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Donald Trump’s rhetoric on trade policy has been, to say the least, over the top.  The economic nationalism in his inauguration speech was particularly alarming. But there is a great deal of uncertainty about the extent to which his actual policies will reflect this rhetoric. As an example, look at what Trump said yesterday about requiring domestic materials (mainly iron and steel) in the construction of pipelines, and compare that to what he actually did.

First, here’s what he said as he signed a Presidential memorandum on “Construction of American Pipelines”:

This is construction of pipelines in this country. We are – and I am – very insistent that if we’re going to build pipelines in the United States, the pipes should be made in the United States. So, unless there’s difficulty with that because companies are gonna have to sort of gear up; much pipeline is bought from other countries. From now on, we’re gonna start making pipeline in the United States. We build it in the United States; we build the pipelines; we wanna build the pipe. Gonna put a lot of workers, a lot of steel workers, back to work. Okay. We will build our own pipeline. We will build our own pipes. That’s what it has to deal with. Like we used to, in the old days.

That sounds very strident and forceful: We will use American steel for American pipelines!

What he actually did, however, is much more nuanced. Here is an excerpt from the memorandum he signed:


SUBJECT: Construction of American Pipelines

The Secretary of Commerce, in consultation with all relevant executive departments and agencies, shall develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law. The Secretary shall submit the plan to the President within 180 days of the date of this memorandum.

So instead of there being an immediate requirement to use domestic iron and steel in pipelines, which is kind of how it sounded when Trump made the announcement, there will be an interagency consultations process to “develop a plan” within 180 days.  And under this plan, domestic iron and steel is to be used “to the maximum extent possible and to the extent permitted by law.”  The “to the extent permitted by law” qualification is particularly relevant, as it could be interpreted to mean that the requirement would not apply if it violated international trade obligations, such as the non-discrimination rules in the World Trade Organization (WTO).  That is, the requirement which is actually applied after the plan is developed might exempt all countries who are members of the WTO.  If such an exemption were used, the impact of the requirement would be negligible, since most counries are WTO members.  (On a trade specialty blog I run, I explained why this kind of domestic content requirement would almost certainly violate trade obligations).  

The difference between the rhetoric and the possible reality here means that we still don’t have a very good idea of what U.S. trade policy under Trump is going to look like. At some moments, it seems like we are headed into uncharted protectionist territory; at others, it seems more like a continuation of existing policies, with minor modifications.  All we can do at this point is wait for concrete policy proposals and evaluate them as they come out.  Hopefully the reality will not match the rhetoric.

The Congressional Budget Office, as part of The Budget and Economic Outlook: 2017 to 2027, has just released fiscal projections for the next 10 years.

This happens twice every year. As part of this biannual exercise, I regularly (most recently here and here) dig through the data and highlight the most relevant numbers.

Let’s repeat that process. Here’s what you need to know from CBO’s new report.

  • Under current law, tax revenues over the next 10 years are projected to grow by an average of 4.2 percent each year.
  • If left on autopilot, the burden of government spending will rise by an average of 5.2 percent each year.
  • If that happens, the federal budget will consume 23.4 percent of economic output in 2027 compared to 20.7 percent of GDP in 2017.
  • Under that do-nothing scenario, the budget deficits jumps to $1.4 trillion by 2027.

But what happens if there is a modest bit of spending restraint? What if politicians decide to comply with my Golden Rule and limit how fast the budget grows every year?

This shouldn’t be too difficult. After all, even with Obama in the White House, there was a de facto spending freeze between 2009-2014. In other words, all the fights over debt limits, sequesters, and shutdowns actually yielded good results.

So if the Republicans who now control Washington are serious about protecting the interests of taxpayers, it should be relatively simple for them to adopt good fiscal policy.

And if GOPers actually decide to do the right thing, the grim numbers in the CBO’s new report quickly turn positive.

  • If spending is frozen at 2017 levels, there’s a budget surplus by 2021.
  • If spending is allowed to grow 1 percent annually, there’s a budget surplus by 2022.
  • If spending is allowed to grow 2 percent annually, there’s a budget surplus by 2025.
  • If spending is allowed to grow 2.63 percent annually, the budget is balanced in 10 years.
  • With 2.63 percent spending growth, the burden of government spending drops to 18.4 percent of GDP by 2027.

To put all these numbers in context, inflation is supposed to average about 2 percent annually over the next decade.

Here’s a chart showing the overall fiscal impact of modest spending restraint.

By the way, it’s worth pointing out that the primary objective of good fiscal policy should be reducing the burden of government spending, not balancing the budget. However, if you address the disease of excessive spending, you automatically eliminate the symptom of red ink.

For more background information, here’s a video I narrated on this topic. It was released in 2010, so the numbers have changed, but the analysis is still spot on.

P.S. Achieving good fiscal policy obviously becomes much more difficult if Republicans in Washington decide to embark on a foolish crusade to expand the federal government’s role in infrastructure.

P.P.S. Achieving good fiscal policy obviously becomes much more difficult if Republicans in Washington decide to leave entitlement programs on autopilot.

Senate Democrats have proposed an infrastructure plan that calls for $1 trillion in federal deficit spending. In detail, the plan calls for:

  • $100 billion for reconstructing roads and bridges;
  • $100 billion to “revitalize Main Street,” that is, subsidies to New Urbanism and affordable housing;
  • $10 billion for TIGER stimulus projects;
  • $110 billion for reconstructing water and sewer;
  • $50 billion for modernizing rail (Amtrak and freight railroad) infrastructure;
  • $130 billion to repair and expand transit;
  • $75 billion for rebuilding public schools;
  • $30 billion to improve airports;
  • $10 billion for ports and waterways;
  • $25 billion to improve communities’ resistance to natural disasters;
  • $100 billion for a next-generation electrical grid;
  • $20 billion for broadband;
  • $20 billion for public lands and tribal infrastructure;
  • $10 billion for VA hospitals;
  • $10 billion for an infrastructure bank;
  • $200 billion for “vital projects” that “think big,” such as building “the world’s fastest trains.”

In response, someone has leaked what is supposedly the Trump administration’s own list of 50 infrastructure priority projects. It includes such boondoggles as a Dallas-Houston passenger rail line, the congestion-inducing Maryland Purple Line, the $14 billion Hudson River tunnels, and completion of the $2.2-billion-per-mile Second Avenue Subway. Except for the Dallas-Houston line, most of the passenger rail projects were already pretty well decided, but they are still foolish investments that will cost a lot and return little to the economy. There are supposedly more than 250 other projects on a priority list, but it isn’t absolutely certain that this list was endorsed by Trump or merely proposed to him.

What most people have been calling Trump’s infrastructure plan calls for giving tax credits to private investors who spend money on these kind of infrastructure projects. This has some virtues over the Democratic proposal of direct federal spending:

  1. While the Democrats take a top-down approach dictating where the money will go, Trump leaves the setting of priorities to state and local governments, which have already approved most of the projects on his top-50 list;
  2. Where Democrats would commit the federal government to spend an arbitrary amount of money whether it needs to be spent or not, Trump lets state and local governments decide how much to spend and how they will pay for it;
  3. Where Democrats would add $1 trillion to the deficit, Trump relies on a tax credit program that will cost the feds no more than $167 billion per trillion in spending (less, obviously, if less than $1 trillion is spent);
  4. Where a lot of the Democrats’ money would go down a rat hole, at least some of federal tax credits that Trump’s plan would issue will be offset by the reduced use of tax-free municipal bonds and taxes paid by companies and workers earning the money.

Typical of central planners, the dollar figures in the Democrats’ plan are completely arbitrary.

  • Why should trains and transit, which carry 1 percent as many passenger miles as roads, get roughly as much money as roads and bridges (and probably more considering much of the $200 billion “vital infrastructure” fund would go for high-speed rail)?
  • Why spend $40 billion expanding transit and no money expanding highways when highway use is growing faster than transit in most places and most years?
  • Why no money for upgrading the air traffic control system (which is on Trump’s top-50 list)? I don’t support the use of tax dollars for such things, but it is a huge oversight from a plan predicated on the idea that federal central planners know the best places to spend your money.
  • Why $110 billion on water and sewer, and not $100 billion or $120 billion? It seems the point of these numbers is to add up to a nice round $1 trillion while divvying up the money to special-interest groups.
  • For that matter, why any at all on water, sewer, and the electrical grid when these should already be adequately funded through user fees?
  • Why is education even on the list when the federal government has never spent more than token amounts of money for school infrastructure?

