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Corporate Tax Inversions Made Simple

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

Chris Edwards

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

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

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

Categories: Policy Institutes

South Carolina Police Are Ready To Crack Down on Uber

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

Matthew Feeney

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

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

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

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

From WPDE NewsChannel 15:

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

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

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

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

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

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

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

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

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

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

Categories: Policy Institutes

A Needlessly Confrontational Trade Policy Pitch

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

K. William Watson

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

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

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

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

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

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

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

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

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

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

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

Categories: Policy Institutes

Inventions to Eagerly Await

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

Stephanie Rugolo

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

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

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

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

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

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

Categories: Policy Institutes

Molehill of Antarctic Ice Becomes a Mountain

Cato Op-Eds - Tue, 07/22/2014 - 17:00

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 science,…novelty emerges only with difficulty, manifested by resistance, against a background provided by expectation. Initially, only the anticipated and usual are experienced even under circumstances where the anomaly is later to be observed.

–Thomas Kuhn, The Structure of Scientific Revolutions (1962)

One of global warming’s “novelties” is that satellite measurements show the extent of ice surrounding Antarctica is growing significantly, something not anticipated by our vaunted climate models.

Thomas Kuhn would predict “resistance”, and today we see yet another verification of how stubborn science can be in the face of results don’t comport with the reigning  paradigm.  The paradigm, in this case, is that our climate models are always right and any counterfactuals are because something is wrong with the data, rather than with the predictions.

“Resistance” means that peer-reviewers aren’t likely to find much wrong with papers that support the paradigm (and that they will find a lot wrong with ones that don’t).  Further, the editors of scientific journals will behave the same, curiously avoiding obvious questions.

Perhaps as fine an example as there is of this process appeared June 21 in the journal The Cryosphere, which is published by the European Geosciences Union.  It is a paper called  “A spurious jump in the satellite record:  has Antarctic sea ice expansion been overestimated?”, by Ian Eisenman (Scripps Institution) and two coauthors.

As shown in our figure, the increase in Antarctic ice extent has been quite impressive, especially since approximately 2000.

Antarctic ice extent from Cryosphere Today (http://arctic.atmos.uiuc.edu/cryosphere/IMAGES/seaice.anomaly.antarctic.png)

Not so fast.  Eisenman et al. write that “much of the expansion [of Antarctic ice] may be a spurious artifact of an error in the processing of satellite observations” [emphasis added].

Wow, that would be really something, knocking down one of the glaring anomalies in global climate, and adding credence to the models.  Eisenman et al. note

In recent years there has been substantial interest in the trend in Antarctic sea ice extent…primarly due to the observed asymmetry between increasing ice extent in the Antarctic and rapidly diminishing ice extent in the Arctic (e.g. Cavalieri et al., 1997) and the inability of current models to capture this (e.g. Eisenman et al, 2011).

No doubt working from the premise that the observed increase in Antarctic ice just can’t be right, Eisenman et al. would appear to have finally verified that hypothesis.

Until you look at the numbers.

Then you are left questioning the review process—at all levels—relating to this work.

The key finding is that there was a processing error in the data.  Microwave sensors that are used to estimate ice extent (and also lower atmospheric temperature) wear out in the harsh environment of space, and new satellites are launched with fresh equipment.  But each one doesn’t send data with the exact same statistical properties, so a succeeding sensor is “calibrated” by comparison with an existing one.

Eisenman et al. found that there was a change in the intercalibration between instruments in December, 1991 when the data were reprocessed in 2007.  Apparently this wasn’t immediately obvious because there is so much “noise” in the data.

Indeed, Eisenman et al have located the needle in this haystack, showing the step-change between the two data sets:

Please take a look at the y-axis.  You will see that the value of the “step” change is about 0.2 times 106 square kilometers, or 200,000 square kilometers.

Wow, that’s a lot!  After all, Eisenman et al. tell us that this shift explains “much” of the increase in Antarctic sea ice.

Hopefully readers caught on before going this far.  If the reason that the shift was undetected is because the data is so noisy, how important can it be?  Now, have a look at the overall ice extent, shown in our first figure.

The y-axis is in millions of square kilometers.  The change since the turn of the century is about 1.3 million square kilometers, a mountain of ice  The step change is about 200,000, a molehill.   That doesn’t sound like “much” to us.

But, hey, if you don’t look too close—and we are sure are greener friends (or the reviewers) won’t (or didn’t)—you might believe that everything is ok with the reigning, model-based paradigm.  In fact there’s “much” that is wrong with it.

As Kuhn wrote, “Only the anticipated and usual are experienced even under circumstances where the anomaly is later to be observed.”

Categories: Policy Institutes

Slate Publishes Inaccurate, Fallacious Piece on Sweden and School Choice

Cato Op-Eds - Tue, 07/22/2014 - 15:39

Andrew J. Coulson

Last week Slate published a misinformed piece on Sweden’s school choice program and what we can learn from it. The errors of fact and logic are glaring. Apparently, they don’t have multiple layers of fact checking over there, so I decided to lend a hand and correct the record at Education Next.

