K. William Watson
As U.S. policymakers develop their response to the Russian incursion into Ukraine, it seems quite likely that some form of sanctions will be employed. But sanctions are always harmful to innocents and never particularly effective. It’s worth considering, then, whether there are policy options that would have a positive impact on the geopolitical situation in Ukraine while directly improving human lives and increasing liberty. We could call them “anti-sanctions.”
One possibility would be to liberalize U.S. exports of natural gas. John Boehner and others in Congress have argued that doing so would reduce Russia’s influence in the region by providing countries like Ukraine a non-Russian source of energy. Even if the geopolitical benefits are slow to materialize, allowing more oil and gas exports would have tremendous economic benefits for the United States.
A much simpler anti-sanction response would be to drop U.S. tariffs on imports from Ukraine. Normally, many products from Ukraine would be allowed to enter the United States duty free under the Generalized System of Preferences. But that program, meant to aid development in poor countries, expired last summer. Renewing GSP would reduce Ukraine’s economic dependence on Russia while directly helping Ukrainians and the Americans they do (or would do) business with.
Perhaps I am hopelessly naïve, but exploring avenues for peaceful interaction seems to me like a much friendlier and more constructive way to approach international problems. I suspect there are a great number of pro-liberty “anti-sanctions” that the U.S. government could employ as a response to the crisis in Ukraine that might actually make a positive difference in the lives of Ukrainian people.
Working on education every day, you get used to your subject rarely making major national news, probably because the troubles are constant and sudden crises rare. But change the SAT – once known as the Scholastic Aptitude Test – and all heck breaks loose. Of course, something else has been springing heck all over the country, too – the Common Core – but because that fight has been taking place mainly at the state level, the nation’s collective attention has never been turned to it all at once. The SAT brouhaha might, however, change that, likely to the chagrin of Core defenders.
What’s the connection between the Core and the SAT? A big one: David Coleman, who is both a chief architect of the Core and president of the SAT-owning College Board. Coleman announced when he took over the Board that he would align the SAT with the Core, and it was clear in the Board’s SAT press release that that is what’s happening. Employing Common Core code, the Board announced that the new SAT will focus on “college and career readiness.”
Why is this potentially bad news for Core supporters? Because the SAT changes are widely being criticized as dumbing-down the test – good-bye words like “prevaricator,” hello toughies like “synthesis” – and that may drive attention to people who are questioning the quality of the Core. Illustrating unhappiness with the changes, in the Washington Post yesterday both a house editorial and a column by Kathleen Parker dumped on the coming SAT reforms, with the editorial stating:
It sounds as though students could conceivably get a perfect score on the new exam and yet struggle to fully comprehend some of the articles in this newspaper. Colleges should want to know if their would-be English majors are conversant in words more challenging than “synthesis,” or that their scores reflect more than lucky bubble guesses…
Maybe even more troubling than losing an outlet like the Post, if you’re a Core supporter, is possibly losing a guy like Andy Smarick at the pro-Core Thomas B. Fordham Institute. Last week Smarick defended knowledge of words that SAT bosses now deem too “obscure.” To be sure, Smarick didn’t “decimate” the new SAT (see the post), but his critique was enough to elicit a response from Coleman himself.
From a Core opposition perspective, it is crucial that people make the connection between the SAT and the Core, and that may be happening. The Post noted that “it’s no accident that this push comes from a College Board president who helped produce the K-12 Common Core standards.” Similarly, the New York Times report on the changes identified Coleman as “an architect of the Common Core curriculum standards.”
Making this connection is important because Core supporters’ major pro-Core (as opposed to anti-Core-opponent) argument is that the standards are highly “rigorous.” That claim has taken heat from several subject-matter experts, but they have struggled to be heard amidst pro-Core rhetoric. Sudden and intense national scrutiny of the SAT, if directly connected to the Core, might help doubters of Core excellence get more attention.
Of course, the primary reason to object to the Core is not that it may or may not be high-quality – though that is certainly an important concern – but that it is being foisted on the nation through federal power, and a monopoly over what schools teach is a huge problem. It kills competition among differing ideas and models of education, stifles innovation, and severely limits the ability of children – who are all unique individuals – to access education tailored to their specific needs, abilities, and dreams.
Common Core opponents should be encouraged by a national critique of coming SAT changes not, ultimately, because the changes are good or bad, but because serious scrutiny could well bolster resistance to the federally driven Core. In so doing, it could help to preserve some of the freedom necessary to ensure that standards have to earn their business rather than having children handed to them by Washington.
Today, in Marvin M. Brandt Revocable Trust v. United States, the Supreme Court rebuked another attempt by the Obama administration to adopt a novel and extreme litigating position that was contrary to well-established precedent. Eight justices agreed with Cato’s amicus brief, holding that the United States does not retain a property interest in former railroad lands that are no longer used by railroads. Although this may seem like an arcane issue for Cato to be involved in, the case actually resembles a typical takings case, but this time the government tried to define a property right out of existence rather than pay compensation to the owners.
To be fair to the Obama administration, this case began in 2006, and both Republican and Democratic administrations have been litigating similar cases for some time. Brandt is a best seen as an example of how governments of all stripes will find the path of least resistance to accomplish its goals, including defining a property right out of existence to avoid paying for it.
First, a little background on property law for those who haven’t been to law school. You may have heard the term “bundle of rights” or “bundle of sticks” applied to property. Those phrases merely describe the various rights that people can have in property. It is possible to own something, such as prescription drugs, that you’re not allowed to sell. Thus, you wouldn’t have the “right to sell” in your bundle of rights.
When it comes to real property (the term lawyers use for land) there are many rights in the bundle, and those rights can be split up both temporally and spatially. For example, mineral rights can be sold or leased, as can the airspace above land. Those rights can then be split up temporally, as in an agreement to transfer mineral rights to a neighbor in 10 years for a period of two years, at which point the rights would revert back to the original owner. At the time of the agreement, the neighbor would have a “future interest” in the mineral rights (he would take possession of it in 10 years) and the original owner would have a reversionary future interest (in 12 years the rights will revert back to her).
