Policy Institutes

The federal Supplemental Security Income (SSI) program provides income to low-income, disabled individuals, including children. In 2014, SSI paid benefits totaling $56 billion to 8 million people. A new Government Accountability Office (GAO) report suggests that a substantial share of that money was spent improperly.

GAO reports that in 2014, SSI wasted $5.1 billion, or almost 10 percent of SSI spending, on improper payments. GAO says that much of the problem is due to SSI’s “management challenges that constrain its ability to ensure program integrity.” SSI is not conducting proper reviews of current beneficiaries in a number of ways.

First, SSI is failing to review files to ensure that beneficiaries continue to be eligible for benefits based on their health. When a person’s health improves, they are supposed to exit the program. According to GAO, SSI’s review backlog totaled 1.3 million files as of January 2014.  Eliminating this backlog would save SSI billions of dollars as ineligible persons would be removed from the program. For instance, children comprise 15 percent of SSI beneficiaries. In 2012 SSI had 435,000 children cases waiting to be reviewed. Many of those cases had been pending for review for six years. Seventy percent of those pending for six years involved cases where the child was projected to improve within three years. Likely, thousands of children received benefits for years past their eligibility due to SSI’s inability to conduct to reviews. GAO estimated that eliminating the backlog of reviews for children would save $1.3 billion over five years. Eliminating SSI’s entire backlog would save millions more.

Second, SSI is also failing to conduct appropriate reviews of beneficiaries’ financial information. SSI beneficiaries must earn less than $721 in monthly income ($1,082 if married) and have less than $2,000 in assets. SSI is supposed to review financial information on an ongoing basis to ensure that beneficiaries continue to be eligible, but that isn’t happening according to GAO.  Inappropriate financial reviews compose a large share of SSI’s overpayments.  It represented 37 percent in fiscal year 2011.

When SSI does find that an individual received too much in benefits, it rarely makes an individual repay the overage. In 2011, SSI approved 76 percent of overpayment waivers, meaning the individuals got to keep their excess payments.

These problems mirror those within the Social Security Disability Insurance program (SSDI) which operates in tandem with SSI. A report from last year highlighted that over 630,000 individuals were waiting to apply for benefits with hundreds of thousands waiting on appeals. SSDI’s trust fund will also be exhausted in late 2016.

Both SSI and SSDI need large-scale reform. Congress should use the opportunity of SSDI’s trust fund bankruptcy to reform these two programs. The issues within the programs are well documented.

Citing the work of David Burton and Richard Rahn, I warned last July about the dangerous consequences of allowing governments to create a global tax cartel based on the collection and sharing of sensitive personal financial information.

I was focused on the danger to individuals, but it’s also risky to let governments obtain more data from businesses.

Remarkably, even the World Bank acknowledges the downside of giving more information to governments.

Here are some blurbs from the abstract of a new study looking at what happens when companies divulge more data.

Relying on a data set of more than 70,000 firms in 121 countries, the analysis finds that disclosure can be a double-edged sword. …The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation.

And here are some additional details from the full report.

…disclosure has important costs in allowing exposure to government expropriation… We show that accounting information disclosure can be detrimental to firm development… Such disclosure allows corrupt bureaucrats to gain access to firm-level information and use it for endogenous harassment. …once firm information is disclosed, the threat of government expropriation is widespread. Information disclosure thus allows rent-seeking bureaucrats to gain access to the disclosed information and use it to extract bribes. …Our paper offers a vivid illustration that an important hindrance to institutional development—here in the form of adopting information disclosure—is government expropriation. …The results are thus supportive of Acemoglu and Johnson (2005) on the overwhelming importance of constraining government expropriation in facilitating economic development.

Yet this doesn’t seem to bother advocates of bigger government.

Indeed, they’re using a Paris-based international bureaucracy to push a “base erosion and profit shifting” initiative designed to produce global rules that would give governments far greater access to business data.

Their goal is to extract more money openly with tax policy rather than surreptitiously with bribes, but the net effect will be just as bad for the global economy.

A new study from the Center for Freedom and Prosperity has the disturbing details.

Under direction of the G20, the Organization for Economic Cooperation and Development (OECD) began two years ago a major initiative on “base erosion and profit shifting” (BEPS). …Through the BEPS project, the OECD is continuing its war against tax competition.

For all intents and purposes, politicians from high-tax nations are using the G20 and OECD to undermine the liberalizing force of tax competition.

They want to rewrite international tax policy to prop up nations with uncompetitive tax systems.

[BEPS] would…lead to an overall higher tax environment as politicians freed from the pressures of global tax competition inevitably raise rates to levels last seen in the early 1980s, when reforms by Reagan and Thatcher sparked a global reduction in corporate tax rates that has continued to this day. Through tax competition, the average corporate tax rate of OECD nations declined from almost 50% in 1981 to 25% in 2015. …The [BEPS] Action Plan…considers the benefits of tax competition to be the real problem, explaining that “there is a reduction of the overall tax paid by all parties involved as a whole.” The prospect of there being less money to be spent by politicians is perceived as a problem to be solved.

Even though there’s no evidence of a problem, even from the perspective of revenue-hungry politicians.

Particularly since the OECD’s own data shows that corporate tax revenue keeps increasing, as noted in the CF&P study.

The OECD’s BEPS Report itself undercuts the argument that there is a pressing need for a global response when it acknowledges that “revenues from corporate income taxes as a share of GDP have increased over time.” Likewise, the Action Plan admits when discussing hybrid mismatch that “it may be difficult to determine which country has in fact lost tax revenue.”

So BEPS isn’t a response to the nonexistent problem of falling revenue. Instead, the real goal is to make it easier to impose higher tax rates and change other rules to raise additional revenue.

Even if the required policies have very troubling implications. As part of this new campaign against tax competition, here’s some of what the OECD is seeking.

Proposed recommendations for transfer-pricing documentation and country-by-country reporting, for instance, feature broad reporting requirements that go far beyond what is required for purposes of tax collection. …Information contained in the local and master files are particularly vulnerable, since it would take a breach in only a single jurisdiction for it to be exposed. The OECD makes assurances for the confidentiality of these reports, but they are empty promises. Such government assurances of privacy protection are contradicted by experience and the long history of leaks of taxpayer information. In the United States alone tax data has frequently been exposed thanks to inadequate safeguards, or even released by officials to attack political opponents. …Even without malicious intent, governments are ill equipped to protect sensitive information from outside access. …As poor as the United States has proven at protecting privacy, there are likely to be nations even more vulnerable. Through the master file and other reporting mechanisms, BEPS will demand of corporations propriety information and other sensitive data that they have every right to keep private.

Requiring more information is just one part of BEPS.

There are many other elements, all of which are designed to facilitate higher tax burdens. Indeed, the Wall Street Journal warned that, “this is an attempt to limit corporate global tax competition and take more cash out of the private economy.”

But as bad as BEPS is now, the study from the Center for Freedom and Prosperity explains it will get worse over time.

Of particular relevance for understanding the BEPS initiative is the pattern demonstrated by the OECD during the course of this campaign. After each recommendation was widely adopted – typically under duress in the case of low-tax jurisdictions – the OECD immediately pushed a new requirement that was more radical and invasive than the last. First was a call to adopt a certain number of Tax Information Exchange Agreements and a standard of information exchange upon request, then a peer-review process whereby tax policies are judged according to the standards of high-tax welfare states. Then, after years of meetings and costly compliance efforts, the old standard for information exchange upon request was replaced with a call for global automatic exchange.

