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As Obama administration officials head for the door at the Department of the Treasury, they have released a new study on infrastructure. The study—completed by outside consultants—profiles 40 large transportation and water projects that the authors believe would generate economic growth.

For each project, the study gives the estimated benefits, costs, and benefit-cost ratio. Many of the 40 projects appear to be worthwhile, such as an $8 billion Hampton Roads highway project with a benefit-cost ratio of 4.0. The report is silent on who should fund each project, but such high returns suggest that the states have a strong incentive to invest by themselves without aid from Washington.

What the states need from Washington is not money but to get out of the way. The Treasury report suggests that some “major challenges to completion” of projects are imposed by governments.

One challenge is “significantly increased capital costs:”

Capital costs of transportation and water infrastructure have increased much faster than the general rate of inflation over the past 20 years … Increased capital costs are also a product of enhanced design standards and regulatory requirements related to performance, safety, environmental protection, reliability, and resiliency.

Another challenge is “extended program and project review and permitting processes:”

Successful completion of the review and permitting processes required by the National Environmental Policy Act of 1969 (NEPA), which requires federal agencies to assess the environmental effects of their proposed actions, is an important part of project development. NEPA helps promote efforts to prevent or eliminate damage to the environment, but has also extended the schedule and generally increased the cost of implementing major infrastructure projects. This is a long-standing challenge that has spanned the last 20 to 30 years. Studies conducted for the Federal Highway Administration (FHWA) concluded that the average time to complete a NEPA study increased from 2.2 years in the 1970s, to 4.4 years in the 1980s, to 5.1 years in the 1995 to 2001 period, to 6.6 years in 2011.

Other FHWA data show that the number of environmental laws and executive orders creating barriers to transportation projects increased from 26 in 1970 to about 70 today, as shown in the chart below sourced from a trade association.

The upshot? The incoming Trump administration can spur infrastructure investment by working with Congress to repeal rules that unnecessarily delay projects and increase costs. Other steps include cutting the corporate tax rate to increase private investment and ending the bias against the private provision of facilities such as airports.

For more on infrastructure, see here, here, and here.

 

Texas State Senator Charles Schwertner (R-Georgetown) recently filed SB 23, a bill that would put into statute Governor Rick Perry’s executive order mandating E-Verify for all state contractors and force all state contracts to include a paragraph specifying that they must participate in the program. There’s a good faith exemption, in case the contractor receives inaccurate information from the E-Verify system (false confirmations that later come to light). SB 23 adds an enforcement mechanism that Governor Perry’s executive order lacked. Under the proposed law, a contractor’s failure to use E-Verify would bar them from receiving state contracts for five years and make the state comptroller responsible for enforcement. The legislature already mandated E-Verify for state agencies and universities.  

SB 23 won’t much affect Texas because it probably won’t be enforced. Nebraska mandates E-Verify for all public contractors, but a 2011 Nebraska report found that only 23 percent of registered state contractors were even enrolled in the system. If Texas is as uninterested in enforcing E-Verify as Nebraska, then the results will be similar.    

The real damage from SB 23 is that it brings Texas one step close to universally mandated E-Verify and all of its systematic problems. E-Verify is a government run system that is free for the user if you exclude the taxes, time, and money spent on maintaining it, using it, and resolving any identification problems that arise. E-Verify also doesn’t work well, as accuracy rates are poor, there are many ways for illegal workers to obtain SSNs from deceased Americans to fool the system, and many employers in states where the system is mandated don’t bother to use it at all. Furthermore, E-Verify doesn’t dim the job magnetE-Verify is an expensive system that doesn’t work.

SB 23 is a stepping stone toward universal mandated E-Verify in Texas and all of the problems it creates. For that reason alone, SB 23 is a rotten deal for Texans. 

Special thanks to Scott Platton for his help in researching this blog post.

Cato Senior Fellow Nat Hentoff passed away on Saturday evening at age 91.  He was a leading authority on the Bill of Rights and most especially the First Amendment.  He authored 37 books and countless newspaper and magazine articles.  He is perhaps most well-known for his opinion articles in the Village Voice, where he wrote for 51 years, from 1957 until 2008.  He joined the Cato staff in 2009 and never stopped researching and writing.  A few years ago, he told me that he was following Duke Ellington’s guide with respect to his own work in defense of the American Constitution:

Rule 1: Don’t Quit

Rule 2: Reread Rule #1

Nat actually knew Duke and many other luminaries, from Malcolm X to Supreme Court Justice William Brennan.  He was a jazz expert, writing on music for the Wall Street Journal.  He often said that “jazz and the Constitution were his main reasons for being.”  He said his passion for jazz and liberty overlapped because they were both about respecting everyone’s individuality.  

