Archives: March, 2010

Taxpayer Choice + Parental Choice = Education Reform That’s Constitutional

Arizona grants income tax credits for contributions made to school tuition organizations (“STO”).  These STOs must these donations for scholarships that allow students to attend private schools.  This statutory scheme broadens the educational opportunities for thousands of students by enabling them to attend schools they would otherwise lack the means to attend. 

The Ninth Circuit held that the tax credit program violated the Establishment Clause because many of the STOs – as it happens, a decreasing majority – provide scholarships for students to attend parochial schools.  Counsel for the defendants, including the Institute for Justice, asked the Supreme Court to review the case – and indeed to summarily reverse the Ninth Circuit, based in part on a 2002 case (Zelman v. Simmons-Harris) rejecting a similar challenge to a school voucher program.  Cato filed a brief, joined by the Foundation for Educational Choice and the American Federation for Children, supporting this request. 

Our brief argues that the funds received by STOs are the product of individual taxpayers’ “genuine and independent choice” – the touchstone by which the Court judges the religious neutrality of statutes allowing for taxpayer money to fund religious education.  Moreover, the tax credit scheme is indistinguishable from similar charitable tax deduction programs that the Court has previously held to pass constitutional muster.  While the Ninth Circuit reasoned that Arizona parents feel pressured to send their kids to parochial schools due to limited scholarships available for secular schools, it failed to consider that the share of STO money available to secular schools was nearly twice as large as the share of families choosing to send their children to secular schools. 

Far from being an impediment to parental freedom, the autonomy Arizona grants to taxpayers and STOs is ultimately essential to it.  More generally, should the lower court’s opinion be allowed to stand, the progress made to broaden the educational opportunities of students across the country will be stifled. 

The name of the case is Arizona Christian School Tuition Organization v. Winn.  The Court will likely decide before it breaks for the summer whether to take it up – and, indeed, whether to summarily reverse the Ninth Circuit.

Trade Gap Plunges in 2009, but Where Are the Jobs?

Lost in the buzz last week over health care was the news that the broadest measure of the U.S. trade deficit fell sharply in 2009 from the year before. According to the Bureau of Economic Analysis, the U.S. current account deficit plunged from $706 billion in 2008 to $420 billion last year – the smallest deficit since 2001.

I’ve been waiting for a few days now for the usual trade deficit hawks to hail this development as great news for millions of Americans looking for work.

In years when the trade deficit was rising, it was common practice for the labor-union-friendly Economic Policy Institute to publish detailed studies showing that larger trade deficits caused the U.S. economy to lose hundreds of thousands of jobs each year. For example, according to an October 2008 EPI paper, rising non-petroleum trade deficits from 2000 to 2006 caused a lost of 484,400 jobs per year, while the shrinking deficit in 2007 lead to the creation of 272,500 jobs.

By the EPI’s own internal logic, the past two years should have been a boom time for job creation. Between 2007 and 2009, the non-petroleum trade deficit dropped by $174 billion as the sagging domestic economy cut demand for impost. If that was good news for jobs, somebody forgot to tell the U.S. labor market. Since the end of 2007, the U.S. economy has shed a net 8 million jobs.

Oops, maybe it’s time for EPI to rework its model.

Another Argument for Limited Government

Megan McArdle writes:

Obviously, yes, I was upset yesterday.  I’m glad that this could bring so much joy to peoples’ hearts, and of course to know that for many people, the happiest part of passing health care reform seems to have been knowing that it made people like me unhappy

For many people, a major reason to engage in politics is the pleasure gained from schadenfreude, a German word that means “joy from injury or harm.”  Given that, shouldn’t we try to limit politics and its outcome, government? Or is a society with more schadenfreude better than one with less?

Monday Links

  • Late Sunday night, the House voted 219-212 to pass the health care bill. Cato health policy experts were blogging throughout the weekend. Read all of their analysis here.
  • Don’t bet on it: Why Republicans won’t really try to repeal the health care overhaul.

Rat Falls Back on the Broken Window Fallacy

In Sunday’s “Pearls Before Swine” comic strip, the nefarious Rat is now a PR flak. And when his client accidentally blows up downtown, he comes up with a solid economic defense:

Pearls Before Swine

Go here for Frederic Bastiat’s original explication of the “broken window fallacy,” and for way too much detail, go to Wikipedia. John Stossel breaks some windows here and talks to Walter Williams about the implications.