The OECD’s strategy of moving the goalposts is worth noting because the BEPS project almost certainly will evolve in ways that enable ever-higher tax burdens.

I predicted back in 2013 that the end result will be “global formula apportionment,” a system that would enable dramatically higher tax burdens on the business community.

And I’m sticking with that prediction, in part because that’s what would be in the interests of politicians from high-tax nations. If national governments were able to tax on the basis of what companies sold inside their borders, regardless of how much income actually was being earned, there would be very little competitive pressure to keep tax rates reasonable.

Politicians could push corporate tax rates back up to 50 percent, or even higher.

The folks on the left certainly would like that kind of system. Here are some excerpts from a CNN story.

It’s time for a complete overhaul of the global tax system to ensure each company pays their fair share, says Nobel laureate Joseph Stiglitz. …”Multinational corporations act and therefore should be taxed as single and unified firms. It is time for our [political] leaders to be bold,” Stiglitz said. …Stiglitz said that creating a new worldwide tax system is realistic, but all nations would have to work together to agree rules and close loopholes. The group of economists said in a statement that it was critical to “curb tax competition to prevent a race to the bottom.” Developed nations should take the first step by agreeing on a minimum rate of corporate tax, possibly under the auspices of the Organisation for Economic Cooperation and Development. …The economists also suggest establishing an intergovernmental tax body within the United Nations that would combat abusive tax practices.

The bottom line is that politicians and statist interest groups both want to extract more money from the productive sector of the economy.

And OECD bureaucrats have been assigned the task of crafting rules to undermine tax competition so that companies can’t escape those higher burdens.

Developing new rules is actually the easy part. The hard part is when the bureaucrats try to rationalize how higher tax rates and bigger government are somehow good for the global economy.

Particularly since economists who work at the OECD have written that lower tax rates and tax competition result in better economic performance.

P.S. To add insult to injury, American taxpayers provide the biggest share of the OECD’s budget. This means that our tax dollars are being used to generate policies that will result in higher tax burdens. Which is why I’ve argued, on a per-dollar-spent basis, that subsidies to the OECD are the most destructively wasteful part of the federal budget.

P.P.S. And to add insult upon insult, OECD bureaucrats get tax-free salaries, so they are insulated from the negative effects of policies they’re trying to impose on the rest of the world.

There is an old lawyers’ adage: “When the facts are on your side, argue the facts. When the law is on your side, argue the law. When neither are on your side, pound the table.” President Obama will deliver a speech today in which he pounds the table with the supposed successes of the Affordable Care Act. The address is part effort to influence the Supreme Court’s upcoming decision in King v. Burwell, part effort to spin a potential loss in that case.

The problem is, those supposed successes are not due to the ACA. They are the product, two federal courts have found, of billions of dollars of illegal taxes, borrowing, and spending imposed by the IRS at the behest of the president’s political appointees.

The president can pound the table all he wants about his theories of what Congress intended, or how, in his opinion, those illegal taxes have benefited America. No speech can change the fact that he signed into law a health care bill that makes it unmistakably clear that those taxes and subsidies are only available “through an Exchange established by the State.” If he didn’t like that part of the bill, he shouldn’t have signed it.

The president thinks it is “a contorted reading of the statute” to insist on the unmistakably clear distinction Congress drew between Exchanges established by “States” versus the federal government. The Congressional Research Service disagrees. So do the D.C. Circuit, and even the Fourth Circuit. Even Harvard law professor Noah Feldman says the president’s theories “seem forced.”

Two federal courts have found the law is clear, and the president is on the wrong side of it. The president would rather that you not focus on that small detail. But the Supreme Court’s job is to hold the president to the law he enacted. Let’s hope they do. Because if the Court instead allows the IRS to tax and spend without congressional authorization, the disruption will be much greater than any caused by ObamaCare.

Last week the Environmental Protection Agency released a study that concluded that hydraulic fracturing, so-called “fracking” of oil and natural gas wells, does not contaminate drinking water, except in extremely unusual cases involving improper drilling techniques. The study should reduce the concerns of some of the technique’s vocal critics whose fears have led to restrictions on its use.

The EPA study reviewed the results from thousands of wells and found few faults with the drilling technique. When problems occurred, they stemmed from improperly sealed wells, which can affect any oil or gas well and not just those that utilize hydraulic fracturing.

More evidence about the costs and benefits of fracking appears in the forthcoming summer issue of Regulation. The Barnett shale area splits the Dallas–Forth Worth area in half; all of the wells are in the western part of the metro area. Because many other factors are constant within the metro area, this geological accident allows researchers to determine whether shale development produces net benefits and thus increases housing values. Read the full study here.

In Texas the value of oil and gas rights is part of the local property tax base. Thus localities receive tax revenues from oil and gas development and can finance local public amenities without increasing property taxes. Over the entire 1997–2013 period, houses in the shale ZIP codes in the Dallas–Fort Worth area appreciated 5 to 6 percentage points more than houses in non-shale ZIP codes. These results suggest that improved local finances have more than offset whatever disamenities result from shale development for the typical homeowner. “Fracking” is just another drilling technique, and needs to not be regulated in any special way beyond that of normal oil and gas drilling.

Environmentalists often assume that free markets work against their goals. But the market is the best friend of the natural world because it generates constant pressure to innovate, to cut costs, and to use resources efficiently. The price system prompts consumers and businesses to minimize consumption of dwindling resources. To ease California’s water problems, for example, we need markets not regulatory controls.

The Wall Street Journal today has a pair of stories on scrap metal recycling:

Waste has long been a major U.S. export, providing material to be melted in foreign steel mills or made into new paper products. But the strength of the dollar has made American waste pricier abroad, cutting demand…

… That has been hard on the network of waste dealers and scrap gatherers who are the backbone of the industry. Bob Hooper, who goes by Hoop, finds discarded metal on curbs and in dumpsters around Pittsburgh and carries it to scrapyards in a rusting Chevy pickup with a bungee cord to keep the driver’s door shut.

… On a recent day, he hauled in more than 1,000 pounds of scrap, including two discarded refrigerators, a water heater and a broken microwave buried in egg shells and other moist trash. After gasoline expenses, he netted about $80.

From a related story in today’s Journal:

Wherever he goes in his Chevy pickup, Bob “Hoop” Hooper scans for discarded metal—a mangled bike, a broken microwave, even a beer can. “That’s like the No. 1 rule of scrapping,” Mr. Hooper, 48 years old, explained recently. “Don’t pass up metal.”

Scrapping—gathering metal and selling it to scrap dealers—is a tough job, involving excavations inside dumpsters, forays into dangerous neighborhoods and, lately, falling metal prices.

… Most mornings he hits the road around 9 a.m., and by late afternoon has filled the back of his pickup and earned anywhere from $40 to several hundred dollars at scrapyards. In the evening, he dismantles appliances and sorts valuable metals like copper and brass into plastic buckets. “It gives me something to do while I’m watching TV,” he said.

One regular stop is a housing complex with 31 dumpsters. On a recent morning, he found an umbrella and a mop in one. “It don’t seem like much, but as long as you’re getting something from every stop, it piles up,” he said.

Green groups often confer awards on politicians who press for more control over markets. But they should instead champion people like Bob Hooper. He is devoting his career to recycling, which is helping to reduce landfill waste. His work also boosts the economy, which we know because he is earning a net return in the marketplace.