Nat was bemused by both his fan mail and hate mail as the years passed.  He didn’t play the political game—he would condemn Democrats and Republicans alike if they attacked constitutional principles. And he was always enthusiastic when he found a member of Congress coming to the defense of the Constitution, such as Senator Russ Feingold’s (D-WI) lone vote (in the Senate) against the Patriot Act in 2001, or, more recently, Senator Rand Paul’s (R-KY) efforts to scale back the surveillance state.  Go here to view an interview with his thoughts on other current events.

Nat said one of best things about losing his job at the Village Voice in 2008 was that it afforded him the opportunity to (sort of) read his own obituaries.  “Dig this one!,” he would tell me over the phone with a chuckle. 

Interestingly, when asked about his proudest achievement, he would say it was not anything he wrote.  He got an opportunity to work as a producer for a television special about jazz music in 1957.  He jumped at the chance to bring beautiful jazz music into the living rooms of folks who had never really been exposed to it before.  Here is Billy Holiday’s Fine and Mellow from that special.  According to Nat’s relatives, he passed away while listening to his favorite jazz tunes.

We’re sad you’re gone, but we celebrate your good life.  Rest in peace.

An article cited in the Cato Clips late yesterday caught my eye: “Libertarian Judicial Activism Isn’t What the Courts Need.” Written by Texas attorney Mark Pulliam, a sometime contributor to such libertarian publications as Reason and The Freeman, among others, it was posted at a site called “Southeastern Texas Record” and a day earlier at “American Greatness” (I leave it to the reader to discern what that site is about). The title speaks for itself. As the first named target of the piece, I’m given to respond, briefly.  Others, in order of appearance, are Randy Barnett, Clark Neily, Ilya Shapiro, Kermit Roosevelt III, Dick Carpenter, Anthony Sanders, and, by implication (their book, The Dirty Dozen, is cited), Bob Levy and Chip Mellor—a veritable rogues gallery of libertarian legal scholars.

Could we all be wrong? Apparently so. We’ve “devised a novel theory that the Constitution, properly understood, protects a person’s ‘right to do those acts which do not harm others,’” Pulliam argues, “enforceable against the federal government and the states,” and “it is only judges who get to decide whether a particular law is justified constitutionally.” What’s worse, we’re urging President-elect Trump to appoint adherents of this “fanciful theory” to the Court.

And why is that theory “unsound and misguided”? To begin, Pulliam claims that it

rests on the premise that the Constitution was not so much an arrangement among the individual states (which themselves were separate Lockean social compacts) as it was a very limited delegation to the federal government of individual sovereignty (harkening back to the Declaration of Independence and its reliance on “natural rights”).

To be sure, the Constitution was ratified through state conventions. But as the Preamble makes crystal clear, it’s theory of legitimacy, drawing from the Declaration’s theory, rests on the idea that “We the people,” in our individual capacities, for the purposes indicated, came together to “ordain and establish this Constitution.” And as is also clear from the very next sentence—the first sentence of Article I—we “granted” such legislative powers as we did to a Congress, a very limited delegation, as Article I, Section 8 indicates. So what’s the problem?

To get a hint, notice the scare-quotes (sneer-quotes?) around “natural rights.” “In this rubric,” Pulliam writes, “individuals continue to possess all unalienable rights to which they were endowed in the ‘state of nature,’ other than the federal powers specifically enumerated in the Constitution.” Well, yes, that’s plain from background theory, text, and numerous explanations in the Federalist. How else could it be? Is it that there are no rights but only powers, which we “granted”? By what right, then, did we “ordain,” “establish,” and “grant”? Of course, none of that makes sense if natural rights and state-of-nature theory are dismissed out of hand. But the Founders and Framers took those ideas seriously. They did not view the Constitution as a mere compact among the states, grounded simply in will.

Insofar as it pertains to the federal government, Pulliam concludes his understanding of libertarian constitutional theory as follows:

“Natural rights,” [libertarians] claim, are protected by the reference to “liberty” in the due process clause of the Fifth Amendment, and the Ninth and 10th Amendments preserve to the people—as individuals, not as states—all rights not specifically surrendered to the federal government.

