Archives: 07/2010

Conservatives vs. Libertarians on Judicial Activism

I should have posted this earlier, but if anyone interested in legal issues – should be everyone given that most things coming out of Washington these days have constitutional defects – hasn’t yet read Damon Root’s cover story in the July issue of Reason magazine, drop what you’re doing now and do so.

While not a J.D. – or perhaps because he isn’t – Damon paints a completely accurate picture on the differences between conservative and libertarian approaches to constitutional interpretation and judicial philosophy.  And I don’t mean a rehash of debates on social issues except in legalese; there are real subtleties involved, particularly when most people adhering to either of these camps call themselves “originalists” of one stripe or another.  Damon’s article is both deep and wide, surveying the landscape of relevant legal thinkers and explaining to non-lawyers why all this is so, so important.  (And no, I personally am not featured.)

What is more, you can now also watch Damon discussing his article and reporting in this area:

This is groundbreaking and important journalism.

How Big Were the Bush Tax Cuts?

The debate on extending the Bush tax cuts has begun. Those opposed to extension argue that the cuts would greatly increase the federal deficit.

The first thing to note is that extending all the 2001 and 2003 tax cuts would lose the government about $216 billion a year in 2012 and rising amounts after that (see page 16). By contrast, federal spending in 2011 will be almost $2 trillion higher than in 2001 when the first Bush tax cuts were passed. Thus, in a rough sense, spending increases have had a nine times greater impact on our changed budget situation since 2001 than have tax cuts.

How big were the Bush tax cuts compared to previous tax legislation? One way to compare different tax bills is to look at the initial projections of the effects when they were passed. I assembled the figure below based on official scores of past tax legislation, as reported by the CBO at the time. The revenue effects of each tax bill are measured over the first five years as a share of GDP.

The figure shows that the Bush tax cuts were small compared to the Reagan tax cuts of 1981. The Revenue Act of 1978 was also a big tax cut. Note that the Tax Reform Act of 1986 was scored as being revenue neutral, and thus isn’t shown.

The figure also shows that the combined effect of tax cuts from 1997 forward were not large enough to offset the tax hikes under Reagan and the first Bush between 1982 and 1993.

I have a detailed discussion of federal tax policy between 1994 and 2004, here.

Controversy? Or Confidence Game?

While Washington, D.C. and the newstalk-osphere are gripped by the story of forced-out USDA bureaucrat Shirley Sherrod, six appropriations subcommittees have advanced FY 2011 spending bills that will collectively spend over $4,000 per U.S. family. (They’ll get to the big ones later.)

Are you paying attention? What are you paying attention to?

There are important social and political kernels within the Sherrod story (and “Journolist”), but in the context of Washington policymaking, they might just be distraction.

The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage

The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs – such as slower economic growth – are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.

Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.

When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us – and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.

Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”

New York Times vs. the Constitution

Last Monday, the New York Times ran an editorial, “The Republicans and the Constitution,” lamenting how Elena Kagan’s nomination ”has become a flashpoint for a much larger debate about the fundamental role of American government.”  (I, of course, was hoping that this was the direction the debate would go.)  The Old Gray Lady was particularly aghast that Congress’s expansive use of the Commerce Clause was being maligned.  Don’t those retrograde obstructionists know that as long as the government passes laws the progressive elite – especially the New York Times editorial board – deigns beneficial, no silly constitutional arguments can possibly be germane?

As you could expect, I found quite a bit to quibble with here, so I wrote a letter to the editor.  My letter wasn’t published, but you can still read it here:

Your editorial  stumbles onto an inconvenient truth: The debate over Elena Kagan’s nomination is indeed one about the “fundamental role of American government.”  That’s a good thing!  The opposition to Kagan is not based on petty partisanship or the politics of personal destruction but instead on principled concerns about whether the nominee sees any constitutional limits on federal power.

You rightly focus on the Commerce Clause aspect of this issue because so many federal excesses have been perpetrated in that provision’s name.  But if Congress can, under the guise of regulating activities that “substantially affect interstate commerce,” tell farmers what to grow in their backyards—as the Supreme Court said in the 1942 Wickard v. Filburn case—is it really so “silly” for Senator Coburn to ask a judicial nominee whether, in the name of lowering healthcare costs, Congress can require that we all eat nutritious foods?

You’re also correct that the Court recently approved Congress’s ability to confine sex offenders—but it did so, narrowly, under the Necessary and Proper Clause, after Solicitor General Kagan abandoned the Commerce Clause argument that had been wholly rejected in the lower courts.