Bob Hooper has a dirty job, but he is creating a cleaner environment the market-based way.

If I had more time I’d write at greater length about this already infamous New York Times op-ed on student loans – which conspicuously fails to mention that the writer apparently got all of his degrees from pricey Columbia University – but the piece largely condemns itself. What I think is worth contemplating is how far out of mainstream thinking its sentiments are. Alas, maybe not that far.

No doubt most of the public wouldn’t support people not repaying their student loans just because they don’t like them, but the idea that freely chosen debt should be forgiven or curtailed is getting lots of play, from President Obama’s push for programs that would lead to forgiveness for big borrowers, to Senator Elizabeth Warren’s private debt buy-up proposal. And calls for free college are roughly the equivalent of calls for loan forgiveness. No, they aren’t saying that borrowers should renege on commitments they’ve already made, but they are saying that the college cost burden should be dropped even more squarely on the shoulder of taxpayers going forward.

Of course the ultimate problem, beyond the immediate, crushing cost, is that the more you have other people pay for students’ decisions, the more wasteful those decisions will tend to be. And even at current subsidy levels, those decisions are very, very wasteful. But that’s what happens when politicians decide taxpayers should never get in the way of a student’s bliss.

Over at Cato’s Police Misconduct Reporting Project, we have identified the worst case for the month of May.  It was was the death of Matthew Ajibade.

Ajibade’s girlfriend called the police because he was having a bipolar episode.  Georgia deputies arrested Ajibade but then took him to the jail instead of a hospital.  At the jail, he was placed in a restraint chair.  Deputies reportedly fired stun guns at him while he was restrained in the chair and then left him unattended in an isolation cell.  Ajibade, 22, died and the coroner now says it was homicide

Nine deputies were fired over the incident and a criminal investigation is on-going.

Last Friday a group of teenagers attended an end-of-year party at a community swimming pool in McKinney, Texas. According to some of the teens at the pool police were called to the scene after adults made racist remarks and a fight between adults and the teens began. A McKinney Police Department Facebook post states that officers responded to reports of “a disturbance involving multiple juveniles” who did not have permission to be at the pool.

One of the teens, 15-year-old Brandon Brooks, filmed the encounter between the youths and police officers. The video, which can be viewed below, shows officer Eric Casebolt handcuffing two teens before throwing a 14-year-old girl to the ground, using his knees to pin her, and pulling a gun on unarmed bystanders - something he is caught on camera denying. The girl was later released without charge.

Warning: This video contains profanity

“Super Trooper” Cops Crash Pool Party And Target Black Kids in McKinney, TX (Dallas)

Casebolt, who has been placed on administrative leave following the incident, was named Patrolman of the Year in 2008 and is reportedly a vice president of the McKinney police union. He was also once an instructor at Executive Self-Defense and Fitness, and was described on that company’s website as someone with “experience in the use of all levels of force” and “a strong working knowledge of human behavior.”

It is hard to imagine the incident earning as much attention as it has without Brooks’ footage, which serves as another reminder of how important it is that citizens film the police. In the forthcoming investigation into the incident Casebolt will not be able to plausibly claim that he felt threatened by a 14-year-old girl and that his use of force against her was justified. Nor will he be able to claim that he did not unholster his weapon and point it at unarmed teens.

Citizen footage of police officers can be instrumental in investigations into allegations of police misconduct. Today a grand jury indicted former North Charleston, South Carolina police officer Michael Slager for the killing of Walter Scott, whose death was caught on camera by an onlooker. Scott was shot multiple times in the back while running away from Slager. I wrote about Walter Scott’s death in April, noting how footage of the killing contradicted what was included in police reports.

The Cato Institute released a video on citizens filming police officers in 2010. It can be viewed below.

Cops on Camera

On ABC News’ This Week yesterday, Gov. Scott Walker defended his proposal to spend $250 million of taxpayers’ money to build a new arena for the Milwaukee Bucks:

“All across the nation when they do projects like this,” Walker said. “It’s a good deal.”

The Bucks franchise, valued at $600 million, is owned by a group of billionaire financiers in New York. But no matter what it’s worth, Walker’s statement is at wide variance with the findings of independent economists.

Economic projections for subsidized stadiums are always vastly overstated. As Dennis Coates and Brad Humphreys wrote in a 2004 Cato study criticizing the proposed D.C. stadium subsidy, “The wonder is that anyone finds such figures credible.”

And indeed the Washington Examiner reported in 2008:

Attendance at Nationals Park has fallen more than a quarter short of a consultant’s projections for the stadium’s inaugural year, cutting into the revenue needed to pay the ballpark bonds and spurring a D.C. Council member to demand the city’s money back.

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,” Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports — or a possible negative effect.

In Regulation magazine, (.pdf) Dennis Coates and Brad Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

Stadiums, arenas, convention centers, arts centers, the story is the same. In 2011 the Washington Post reported that the financial projections for a government-funded arts center, Artisphere, in Arlington, Virginia, didn’t seem to have panned out.

A 2014 report by Don Bauder in the San Diego Reader is worth quoting at length:

Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

Of course you wouldn’t. But all around the U.S., politicians, civic planners, and particularly business executives have been following the advice of self-professed experts who invariably tell clients to build a convention center or expand an existing one.

A remarkable new book, Convention Center Follies: Politics, Power, and Public Investment in American Cities, published by the University of Pennsylvania Press, tells the amazing story of how one American city after another builds into a massive glut of convention-center space, even though the industry itself warns its centers that the resultant price-slashing will worsen current woes.

The author is Heywood Sanders, the nation’s ranking expert on convention centers, who warned of the billowing glut in a seminal study for the Brookings Institution back in 2005. In this new, heavily footnoted, 514-page book, Sanders, a professor of public administration at the University of Texas/San Antonio, exhaustively examines consultants’ forecasts in more than 50 cities….

The worst news: “These expansions will keep happening,” as long as “you have a mayor who says it is free,” says Sanders.

Or a governor:

“We would lose $419 million over the next 20 years if we did nothing, if we said, go on, move somewhere else, which the NBA said they would do,” Walker continued. “In this case, we don’t raise any taxes. There are no new taxes, only existing taxes. And we get a three to one return.”

The project will be funded by existing taxes on hotel rooms and rental cars, though the Wisconsin Center Board has the authority to raise the rate, he said.

“In this case, we take the tax, the revenues on hotels and rental cars that are currently paid for the convention center and allow those to continue to be paid for a new arena,” Walker said. “It’s not a new tax.”

This wasn’t the worst thing Scott Walker said to Jonathan Karl on ABC. He also said he wouldn’t rule out re-invading Iraq. But any presidential candidate who believes that “All across the nation when [politicians spend taxpayers’ money] on stadiums, it’s a good deal,” shouldn’t be anywhere near the federal Treasury.

The Trans-Pacific Partnership is a still-evolving trade agreement that would reduce tariffs and other barriers to goods and services trade between the United States and 11 other countries. It also would likely include provisions designed to protect certain U.S. industries from the full effects of competition.  A TPP agreement, then, would likely increase our economic freedoms in some realms and reduce them in others.  How these pros and cons would be manifest is unclear at the moment, given the fact that the deal is not done.  But it would a mistake to forego the opportunity to evaluate a completed trade deal that could deliver significant benefits. 

