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When people want to join together to spend money in an election campaign, federal law requires them to form a “political action committee” or PAC. Most PACs are allowed to donate up to $5,000 to any candidate in an election. If a PAC has been registered for less than six months, however, this maximum donation is inexplicably lowered to $2,700 per candidate.

Since the 1974 case of Buckley v. Valeo, the Supreme Court has consistently held that limitations on campaign contributions “implicate fundamental First Amendment interests.” And only two years ago, in McCutcheon v. FEC, the Court reiterated that such limits could only be justified if they reduce quid pro quo corruption (or its appearance). By that standard, the $2,700 limit on new PACs is clearly unconstitutional: If a $5,000 donation from a seven-month-old PAC does not run the risk of corruption, it’s hard to see how a $2,701 donation from a five-month-old PAC does. Making just this argument, a new PAC – the colorfully titled Stop Reckless Economic Instability Caused by Democrats (Stop REID) – sued the Federal Election Commission.

There was just one problem: Although this plaintiff PAC was less than six months old when the case was filed, it was more than six months old when the district court ruled. For that reason, the U.S. Court of Appeals for the Fourth Circuit held that it could not rule on the constitutionality of the $2,700 limit because the question had become “moot”; the limit no longer applied to the particular PAC that had brought the case.

Reconciling mootness doctrine with the realities of our lengthy judicial process is not a new problem. Courts have long recognized that some laws would be impossible to challenge under the normally strict rules of mootness, because the harm caused by the law happens faster than it takes a case to wend its way through the legal system. That’s why courts developed the sensible “capable of repetition, yet evading review” exception to mootness: If a law is likely to repeatedly affect people, but always for short periods at a time, then courts will decide the merits of a challenge to that law no matter how long the litigation takes.

Every court in the country agrees with this principle, but where the circuits have split is on a more particular question: does the harm have to be capable of repetition to the same plaintiff in order to waive mootness, or need it only be capable of repetition to the public as a whole? The approach of several prior Supreme Court cases, as well as the explicit precedent of four circuit courts, has been not to impose the “same plaintiff” requirement in election-law cases. But four other circuits, including now the Fourth Circuit, have continued to impose the “same plaintiff” rule in such cases. Given that split, Cato has filed a brief urging the Supreme Court to take this case and declare definitively that the “same plaintiff” requirement makes no sense in the election-law context.

The facts of this case show how electoral regulations can be specifically designed to affect each individual entity only once, while still having an enormous cumulative effect on the electoral process as a whole. Under the Fourth Circuit’s approach, even a statute that blatantly violated the First Amendment, such as a complete ban on all spending by PACs that are less than six months old, could never be struck down. Indeed, so long as Congress always designed its one-time waiting periods to be just shorter than the length of a typical lawsuit, it could effectively do whatever it wanted.

The Supreme Court should step in now before we move closer to that absurd result. A constitutional right hardly does much good if courts aren’t able to enforce it.

General David Petraeus and Brookings Fellow Michael O’Hanlon recently took to the Wall Street Journal to assure the American people that, despite sequestration, there is no military readiness crisis. A few days later, Thomas Donnelly and Roger Zakheim published a rebuttal in the National Review claiming that the challenges of too few personnel and aging, overextended equipment induced a “wasting disease.” They alleged that the size of the defense budget was a misleading statistic without context.

So, here’s some context. After a rapid demobilization following World War II, the United States slowly rebuilt its forces to balance against the Soviet Union. Spending remained far above pre-World War II levels for the remainder of the decades-long conflict, and ever since. The Pentagon budget averaged $462 billion from 1948–1990 (in FY2017 dollars), with notable spikes for the Korean War, Vietnam War, and the Reagan build up in the 1980’s (See Figure 1). With the end of the Cold War, we see a fairly steep decline in military spending during the H.W. Bush and Clinton years. In the aftermath of the 9/11 terrorist attacks, the reductions of the 90s gave way to much larger Pentagon budgets, as the George W. Bush administration embarked on the wars in Afghanistan and Iraq. Defense spending during the early years of the Obama administration remained above $750 billion as the president ramped up the war in Afghanistan while working to end the war in Iraq. In constant, 2017 dollars, annual Pentagon spending during Bush 43’s eight years in office averaged $612 billion; under Obama, the average is $675 billion (See Figure 2).

One side-note regarding the grouping by presidential administration: Taken alone, the picture can be misleading, in that Reagan inherited Carter’s final budget, Clinton inherited H.W. Bush’s, etc. And, besides, Congress, not any single president, makes the final decision on what the government spends. It is also true, however, that Congress has typically deferred to presidential preferences, particularly when it comes to military spending. Had Clinton wanted more, he likely would have gotten it (and did, starting in 1999); Obama, meanwhile, could have requested less (and, eventually, did). Those variations within four- or eight-year terms get lost in a graph that lumps all the years together in one fat bar for each president.

With respect to whether current spending levels are far too low, far too high, or somewhere in between, the Budget Control Act (BCA) of 2011 and its threat of sequestration tried to rein in spending on both defense and non-defense discretionary spending, but has been only partly successful. Congress has found ways around the defense caps, in part by funneling extra money to the base budget through the Overseas Contingency Operations (OCO) account, which is exempted under the BCA. And, under the BCA caps revised late last year, estimated military spending would average at least $551 billion from 2017 to 2021 (.pdf, see page 15) – and likely more than that if Congress doesn’t kick its OCO addiction. That’s 28 percent higher than in 2000, and 19 percent higher than the Cold War average.

In short, if there is a readiness gap, it’s not due to lack of funding. The BCA, by itself, has not resulted in significant cuts in military spending. In inflation-adjusted dollars, we spend more today than during the average Cold War year, and more than we spent at the start of the War on Terror. It would appear that we are mostly getting less “bang for our buck” than during previous generations.

Defense acquisition and compensation reform would help the Department of Defense to better channel scarce resources to its priorities. Similarly, the Pentagon has repeatedly requested the authority to close unneeded military bases, which a short-sighted Congress refuses to allow. But such common-sense reforms, that are supported by a broad bipartisan coalition of defense budget experts (including O’Hanlon, Donnelly and Zakheim), would not be enough to close the means/ends gap.

We also need to revisit the military’s requirements, which are a function of the nation’s overly ambitious grand strategy. We should shift away from primacy, which expects the U.S. military to meet all dangers, in all places, at all times, and instead pursue a strategy that expects other countries to address urgent threats to their security before they become threats to their region, or the globe. Restraining U.S. policymakers’ impulse to use the U.S. military might induce greater self-reliance on the part of U.S. allies, but, as important, it would reduce the likelihood that the United States will become involved in foreign conflicts that sap our strength and undermine our values. 

 

Graphs prepared by Caroline Dorminey and James Knupp

Source: FY2017 Green Book, includes OCO funding

 

This November’s election could be a decisive turning point in the struggle to end U.S. marijuana prohibition. ​It’s been a long time coming.

As recently as the 90s, every major political faction was squarely in favor of prohibition. Only drug-addled hippies and libertarians thought otherwise. With just a few honorable exceptions, every significant public intellectual supported prohibition too. We libertarians walked a lonely road, patiently pointing out prohibition’s high costs and doubtful benefits. In some ways we’re still alone, because we certainly wouldn’t stop with marijuana. But let’s consider what progress we’ve made.

In November’s election, five states – Arizona, California, Maine, Massachusetts, and Nevada – may each legalize recreational marijuana for adults. State-level opinion polling is notoriously unreliable, but so far it’s favorable in Maine and Nevada​, and overwhelmingly favorable in California. It’s unfavorable in Arizona and Massachusetts, though the Massachusetts poll only asked a generic marijuana legalization question and did not reference the specific initiative. If recent history is any guide, things look good for this November: Of the seven legalization initiatives offered to voters since 2012, five have passed, in Alaska, Colorado, Oregon, Washington, and Washington DC.

Things look especially good in California, which is poised to be a nationwide gamechanger. ​​California’s Proposition 64 is up by almost a 2:1 margin​, and​ the Los Angeles Times predict​s​ passage as well. If ​Prop 64​ does pass, the statewide implementation of a generous recreational pot regime – in the nation’s most populous state – is sure to have some significant economic and regulatory effects.​ It could hardly do otherwise.​

Some nationwide economic effects of legalization have already been seen. Marijuana prices nationwide have flattened or declined as new large-scale suppliers have come online. Seasonal price fluctuations seem to be disappearing as growers increasingly work in the open. And still-illegal Mexican growers have had to abandon marijuana because they can’t compete with the domestic ​free market, small as it​ still​ is.

And again, California is no ordinary state; already it produces more marijuana than Mexico – and by one estimate it​s medical marijuana regime​ grows nearly half the total legal U.S. production. And​ that’s ​before the near-certain growth of the industry in a recreational regime.

All this suggests that when California goes fully legal, the federal ​government ​will ​have to react somehow. ​The DEA has​ been reluctant to reschedule cannabis so far, but already many activists are dismissing the DEA’s Schedule I classification as irrelevant. Rob Kampia of the Marijuana Policy Project writes:

State and federal laws are simply two coexistent systems. But 99 percent of all marijuana arrests are made under state and local laws, not federal law. There simply aren’t enough DEA agents and other federal enforcers to wage an inclusive war on marijuana users, and the federal government cannot require states to enforce federal law on behalf of the federal government…

So we don’t really care whether marijuana is in Schedule I or II. In fact, my organization and other advocates of marijuana legalization don’t desire rescheduling, but rather the removal of federal penalties for marijuana and, furthermore, an explicit recognition that states should be able to determine their own policies without federal interference.

As more and more states legalize, that Schedule I classification looks more and more ridiculous.​ Soon the federal government may have to decide whether to follow the states – and the will of the people – or whether to crack down on legalization. But as time goes on, cracking down looks more and more illegitimate, and inaction looks more and more like a joke. Something’s got to give.

America collects allies like Americans collect Facebook friends. As a result, Washington defends more than a score of prosperous European states, several leading Asian nations, and a gaggle of Middle Eastern regimes.

Yet most of the countries on the Pentagon dole appear to be perpetually unhappy, constantly demanding reassurance of Washington’s love. Their sense of entitlement exceeds that of the typical trust fund baby.