And so, as you say, a vote against Kagan is indeed about more than her or President Obama—but that doesn’t mean it’s a vote against various statutes that you like.  There are good reasons for arguing that some of these laws weren’t good ideas, but that’s beside the point.  The point is that there’s a difference between law and policy and that raising the issue of constitutionality is not an “ideological fuss” or “excuse” but goes to the core of this nation’s first principles. 

The Constitution creates a government of delegated and enumerated—and therefore limited—powers, and so much of the discontent in the country is about the basic question of where the government gets the power to do whatever it wants.  Let the debate continue!

Here are some related thoughts from Cato adjunct scholar Tim Sandefur, reacting to the same editorial.

Randy Barnett in the Wall Street Journal: “A Commandeering of the People”

Cato senior fellow Randy Barnett is the subject of the Wall Street Journal’s nearly-full-page Weekend Interview. Randy talks about interpreting the Constitution with “a presumption of liberty,” the subtitle of his book Restoring the Lost Constitution; about the Supreme Court’s expansion of government power from Wickard v. Filburn to Gonzales v. Raich; and especially about the constitutionality of the new health care bill and its individual mandate. Randy wrote an amicus brief with Cato in support of the Virginia attorney general’s challenge to the health care mandate.

“What is the individual mandate?” Mr. Barnett says. “I’ll tell you what the individual mandate, in reality, is. It is a commandeering of the people. . . . Now, is there a rule of law preventing that? No. Why isn’t there a rule of law preventing that? Because it’s never been done before. What’s bothering people about the mandate? This fact. It’s intuitive to them. People don’t even know how to explain it, but there’s something different about this, because it’s a commandeering of the people as a whole. . . . We commandeer people to serve in the military, to serve on juries, and to file a return and pay their taxes. That’s all we commandeer the people to do. This is a new kind of commandeering, and it’s offensive to a lot of people.”

For the full legal argument, read the brief.

Making Transit More Cost-Effective

The Federal Transit Administration (FTA) has asked for public comment on Transportation Secretary Ray LaHood’s proposal to eliminate a rule that limits federal funding of particularly wasteful rail transit projects. The Cato Institute has submitted comments arguing that, instead of eliminating the rule, the FTA should strengthen it, but also give transit agencies more flexibility in defining the goals of new projects.

Since 1970, American cities have spent nearly $100 billion building new rail transit projects, and tens if not hundreds of billions more running them. While new rail lines appeal to the egos (and campaign coffers) of elected officials, they do little that could not be accomplished for a lot less money by simple improvements in bus service. Even Peter Rogoff, the Obama administration’s appointee in charge of the FTA, recently admitted that “paint is cheap, rail systems are very expensive,” meaning that painting buses a special color and running them on specific routes can accomplish just as much as spending billions on new rail construction.

To place some limits on the most wasteful rail projects, the Bush administration wrote a “cost-effectiveness rule” in 2005. This rule requires transit agencies to calculate how many hours of people’s time major new transit projects will save each year, and divide that into the amortized capital cost plus the annual operating cost of the project. If the resulting cost is more than about $24 per hour (the actual amount varies with inflation), the FTA refused to fund it.

This rule was controversial within the transit industry and Congress immediately waived it for a few particularly expensive projects such as a Washington Metrorail line to Dulles Airport and a BART line to San Jose. So rail advocates were thrilled when LaHood announced in January that he wanted to repeal the rule. Before he can do so, however, the rule has to go through a public review process.

Since January, however, Rogoff gave his speech questioning whether the nation should build new rail projects when an FTA report found that cities with rail transit are unable to keep the lines they have in a state of good repair. So it is possible that the FTA will be open to new ideas. In 2005, the original rule generated only 50 comments, mostly from transit agencies, so a strong public response to the proposed new rule could sway the agency to actually make it stronger, thus saving taxpayers lots of money and heartache in the future.

The main thing fiscal conservatives want is a requirement that agencies proposing rail transit consider a full range of alternatives, such as bus improvements, reduced transit fares, and converting high-occupancy vehicle lanes to high-occupancy toll lanes that are dynamically priced to insure that buses (and others) using the lanes are never delayed by congestion. The main thing the transit agencies want is the ability to calculate cost effectiveness based on factors other than the amount of time people save. The Cato Institute’s recommendations meet both these goals by allowing agencies to use any true outputs, such as cleaner air, energy savings, or increased personal mobility, and requiring them to calculate the cost per unit of each output for a variety of alternatives.

The deadline for comments is August 2. People who want to comment can go to regulations.gov to type their ideas directly on the web or submit comments in a Word or text file. You don’t have to write comments as long as Cato’s. The most important things to say are that the FTA should require transit agencies to consider a full range of alternatives and that the FTA deny funding to any alternatives that are significantly more expensive than the others in meeting environmental and social goals. You can also simply endorse the Cato Institute’s comments.