In Brandt, the question was whether the U.S. government retained a reversionary interest in the easements it gave to railroad companies in the 19th century. Easements are generally rights of way. They give the right to move across someone’s property, but they do not give the right to build on the land or live on it. Historically, in American and English common law, when an easement was “extinguished” the rights would merge back into the rights of the underlying property owner. The owner would then have his property back, unencumbered by the easement. In this case, however, the government argued that possession of lands with abandoned railroad easements should revert back to the government, not to the landowners.
This may seem like a small and unimportant question, but there are hundreds of thousands of miles of former railroad tracks in the country, and 3,000-4,000 miles of track are being abandoned every year. Much of that trackland crosses the land of private landowners, particularly ranchers in the West, and thus who owns the land when the easement expires–the government or the landowners–is an important question. There is even a National Association of Reversionary Property Owners that has assisted over 10,000 property owners in litigation against the government.
So why has the government so doggedly tried to take this land? There are many reasons, but one is the “rails to trails” program, which turns former railroad land into hiking and biking trails. If former railroad land is owned by the underlying property owners, then the government has to pay compensation to take it. If the government owns it, then of course no compensation is needed. Over the years, the government has litigated dozens of these cases, and they have increasingly used tenuous arguments that one court called “so thin as to border on the frivolous.”
Today, a near-unanimous Court clarified who owns the property: the private landowners. Most damaging to the government’s position was the fact that, 70 years ago, the United States argued that the railroads only owned a common easement to the trackland, and, as explained, a traditional easement reverts back to the underlying property owner when extinguished. As Chief Justice Roberts wrote, “The Government loses th[e] argument today, in large part because it won when it argued the opposite before this Court more than 70 years ago[.]”
Despite Brandt’s arcane subject matter, it is an important victory for property rights. Stable and predictable property rights are vital to a well-functioning and free society. Not only do they facilitate commerce, but they protect the rights of private owners against the grabby hands of government officials who believe that they can put that property to better use. Now, if the government wants to turn rails into trails, they can pay for the land, just like anyone else.
Even when one tries to ignore the current developments in the East of the country, Ukraine is in a pickle. With one of the lowest incomes per capita among the transitional economies of Eastern Europe, rampant corruption, and quickly depleting foreign reserves, the country is overdue for a reform package in many areas, including fiscal and monetary policy, the judiciary system, bankruptcy law, energy policy, state ownership, to name just a few.
While there is no shortage of foreign experts offering their views on what policies Ukraine needs or does not need, the future of Ukraine is for Ukrainians to decide. Still, the outside world can help. The Cato Institute, for example, is teaming up with the Atlas Network and the Kyiv-based European Business Association this week, hosting an emergency conference on Ukrainian economy.
Instead of policy wonks from Washington, the conference convenes a stellar group of policymakers from the region, who have direct experience with reforms enhancing economic freedom. The speakers include Einars Repse, the former Prime Minister of Latvia, Ivan Miklos, author of Slovakia’s flat tax revolution, Kakha Bendukidze, who as Minister of the Economy was the driving force behind economic reforms in Georgia, Sven Otto Littorin, the former Minister for Employment of Sweden, who assisted with the liberalization of the country’s labor markets, Jan Vincent-Rostowski, until recently the Minister of Finance of Poland, as well as Cato’s very own Andrei Illarionov.
The conference website is here, and you can follow my live twitter feed at this link. Notwithstanding the pessimism of the daily news coming from that part of the world, the recent events in Ukraine have given its people and its leaders a unique window of opportunity to make a departure from the country’s post-Soviet legacy and to put in place institutions that will lead to economic opportunity, freedom, and shared prosperity.
…the U.S. Supreme Court handed down what was to become one of its most celebrated tort reform decisions. A profitable national manufacturer had been sued in a distant rural state in which it was decidedly unpopular, resulting in a runaway jury verdict which it sought to challenge on appeal. Pointing out the disadvantages of unpredictable and locally variable tort standards, the corporation’s lawyers pushed for a more uniform and modern standard of liability suited to a nationwide market, which the high court agreed unanimously to develop for the occasion and impose on state courts. And ever since 1964, the winning party in the case — that is to say, the New York Times Company — has taken a sympathetic editorial interest in the plight of other national businesses subjected to runaway verdicts in local courts.
Well, OK, maybe not that last sentence. But the rest of it did happen, in the celebrated libel case of New York Times v. Sullivan. [adapted slightly and re-posted from Overlawyered in January]
Many public schooling advocates chafe at our constitutional tradition that public moneys be appropriated only at the behest of voters or their elected lawmakers, since it means school budgets often wind up getting rejected, trimmed, or balanced off against other budgetary priorities. As I’ve noted previously in this space, a well-organized, foundation-backed movement has pursued litigation around the 50 states urging courts instead to seize control of school funding in the name of “equitable” or “adequate” school funding.
Such an effort succeeded last week in Kansas, where the state supreme court ruled in favor of a challenge and “ordered increases by July 1 that, according to the state Department of Education, would total $129 million annually.” The case will go back to litigation in a lower court and conceivably could result in further court decrees that could be broader and much more expensive. The Kansas affiliate of the National Education Association can hardly contain its jubilation, while the Associated Press writes that “If the courts order more spending in the future, lawmakers may have to reconsider personal income tax cuts in 2012 and 2013 that were championed by [Gov. Sam] Brownback.”