As a result, the U.S. is expected to protect virtually every prosperous, populous, industrialized nation. But that’s just a start. Washington also must coddle and otherwise placate the same countries.

Once great powers, they now believe it to be America’s duty to handle their defense. Alas, U.S. officials are only too willing to enable this counterproductive behavior.

Except for Donald Trump.

There is much to say about his candidacy, most of it bad. Nevertheless, he’s right not to be interested in reassuring allies.

Which has horrified the gaggle of well-to-do nations on America’s defense dole. For instance, the New York Times reported “an undercurrent of quiet desperation” among European officials. They went to Hillary Clinton’s campaign begging for, yes, reassurance!

As for Washington’s major Asian defense dependents, Bloomberg explained that they found Trump’s views “baffling.” The South Korean newspaper JoongAng Daily proclaimed itself to be “dumbfounded.”

Alas, both Republicans and Democrats rushed to promise well-heeled allies that they shouldn’t lose any sleep over Trump’s message, that nothing will change. Indeed, the Times reported European leaders visiting the Democratic convention, where they found the message “soothing.”

Washington officials have lost sight of why America should participate in an alliance. Alliances should be a means to an end.

Their purpose is to increase American security. They aren’t particularly useful where there’s no significant threat to the U.S., Washington can easily deter any adversary on its own, and/or America’s friends are capable of protecting their own interests. Which is the case for most U.S. allies today.

Russia’s Vladimir Putin is a nasty fellow, but has demonstrated no interest in challenging America militarily. And while Moscow deploys a capable armed forces, it would lose in a contest with the U.S.

Moreover, the Russian republic, like the old empire, is primarily focused on border security and respect, not conquering non-Russian peoples. Anyway, Europe has a larger economy and population than America, and far larger than Russia. Europe has chosen to remain seemingly helpless.

The Democratic People’s Republic of Korea is an unpleasant actor, but is interested in America only because America, in the form of 28,500 military personnel, is next door in the South. Yet South Korea enjoys a vast economic and technological lead, overwhelming international and diplomatic advantage, and sizeable population edge over the North. Seoul long ago should have graduated from America’s defense dole.

China, like Russia, is a regional power unlikely to seek war with America, which enjoys a large military lead. Japan, which long possessed the world’s second largest economy, could have done much more to advance its and its region’s defense for years. Even today Tokyo is well able to deter any Chinese threat to the former’s existence.

No Middle Eastern state directly threatens the U.S. America’s friends are dominant: Israel is a regional superpower, Saudi Arabia vastly outspends Iran on the military, and Turkey’s armed forces, despite the aftermath of the coup attempt, outrange those of all of its neighbors, aside from Russia, which has no cause for conflict.

As I point out in American Conservative: “Why is the U.S. providing all of these nations security commitments, military equipment, and promises to go to war? And reassuring governments desperately afraid that they might have to do more for their own defense? Instead, Washington should insist that its friends take over responsibility for their own security.”

It’s impossible to predict what Donald Trump would do as president. However, he might be willing to put muscle behind bluster and kick nations off of the U.S. defense dole.

Under Dodd-Frank, the new Financial Stability Oversight Council (FSOC) has the authority to designate companies as “systemically important financial institutions” or “SIFIs.” By identifying and branding these companies as systemically important, we’ve been told, the government will end “too big to fail.” Dodd-Frank’s supporters claim bailouts like the one we saw in 2008 are a thing of the past, in part because of the heightened oversight of SIFIs. Except FSOC hasn’t fully thought through the whole SIFI designation concept. In March, a court found that FSOC’s designation of insurance giant MetLife failed to consider the impact the designation would have on MetLife and the U.S. financial system as a whole and therefore was “arbitrary and capricious,” that is, unlawful.

FSOC was created by Dodd-Frank and, as an agency of the federal government, it exists to “further some public interest or policy which [Congress] has embodied in law.” This interest, Dodd-Frank tells us, is to “promote the financial stability of the United States…to end too big to fail, [and] to protect the American taxpayer by ending bailouts[.]” Whether FSOC  is capable of any of these things and whether the legislation that created it will ultimately promote anything like stability is not the point (although our vote on these questions is “no”). The point is that, in exercising this delegated authority, FSOC must always act to forward the goal of promoting the financial stability of the United States.

It is surprising, then, that in determining whether MetLife should be designated as a SIFI, FSOC not only failed but flat out refused to consider whether the cost of compliance with this increased burden might actually weaken the company. If FSOC designates a company as a SIFI it means that FSOC has determined that “material financial distress” at the company “could pose a threat to the financial stability of the United States.” That is, that anything that weakens it would undermine the express goal of Dodd-Frank. It seems clear that FSOC should at least ask the question: would complying with these new rules make the company stronger or weaker?

And yet FSOC claimed that this question, which goes to the very heart of its authorizing statute, is not one it has to ask. Following its loss in the district court, FSOC appealed the case to the D.C. Circuit Court. On Monday, Cato filed an amicus brief arguing that it was unreasonable for FSOC to fail to consider whether its action in designating MetLife as a SIFI promoted or instead frustrated the goal of Dodd-Frank in promoting financial stability in the U.S. Cato also argued that, far from reducing the risk of bailout, designating MetLife as a SIFI could in fact increase the likelihood of taxpayer-funded rescue.

Ultimately the question is whether an agency must grapple with the possible negative effects of its actions, or whether it may simply wave these costs away, saying “that’s not our concern.” We hope the court decides that federal agencies, like everyone else, must consider the costs of their actions.

[Cross-posted from Alt-M.org]

Yesterday the 10th annual Education Next survey of American opinion on K-12 education came out, and right away Jason Bedrick deftly distilled the school choice findings. I want to quickly discuss two other, ripped-from-the-headlines subjects: opinion on the Common Core national curriculum standards, and agency fees charged to teachers who don’t want to join a union.

As perhaps reflected in the latest version of the Elementary and Secondary Education Act—the recently enacted Every Student Succeeds Act (ESSA)—many Americans across the ideological spectrum are none too pleased with the Common Core, which the ESSA goes so far as to mention by name as off limits to further federal coercion. According to the survey, federal politicians read the tea leaves correctly when they took off against the Core. Despite the survey using a wording likely to bias respondents in favor of the Core—saying it will be used “to hold schools accountable for their performance”—the general public was evenly split: 42 percent supportive and 42 percent against. Even more telling has been the Core’s trajectory since first being addressed in the 2012 survey. The trend data do not include people who were neutral on the Core, but among those who offered opinions for or against, support plummeted from 90 percent to just 50 percent.

That said, the survey’s overall message is not entirely hopeful if you aren’t fond of centralized standards and testing. Among other things, 55 percent of the general public supports generic, identical state standards in reading and math used “to hold public schools accountable for their performance.” Of course, that wording makes it impossible to know if respondents are mainly reacting to uniform standards, accountability, or both, but the uniformity inclination does not bode well for fans of local control of public schools. Then again, the public opinion trajectory is similar to what we saw when the Common Core was mentioned by name: support dropped from 92 percent of people who offered an opinion in 2012, to 66 percent today.

When it comes to public opinion, the Common Core is a sinking ship. But it’s not yet on the ocean floor.

The other results that jumped out at me, especially given the unfortunate demise of the Friedrichs Supreme Court case and ongoing, brazen union politicking, were on  “agency fees,” funds that teachers in many states have to supply unions even if they do not wish to be members, supposedly to cover their “fair share” of contract negotiations. Only 35 percent of the general public supported such compelled fees, versus 44 percent who opposed them. Even more telling, among all the subgroups of respondents the pollsters broke out, only one—Democrats—expressed greater support than opposition. And among the subgroups were teachers themselves, who opposed agency fees 47 percent to 43 percent!

Hopefully what this reflects is a lot of Americans perceiving the fundamental injustice of forcing people to associate with a union, and of requiring them to pay for speech that is inherently political.

There’s a lot more worth exploring in the survey, so check it all out! And if you are going to be in Washington, DC, on September 16—or you have a computer such as, say, the one you are using right now—you can watch me discuss the poll with several other, much smarter folks, including the pollsters themselves. Should be fun!

The 1996 Welfare Reform Act (PRWORA) made it more difficult for non-citizens to access means-tested welfare benefits.  However, that law also allowed states to use their own funds to extend means-tested welfare benefits to non-citizens and some took advantage of this.  After 1996, the only sure-fire way for a non-citizen to get welfare benefits was to naturalize and become a citizen. 

Twelve states did not change non-citizen eligibility for four large welfare programs (TANF, SNAP Medicaid, and SSI) in response to PRWORA while the other 39 states and the District of Columbia became more restrictive.  If non-citizens responded to welfare reform by naturalizing in order to gain access to benefits then there would be a larger increase in naturalizations in states with more restrictive post-PRWORA policies.  The evidence bears this out for immigrants based on country of origin.  The state by state evidence is more mixed. 

I then compared the increased percent in the number of naturalizations per state from the 1993-1995 period (first period) to the 1997-1999 period (second period).  Unfortunately, the 1996 data is unusable because some of it is unavailable and computer problems delayed naturalizations for that year, causing a 100 percent drop off in some states that had nothing to do with welfare reform.    

The combined number of naturalizations in the twelve states with unchanged rules for non-citizen eligibility increased by 54.5 percent from the first to the second period.  Naturalizations especially increased in California but there were other factors there contributing to the surge.  Excluding California, naturalizations only increased by 13.6 percent in the remaining 11 states with unchanged non-citizen welfare eligibility rules.  The total number of naturalizations increased by 32 percent between the two periods in the 39 states that adopted more restrictive welfare eligibility laws.        

About 44 percent of all nationwide naturalizations occurred in the states with unchanged welfare rules in the first period and 48 percent in the second period.   The percentage of all nationwide naturalizations in states with rules that got more restrictive dropped from 55.6 to 51.7 percent from the first to the second period.  The national share of naturalizations increased the most in states that did not adopt more restrictive welfare rules while the proportion of all naturalizations in states with more restrictive rules actually dropped between the periods, the opposite of what we’d expect if immigrants naturalized to get around welfare reform.      