Here’s a snippet:

First, [Slate] claims that “more Swedish students go to privately run (and mostly for-profit) schools than in any other developed country on earth.”  In fact, neither of these claims is true. Taking the parenthetical claim first, according to the most recent data of which I am aware (from 2012), the majority of Swedish private schools are non-profit (in Swedish, “Ideella”).

As for overall private sector enrollment among industrialized countries, we can consult the OECD, an association of 34 industrialized nations that administers the PISA test:

“On average across OECD countries… 14% of students attend government-dependent [i.e., gov’t-funded] private schools…. In Sweden, the share of students in private schools increased significantly over the past decade from 4% in 2003 to 14% in 2012…. This brings the share of students in private schools close to the OECD average.”

Slate, in other words, is badly mistaken on this point. How badly? Here are the top five industrialized countries by share of private school enrollment, according to the OECD’s 2012 PISA database:

Belgium 68.4 Netherlands 67.6 Ireland 58.2 Korea 47.5 UK 45.2

 

 

 

 

 

Sweden doesn’t even come close….

Categories: Policy Institutes

Statement on D.C. Circuit’s Ruling In Halbig v. Burwell

Cato Op-Eds - Tue, 07/22/2014 - 14:54

Michael F. Cannon

In August 2011, the Internal Revenue Service proposed offering subsidies through health insurance Exchanges established by the federal government, even though the Patient Protection and Affordable Care Act clearly and repeatedly provides those subsidies are available only “through an Exchange established by the State.” Due to the PPACA’s interrelated provisions, the decision to offer unauthorized subsidies in federal Exchanges also triggers unauthorized taxes against millions of individuals and employers in the 36 states that ultimately opted not to establish Exchanges. When the IRS finalized this proposal in May 2012, it cited no authority for its decision to depart from the clear language of federal law.

Jonathan Adler and I were the first to criticize this decision in August 2011, and have continued to show how it is contrary to federal law and the PPACA’s legislative history.

Today, a panel of the U.S. Court of Appeals for the D.C. Circuit – known as the second-highest court in the land – ruled in Halbig v. Burwell that the Obama administration is indeed imposing taxes and spending funds through those 36 federal Exchanges without statutory authority, and indeed contrary to the plain language of the PPACA.

Simply put, the president is violating the law.

Unlike other courts who have examined Halbig and related cases, the D.C. Circuit looked at the totality of the evidence, reached the only conclusion the law and the evidence permit, and struck down the IRS rule.

The court rejected the seemingly endless string of legal arguments the administration offered in defense of its actions. Despite those arguments, the court held, “the government offers no textual basis…for concluding that a federally-established Exchange is, in fact or legal fiction, established by a state.” As a result, the PPACA “does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges” and the Obama administration’s decision to offer them anyway is not only unauthorized but “gives the individual and employer mandates…broader effect than they would have” if the IRS followed the law.

While the dissent was political, focusing on the plaintiff’s motives, the opinion of the court was authored by Judge Thomas B. Griffith, whom the Washington Post has described as “widely respected by people in both parties, and those who have worked with him elsewhere regard him as a sober lawyer with an open mind. There is considerable reason to think he would make a fine judge.” His nomination to the D.C. Circuit drew praise from prominent Democrats including Seth Waxman and David Kendall. Indeed, then-senator Barack Obama himself supported Griffith’s nomination. Griffith noted that while the court’s ruling could have a significant impact on the PPACA, “high as those stakes are, the principle of legislative supremacy that guides us is higher still.”

The D.C. Circuit applied the law that Congress enacted. Any downstream effects of Halbig are the result of the PPACA itself, not today’s ruling. If those effects are intolerable, then it is up to Congress to change the law, not the IRS. If Halbig results in people losing health-insurance subsidies, the blame lies with a president who recklessly offered millions of Americans tens of billions of dollars in subsidies he had no authority to offer, that could vanish with a single court ruling.

Categories: Policy Institutes

Life in Britain on the Eve of the First World War

Cato Op-Eds - Tue, 07/22/2014 - 12:27

Marian L. Tupy

The Telegraph has an interesting series of short articles about life in Britain at the start of WWI. While all of the articles are worth reading, here are the most interesting parts for those who are interested in comparing standard of living then and now.

Work and leisure

Most Edwardians worked in dark, noisy factories, cut hay in fields, toiled down dirty and dangerous mines; had bones bent by rickets and lungs racked by tuberculosis. Life expectancy then was 49 years for a man and 53 years for a woman, compared with 79 and 82 years today. They lived in back to back tenements or jerry-built terraces, wore cloth caps or bonnets (rather than boaters, bowlers and toppers) and they had never taken a holiday - beyond a day trip to Brighton or Blackpool - in their entire lives.

Transport

Mrs Patrick Campbell was invoked in court on the eve of the war to prove that a driver charged with ‘exceeding the motor-car speed limit’ (20mph) was really driving ‘very carefully.’

In the last full year before the war, 2,099 people died on the road (compared with 1,754 in 2012).

In 1910 of the 500 pilots active, 29 died, in half a million miles of flying. Much safer were the 5,800 pilots of 1912, of whom 140 died in 12.5 million miles… present-day aviation fatalities run at one every 1.24 billion miles.

