Archives: July, 2009

Half for the Government

The Democrat’s latest plan to raise money for federal health care expansion is to impose surtaxes ranging from 1 percent to 3 percent on higher-income earners.

Currently, the United States is in the middle of the pack of industrial nations when it comes to imposing punitive tax rates on higher earners. The chart shows the top statutory personal income tax rates for the 30 nations in the Organization for Economic Cooperation and Development. The current top U.S. rate is 42 percent (including state taxes), which is the same as the 30-nation average. The data is from the OECD.

With the top federal rate scheduled to jump 5 percentage points in 2011, plus the new 3-percent surtax, the top U.S. rate would hit 50 percent. Fifty percent! Half of all additional income earned by the nation’s most productive workers and entrepreneurs would be confiscated by the government. America’s 50 percent tax rate would be tied with three other nations and would be topped only by the Netherlands, Belgium, Sweden, and Denmark.

Even as America’s Troops Leave Iraq, the Waste Goes On

The U.S. government has been providing so-called foreign aid for decades, but the waste never stops.  So it is in Iraq.

Reports Stars & Stripes:

Provincial reconstruction teams in Iraq are scrambling to submit a large number of multimillion-dollar aid project proposals by July 15, something critics suggest will result in a rash of big construction projects they were never intended to run.

Further, they say, big-budget projects are being put forward too quickly, are too ambitious given the scheduled 2011 withdrawal from Iraq and are crowding out simpler schemes.

“Our goal is not necessarily to help [Iraqis] with building projects,” said Rick Gohde, an engineer with the Diwaniyah provincial reconstruction team, known as PRT. “We are supposed to be beyond that. We are supposed to be training them to sustain themselves as we are getting ready to leave.”

Capt. Doug Weaver, 28, a civil affairs soldier who acts as a liaison between the military and the Diwaniyah PRT, said Monday that close to $600 million of military aid funding was made available to the PRTs last month countrywide through the Commanders Emergency Relief Program, or CERP. The funds, made available by Congress, are only available through September 30 and the deadline for project proposals exceeding $1 million is next Wednesday, officials said.

Weaver, who studied industrial engineering before he deployed, identified numerous big projects in Diwaniyah vying for CERP funds, including new electrical substations ($1 million to $1.5 million), city sewers ($750,000 to $1.25 million), an agricultural school dormitory ($1.2 million), women’s centers to provide job training for divorcees and widows ($2 million), vocational schools ($500,000 each) and upgrades to Iraqi government communications networks.

Iraqi contractors will bid for the construction work, which is expected to employ more than 1,000 local laborers in Diwaniyah alone.

But Gohde said the PRTs are not supposed to be involved in the sort of “bricks and mortar” construction that most of the big budget projects involve.

In southern Afghanistan, construction projects supported by foreign aid, such as schools and medical clinics, stand as empty shells because Taliban militants have frightened students and patients away.

“There’s been some of that in this country,” Gohde said. “I’ve heard of schools being built with no furniture or teachers. There are projects that are constructed with the best of intentions that are not utilized in the original intent or utilized at all,” he said.

Oh, well.  It’s only money, as they say.   And with Uncle Sam running a roughly $2 trillion deficit this year, what’s a few wasted millions (or even hundreds of millions) among friends?  I’m sure next time the government will get it right!

Drivers Use Technology to Fight Snooping by Greedy Government

The Washington Examiner has an encouraging story about how citizens are using high-tech to thwart the speed cameras used by greedy politicians to generate more tax revenue. The bureaucrats assert the cameras are about saving lives, but allow a personal observation to illustrate the gross dishonesty of the government. I have been nailed twice by speed cameras in DC, once on an interstate highway where the speed limit mysteriously dropped to 45 miles-per-hour, and the other time on a major artery with three lanes each direction that inexplicably had a 25 miles-per-hour limit. Needless to say (but I’ll say it anyhow), these speed traps had nothing to do with promoting safety and everything to do with steering more cash to the political class:

Area drivers looking to outwit police speed traps and traffic cameras are using an iPhone application and other global positioning system devices that pinpoint the location of the cameras. That has irked D.C. police chief Cathy Lanier, who promised her officers would pick up their game to counteract the devices… Lanier said the technology is a “cowardly tactic” and “people who overly rely on those and break the law anyway are going to get caught” in one way or another. The greater D.C. area has 290 red-light and speed cameras – comprising nearly 10 percent of all traffic cameras in the U.S., according to estimates by a camera-tracking database called the POI Factory. …Photo radar tickets generated nearly $1 billion in revenues for D.C. during fiscal years 2005 to 2008.

Why Promiscuous Bail-Outs Never Was a Good Idea

Jeffrey A. Miron explains in Reason why a government bail-out of most everyone was neither the only option nor the best option:

When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it’s important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone’s mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.

By doing nothing, I mean we could have done nothing new. Existing policies were available, which means bankruptcy or, in the case of banks, Federal Deposit Insurance Corporation receivership. Some sort of orderly, temporary control of a failing institution for the purpose of either selling off the assets and liquidating them, or, preferably, zeroing out the equity holders, giving the creditors a haircut and making them the new equity holders. Similarly, a bankruptcy or receivership proceeding might sell the institution to some player in the private sector willing to own it for some price.