It is broadly understood that the TPP negotiations cannot be concluded without the Congress passing, and the president signing, Trade Promotion Authority legislation.  Without TPA, the president could not be sure that any trade deal brought home reflected the official wishes of Congress, and the likelihood that foreign negotiators would put their best and final offers on the table—knowing that Congress could unravel the deal’s terms—is close to zero.

The Senate passed TPA legislation (along with language reauthorizing the Trade Adjustment Assistance program) on May 22.  The House is likely to take up the bill this week.  At the moment, the president is in lockstep with a large majority of congressional Republicans, who support trade liberalization and see TPA as essential to the process.  But some Republicans (mostly from the conservative wing), who are wary of giving this president any more power, have joined ranks with the vast majority of congressional Democrats in opposition to TPA.  Meanwhile, Democratic presidential frontrunner Hillary Clinton—an architect of the TPP as Secretary of State and a potential heir to the trade agenda—has refused to take a position on TPA.

The spotlight on trade policy has generated much more heat than light.  Misinformation abounds.  Rationalizations masquerade as rationales.

This new Cato Free Trade Bulletin is intended to dispel some of the nonsense that has been circulating and to present a brief, objective assessment of what has transpired and what lies ahead for TPA and TPP.

Every so often, I’ll assert that some statists are so consumed by envy and spite that they favor high tax rates on the “rich” even if the net effect (because of diminished economic output) is less revenue for government.

In other words, they deliberately and openly want to be on the right side (which is definitely the wrong side) of the Laffer Curve.

Just in case you think I’m exaggerating in order to make my opponents look foolish, check out this poll of left-wing voters who strongly favored soak-the-rich tax hikes even if there was no extra tax collected.

But now I have an even better example.

Writing for Vox, Matthew Yglesias openly argues that we should be on the downward-sloping portion of the Laffer Curve. Just in case you think I’m exaggerating, “the case for confiscatory taxation” is part of the title for his article.

Here’s some of what he wrote.

Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends. We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. …But we don’t do that because we care about public health. We tax tobacco not to make money but to discourage smoking.

The tobacco tax analogy is very appropriate.

Indeed, one of my favorite arguments is to point out that we have high taxes on cigarettes precisely because politicians want to discourage smoking.

As a good libertarian, I then point out that government shouldn’t be trying to control our private lives, but my bigger point is that the economic arguments about taxes and smoking are the same as those involving taxes on work, saving, investment.

Needless to say, I want people to understand that high tax rates are a penalty, and it’s particularly foolish to impose penalties on productive behavior.

But not according to Matt. He specifically argues for ultra-high tax rates as a “deterrence” to high levels of income.

If we take seriously the idea that endlessly growing inequality can have a cancerous effect on our democracy, we should consider it for top incomes as well. …apply the same principle of taxation-as-deterrence to very high levels of income. …Imagine a world in which we…imposed a 90 percent marginal tax rate on salaries above $10 million. This seems unlikely to raise substantial amounts of revenue.

I suppose we should give him credit for admitting that high tax rates won’t generate revenue. Which means he’s more honest than some of his fellow statists who want us to believe confiscatory tax rates will produce more money.

But honesty isn’t the same as wisdom.

Let’s look at the economic consequences. Yglesias does admit that there might be some behavioral effects because upper-income taxpayers will be discouraged from earning and reporting income.

Maybe…we really would see a reduction of effort, or at least a relaxation of the intensity with which the performers pursue money. But would that be so bad? Imagine the very best hedge fund managers and law firm partners became inclined to quit the field a bit sooner and devote their time to hobbies. What would we lose, as a society? …some would presumably just move to Switzerland or the Cayman Islands to avoid taxes. That would be a real hit to local economies, but hardly a disaster. …Very high taxation of labor income would mean fewer huge compensation packages, not more revenue. Precisely as Laffer pointed out decades ago, imposing a 90 percent tax rate on something is not really a way to tax it at all — it’s a way to make sure it doesn’t happen.

While I suppose it’s good that Yglesias admits that high tax rates change incentives, he clearly underestimates the damaging impact of such a policy.

He presumably doesn’t understand that rich people earn very large shares of their income from business and investment sources. As such, they have considerable ability to alter the timing, level, and composition of their earnings.

But my biggest problem with Yglesias’ proposals is that he seems to believe in the fixed-pie fallacy that public policy doesn’t have any meaningful impact of economic performance. This leads him to conclude that it’s okay to pillage the “rich” since that will simply mean more income and wealth is available for the rest of us.

That’s utter nonsense. The economy is not a fixed pie and there is overwhelming evidence that nations with better policy grow faster and create more prosperity.

In other words, confiscatory taxation will have a negative effect on everyone, not just upper-income taxpayers.

There will be less saving and investment, which translates into lower wages and salaries for ordinary workers.

And as we saw in France, high tax rates drive out highly productive people, and we have good evidence that “super-entrepreneurs” and inventors are quite sensitive to tax policy.

To be fair, I imagine that Yglesias would try to argue that these negative effects are somehow offset by benefits that somehow materialize when there’s more equality of income.

But the only study I’ve seen that tries to make a connection between growth and equality was from the OECD and that report was justly ridiculed for horrible methodology (not to mention that it’s hard to take serious a study that lists France, Spain, and Ireland as success stories).

P.S. This is my favorite bit of real-world evidence showing why there should be low tax rates on the rich (in addition, of course, to low tax rates on the rest of us).

P.P.S. And don’t forget that leftists generally view higher taxes on the rich as a precursor to higher taxes on the rest of the population.

P.P.P.S. In the interests of full disclosure, Yglesias says I’m insane and irrational.

As I noted last week, the GOP’s 2016 contenders didn’t do themselves much credit as they ducked, covered, cringed, and pratfell through a series of interview questions about the Iraq War. Still, Jeb Bush had a point when he noted that, at the time, “almost everybody” in political Washington was for the war. True enough: as policy disasters go, the Iraq War was as bipartisan as the subprime loan crisis

On the war’s tenth anniversary a couple of years back, the New Republic’s John Judis recalled “what it was like to oppose the Iraq War in 2003.” His memory jibes with mine: it was pretty damned lonely. Well before “Shock and Awe,” hawkish arguments had achieved near full-spectrum dominance over the minds of Beltway policy elites, and the invasion and occupation of Iraq was shaping up as a horrific idea whose time had come. 

But it rankled a bit when Judis wrote that “except for Jessica Mathews at the Carnegie Endowment for International Peace, Washington’s thinktank honchos were also lined up behind the war.” Not to take anything away from Ms. Mathews, but the late, great Bill Niskanen had to count as a “think tank honcho” if anyone did, and he opposed the war vigorously, early, and often.

In a December 2001 public debate with former CIA director James Woolsey, Niskanen, then Cato’s chairman, offered the first prominent public statement by a DC think-tank leader against that looming debacle: “An Unnecessary War Is an Unjust War,” Bill argued. In the run-up to the invasion, other Cato scholars argued, among other things, that:

At the time, opposition to the Iraq War was controversial even within the building—and outside of 1000 Massachusetts Ave., Cato’s Iraq War skeptics had very little company among the Beltway cognoscenti. 

For example, both inside and outside the Bush administration, American Enterprise Institute scholars played a key role in making the case for war.  As Bob Woodward reported in his 2006 book State of Denial, in late 2001, Paul Wolfowitz approached then-AEI president Chris DeMuth to put together a secret task force of top thinkers to generate “the kinds of ideas and strategy needed to deal with a crisis of the magnitude of 9/11.” They called themselves “Bletchley II,” after the British cryptographers who cracked Axis communication codes during WWII.  