Diet

Beyond the average purse, 5lbs for 1s and 2d – they [Jersey potatoes] are a luxury as are fresh peas. To have them you are going to have to economise on other articles of diet.

Entertainment

Alongside reels from Charlie Chaplin and Mary Pickford which delighted the masses came more artistically ambitious fare: from Italy, according to a review published on 11 March, came The Passions of the Renaissance, ‘a masterpiece of cinematography’ which ‘simply enthralls the spectator’, and a ‘startling’ documentary about the British army which featured ‘some very wonderful pictures of bursting shrapnel.’

Women’s rights

[One] of the abiding images of the women’s suffragette movement is the arrest of its militant leader Mrs Emmeline Pankhurst as she tried to present a petition to the King at Buckingham Palace in May 1914. She was lifted off her feet in a bear hug by Chief Inspector Rolfe… The day after the Buckingham Palace protest some 60 women appeared at Bow Street and there was utter chaos as they shouted, sang the Marseillaise, threw newspapers and launched a shoe at the magistrate which he neatly caught and passed to an attendant. The Telegraph coverage was headlined ‘Suffragette Orgie [sic], Pandemonium in Court.’

Categories: Policy Institutes

Government Can’t Rewrite Obamacare Text Without Legislation

Cato Op-Eds - Tue, 07/22/2014 - 11:29

Ilya Shapiro

The D.C. Circuit ruled today that the government isn’t Humpty Dumpty and so statutory text doesn’t mean whatever the government says it means.  The provision at issue, which grants tax credits for people to buy health insurance, only applies to people buying policies through “exchanges established by the State”–which in any sane world can’t apply to exchanges established by the federal government. The fact that the vast majority of states have declined the federal government’s offer to establish exchanges–the list grows daily as initially supportive states’ exchanges fail–and that the resulting system thus doesn’t function as Obamacare’s supporters hoped is of no moment.

The government would have the IRS and courts rewrite the law to fix its massive structural weaknesses. But neither executive-agency bureaucrats nor judges can change the text of the Affordable Care Act, after-the-fact legal rationalizing notwithstanding. Today’s ruling shows that Obamacare, a cynical political bargain that lacked popular support from day one, simply doesn’t work as conceived. It’s time to repeal this Frankenstein’s monster and instead pass market-based health care reform that lowers costs, expands choice, and increases quality-all while respecting the rule of law.

Read Cato’s brief in Halbig v. Burwell, which I previously blogged about here.

Categories: Policy Institutes

Chinese Anomalies: How the World’s Largest Country is Really Different from America

Cato Op-Eds - Tue, 07/22/2014 - 09:06

Doug Bandow

SHENYANG, CHINA—For the longest time I viewed twitter as, well, a silly waste of time, and refused to use it.  I still view it as a silly waste of time in any normal world.  But I finally gave in after friends and colleagues told me that it would be a very useful tool.  I’m still not convinced, but I have to admit that I’m pleased to see the rise in the number of people following me (@Doug_Bandow) over time.

When I travel somewhere I normally go onto Google, check the news, and comment on current stories.  After arriving in the People’s Republic of China (PRC) I logged in and plugged in Google.  Which wouldn’t come up.  So tried it again.  And nothing.

Then the light went on.  Of course.  The Beijing authorities set up a Chinese version since they didn’t want their people to be able to access articles on forbidden topics.  Of course, I thought, I could still make comments on Twitter about my visit.  But when I tried to load Twitter and the same thing happened.  Another bulb lit up.  Of course:  the PRC has set up its own system (Weibo) because people say bad things about China—its policies and leaders—on Twitter.  So that service can’t be allowed.

It really makes one appreciate living in a free society. 

But perhaps the most stunning aspect of China, which it takes a while to recognize, is the dearth of children and almost complete absence of siblings.  There are a lot of people here.  If you don’t like crowds, forget visiting Chinese cities.

However, for years the PRC has enforced, with various degrees of ruthlessness, the “one child” policy.  Most families have one kid.  Since rural, farming families tended to value boys for their labor, the policy led to infanticide with the killing of female babies.  In part because of the latter, in recent years the government has relaxed the rules at the margin.

The result is a very odd national demographic.  There are, for instance, too many men, many of whom won’t be able to find a wife.  That will result in potential social dynamite.  Moreover, the aging of the society will be extreme, far worse than in America and Europe.  Some analysts speak of China growing old before it grows rich.

The economic, social, and political consequences will be huge.  But the visual impact is more dramatic for the average visitor.  No parents carrying a baby and holding a toddler by the hand.  No harried mom or dad trying to keep up with a couple hyper-charged boys.  No travelers attempting to guide a couple of young children onto the plane while holding an infant and stowing a baby carriage.

As for the college students I often deal with, there are none of the joys or frustrations of siblings.  They will have no nieces or nephews.  There will be no networks of cousins.  The contrast with America is obvious enough.  The contrast with more traditional societies with very tight networks of extended families is even greater.

It’s another reason to appreciate living in a nation where people are generally left free to make personal decisions.

The PRC is a fascinating place, a complicated civilization with a venerable heritage in rapid transition to somewhere, and no one is quite sure where.  But while China has shown how market liberalization creates growth and empowers the poor, it also demonstrates how market liberalization is not enough to create a free society.  Hopefully some day the Chinese people will be truly free.