My complaints about the Trump plan have been:

  1. It’s not really a plan—it’s just one funding tool;
  2. It doesn’t prevent state and local governments from spending the money on completely looney projects such as the aforementioned Dallas–Houston high-speed rail; and
  3. The private-partnership aspect has confused many people into believing that it will only fund projects that can be paid for out of user fees when in fact most projects would require state and local taxpayers to ultimately replay the private contractors out of tax dollars.

While these are valid complaints, the Trump plan is more bottom-up than top-down, as most if not all of the projects on the possibly fake priority list are supported by state and local officials. And while Trump brought a new idea to the table, the Democrats’ plan is the same old borrow-and-spend formula that they have used in the past. This is actually worse than tax-and-spend because taxing and spending doesn’t leave huge debt problems and interest payments for the future.

While we can hope that Trump’s projects will rely more on user fees more than taxes, at the moment the score has to be Trump 1/2, Democrats minus 1.

In its ongoing crackdown on advocates of free speech, human rights and other liberties, China’s communist party has shut down the website of Milton Friedman Prize winner Mao Yushi’s think tank. Mao has spent a lifetime promoting the values and principles of a free society for which he has often paid a high price, including severe persecution. The Unirule Institute of Economics that he cofounded has educated new and old generations of Chinese on the importance of private property, the rule of law, freedom of choice, voluntary exchange, and other aspects of the market economy, and on how to transition away from central planning.

In recent years, Mao has been warning about a “leftist revival” in China and has called for a critical evaluation of Mao Zedong’s role in Chinese history—an officially taboo subject. His essay “Returning Mao Zedong to Human Form” (upon which this English summary is based) condemned the communist leader’s brutal policies and earned him retribution from the neo-Maoist movement that has been growing with the regime’s encouragement. Repression under President Xi Jinping has intensified as journalists, lawyers, human rights activists, scholars, and members of religious communities have been jailed or otherwise oppressed. The regime has warned against the danger of foreign and western ideas, increased censorship and closed numerous NGOs, accusing them of being foreign agents.

It is in the context of that widening crackdown and disregard for due process or the rule of law that the communist party has closed Mao Yushi’s website. We hope that it does not signal further repression against Mao, his think tank or his colleagues, but we cannot be confident that the law will protect them. Indeed, the head of China’s Supreme Court recently asserted that the Party is above the law and warned against western concepts such as judicial independence.

Free speech champion Flemming Rose, also a Friedman Prize winner, rightly denounces the regime’s abuse: “I am deeply concerned by the Chinese authorities shutting down of Unirule’s website. Why silence a voice for reason calling for the rule of law? Without the rule of law that includes a climate of a free exchange of ideas, China won’t be able to transform itself successfully.”

Unfortunately, it has not been a great year for Friedman Prize winners. Venezuelan Yon Goicoechea, who received the award in 2008, was illegally arrested by the regime last August and remains imprisoned. His and Mao’s experiences are a reminder of what’s at stake in too many places in the world where the promotion of liberalism requires courageous and admirable efforts.

President Donald Trump has not yet signed an executive order about his proposed border wall.  An executive order would only do so much as Congress would have to appropriate funds to actually construct the wall.  A wall built to the dimensions and specifications promised by Trump would cost about $25 billion to $31.2 billion and run 1000 miles along the border with Mexico

Since the Mexican government won’t pay for the wall and holding up all remittances in order to get the Mexican government to pay for it runs into constitutional problems, some like Mark Krikorian of the Center for Immigration Studies have proposed a nation-wide refundable fee (a tax with another name) on wire remittances to fund the wall.  Taxing remittances of illegal immigrants will not raise enough funds for a huge new border wall.

A remittances tax would have to be very high to raise enough revenue to pay for a wall, even assuming there is no fall off in revenue at higher rates.  The state of Oklahoma has a wire transmitter fee equal to about one percent of the funds transmitted.  In 2016, the tax raised $12,696,879.25 or $133.65 per illegal immigrant in the state.  Back of the envelope, a nationwide version of the wire transmitter fee would only raise about $1.6 billion annually.  If the nationwide wire transmitter fee tax was 5 times as high as in Oklahoma then it would raise enough money to pay for the wall in three to four years assuming there is no fall off in revenue at such a high rate or other disruptions don’t occur.           

Oklahoma labels this tax a fee because it’s a fully refunded tax credit.  A full 96 percent of those who pay the fees don’t claim the credit.  David North of the Center for Immigration Studies argues that illegal immigrants pay virtually the entire tax because most of the credits aren’t claimed.  That’s probably right but North overstates his case.  The IRS estimates that about one in five folks eligible for the EITC do not claim it although there are many improper payments made too.  Furthermore, between 55 percent and 75 percent of illegal immigrants file tax returns, have money withheld from their paychecks, or both.  That being said, most of the people paying the tax are likely illegal immigrants but many Americans also pay directly.

Another reason that a nationwide wire transfer tax won’t pay for a wall is that a high rate will simply force remittances onto non-wire systems.  The most obvious alternative is sending remittances through banks or credit unions that are exempt from Oklahoma’s Wire Transmitter Fee.  Congress could try to impose a transfer fee for those funds but that would penalize millions of Americans transferring money abroad – including those of us who paid for college abroad.  The government could set up another tax credit scheme but that would be more bureaucracy and time added on top of an already overly complex tax system.  Using Bitcoin or sending  gift cards are also viable ways to remit large amounts of cash outside of the wire system

Illegal immigrant remitters will also be able to rely on their American citizen or legal immigrant friends and family members to transfer funds through wire services.  About 16.6 million people live in households with the 11 to 12 million illegal immigrants in the United States.  Many of those legal immigrants or U.S.-natives would be happy to remit money for their illegal immigrants family members.    

As a last resort, remitters could use the black market.  Many unlawful immigrants entered the country illegally and some of them use fraudulent documents to work in the United States.  Surely they will find a way to illegally remit funds if the tax is large enough.  Expanding the size of the black market is not the point of a tax on remittances. 

Trump’s proposed border wall is expensive and the Mexican government will not pay for it.  Taxing remittances by illegal immigrants is a proposed way of funding such a wall but it is unlikely to raise enough funds and will also directly tax many Americans.  Either the tax will have to raise much more revenue than I anticipate, the border wall will have to be a lot cheaper,  or both for a tax on remittances to raise enough money for this project.  If this wall ever gets built then American taxpayers will foot the bill - as usual.  

Nearly eight-and-a-half years after its initial application, the Keystone XL pipeline project has been given the green light (“subject to a renegotiation of terms by us”) by an executive order signed by President Trump today. Finally.

Whether the impetus and economics is still there to build it (with oil prices in the mid-$50 barrel range) remains to be seen. But I’d imagine so, if nothing more than as an infrastructural investment in the future.

But from the federal government standpoint, this shouldn’t matter. If private monies want to take the risk, the federal government should not stand in the way. After all, the Keystone XL pipeline passed each and every environmental impact/safety assessment along the way. Even the climate impact, much touted and hyped by the previous Administration and its supporters, was shown, dispassionately, to be inconsequential—a mere 1/100th of a degree of warming by century’s end (and that’s being generous).

President Obama rejected the pipeline for no other reason than for appearances—to make it seem to the rest of the world that the U.S. was serious about climate change. Apparently, he didn’t see the irony.

His successor is resurrecting the pipeline for the same reason—appearances. In this case, the appearance of creating jobs. But as I exasperatingly explained in these pages some two years ago (“Keystone XL Pipeline: Enough Already!”):

This project is so small in the grand scheme of anything it boggles the mind anyone outside of those directly involved in building and operating it gives it a second thought…

At this point, the Keystone XL is just another construction project. In fact, that is all it ever was. If it didn’t require crossing the border with Canada (which required a “presidential permit”), we never would have heard a peep about it.

With the pipeline’s apparent revival, now at least, all the government resources spent examining and re-examining and fretting and re-fretting, etc. over the project will have amounted to something—even though that something should have been decided (and approved) some four or five years ago.

What executive powers taketh away, executive powers giveth. I’m sure this won’t be the last of Obama’s symbolic actions on climate change that President Trump overturns. Each will better clear the way for us to move on to more important matters.