Bletchley II participants included Fareed Zakaria (who should have known better), James Q. Wilson, Reuel Marc Gehrecht, Fouad Ajami, Robert Kaplan, and Bernard Lewis. The team generated “a seven-page, single-spaced document, called ‘Delta of Terrorism.’ ‘Delta’ was used in the sense of the mouth of a river from which everything flowed.” Rumsfeld adviser Steven Herbits summed up the memo’s message: “We’re facing a two-generation war. And start with Iraq.” (Boy, I’d love to see that memo.) 

Over on the center-left, Brookings scholars proved instrumental as well—Kenneth Pollack’s The Threatening Storm: The Case for Invading Iraq played a key role in getting center-left opinion leaders behind the war, convincing, among many others, the New Yorker’s David Remnick that “a return to a hollow pursuit of containment will be the most dangerous option of all.” 

It’s supposed to be conservatives’ job to stand athwart history, yelling “stop!” and liberals’ role to resist the rush to war. For the most part, DC’s think tanks left that job to the libertarians, with predictable results. In 2004, after the die was cast, Cato was the first major DC think tank to offer an extended argument for Exiting Iraq, in Chris Preble’s book of that name.  

I wouldn’t call Cato’s Iraq skeptics “prescient,” nor would I claim that everything we wrote holds up well a decade and a half later; for example, like several of my colleagues, I engaged in a little WMD fearmongering of my own in the early days of the war, warning that “components for a ‘dirty bomb’ may already be in the wrong hands” thanks to the invasion. (Cato’s Alan Reynolds, who decried the WMD “hype,” had the better view). But it would be nice if, when a major daily prints one of those “what to do in Iraq?” symposia, they occasionally think to call somebody, like Ted Carpenter or Chris Preble—who got it right in the first place. 

It would be even better if the GOP’s 2016 contenders weren’t still, 12 years later, so eager to seek foreign policy advice from people who got the Iraq War Question spectacularly wrong.

The Washington Post reports that Scott Walker’s “crash course” in foreign policy is led by tutors like “[Elliot] Abrams, Bush’s deputy national security adviser, and [AEI’s] Marc A. Thiessen, a Post columnist and former Bush speechwriter known for his staunch defense of waterboarding and other interrogation tactics barred by President Obama. Walker selected Thiessen to co-write his 2013 book, Unintimidated, and the two men became confidants during hours of Skype conversations each weekend.” Marco Rubio’s team includes a kettle of Iraq hawks like Abrams, Eric Edelman, and Brookings’ Robert Kagan. There’s no word yet on who’s advising Rick Perry, but last time around he sought out Iraq War architect Doug Feith, now with the Hudson Institute. It was a bit unfair for then-CentCom commander Gen. Tommy Franks to call Feith “the dumbest [expletive deleted] guy on the planet,” given Earth’s seven billion-plus people, but Feith’s hardly the first person you’d want to turn to if you wanted to avoid the costly foreign policy blunders of the past decade. 

For his part, Jeb Bush has sought out a number of key figures “present at the creation” of the Iraq debacle, like Paul Wolfowitz, who, as US forces drove toward Baghdad, in March 2003, promised Congress icing on the cakewalk: “There is a lot of money to pay for this that doesn’t have to be U.S. taxpayer money…. We are talking about a country that can really finance its own reconstruction and relatively soon.”

Given that background, you might suspect that there’s just no accountability for GOP foreign policy advisers; but that isn’t so. The Wall Street Journal recently reported that “Elbridge Colby, a fellow at the Center for a New American Security, was being seriously considered for a job as foreign policy director in Mr. Bush’s expanding organization, [but] according to a person familiar with the campaign’s internal deliberations, Mr. Bush’s political operation raised concerns about Mr. Colby’s published views on Iran. Mr. Colby has prominently advocated against a military strike on Iran and has called for the Republican Party to move closer to its roots of pragmatism and containment.” So he’s out. You can’t expect to retain your political and professional credibility after a screw-up like that.

It’s hard not to feel satisfaction at the indictment of soccer officials for apparently corrupting the globe’s Beautiful Game—soccer in America but football to most of the world. Yet emotional satisfaction is a bad basis for government policy. While the U.S. is not the only nation to assert extraterritorial jurisdiction, it does so more often and more broadly than anyone else.

Moreover, punishing foreigners creates future risks. Someday Americans might get indicted by other nations for “crimes” committed in the U.S.

How did Washington become the world’s policeman and prosecutor in the case of soccer? The sport remains a modest phenomenon in America. Most of the alleged crimes involve foreigners acting overseas.

The impact in the U.S. is less than that on almost every other nation on earth, since virtually everywhere the sport commands greater loyalty from a larger percentage of the population. Nevertheless, some of the criminal acts took place in America and the corruption affected interstate (and foreign) commerce, the boilerplate justification used by Uncle Sam for regulating most everything.

As American power has grown, so has Washington’s willingness to apply its laws to the rest of the world. Washington has routinely abducted foreigners overseas for drug offenses. Perhaps the most extreme example was the 1989 invasion of Panama, after which ousted dictator Manuel Noriega was transported to America and convicted of violating U.S. drug laws.

Even more problematic has been the Justice Department crusade to turn foreign banks into arms of the IRS. The U.S. has gone after Swiss banks with the greatest enthusiasm, paying informants, filing criminal prosecutions, and imposing multi-billion dollar fines for accepting deposits from Americans. Yet citizens of Switzerland and the rest of the world have no moral obligation to help fill Uncle Sam’s coffers to finance more waste and wars.

Congress also passed the Foreign Account Tax Compliance Act (FATCA) requiring all non-American financial institutions to report any accounts held by Americans. As a result, foreign banks face substantial costs in dealing with U.S. citizens, even those fully compliant with American tax laws. Many foreign banks now refuse to serve Americans.

Perhaps the most expansive form of extraterritoriality is sanctions. By one count Washington imposed 61 different economic penalties between 1993 and 1998, Washington’s dictates are amplified not only by the size of the American market, but through Swift, the Brussels-based organization which manages international financial transfers.

Traditionally sanctions applied to companies formed in the U.S. and their branches, and firms located in America. However, through both legislation and regulation Washington has constantly expanded the extraterritorial reach of U.S. penalties.

Over time Washington began targeting U.S. subsidiaries and licensees. Later sanctions also applied to resale of U.S.-origin goods, transactions with foreign firms, and foreign banks financing prohibited transactions. European companies, in particular, have found themselves fined for activities which are legal under national as well as European Union law.

Explained attorneys Ronald Meltzer and David Ross of WilmerHale, “U.S. law has undergone a significant shift: it effectively creates an expanding regime of secondary sanctions that are triggered by transactions that do not require a nexus to the United States.” Sometimes other governments have enacted “blocking” statutes which prohibit their nationals from complying with foreign, i.e., American, restrictions deemed harmful to their national interest.

As I point out on Forbes online: “The moral fervor behind many of Washington’s many fevered crusades often is laudable. But a desire to do good does not warrant America attempting to play dictatress to the world.”

So it is with the U.S. indictments against corrupt soccer officials, and even more so with Washington’s determination to make foreign banks agents of the IRS and foreign individuals and companies tools of U.S. foreign policy. Such overreach inevitably breeds abuse.