Categories: Policy Institutes

Halbig v. Burwell Winners Outnumber Losers by More than Ten to One

Cato Op-Eds - Mon, 07/21/2014 - 12:17

Michael F. Cannon

Today at DarwinsFool.com, I released estimates of the impact of a potential ruling for the plaintiffs in Halbig v. Burwell, one of four cases currently before federal courts claiming that the subsidies and taxes the IRS is implementing in the 36 states with health-insurance Exchanges established by the federal government are illegal. The Patient Protection and Affordable Care Act repeatedly says those taxes and subsidies are authorized only “through an Exchange established by the State.”

Left-leaning groups and media outlets that defend the IRS are attempting to portray a potential ruling for the Halbig plaintiffs as catastrophic, because it would put an end to the subsidies roughly 5 million individuals enrolled in federal Exchanges are currently receiving. As I explain in detail, those commenters ignore three crucial facts. One, a victory for the Halbig plaintiffs would increase no one’s premiums. It would merely stop the IRS from unlawfully shifting the cost of those overly expensive PPACA premiums from enrollees to taxpayers. Two, if federal-Exchange enrollees lose subsidies, it is because the courts will have found those subsidies are, and always were, illegal. And three, if the Halbig plaintiffs prevail, the winners in the 36 states with federal Exchanges would outnumber the losers by more than ten to one.

As I explain at Darwin’s Fool, here is what the IRS’s defenders don’t want you to know about the impact of a potential Halbig victory.

  • A Halbig victory would free more than 8.3 million individuals from the PPACA’s individual mandate. That’s how many people in those 36 states the IRS is currently subjecting to the individual-mandate tax without statutory authorization.
  • In the 36 states with federal Exchanges, a Halbig victory would free 250,000 firms and 57 million employees from the PPACA’s employer mandate. That’s how many people the IRS is unlawfully subjecting to the employer mandate.
  • The number of winners under a Halbig victory is therefore more than ten times larger than the 5 million people who would lose an illegal subsidy.
  • Those 5 million people are “losers” not because they were deprived of an illegal subsidy. Regardless of one’s position on the PPACA, we can all agree that courts should put an end to illegal government spending whenever they can. Those people are “losers” because the Obama administration recklessly induced them to purchase overly expensive Exchange coverage with the promise of billions of dollars in subsidies that it has has no authority to offer, and that could disappear with a single court ruling.

I also provide state-level estimates of the number of firms and individuals Halbig would free from these mandates. For example:

  • A Halbig victory would free nearly 1 million Floridians from the individual mandate, and more than 16,000 firms and 5.1 million Floridians from the employer mandate.
  • It would free more than 1.5 million Texans from the individual mandate, and free more than 24,000 firms and nearly 7 million Texans from the employer mandate.
  • A Halbig victory would also enable the 14 states (plus D.C.) that established Exchanges to exempt residents and employers from those mandates by switching to a federal Exchange, as well as create political and economic incentives for states to make the switch.
  • If the Halbig plaintiffs prevail, the 14 establishing states (plus D.C.) could cumulatively exempt 3.8 million residents from the individual mandate and exempt 123,000 firms and nearly 29 million residents from the employer mandate.
  • California, for example, could exempt 1.7 million residents from the individual mandate, and exempt 32,000 firms and 9.4 million workers from the employer mandate.
  • Though those states would lose Exchange subsidies if they switched to a federal Exchange, the much larger number of firms and residents who would benefit could still pressure state officials to make the switch.
  • These states could also experience economic pressure to switch to a federal Exchange, because the employer mandate (which increases the cost of doing business) will be operative in their states but not in states that opt for a federal Exchange. Establishing states could therefore lose jobs to federal-Exchange states, unless they become federal-Exchange states themselves.

Click here for state-by-state data on the impact (or potential impact) of a Halbig ruling.

Categories: Policy Institutes

U.S. Should Test China’s Disenchantment with North Korea

Cato Op-Eds - Mon, 07/21/2014 - 10:50

Ted Galen Carpenter

Evidence mounts that the Chinese government is mightily annoyed with its volatile North Korean ally.  Long gone are the days when Chinese officials invariably described the relationship between their country and North Korea as being “as close as lips and teeth.”   In a new article in China-U.S. Focus, I show how the chill in the bilateral relationship has been growing for years and has now reached unprecedented levels.  A stark indication was Chinese President Xi Jinping’s recent state visit to South Korea, which became a blatant snub to Pyongyang.  Xi did not even bother to stop in the North Korean capital either before or after his summit meeting with South Korean President Park Geun-hye.

The main reason for Beijing’s annoyance has been North Korea’s repeated defiance of China’s warnings not to conduct nuclear tests or missile tests.  Both Kim Jong-un and his father and predecessor as North Korea’s supreme leader, Kim Jong-il, ostentatiously ignored Beijing’s admonitions that such conduct was provocative and disruptive.  Xi’s courtship of Seoul sends a new warning to Pyongyang that there may be a high price to pay for such defiance.