No. To be sure, the rights “retained” by “the people” through the Ninth Amendment and the powers “reserved” to “the states respectively, or to the people” by the Tenth Amendment were retained and reserved to the people as individuals, not as states. Indeed, why would the Framer’s switch from individual to collective rights when they got to the Ninth, especially since the contrast the Amendment draws is between enumerated and unenumerated rights, not between individual and collective rights, and because the idea of “retained” rights is perfectly consistent with the basic theory of the Constitution—enumerated powers, retained pre-existing natural rights (see just below)? Moreover, why would the Tenth speak of both “the people” and “the states” if the powers thus reserved were meant to be reserved to the people collectively, “as states”?  Reservation to “the people” would be redundant.

But second, and more fundamentally, as the Federalist argues throughout, natural rights are protected mainly not by the Bill of Rights—there was none when the Federalist was written—but by the enumeration of powers, for by the logic of the matter, where there is no power there is a right. After all, did we not have rights against the federal government during the two years before the Bill of Rights was added? Of course we did. Since the government had only limited powers, we had a vast sea of rights, all unenumerated. But are we then to imagine that by adding a Bill of Rights we actually lost most of those rights? That’s the conclusion implicit in the contention by Pulliam and many conservatives that we have only enumerated rights—as if the Bill of Rights were a grant of rights. It was not. It was simply a muniment of certain rights. And all of that was made clear by the Ninth and Tenth Amendments, which memorialized the very theory of the Constitution—as adumbrated in the Declaration’s theory of moral and political legitimacy. When understood properly, it all goes together elegantly. (See here for more on this.)

But what about the states? Here, Pulliam believes, is the libertarians’ Achilles’ heel:

Libertarians have a facile “solution” to the potentially vexing question of the states’ police powers,” which antedated the drafting and ratification of the Constitution: they contend that the 14th Amendment applied the Fifth Amendment (including the protection of “liberty” in the due process clause) to the states, particularly through the “privileges or immunities” clause, which libertarians believe was erroneously drained of its intended meaning in the incorrectly decided Slaughter-House Cases in 1873.

Drawing from the text plus the debates in the 39th Congress and in the ratifying conventions, we do indeed believe that the Fourteenth Amendment applied the guarantees of the Bill of Rights against the states, ab initio; that the Privileges or Immunities Clause means what it says, that “No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States”; and that the Court egregiously misread that law in 1873. But we’re hardly alone in believing that. Most other scholars today do as well.

We come, then, to the heart of the matter. If both enumerated and unenumerated rights are among our privileges or immunities as citizens of the United States, as those who drafted and ratified the Fourteenth Amendment believed, then no state shall abridge them. And further—now we hit Pulliam’s sore spot—it falls ultimately to the courts to enforce those privileges or immunities, all of them—not only the right to speak but the right to an honest calling, the right to buy and use contraceptives (a right “that nowhere appears in the Constitution,” he says), and more, much more.

Thus, it’s our call for “judicial engagement” that most vexes Pulliam—he calls it “a judicially managed state of anarchy.” Fearing “judicial activism,” he would limit judges to enforcing only enumerated rights, the text and underlying theory of the Constitution notwithstanding—and in the name of “originalism,” no less. Well that itself is a form of “activism”—ignoring the law in deference to wide-ranging majoritarian rule inconsistent with that law. At bottom, then, the difference between Pulliam and libertarians is over what the Constitution itself says. Like many conservatives, he has allowed his fear of what he sees as judicial activism to color his reading of the Constitution. Is there judicial activism? Of course there is. But the answer to bad judging is not judicial abdication. It’s better judging. And that starts, and ends, with a careful but correct reading the Constitution.

So why did this piece appear just now at “American Greatness” and a day later at “Southeastern Texas Record”? Pulliam answers that by reference in his final sentence: “President Trump should avoid jurists in any way sympathetic to this badly misguided theory.” The link is to a June 2015 decision by Texas Supreme Court Justice Don Willet, one of Mr. Trump’s “21,” upholding a claim to economic liberty, a right the Founders and the Civil War Amendment’s Framers would have thought fundamental in the Constitution’s plan for ordered liberty—and one that Mr. Trump may find attractive as well.

The federal government spent $147 billion on research and development in 2016, including $77 billion on defense and $70 billion on nondefense. Federal R&D spending has risen in recent decades on a constant-dollar basis, but has dipped as a share of gross domestic product. The AAAS has the data here.

How much should the federal government spend on R&D? AAAS data show that 23 percent of federal spending is for “basic” research, 25 percent is for “applied” research, and 52 percent is for “development.” Most economists would support the basic part, but be more skeptical of the applied and development parts because the private sector handles those activities.