As I wrote a while back on New Jersey’s Abbott school finance litigation (one broken link removed):
school reform lawsuits like Abbott are much more than just vehicles for inefficiency and waste of tax dollars: they’re examples of an alternative method of governance…. Typically, successful litigation of this sort transfers control over an important issue like school funding from branches of government that are accountable to taxpayers and voters to a cluster of private litigators, expert witnesses, special masters, consultants, law professors, backers in liberal foundations, and so forth. The legal basis for the power grab is often flimsy in the extreme; in the Garden State, for example, the state constitution vaguely mandates that there be a “thorough and efficient” system of public education, and “educational equity” lawyers have prevailed on the courts to erect the whole thirty-year edifice of Abbott orders on a filling in of those mysterious blanks, a process that Gov. Christie has accurately described as “legislating from the bench”. (Our friend Hans Bader at CEI has more here.) In New Jersey, as in many other states and cities subject to these suits, governors and legislators may come and go, but the permanent government of court orders and negotiated consent decrees grinds on and on, conferring a curiously unaccountable power on the lawyers who manage and advance the litigation and their circle of allies.
Daniel J. Mitchell
Germany isn’t exactly a fiscal role model.
Tax rates are too onerous and government spending consumes about 44 percent of economic output.
That’s even higher than it is in the United States, where politicians at the federal, state, and local levels divert about 39 percent of GDP into the public sector.
Germany also has too much red tape and government intervention, which helps to explain why it lags other European nations such as Denmark and Estonia in the Economic Freedom of the World rankings.
But I have (sort of) defended Germany a couple of times, at least on fiscal policy, explaining that the Germans didn’t squander much money on Keynesian spending schemes during the downturn and also explaining that Paul Krugman was wrong in his column on Germany and austerity.
If you look at last decade’s fiscal data, you’ll see that our Teutonic friends actually followed my Golden Rule on fiscal policy for a four-year period.
Here’s a chart, based on IMF numbers, showing total government spending in Germany from 2003-2007. As you can see, German policy makers basically froze spending.
I realize that I’m a libertarian and that I shouldn’t be happy unless the burden of spending is being dramatically reduced, but we’re talking about the performance of European politicians, so I’m grading on a curve.
By that standard, limiting spending so it grows by an average of 0.18 percent is rather impressive. Interestingly, this period of fiscal discipline began when the Social Democrats were in power.
And because the economy’s productive sector was growing at a faster rate during this time, a bit more than 2 percent annually, the relative burden of government spending did fall.
The red line in this next chart shows that the public sector, measured as a share of economic output, fell from almost 49 percent of GDP to less than 44 percent of GDP.
It’s also worth noting that this four-year period of spending restraint also led to a balanced budget, as shown by the blue line.
In other words, by addressing the underlying problem of too much government, the German government automatically dealt with the symptom of red ink.
That’s the good news.
The bad news is that the German government wasn’t willing to sustain this modest degree of fiscal discipline. The Christian Democrats, who took office in mid-2005, allowed faster spending growth beginning in 2008. As I noted above, the budget increases haven’t been huge, but there’s been enough additional spending that Germany no longer is complying with the Golden Rule and the burden of the public sector is stuck at about 44 percent of GDP.
The moral of the story is that Germany shows that good things happen when spending is restrained, but long-run good performance requires long-run spending discipline.
That’s why I’m a fan of Switzerland’s spending cap. It’s called the “debt brake,” but it basically requires politicians to limit spending so that the budget doesn’t grow much faster than inflation plus population.
And that’s why Switzerland has enjoyed more than a decade of good policy.
To see other examples of nations that have enjoyed fiscal success with period of spending restrain, watch this video.
The Canadian example is particularly impressive.
Dear supporters and members of the Republican Liberty Caucus of South Carolina:
First, I’d like to sincerely thank you for electing me chairman of the RLC of SC. Also, on behalf of all South Carolina RLC supporters, I would like to thank Dr. Scott Pearson for his leadership the past two years as the RLC in the Palmetto State grew from humble roots to become the third largest state charter of the Republican Liberty Caucus in the United States.
As we move forward, the RLC will refocus on engaging our state and impacting our communities for liberty. We are going to give you more details about Project Impact, which began as the theme for our 2014 state convention.
We are going to focus on impacting our communities through activism and helping our neighbors and demonstrating that a belief in liberty is also a commitment to individual responsibility for making the world a better place.
While we will be polishing our Project Impact plans in the coming weeks, it’s imperative that we begin working right away to elect liberty Republicans and for that reason I am asking you to sign up to volunteer for the liberty candidate of your choice in whatever election you feel is most important.
One place to start is Sen. Lee Bright’s volunteer program. In particular, campaigns can always use phone bank volunteers which can even be done right from the comfort of your own home. Would you please chip in a few minutes a day to help? Sen. Bright’s volunteer page can be found at http://www.brightforsenate.com/infographic-volunteer/.
I look forward to all the great things the RLC will be doing over the coming months as we keep winning for liberty. We’ll be in touch soon!
SC State Chairman
Republican Liberty Caucus
The post RLC Impact: Updates and Volunteer Needs for Candidates appeared first on Republican Liberty Caucus of South Carolina.
Members of the Lowcountry Republican Liberty Caucus can nominate members to the board of directors by commenting below. Nominees will be considered by ballot on March 19th at 7:00 PM at the monthly meeting of the Lowcountry RLC at Mount Pleasant Waterworks (1619 Rifle Range Rd, Mt. Pleasant, SC 29464).
Also joining us as a guest speaker is Congressman Mark Sanford who will update us on the latest happenings on Capitol Hill.
Since 1981, Republican legislators have shown a strong penchant for phasing-in tax rate reductions over several years. That tradition is maintained in Ways and Means Committee Chair Dave Camp’s proposed 979-page “simplification” of the U.S. tax system. The Camp draft retains a very high top tax rate of 38.8 percent on businesses that file under the individual income tax as partnerships, proprietorships, LLCs or Subchapter S corporations. For those choosing to file as C-corporations, by contrast, the Camp proposal would gradually reduce the corporate tax rate by two percentage points a year over five years, eventually reducing it from 35 to 25 percent.
The trouble with phasing-in lower tax rates is that it creates an incentive to postpone efforts and investments until later, when tax rates will be lower. Reducing the corporate tax rate by two percentage points a year would create an incentive to repeatedly delay reported profits, year after year, holding back the economy and tax receipts. Sensible tax planners would write-off expenses soon as possible, including interest expenses, but defer investment until future years when the tax rate would be reduced on any resulting added earnings.