Knocked Out, but Not Knocked Down: Spinning the Taliban Defeat in Marjah

Remember Marjah? The Taliban stronghold in southern Afghanistan captured several weeks ago by U.S. and Afghan forces? I remember the offensive being hailed as a big deal. Well, what happened?

Although they have been pushed out of power in Marjah, Taliban insurgents have slowly been trying to reassert some measure of control.

Marjah residents have told U.S. Marines that Taliban insurgents are coming around at night to threaten and beat Afghans who cooperate with the Americans.

In at least one confirmed case, said U.S. military officials, the Taliban beheaded a local resident suspected of working with U.S. forces. The U.S. Marines are checking out at reports of at least two other beheadings in Marjah.

If that weren’t enough, the newly appointed Afghan official for Marjah, described as “the Afghan face of the American-led military offensive,” is Haji Zahir, who served four years in a German prison for attempted murder after stabbing his stepson.

Maybe this question will come across as obvious, but what discernible interest does America have in clearing regions we can’t hold, and backing ex-cons to disperse hundreds of thousands of U.S. tax payer dollars “to repair schools, clean canals, and compensate Afghan families who lost relatives” to people who will likely turn back to the Taliban anyway?

While residents of Marjah have little affection for the Taliban, they say they nevertheless prefer them over the non-Islamic Americans and the corrupt Kabul government.

This piece in Foreign Policy, “Down the AfPak Rabbit Hole,” confirms my suspicions that the offensive in Marjah was in part a PR stunt intended to galvanize public support for the war back at home (HT: Justin Logan).

The “Rabbit Hole“ ‘s authors, Thomas H. Johnson, a research professor at the Naval Postgraduate School, and M. Chris Mason, a retired Foreign Service officer who served as a political officer in Paktika province, write “this battle—the largest in Afghanistan since 2001—is essentially a giant public affairs exercise, designed to shore up dwindling domestic support for the war by creating an illusion of progress.”

That sentiment was echoed several weeks ago by Greg Jaffe and Craig Whitlock of the Washington Post. They write, “The campaign’s goals are to convince Americans that a new era has arrived in the eight-year-long war and to show Afghans that U.S. forces and the Afghan government can protect them from the Taliban.”

For some sanity on this situation, and how much we have lost our way, listen to “Afghanistan and Conservatives” featuring Joe Scarborough.”

It’s NOT a Health Bill, NOT a Medicare Tax and It Can’t Possibly Cost Only $940 Billion

  • The “reconciliation bill” is not a “health bill” but an anti-health bill.  It relies heavily on price controls, taxes and fines to punish doctors, hospitals and formerly innovative companies the produce prescription drugs and medical devices.  If we treated farmers, food companies and grocery stores the way Congress threatens to treat the health industries would anybody expect food to become better or cheaper?
  • The 3.8% tax on both labor and investment income is not a “Medicare tax.”  It’s surtax on income that goes into the slush fund, not the Medicare trust.
  • The bill could not possibly cost “only” $940 billion unless it contained a sunset provision – repealing the law after 2019.  

In fact, new spending is negligible for four years.  At that point the government would start luring sixteen million more people into Medicaid’s leaky gravy train, and start handing out subsidies to families earning up to $88,000.  Spending then jumps from $54 billion in 2014 to $216 billion in 2019.   That’s just the beginning.

To be unduly optimistic (more so than the CBO), assume that the new entitlement schemes only increased by 7% a year.   At that rate spending would double every ten years – to $432 billion a year in 2029, $864 billion a year in 2039, and more than $1.72 trillion by 2049.  That $1.72 trillion is a conservative projection of extra spending in one year, not ten.  How could that possibly not add to future deficits?

Could anyone really imagine that the bill’s new taxes and fines could possibly grow by 7% a year?   On the contrary, most of the claimed revenues are either a timing fraud (such as treating $70 billion for long-term care premiums as newly found treasure) or self-defeating.

The hypothetical tax on Cadillac plans (suspiciously postponed until 2018), for example,  is designed to discourage such plans from being offered by employers or wanted by employees – that is, it’s designed to yield less and less over time.

Moreover, the accumulating penalties on reporting joint incomes above $250,000 – a 39.6% tax, a 3.8 % income surtax, a 0.9% Medicare surtax, rapid phasing-out of deductions and exemptions – would greatly discourage any activity that would push income above $250,000.   Most obviously, no sensible family whose income is normally below that pain threshold would be so foolish as to sell enough assets to let capital gains to push them over the line.

(If even half of the punitive tax plans are enacted, I plan to launch a “249 Club” whose members pledge to never again report more than $249,000).