Congressional Republicans have a new plan for a military spending boost. John McCain, the Chairman of the Senate Armed Services Committee, last week released a report calling for a $54 billion increase in 2018 Pentagon spending and a $430 billion increase above current Pentagon plans for the next five fiscal years. McCain’s House counterpart, Mac Thornberry, backed that plan today in a Fox News op-ed. Both chairmen also want an immediate “supplemental” increase of an indeterminate amount to the 2017 military budget. 

Enacting the McCain/Thornberry plan requires undoing the defense spending caps set by the Budget Control Act. Complying with the caps would shave more than $100 billion off existing plans over the next five years, meaning that the new plan would spend more than half a trillion more than current law allows. That’s before counting any 2017 supplemental or Overseas Contingency Operations (OCO) funding, currently at $59 billion. The plan calls for transferring OCO spending, which is now uncapped, back into the base budget once the abolishment of the Budget Control Act leaves it unconstrained.

The title of Thornberry’s op-ed, Here’s How We Will Make America’s Military Great Again, suggests its intended audience. During the campaign, President Trump endorsed an across-the-board military buildup likely to cost $70 to $100 billion a year but absurdly claimed that he could fund it by cutting Pentagon waste, fraud, and abuse. Since his election, Trump and his advisors have done little to clarify how they’ll fund the buildup or use the expanded military, besides parading it down Pennsylvania Avenue.

Trump’s distraction allowed McCain and Thornberry the opportunity to set the GOP’s direction on defense. Trump’s appointments and his difficulty formulating policies mean that he’s likely to support the McCain/Thornberry plan. Given that and Republican control of both Houses, the plan might seem destined for success, with the increase funded in the GOP’s preferred way: through cuts to non-defense spending.

But Senate Democrats are likely to filibuster an effort to erase the defense caps absent a matching increase in non-defense discretionary spending. While that sort of deficit-swelling deal might be acceptable to Trump, McCain, and Thornberry, it could produce enough congressional Republican opposition to prevent passage.

If there’s a way to have a defense build-up while satisfying Democrats and most Congressional Republicans, it’s to stick with what’s worked in recent years: maintaining a semblance of concern about deficits and a show of parity between defense and non-defense spending. That means raising but maintaining caps in both areas while shoving more base Pentagon funds into OCO under the pretext that it’s temporary. The bottom line is that the current political circumstances will probably produce a big defense buildup funded through deficit spending or, more likely, a smaller defense increase funded by more deceptive deficit-spending.

Not even that sort of watered-down buildup is needed. The case for a buildup relies on a tired litany of exaggerated dangers and misrepresentations about the horrors of the Pentagon having to live on $600 billion a year. In fact, current military spending is easily sufficient to meet current threats. With a more restrained military strategy steering the U.S military away from avoidable tensions and endless wars, the defense budget could be far smaller.

Both McCain and Thornberry contend that sequestration is ravaging U.S. military readiness. But there has been no sequestration since 2013; it occurs only if spending exceeds caps, and defense spending remains near Cold War highs. The recent drawdown was historically mild and mostly funded by shrunken war costs. Readiness is generally okay but could be improved if the Pentagon—or the House Armed Services Committees—shifted money from acquisition to operational accounts.

The report and op-ed both focus on the threats low defense spending is supposedly encouraging. They fail to note that fighting terrorists including ISIS—even if the effort were expanded by Trump—costs less than a tenth of U.S. military spending. They fail to explain how higher defense spending would solve the difficulties posed by Iran and North Korea. Nor is there reason to believe that higher military spending would cow Russia and China into more compliant behavior, as both Chairmen contend. If there is a deficiency in the U.S. approach to the Ukraine and the South China Sea that allows aggression, it is a result of the limited U.S. will to start a catastrophic war over matters remote from U.S. safety, not an absence of military power to use if war occurs.

There are strains on the U.S. military today. But they’re more the result of a lack of strategy than a lack of money. By spending money on everything and endorsing every mission, the McCain/Thornberry plan would create a larger version of the same problem. We should instead do less with our military—avoiding the distant trouble that justifies most military spending.

On why that sort of restraint would improve U.S. security, see the various Cato works on defense budgets and policy and our conference on “The Case for Restraint.” On the exaggeration of danger as a means to justify high defense spending, see Christopher Preble and John Mueller’s edited volume and other works by Cato scholars.

It’s National School Choice Week, so it’s a good time to survey the countryside and see what’s in store for the year ahead.

Last year was relatively quiet in terms of school choice legislation. South Dakota enacted a relatively limited tax-credit scholarship program and Maryland enacted a small voucher program, but there wasn’t much progress otherwise. 

By contrast, 2015 was the Year of Educational Choice. Not only did 15 states adopt 21 new or expanded educational choice programs, three of them enacted education savings account (ESA) laws. As I’ve noted previously, ESAs represent a move from school choice to educational choice because families can use ESA funds to pay for a lot more than just private school tuition. Parents can use the ESA funds for tutors, textbooks, homeschool curricula, online classes, educational therapy, and more. They can also save unused funds for future educational expenses, including college.

Already, several states this year are considering ESA legislation. Last week, legislators in Arkansas introduced a universal-eligibility, tax-credit funded ESA similar to what Jonathan Butcher and I described in our report last year, “Taking Credit for Education.” Donors would receive tax credits for contributions to nonprofit scholarship organizations that would fund the ESAs. According to a just-released study from Julie Trivitt and Corey DeAngelis of the University of Arkansas, if enacted, the ESA would expand educational choice while saving taxpayers an estimated $2.8 million.

This week, the Missouri Senate Education Committee will hold a hearing on a bill to create tax-credit funded ESA, similar to the Arkansas bill described above. Missouri will also consider publicly funded ESAs, as well as other choice proposals.

Other states considering publicly funded ESAs include Indiana, Iowa, New Hampshire, Oklahoma, and Texas. I’ve also heard that Arizona legislators are considering expanding their ESA, possibly to include all Arizona students. Meanwhile, in Nevada, Gov. Sandoval is looking to find ways to fund his state’s ESA after the state supreme court upheld the constitutionality of the program but struck down its funding mechanism

Several states will also be considering tax-credit scholarship programs, including Kentucky, Nebraska, and (likely) Texas. In addition, South Carolina is looking to expand its tax credit.

I’m liking missing a number of proposals, and it will be tough to top 2015, but 2017 very well might be the Year of Educational Choice, Jr.

Earlier today, demonstrating his preference for action over reason, President Trump signed an executive order to officially withdraw the United States from the Trans-Pacific Partnership agreement. On the one hand, it’s refreshing to witness the rare act of a politician fulfilling a campaign pledge. On the other hand, there is nothing else good about it. Trump detonated a bomb; six years of negotiations went boom; now what?

To a president who seems intent on turning the country inward, raising the barricades, demanding self-sufficiency, and eschewing the outside world, the TPP was an obvious target. But what’s especially disconcerting is that the president didn’t need to go this far to keep TPP out of play. The agreement couldn’t possibly take effect without congressional passage of implementing legislation, and his signature affixed. He could have just kept TPP on the back-burner in the event that its utility, relevance, or imperative to U.S. economic and geostrategic objectives became evident, as his term progressed. Because it will.

My colleagues and I did a thorough, chapter-by-chapter assessment of the TPP and concluded that, on net, implementation would advance our economic freedoms. But there is also a geostrategic rationale for the TPP that compels beyond the text of the agreement. I presented that case in a few different articles, but here’s an excerpt from the most recent oped, in The Hill

The TPP is a comprehensive trade and investment agreement that reduces tariffs and other trade barriers among 12 Pacific-Rim nations. Implementation would help generate greater wealth and higher living standards by more closely integrating economies that account for 40 percent of global GDP.

As an agreement among countries on four continents, the TPP is uniquely qualified to fill the void created by the once successful, but now dysfunctional, multilateral negotiating “round” approach to global trade liberalization.

But perhaps more significantly, the TPP offers a unique opportunity to refresh the U.S.-created rules and institutions of international trade and adapt them to the nature and conditions of the 21st century global economy. It is a blueprint for securing U.S. geoeconomic and geopolitical interests now and into the future.