It also invites retaliation in the future, when America no longer so dominates the globe. If Americans eventually find themselves in a foreign court for legal conduct in the U.S., they will have today’s lawmakers and officials to thank.

My new piece at Reason begins:

We’ve seen it happen again and again: libertarians are derided over some supposedly crazy or esoteric position, years pass, and eventually others start to see why our position made sense. It’s happened with asset forfeiture, with occupational licensure, with the Drug War, and soon, perhaps, with libertarians’ once-lonely critique of school truancy laws.

In his 1980 book Free To Choose, economist Milton Friedman argued that compulsory school attendance laws do more harm than good, a prescient view considering what’s come since: both Democratic and Republican lawmakers around the country, prodded by the education lobby, have toughened truancy laws with serious civil and even criminal penalties for both students and parents. Now the horror stories pile up: the mom arrested and shackled because her honor-roll son had a few unexcused sick days too many, the teenagers managing chaotic home lives who are threatened with juvenile detention for their pains, the mother who died in jail after being imprisoned for truancy fines. It’s been called carceral liberalism: we’re jailing you, your child, or both, but don’t worry because it’s for your own good. Not getting enough classroom time could really ruin a kid’s life.

My article also mentions that a bill to reform Texas’s super-punitive truancy laws has reached Gov. Greg Abbott’s desk, following the reported success of an experiment in San Antonio and pressure from a Marshall Project report. Finally, truancy-law reform is looking to become an issue across the political spectrum — but libertarians were there first.

Today marks the second anniversary of The Guardian’s first blockbuster story derived from files provided by former NSA contractor Edward Snowden—launching what would become an unprecedented deluge of disclosures about the scope and scale of communications surveillance by American intelligence agencies. So it seems appropriate that this week saw not only the passage of the USA Freedom Act, but also the approval in the House of several privacy-protective appropriations amendments, about which more momentarily.  Snowden himself takes a quick victory lap in a New York Times editorial reflecting on the consequences of his disclosures, (very much in line with his remarks during our interview at the inaugural Cato Surveillance Conference):

Privately, there were moments when I worried that we might have put our privileged lives at risk for nothing — that the public would react with indifference, or practiced cynicism, to the revelations.

Never have I been so grateful to have been so wrong.

Two years on, the difference is profound. In a single month, the N.S.A.’s invasive call-tracking program was declared unlawful by the courts and disowned by Congress. After a White House-appointed oversight board investigation found that this program had not stopped a single terrorist attack, even the president who once defended its propriety and criticized its disclosure has now ordered it terminated.

He’s referring here to last month’s appellate court ruling against the notorious telephone records dragnet, followed this week by passage of the USA Freedom Act.  That law should bar bulk collection not only under §215 of the Patriot Act, the basis of the phone program, but also under §214—the “pen register” provision previously used to vacuum up international Internet metadata—and National Security Letters, which can be issued by senior FBI officials without judicial approval.  Since the latter two authorities are permanent, they would not have been affected by what quite a few lazy reporters described as “the expiration of the Patriot Act,” though in fact only about 2 percent of the law’s provisions were actually due to sunset.  While the law is far from ideal, incidentally, I think it does constitute more robust reform than many libertarians fear, for reasons I lay out in this piece at Motherboard and this blog post at Just Security.  It will, of course, be necessary to vigilantly watch for efforts to water down the law’s protection—something the public is finally at least somewhat empowered to do by a transparency provision requiring significant legal interpretations by the secret Foreign Intelligence Surveillance Court to be published in unclassfied form.

Perhaps as significant as the law’s substantive reforms, however, is its symbolic importance.  Since the terror attacks of 9/11, we have relentlessly racheted up government’s spying powers, assured that only by trading away ever more privacy could we guarantee safety.  Whenever a surveillance authority was due to lapse—as, unfortunately, only a few were designed to—leadership in Congress invariably waited until the eleventh hour to schedule the relevant statutes for consideration, then used the manufactured “emergency” of looming expiration to steamroll over legislators who hoped to seriously debate reforms or added safeguards, or whether the expanded powers were necessary at all.  Senate Majority Leader Mitch McConnell sought to repeat the strategy that had worked so well in the past this time—only to discover that Americans were no longer so easily cowed. 

That was demonstrated again just days after the Freedom Act’s passage, when a series of amendments to an approrpiations bill aimed at limiting government surveillance passed the House by enormous margins.  The first, offered by Rep. Jared Polis, seeks to prohibit the Drug Enforcement Agency from engaging in bulk collection of Americans’ data under its own supoena authorities, following revelations that it had for decades maintained its own more limited phone records dragnet. The second, from Reps. Ted Poe and Zoe Lofgren, bars the FBI or Justice Department from using government funds to seek to insert backdoors into secure online communications systems. The third, offered by Rep. Thomas Massie, seeks to block the National Security Agency from abusing its role as a consultant to a national standards-setting body to dilute rather than strengthen encryption protocols.

These are, to be sure, heartening developments, but plenty of work remains. We still know precious little about the massive surveillance being conducted under the aegis of Executive Order 12333, which governs intelligence gathering that takes place outside the United States, yet sweeps in large amounts of Americans’ data as it travels around the globe.  Nor do the reforms passed this week  touch §702 of the FISA Amendments Act, an authority that blesses the very general warrants abhorred by the framers of our Constitution, enabling large scale collection of Americans’ communications with foreign persons and websites.  That authority is set to expire at the end of 2017, and after a brief pause to toast the small progress made this week, is the next battle to which privacy advocates will be turning their efforts.

Despite recent gains around the country, civil asset forfeiture reform suffered a setback in Maryland when Gov. Larry Hogan (R) vetoed a bill that would have placed restraints on the state’s civil forfeiture regime.

Civil asset forfeiture is a process by which the government is able to seize property (cash, vehicles, homes, hotels, and virtually any other item you can imagine) and keep the proceeds without ever charging the victim with a crime.  The bill, SB 528, would have established a $300 minimum seizure amount, shifted the burden of proof to the state when someone with an interest in the seized property asserts innocent ownership (e.g. a grandmother whose home is taken when her grandson is suspected of selling drugs out of the basement), and barred state law enforcement agencies from using lax federal seizure laws to circumvent state law.

In vetoing the measure, Gov. Hogan claimed that restraining civil asset forfeiture “would greatly inhibit” the war on drugs in the midst of a heroin epidemic and interfere with joint federal/state drug task forces. Gov. Hogan admitted that asset forfeiture laws “can be abused,” but that their utility outweighed the risk of abuse. 

Each of these assertions is misguided.

Civil forfeiture reform would certainly make it more difficult for law enforcement to seize property from citizens not charged with crimes.  Indeed, that is the entire purpose of reforming the law.  Likewise, the presumption of innocence, right to due process, and warrant requirement make it more difficult for the government to prosecute people suspected of crimes.  Those checks on hostile government action exist because governments with unfettered authority to summarily plunder and punish tend to do just that, and the litany of civil forfeiture horror stories is proof.

Therefore civil asset forfeiture is not merely susceptible to abuse; civil asset forfeiture is abuse.  Under no circumstances should someone be forced to forfeit their money, property, or even their home to the government on suspicion alone. The “inhibitions” Gov. Hogan’s statement laments are in fact the most fundamental defenses for private property and due process in a country founded to protect them.