Meanwhile, the widening gap between corporate and noncorporate tax rates (a difference of 13.8 percentage points after five years) would encourage many small businesses, farms and professionals to set up C-corporations to shelter retained earnings. Owners of closely-held private corporations can defer double taxation indefinitely by not paying dividends and taking most compensation in the form of tax-free corporate perks. Many enterprises contemplating the new incentive to shift income from individual to corporate tax forms after five years would postpone expansion plans until after they made that switch, further depressing the economy and tax receipts.
The Republican Party’s proclivity for phased-in tax cuts may have originated with former Federal Reserve Chairman Alan Greenspan. In his January 25, 2001 testimony before the Senate Budget committee, Chairman Greenspan said, “In recognition of the uncertainties in the economic and budget outlook, it is important that any long-term tax plan … be phased in.” That was the same advice he gave in January 1981 when Greenspan and I served on President Reagan’s transition team. Unfortunately, his advice to phase-in lower tax rates was followed both times, with disastrous results.
During the deep recession from July 1981 to November 1982, Congress opted to postpone most tax relief until the 1983-84 tax years. Individual tax rates were ostensibly reduced by 5 percent in October 1981, but with only three months left in the year that meant just 1.25 percent. Rates were again reduced by 10 percent in July of 1982, but that applied to only half of that year’s income. Meanwhile, bracket creep from high inflation kept pushing people into higher tax brackets (until indexing took effect in 1985), negating much of the intended effect. The final 10 percent reduction in July 1983 was not fully effective until calendar year 1984.
Oddly enough, the painful blunder of phasing-in the Reagan tax cuts after a recession was repeated by the Bush administration in March 2001, three months after the economy slipped into recession. Aside from the fiscal frivolity of adding a 10 percent tax bracket on the first $12,000 of income (cutting taxes $300-600 at all incomes), reductions in the four highest tax rates were originally scheduled to be very gradually phased-in by 2006. Congress later came to its senses in May 2003 and reduced marginal tax rates. Yet substantial damage was already done. University of Michigan economists Christopher House and Matthew Shapiro found, “The phased-in nature [of lower tax rates] contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003.” The harmful impact of the phase-in was confirmed by Cornell University economist Karel Mertens and Morton Ravin of University College London.
Mertens and Ravin also found that lower corporate tax rates do not reduce U.S. tax revenues, partly because lower tax rates increase domestic investment while reducing tax incentives to take on excess debt. The Camp plan to phase-in a 25 percent corporate tax rate over many years would be as unnecessary as it would be counterproductive. Most other countries reduced their corporate tax rates to 25 percent or less long ago – creating marginal effective rates on new investment that are commonly less than half the U.S. level – with clearly beneficial effects on their economies and tax receipts.
The important, unlearned lesson of 1981 and 2001 is that phased-in reductions in marginal tax rates can make things worse before they make things better.
An uncompetitive U.S. corporate tax rate fosters excessive tax-deductible debt and gives a big cost advantage to foreign enterprises. There is nothing to be gained, and much to be lost, by improving the U.S. tax climate slowly rather than quickly.
Over at Cato’s Police Misconduct web site, we have identified the worst case for February. It is a case from Towson, Md., where the local police seem to think they can suspend the First Amendment.
A young man was video recording a late-night altercation involving arrests in downtown Towson when Baltimore County police noticed him recording, roughed him up, and threatened him with arrest if he continued to record the ongoing arrests. When the man cited the First Amendment right to record the police (which Baltimore County Police policy fully recognizes), the officer accosted him and shouted “You have no rights!”
Earlier in the recording, another officer tries to justify ordering the man to leave the scene, shouting “you diverted my attention from that … LEAVE!” Then the officer immediately resorted to physical force to push the recorder away from the scene. The video shows multiple officers reacting violently to being recorded. The fact that they are flaunting the law and their department policy so willfully, while knowing they are being recorded, makes these Baltimore County police officers our prime candidates for the worst police misconduct for February.
For additional background, go here.
Earlier this week, the Show-Me Institute released my study “Live Free and Learn,” the first analysis of New Hampshire’s trailblazing scholarship tax credit program, which is the first in the nation to include homeschoolers. The study found that participants in the program were overwhelmingly low-income and nearly universally satisfied. Some of the key findings include:
- 97 percent of parents of scholarship recipients are satisfied with their chosen private or home school.
- 68 percent of parents reported that they noticed measurable academic improvement in their child since receiving the scholarship.
- 91 percent of scholarship recipients had a household income that would qualify for a free or reduced-price lunch program under the federal National School Lunch program (185 percent of the federal poverty line, or $43,568 for a family of four).
- 74 percent of private school parents reported that they would have been unable to afford tuition without the scholarship.
I discuss the findings of the study in greater detail at the Education Next blog.
House Ways and Means Chairman Dave Camp has released a complex 182-page “discussion draft” called The Tax Reform Act of 2014. Rather get bogged down in details, I will take this opportunity to review several fundamental errors that repeatedly plagued most past and present efforts to reform the federal income tax, including the Camp proposal.
One of the most pernicious errors among would-be tax reformers is to assume that, as the Tax Policy Center asserts, “tax expenditures are revenue losses” attributable to various “loopholes.” On the contrary, the Joint Committee on Taxation (JCT) clearly states that the estimated dollar value of any “tax expenditure … is not the same as a revenue estimate for the repeal of the tax expenditure provision.” As the JCT explains, “unlike revenue estimates, tax expenditure calculations do not incorporate the effects of the behavioral changes that are anticipated to occur in response to the repeal of a tax expenditure provision…. Taxpayer behavior is assumed to remain unchanged for tax expenditure estimate purposes … to simplify the calculation.”