It also creates an ideal opportunity for the United States to see whether, for the right price, Chinese leaders might be willing to dump North Korea and treat South Korea as its future partner on the Peninsula.  Clearly, that would require an even more drastic shift in China’s policy than what has occurred so far.  It also would require Washington to make an equally drastic policy change.  The core of any deal would be a willingness to withdraw all U.S. forces from the Korean Peninsula and phase-out the defense treaty with Seoul, if Beijing agreed to end its support of North Korea and facilitate Korean unification.  Since Washington’s alliance with South Korea is a relic of the Cold War, when Seoul was incapable of providing for its own defense and both Beijing and Moscow firmly backed North Korea militarily, such a concession would not come at the expense of crucial U.S. interests.  Today, Seoul has more than enough financial resources to build whatever military capabilities it deems necessary.

There is, of course, no guarantee that Beijing would accept such a deal, but the time is ripe at least to explore that possibility.  Chinese leaders are clearly disenchanted with their North Korean ally.  We need to find out just how disenchanted, and that requires flexibility and creativity in U.S. foreign policy.

Categories: Policy Institutes

The Dangers of Waging War by Proxy

Cato Op-Eds - Mon, 07/21/2014 - 09:44

Christopher A. Preble

The shocking destruction of Malyasian Airlines MH17 is merely the latest in a string of cases in which irresponsible and unaccountable proxies have brought shame and international condemnation down upon the heads of their foreign sponsors. The precise details of how a passenger airliner carrying 298 souls fell from the sky still aren’t known, but, as Jon Lee Anderson notes in the New Yorker, ”however it played out, this sort of tragedy is a natural consequence of giving weapons to violent men who feel that their powerful sponsor allows them to commit crimes with impunity.”

One hopes, once the memorials to the victims are concluded, and friends and families have had time to come grips with their loss, that the MH17 incident will induce greater caution on the part of would-be foreign sponsors the next time they consider arming shadowy rebels. But I’m not that optimistic. It certainly won’t be sufficient to stop all such cases. Advocates will likely claim that the particular proxy group that they favor isn’t at all like the pro-Russian separatists in Ukraine, and, thus, that there is nothing to worry about. “Our guys can be trusted with these weapons,” they’ll say. One hopes that skeptics won’t be scorned and ridiculed for voicing concerns. 

For now, the focus is appropriately on Russian President Vladimir Putin’s cynical manipulation of the unrest in Ukraine. And that is where it should stay. I warned more than two months ago that Putin wasn’t the evil genius that some in the West have made him out to be, and that he likely had less control over the separatists in Ukraine than some alleged. His proxies might ignore him if he told them to stand down, I predicted, or do other things that he didn’t entirely support. The downing of a civilian airliner isn’t what I had in mind, but the bottom line is the same: senseless, tragic death. It doesn’t matter that Putin didn’t push the button that launched the missile, or that he didn’t want civilians – especially foreign nationals – targeted. If he provided separatists with weapons capable of causing such destruction, he bears responsibility for their actions. 

That Putin appears to recognize this is proved by his mouthpiece Russia Today’s ham-fisted attempt to shift blame. RT’s initial report that it was caused by a Ukrainian missile fell apart almost immediately. Separatists, with Russian help, were seen trying to cover their tracks by moving SA-11 missile batteries within a few hours of the disaster. Strategic masterminds don’t deny responsibility for military operations that they are proud of. Eisenhower didn’t try to claim that the Normandy landings were a false flag operation. Douglas MacArthur’s forces at Inchon weren’t disguised as little green men. The absurdity of RT’s latest efforts prompted London-based RT reporter Sara Firth to quit in protest. “I couldn’t do it any more,” she told BuzzFeed. “Every single day we’re lying and finding sexier ways to do it.”

In the United States, hawks wasted no time trying to build support for tougher actions against Russia. This was inevitable. Whether any of these measures – including more military aid to Ukraine, more troops in Eastern Europe, and more sanctions – will have the desired effect seems to be beside the point. For my part, I would prefer forcing Putin to stew in the juices of his disastrous proxy war a little longer while the evidence of Russian complicity accumulates. We shouldn’t allow him to divert attention away from this heinous act.

Categories: Policy Institutes

Is Fiscal Constraint a Bug or a Feature?

Cato Op-Eds - Sun, 07/20/2014 - 11:55

David Boaz

A Washington Post profile of Art Pope, political donor and now budget director of North Carolina, finds a flaw in his fiscal management:

For all of his pull, the revolution Pope helped set in motion is not going quite as planned. The tax overhaul, styled in part off ideas promoted by Pope-backed groups, has contributed to tight finances in North Carolina at a time when other states are flush with cash.

Is that bad? Fiscal conservatives such as Pope just might think that budgetary constraints are a good thing, perhaps especially when revenues would otherwise be rising, leading to profligacy. State governments have a tendency to overspend when the economy booms, and then face difficult adjustments in downturns. Limits on overspending, whether constitutional constraints or tax reductions, should be seen as a feature, not a bug, in state fiscal systems.

By the way, this Post profile of Pope, who is a contributor to the Cato Institute, is not exactly positive, but it’s nothing like Jane Mayer’s 2011 profile in the New Yorker, which I dubbed “Snidely Whiplash in North Carolina.”