Furthermore, the share of the population that was naturalized in the 12 unchanged states went from 3 percent to 3.7 percent from 1994 to 1999 (the 1993 data was absent from CPS).  For the states that restricted non-citizen welfare access, the percentage of the population that was naturalized climbed from 1.8 percent to 2.3 percent.  The change was larger, proportionally, in the restricted states – but not by much.  Numerous other potential explanatory variables are not included here so this is not the whole story.    

Welfare reform likely prompted a rise in naturalizations but the effect is probably small compared to other factors.  

Republican Governor Charlie Baker recently signed statewide regulations for ride-hailing platforms like Lyft and Uber and this package has the ignominy of including “a subsidy that appears to be the first of its kind in the United States,” as Reuters calls it. This comes in the form of a new 5-cent per trip tax on ride-haling companies that will be funneled to the traditional taxi company. This is part of the total 20-cent per trip fee with the rest of the revenues being split between local governments and the state transportation fund.

There are approximately 2.5 million rides per month in Massachusetts just through Uber and Lyft, with more coming through other, smaller ride-hailing companies.  This means that the 5-cent tax and subsidy will transfer at least $1.5 million to traditional taxi companies each year, and likely much more as the total number of ride-hailing trips continues to rise in the coming years.

As it is written now the “taxi tax,” as Brittany Hunter has dubbed it, is scheduled to be collected through 2021 and the entire 20 cent surcharge will be in effect through 2026. Now that traditional taxi competitors have gotten a taste of being subsidized by their more successful competitors, it seems unlikely they would let a fruitful source of new ‘revenue’ expire without a fight.

While the regulation promises “riders and drivers will not see the fee because the law bars companies from charging them” there is no way the ride-hailing companies will passively absorb all of these additional costs. Instead, the most likely scenario is that they will indeed find a way pass on these costs and the most likely channels are higher prices for consumers or lower compensation for drivers.

Some details about how the new slush fund will be spent are still in the works, and MassDevelopment, the “economic development and finance agency” well-versed in disbursing subsidies to business will be in charge of how those funds are allocated. The law directs the money to help traditional taxies adopt “new technologies and advanced service, safety and operational capabilities” while the manager of Boston area’s Independent Taxi Operator’s Association has suggested it could go towards improving a smartphone app they have begun to use. So most of the ideas for the use of this new subsidy from the new  ride-hailing companies is to try to make traditional taxi companies adopt some of their practices. Adopting some of the innovative practices that have enabled ride-hailing companies to become successful might be something that traditional taxis should explore, but why is it something their competitors have to subsidize?

Efforts like this to force new entrants to subsidize the entrenched incumbents they directly compete with are misguided and counterproductive. They encourage both groups to focus their efforts on trying to influence regulation instead of innovating or improving their products.

Instead, the main way the traditional taxi companies in Massachusetts are innovating is trying to find new ways to make their new competitors subsidize them.

If only the last known VHS manufacturer had held out for just a little longer, they could have lobbied for a surcharge on streaming services like Netflix and Hulu that would subsidize their operations.

Instead of looking to impose the old framework of regulations on these new business models or force new companies to subsidize their traditional competitors, policymakers could look to reform those burdensome regulations that impose costs on consumers and drivers alike.  

Since 1975 – for 41 straight years – the United States has registered annual trade deficits with the rest of the world.  That means that year after year, Americans spend more on foreign-produced goods and services than foreigners spend on U.S.-produced goods and services or, put simply, the dollar value of U.S. imports exceeds the dollar value of U.S. exports.

For almost as long, some economists have been arguing that trade deficits are unsustainable – they sap economic growth, bleed jobs, and saddle our descendants with debt.  Perhaps if one looks at the trade deficit (or the slightly broader current account deficit) in isolation, these concerns might seem to have merit.  But looking at the U.S. trade or current account deficits without considering the capital account surplus is a meaningless, misleading exercise.

Yesterday, I published this piece at Forbes online, explaining why the trade deficit is not only not a problem, but that the associated capital surplus (the excess of inward investment over outward investment), which includes high-quality foreign direct investment, bestows huge advantages on the U.S. economy.  In that piece, I ask trade deficit hawks (or scolds, as I call them) to furnish their best, fact-based, comprehensive arguments – to finally step up to the plate and explain why it is that the trade deficit is a problem to solve.  

It would be of immense public policy value if we were to be able to catalogue and compare the arguments of both sides (and those who may be in the middle).  After all, one of the reasons that trade is so maligned is that the public has been lead to believe that the trade account is a scoreboard, with the deficit indicating that Team America is losing – and it’s losing on account of poorly negotiated trade deals and foreign cheating.  Helping the public reach that conclusion (rather than find the truth) may be the goal of some noisy contributors, but I suspect there are plenty of trade deficit hawks with purer motives, if not convincing arguments.

We intend to host a public debate on this question later this year, so it would be good to have some compelling, fact-based arguments that the trade deficit is a problem to solve.  (Feel free to forward by email or social media.) Below is a short list of some of Cato’s expositions of the arguments that the trade deficit is not a problem to solve:

And here’s Milton Friedman talking to Kansans about the subject: Milton Friedman on Trade Balance and Tariffs

Donald Trump keeps insisting we live in dangerous times. “I don’t think America is a safe place for Americans” he said earlier this year. And most Americans agree with him. In June 71% of Americans said they expected further terrorist attacks in the United States over the next several weeks. And 53% recently said they worry a great deal about crime while 70% believe that there is more crime in the United States than there was a year ago.

It may have been smart politics for Trump to use Make America Safe Again as the theme for the opening day of the Republican National Convention. The facts, however, suggest Americans are already quite safe.

Take crime, for example. The statistics suggest that the public has it entirely backwards. In 2013 and 2014 Americans experienced their safest years on record. The murder rate per hundred thousand was 4.5, well below half of what it was at its worst point in the 1980s and early 1990s, lower even than the murder rate in 1963, the previous safest year on record. The numbers are nearly identical for other types of violent crime. According to the FBI’s crime statistics, the past five years have been the safest of the last half century.

Terrorism is another case where the numbers don’t support the heightened level of fear. The attacks in San Bernardino and Orlando certainly set people on edge, but Americans have a better chance of being killed by lightning or drowning in their own bathtubs than being killed by a terrorist.

Over the past two decades, the tragic attacks of 9/11 included, Muslim extremists were responsible for less than one percent of murders in the United States. And in the past 10 years that number has dropped substantially, with radical Islamists responsible for less than one-tenth of one percent of the killings in America.

Why, then are Americans so afraid? The most obvious answer comes in the daily news. Thanks to its tendency to amplify the most sensational crimes, news coverage helps ensure that public perceptions of crime are out of sync with reality. This is especially true for coverage of terrorist attacks or attempted ones, which rarely provides news consumers with any sense of perspective about the relatively minor threat of terrorism.

But even more important in stoking public fears today are irresponsible political leaders. This is an area where our politicians can and should lead. They can point to the facts and remind Americans that we are safe. They can assure Americans that we can be both safe and on guard to the threat posed by the Islamic State and groups like them. But instead of helping the public see beyond their fear and anger, they have added to a sense of panic for political purposes.

Donald Trump’s recent speech in Ohio, which combined exaggerated figures about terrorist attacks with apocalyptic language, was a perfect example of this problem. Anyone listening to Trump would believe that the Islamic State represented an existential threat to the United States. Worse, when the news media cover Trump, they give him a powerful soapbox to spread fear. Lost in the noise is the fact that it was lone wolves, not organized groups, who conducted the recent attacks in the United States.

Too much fear has the ability to cloud people’s senses, eroding their ability to conduct rational debate and warping their decision-making. The effects can already be seen not only in the irrational levels of fear about ISIS and terrorism but in the surprising levels of support for Trump’s extreme policy proposals.

Without fear it is otherwise hard to explain how 50% of the public supports a ban on Muslim immigrants, 48% support building a wall on the Mexico border, and 44% support the idea of creating a database containing the names of Muslims living in the United States. Such policies, born from fear and emotion, may make people feel better in the short term, but they clearly risk trampling on the values embodied in the Constitution.

Fear is no way to run a country. No threat should be taken for granted, but neither should threats be inflated or manipulated. And today the facts support one conclusion: Americans are safe.  

Over at Heterodox Academy, we have been hearing from students who are concerned that their universities exhibit a rigid ideological orthodoxy, with dissenting faculty members almost nonexistent and dissenting students afraid to speak their minds. We agree that this sort of academic climate is profoundly unhealthy: It tends to stifle the sort of uncensored intellectual inquiry that produces groundbreaking scholarship and robust education. Indeed, the Supreme Court itself has cautioned against a “pall of orthodoxy” in education: “The classroom is peculiarly the marketplace of ideas. The Nation’s future depends upon leaders trained through wide exposure to that robust exchange of ideas which discovers truth out of a multitude of tongues, [rather] than through any kind of authoritative selection.”  Keyishian v. Board of Regents, 385 U. S. 589, 603 (1967) (internal quotations omitted).

Yale University understood this very wellfor a time.  And the University of Chicago understands it now.  But, alas, this basic principle has been forgotten on countless campuses across the country.  Heterodox Academy has, therefore, launched a new initiative to empower students to call for a more heterodox education. In collaboration with several students, we have generated three short resolutions that students may use to reaffirm the central importance of free speech and intellectual diversity on campus.  Students who want an uncensored and heterodox education may propose these resolutions to their student governments, publicize them in student newspapers and use them to press for official policy changes:

[B]e it resolved that [our school] is a Heterodox University

We make the following specific requests to the faculty and administration:

1) Adopt the Chicago Principles on Freedom of Expression

A clear way for the university to show commitment to viewpoint diversity is by adopting the University of Chicago’s Principles on Freedom of Expression, which state in part:

The University’s fundamental commitment is to the principle that debate or deliberation may not be suppressed because the ideas put forth are thought by some or even by most members of the University community to be offensive, unwise, immoral, or wrong-headed. It is for the individual members of the University community, not for the University as an institution, to make those judgments for themselves, and to act on those judgments not by seeking to suppress speech, but by openly and vigorously contesting the ideas that they oppose. Indeed, fostering the ability of members of the University community to engage in such debate and deliberation in an effective and responsible manner is an essential part of the University’s educational mission.

We request that the Faculty Senate endorse the “Chicago Principles” as official university policy.