One glaring difference between revenue estimates and tax expenditure estimates involves taxation of capital gains if those gains are realized by selling assets from a taxable account (unlike IRAs or most home sales). Estimated tax expenditures from not taxing realized capital gains at the top income tax rate of 43.4 percent is listed as a big revenue-losing tax expenditure, even though Treasury, the JCT and the Congressional Budget Office (CBO) revenue estimates would rightly predict that the behavioral response to such a high tax would crush asset sales and thus lose revenue.
Mainly because the artificially estimated “tax expenditure” from a lower capital gains tax is wrongly equated with estimated revenues, the Simpson-Bowles plan hopes to raise an extra $585 billion over ten years. In reality, investors realize fewer gains when the tax rate goes up, so the higher tax on fewer transactions means revenues fall rather than rise.
The same Simpson-Bowles confusion of tax expenditures with tax revenues recently led Washington Post columnist Robert Samuelson to recommend, “ending preferential rates on capital gains (profits on the sale of stocks and other assets).” Samuelson has a noble goal: to use the expected revenue windfall from “taxing capital gains at full income tax rates” to reduce the top tax rate to 25 percent on salaries and small business profits. But that raises an unresolvable dilemma: The top capital gains tax was already increased to 23.8 percent in 2014, so raising it to 25 percent wouldn’t matter. The only reason this “tax expenditure” would vanish under Samuelson’s plan is not the trivially higher tax on capital gains but the much lower 25 percent tax rate on income. The tax expenditure would indeed be gone, by definition, but eliminating the tax expenditure would not provide more revenue with which to lower tax rates or the deficit.
Contrary to hoary tax reform mythology, most of the reduction in estimated tax expenditures after the 1986 Tax Reform was likewise the result of reducing the top marginal tax rate to 28 percent, not from trading fewer itemized deductions for a larger standard deduction. Most of the unexpectly strong revenue gain was also from more taxable income earned and reported at the 28 top tax rate (called the “elasticity of taxable income”). Higher tax rates on capital gains clearly reduced revenue until that rate was lowered in 2007. Higher effective rates on corporate profits also produced much less revenue than projected. There was no “tax preference” when the top tax was 28 percent on both capital gains and income, but that certainly does not mean the higher tax rate on capital gains provided revenue with which to lower the marginal tax rate on income. All that was required to lower the top tax rate was the political courage to do so.
Suppose the individual tax on realized capital gains was raised to the current top rate of 43.4 percent or the Camp proposal’s top rate of 38.8 percent. In either case, the Treasury Department, JCT, and CBO would rightly estimate that revenues would fall not rise. The “tax expenditure” would again disappear by definition, but so would a lot of tax revenue.
Getting rid of tax expenditures is not at all the same as raising more revenue. Confusing tax expenditures with revenue is the first of many persistent fallacies that hamper effective tax reform.
If you lie down on a water bed, the amount of water does not change; it just moves elsewhere.
A similar phenomenon occurs with drug prohibition; targeting one drug reduces its use, but that displaced demand shows up somewhere else.
According to a new WaPo story, this is exactly what has occurred over the past ten years with respect to prescription opiates and heroin. As enforcement cracked down on Oxycontin and similar medications, demand shifted to heroin. And since purity information is noisy for an illicit good, heroin deaths increased noticeably.
Prohibition advocates will presumably respond with calls for greater enforcement against both prescription opiates and heroin, but the right response is the opposite. While opiate use carries risks, opiate prohibition makes these worse. Higher prices caused by prohibition, for example, encourage users to inject to get a big bang for the buck. But then prohibition-induced restriction of clean syringes fosters needle-sharing, spreading HIV.
The right test for policy is never whether some good or activity is “risky,” but whether government intervention reduces those risks, and at what costs. Drug prohibition fails this test.
The Obama administration released its 2015 budget this week. The budget shows federal debt held by the public falling from 74 percent of gross domestic product (GDP) this year to 69 percent by 2024. That reduction occurs even though entitlement and interest spending are projected to rise substantially as a percent of GDP.
One of the tricks behind the projected falling debt is that the administration assumes that discretionary spending falls sharply as a percent of GDP in later years. Congressional Budget Office (CBO) projections show a similar decline in discretionary spending in coming years.
I favor large discretionary reductions, and I have proposed many specific cuts. But does the Obama administration really favor the reductions down the road shown in its own budget? I doubt it. After all, the administration’s new spending proposals would break existing budget caps, and that would come in the wake of both parties breaking caps under the Ryan-Murray budget deal. So projecting declining discretionary spending in later years is an accounting ploy to make the fiscal outlook look better than it really is.
If policymakers don’t restrain discretionary spending, deficits and debt will be higher in coming years than shown in official projections. Let’s call this the “business as usual discretionary spending” scenario.
Here are the implications of the scenario, based on the CBO baseline and my calculations. Let’s suppose discretionary spending remains at the 2014 level of 6.9 percent of GDP through 2024, rather than falling to 5.2 percent as shown by CBO. That higher spending results in interest costs 0.4 percentage points of GDP higher by 2024.
Under this scenario, total outlays would rise from 20.5 percent of GDP today to 24.5 percent by 2024. The deficit would rise to a dangerous 6.2 percent of GDP.
Under the CBO baseline, federal debt rises from 74 percent of GDP today to 79 percent by 2024. But under my business as usual scenario, debt would soar to 91 percent by 2024, as shown in the chart. It would keep rising rapidly after that.
In sum, I hope that discretionary spending as a percent of GDP falls, as shown in the CBO and Obama projections. But without proactive efforts to cut and terminate programs, that may not happen. Of course, entitlement spending also needs to be cut.
However, if business as usual prevails in Washington with entitlement spending gobbling up more of GDP and discretionary spending not cut, we’ve got a really big fiscal crunch coming.
Individual liberty took another hit with Arizona Gov. Jan Brewer’s veto of legislation enhancing protection for people’s religious principles while doing business. Gov. Brewer suggests that if you hang out a shingle you should leave your deepest beliefs at home.