The geostrategic rationale for TPP—which has yet to dawn on the president-elect—is much less about achieving overt economic and security objectives than it is about preserving and strengthening U.S. soft power.

Without the TPP, as the economic center of gravity continues its shift across the Pacific toward Asia, those successful trade rules and institutions could become superseded by lesser, opaque, discriminatory rules, which subvert the existing order, advance parochial objectives, and disadvantage U.S. commercial interests.

The geostrategic rationale for TPP—which has yet to dawn on the president-elect—is much less about achieving overt economic and security objectives than it is about preserving and strengthening U.S. soft power.

Unlike most other trade agreements, the TPP permits new members to join. The fact that TPP has achieved critical mass allows its terms to be offered on a take-it-or-leave-it basis.

Just as larger bodies floating in space have significant gravitational pull on smaller, surrounding objects, the TPP—by virtue of its heft—would pull other countries on other continents into its orbit because the costs of remaining on the outside will increase with each new accession.

The evidence of this effect is considerable. As investment in production platforms and supply chains has begun to shift from TPP outsiders to TPP members, current non-members such as South Korea, the Philippines, Indonesia, Thailand, and Taiwan have been considering and implementing various domestic reforms to improve their prospects for eventually joining.

With TPP rules and benefits applying to China’s most important trade partners, Beijing would have no better alternatives than to embrace the TPP itself, which would be good for all TPP parties.

In addition, what better way to dissuade China from bellicosity over its territorial disputes with Vietnam, Japan, and the Philippines than to demonstrate a prosperous alternative to 1930’s-style resource-driven expansionism in Asia?

Rather than deploy a naval fleet, offer China’s neighbors—and China itself—a clearly plausible path to economic growth and security.

But without TPP, China is the large mass drawing smaller countries into its gravitational pull. With the China-led Regional Comprehensive Economic Partnership negotiations waiting in the wings for TPP’s failure, countries in the region will be drawn more deeply into China’s orbit.

That shift doesn’t mean trade between the United States and those countries will suddenly dry up, but it does mean that existing China-focused investment and supply chain relationships will be reinforced, new ones will emerge and become established, and the costs of reorienting those relationships in the event of some future TPP implementation will increase with each passing year.

U.S. commercial and diplomatic interests in the region would be further impaired by Washington’s failure to follow through on its promises. Reformers in foreign governments that incurred political costs to push the TPP in their countries with expectations of U.S. participation wouldn’t soon forget that the United States proved to be an unreliable partner.

Hopes for the TPP jump-starting a new wave of global trade liberalization would be dashed and, with U.S. credibility diminished around the world, America’s policy objectives would become more difficult to meet.

Perhaps the highest legislative priority for House Republicans in the 115th Session of Congress is an overhaul of the United States’ antiquated and onerous corporate tax code. The details of the GOP plan aren’t out yet—it’s only summarized in a House Republican “blueprint” and the legislative text hasn’t been finalized—but the general idea is to replace the current 35% “worldwide” corporate income tax with a 20-25% “destination-based” tax on corporations’ US sales (i.e., including domestic sales of imports in the tax base, but excluding export sales—so called “border tax adjustments”).

This “destination-based cash-flow tax” (or “#DBCFT” as the tax nerds are now calling it on the interwebs) would be a fundamental shift in how (and on what) American corporations now pay tax, and it raises complex economic issues—including how trade would be affected—that I wouldn’t dare try to navigate here (but these analyses are a good start). 

On the other hand, the DBCFT debate also has addressed whether the tax plan would be consistent with World Trade Organization (WTO) rules on “border adjustable” taxes, with some folks already going so far as to claim that any version of the DBCFT would violate the United States’ international obligations and thus expose US exports to billions of dollars-worth of WTO-sanctioned retaliation. As I discuss below, however, that assumption’s not really correct; in fact, there is a very good argument that the DBCFT, if properly constructed, would pass muster at the WTO and thereby avoid potential retaliatory tariffs on US exports.

Before we get to that analysis, however, three very important notes:

  • First, the Republican plan is not a tariff or other border measure that applies only to imports; it is an “internal tax” that applies to both imports and domestically-produced goods and services. (Think of it like a sales tax, which is paid on a good or service consumed in the United States, regardless of its origin.) This has two important implications: 1) the tax is not the same as, for example, a steep “border tax” on imports into the United States from US companies that engage in “outsourcing” (though many have speculated that the Republican tax proposal could serve as a final compromise between Congress and President Trump on the issue of “outsourcing” and border taxes); and 2) the tax plan is therefore not inherently “protectionist” (though it may have important distributional effects, depending on things like currency movements—see economic links above).
  • Second, and relatedly, WTO rules are primarily concerned with preventing discrimination in a Member’s domestic market—in favor of certain WTO Members’ goods and services (the “most favored nation” principle) or domestic industry (the “national treatment” principle or rules prohibiting certain subsidies). Thus, a WTO Member is relatively free to apply many types of measures, such as the DBCFT, that could have significant effects on trade flows or domestic investment but might not actually violate those WTO rules. And, whether other WTO Members reciprocate with similar taxes on US-origin goods and services is immaterial to any ultimate conclusions of the DBCFT’s WTO-consistency (though it may have a practical effect). These distinctions might sound wonky (and they are), but they’re important: while most of the trade-related focus on the DBCFT has been on the taxation of imports and rebate or exemption for exports or on whether other WTO Members apply similar taxes to American products, the WTO focus is, as you’ll see below, instead on two things: 1) whether the tax itself discriminates against imports in favor of identical domestic goods in the US market or 2) whether the “border adjustment” on exports is an impermissible export subsidy. Thus, the DBCFT’s consistency with WTO rules is important in terms of international trade relations, but it does not necessarily mean the DBCFT is good economic policy.
  • Finally, just because something looks WTO-inconsistent doesn’t actually mean that it is (or that a WTO Member will challenge it). All WTO Members’ laws are considered to be consistent with WTO rules until found otherwise in official dispute settlement. Many Members therefore adopt policies that could be problematic under WTO rules, particularly when they think that the policies won’t be challenged, or political or economic considerations are more important that WTO ones. The threat of WTO retaliation and the appearance of being a responsible WTO Member are important variables, but they’re certainly not the only (or even predominant) ones.

So with those three things out of the way, let’s get on with the analysis. In general, a border adjustable internal tax will likely be consistent with WTO rules where—

1) The tax itself is among the types for which border adjustments are permitted. Under the WTOSubsidies Agreement, “direct taxes” (like a corporate income tax) are ineligible for border adjustment, and any such adjustment on export sales would constitute a prohibited export subsidy. This rule was put to the test in the late 90s when the United States lost a series of WTO disputes over its corporate income tax exemptions for “foreign sales corporations” (FSC/ETI): WTO panels and the Appellate Body found that the US corporate income tax was a “direct tax,” that the FSC/ETI tax breaks were “subsidies” to the recipient US firms, and that such tax breaks were contingent upon exportation—precisely the type of prohibited border tax adjustment subsidy listed in the Subsidies Agreement’s “Illustrative List” of prohibited subsidies.

On the other hand, the same WTO subsidy rules permit border adjustments on “indirect taxes” like value-added taxes (VATs), including the one applied by the EU. As a result, the conventional wisdom holds that only traditional consumption taxes (e.g., sales taxes or “credit-invoice” VATs that are paid by consumers and applied directly on products) are eligible for border adjustment under WTO rules. Those taxes certainly are eligible, but other taxes might also qualify. Most importantly, the definitions of “direct tax” and “indirect tax” in the WTO Subsidies Agreement leave possible gray areas for corporate taxes that share characteristics of both forms of taxation. This could include a “subtraction-method VAT,” under which a uniform rate of tax is levied directly on corporate sellers (as opposed to products/consumers) based on their sales revenue, less taxable (domestic) purchases.  Such a system is widely accepted as VAT (thus fitting the Subsidies Agreement’s definition of “indirect tax”), but it is also a tax on a form of corporate income (thus potentially meeting the “direct tax” definition). This ambiguity could protect a border adjustable, subtraction-method VAT from the relatively straightforward analysis that applied to the FSC/ETI measures. Indeed, Japan has imposed a border adjustable, subtraction-method VAT since the early 1990s, without any serious interest or concern from other WTO Members—a decent indication that the system doesn’t raise the same WTO alarm bells as FSC/ETI did. (Other WTO Members, of course, might disagree.)