2) Implement a non-obstruction policy for protests

We support the right of all students to protest against speakers and writers with whom they disagree, but we ask that protests be done in a way that does not deprive other students of their rights to speak and hear. When members of our community shout down a speaker, or take other actions intended to make it more difficult for a speaker to speak or for an audience to hear, they are practicing obstruction, censorship, and sometimes intimidation, not free speech. Such practices have no place in any academic community. We request that the university formulate and enforce a non-obstruction policy. As stated in the Chicago Principles: “The University has a solemn responsibility not only to promote a lively and fearless freedom of debate and deliberation, but also to protect that freedom when others attempt to restrict it.”

3) Improve viewpoint diversity

We request that the university include viewpoint diversity, and particularly political diversity, in its diversity policies and in its efforts to diversify the faculty and the curriculum. We want to encounter a range of viewpoints in the classroom, just as we will after we graduate.

Adoption of these resolutions will mark a school as a “Heterodox University” – a safe space for intellectual diversity and uncensored speech. Heterodox Academy stands ready to help tailor these resolutions to specific universities and to help support students who wish to promote these principles.  For more information, click here.

[Cross-posted from The Volokh Conspiracy]

Last week Harvard law professor Larry Tribe sent out a tweet brusquely dismissing the IRS targeting episode as a debunked non-scandal. I and others promptly took issue with him, and pointed him toward the August 5 D.C. Circuit opinion laying out the scandal’s genuineness. (I also referenced my Ricochet article summarizing the decision and citing the Inspector General report from Treasury.)

Dear Prof. @tribelaw: the 8/5 D.C. Circuit ruling affirming the IRS targeting scandal as only too genuine is here: https://t.co/ucd9vyg55v

— Walter Olson (@walterolson) August 18, 2016

Within an hour or two Prof. Tribe sent this tweet very graciously conceding error, along with several similar.

@walterolson I confess error wrt IRS ideological targeting. The IG report and the CADC panel decision seem right to me. Inexcusable abuse.

— Laurence Tribe (@tribelaw) August 18, 2016

I have on occasion had my differences with Prof. Tribe’s views, but what an honorable example he sets here. May all of us prove equally ready to re-examine our own views when challenged [cross-posted and slightly adapted from Overlawyered].

P.S. If word of the D.C. Circuit panel decision has not gotten around as widely as it should, one reason is that some major news organizations have still, nearly three weeks later, not seen fit to cover it. 

Donald Trump is currently in the midst of trying to, as he said last night, “soften” his image on immigration, stating that he will renege on his promises to deport each and every person in the country illegally. To the extent that he is moderating—and it’s unclear how much of a change this really is—it will be because no group of voters outside of his core supporters agreed with him. More importantly, despite over a year of campaigning on the issue, he simply has not convinced anyone—even among Republicansto flip to his side.

Pew Research Center has polled Republicans and Republican-leaning voters on their position on immigration four times in the last two years—twice before Trump announced his candidacy in June 2015 and twice after. As you can see, Trump’s no legalization view has remained flat, losing considerable ground between March and September before rebounding slightly again this year. But at no point was it the majority view in the party.

Figure 1: Pew Polls of Republicans: “Immigrants living in the country who meet certain requirements should be–or not be–allowed to stay in the U.S. legally.”

 

Sources: Pew Research Center - December 2014, March 2015, September 2015, March 2016

In fact, the average of the two pre-Trump polls and those after reveals a 7.5 percentage point bump for legalization and a 4 percentage point drop for the opposition after Trump entered the race. Trump may have actually driven some in his own party away from his position. 

CNN exit polls of GOP primary voters in the 20 states where they asked a question about deportation also demonstrate no upward trend for Trump’s position as the campaign progressed, even as it became apparent that Trump would be the nominee. Among all Republicans who voted in these primaries, an average of 53 percent favored legalization to 42 percent who favored Trump’s deportation.  

Figure 2: CNN GOP Primary Exit Polls: “Should illegal immigrants be granted legal status or deported to their home countries?”

Source: CNN

What makes this most surprising is that Trump is not an ineffective messenger for his other major policy issue—opposing free trade. Throughout his campaign, Trump has repeatedly mentioned that he would end NAFTA, reject TPP, and impose new tariffs, and he has turned the party from two-to-one in favor of free trade agreements, according to Pew polls, to two-to-one opposed, even while his immigration views have had zero impact.

Figure 3: Pew Polls of Republicans on Opposition to Free Trade Agreements and Legalization of Undocumented Immigrants

Sources: Pew Research Center, Trade (April 2014-August 2016), Immigration (Figure 1 and July 2014)

It’s not readily apparent why Republicans were so easily swayed on trade, but not immigration. My hypothesis is that while free trade was not a major issue until this election, immigration reform has been debated for well over a decade, and voters had heard all of Trump’s arguments before and already made up their minds. Either way, with these numbers in mind, it’s no surprise that Trump would want to reconsider his rhetoric on immigration, while maintaining his anti-trade message (though the fact that independents support free trade should concern him).

To be clear, Trump has not (yet?) adopted the “legalization” position favored by a majority of his party. He has stated that he will continue to deport as many people as Congress gives him money to deport, citing President Obama’s use of deportation as a model, and said he will not grant them authorization to stay in the country illegally. But with public opinion strongly against that position, Trump may want to reconsider his position further.

Many Americans, including Donald Trump, are concerned over whether Muslim immigrants and their descendants are assimilating into American society.  This topic is tricky for a few reasons.  First, almost all Muslims who are immigrants or descended from them entered the United States after 1968 so there haven’t been many generations yet.  As a result, the evidence and research on Muslim assimilation are not as complete as they should be.  A second problem is that many studies or surveys do not compare the opinions of Muslims with society at large or other minorities.  Where possible, such comparisons will be made below.  A third problem is that, until recently, sociologists weren’t interested in Muslim assimilation in the United States.  Whereas there is a vast literature on Hispanic assimilation going back generations, Muslims were overlooked entirely prior to the 1990s. 

To mix my personal experience with this post, my brother and I are two of a handful of third-generation descendants of Muslim immigrants.  Our paternal grandparents came from Iran in the late-1940s while our maternal grandparents were the descendants of Europeans.  Nobody on that side of the family identifies as a Muslim anymore let alone practices, as far as I know, and none of those who were born Muslim raised their children as such.

My wife and her family have a similar experience although her father was born a Muslim and immigrated here in the 1970s.  The extended portions of my family and my wife’s family mostly immigrated after the Islamic Revolution in 1979.  Thus, I am deeply interested in this topic for personal as well as professional reasons.

Muslim Demographics

The United States government does not ask Americans or immigrants about their religious beliefs, with the exception of refugees.  Thus, we have to rely on private surveys and other methods of estimating the Muslim population in the United States.  Many of these surveys do not distinguish between different sects of Islam but merely on self-identification.  This, a Sunni Muslim immigrant from Saudi Arabia is just as Muslim as an African-American convert to the Nation of Islam.

A 2015 Pew Research Center report estimated that there are roughly 3.3 million Muslims in the United States equal to just over 1 percent of the population – up from Pew’s estimates of about 2.4 million in 2007 and 2.6 million in 2010.  The U.S. Religion Census (not be confused with the U.S. Census Bureau) in 2010 found that there were 2.6 million Muslims, equal to about 0.84 percent of the U.S. population. 

Seven of the most methodologically sound estimates of the size of the Muslim population around the turn of the Millennium found there to be between 1.5 million and 3.4 million Muslims in the United States.  Five of those seven estimates found that there were between 2.3 and 2.9 million Muslims.  Compared to the more recent estimates by Pew and the U.S. Religion Census above, the Muslim population has grown slowly.     

Births and immigration are the main sources of growth for the Muslim population.  Pew in 2011 estimated the total fertility rate (TFR) of Muslim women in the United States to be 2.5 children per woman and just 2.2 for Muslim women born here – both above the U.S. TFR of 1.9 in 2011.  Roughly 5 percent of the stock of immigrants in the United States is Muslim.  One Pew paper estimates that 80,000 to 90,000 immigrants a year are Muslim while another found 115,000 a year in 2009.  Pew estimates that there will be 6.2 million American Muslims by 2030 that comprise 1.7 percent of the population. 

A total of 63 percent of Muslims are immigrants, 15 percent are the children of immigrants, and 22 percent have ancestors who have been here for at least three generations.  Many of those third-generation and above Muslims are likely converts to Islam or the descendants of African Americans who converted – but the percentages are in doubt.  Muslim immigrants are ethnically and racially diverse.  About 41 percent were born in the Middle East and North Africa but the most common country of origin is Pakistan.  Racial self-identification is trickier to pin down than the country of origin. 

Muslims tend to be geographically concentrated.  Around 81 percent of all Muslims live in just eight states.  Texas has more Muslims than any other state (Figure 1).  Illinois, however, has more Muslims as a percent of its population than any other state.

 

Figure 1

Muslims per State

Source: http://www.thearda.com/Archive/Files/Downloads/RCMSST10_DL2.asp

 

Conversion and Apostasy in American Islam

The number of Muslims in the United States is not just affected by births, deaths, and immigration but also by conversion and apostasy – such as the recent conversion of 2010 Miss USA winner Rima Fakih to Catholicism.  According to Pew, 23 percent of those raised Muslims do not identify as Muslim by the time they are adults.  The General Social Survey (GSS), according to Darren W. Sherkat, shows that 32 percent of those raised Muslim are apostates. 

Islamic apostasy in the United States by country of origin or ethnicity is generally unavailable.  One exception is for Iranian-Americans.  A 2008 poll of them found that 42 percent self-identified as Muslim while just four years later a mere 31 percent of them did.  That is quite a decline in just a few short years but the sample size is also small so caution is warranted.  Iran is officially 99.4 percent Muslim and although religious minorities are more likely to emigrate, there is a substantial religious difference between Iranian-Americans and Iranians.  

There are also converts to Islam.  Pew estimates that 23 percent of American Muslims, or 760,000 people, are converts.  According to Pew, that percentage equals the number of apostates meaning that there is no-net-growth due to conversion.  If Sherkat’s 32 percent apostasy figure for American Muslims is true then they are leaving Islam, on net. 