The issue in Arizona was not a lack of tolerance by those in business. There is no dearth of firms across the state willing to serve gays.
Instead, the question was tolerance for those in business. Should you be expected to abandon your conscience the moment you step into the commercial world?
Indeed, why would a gay couple insist that a Christian opposed to gay marriage photograph their wedding or prepare their cake? There’s no need to force those with unfashionable views to affirm what they reject.
ObamaCare’s contraception mandate has a similar effect—and almost certainly received vigorous support on the left for precisely this reason. As I pointed out in the American Spectator online:
the point was always state-mandated intolerance rather than health care. The objective was to force Catholics, mostly, and the few fundamentalist Protestants who hold similar theological views, to pay for what they oppose. In fact, there is no better way to humiliate those you dislike. It is pure and unadulterated intolerance, the ultimate Washington triumph: Make those you despise pay for what they despise.
Leaving people largely left alone to manage their own lives should be what a free society is all about. Of course, those who are on the receiving end of social disapproval understandably don’t like the result. But no one has a “right” to be served by any particular person. Forcing someone into servitude is infinitely worse than simply finding someone else to do the job.
The right response is to change social attitudes. My friend Sheldon Richman at the Future of Freedom Foundation pointed to the use of “boycotts, publicity, and ostracism” to penalize those who refuse service. Such activism is why gay marriage has gone from a policy wish to dominant law in just a few years.
Unfortunately, throughout history newly empowered minorities often learn the wrong lesson. Rather than create barriers to new state injustices, some people use law for their own advantage. Hence state persecution of the New Mexico wedding photographer who felt she could not promote gay ceremonies which she believed to be wrong.
The principle runs multiple ways. Argued my Cato Institute colleague Ilya Shapiro, “gay photographers and bakers shouldn’t be forced to work religious celebrations, Jews shouldn’t be forced to work Nazi rallies, and environmentalists shouldn’t be forced to work job fairs in logging communities.” Government should not force anyone to leave his or her conscience outside when arriving at work.
There obviously are complex aspects of the issue about which another Cato colleague, Walter Olson, also has thoughtfully written. In practice, advanced industrial capitalism allows most people to make most economic decisions without focusing on the background or character of the person with whom they are dealing, a major positive for all of us. Nevertheless, some activities may be more uncomfortable than others. Covering a wedding—actively participating in and celebrating the ceremony—is different than taking a portrait for some photographers.
Despite the public hysteria generated by the Arizona legislation, it merely expanded existing law which bars government from imposing a “substantial burden” on religious practice without a “compelling state interest.” That hardly seems unreasonable. What is unreasonable is interfering with religious faith with which one disagrees. Some other state legislative proposals have been less neutral and more controversial.
Any large, diverse society will find people at frequent odds, believing and behaving differently. In the main, government should leave them alone to find their own way. Especially when most basic freedom of conscience is involved. Tolerance is a cardinal virtue.
Indeed, liberty of conscience undergirds all human freedom. Such liberty is inherent to the human person, not a privilege granted by the state. Americans who believe in freedom should respect even unpopular religious beliefs, as in this case.
Patrick J. Michaels and Paul C. "Chip" Knappenberger
Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”
The bottom line from the new report from the Global Warming Policy Foundation (GWPF) is that the U.N.’s Intergovernmental Panel on Climate Change (IPCC) knew, but didn’t highlight, the fact that the best available scientific evidence suggests that the earth’s climate is much less sensitive to atmospheric carbon dioxide input than the climate models they relied upon to forecast future global warming portray.
We covered the GWPF report and its implications in this post. But one implication is worth mentioning again, from the report’s conclusions:
The [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence.
While the report’s authors, Nicolas Lewis and Marcel Crok, are talking about the future, the same thing should apply to the past. In fact, a strong test of Lewis and Crok’s prediction is whether or not the same climate models predict too much warming to have already taken place than observations indicate.
There is perhaps a no better general assessment of past model behavior than the analysis that we developed for a post back in the fall.
The figure below is our primary finding. It shows how the observed rate of global warming compares with the rate of global warming projected to have occurred by the collection of climate models used by the IPCC. We performed this comparison over all time scales ranging from from 10 to 63 years. Our analysis ended in 2013 and included an analysis of the global temperature trend beginning in each year from 1950 through 2004.
As can be clearly seen in our figure, climate models have consistently overestimated the amount of warming that has taken place. In fact, they are so bad, that over the course of the past 25 years (and even at some lengths as long as 35 years) the observed trend falls outside of the range which includes 95 percent of all model runs. In statistical parlance, this situation means that the observed trend cannot be reliably considered to be part of the collection of modeled trends. In other words, the real world is not accurately captured by the climate models—the models predict that the world should warm up much faster than it actually does.
That the models don’t work when simulating the past is strong indication that they won’t work when projecting the future.
And judging from past performance, the conclusions of Lewis and Crok, that “[t]he [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence” seem right on the money.
Global climate disaster averted! Too bad the IPCC didn’t see fit to pass this important bit of information along to policymakers, but instead, attempted to sweep it under the rug.
Maybe there ought to be a congressional investigation. Staffers, start your engines!
Patrick J. Michaels and Paul C. "Chip" Knappenberger
Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”
In a remarkable example of scientific malfeasance, it has become apparent that the IPCC knew a lot more than it revealed in its 2013 climate compendium about how low the earth’s climate sensitivity is likely to be.
The importance of this revelation cannot be overstated. If the UN had played it straight, the “urgency” of global warming would have evaporated, but, recognizing that this might cause problems, they preferred to mislead the world’s policymakers.
Strong words? Judge for yourself.
The report “Oversensitive—how the IPCC hid the good news on global warming,” was released today by the Global Warming Policy Foundation (GWPF)—a U.K. think-tank which is “concerned about the costs and other implications of many of the policies currently being advocated” regarding climate change (disclosure: our Dick Lindzen is a member of the GWPF Academic Advisory Council).