Categories: Policy Institutes

Foreign Policy Hawks Ignore Data

Cato Op-Eds - Fri, 07/18/2014 - 14:43

Stephanie Rugolo

As 2016 presidential contender Rand Paul catches flack for his so-called foreign policy “isolationism,” the neocons go on frightening the public. According to the hawks, the world is getting more dangerous.

In a Politico interview last Monday, Dick Cheney said, “The world’s not getting safer, it’s getting far more dangerous.” On the same day, Newt Gingrich said on CNN:

After 9/11, the United States is not safer … in an increasingly dangerous world… If you look at what’s happening around the world today, it’s almost impossible to say that we’re safer… The worldwide scene is not a very safe scene.”

Senator John McCain also said on CNN that the world is “in greater turmoil than at any time in my lifetime.”

While 2014 may in some ways be less safe than 2013, foreign policy hawks ignore long-term trends that show an increasingly safer world. Consider the following evidence from HumanProgress.org. First, all types of wars, from civil to interstate, are less deadly:

Second, deaths from genocide are on a downward slope:

Third, terrorism poses relatively little threat. As my colleague John Mueller has stated, terrorism outside of war zones has claimed fewer lives each year since 9/11 than annual bathtub drownings in the United States. The data reflect this, showing a declining trend since the early 1980s:

While we’re on the topic of politicians frightening Americans with misleading claims about global violence, note that U.S. rape and homicide rates have dramatically dropped since the early 1970s:

Why should you care that fear-mongers try to make the world seem less safe than it is? Because, in so doing, the hawks drum up support for policies that may make us less secure and less prosperous.

Categories: Policy Institutes

U.S. Chamber of Commerce Seeks to Defeat Top Free-Enterpriser Rep. Justin Amash

Cato Op-Eds - Fri, 07/18/2014 - 12:05

David Boaz

In 2008 the U.S. Chamber of Commerce supported TARP, the $800 billion Wall Street bailout. Early in 2009 the Chamber supported President Obama’s $800 billion “stimulus” bill. Then four months later it announced its creation of the “Campaign for Free Enterprise.” As I pointed out at the time, it would have been nice if the Chamber had discovered the virtues of free enterprise when it mattered.

Now the Chamber’s got a new campaign that seems incongruous for a “free enterprise” organization. It has endorsed the primary opponent of Rep. Justin Amash (R-MI), the most pro-free-enterprise and most libertarian member of Congress. You don’t have to take my word for that. The Club for Growth rates Amash 100 percent. The National Taxpayers Union rates him second among 435 members of Congress in fiscal conservatism. He scored 100 percent on the Freedomworks Scorecard.

So why would the Chamber of Commerce oppose him? I looked at big business opposition to Amash and several other libertarian-leaning legislators last month:

In Michigan business leaders are funding financial consultant Brian Ellis’s primary challenge to Rep. Justin Amash. Since his election in the 2010 tea party wave, Amash has emerged as the most libertarian member of the House of Representatives. He’s second to McClintock on the National Taxpayers Union spending-vote ratings. He organized a bipartisan effort to rein in the National Security Agency that came within a few votes of passing the House. He heads the House Liberty Caucus. Amash told the New York Times, “I follow a set of principles, I follow the Constitution. And that’s what I base my votes on. Limited government, economic freedom and individual liberty.”

So why wouldn’t Grand Rapids business leaders be proud to have such a widely admired young representative? They say they want a congressman who will work with others to “get things done.” Andrew Johnston, the political director of the Grand Rapids Chamber of Commerce, told the Wall Street Journal, “There is frustration among those who think his rigidity makes it difficult to move forward on legislation.” He promised that Ellis “will have access to funds that will be helpful to his campaign.”

It’s not just local businessmen. Washington lobbyists are rallying around Ellis. He’s also put $400,000 of his own money into his campaign—in the form of loans, which can be paid back out of more lobbyists’ contributions if he wins the race.

In an interview with the Weekly Standard, Ellis strikingly dismissed Amash’s principled, constitutional stand: “He’s got his explanations for why he’s voted, but I don’t really care. I’m a businessman, I look at the bottom line. If something is unconstitutional, we have a court system that looks at that.”

Most members of Congress vote for unconstitutional bills. Few of them make it an explicit campaign promise.

Amash does have the support of Freedomworks, Club for Growth, and some local business leaders such as several members of Amway’s DeVos and Van Andel families. And polls show him 20 points ahead of Ellis. But Rep. Eric Cantor had a poll putting him 30 points ahead of David Brat before he unexpectedly lost, and Ellis’s self-funding now amounts to $800,000. So Amash can’t take anything for granted.

Of course, the Export-Import Bank is now a hot issue in Congress. Amash opposes it; the Chamber vigorously supports it. So it looks like it may be tough to support free markets, oppose bailouts and corporate welfare, and receive the support of the nation’s largest business organization.