The largest portion of federal nondefense R&D is for health care. In the Wall Street Journal today, a professor emeritus at Harvard Medical School questions the value of this funding. Tom Stossel argues that the private sector makes most medical advances:

The assumption seems to be that the root of all medical innovation is university research, primarily funded by federal grants. This is mistaken. The private economy, not the government, actually discovers and develops most of the insights and products that advance health. The history of medical progress supports this conclusion.  

… In America, innovation came from physicians in universities and research institutes that were supported by philanthropy. Private industry provided chemicals used in the studies and then manufactured therapies on a mass scale.

… Since then, improvements in health have accumulated. Life expectancy has increased. Deaths from heart attack and stroke have radically decreased, and cancer mortality has declined. New drugs and devices have ameliorated the pain and immobility of diseases like arthritis. Yet the question remains: Is the government responsible for these improvements? The answer is largely no. Washington-centric research, rather, might slow progress.

… By contrast, private investment in medicine has kept pace with the aging population and is the principal engine for advancement. More than 80% of new drug approvals originate from work solely performed in private companies.

Cato’s Terence Kealey is also a skeptic of government-funded science.

In most jurisdictions, local police departments typically conduct internal investigations of police officer shooting and misconduct complaints.[1] However, 79% of Americans would prefer that an “outside law enforcement agency take over the investigation” when an officer is suspected of criminal wrongdoing. Alternatively, 21% favor police departments conducting internal investigations of their own officers.

The proposal to have outside investigations of misconduct, rather than internal department investigations, enjoys broad public support. Overwhelming majorities across demographics and partisan groups, including majorities of blacks (82%), whites (81%), Hispanics (66%), Republicans (76%), independents (77%), and Democrats (83%), all favor outside investigations and prosecutions of officers accused of misconduct.

Find the full public opinion report here. 

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

 The Cato Institute/YouGov national survey of 2000 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, toplines results can be found here, full methodological details can be found here.

 

[1] USCCR, “Revisiting Who Is Guarding the Guardians? A Report on Police Practices and Civil Rights in America,” U.S. Commission on Civil Rights, November 2000, http://www.usccr.gov/pubs/guard/main.htm.

In December, Russia, Turkey, and Iran began high-level talks to work toward a political settlement of the brutal civil war in Syria. Much to the chagrin of Washington officials and commentators, these countries have deliberately excluded the U.S. from the negotiations.

One broad sketch of their approach to a settlement, according to some reports, is to first achieve a cease-fire on the ground, as best they can, and then negotiate a division of Syria into three separate regions in which Assad’s Damascus-based Allawite sect would share power in a federal structure. Assad himself would step down at the end of his current term. The plan is in its infancy, subject to change, and would of course require agreement from the regime and opposition forces, before ultimately seeking buy in from the Gulf states, the U.S., and the European Union.

There is no indication that this latest push is going to be any more successful than previous diplomatic efforts to resolve the Syrian civil war. Nationalism is a powerful force and, as recent history suggests, plans to simply divide war-torn states into federated systems get tossed into the trash bin pretty quickly, as happened with Iraq and with Bosnia and Herzegovina. That said, the players have clear interests at stake. Russia has real leverage with the Syrian regime and has now staked its prestige on mitigating the conflict on favorable terms. Turkey borders Syria and has not only borne the brunt of the spillover effects with regard to refugees and militancy, but also has a strong national interest in preventing the Kurds from carving out territory along the border so as to keep a lid on its own Kurdish separatist movement. And Syria is Iran’s only Shiite ally in the region and has proven a strategic asset for Iran on several fronts, not least in its proximity to Lebanon’s Hezbollah. When the stakes are high for the negotiating parties, they tend to take care in constructing a settlement.

While I’m hopeful for a peaceful settlement, I wouldn’t put good money on the prospects for success in these negotiations. But they at least demonstrate that the United States does not necessarily need to take the lead in trying to solve every problem in the world. Other countries with clearer interests at stake and more local knowledge than America can do the heavy lifting. And perhaps do it much more effectively.

Much of the handwringing in Washington over Russia’s leadership in the negotiations centers on a fear that America might be demoted in its status as the indispensable nation if a geopolitical competitor like Russia successfully negotiates a resolution to one of the world’s worst conflicts while the U.S. sits it out. This concern is misplaced for at least two reasons. First, status and prestige are overrated assets in international politics. They can play an important role at certain times, but they pale in comparison to more material security and economic interests. Rooting against the success of peace talks just because we don’t want Russia to regain a modicum of the great power status it once had betrays a rather unbecoming lack of self-esteem that is wholly unfair to the millions of Syrians that would benefit from even a brief hiatus in daily violence and besiegement.