The new GWPF report concluded:
We believe that, due largely to the constraints the climate model-orientated IPCC process imposed, the Fifth Assessment Report failed to provide an adequate assessment of climate sensitivity – either ECS [equilibrium climate sensitivity] or TCR [transient climate response] – arguably the most important parameters in the climate discussion. In particular, it did not draw out the divergence that has emerged between ECS and TCR estimates based on the best observational evidence and those embodied in GCMs. Policymakers have thus been inadequately informed about the state of the science.
The study was authored by Nicholas Lewis and Marcel Crok. Crok is a freelance science writer from The Netherlands and Lewis, an independent climate scientist, was an author on two recent important papers regarding the determination of the earth’s equilibrium climate sensitivity (ECS)—that is, how much the earth’s average surface temperature will rise as a result of a doubling of the atmospheric concentration of carbon dioxide.
The earth’s climate sensitivity is the most important climate factor in determining how much global warming will result from our greenhouse gas emissions (primarily from burning of fossil fuels to produce, reliable, cheap energy). But, the problem is, is that we don’t know what the value of the climate sensitivity is—this makes projections of future climate change–how should we say this?–a bit speculative.
Unsurprisingly, there has been a lot of recent scientific research aimed at gaining a better understanding of what the climate sensitivity may be. We have detailed much of this research in our ongoing series of articles highlighting new findings on the topic. Collectively, the new research indicates an ECS value a bit below 2°C. The latest in our series is here.
But in its Fifth Assessment Report (AR5) finalized this past January, the IPCC gave short shrift to the major implication of this collection of new research results—that the climate sensitivity is much lower than what the IPCC assessed it to be in its collection of previous assessment reports (issued every 6-7 years) and that the rate of climate change is going to be much less.
For example, formerly, in its Fourth Assessment Report (AR4), released in 2007, the IPCC had this to say regarding the equilibrium climate sensitivity:
It [the equilibrium climate sensitivity] is likely to be in the range 2°C to 4.5°C with a best estimate of about 3°C, and is very unlikely to be less than 1.5°C. Values substantial higher than 4.5°C cannot be excluded, but agreement of models with observations is not as good for those values. [emphasis in original]
In its new AR5, the IPCC wrote this:
Equilibrium climate sensitivity is likely in the range 1.5°C to 4.5°C (high confidence), extremely unlikely less than 1°C (high confidence), and very unlikely greater than 6°C (medium confidence)16. The lower temperature limit of the assessed likely range is thus less than the 2°C in the AR4, but the upper limit is the same. This assessment reflects improved understanding, the extended temperature record in the atmosphere and ocean, and new estimates of radiative forcing. [emphasis in original]
And IPCC AR5 footnote 16 states:
No best estimate for equilibrium climate sensitivity can now be given because of a lack of agreement on values across assessed lines of evidence and studies.
So, facing mounting scientific for a substantially lower climate sensitivity, the best the IPCC could bring itself to do was to reduce the low end of its “likely” range by one-half degree, refuse to put a value on its best guess, and still cling to its high end number. Big deal.
The reason that the IPCC could only make these meager changes was that the collection of climate models that the IPCC employs to make the bulk of its projections of future climate change (and future climate change impacts) has an average ECS value of 3.2°C. The IPCC couldn’t very well conclude from the scientific evidence that the real value was somewhere south of 2°C—if it were to do so, it would invalidate the climate models and, for that matter the meat of its entire report (that is, its climate change projections).
We described the situation the IPCC faced last summer (prior to releasing the final copy of the AR5) this way:
The IPCC has three options:
- Round-file the entire AR5 as it now stands and start again.
- Release the current AR5 with a statement that indicates that all the climate change and impacts described within are likely overestimated by around 50 percent, or
- Do nothing and mislead policymakers and the rest of the world.
We’re betting on door number 3.
As predicted, the IPCC chose option number 3.
The new GWPF report confirms, in detail, the IPCC’s choice and how it came to make it—by confusing the reader with a collection of evidence that was outdated, already disproven, based upon flimsy assumptions, not directly applicable, or flat-out wrong.
Putting it nicely, Lewis and Crok describe the situation thus:
The AR5 authors might not have wanted to declare that some studies are better than others or to adjudicate between observational and model-based lines of evidence, but we believe that this is exactly what an assessment is all about: using expert knowledge to weigh different sources of evidence. In this section we present reasoned arguments for a different assessment to that in AR5.
Lewis and Crok go, in detail, through each climate sensitivity paper considered (and relied upon) by the IPCC and identify its shortcomings. At the end, they are left with a collection of five papers that, while still containing uncertainties, are built upon the most robust set of assumptions and measurements.
From those papers the Lewis and Crok conclude the following:
A new ‘best observational’ estimate of ECS can now be calculated by taking a simple average of the different observationally-based estimates….This gives a best estimate for ECS of 1.75°C and a likely range of about 1.3–2.4°C. However, recognizing that error and uncertainty may be greater than allowed for in the underlying studies, and will predominantly affect the upper of the range, we conservatively assess the likely range as 1.25–3.0°C.
Now compare these figures with those in AR4 and AR5….Our new ‘best observational’ ECS estimate of 1.75°C is more than 40% lower than both the best estimate in AR4 of 3°C and the 3.2°C average of GCMs used in AR5. At least as importantly, the top of the likely range for ECS of 3.0°C is a third lower than that given in AR5 (4.5°C) – even after making it much more conservative than is implied by averaging the ranges for each of the observational estimates.
And as to what this means about the IPCC global warming projections, Lewis and Crok write:
The [climate models] overestimate future warming by 1.7–2 times relative to an estimate based on the best observational evidence.
This is a powerful and important conclusion.
We recommend that you read the full report. Not only is it a comprehendible and comprehensive description of the current science as it relates to the climate sensitivity, but it is an illumination of how the IPCC process does, or rather doesn’t, work.
The Obama Administration and its EPA will ignore this reality at their peril.