Categories: Policy Institutes

Halbig v. Burwell Would End The Disruption

Cato Op-Eds - Fri, 07/18/2014 - 09:58

Michael F. Cannon

The U.S. Court of Appeals for the D.C. Circuit could issue a ruling today in Halbig v. Burwell, one of four lawsuits challenging an Internal Revenue Service rule that effectively implements the Patient Protection and Affordable Care Act’s exchange subsidies where the statute does not permit: in exchanges that were not “established by the State” – i.e., federal exchanges. 

Tim JostNorman OrnsteinAvalere Healththe Urban Institute, the Robert Wood Johnson Foundation, and others who support the Obama administration’s position (we cannot say they support PPACA) predict much disruption if the courts rule against the administration. 

Over at DarwinsFool.com, I have a new post explaining how Halbig would put an end to the disruption, which is much greater than they recognize:

In 2011, the Obama administration issued an IRS rule in which it unilaterally decided to tax, borrow, and spend billions of dollars. Treasury and IRS officials apparently knew they did not have statutory authority to do it. They did it anyway.

The impact of that IRS rule has been enormous. Insurers chose to participate in the PPACA’s Exchanges who otherwise would not have. Employers have reconfigured their health insurance benefits, eliminated jobs, and/or cut hours for perhaps millions of employees, including teaching assistants and restaurant workers, to comply with a mandate from which they are, by law, exempt. Millions of Americans are already paying penalties under, or have purchased coverage to comply with, an individual mandate from which they are, by law, exempt. Nearly 5 million Americans agreed to enroll in Exchange coverage with the promise of subsidies the Obama administration has no authority to offer to them, that could vanish with one court ruling or by regulatory fiat. With every unauthorized subsidy that flows from the IRS to private insurance companies, the federal debt rises above the level authorized by law, imposing an unauthorized tax burden on current and future generations.

The IRS rule has had a sweeping impact on the political process as well. It denied states—denied voters—the use of a policy lever Congress granted to them: the ability to veto the PPACA’s subsidies, employer mandate, and individual mandate. In effect, the rule disenfranchised voters in the 36 states that exercised those vetoes. Had the administration followed the law, those 36 vetoes would have led to changes in the PPACA, and possibly changes in Congress. Instead, the IRS rule altered the outcome of congressional votes and, likely, of congressional elections. Americans voted in 2012 as if there were not a gaping hole in the PPACA that would expose its full cost and destabilize its regulatory scheme. The IRS rule is still influencing congressional elections today. Potential candidates are deciding whether to enter the 2014 congressional races as if that gaping hole does not exist; as if the law Congress enacted were more popular and successful than it actually is…

The purpose of Halbig is to end the massive economic and political disruption caused by the president’s decision to ignore the clear statutory language he is sworn to uphold.

Read the whole thing.

Categories: Policy Institutes

Planning for the Unpredictable

Cato Op-Eds - Fri, 07/18/2014 - 09:29

Randal O'Toole

How do you plan for the unpredictable? That’s the question facing the more than 400 metropolitan planning organizations (MPOs) that have been tasked by Congress to write 20-year transportation plans for their regions. Self-driving cars will be on the market in the next 10 years, are likely to become a dominant form of travel in 20 years, and most people think they will have huge but often unknowable transformative effects on our cities and urban areas. Yet not a single regional transportation plan has tried to account for, and few have even mentioned the possibility of, self-driving cars.

Instead, many of those plans propose obsolete technologies such as streetcars, light rail, and subways. Those technologies made sense when they were invented a hundred or so years ago, but today they are just a waste of money. One reason why planners look to the past for solutions is that they can’t accurately foresee the future. So they pretend that, by building ancient modes of transportation, they will have the same effects on cities that they had when they were first introduced.

If the future is unpredictable, self-driving cars make it doubly or quadruply so. Consider these unknowns:

  • How long will it take before self-driving cars dominate the roads?
  • Will people who own self-driving cars change their residential locations because they won’t mind traveling twice as far to work?
  • Will employers move so they can take advantage of self-driving trucks and increased employee mobility?
  • Will car-sharing reduce the demand for parking?
  • Will carpooling reduce the amount of vehicle miles traveled (VMT), or will the increased number of people who can “drive” self-driving cars increase VMT?
  • Will people use their cars as “robotic assistants,” going out with zero occupants to pick up groceries, drop off laundry, or do other tasks that don’t require much supervision?
  • Will self-driving cars reduce the need for more roads because they increase road capacities, or will the increase in driving offset this benefit?
  • Will self-driving cars provide the mythical “first and last miles” needed by transit riders, or will they completely replace urban transit?

Planners from the MPOs in Seattle and Atlanta asked participants at the recent Autonomous Vehicle Symposium to help them incorporate self-driving cars in their regional transportation models. Yet the consensus was that no one has any idea about the answers to the questions I aksed above. The only prediction that people could come close to agreeing on was that self-driving cars will increase miles of driving as people take advantage of greater mobility more than they increase carpooling.

Self-driving cars are not a black swan amidst the flock of knowns about urban planning; they are a whole flock of black swans, any one of which could completely sink even the most accurate predictions about all the others.

Some of the planners believed they could make guesses about the effects of self-driving cars and use them to make “sensitivity runs” to estimate the possible magnitude of the effects of self-driving cars on cities. But even if they made such runs, they would have no idea which runs will come close to reality.