Many converts are prisoners who do not stay with Islam for the long run.  Estimates of the number of incarcerated Muslims are within a narrow range.  Between 9.4 percent and 15 percent of all prisoners nationwide are Muslims, which translate to 227,000 to 360,000 incarcerated Muslims.  According to another estimate, there have been about 300,000 conversions to Islam in prison during the last decade.  Professor Lawrence Mamiya of Vassar College estimates that 10 percent of all prison inmates have converted to Islam – about 242,000.  Michael Waller quotes a higher figure but he does not provide a citation or a method of estimation.  Thus, it’s likely that nearly all or a substantial majority of incarcerated Muslims actually converted while incarcerated. 

Based on these figures, 30 to 40 percent of the 760,000 nationwide converts to Islam could be incarcerated.  These converts are not serious long-term adherents to their new faith.  Professor Mamiya estimates that only 20 percent of prison converts continue on as Muslims after they are released.  If the 20 percent retention rate for prison converts is the same as non-prison converts, a possibility considering that religious converts often change religions multiple times and they are less likely to pray than those born Muslim, then the long-term conversion figure should be even lower.  Thus, it’s possible that the Pew figures overstate the degree of conversion to Islam.

Additional facts would shed light on how conversion and apostasy affect Muslim demographics.  The number of reversions to Islam, although likely small if the research from Canada or the United Kingdom is similar to the American experience, would reveal more about the long term net conversion rate.  Another is whether the converted prisoners are incarcerated for long periods of time or whether the turnover is quick and substantial.  The last is how many non-prison converts stay with Islam for the long term.

Muslim Assimilation in the United States – What the Research Says

The most comprehensive literature survey of Muslim assimilation displays how little quantitative research has actually been conducted on this crucial question, especially in the United States.  Since the U.S. Census does not collect data on religion, private surveys and polls are the sources for information on American Muslims.  This post will examine some aspects of Muslim American assimilation while a follow-up post will look at religious beliefs.

Income and Education

According to Pew’s 2011 survey, Muslim Americans are about as likely to live in a household with an income of $100,000 a year or above as the general public but also more likely to live in a poorer household with $30,000 in income or less.  Foreign-born Muslims are both more likely to be in the $100,000 or above category and the bottom category.  Income increases with age, thus explaining why Muslims are more likely to be poorer than the general population.  In Pew, a massive 59 percent of U.S. Muslims are between the ages of 18 and 39 compared to just 39 percent of the general public in the same age bracket.  The percentage of the generation population that is 55 years old or higher is almost three times as great as U.S. Muslims.  Gallup found that 73 percent of Muslim Americans are between the ages of 18 and 44. 

More than a quarter of Muslims have a college or above education, very similar to the general population but still greater than natives.  A quarter of U.S. Muslims are enrolled in college compared to just 13 percent of the general public and 27 percent of the native born.  Similarly, Gallup finds that 31 percent of Muslims are full-time students, a more than three-fold difference above the U.S. general population. 

Pew found that, compared to the general public, Muslims are a little less likely to be employed full-time, more likely to be employed part-time, and about as likely to not be employed although more of them are looking for work.  This survey also found that 20 percent of Muslims are self-employed or small business owners compared to 17 percent of the general public and 21 percent of all immigrants.  Gallup finds that 70 percent of Muslims have a job, the highest of any religious group surveyed and above the 64 percent reported for the general population.  A full 30 percent of those employed are in the professions, 4 percentage point ahead of the U.S. general population but 12 percentage points behind the most professional religious demographic.  The breakdown of Muslims in full, part time, and unpaid work is very similar to the rest of the population but 24 percent of them are self-employed – the highest of any religious group and 7 percentage points above the general population. 

Gender and Sex Norms

Muslims in the United States mostly have opinions between those of other Americans and their fellow co-religionists in Muslim majority countries.  This paper has a sexual liberalization and gender equality indices based on questions pooled from responses in the World Values Survey.  Muslim immigrants in the West had a sexual liberalization opinion score of 37 compared to 24 in their countries of origin and 50 in their new homes.  Their gender equality opinion score was 75 compared to 57 in their countries of origin and 82 in their new countries.  Although this paper does not analyze the United States specifically, it gives a good broad sample.

According to Pew, in 2011 only 39 percent of Muslims think homosexuality should be accepted, 19 percentage points below the general public.  However, those numbers are up 12 percentage points from 2007 so they appear to be moving in the right direction although they have quite a way to go to catch up to the general public. 

Focusing on the United States, a 2009 paper that combined numerous different surveys found that 77 percent of American mosque-goers agreed that “women need a great role in the mosque” while 18 percent were neutral and 6 percent disagreed.  A 2011 Pew survey found that only 20 percent of respondents thought women should pray alongside men in mosques.  Furthermore, 48 percent wanted them to pray separately while a quarter wanted them to pray behind men.  That might be why Muslim American women are some of the most active mosque reformers.   

Pew found that 40 percent of Muslim women never wear the hijab.  About half of the Muslim women interviewed for another small study wore the hijab while none wanted to wear the niqab, which is a more extensive head covering.  This paper also includes many unconvincing arguments, many from the mouths of Muslim American women, about why hijabs help them reconcile their religious beliefs with the society around them. 

Gallup found that Muslim men attend mosque slightly more than women in contrast to every other religious group and the general population, with the exception of Jews.  Muslim women are also more likely than Muslim men to describe themselves as thriving.  Pew found that Muslims were much more likely to see men as political leaders than women, compared to the general population.  In the economic sphere, 8 percent of Muslims think women should not be able to work outside of the home compared to 2 percent of the general public.  However, Muslim Americans are less likely to “completely agree” with women working outside of the home than the general public.    

Marriage

In 2011, Pew found that 55 percent of U.S. Muslims are married compared to 54 percent of the general public.  Recall from above that Muslim youth probably understates their marriage rate.  Perhaps reflecting the different age distribution, Gallup found that Muslims are the most likely to be single and the least likely to be married.  Religious and ethnic endogamy among the second and higher generations in Europe is high while the evidence of that in the United States is limited.  According to Pew, 17 percent of Muslims are married to non-Muslims – higher than the 8 percent among U.S. Christians.      

Assimilation and General Feelings about America

Pew found that U.S. Muslims are more likely to be satisfied with national conditions than dissatisfied, 56 percent to 38 percent, in contrast to the general public which was only 23 percent satisfied and 73 percent dissatisfied.  Three-quarters of Muslims also think that most can get ahead with hard work compared or 62 percent of the general public. 

A total of 56 percent of American-Muslims think that Muslims want to adopt American customs and ways of life, 20 percent want to be distinct, and 16 percent want to be both.  Thus, 72 percent of Muslim respondents think Muslims either want to assimilate entirely or partly.  Presumably, much of the desire to avoid assimilation comes from the impulse to preserve their religion and its traditional gender norms from dominant American values.   

Other Concerns

Concerns over Muslims-American support for violence, al Qaeda, or cooperation with law enforcement also abound.  The results of a Pew survey in Table 1 show that American Muslims have opinions on these topics that are very similar to those of the general public and the native born.  Interestingly, native-born Americans are slightly more understanding of suicide bombing than Muslims.  Furthermore, Muslims are half as likely as the general public to have a favorable view of al Qaeda.  The responses to that question indicate that many respondents don’t know what al Qaeda is – the biggest surprise.

Table 1

Responses to Security and Extremism Concerns, 2011

Concerns about Islamic extremism around the world    

U.S. Muslims

General Public

 

Very/Somewhat

72

73

  Not too/Not at all

24

24

  Don’t Know

4

3

          Concerns about the possible rise of Islamic extremism in the U.S.    

U.S. Muslims

Immigrants (All)

Native Born (All)

Very/Somewhat

60

53

73

Not too/Not at all

35

40

26

Don’t Know

5

7

1

     

 

How much support for extremism among Muslims in the U.S.?

 

 

U.S. Muslims

Immigrants (All)

Native Born (All)

Great deal/Fair amount

21

15

32

Not too much/None at all

64

66

63

Don’t know

15

19

5

     

 

Suicide bombing can be justified …    

 

 

U.S. Muslims

Immigrants (All)

Native Born (All)

Often/Sometimes

8

7

11

Rarely/Never

86

84

88

Don’t know

6

9

1

     

 

View of al Qaeda    

 

 

U.S. Muslims

Immigrants (All)

Native Born (All)

Very unfavorable

70

75

62

Somewhat unfavorable

11

9

15

Favorable

5

3

10

Don’t know

14

14

13

        Are Muslims in the U.S. cooperating with law enforcement agencies?  

U.S. Muslims

    Cooperating as much as they should

68

    Not cooperating enough

14

    Cooperating too much

1

    Don’t know/Refused

17

             

Source: “Muslim Americans: No Signs of Growth in Alienation or Support for Extremism,” Pew Research Center, Q75, Q76, Q90, Q93, Q97, Q98.

American Muslims are much less supportive of suicide bombing than Muslims in Muslim countries.  The only other countries with responses in the single-digits for “Often/Sometimes justified” are Pakistan and Turkey.  Favorable views of al Qaeda are also significantly more common in every Muslim country except for Turkey. 

Gallup also asked whether it is justified for an individual or a small group of persons to target and kill civilians.  A whopping 89 percent of Muslims said “never” while 11 percent said “sometimes.”  Muslims were the most likely, of any religious group surveyed, to respond that targeting and killing civilians was never justified.  In the same survey, when asked about the military targeting and killing civilians, 78 percent of Muslims said “never” and 21 percent said “sometimes.”  Muslims and those without a religion were the only two groups of respondents by religion where a majority answered “never.”    

Conclusion

The differences between Muslim Americans and other Americans are small on most of these measures.  The assimilation of Muslim immigrants and their descendants is proceeding well.  My next post in this series will examine Muslim American religiosity. 

It’s not a big day for normal people, but today is exciting for fiscal policy wonks because the Congressional Budget Office has released its new 10-year forecast of how much revenue Uncle Sam will collect based on current law and how much the burden of government spending will expand if policy is left on auto-pilot.

Most observers will probably focus on the fact that budget deficits are projected to grow rapidly in future years, reaching $1 trillion in 2024.

That’s not welcome news, though I think it’s far more important to focus on the disease of too much spending rather than the symptom of red ink.

But let’s temporarily set that issue aside because the really big news from the CBO report is that we have new evidence that it’s actually very simple to balance the budget without tax increases.