2) The tax imposes identical burdens on imported goods and domestically produced “like” products. The General Agreement on Tariffs and Trade (GATT) generally prohibits taxes on imports other than duties, but Article II:2(a) allows a government to impose at the time a product crosses its border “a charge equivalent to an internal tax imposed…on a like domestic product,” as long as it is imposed consistently with the “national treatment” principle of GATT Article III. Thus, an internal tax at the border would be consistent with GATT Article II (on tariffs and import charges) and Article III (National Treatment) the imported good at issue is “not subject, directly or indirectly to internal taxes or other internal charges of any kind in excess of those applied directly or indirectly to like domestic products.”

3) The border adjustment on exports is no greater than the actual amount of tax collected or due. Under WTO rules, the rebate or exemption of eligible taxes (such as VAT) on exports will not be treated as an export subsidy, as long as the rebate/exemption rate is not greater than the rate at which the tax is levied domestically. On the other hand, such a rebate/exemption will constitute a prohibited export subsidy where it is in excess of the actual tax collected or due.

Based on these general rules, the DBCFT could, depending on its design, arguably pass muster at the WTO. First, in order for the tax exemption or rebate on US exports to avoid being designated a prohibited export subsidy, the adjusted corporate tax must not be a “direct tax,” as defined in the WTO Subsidies Agreement. The Republican proposal might pass this test if it is, for example, a subtraction method VAT. Second, the DBCFT must also be levied on imported products at a rate or amount no higher than the rate/amount levied on domestically produced “like” products (to be consistent with GATT Articles II and III). Third, the DBCFT cannot provide a border adjustment on export that is greater than the amount of tax actually levied or due (to avoid being a prohibited export subsidy).

All of these tests would require far more detail than we have at this stage, but the second issue may be the most problematic for the DBCFT. Various commenters have indicated that the DBCFT will permit certain additional deductions (e.g., for domestic wages and salaries) from the tax base, thus leading to a lower effective tax rate on domestic products than on the exact same imports. If that is, in fact, the case, then the DBCFT probably discriminates against imports in violation of GATT rules. We can test this once the legislative text is released through a simple hypothetical assessment of the tax’s effect on two identical U.S. companies selling and exporting the same product, with one company selling only imported final goods and the other selling identical products with 100% US content. If the total DBCFT paid by the former company is more than that paid by the latter (accounting for the whole value chain), then the tax measure would likely discriminate against imported goods in violation of GATT Articles II and III.  f the total export border adjustment provided to one of the companies is more than the tax collected (or otherwise due), then the system would likely be a prohibited export subsidy.

Obviously, the devil will be in the details. At this stage, I’m pretty agnostic about the DBCFT, but that certainly could change depending on the text of the final proposal and analyses of its projected economic (trade, budget, etc.) effects. In the meantime, however, we can dispense with the conventional wisdom that the DBCFT is definitely “protectionist” or that it definitely violates the United States’ WTO obligations. WTO-consistency, of course, doesn’t necessarily make the DBCFT good policy overall, but at least it would let us avoid a mess at the WTO and potential retaliation from our trading partners.

Donald Trump, in his inaugural address today: “The oath I take today is an oath of allegiance to all Americans.” A harmless rhetorical flourish, no doubt, and one that Trump is by no means the first to make. And yet…

Note that the President’s actual oath of office says nothing about allegiance. It instead contains verbs promising two types of action: “faithfully execute the Office” and “preserve, protect and defend the Constitution.” Its exact text reads: “I do solemnly swear that I will faithfully execute the office of President of the United States and will to the best of my ability, preserve, protect and defend the Constitution of the United States.”

If a President does those two things, the American people as a whole will benefit. So no big difference from what Trump said, right? Maybe. 

The words of the actual oath require the President first to uphold legality, even above his vision of what might be good for the people. This element of legal constraint is lost if a President sees his allegiance as being to someone rather than something. As colleague Tim Lynch wrote on Wednesday, “There are many other checks and balances in our system, but the oath of office is supposed to be the first line of defense.”

Now history may look back and see this as an unimportant choice of words. Trump’s actions one way or the other will speak louder than his shades of wording.

Still, I wish the speech had used the word “Constitution,” or “law” in a way beyond the phrase “law enforcement,” or “Framers” or “Founders,” or “Declaration” or “Amendment” or “individual” or perhaps “rights.” The one occurrence of “right” was in a passage about “the right of all nations to put their interests first.”

During his campaign, Trump’s style was noteworthy for how seldom he mentioned the Constitution, the legal limits of government power, or the rights of the individual. Let us hope that these themes emerge in future speeches by the new President.

If patriotism is the last refuge of scoundrels, where will President Trump turn when his “America First” policies lay waste to the very people he professes to be helping?

The ideas conjured by “Buy American” may appeal to many of President Trump’s supporters, but the phrase is merely a euphemism for doling political spoils, featherbedding, and protectionism. The president may score points with union bosses, import-competing producers, and some workers, but at great expense to taxpayers, workers and businesses more broadly.

Cordoning off the estimated $1.7 trillion U.S. government procurement market to U.S. suppliers would mean higher price tags, fewer projects funded, and fewer people hired. In today’s globalized economy, where supply chains are transnational and direct investment crosses borders, finding products that meet the U.S.-made definition is no easy task, as many consist of components made in multiple countries. And by precluding foreign suppliers from bidding, any short-term increases in U.S. economic activity and jobs likely would be offset by lost export sales – and the jobs that go with them – on account of copycat protectionism abroad.

Buy American laws have been used to limit competition for government procurement to domestic firms and workers since 1933. General Buy American restrictions already apply to all government procurement of supplies and materials for use within the United States. Those provisions require that all “unmanufactured” products (essentially, raw materials) procured be mined or produced in the United States and that all “manufactured” articles procured fit the definition of a “domestic end product,” which is an article manufactured in the United States from components, which are at least 50 percent (by value) U.S.-produced.

Those Buy American restrictions can be waived if any one of three conditions applies: (1) a waiver would be in the public interest; (2) the products are not available from domestic sources in sufficient quantity or of satisfactory quality, or; (3) the cost of using US-made products is deemed “unreasonable.” Under the Federal Acquisition Regulations, “unreasonable cost” is defined as a situation where foreign supplies and materials are offered at a price that is six percent or more below the price of domestic supplies and materials.

But there are even more restrictive Buy American provisions governing Transportation Department procurement rules for highway and related projects. These rules require that all of the iron, steel, and manufactured products used in these projects be produced in the United States. The definition of U.S.-manufactured products is the same here as under the general Buy American provision, and the same thresholds for public interest and short supply waivers also apply. However, the unreasonable cost waiver is considerably different. Under this provision waiving the restriction on the basis of unreasonable cost requires that the total project cost (not the input cost) be at least 25 percent higher. That is an enormous cushion for domestic suppliers, which accords them license to tender their bids at exorbitant prices.

There is another set of waivers that are supposed to ensure some competition in the U.S. government procurement market. Under the Trade Agreements Act of 1979, the president is authorized to invoke the public interest waiver of the Buy American rules and exempt countries which reciprocally waive their own buy-local restrictions for U.S. firms. Those countries include signatories to the World Trade Organization’s Government Procurement Agreement or parties to U.S. free trade agreements (like the North American Free Trade Agreement) that contain full government procurement chapters.

Whether these waivers would be invoked by President Trump seems highly unlikely – it would at least contradict his inaugural rhetoric.  Moreover, Senator Sherrod Brown (D-OH) plans to introduce new legislation next week to broaden the scope (and limit the potential for exemptions) of government spending that is subject to Buy American rules, to effectively ensure that the $1 trillion or more of infrastructure spending likely to be authorized by Congress is off limits to foreign companies and workers.

With low-cost suppliers of crucial materials and some of the world’s most experienced and efficient civil engineering firms (think dredging America’s too shallow harbors to accommodate the large Post-Panamax container ships) effectively excluded from the infrastructure spending bonanza, U.S. suppliers will be less restrained in their cost proposals, which means fewer, more expensive public projects.

As individuals spending their own money, most Americans seek to maximize value. That often means shopping for groceries at a big supermarket chain instead of the gourmet market or patronizing Home Depot instead of the hardware store on Main Street. Shouldn’t we expect Washington to spend our tax dollars with a similar eye toward prudence and value?