With that method, taxpayer funds are generally unneeded, or at least needed to a much smaller extent than with the bailout approach. In weighing bankruptcy vs. bailouts, it’s useful to look at the problem from three perspectives: in terms of income distribution, long-run efficiency, and short-term efficiency.

From the distributional perspective, the choice is a no-brainer. Bailouts took money from the taxpayers and gave it to banks that willingly, knowingly, and repeatedly took huge amounts of risk, hoping they’d get bailed out by everyone else. It clearly was an unfair transfer of funds. Under bankruptcy, on the other hand, the people who take most or even all of the loss are the equity holders and creditors of these institutions. This is appropriate, because these are the stakeholders who win on the upside when there’s money to be made. Distributionally, we clearly did the wrong thing.

It’s too late to reverse history.  But it would help if Washington politicians stopped plotting new bail-outs.  At this stage, most every American could argue that they are entitled to a bail-out because most every other American has already received one.

The Best Way to Get a Kidney (or Heart, Lung, Liver…)

An op-ed in today’s NYT describes the abysmal organ tranplant situation in the United States, where the demand for healthy organs vastly outstrips the supply. A snippet :

There are 85,000 people biding their time [awaiting kidney transplant]… More than 4,500 of them died last year waiting. On average, that’s 13 people dying each day awaiting a kidney. (Maybe you should hope for liver disease: there are only about 16,000 people on the liver waiting list, and one-third of them get their liver in any one year.)

The column’s author is Daniel Asa Rose, whose new book Larry’s Kidney describes his cousin’s travel to China to receive a transplant (skirting Chinese law).

Rose argues the United States can resolve the transplant organ shortage by adopting three policies:

[B]etter finance stem-cell research so we can start simply growing kidneys; build better mechanical organs; and change the presumed consent option so that people would have to opt out of donating organs rather than opt in.

The first two proposals, unfortunately, are more wishful thinking than serious policy, at least in the near term. Decades of attempts at robotic organs have yielded very disappointing results, and the many advances that we’re promised from stem cell research seem to be many years in the offing. If the United States is to save the lives of most of the people now on organ transplant lists, or who will join the lists in the next decade, it will be because of a dramatic increase in organ transplantation.

One way to accomplish this increase is to adopt Rose’s third policy — hospitals would harvest organs from the recently deceased unless the deceased has explicitly refused to make his organs available for donation. As the op-ed notes, several countries around the world already have this policy.

But this policy should trouble people who care about civil liberties. Should a person have to explicitly state on a legal document that he wants his body to be kept intact after his death? And even if the person has done so, what if the hospital (perhaps conveniently) cannot find the deceased’s documents?

Fortunately, there is an intermediate policy that would be much more respectful to the deceased and to civil liberties, would be easy to implement, would dramatically increase the supply of organs, and would have little cost relative to the other costs of transplantation: Incentivize people to volunteer to be organ donors — perhaps by granting a tax credit to their estate or covering their funeral expenses if, upon their passing, a healthy organ is harvested for transplantation. 

Unfortunately, this policy is prohibited by the 1984 National Organ Transplant Act, a law that has cost more U.S. lives than were lost in the Korean and Vietnam wars combined. And this policy is opposed by many bioethicists despite clear empirical evidence that the policy would significantly reduce pain and suffering — which says more about the sorry condition of contemporary applied ethics than about the idea of rewarding organ donors.

Cato has done considerable work advocating this idea. For some examples besides the articles linked in the above paragraph, see this video and these papers.

Week in Review: Stimulus, Sarah Palin and a Political Conflict in Honduras

Obama Considering Another Round of Stimulus

With unemployment continuing to climb and the economy struggling along, some lawmakers and pundits are raising the possibility of a second stimulus package at some point in the future. The Cato Institute was strongly opposed to the $787 billion package passed earlier this year, and would oppose additional stimulus packages on the same grounds.

“Once government expands beyond the level of providing core public goods such as the rule of law, there tends to be an inverse relationship between the size of government and economic growth,” argues Cato scholar Daniel J. Mitchell. “Doing more of a bad thing is not a recipe for growth.”

Mitchell narrated a video in January that punctures the myth that bigger government “stimulates” the economy. In short, the stimulus, and all big-spending programs are good for government, but will have negative effects on the economy.

Writing in Forbes, Cato scholar Alan Reynolds weighs in on the failures of stimulus packages at home and abroad:

In reality, the so-called stimulus package was actually just a deferred tax increase of $787 billion plus interest.

Whether we are talking about India, Japan or the U.S., all such unaffordable spending packages have repeatedly been shown to be effective only in severely depressing the value of stocks and bonds (private wealth). To call that result a “stimulus” is semantic double talk, and would be merely silly were it not so dangerous.

In case you’re keeping score, Cato scholars have opposed government spending to boost the economy without regard to the party in power.

For more of Cato’s research on government spending, visit Cato.org/FiscalReality.