Secondly, one wonders what benefits the U.S. has derived from all its leadership (such as it is) in the greater Middle East. I’m inclined to agree with Andrew Bacevich that the sum of our dominant role in the region since the 1980s has been mostly failure. As he writes, through our “naivety, short-sightedness, and hubris, we have actually made things worse — at very considerable cost to ourselves and to others.” If our record of embarrassingly stalemated diplomacy, costly failed wars, troublesome allies, and elective military envelopment in the Middle East is anything to go by, Americans shouldn’t be overly covetous of Russia’s latest attempt to steal our thunder in Syria – a conflict, I might add, which our “leadership” to date has mostly made worse

Although Americans are divided in their perceptions of how police do their jobs, majorities across demographic and partisan groups agree on what law enforcement’s top priorities ought to be.

A newly released Cato Institute/YouGov survey of 2,000 Americans finds that when people are asked to select their top three priorities for the police they choose the following:

  1. Investigating violent crime like murder, assaults, and domestic violence (78%)
  2. Protecting individuals from violent crime (64%)
  3. Investigating property crime and robbery (58%)

Notably, only 30% think police should make enforcing drug laws a top three priority. Some may find these results surprising, given that police made more arrests for drug abuse violations (1.6 million) than they did for violent crimes (498,666) in 2014. The estimated number of violent crimes committed that year was 1.2 million.

Find the full public opinion report here.

Nineteen percent (19%) say police should make enforcing traffic laws a top priority. In other words, Americans de-prioritize the task leading to the most common interaction individuals have with the police—receiving a traffic ticket.[1]

Another 18% think police should prioritize going beyond traditional law enforcement responsibilities by “providing guidance and social services to troubled young adults.” And another 12% say police enforcing public nuisance laws is most important. 

Black, white, and Hispanic Americans, Democrats and Republicans prioritize the same top three tasks for law enforcement. However, groups differ in their intensity of support. African Americans and Hispanics (45%) and Democrats (51%) are less likely than white Americans (63%) and Republicans (63%) to prioritize the police investigating property crime and robbery. (Although this difference largely dissipates among individuals above the median income.) African Americans, Latinos, and Democrats (27%) are about twice as likely as whites (15%) and three times as likely as Republicans (9%) to say the police should prioritize “providing guidance and social services to troubled young adults.”

No racial group is more likely to prioritize the police enforcing drug laws—30% of whites, Hispanics, and blacks each say it should be a top priority. Even partisans generally de-prioritize fighting the drug war. Thirty-five percent (35%) of Republicans and 27% of Democrats say it should be a top three priority.

Despite these modest differences, Americans across partisanship and demographics agree that the police should prioritize fighting violent and property crime and protecting people from being victims of violence. 

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

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.

[1] Christine Eith and Matthew R. Durose, Contacts between Police and the Public, 2008, edited by Bureau of Justice Statistics (Washington, D.C.: U.S. Department of Justice, 2011), https://www.bjs.gov/content/pub/pdf/cpp08.pdf.

In his press conference last month, President Barack Obama sternly voiced concern about “potential foreign influence in our election process.”

The goal may be a valid one, but it cloaks hypocrisy of staggering proportions. The United States has been assiduously intervening in foreign elections for decades—perhaps even for centuries.

The central issue in the 2016 election was with some hacked emails, published by Wikileaks, indicating that some top members of the Democratic National Committee were rooting for Hillary Clinton to win their party’s nomination for president. This seems to have been the extent of the “interference,” and there has been a concerted effort to suggest that Russian hackers were the source of the information, a contention Wikileaks has strongly and repeatedly denied.

The revelations can scarcely have come as much of a surprise to anybody following the campaign, and it seems highly unlikely that they swung many votes—my guess, erring on the high side, would be perhaps six or seven.

The American record in election interference (always, of course, with the best of intentions) is much more extensive.          

Exhibit number one is surely the Italian election of 1948 in which the CIA furnished a million dollars to congenial parties and may have published forged letters designed to discredit leaders of the Communist Party. Meanwhile, there was a concerted effort to get Italian-Americans to write home urging relatives and friends to vote the right way.