Governor Hogan’s appeal to the efficacy drug war is similarly misguided.  We’re told that the prevalence of drugs, especially heroin, in Maryland is reason enough to keep forfeiture laws lax.  Decades of a failed drug war have proven the inefficacy of asset forfeiture as a means of stemming the flow of narcotics, and continuing that failure is no justification for abolishing the due process and private property rights of people who aren’t even charged with criminal behavior.

Remember: even an outright abolition of civil forfeiture wouldn’t mean the police couldn’t seize property from drug traffickers; it would just require the state to prove its suspicions in court before it takes someone’s property.  Criminal asset forfeiture would remain available to law enforcement inasmuch as there is any legitimate law enforcement justification for seizing property.

Lastly, Gov. Hogan’s veto statement announces the establishment of a working group, made up primarily of federal and state law enforcement and prosecutors (with a single seat going to the public defender), to decide whether any change to forfeiture law “is warranted” to prevent abuse and ensure law enforcement can still fight the war on drugs.  Tasking the very people who profit from civil forfeiture abuses with deciding whether changes are warranted casts immense doubt on the possibility of meaningful reform.

SB 528 is already a compromise bill.  It doesn’t abolish civil asset forfeiture, as New Mexico did.  It merely raises the protections due to innocent owners and requires state law enforcement to use state laws instead of excessively permissive federal forfeiture laws.  If even that is too much for Governor Hogan to tolerate, it seems unlikely that a working group of police and prosecutors is going to suggest much in the way of meaningful reform.

Civil asset forfeiture reform is not a partisan issue.  New Mexico’s abolition of the practice resulted from a bill that passed unanimously through both houses of the legislature and was signed by Republican Governor Susana Martinez.  Legislation reining in civil forfeiture in Montana was authored by Rep. Kelly McCarthy and signed by Governor Scott Bullock, both Democrats.

This is not a case of Republicans versus Democrats.  It’s a battle between those who believe that due process and private property rights trump the revenue generation and administrative ease of the state and those who believe that those rights are acceptable collateral damage in the war on crime.  Governor Hogan has chosen the wrong side of this debate.

In what has been aptly named “the world’s dumbest trade war,” both Europe and America have fought to limit imports of low-cost Chinese solar panels.  Much to the chagrin of anyone who likes solar power, the United States and the European Union have imposed high tariffs on Chinese panels in order to protect their own subsidized domestic industries. 

In 2013, the EU negotiated a deal with Chinese solar manufacturers that exempted them from the duties as long as they agreed to sell panels above a set minimum price.  By managing trade in this way, European authorities are essentially creating a solar cartel that divvies up market share among established companies who agree not to compete on price.

But cartel arrangements are notoriously difficult to maintain because any member of the group can ruin the scheme by reneging.  This would seem especially likely when the cartel arrangement was forced on them involuntarily by government in the first place.

So it is that some Chinese companies have tried to find innovative ways to compete despite government price controls.  According to the Wall Street Journal:

Among other violations of the settlement, the commission said Canadian Solar offered unreported “benefits” to its customers in Europe to buy their panels, effectively lowering the sales price below the minimum import-price set by the agreement.

The commission also questioned the practice by Canadian Solar and ReneSola of selling solar cells to firms in non-EU countries for assembly into panels that are then sold to the EU. Because the EU tariffs only apply to panels coming from China, the practice, though not a direct violation of the agreement, allows the two firms’ solar cells to enter the 28-nation EU unrestricted by the agreement.

Darn those Chinese and their legal attempts to help Europeans reduce greenhouse gas emissions through mutually beneficial exchange.  Don’t they know the EU wants prices to stay high to prop up subsidized domestic producers?  Shame on them!

In all seriousness, green industrial policy has become a global problem that will only grow as long as governments find the benefits of free trade in wind and solar power equipment less appealing than doling out privilege through managed trade.

Former Texas governor Rick Perry announced his candidacy for the 2016 GOP presidential nomination earlier today. Many recall his 2012 bid, which came to a rather spectacular end when Gov. Perry, on live television, forgot the name of the third federal agency he promised to eliminate if elected president. However, in a recent WSJ op-ed, Gov. Perry redeemed himself by offering a real candidate for elimination: the Export-Import Bank.

The Export-Import Bank (Ex-Im) provides financing and loan guarantees at below-market rates to foreign purchasers looking to buy products from American exporters. For example, if Emirates Air wants to buy planes from Boeing, Ex-Im can provide a loan guarantee, reducing the interest rate Emirates will pay, and thus incentivizing Emirates to buy from Boeing rather than Airbus.

Ex-Im’s supporters claim that these subsidies create jobs and finance domestic economic growth. But, they fail to consider the ensuing downstream effects, which Bastiat termed “ce qu’on ne voit pas”–that which is unseen. As the Cato scholar Daniel Ikenson makes clear, every dollar Ex-Im provides to subsidize foreign purchasers of U.S.-produced products discriminates against U.S. consumers of the same products. For example, when Emirates receives a subsidy for planes because it is a foreign company, Emirates gets a leg up on Delta.

An edifying account of how this system works was presented many years ago by the late Prof. Yale Brozen in his foreword to Prof. Leland Yeager’s classic Proposals for Government Credit Allocation (1977):

Whom you know and with whom you have influence becomes more important in obtaining capital than how productively you can use it. Capital is diverted from more productive uses to politically determined applications […]. The national income pie shrinks as an increasing proportion of our capital is allocated by the political process – not only because of its diversion from more productive uses but also because more and more of our resources are devoted to winning political influence, as that becomes the road to access to available capital and subsidies.

For the record, Ex-Im isn’t small potatoes. In FY 2015, Ex-Im’s loans and loan guarantees will total $30.9 billion, or 6.7% of all non-housing federal credit programs (see the accompanying chart). The Ex-Im’s total cumulative loans and guarantees outstanding (read: credit exposure) currently sits at $112 billion. Because the loans are granted at below-market rates, the Ex-Im does not receive fair compensation for the $112 billion of risk it takes on.

Instead of adopting a policy that makes a few U.S. exporters winners at the expense of many losers, there is a way to make all U.S. firms more competitive: just lower the grueling corporate tax rate. Rick Perry also embraces this idea in his op-ed, mirroring what I have been advocating for years.

The message is clear: taxes on corporations increase costs, decrease margins, and often lead to price increases. The top U.S. corporate tax rate (excluding state taxes) currently stands at 35%.

When our sky-high corporate tax rates are the highest of any of the 34 member countries of the Organization for Economic Co-operation and Development, something is wrong. There is clearly a better way to unburden U.S. corporations than to sponsor a “bank” in which politicians and bureaucrats, not capital markets, choose winners and losers. Rick Perry is right: it is time to move away from a mercantilist view of trade towards one that puts the market back in control. Kill the Export-Import Bank and cut corporate taxes, please.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

Today’s press buzz is about a new paper appearing in this week’s Science magazine which concludes that the “hiatus” in global warming is but a byproduct of bad data. The paper, “Possible artifacts of data biases in the recent global surface warming hiatus,” was authored by a research team led by Director of the National Oceanic and Atmospheric Administration’s National Climatic Data Center, Dr. Thomas Karl. Aside from missing the larger point—that the relevant question is not whether the earth is warming, but why it’s warming so much slower than the computer model projections—the paper’s conclusions have been well-run through the spin cycle.