According to CBO’s new forecast, federal tax revenue is projected to grow by an average of 4.3 percent each year, which means receipts will jump from 3.28 trillion this year to $4.99 trillion in 2026.

And since federal spending this year is estimated to be $3.87 trillion, we can make some simple calculation about the amount of fiscal discipline needed to balance the budget.

A spending freeze would balance the budget by 2020. But for those who want to let government grow at 2 percent annually (equal to CBO’s projection for inflation), the budget is balanced by 2024.

So here’s the choice in front of the American people. Either allow spending to grow on autopilot, which would mean a return to trillion dollar-plus deficits within eight years. Or limit spending so it grows at the rate of inflation, which would balance the budget in eight years.

Seems like an obvious choice.

By the way, when I crunched the CBO numbers back in 2010, they showed that it would take 10 years to balance the budget if federal spending grew 2 percent per year.

So why, today, can we balance the budget faster if spending grows 2 percent annually?

For the simple reason that all those fights earlier this decade about debt limits, government shutdowns, spending caps, and sequestration actually produced a meaningful victory for advocates of spending restraint. The net result of those budget battles was a five-year nominal spending freeze.

In other words, Congress actually out-performed my hopes and expectations (probably the only time in my life I will write that sentence).*

Here’s a video I narrated on this topic of spending restraint and fiscal balance back in 2010.

It’s Simple to Balance The Budget Without Higher Taxes

Everything I said back then is still true, other than simply adjusting the numbers to reflect a new forecast.

The bottom line is that modest spending restraint is all that’s needed to balance the budget.

That being said, I can’t resist pointing out that eliminating the deficit should not be our primary goal. It’s not good to have red ink, to be sure, but the more important goal should be to reduce the burden of federal spending.

That’s why I keep promoting my Golden Rule. If government grows slower than the private sector, that means the burden of spending (measured as a share of GDP) will decline over time.

And it’s why I’m a monomaniacal advocate of spending caps rather than a conventional balanced budget amendment. If you directly address the underlying disease of excessive government, you’ll automatically eliminate the symptom of government borrowing.

Which is why I very much enjoy sharing this chart whenever I’m debating one of my statist friends. It shows all the nations that have enjoyed great success with multi-year periods of spending restraint.

During these periods of fiscal responsibility, the burden of government falls as a share of economic output and deficits also decline as a share of GDP.

I then ask my leftist pals to show a similar table of countries that have gotten good results by raising taxes.

As you can imagine, that’s when there’s an uncomfortable silence in the room, perhaps because the European evidence very clearly shows that higher taxes lead to bigger government and more red ink (I also get a response of silence when I issue my challenge for statists to identify a single success story of big government).

*Congress has reverted to (bad) form, voting last year to weaken spending caps.

Today, Education Next released the results of its annual survey of public opinion on education policy. The 2016 results are somewhat disappointing for advocates of school choice because support for some types of choice programs has diminished over the last decade, particularly for voucher programs targeted to the poor. However, support for scholarship tax credit (STC) programs – once again, the most popular type of school choice program – has remained high and steady.

When asked whether they favored or opposed a proposal to offer a “tax credit for individuals and corporate donations that pay for scholarships to help low-income parents send their children to private schools,” 53 percent responded favorably while only 29 percent expressed opposition. Respondents were nearly evenly divided over universal vouchers, with 45 percent in support and 44 percent opposed. However, nearly half of respondents opposed targeted vouchers while only 37 percent supported them. Charter schools fared better, but many people don’t know what they are. When the survey asked about charter schools without defining what they are, nearly half of respondents were neutral. However, when the survey defined them as “publicly funded” schools that are “not managed by the local school board” that “are expected to meet promised objectives, but are exempt from many state regulations,” the amount of respondents who expressed no opinion dropped to 21 percent while support increased from 34 percent to 51 percent and opposition increased from 17 percent to 28 percent.

2016 Education Next survey results.

Unfortunately, once again the survey failed to ask about education savings accounts.

Support for STCs was even higher among parents (60 percent), African-Americans (64 percent), and Hispanics (62 percent). This is not surprising since minorities are more likely to be low-income and therefore choice deprived. Interestingly, support for STCs was higher among self-described Democrats (57 percent) than Republicans (49 percent), although the GOP has generally been more supportive of school choice than the Democratic Party. Democrats were also more likely to support both universal and targeted vouchers (49 and 42 percent, respectively) than Republicans (41 and 31 percent, respectively). 

Previous Education Next surveys also found that STCs garnered the highest amount of support from among the various school choice policies. Since 2009, support has increased from 46 percent to 53 percent, although it is down from a high of 60 percent in 2014. However, at 29 percent, opposition to STCs is also at its highest level since EdNext began including the question in their survey. Neverthess, there is a 24 percentage point advantage for those who favor STCs. (Note: EdNext did not ask about STCs in their 2013 survey.)

Education Next survey results, 2009-2016 

With the addition of South Dakota earlier this year, there are now 17 states that have 21 STC programs. Last year, more than 230,000 students used tax-credit scholarships to attend the private school of their choice, compared to about 150,000 students who used school vouchers and about 6,000 who used education savings accounts ESAs. Their high level of public support makes them the most politically viable form of school choice and because they are privately (rather than publicly) funded, they have a perfect record of being upheld as constitutional, making them the most constitutionally viable form of school choice yet devised as well.

Although ESAs have some advantages over both vouchers and traditional STC programs because they allow for greater customization, it is possible to combine the advantages of ESAs and STCs by privately funding the education savings accounts with the assistance of tax credits. For more information, see the report I coauthored with Jonathan Butcher of the Goldwater Institute and Arizona Justice Clint Bolick (then of Goldwater): “Taking Credit for Education: How to Fund Education Savings Accounts through Tax Credits.”

The EdNext survey also covered topics such as Common Core, testing, merit pay, tenure, teachers unions, blended learning, and more. You can find the full results along with ten-year trend data here.

Last week, a video of five-year-old Omran Daqneesh—a victim of a bombing by pro-government forces in Syria—went viral. In response, there was a fourfold increase in the number of Google searches for “Syrian refugee” overnight. Yet despite this outpouring of interest, there is nothing that individuals who want to save refugees by bringing them to the United States can do. This is why the United States needs private refugee sponsorship to harness Americans’ interest when it surges.

The old model of refugee resettlement relies entirely on the government. The president proposes a target sometime in the middle of the year for the next fiscal year and submits a budget to Congress requesting funds to implement the plan. Congress then holds hearings and passes appropriations bills to fund it. Finally, sometime in September, the president releases the final target. It is a top-down, inflexible process, unsuited for our age, where factors can change in seconds based on news 10,000 miles away.

Private refugee sponsorship can fill the defects in the current refugee program. Private sponsorship as it is used in Canada allows groups of individuals or philanthropic organizations to “sponsor” refugees for resettlement in the country, using private funds and private housing to cover the costs. The system is dynamic and provides an outlet for surges in public interest during humanitarian crises.

More than 10,000 Syrian refugees were resettled in three months earlier this year as a result of the sponsorship program in Canada. For context, that’s more than the United States promised to bring in throughout the whole year, and Canada is a tenth of America’s population. The catalyst for the Canadian surge was the tragic image of another Syrian child, Aylan Kurdi, a three year old boy whose body washed up on the shores of Greece in September after his vessel capsized.

Canadian businessman Jim Estill was one of those who responded to the Syrian crisis. He said that he “wasn’t finding that other organizations or government were doing things fast enough,” so he launched a sponsorship initiative to resettle 50 Syrian refugee families.

The government-controlled refugee system needs competition. The United States used to have a limited private sponsorship program from 1987 to 1993. It resettled 16,000 refugees from communism—8,000 Cubans and 8,000 Jews from the Soviet Union. The State Department called the initiative “highly successful.” The program was discontinued by the Clinton administration, citing a lack of need, but now is the perfect time for a relaunch.

The rest of the world is moving toward more privatized models of refugee resettlement. Following the United Nations’ call in 2014 for countries to create “privately sponsored admission schemes,” eight countries—Canada, Germany, Argentina, Australia, New Zealand, Ireland, Italy, and the United Kingdom—created various versions of private refugee sponsorship in 2016.

Private sponsorship would also improve the quality of resettlement. In 2007, the Canadian government compared the Canadian private program to its government-controlled counterpart and found that privately sponsored refugees outperformed those that were publicly sponsored. They had higher annual earnings, used far less welfare, and reported greater levels of satisfaction with their new lives in Canada.

Sponsors have personal and financial incentives to help refugees succeed whereas government bureaucrats do not. If refugees become self-sufficient, philanthropists can actually save money by getting refugees on their feet faster. There are no similar incentives for the government-run program.

The president can implement a privately funded refugee program with his existing authority under the Refugee Act of 1980, which requires him to consider available private funds before setting the refugee target. He can create a category of immigrants who are admitted only when private funds are available, and he can crowdfund resettlement by opening up an online platform for charitable giving.

The president has no reason to wait. Each day that passes there will be another Omran whose home is hit by a bomb and who is forced to flee or, even worse, more Aylans who die during their dangerous escape. Unleashing the private sector will help save lives before more are lost.

There are two versions of the fiscal theory of the price level (FTPL); one true, the other false.  The true version holds that if the fiscal authority dominates the policy space, then fiscal deficits could be monetized by the central bank. This version is consistent with the quantity theory of money, because inflation is ultimately determined by excess growth in the money supply.  If money growth were constant, inflation could not occur—that is, there could not be a sustained rise in the average level of money prices. In this sense, Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” cannot be refuted (Friedman 1970: 11).

The second version of the FTPL, the so-called strong version, holds that even if the money supply is held constant, inflation can occur if the fiscal authority is passive.[1] All that is needed is for the public to expect prices to rise. People will then spend their given money balances at a faster rate — increasing the velocity of money — and prices will rise until expectations change. If the fiscal authority is passive, velocity can explode, producing hyperinflation (see McCallum and Nelson 2005). This feature of the strong version is referred to as “speculative inflation” and is independent of monetary policy (Tutino and Zarazaga 2014: 3). The strong version also implies that fiscal action—not monetary reform—is the primary tool for ending a hyperinflation. This version of the FTPL is false: it ignores historical evidence that shows the determining factor in generating hyperinflations is explosive growth in the money supply (or the expectation that such growth will occur); and it fails to recognize that stabilization  results from credible monetary reform.[2]

Expectations about future inflation don’t appear like manna from heaven — businesses and households know that excess money growth causes inflation. They also know that large unfunded government liabilities and budget deficits risk having the central bank monetize debt. Although the strong version of the FTPL assumes away that possibility, history does not.