The instinct to want to insulate “our” markets, protect “our” businesses, and prevent “our” resources from leaking into other jurisdictions at “our” expense is easy to grasp.  But the idea that restricting government procurement spending to American goods, services, and workers will produce that outcome is misguided, nonetheless.

When we artificially reduce the pool of qualified suppliers or the variety of eligible supplies that can satisfy procurement requirements, projects cost more, take longer to complete, and suffer from lower quality. Only a basic understanding of supply and demand is required to see that limiting competition for procurement projects ensures one outcome: taxpayers get a smaller bang for their buck.

Sure, some U.S. companies will win bids, hire new workers, and generate local economic activity. What will be less visible — but every bit as real — are the contracts denied numerous other U.S. businesses and workers because the resources have been stretched and depleted to satisfy restrictive procurement rules. Some U.S. companies and some U.S. workers may benefit, but the real value of public spending  — the actual products and services procured — will decline.

While President Trump seems to be prioritizing U.S. companies and workers, he must know that well over 6 million Americans work for foreign-headquartered companies here in the United States.  He must know that over $1.2 trillion of foreign direct investment is parked in the U.S. manufacturing, undergirding valued added activity, and supporting jobs and the tax base.  Tightening Buy American rules will hurt these firms and possibly chase them and their investments offshore.

It is the responsibility of elected officials who tax, borrow, and spend to be prudent stewards of the public’s finances. Yet the temptation to breach that implicit contract to advance self-serving ends often proves irresistible – especially when the action finds refuge in patriotism.

“The magnitude and difficulty of the trust to which the voice of my country called me… could not but overwhelm with despondence one who (inheriting inferior endowments from nature and unpracticed in the duties of civil administration) ought to be peculiarly conscious of his own deficiencies.”

George Washington, First Inaugural Address, April 30, 1789

“He referred to my hands—‘if they’re small, something else must be small.’ I guarantee you there’s no problem. I guarantee.”

Donald Trump, Republican primary debate, March 3, 2016

Unless he manages to fire off a tweet in between taking the oath and approaching the podium, today’s Inaugural Address will be the first time Donald J. Trump addresses the public as president. We’re told it’s going to be a “philosophical document”; what that will mean we’ll have to wait to find out, but I’ll hazard one guess about the contents of the speech. Early Inaugural Addresses nearly always included a profession of humility by the man about to assume such grave responsibilities, as with Washington, above, or Jefferson (“the task is above my talents”); Madison (“my own inadequacy to its high duties”); Monroe (“conscious of my own deficiency”); and even Andrew Jackson (“a diffidence, perhaps too just, in my own qualifications…”). I doubt that Trump’s Inaugural Address will contain anything like that.

Presidents don’t talk like they used to, and they haven’t for some time.  Most presidential scholars recognize “a significant transformation of the presidency at the turn of the twentieth century from a traditional, administrative, and unrhetorical office into a modern, expansive, and stridently rhetorical one in which incumbents routinely speak over the head of Congress and to the public to lead and to govern.” In a 2002 article, presidential scholar Elvin T. Lim exhaustively examined all Inaugural and State of the Union addresses from 1789 to 2000, and found—it will hardly shock you to learn—that presidential rhetoric has become “more anti-intellectual,” more imperial, “more assertive,” and characterized by “an increasing lack of humility.”

Trump won’t be the first president to simultaneously dumb down the content and ramp up the hubris, but it appears likely that, as president, he’ll take the prevailing rhetorical trends to a new level, offering the Xtreme Energy Drink version of what’s usually on tap.

Hard as it may be to picture now, in the early years of the Republic, the prevailing norm was that the president was mostly supposed to keep his mouth shut. The Founding Generation didn’t believe in Teddy Roosevelt’s Bully Pulpit: the very idea of a president claiming a special mandate to speak for the people, pounding the podium and rallying the masses behind his agenda was anathema to them.

In his pioneering study The Rhetorical Presidency, Jeffrey Tulis observed that “the founders worried especially about the danger that a powerful executive might pose to the system if [presidential] power were derived from the role of popular leader. For most federalists, ‘demagogue’ and ‘popular leader’ were synonyms, and nearly all references to popular leaders in their writings are pejorative.” In fact, that fear bookends the Federalist, with the first essay warning that of “men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people; commencing demagogues, and ending tyrants,” and the last raising the specter of “the military despotism of a victorious demagogue.”

Instead of translating popular passions into government activism, the president’s role was to resist those passions, to, as Federalist 71 puts it, “withstand the temporary delusion in order to give [the people] time and opportunity for more cool and sedate reflection.”

Accordingly, a web of tacit norms—what Tulis calls a “rhetorical common law”—constrained the president’s ability to engage in popular appeals. They weren’t supposed to address the public very frequently.  As Tulis notes, Washington’s first Inaugural is addressed to “Fellow Citizens of the Senate and House of Representatives”—not the public at large; and 19th-century presidents gave very few public speeches in general.

Those norms also governed what presidents were supposed to say when they did address the public. “Every president in the nineteenth century, except Zachary Taylor, mentioned the Constitution” in his Inaugural Address, Tulis observes, and most elaborated with “reflection upon its meaning.” Lim tracks a 20th-century decline in references to the Constitution, and finds that “other keywords of typical republican rhetoric have become unpopular, with references to the once honored words like republic, citizen, character, duty, and virtuous falling significantly. … In contrast, references to leader, people, and democracy have increased dramatically over time.” Moreover, “as modern presidents have rhetorically represented themselves increasingly as protectors and defenders of the people, their rhetoric has also tended to aggrandize their status within the governmental system.” Where once presidents humbly sought the blessings of “Providence,” in their formal addresses, lately they’re more likely to invoke “God,” suggesting He’s on our side, after all.

We’ve come a long way, baby: and, as president, Donald Trump seems likely to take us even further from the “rhetorical common law” that once restrained presidential demagoguery and, with it, presidential power.

Where Obama indulged in the occasional feel-good, “rock-star” rally as president, Trump has signaled that he may make the mass rally a regular feature of his presidency. And where Obama, our first Twitter president, had a feed so reassuringly dull, you could safely unfollow it without fearing you’d miss anything, you could hardly say the same about @realDonaldTrump. As a medium of direct address, Twitter is ill-suited to encourage the “cool and sedate reflection” the presidency demands, and which Trump seems constitutionally incapable of providing. Just since his election, Trump has used it to rail against bad restaurant reviews, Saturday Night Live skits, and the United States’ nuclear-armed rivals.

Rhetorically, Trump represents the antithesis of the modest, restrained vision of the presidency shared by most of the Founders. That’s apparent from his nomination acceptance speech at GOP Convention this summer, which was dominated by alarmist hyperbole (“attacks on our police, and the terrorism in our cities, threaten our very way of life”) hubristic promises (“beginning on January 20th 2017, safety will be restored”); and a vox populi conception of the presidency: “I AM YOUR VOICE” (ALLCAPS in the prepared-for-delivery version released by the campaign).

In a famous (perhaps borrowed) refrain to one of his speeches, Barack Obama intoned: “Don’t tell me words don’t matter.” In this case, they do: how the president communicates reveals how he views the office—and how he intends to wield power. Trump has given us ample reason to worry on that score.

President Barack Obama leaves office today at Noon. His critics are happy to see him go, even as some acknowledge that he carried himself with dignity and grace for eight years in office. He departs the presidency with favorable approval ratings among the public at large, but is handing over power to a person who seems committed to overturning everything that he has done.

Donald Trump’s foreign policy doctrine is enigmatic, at best.  Obama, in contrast, had a concise and tidy way to explain his approach : “Don’t do stupid s***.”

Alas, he wasn’t always successful. For all the complaints that Obama was too reticent to use military power, his actions as president don’t betray great skepticism of kinetic military operations (aka war). Some of those not-quite-wars weren’t entirely successful, others were an abysmal failure. I discuss some of these issues in this podcast with Caleb Brown.

He twice increased the number of U.S. troops into Afghanistan in 2009, even though he doubted at the time that they would be able to accomplish their mission. The United States still has 8,500 U.S. troops fighting in what is now America’s longest war.

Without congressional authorization, he carried out an air campaign over Libya that contributed to the overthrow of Muammar Qaddafi’s decades-long regime. Few people shed any tears for the crazy colonel (Hillary Clinton even laughed about it), but the country has been gripped by chaos and violence ever since.