In more recent times, I remember talking with a member of the political opposition in Serbia in 2001 who expressed his appreciation for funds that had been supplied the year before by agencies of the U.S. government—“we never would have been able to launch such an extensive campaign without it.”

As a public service, Michael Brenner of the University of Pittsburgh, has, with a little help from his friends, provided a list of countries where the United States has intervened in elections (he points out that the U.S. has also participated in a number of coups, but these are not included).

Going back a few decades, his list includes Greece, Turkey, Italy, France, and Portugal. More recently there have been Macedonia, Serbia, Albania, Bosnia, Ukraine, Russia (especially Yeltsin’s 1995-96 campaign), Algeria, Lebanon, Palestine, Cyprus, Iraq, Pakistan, Afghanistan, Kyrgyzstan, Tajikistan, Yemen, Vietnam, Indonesia, Japan, South Korea, Philippines, Congo and several other countries in Africa, and, in Latin America, every country multiple times including within the last fifteen years Haiti, Dominican Republic, Honduras, Panama, Nicaragua, Venezuela, Columbia, Paraguay, Peru, Ecuador, Bolivia, Brazil, and Argentina.

Brenner’s list is an ongoing project. It does not include Canada, and just possibly there are some Canadians who might find that omission to be unjustified.

The federal government owns 28 percent of the land in the United States, including about half of the land in the 11 westernmost states. Federal agencies are poor land managers in many ways, and the government’s top-down regulations on land use are frustrating to many Westerners, as I discuss in studies here and here.

Much federal land would generate more value if it were owned by the states or the private sector. Economic and environmental needs would be better balanced by local policymakers than by the unaccountable bureaucracies in faraway Washington. Increased federal control over lands does not automatically benefit the environment, as liberals seem to think. Instead, it usually creates disincentives for sound environmental management.

The good news is that the House took a step toward devolving federal lands yesterday, as reported by the Washington Post:

House Republicans on Tuesday changed the way Congress calculates the cost of transferring federal lands to the states and other entities, a move that will make it easier for members of the new Congress to cede federal control of public lands.

Many Republicans, including House Natural Resources Committee Chairman Rob Bishop (R-Utah), have been pushing to hand over large areas of federal land to state and local authorities, on the grounds that they will be more responsive to the concerns of local residents.

But…

Rep. Raul Grijalva (Ariz.), the top Democrat on the Natural Resources Committee, sent a letter Tuesday to fellow Democrats urging them to oppose the rules package on the basis of that proposal.

“The House Republican plan to give away America’s public lands for free is outrageous and absurd,” Grijalva said in a statement. “This proposed rule change would make it easier to implement this plan by allowing the Congress to give away every single piece of property we own, for free, and pretend we have lost nothing of any value.”

Rep. Grijalva gets it backwards. Devolving ownership would increase the value of federal lands to Americans, not reduce it. And far from being “outrageous and absurd,” devolution was the general policy of the government for much of the nations’ history. The federal government privatized 792 million acres of land between 1781 and 1940, and it transferred 470 million acres of land to the states.

President-elect Donald Trump and his nominee to head the Department of the Interior apparently lean against devolving federal lands. But I hope they reconsider, as there are 640 million acres of diverse lands we are talking about here. I am not saying that we should privatize Yellowstone. But what about the Bureau of Land Management’s 250 million acres, which is mainly used for cattle grazing?

Today, artificially low federal grazing fees encourage overgrazing. Federal ownership also makes ranchers insecure about their tenures, such that they have an incentive to overstock grazing lands and a disincentive to make long-term investments to improve the lands. Privatizing grazing lands would create more secure property rights, and thus encourage ranchers to improve their stewardship of the lands. That would benefit the economy and the environment.

A good first step for the Trump administration would be to create a detailed inventory of federal land holdings. Then the administration should work with Congress and the states to identify those parcels that might be better managed by state and local governments, nonprofit groups, and businesses.

 

I wrote yesterday to praise the Better Way tax plan put forth by House Republicans, but I added a very important caveat: The “destination-based” nature of the revised corporate income tax could be a poison pill for reform.

I listed five concerns about a so-called destination-based cash flow tax (DBCFT), most notably my concerns that it would undermine tax competition (folks on the left think it creates a “race to the bottom” when governments have to compete with each other) and also that it could (because of international trade treaties) be an inadvertent stepping stone for a government-expanding value-added tax.

Brian Garst of the Center for Freedom and Prosperity has just authored a new study on the DBCFT. Here’s his summary description of the tax.