Sarah Palin Resigns as Governor of Alaska

Alaska Governor Sarah Palin resigned from office last week with 18 months left in her term, setting off weeklong speculation by pundits.

Cato Vice President Gene Healy comments:

Palin’s future remains uncertain, but it’s hard to see how her cryptic and poorly drafted resignation speech positions her for a presidential run. Nonetheless, her departure presents a good opportunity to reflect on the Right’s affinity for presidential contenders who - how to put this? - don’t exactly overwhelm you with their intellectual depth.

It’s one thing to reject liberal elitism. It’s another thing to become so consumed with annoying liberals that you cleave to anyone they mock, and make presidential virtues out of shallow policy knowledge and lack of intellectual curiosity.

Writing at Politico, Cato scholars David Boaz and Roger Pilon weigh in on what her resignation means for the former Vice-Presidential candidate’s political future:

Boaz:

Will we one day say that her presidency was ‘born on the Fourth of July’? I doubt it. This appears to be just the latest evidence that Sarah Palin is not ready for prime time. The day McCain chose her, I compared her unfavorably to Mark Sanford. Despite everything, I’d still stand by that analysis. At the time I noted that devout conservative Ramesh Ponnuru said ‘Palin has been governor for about two minutes.’ Now it’s three minutes.

Running for president after a single term as governor is a gamble. Running after quitting in the middle of your first term is something else again. If this is indeed a political move to clear the decks for a national campaign, then she needs adult supervision soon. But I can’t really believe that’s what’s going on here. I suspect we’re going to hear soon about a yet-unknown scandal that was about to make continuing in office untenable.

Pilon:

It seems that since her return to the state following the campaign, activist opponents and bloggers have bombarded the governor’s office with endless document requests. And she’s faced 16 ethics inquiries, with no end in sight. All but one have since been resolved, but the politics of personal destruction has cost the state millions, as Palin noted. Add to that the unrelenting, often vicious and gratuitous attacks on her and even on her family, and it’s no wonder that she would say ‘Enough.’ It has nothing to do with ‘quitting’ or with being ‘unable to take the heat.’ It has everything to do with stepping back and saying you’re not willing to put your family and your state through any more. She seems confident that history will judge her more thoughtless critics for what they are. I hope she’s right.

Honduras’ President Is Removed from Office

In reaction to Honduran President Manuel Zelaya’s attempt to stay in power despite term limits set by the nation’s Constitution, armed forces removed him, sending the Latin American nation into political turmoil.

Juan Carlos Hidalgo, an expert on Latin American affairs, comments:

The removal from office of Zelaya on Sunday by the armed forces is the result of his continuous attempts to promote a referendum that would allow for his reelection, a move that had been declared illegal by the Supreme Court and the Electoral Tribunal and condemned by the Honduran Congress and the attorney general. Unfortunately, the Honduran constitution does not provide an effective civilian mechanism for removing a president from office after repeated violations of the law, such as impeachment in the U.S. Constitution. Nonetheless, the armed forces acted under the order of the country’s Supreme Court, and the presidency has been promptly bestowed on the civilian figure — the president of Congress — specified by the constitution.

To be sure, Hidalgo writes, the military action in Honduras was not a coup:

What happened in Honduras on June 28 was not a military coup. It was the constitutional removal of a president who abused his powers and tried to subvert the country’s democratic institutions in order to stay in office.

The extent to which this episode has been misreported is truly remarkable.

How California’s Schools Brought the State to its Financial Knees

As we watch California struggle with a budget deficit larger than the entire Iranian government’s budget, it’s worth exploring how the state got there. The biggest contributing factor: a staggering collapse in educational productivity.

In 1974-75, California spent $1,373 per pupil on k-12 public schooling. By 2006-07, it was spending $10,937. Adjusting the earlier figure for inflation (to $5,286 in 2007 dollars), that still represents a more than doubling in real spending per pupil.

Of course, if California public schools had doubled student achievement and eliminated dropouts, that might justify their staggering increase in cost. They haven’t.  On the most reliable available measure of state academic achievement trends, the NAEP, California public school students have seen their scores go up by about 0.2% per year at the 4th and 8th grades since state-level data became available in 1990.  In other words, the state’s scores have barely budged from the low position they have long occupied. As a 2005 RAND paper observes:

California placed 48th out of 50 states on the average NAEP score across all tests, just above Louisiana and Mississippi… California’s low scores cannot be accounted for by the high percentage of minority students. California’s scores for students from families with similar characteristics are the lowest in the nation: It ranks 47th out of 47 states when we compare scores for these students.

California is in budgetary hell because of a massive collapse in the productivity of its public schools. If the public schools had just maintained the productivity level they enjoyed in 1974-75, taxpayers would now be saving $36 billion annually. That’s $10 billion more than the deficit the state is currently facing.

It’s not hard to understand why: public schooling is a monopoly. There is no field within the free enterprise sector of the economy that has had a similarly horrendous productivity collapse over the past 35 years.

California can work its way back to fiscal sanity, and jump-start educational improvement, by encouraging entrepreneurship in education via k-12 education tax credits like this one.