Obama’s war against the so-called Islamic State in Iraq similarly lacked congressional authorization. It has been marginally more effective, largely because the many different actors threatened by ISIS’s reign of terror have managed to squeeze it on all sides. But, as in Libya, the question of what comes after looms large.

And when Barack Obama wasn’t willing to use American military power directly, through either ground troops or drones, he did provide assistance, including lethal assistance, to those who were doing the fighting. But war by proxy is always difficult, as the ongoing civil wars in Syria and Yemen attest.

The United States has struggled to prevail militarily in a host of conflicts during Barack Obama’s two terms in office. But that doesn’t necessarily mean that Obama hasn’t used force often enough, or doggedly enough, or smartly enough. More likely, it means that many of the problems that he has attempted to solve aren’t conducive to military solutions. And the claim that Obama has gutted the U.S. military conveniently ignores that Pentagon spending was higher during his eight years in office than during George W. Bush’s, and that we spend more every year, in real terms, than we spent during the Cold War. Military spending is down since 2012, but is still 30 percent higher than in 2001.

On the plus side, Barack Obama should get credit for normalizing relations with Cuba and moving to expand economic relations with our Caribbean neighbor. Critics of the move, such as Sen. Marco Rubio (R-FL), point out that Raul Castro’s regime hasn’t reciprocated by improving its human rights record. But the embargo has similarly failed to crack open the regime. Congress and incoming-President Trump should finish the job, relax the remaining restrictions, and enable greater interactions between the Cuban people and their neighbors to the north.

President Obama successfully negotiated a deal that makes it substantially harder for Iran to develop a nuclear weapon. Critics claim that there was a better deal to be had, or that there should have been no deal at all. But, without a deal, Iran was well on its way to becoming a nuclear weapon state, and military action would have merely delayed the program, and at great cost in human lives. The deal will need to be monitored closely, as Secretary of Defense nominee James Mattis affirmed in his confirmation hearings last week. A progress review by the International Crisis Group on the one-year anniversary of the deal’s implementation concluded that, thus far, it was “effectively and verifiably blocking all potential pathways for Iran to race toward nuclear weapons, while opening the door to the country’s international rehabilitation and economic recovery.”

Lastly, President Obama deserves credit for resisting the bipartisan calls to get the United States more deeply embroiled in the Syrian civil war. His greatest error with respect to Syria was his demand that Syrian President Bashar al-Assad “must go”, and his proclaimed red line concerning the use of chemical weapons by the Syrian regime against opposition forces. He wisely backed away from this ill-considered pledge when he ignored the political class in Washington, and listened to the America people who wanted no part of another Middle Eastern conflict. The Syrian civil war is a grave human tragedy, with hundreds of thousands killed, and millions driven from their homes. But Obama’s critics, who believe he should have defied public opinion, and launched military strikes in September 2013, fail to show how such actions would have hastened the war’s end.

We should judge U.S. president’s foreign policies by whether they improved American security and prosperity, or whether they made Americans less safe and less prosperous. By that standard, Barack Obama could have done far worse.

Nearly 20% of Americans report a police officer having used profanity with them. Yet, an overwhelming majority—77%—of Americans say police should be prohibited from using profanity or swearing at citizens while on the job. Twenty-three percent (23%) say police ought to be allowed to swear at citizens while on duty, according to a newly released Cato Institute/YouGov survey.

Find the full public opinion report here.

Opposition to police profanity reaches rare bi-partisan consensus—77% of Democrats and 75% of Republicans agree that police shouldn’t swear at people. Americans of virtually every demographic group identified strongly oppose allowing police use such language, including 77% of whites, 82% of blacks, and 72% of Latinos.

Why might police profanity matter? First, police image matters, and profanity could make police appear unprofessional, undisciplined, or “lacking self-control” as one research subject put it. Research experiments have shown that police using profanity are perceived as less fair and impartial. Further, police using profanity at the same time as using physical force with a person may cause people to view the force as excessive.  Given that personal encounters with police may be the strongest driver of attitudes toward law enforcement, one bad experience with police profanity may significantly harm a person’s willingness to trust and cooperate with police.

Second, some have argued that officers using profanity can “set someone off” and unnecessarily escalate confrontations with people leading to more force being used than was otherwise needed. Third, some contend police using such language can harm officers during court proceedings by appearing less sympathetic in front of the judge and jury.

Experience with Profanity

Some groups are more likely than others to report having an experience where police used profanity or abusive language with them. I combined two Cato Institute/YouGov surveys that asked this same question (which offers greater precision among small groups) and found: men (23%) are about twice as likely as women (12%), millennials (22%) about twice as likely as those over 55 (13%), households making less than $30,000 a year (24%) are about twice as likely as those making over $60,000 (13%), and blacks (26%) are about twice as likely as whites (15%) to report a police officer using profanity or abusive language with them.

Libertarians (20%) and liberals (19%) are also slightly more likely than conservatives (14%) to say an officer swore at them. Democrats (21%) and independents (21%) each are about twice as likely as Republicans (11%) to say a police officer used abusive language with them.

In sum, younger people, men, African Americans and Latinos, people living in cities, and individuals who are lower income are more likely to report having had this negative experience with the police. The ideological differences also suggest that dispositions toward authority may also impact the likelihood one encounters police profanity.

Indeed our research finds that individuals with little respect for authority figures are about three times as likely to say police have sworn at them, compared to those with high respect for authority (27% vs. 9%). However, this pattern primarily holds among white Americans. African Americans and Hispanic Americans are about equally likely to experience police profanity regardless of their dispositions toward authority figures.

In sum, although about 1 in 5 report experience with police profanity, and some groups disproportionately so, Americans overwhelmingly oppose police using profanity with people. Furthermore, research suggests policing guidelines prohibiting use of such language is wise and could enhance police-community relations.

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies. You can follow Emily Ekins on twitter @emilyekins.

The Cato Institute/YouGov national survey of 2,000 adults was conducted June 6–22, 2016 using a sample drawn from YouGov’s online panel, which is designed to be representative of the U.S. population. YouGov uses a method called sample matching, and restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of sampling error for all respondents is +/-3.19 percentage points. The full report can be found here, topline results can be found here, and full methodological details can be found here.



Michael Mann is a climate scientist and researcher whose work has been at the center of the global warming debate for decades. After emails came to light concerning Mann’s statistical methods, two of his critics wrote scathing pieces arguing that Mann had “molested and tortured data in the service of politicized science,” and calling for “a fresh, truly independent investigation.” Despite such harsh criticism being par for the course in online commentary, Mann sued both writers (Mark Steyn and Rand Simberg) and their publishers (National Review and the Competitive Enterprise Institute, respectively) for libel.

A three-judge panel of the D.C. Court of Appeals (the District’s highest court) ruled that Mann’s libel claim could succeed in front of a jury, and allowed the case to go forward. The defendants have asked the court to reconsider the implications of its decision, and Cato has filed a brief supporting that request.

Harsh words are common to the discourse of pundits and politicians alike. Op-eds and stump speeches frequently feature terms like “fraud,” “scam,” “misconduct,” and even “treason.” Whether such characterizations are apt or not is for readers and listeners to judge, but until now few imagined that using them could lead to years of litigation and a costly libel verdict.

Similarly, calls for investigation and accusations of whitewashing have a long history dating back to Emile Zola’s J’accuse…! and continuing today with debates over the trials of O.J. Simpson, George Zimmerman, and many others. If Mann’s critics committed actionable libel, then so might everyone who has voiced disagreement with such verdicts, as well as everyone who has called for politicians to be investigated for corruption, fraud, or war crimes.

Finally, the court wrongly held that merely comparing a public figure to a “notorious person” could be libelous. As we know from Godwin’s law, such comparisons are a time-honored tradition of American debate. Opinion writers in recent years have invoked colorful analogies to Timothy McVeigh, Charles Manson, and Jack the Ripper to express their displeasure with the conduct of public figures. Writers and historians concerned with the conduct of politicians have drawn parallels with Stalin, Mussolini, and, of course, the ubiquitous Hitler. Right or wrong, such language is unquestionably speech on subjects of public concern.