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation. This mercantilist system is based on the same “destination” principle as European value-added taxes, which means that it is explicitly designed to preclude tax competition.

Since CF&P was created to protect and promote tax competition, you won’t be surprised to learn that the DBCFT’s anti-tax competition structure is a primary objection to this new tax.

First, the DBCFT is likely to grow government in the long-run due to its weakening of international tax competition and the loss of its disciplinary impact on political behavior. … Tax competition works because assets are mobile. This provides pressure on politicians to keep rates from climbing too high. When the tax base shifts heavily toward immobile economic activity, such competition is dramatically weakened. This is cited as a benefit of the tax by those seeking higher and more progressive rates. …Alan Auerbach, touts that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and that it would “alter fundamentally the terms of international tax competition.” This raises the obvious question—would those businesses and economists that favor the DBCFT at a 20% rate be so supportive at a higher rate?

Brian also shares my concern that the plan may morph into a VAT if the WTO ultimately decides that is violates trade rules.

Second, the DBCFT almost certainly violates World Trade Organization commitments. …Unfortunately, it is quite possible that lawmakers will try to “fix” the tax by making it into an actual value-added tax rather than something that is merely based on the same anti-tax competition principles as European-style VATs. …the close similarity of the VAT and the DBCFT is worrisome… Before VATs were widely adopted, European nations featured similar levels of government spending as the United States… Feeding at least in part off the easy revenue generate by their VATs, European nations grew much more drastically over the last half century than the United States and now feature higher burdens of government spending. The lack of a VAT-like revenue engine in the U.S. constrained efforts to put the United States on a similar trajectory as European nations.

And if you’re wondering why a VAT would be a bad idea, here’s a chart from Brian’s paper showing how the burden of government spending in Europe increased once that tax was imposed.

In the new report, Brian elaborates on the downsides of a VAT.

If the DBCFT turns into a subtraction-method VAT, its costs would be further hidden from taxpayers. Workers would not easily understand that their employers were paying a big VAT withholding tax (in addition to withholding for income tax). This makes it easier for politicians to raise rates in the future. …Keep in mind that European nations have corporate income tax systems in addition to their onerous VAT regimes.

And he points out that those who support the DBCFT for protectionist reasons will be disappointed at the final outcome.

…if other nations were to follow suit and adopt a destination-based system as proponents suggest, it will mean more taxes on U.S. exports. Due to the resulting decline in competitive downward pressure on tax rates, the long-run result would be higher tax burdens across the board and a worse global economic environment.

Brian concludes with some advice for Republicans.

Lawmakers should always consider what is likely to happen once the other side eventually returns to power, especially when they embark upon politically risky endeavors… In this case, left-leaning politicians would see the DBCFT not as something to be undone, but as a jumping off point for new and higher taxes. A highly probable outcome is that the United States’ corporate tax environment becomes more like that of Europe, consisting of both consumption and income taxes. The long-run consequences will thus be the opposite of what today’s lawmakers hope to achieve. Instead of a less destructive tax code, the eventual result could be bigger government, higher taxes, and slower economic growth.

Amen.

My concern with the DBCFT is partly based on theoretical objections, but what really motivates me is that I don’t want to accidentally or inadvertently help statists expand the size and scope of government. And that will happen if we undermine tax competition and/or set in motion events that could lead to a value-added tax.

Let’s close with three hopefully helpful observations.

Helpful Reminder #1: Congressional supporters want a destination-based system as a “pay for” to help finance pro-growth tax reforms, but they should keep in mind that leftists want a destination-based system for bad reasons.

Based on dozens of conversations, I think it’s fair to say that the supporters of the Better Way plan don’t have strong feelings for destination-based taxation as an economic principle. Instead, they simply chose that approach because it is projected to generate $1.2 trillion of revenue and they want to use that money to “pay for” the good tax cuts in the overall plan.

That’s a legitimate choice. But they also should keep in mind why other people prefer that approach. Folks on the left want a destination-based tax system because they don’t like tax competition. They understand that tax competition restrains the ability of governments to over-tax and over-spend. Governments in Europe chose destination-based value-added taxes to prevent consumers from being able to buy goods and services where VAT rates are lower. In other words, to neuter tax competition. Some state governments with high sales taxes in the United States are pushing a destination-based system for sales taxes because they want to hinder consumers from buying goods and services from states with low (or no) sales taxes. Again, their goal is to cripple tax competition.