One notable example is the German hyperinflation of 1921–23, and the rapid stabilization that ended runaway inflation. We will see that it was monetary policy not fiscal policy that enabled the rapid rise in the price level and abruptly ended it.

In their essay, “Inflation Is Not Always and Everywhere a Monetary Phenomenon,” Antonella Tutino and Carlos E. J. M. Zarazaga (2014) use the strong version of the FTPL, as proposed by Christopher Sims (1994), to explain the German experience. They argue that fiscal policy can explain both the hyperinflation and the stabilization of the German currency: it was the passivity of the fiscal authority that ushered in the hyperinflation, while activist fiscal policy ended the inflation. Let us see why they are wrong and why Friedman’s dictum still holds.

The key point that Tutino and Zarazaga (hereafter, TZ) make is that “hyperinflation is fiscal in nature because it can only happen if the fiscal authority—the central government — remains on the sidelines” (p.3). When the government did intervene by introducing the rentenmark, a new currency backed by real estate, prices stabilized, according to TZ, because “the government’s ability to raise revenues from the real estate market … successfully broke the link between mutually reinforcing lower fiscal revenues — implying higher fiscal deficits — and rising price levels” (pp. 3–4).[3]

The problem with TZ’s argument is that the introduction of the rentenmark was not fiscal policy; it was monetary reform. Furthermore, the mortgage-backing of the rentenmark was not sufficient to change expectations of further inflation, but it did help the public accept the new currency. Expectations changed because the public knew there was a legal limit on the total value of rentenmarks that could be issued by the Rentenbank, which was under the jurisdiction of the Reichsbank (the central bank). The backing of the currency by real estate was not relevant for stabilizing prices. There was no official convertibility between the inflated paper marks and the rentenmark, and the latter was not legal tender. The rentenmark was a parallel currency, added to the circulation of existing paper marks.[4]

It is true that 500 rentenmarks could be converted into a bond with a nominal value of 500 gold marks, “which was guaranteed by a legal mortgage on German property and which yielded a rate of interest at 5 percent in gold (actually payable in paper at the exchange rate of the gold mark),” but as Bresciani-Turroni (p. 340) points out, “the stability of the value of the rentenmark could not be due to the possibility of converting the latter into mortgage securities.” The reason is simple:

The market value of the mortgage bonds was lower than the nominal value. The market rate of interest was then much higher than 5 percent… . Besides, the increase of the issues of rentenmarks would continually add to the Government’s burden on interest on mortgage bonds, for which the public would exchange increasing quantities of rentenmarks; and therefore, in a precarious financial position, the uncertainty of the Government being able to continue the payment of interest would increase [ibid.].

Bresciani-Turroni tells us that confidence in the rentenmark was buoyed by the fact that it was a new currency and the public “believed in the efficacy of the mortgage guarantee.” But that confidence “would have been quickly dissipated if the public had been led to expect that, despite the obligation imposed on the rentenbank by decree, the Government would exceed the pre-arranged limit to the issues” (p. 348). It was the limitation on the quantity of money — not the expected revenue from the mortgage securities—that was an important factor in stabilizing the value of money.[5]

It is also noteworthy that the public’s confidence in the rentenmark currency was reinforced by the “constant-value clause,” which obligated those who took out loans from the Rentenbank to repay their debts in the same quantity of gold marks as represented in the original loan. That clause was intended to prevent the speculation that occurred during the hyperinflation when businesses and others took out bank loans in nominal paper marks but repaid them using greatly depreciated marks, thus giving speculators a strong incentive to support runaway inflation (Bresciani-Turroni 1953: 353).

The rentenmark did not begin to circulate until November 16, 1923, and was added to the existing stock of paper marks, which were still the only legal tender. At the same time, the Reichsbank stopped monetizing government debt by ending the discounting of Treasury bills. Bresciani-Turroni (p. 337) calls that monetary reform “a fact of fundamental importance” — yet it too is ignored by TZ.

Even though newly created paper marks could not be used to finance government profligacy, the central bank continued to supply marks for commercial uses. Between November 16, 1923, and November 30, the amount of paper marks in circulation increased from 93 trillion to more than 400 trillion, and reached 1,211 trillion by July 31, 1924. Meanwhile, the quantity of rentenmarks went from 501 million on November 30, 1923, to 1,803 million on July 31, 1924. Consequently, “the stabilization of the German exchange was not obtained by means of contraction, or even by a stoppage of the expansion of the circulation of legal currency” (ibid.).

Most notably, and in contrast to the FTPL as stated by TZ, “The exchange was stabilized before there existed the conditions (above all the equilibrium of the Reich Budget) which alone could assure a lasting recovery of the monetary situation” (Bresciani-Turroni, p. 355).

Germany faced hyperinflation because the Weimar leaders chose to finance World War I reparations and other spending by money creation — rather than cut spending and increase taxes — and to reduce the real value of public debt. Once the monetary printing presses started rolling, it was hard to stop them. Moreover, the Reichsbank was under the influence of the real bills doctrine and met all demands for credit with newly minted paper marks, believing that inflation was unlikely if the bank only discounted short-term bills that reflected real output (Nurkse 1946: 16–17).[6] The problem is that bank credit is expressed in nominal terms. Thus, as prices rose because of rapid money growth, the demand for credit increased and businesses repaid debts in depreciated currency.

What Bresciani-Turroni teaches us is that models like the strong version of FTPL are not sufficient to inform us of the forces that underlie hyperinflation and stabilization. A close study of the policy actions taken in Weimar Germany shows that inflationary expectations are grounded in the credibility of central banks, as well as fiscal authorities. The competing theory that “explosive expectations” can generate runaway inflation without any change in the money supply cannot be supported by the experience of the German hyperinflation. Likewise, there is no evidence to support TZ’s claim that the hyperinflation was ended by fiscal action — that is, backing the rentenmark by real estate revenues. Rather, it was ended by fundamental monetary reform and a credible commitment to return to price stability as well as fiscal fortitude.

German monetary experts, writing in the Dawes Report, viewed the “liquid cover” for the rentenmark as “insufficient to guarantee a permanent [monetary] system.” They argued for the removal of the rentenmark and the introduction of a convertible currency. Their proposal was accepted with the passage of the monetary law of August 30, 1924, which made the reichsmark the new legal tender (Bresciani-Turroni, p. 338). When the monetary law became effective on October 11, 1924,  the Reichsbank abolished the constant-value clause, which was deemed unnecessary as the paper mark was now convertible into the reichsmark at an exchange rate of 1 reichsmark = 1 billion paper marks (1 billion = 1,000,0002), and the rentenmark was convertible into the new currency at a rate of 1 to 1. On June 5, 1925, the legal tender status of the old paper mark ended and it was taken out of circulation (Bresciani-Turroni 1953: 353–54).[7]

In conclusion, one must agree with Willem Buiter (2002: 459) when he says that the FTPL model, in its strong version, “is fatally flawed”—it “has feet of clay.” More telling, by arguing that “inflation is not always and everywhere a monetary phenomenon,” Tutino and Zarazaga undermine the responsibility of central banks to maintain the long-run value of fiat money, which increases the danger of inflation.

__________________________

References

[1] For a more formal discussion of the weak and strong versions of the FTPL, see Carlstrom and Fuerst (2000).

[2] By assuming that the money supply is constant, and there is no opportunity for excess money growth by the central bank, the strong version of the FTPL sets up a strawman. It by-passes the dynamic theory of money (also known as “the theory of monetary disequilibrium”), which holds that large increases in the quantity of money relative to the trend rate of real output depreciate the value of money and lead to a subsequent rise in the velocity of money, accentuating the rise in prices and further reducing the real money stock (see Warburton 1966: 4–5). This inflationary spiral will continue until the monetary authority changes expectations by adopting fundamental reform that ends excessive money creation.

[3] The rentenmark was introduced by the decree of October 15, 1923, and began circulating on November 15.

[4] See Bresciani-Turroni ([1931] 1953: 334–37).

[5] The government tried to circumvent the legal limit on the issuance of rentenmarks in December 1923, but “was confronted by a determined refusal by the management of the Rentenbank.” That episode “helped to strengthen confidence in the new money. The limitation of the quantity was then of primary and fundamental importance” ( Bresciani-Turroni, p. 348).

[6] Humphrey (1980) carefully lays out the major fallacies that misguided monetary policymakers, blindsiding them to the dangers of excess money growth, and points to the significance of monetary reform in quickly stabilizing the value of the German currency.

[7] The reichsmark had a fixed gold content but was not convertible into gold until April 1930, at the discretion of the Reichsbank (Bresciani-Turroni 1953: 354).

Bresciani-Turroni, C. ([1931] 1953) The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany, 1914–1923.  Foreword by L. Robbins; translated by M. E. Savers.  London: George Allen and Unwin.

Buiter, W. H. (2002) “The Fiscal Theory of the Price Level: A Critique.”  The Economic Journal 112 (July): 459–80.

Carlstrom, C. T., and Fuerst, T. S. (2000) “The Fiscal Theory of the Price Level.” Federal Reserve Bank of Cleveland Economic Review 36 (1): 22–32.

Friedman, M. (1970) “The Counter-Revolution in Monetary Theory.”  IEA Occasional Paper No. 33. London: Institute of Economic Affairs.

Humphrey, T. M. (1980) “Eliminating Runaway Inflation: Lessons from the German Hyperinflation.” Federal Reserve Bank of Richmond Economic Review (July/August):  3–7.

McCallum, B. T., and Nelson, E. (2005) “Monetary and Fiscal Theories of the Price Level: The Irreconcilable Differences.” Oxford Review of Economic Policy 21 (4): 565–83.

Nurkse, R. (1946) The Course and Control of Inflation: A Review of Monetary Experience in Europe After World War I. Geneva: League of Nations. (Nurkse wrote Part 1 of this report.)