The D.C. Court of Appeals should give Mann v. National Review a second look and reverse its earlier decision. It’s no exaggeration to say that the court’s reasoning could put thousands of articles, blogposts, and even tweets under a cloud of potential liability, thereby chilling the speech that is the lifeblood of Washington politics. Cultural and political debates should be litigated in the court of public opinion, not law.

In a case involving the state’s attempt to confiscate a man’s handgun following his conviction for disorderly conduct, the intermediate appellate Pennsylvania Commonwealth Court has ruled that asset forfeiture is not a part of the state’s common law:

We conclude that common law forfeiture, as that concept originated and developed in England, was never incorporated into or became part of our Commonwealth’s common law tradition. Based upon our research, the Commonwealth’s organic law, namely Article 9, Sections 18 and 19 of the Pennsylvania Constitution of 1790, denounces and effectively abolishes any notion of common law forfeiture and that the predominate, if not unanimous, weight of the authority has determined that common law forfeiture never made it across the seas to America. Therefore, absent a statute that specifically authorizes the forfeiture of property, the Commonwealth and the courts have no authority to seek and order forfeiture of [property not unlawful to own in itself, but used in perpetration of an unlawful act].

And that should bring the Keystone State (finally) in line with the general view of American courts: while most states long ago rejected the traditions of English royal governance and required a statutory basis for forfeitures, Pennsylvania had been an exception, thanks to three decisions by its Superior Court in the 1980s that approved seizures on a so-called common law theory.  No more. 

The practical result is that law enforcement in Pennsylvania — as is the norm in other states — must either point to an authorizing statute or hand a seized item back. 


In the aftermath of Betsy DeVos’s confirmation hearing—but really, anytime someone’s talking about federal education policy—it is important to look at evidence. Today we’ve got several items to add to the evidence pile, none of them good for fed ed.

The first is a new report on the School Improvement Grants program, an initiative aimed at turning around troubled schools with various possible interventions ranging from replacing principals to closing schools. What did the report find? The multi-billion dollar undertaking “had no impact on math or reading test scores, high school graduation, or college enrollment.”

Next, to higher education. A Wall Street Journal article today reports that the U.S. Department of Education widely overstated the repayment rate of student loans. Indeed, when the Journal recalculated the numbers, “the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country.” The problem, according to an education department spokesperson cited in the article: a programming error.

Finally, we come to Navient, a company that exists largely on a contract to service student loans for the U.S. Department of Education. Yesterday the Consumer Financial Protection Bureau (CFPB)—itself a big federal fiasco—announced that it was suing Navient for deceptive and exploitative practices it allegedly undertook to cut costs and maximize revenues.

The CFPB isn’t entirely known for its own straight shooting, so Navient should get the benefit of the doubt. But it is certainly plausible that this government-privileged company takes advantage of its largely captive clientele. And who is Navient’s mother, by the way? Why none other than Sallie Mae—the company was spun off from Sallie in 2014—which was originally a government-sponsored enterprise like Fannie and Freddie, created by Washington to buy and service student loans in 1972.

In her confirmation hearing, Betsy DeVos pretty consistently indicated an aversion to federal power. The evidence is on her side, and growing every day.

Every year, Oxfam releases a report meant to shock the public about the extent of income and wealth inequality. This year’s report claims that the eight richest people on Earth have as much wealth as the bottom half of the world’s population (3.6 out of 7.2 billion people). That’s certainly shocking. It’s also profoundly misleading. 

As others have pointed out, Oxfam reached that number with a questionable methodology, which also led them to several other absurd conclusions. According to their own graphs, more poor people live in North America and Europe than China (see the far left of the chart below). How can that be, given that traditional poverty measures show the opposite

Oxfam isn’t using a traditional poverty measure (such as the number of people with a purchasing-power-adjusted income of less than, say, $2 per day). Instead, they focus on something called “net wealth.” This is the sum of an individual’s wealth minus any debts. 

Of course, many people in rich countries carry debt due to university loans or a home mortgage, yet also enjoy high incomes and an enviable standard of living. 

Here are some illustrations of just how absurd it is to use net wealth as a measure of poverty. 

Consider this. Oxfam claims a penniless, starving man in rural Asia or Sub-Saharan Africa is far richer than an American university graduate with student debt but a high-paying office job, a $2,000 laptop and a penchant for drinking $8 designer coffees. 

Let that sink in. 

(I must credit Cato’s Adam Bates for that example). 

Here is another example, courtesy of Johan Norberg. He points out that his daughter, a child with only about twenty dollars in her piggy bank, is richer than 2 billion people by Oxfam’s logic. If that were true, then the solution would surely not be to take away the humble savings of his daughter and redistribute them among those 2 billion souls, but rather to generate more total wealth, “enlarging the pie” so to speak. 

That’s the core problem with obsessing over “inequality.” If the goal is to further human wellbeing, then instead of decreasing inequality through redistribution, we should focus on decreasing poverty by creating ever more wealth. Happily, thanks to the wealth-creating power of market exchange, we’re doing just that. The trend lines all show that poverty (by any reasonable measure) is in retreat.

If you want to understand how flawed America’s immigration system is, consider this: the government treats immigrants differently based on their place of birth. The system considers immigrants’ education, use of welfare, criminal history, employment, family connections, and other personal details, but where you were born can make the difference between receiving legal residency immediately and waiting decades. This discrimination makes as little sense as discriminating based on race, gender, or any other attribute over which the individual has no control, and it should be abolished.

Fortunately, Rep. Jason Chaffetz (R-UT), chairman of the House Oversight and Government Reform Committee, has reintroduced the Fairness for High Skilled Immigrants Act (H.R. 392) to abolish this discrimination for all employment-based immigrants.

Here is how the discrimination works. Rather than waiting in one big line together in the order that their applications were received, immigrants wait in separate lines based on their nationality—a line for Mexicans, a line for Swiss, a line for Canadians, etc. Each line has the same limit on the number of visas issued in any given year: no more than 7 percent of all visas issued that year. These are called the “per-country limits.” For example, there are 40,000 visas made available to immigrant workers (and their families) with a bachelor’s degree. No country can receive more than 2,800 of them.

This means that the line for the Estonians and the line for the Chinese each get the exact same number of visas—despite the fact that Estonia has just 1.3 million people and China has 1.3 billion. The U.S. government used to discriminate against the Chinese in favor of Europeans because it disliked the Chinese and liked Europeans. Now it discriminates against them—as well as Indians, Filipinos, Mexicans, etc.—because they were unfortunate enough to have been born in a much more populous country.

No one knows or is keeping track of how many people are waiting in the green card queue. The line grows and grows, but absolutely no one in the administration has an accurate estimate of how long those applicants will have to spend in line. Indian workers are one of the groups most negatively impacted by this system. As I have explained before:

All we know is this: that somewhere between 230,000 and 2 million Indian workers are in the backlog, so they’ll be waiting somewhere between half a century and three and a half centuries.

This is the system under which immigrant workers come to the United States. Come from a country with few applicants, and you get ushered to the front of the line. Come from a country with many applicants, and wait decades. Think about this from the perspective of their employers: you are effectively penalized for hiring Indians or Chinese workers. Both the employer and the immigrant must wait year after year, even as other immigrants from smaller nations receive their green cards. It is simply unfair.

The Fairness for High Skilled Immigrants Act would completely eliminate the per-country limits for employment-based green cards. Because such a long backlog has built up for certain nationalities, the bill phases the limits out over three years, reserving 15 percent of the immigrant visas in the first year after the bill passes for countries other than the top two in a specific category, and then 10 percent in the following two years before ending them altogether. It would also double the per-country limits for green cards for family members of U.S. citizens or residents.

This bill has a very good chance of becoming law this year. The country’s biggest anti-immigrant group NumbersUSA has said that it will not oppose the bill. This position helped an earlier version of the legislation pass the GOP-controlled House by an overwhelming vote of 389 to 15 in 2011. Unfortunately, Senators Charles Grassley and Jeff Sessions managed to hold up passage of the bill in the Senate. But last Congress, it was sponsored or cosponsored by 148 representatives—more than a third of all members of the House—and with Sen. Sessions out of the Senate and Sen. Grassley showing some willingness to compromise on the issue, it is possible that the bill could snake its way across the finish line.

Like all other people, immigrants should be judged based on their individual merits. Their place of birth, race, or gender should have no bearing on whether they can come to America.