“There are no models in planning practices that can predict the emergence of new modes and forms of mobility,” admitted one planner. “Our models haven’t even got the Internet yet. They haven’t got the cell phone. They’re not going to have autonomous cars.” Another agreed: “ITS [intelligent transportation systems] is 25 years old, but our models still don’t account for it.”

We are about to introduce a new technology that will completely transform our society in unpredictable ways, and many of those transformations will start changing travel behaviors and land-use patterns well before 20 years are up. The fact that the plans are revised every five years doesn’t help because many of those plans include costly investments in projects that take decades to complete. Even if new information reveals that those investments are no longer appropriate, once begun the political pressure to complete the projects will likely be too great for future officials to resist.

This means it’s not enough to simply rewrite transportation planning models. We need to rewrite the entire process of urban planning, following four principles:

  1. Instead of writing 20-year plans that pretend to know what a city will need in the distant future, planners should only write short-term plans that solve today’s problems without foreclosing options for the future.
  2. Planning processes should be streamlined so that it no longer takes 10 or more years to plan, design, and build facilities that, a few decades ago, were built in a couple of years.
  3. Urban areas should avoid infrastructure projects that take decades to complete and would make sense only if people completely changed their lifestyles.
  4. New transportation facilities should be “generic” in the sense that they can be used by a wide variety of modes and easily adopted for whatever modes become dominant in the future.

If some of these suggestions sound familiar, that’s because I’ve made them before, particularly in my 2007 book The Best-Laid Plans. The future is unpredictable even without self-driving cars, and I’ve had little faith in the ability of long-range plans to cope with those unpredictabilities. But now even the planners are willing to admit that they can’t cope with the unpredictable effects of this new technology. I hope that at least some of them are willing to tell that to Congress, which created the requirement for 20-year plans, that it needs to change the rules.

Categories: Policy Institutes

Latvia, the Country Prof. Krugman Loves to Hate, Wins 1st Prize

Cato Op-Eds - Thu, 07/17/2014 - 17:05

Steve H. Hanke

I constructed a misery index and ranked 89 countries from most to least miserable based on the available data from the Economist Intelligence Unit. My methodology is a simple sum of inflation, bank lending and unemployment rates, minus year-on-year per capita GDP growth. The table below is a sub-ranking of all former Soviet Union (FSU) states contained in my misery index.

For these FSU states, the main contributing factors to misery are high levels of unemployment and high interest rates.

The low misery index scores in Estonia and Lithuania don’t surprise me as I helped both countries establish sound money with the installation of currency boards in 1992 and 1994, respectively. Latvia, a country Paul Krugman loves to hate, takes the prize for the least miserable of the former Soviet Union countries in this sub-ranking.

Categories: Policy Institutes

House Bill Eviscerates Asylum System, Deports Child Trafficking Victims

Cato Op-Eds - Thu, 07/17/2014 - 16:01

Alex Nowrasteh

President Obama recently asked Congress for authority to treat Central American children in the same way the government treats Mexican children. The Asylum Reform and Border Protection Act (H.R. 5137), introduced today by Reps. Chaffetz (R-UT) and Goodlatte (R-VA), Chairman of the House Judiciary Committee, goes beyond the President’s request. The bill eliminates any sort of review for juvenile victims of trafficking and the requirement that an immediate return of a child be voluntary.

Under current law, Mexican children may be immediately removed if they are:

  1. Not severe victims of trafficking,
  2. Not asylum seekers, or
  3. If they accept voluntary departure, a procedure by which the child admits that he or she has no right to be here and leaves in lieu of formal removal proceedings.

Under the proposed H.R. 5137, all children caught at the border would be subject to expedited removal, a process under which they can be removed without a hearing before a judge if they have no credible fear of persecution (8 USC 1225(b)). This process triggers an automatic 5-year bar on legal reentry (8 USC 1182(a)(9)(A)(i)). Any child caught at the border may be detained until his asylum application is adjudicated. It extends the current arbitrary one year deadline on asylum applications for adults to children.

Unaccompanied children could be detained or released under the bill while waiting for final approval of their asylum application, but the bill redefines “unaccompanied” to mean that once a child has been released to a parent, they no longer qualify for release, which means they would head right back into detention.

Worse, H.R. 5137 raises the initial standard of review for all asylum claims for children. Rather than going before a judge simply by asserting a fear, they would actually have to convince an asylum officer that their claim was “more probable than not” to be factual in order to even to go before a judge. Raising the standard that high for an initial review would bar many legitimate asylum seekers.

Even worse, H.R. 5137 allows children apprehended at the border to be removed without any asylum screening to a “safe third party country” (i.e. Mexico) without an agreement from that country, as is required by current law. If H.R. 5137 becomes law, the U.S. government would immediately start dumping Honduran, El Salvadoran, and Guatemalan children into Mexico.

The crisis along the Southwest border has prompted many Americans to want all unlawful immigrants and children removed. But this bill goes far beyond that desire. H.R. 5137 would remove many foreigners who have legal rights under our current immigration laws. H.R. 5137 would be a disastrous blow to America’s asylum system and send numerous children with legitimate asylum claims back into danger.

Categories: Policy Institutes

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