe workers are the main victims 

because the levy reduces investment, which then means lower productivity and lower wages.

Statists would like us to believe that capitalists and workers are enemies, but that’s utter nonsense. Both prosper by cooperating. There’s a very strong correlation between a nation’s capital stock (the amount of investment) and the compensation of its workers.

So it’s no surprise to see that’s precisely what the authors found in their new research.

This paper posits, calibrates, and simulates a multi-region, life-cycle dynamic general equilibrium model to study the impact of U.S. and global corporate tax reforms. …when wage taxation is used as the substitute revenue source, eliminating the U.S. corporate income tax, holding other countries’ corporate tax rates fixed, engenders a rapid and sustained 23 to 37 percent higher capital stock… Higher capital per worker means higher labor productivity and, thus, higher real wages.

The impact is significant, both for worker compensation and overall economic output.

…real wages of unskilled workers wind up 12 percent higher and those of skilled workers 13 percent higher. …on balance, output rises - by 8 percent in the short term, 10 percent in the intermediate term, and 8 percent in the long term… The economy’s endogenous expansion expands existing tax bases, with the increased revenue making up for roughly one third the loss in revenue from the corporate income tax’s elimination.

By the way, the authors bizarrely then write that “we find no Laffer Curve,” but that’s presumably because they make the common mistake of assuming the Laffer Curve only exists if a tax cut fully pays for itself.

But that’s only true for the downward-sloping side of the Laffer Curve.

In other cases (such as found in this study), there is still substantial revenue feedback.

And I guess we shouldn’t be surprised that full repeal of the corporate income tax doesn’t raise revenue. The Tax Foundation, after all, estimates that the revenue-maximizing rate is about 14 percent.*

Now that I’m done nit-picking about the Laffer Curve, let’s now look at one additional set of results from this new study.

…each generation, including those initially alive, benefits from the reform, with those born after 2000 experiencing an 8 to 9 percent increase in welfare.

I should point out, incidentally, that economists mean changes in living standards when they write about changes in “welfare.” It’s a way of measuring the “well being” of society, sort of like what the Founders meant when they wrote about “the general welfare” in the Constitution.

But, once again, I’m digressing.

Let’s focus on the main lesson from the paper, which is that the corporate income tax imposes very high economic costs. Heck, even the Paris-based Organization for Economic Cooperation and Development (which is infamous for wanting higher tax burdens on companies) admitted that the levy undermines prosperity.

The study even finds that workers would be better off if the corporate income tax was replaced by higher wage taxes!

To learn more about the topic, here’s a video I narrated many years ago about cutting the corporate income tax. There was less gray in my hair back then, but my analysis still holds today.

Cutting the U.S.’s Corporate Tax Rate

* For the umpteenth time, I want to emphasize that the goal should not be to maximize revenue for politicians. Instead, we should strive to be on the growth-maximizing point of the Laffer Curve.

Categories: Policy Institutes

Great Moments in Border Control

Cato Op-Eds - Thu, 01/02/2014 - 10:35

Walter Olson

From the Boston Globe, “Virtuoso’s flutes destroyed by U.S. Customs”:

…Flute virtuoso [Boujemaa Razgui], who performs regularly with The Boston Camerata[,] lost 13 handmade flutes over the holidays when a US Customs official at New York’s JFK Airport mistook the instruments for pieces of bamboo and destroyed them. 

“They said this is an agriculture item,” said Razgui, who was not present when his bag was opened. “I fly with them in and out all the time and this is the first time there has been a problem. This is my life.” When his baggage arrived in Boston, the instruments were gone. He was instead given a number to call. “They told me they were destroyed,” he says.

One reader recalled the travel woes of distinguished Polish pianist Kristian Zimerman, as recounted by the L.A. Times

Zimerman has had problems in the United States in recent years. He travels with his own Steinway piano, which he has altered himself. But shortly after 9/11, the instrument was confiscated at JFK Airport when he landed in New York to give a recital at Carnegie Hall. Thinking the glue smelled funny, the TSA decided to take no chances and destroyed the instrument.   

Yes, by all means, let’s put federal agencies in charge of as many aspects of our lives as possible.

Categories: Policy Institutes

California Thinks Your Time Is Worthless

Cato Op-Eds - Thu, 01/02/2014 - 08:49

Randal O'Toole

California’s S.B. 375 mandates that cities increase the population densities of targeted neighborhoods because everyone knows that people drive less and higher densities and transit-oriented developments relieve congestion. One problem, however, is that transportation models reveal that increased densities actually increase congestion, as measured by “level of service,” which measures traffic as a percent of a roadway’s capacity and which in turn can be used to estimate the hours of delay people suffer.

The California legislature has come up with a solution: S.B. 743, which exempts cities from having to calculate and disclose levels of service in their environmental impact reports for densification projects. Instead, the law requires planners to come up with alternative measures of the impacts of densification.

On Monday, December 30, the Governor’s Office of Planning and Research released a “preliminary evaluation of alternative methods of transportation analysis. The document notes that one problem with trying to measure levels of service is that it is “difficult and expensive to calculate.” Well, boo hoo. Life is complicated, and if you want to centrally plan society, you can either deal with difficult and expensive measurement problems, or you will botch things up even worse than if you do deal with those problems.

The paper also argues that measuring congestion leads people to want projects that might actually relieve congestion, such as increasing roadway capacities. This would be bad, says the paper, because increased capacities might simply “induce” more travel. The fact that such increased travel might actually produce some economic benefits for the state is ignored. Instead, suppressing travel (and therefore suppressing economic productivity) should be the goal.

The document suggests five alternative measures of the impacts of densfication on transportation:

  1. Vehicle miles traveled;
  2. Auto trips generated;
  3. Multi-model level of service;
  4. Auto fuel use; and
  5. Motor vehicle hours traveled.

There are many problems with these alternatives. First, they really aren’t any simpler to reliably calculate than levels of service. Second, they ignore the impact on people’s time and lives: if densification reduces per capita vehicle miles traveled by 1 percent, planners will regard it as a victory even if the other 99 percent of travel is slowed by millions of hours per year. Third, despite the “multi-modal” measure, these measures ignore the environmental impacts of transit. For example, they propose to estimate automotive fuel consumption, but ignore transit energy consumption.

Worst of all, the final “measure” proposed by state planners is to simply presume, without making any estimates, that there is no significant transportation impact from densification. After all, if you add one vehicle to a congested highway and traffic bogs down, can you blame that one vehicle, or is everyone else equally to blame? If the latter, then it seems ridiculous, at least to the planners, to blame densification for increased congestion when the existing residents contribute to the congestion as well. By the same token, if an airplane is full, and one more person wants to take that flight, then the airline should punish everyone who is already on board by simply delaying the plane until someone voluntarily gets off.

The real problem is that planners and planning enthusiasts in the legislature don’t like the results of their own plans, so they simply want to ignore them. What good is an environmental impact report process if the legislature mandates that any impacts it doesn’t like should simply not be evaluated in that process?

All of this is a predictable outcome of attempts to improve peoples’ lives through planning. Planners can’t deal with complexity, so they oversimplify. Planners can’t deal with letting people make their own decisions, so they try to constrict those decisions. Planners can’t imagine that anyone wants to live any way but the way planners think they should live, so they ignore the 80 to 90 percent who drive and want to live in single-family homes as they impose their lifestyle ideologies on as many people as possible. The result is the planning disaster known as California.

Categories: Policy Institutes

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