Sims, C. A. (1994) “A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy.” Economic Theory 4 (3): 381–99.

Tutino, A., and Zarazaga, C. (2014) “Inflation Is Not Always and Everywhere a Monetary Phenomenon.” Federal Reserve Bank of Dallas Economic Letter 9 (6): 1–4.

Warburton, C. (1966) Depression, Inflation, and Monetary Policy: Selected Papers, 1945–1953.  Baltimore: The Johns Hopkins Press.

[Cross-posted from Alt-M.org]

I wrote a piece last week for Reason on how the Gary Johnson and Bill Weld campaign seems to be staking out a position I called libertarian centrism – offering classical liberalism as a calm middle path between the spite and faction of left and right. Several polls find Johnson and Weld drawing support about evenly from Hillary Clinton and Donald Trump, in contrast to the expectation in some quarters that as former Republican governors they’d tap more into a GOP voter base. An Economist/YouGov poll (see p. 16) found that Johnson was drawing better numbers from self-identified moderate voters (at 11 percent) than from self-identified conservatives (at 7 percent). In recent weeks, even as the Libertarian Party candidates have met with a mostly frosty reception among big-name conservative politicos, they’ve been spoken of favorably by a number of moderate or pragmatist Republicans, including Mitt Romney, Jeb Bush, and most recently Maine Senator Susan Collins. 

For more on why centrists might like the Libertarian ticket, go read that piece. Brian Doherty, also at Reason, has been looking at a related issue: why have conservatives thus far proved so cool toward Johnson and Weld? Is it the ticket’s scattered, undeniable lapses from ideological correctness? Or its utter refusal to engage in the expected team signaling?

Ask strong conservatives what rankles most about the Johnson/Weld ticket, and you’ll almost certainly hear about how they’re no better than Hillary Clinton on the cake-baking issue – should anti-discrimination law explicitly include exemptions for religious conscience? – and probably also the gun issue, where Weld (though not Johnson) still sometimes shows his Massachusetts roots. 

On both of these issues, I’m in much the same position as Brian Doherty. I wish Johnson could outline a critique of private anti-discrimination laws and was better disposed toward religious-conscience exemptions to them, and I wish Bill Weld were more up to speed about gun issues and more appreciative of how firearms regulation tends to backfire. Still, their positions would not leave them wildly out of step even among median Republican voters, let alone independents. Johnson’s position that the law can properly make a merchant sell you a cake from a display shelf, but not decorate it for you, looks like a fairly standard Republican-governor position at this point in American history. Weld’s melange of views on guns – in his opinion, the Supreme Court was right to recognize an individual right to bear arms in Heller, but he hasn’t abandoned his interest in so-called reasonable regulation consistent with that – is not so far from that expressed by Justice Antonin Scalia, except that while Scalia is remembered for saying “A, but also B,” Weld comes off more as “B, but also A.”

The atmospherics, however, are unmistakable. However strong and principled they may be on spending, taxes, regulation, school choice, subsidies, or a hundred other issues where conservatives and libertarians often see eye to eye, Johnson and Weld keep going out of their way to flip off the organized conservative movement and send it the message: We’re not on your team. And this year, above others, should teach us that team loyalty, group touchiness, and friend-foe identification are powerful forces in politics. 

Someone is responding to the message, or else the polls for Johnson and Weld would not be creeping upward in many polls, past 8 and 9 to 10 and 11 percent, toward the magic 15 percent mark. That someone doesn’t yet include organized conservatives. But there’s still time for them to take a second look.

If you get into the weeds of tax policy and had a contest for parts of the internal revenue code that are “boring but important,” depreciation would be at the top of the list. After all, how many people want to learn about America’s Byzantine system that imposes a discriminatory tax penalty on new investment? Yes, it’s a self-destructive policy that imposes a lot of economic damage, but even I’ll admit it’s not a riveting topic (though I tried to link it to popular culture by using ABBA as an example).

In second place would be a policy called “deferral,” which deals with a part of the law that allows companies to delay an extra layer of tax that the IRS imposes on income that is earned - and already subject to tax - in other countries. It is “boring but important” because it has major implications on the ability of American-domiciled firms to compete for market share overseas.

Here’s a video that explains the issue, though feel free to skip it and continue reading if you already are familiar with how the law works.

The simple way to think of this eye-glazing topic is that “deferral” is a good policy that partially mitigates the impact of a bad policy known as “worldwide taxation.”

Unfortunately, good policy tends to be unpopular in Washington. This is why deferral (and related issues such as inversions, which occur for the simple reason that worldwide taxation creates a huge competitive disadvantage for U.S.-domiciled companies) is playing an unusually large role in the 2016 election and concomitant tax debates.

Consider the tax controversy involving Apple. The CEO does not want to surrender money that belongs to shareholders to the government.

Apple CEO Tim Cook struck back at critics of the iPhone maker’s strategy to avoid paying U.S. taxes, telling The Washington Post in a wide ranging interview that the company would not bring that money back from abroad unless there was a “fair rate.”

Since the discussion is about income that Apple has earned in other nations (and therefore about income that already has been subject to all applicable taxes in other nations), the only “fair rate” from the United States is zero.

That’s because good tax systems are based on “territorial taxation” rather than “worldwide taxation.”

Though a worldwide tax system might not impose that much damage if a nation had a low corporate tax rate.

Unfortunately, that’s not a good description of the U.S. system, which has a very high rate, thus creating a big incentive to hold money overseas to avoid having to pay a very hefty second layer of tax to the IRS on income that already has been subject to tax by foreign governments.

Along with other multinational companies, the tech giant has been subject to criticism over a tax strategy that allows them to shelter profits made abroad from the U.S. corporate tax rate, which at 35 percent is among the highest in the developed world.

“Among”? I don’t know if this is a sign of bias or ignorance on the part of CNBC, but the U.S. unquestionably has the highest corporate tax rate among developed nations.

Indeed, it might even be the highest in the entire world.

Anyhow, Mr. Cook points out that there’s nothing patriotic about needlessly paying extra tax to the IRS, especially when it would mean a very punitive tax rate.

…a few particularly strident critics have lambasted Apple as a tax dodger. …While some proponents of the higher U.S. tax rate say it’s unpatriotic for companies to practice inversions or shelter income, Cook hit back at the suggestion. “It is the current tax law. It’s not a matter of being patriotic or not patriotic,” Cook told The Post in a lengthy sit-down. “It doesn’t go that the more you pay, the more patriotic you are.” …Cook added that “when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it.”

Cook may be right that there’s “no debate” about whether it’s sensible for a company to keep money overseas to guard against bad tax policy.

But there is a debate about whether politicians will make the law worse in a grab for more revenue.

Senator Ron Wyden (D-OR), for instance, doesn’t understand the issue. He wrote an editorial asserting that Apple is engaging in a “rip-off.”

…the heart of this mess is the big dog of tax rip-offs – tax deferral. This is the rule that encourages American multinational corporations to keep their profits overseas instead of investing them here at home, and it does so by granting them $80 billion a year in tax breaks. This policy…defies common sense. …some of the most profitable companies in the world can put off paying taxes indefinitely while hardworking Americans must pay their taxes every year. …that system creates a perverse incentive to keep corporate profits overseas instead of investing here at home.

I agree with the senator that the current system creates a perverse incentive to keep money abroad. But you don’t solve that problem by imposing unconstrained worldwide taxation, which would create a perverse incentive structure that discourages American-domiciled firms from competing for market share in other nations.

Amazingly, Senator Wyden actually claims that making the system more punitive would help make America a better place to do business.

…ending deferral is a necessary step in making sure…the U.S. maintains its position as the best place to do business.

Wow, this rivals some of the crazy things that Barack Obama and Hillary Clinton have said.

Though I guess we need to give Wyden credit for honesty. He admits that what he really wants is for Washington to have more money to spend.

Ending deferral will also generate money from existing deferred taxes to pay for rebuilding our country’s crumbling infrastructure. …This is a priority that almost all tax reform proposals have called for.

By the way, can you guess which presidential candidate agrees with Senator Wyden and wants to impose full and immediate worldwide taxation?

If you answered Hillary Clinton, you’re right. But if you answered Donald Trump, that also would be a correct answer.

This is a grim example of why I refer to them as the Tweedledee and Tweedledum of statism.

Though to be fair, Trump’s plan at least contains a big reduction in the corporate tax rate, which would substantially reduce the negative impact of a worldwide tax system.

The Wall Street Journal opines on the issue and is especially unimpressed by Hillary Clinton’s irresponsible approach on the issue.

Mrs. Clinton is targeting so-called inversions, where U.S.-based companies move their headquarters by buying an overseas competitor, as well as foreign takeovers of U.S. firms for tax considerations. These migrations are the result of a U.S. corporate-tax code that supplies incentives to migrate… The Democrat would impose what she calls an “exit tax” on businesses that relocate outside the U.S., which is the sort of thing banana republics impose when their economies sour. …Mrs. Clinton wants to build a tax wall to stop Americans from escaping. “If they want to go,” she threatened in Michigan, “they’re going to have to pay to go.”

Ugh, making companies “pay to go” is an unseemly sentiment. Sort of what you might expect from a place like Venezuela where politicians treat private firms as a source of loot for their cronies.

The WSJ correctly points out that the problem is America’s anti-competitive worldwide tax regime, combined with a punitive corporate tax rate.

…the U.S. taxes residents—businesses and individuals—on their world-wide income, not merely the income that they earned in the U.S. …the U.S. taxes companies headquartered in the U.S. far more than companies based in other countries. Thirty-one of the 34 OECD countries have cut corporate taxes since 2000, leaving the U.S. with the highest rate in the industrialized world. The U.S. system of world-wide taxation means that a company that moves from Dublin, Ohio, to Dublin, Ireland, will pay a rate that is less than a third of America’s. A dollar of profit earned on the Emerald Isle by an Irish-based company becomes 87.5 cents after taxes, which it can then invest in Ireland or the U.S. or somewhere else. But if the company stays in Ohio and makes the same buck in Ireland, the after-tax return drops to 65 cents or less if the money is invested in America.

In other words, the problem is obvious and the solution is obvious.

But there are too many Barack Obamas and Elizabeth Warrens in Washington, so it’s more likely that policy will move in the wrong direction.

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