The spin was largely conducted by the American Association for the Advancement of Science (AAAS), publisher of Science magazine, through its embargo campaign and the courting of major science writers in the media before the article had been made available to the general public (and other scientists). Given the obvious weaknesses in the new paper (see below and here, for starters), there seems the potential for more trouble at Science—something that Editor-in-Chief Marcia McNutt is up to her eyeballs with already.

One major problem with the new Karl and colleagues paper is that the headline-making finding turns out not even to be statistically significant at the standard scientific level—that is, having a less than 1-in-20 chance of being due to chance (unexplained processes) alone.

Instead, the results are reported as being “statistically significant” if they have less than a 1-in-10 chance of being caused by randomness.

More and more we are seeing lax statistical testing being applied in high profile papers (see here and here for recent examples). This tendency is extremely worrisome, as at the same time, the validity of large portions of the scientific literature is being questioned on the basis of (flawed) methodological design and poor application and interpretation of statistics. An illuminating example of how easily poor statistics can make it into the scientific literature and produce a huge influence on the media was given last week in the backstory of a made-up paper claiming eating chocolate could enhance weight loss efforts.

But, as the Karl et al. paper (as well as the other recent papers linked above) shows, some climate scientists are pushing forward with less than robust results anyway.

Why? Here’s a possible clue.

Recall an op-ed in the New York Times a few months back by Naomi Oreskes titled “Playing Dumb on Climate Change.” In it, Oreskes, a science historian (and author of the conspiratorial Merchants of Doubt) argued that since climate change was such an urgent problem, we shouldn’t have to apply the same 1-in-20 set of rigorous statistics to the result—it is slowing down the push for action. Climate scientists, Oreskes argued, were being too conservative in face of a well-known threat and therefore, “lowering the burden of proof” should be acceptable.

Oreskes article and suggestions were summarily panned. Nevertheless, evidence that it is being put into action is plentiful.

The new Karl et al. paper is a perfect example—abrogating normal statistical confidence levels to push a result that will be prime ammunition for the barrage of proposals aimed at restricting greenhouse gas emissions from fossil fuel use in producing energy. This is just more politicized science in the Administration’s relentless campaign over the upcoming UN climate summit in Paris, where it will push for a new international agreement restricting carbon dioxide emissions.

As an amusing side, using similar statistical procedures and confidence levels, the observed trend in Karl et al.’s newly-adjusted data is significantly lower than the average trend forecast to have occurred by the collection of climate models used by the U.N.’s Intergovernmental Panel on Climate Change (IPCC). In other words, these flimsy statistics kill both the “hiatus” and the climate models as well.  

For the spinning non-robust results into major climate-alarming headlines worldwide, we award a Normal Wash spin cycle (three spins) to the AAAS and Science editor-in-chief Marcia McNutt.  

The very day King John pledged to uphold Magna Carta, June 20, 1215, he asked Pope Innocent III to annul it.  The pope replied, “We utterly reject and condemn this settlement and under threat of excommunication we order that the king should not dare to observe it and that the barons and their associates should not require it to be observed.”

So, John reneged on his agreement with the barons, they rebelled and formed an alliance with King Philip II of France who prepared to invade England.  Before long, the French Prince Louis entered London, and the French controlled castles throughout England.  The English Church, however, backed John and refused to crown Lewis as England’s king. 

John fled from his pursuers, but somewhere along the line he contracted dysentery and was dying.  He appointed 13 executors including William Marshal who was among the most revered knights in England.  John died on October 19, 1216,  and his nine-year-old son was hastily crowned Henry III.  Because he was under-age, Marshal formed a regency government.  Although Marshal was able to seize an important English castle from the French, the civil war was substantially stalemated.

With John gone, the rebel barons found themselves in an awkward position – their alliance with foreigners who occupied England.  Patriotic English wanted to get the French out.  Fortunately, Prince Louis was happy to collect a bribe, and soon the French went home.

Regent Marshal recognized that there was more likely to be domestic peace if some fundamental legal issues were resolved and that consequently John’s repudiation of Magna Carta must be reversed.   So Marshal reviewed the document, made some cuts, and reissued Magna Carta in late 1216.   Among the cuts was paragraph 61 about the committee of 25 barons who would monitor the king’s compliance with Magna Carta and, if necessary, try to enforce it.  Perhaps less important than those words was the fact that the barons had demonstrated their willingness to use force against a tyrannical king.

The government needed more money again in 1217, and Marshall proposed a tax on the land held by knights – land that provided food and generated revenue to make possible their feudal military service.  Barons resisted, and Marshall reissued the previous version of Magna Carta with some clauses added to protect feudal privileges of the barons.

In February 1225, there were fears that England might be invaded by the French, and the government needed even more money to mount a defense.  There was much debate and eventually an agreement among the barons to pay a tax on moveable goods – provided the king reissued Magna Carta.  Accordingly, Henry III approved a version similar to that of  2017 and affirmed that he did it with his “spontaneous and free will” as well as with his royal seal.  He declared, “neither we nor our heirs will determine anything by which the liberties contained in this charter be violated or weakened.”

Over the centuries, the 1225 Magna Carta was reaffirmed dozens of times by English sovereigns.  In 1311, Edward II referred to some statutes, saying “that they be not contrary to the Great Charter.”

Other countries issued charters intended to limit  a ruler’s power, too, but Magna Carta really took root, and constitutional development went furthest in England.  For instance:

  • Magna Carta appeared in dozens of compilations of English laws, invariably as the first law.  Initially it was in Latin, then French and finally English.
  • The Due Process of Law Act was adopted in 1368, during the reign of Edward III, and it said, in part, that the “Great Charter be holden and kept in all Points, and if any Statute be made to the contrary, that shall be holden for none.”
  • In 1509, King Henry VIII approved of the beheading of Edmund Dudley and Richard Empson, accused of looting taxpayers and the government.  One of the formal charges involved violating Magna Carta.

Queen Elizabeth I, near the peak of her power in 1587, wanted to establish a new judicial post in her government for one of her cronies, Richard Cavendish, so he could make a lot of money by issuing certain documents in the common law courts.  She asked administrative judges whose approval was needed.  They refused, and they were charged with disobedience.  They had to explain themselves before the queen.

According to constitutional historian Henry Hallam, the judges said they meant no offense to her majesty, but her order was against “the law of the land” – meaning principles affirmed in Magna Carta.  Consequently, they said “no one is bound to obey such an order.”  When further pressed, they pointed out that the queen herself had sworn to uphold the law of the land.  The judges believed they couldn’t obey her order without violating the laws and their oaths.  The judges cited prior practices that had been rejected, because they violated the laws of the land.  Queen Elizabeth left the chamber without commenting, and nothing more was heard about the matter.

During the 17th century, the legal scholar, judge and member of Parliament Edward Coke (pronounced “Cook”) interpreted Magna Carta as a bedrock of the English constitutional law that enabled people to resist and rebel against the tyrannical Stuart kings. 

Many critics have belittled the importance of Magna Carta by dwelling on the fact that the rebel barons were looking out for their own interests as feudal lords.  But establishing constitutional limits on a ruler with arbitrary power is always extraordinarily difficult.  Some people succeed before others, and their success is likely to make it easier for more people to follow.

Although Magna Carta didn’t derive from the principles of a “higher law,” such as were received by Moses and articulated by Sophocles, Marcus Tullius Cicero, John Lilburne, John Locke, Thomas Paine, Thomas Jefferson,  and others, from a constitutional standpoint Magna Carta had similar standing.  It didn’t come from rulers.  It couldn’t be repealed.  It was forever.

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