The Obama administration’s proposed budget for 2015 would continue unsustainable spending growth at more than twice the rate of inflation and hike taxes by more than $1 trillion. It also includes $69 billion in education spending, much of it on programs that are unconstitutional, proven to be ineffective, or both.
And yet, in one area where the federal government has the constitutional authority to fund and manage education policy—the District of Columbia school system—the Obama administration’s budget cuts all funding to the Opportunity Scholarship Program (OSP), which has proven to be much more effective than the government-run school monopoly. This cut does not even save the taxpayers a dime, since the OSP only spends up to about $8,250 for elementary school students and $12,400 for high school students each year compared to the $30,000 per pupil per year that the government-run schools spend to produce some of the worst educational outcomes in the nation.
The administration’s proposal is particularly puzzling in the wake of the president’s announcement last week that he is launching a $200 million charitable initiative called My Brother’s Keeper to help young, male minorities. As Dr. Patrick Wolf of the University of Arkansas points out today at the Choice Words blog, there is solid evidence that school choice programs tremendously aid exactly that population:
Three evaluations of private-school choice programs have followed enough students for sufficiently long to determine their effects on the rates of high-school graduation, college enrollment, or both. A 2010 evaluation of the District of Columbia Opportunity Scholarship Program that I led for the U.S. Department of Education found that students offered private-school choice by winning a random lottery graduated from high school at the rate of 82 percent, compared with 70 percent for the control group. The impact of actually using an Opportunity Scholarship was to increase the likelihood of graduation by 21 percentage points, from 70 percent to 91 percent. Over 90 percent of the participants in the study were African American, and almost all of the rest were Latino American.
A similarly rigorous experimental study of the impact of privately funded partial-tuition K–12 scholarships on college-enrollment rates was conducted by Paul Peterson of Harvard University and Matthew Chingos of the Brookings Institution. They followed a large group of low-income elementary students in New York City for over a decade after half of them were awarded private-school scholarships by lottery, while the other half were randomly assigned to the control group. They determined that the impact of using a private-school scholarship was to raise the college enrollment rate for African Americans in the study from 36 percent to 45 percent, a gain of 9 percentage points that represented nearly a 25 percent improvement over the control-group rate. As with the DC Opportunity Scholarship Program evaluation, President Obama’s very own Department of Education assigned this study its highest rating for scientific rigor.
Finally, I worked with a large team of researchers to evaluate the effect of the nation’s oldest and largest urban school-voucher program, the Milwaukee Parental Choice Program, on student educational attainment in the form of high-school graduation, college enrollment, and college persistence. Over two-thirds of the students in our study were African American, and almost all the rest were Latino American. We found that low-income students who used a voucher to enroll in a private school in ninth grade subsequently graduated from high school, enrolled in a four-year college, and persisted in college at rates that were 4–7 percentage points higher than statistically similar Milwaukee students who started in public schools in ninth grade. These higher rates of educational attainment due to the Milwaukee voucher program represent improvements of 15–20 percent over the rates obtained by the comparison group of public-school students—nearly as large as those for the African-American students in the New York City study.
Given the results of these three studies, one which was overseen by the U.S. Department of Education and two which were recognized with the Department’s highest award for rigor, we might expect President Obama to receive a swift response regarding his call for the federal government to search for programs that boost educational outcomes for African American men. The U.S. Department of Education need not search far and wide for such initiatives: they have already found one. Research shows that private-school choice through vouchers or scholarships is one of our nation’s most effective dropout-prevention programs for African Americans. It should be number one on the list of programs that President Obama encourages My Brother’s Keeper to support. But, apparently, it isn’t.
Not long ago, President Obama woefully misstated the research on school choice programs. The most charitable explanation is that he hasn’t seen the research from his own Department of Education. Fortunately, a few highly respected education policy gurus cut a short video to remedy that oversight:School Voucher Researchers Respond to Obama
Let’s hope the president gets YouTube on his Blackberry.
For far too long a big part of the Common Core debate has been about establishing simple fact: the federal government provided serious coercion to get states to adopt the Core, and the Core’s creators asked for such arm twisting. Indeed, just yesterday, Andy Smarick at the Core-supporting Thomas B. Fordham Institute lamented that the write-up for President Obama’s education budget proposal gives the administration credit for widespread Core adoption. Wrote Smarick: “The anti-Common Core forces will likely use this language as evidence that Common Core was federally driven.” Of course it was federally driven, by Race to the Top (RTTT) and No Child Left Behind (NCLB) waivers! But the budget proposal tells us far more than that.
The big story in the proposal is – or, at least, should be – that the president almost certainly wants to make the Core permanent by attaching annual federal funding to its use, and to performance on related tests. Just as the administration called for in its 2010 NCLB reauthorization proposal, POTUS wants to employ more than a one-time program, or temporary waivers, to impose “college and career-ready standards,” which–thanks to RTTT and waivers–is essentially synonymous with Common Core. In fact, President Obama proposes changing Title I of the Elementary and Secondary Education Act – of which NCLB is just the most recent reauthorization – to a program called “College- and Career-Ready Students,” with an annual appropriation of over $14 billion.
This was utterly predictable. Core opponents, who are so often smeared as conspiracy mongers, know full well both what the President has proposed in the past, and how government accumulates power over time. RTTT was the foot in the door, and once most states were using the same standards and tests, there was little question what Washington would eventually say: “Since everyone’s using the same tests and standards anyway, might as well make federal policy based on that.” Perhaps given the scorching heat the Common Core has been taking lately, most people didn’t expect the administration to make the move so soon, but rational people knew it would eventually come. Indeed, the “tripod” of standards, tests, and accountability that many Core-ites believe is needed to make “standards-based reform” function, logically demands federal control. After all, a major lesson of NCLB is that states will not hold themselves accountable for setting and clearing high academic bars.
While it’s a crucial fact, the full story on the Common Core isn’t that the feds coerced adoption. It is that the end game is almost certainly complete federal control by connecting national standards and tests to annual federal funding. And that, it is now quite clear, is no conspiracy theory.