Something else to keep in mind is that leftist supporters of the DBCFT also presumably see the plan as being a big step toward achieving a value-added tax, which they support as the most effective way of enabling bigger government in the United States.

Helpful Reminder #2: Choosing the right tax base (i.e., taxing income only one time, otherwise known as a consumption-base system) does not require choosing a destination-based approach.

The proponents of the Better Way plan want a “consumption-base” tax. This is a worthy goal. After all, that principle means a system where economic activity is taxed only one time. But that choice is completely independent of the decision whether the tax system should be “origin-based” or “destination-based.”

The gold standard of tax reform has always been the Hall-Rabushka flat tax, which is a consumption-base tax because there is no double taxation of income that is saved and invested. It also is an “origin-based” tax because economic activity is taxed (only one time!) where income is earned rather than where income is consumed.

The bottom line is that you can have the right tax base with either an origin-based system or a destination-based system.

Helpful Reminder #3: The good reforms of the Better Way plan can be achieved without the downside risks of a destination-based tax system.

The Tax Foundation, even in rare instances when I disagree with its conclusions, always does very good work. And they are the go-to place for estimates of how policy changes will affect tax receipts and the economy. Here is a chart with their estimates of the revenue impact of various changes to business taxation in the Better Way plan. As you can see, the switch to a destination-based system (“border adjustment”) pulls in about $1.2 trillion over 10 years. And you can also see all the good reforms (expensing, rate reduction, etc) that are being financed with the various “pay fors” in the plan.

I am constantly asked how the numbers can work if “border adjustment” is removed from the plan. That’s a very fair question.

But there are lots of potential answers, including:

  • Make a virtue out of necessity by reducing government revenue by $1.2 trillion.
  • Reduce the growth of government spending to generate offsetting savings.
  • Find other “pay fors” in the tax code (my first choice would be the healthcare exclusion).
  • Reduce the size of the tax cuts in the Better Way plan by $1.2 trillion.

I’m not pretending that any of these options are politically easy. If they were, the drafters of the Better Way plan probably would have picked them already. But I am suggesting that any of those options would be better than adopting a destination-based system for business taxation.

Ultimately, the debate over the DBCFT is about how different people assess political risks. House Republicans advocating the plan want good things, and they obviously think the downside risks in the future are outweighed by the ability to finance a larger level of good tax reforms today. Skeptics appreciate that those proponents want good policy, but we worry about the long-run consequences of changes that may (especially when the left sooner or late regains control) enable bigger government.

P.S. This is not the first time that advocates of good policy have bickered with each other. During the 2016 nomination battle, Rand Paul and Ted Cruz proposed tax reform plans that fixed many of the bad problems in the tax code. But they financed some of those changes by including value-added taxes in their plans. In the short run, either plan would have been much better than the current system. But I was critical because I worried that the inclusion of VATs would eventually give statists a tool to further increase the burden of government.

“Trump’s pick for SEC chair criticized U.S. anti-bribery enforcement in 2011 as too zealous,” gasps one tweet reacting to President-elect Donald Trump’s selection of Sullivan & Cromwell attorney Jay Clayton to head the Securities and Exchange Commission. In a subhead, the WSJ says Clayton “criticized SEC and [Department of] Justice handling of Foreign Corrupt Practices Act as overly aggressive.”

Good! Clayton is right to voice such criticisms. As I’ve argued in this space, the 1977 FCPA “is a feel-good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage”: it is extraterritorialvicariouspunitive, and vague. It is not clear that a more carefully drafted law would have been a good idea; my Cato colleague Jeffrey Miron writes that while curtailing Americans’ involvement in overseas corruption may be a well-intentioned goal, FCPA “discourages U.S. companies from doing business abroad in the first place,” is readily circumvented in many situations, fails to distinguish between the most corrosive forms of bribery and those in which favors to officials are “an attempt to get around laws that make little sense in the first place”—such as restrictions on entering markets—and leaves some countries to welter in poverty if they cannot fix a local culture of baksheesh.

All of this was made worse by the Obama administration’s decision to step up the pace of FCPA prosecution, which ran into a series of rebukes from federal judges throwing out high-profile cases. Allegations of FCPA violations led to a great furor about Wal-Mart’s operations in Mexico that mostly fizzled later, while other prosecutions have been based on purported corruption oddly reminiscent of practices that go on right here in the U.S. without anyone prosecuting, such as Western banks’ alleged practice overseas of hiring young relatives of influential persons, something that has been known to happen in politics and the media here in Washington, D.C.

Don’t back down, Mr. Clayton.

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