Archives: June, 2011

School Choice Murder-Suicide in Pennsylvania

A huge school choice opportunity has been lost for the moment in Pennsylvania. But that lost opportunity is not the voucher program that has  drawn so much attention.

The political conflagration touched off by the push for a targeted, failing-schools voucher program incinerated along with it a massive expansion of an existing, popular, successful, bipartisan-supported, and better program; the Educational Improvement Tax Credit (EITC). The House passed this expansion of credit program by a massive margin. And when I say “massive,” I mean 96 percent in favor to 4 percent opposed. Unfortunately, a stand-alone credit bill was not considered in the Senate, and the expansion fell by the wayside as the voucher battle raged.

In the next session, it would be good policy and politics to consider vouchers and credits separately. They are substantively different means of fostering choice, and the public deserves a clear debate and vote on both policies in separate bills.

The Educational Improvement Tax Credit program is vastly superior to all of the voucher bills. Vouchers are open to credible legal challenges, afford no accountability directly to taxpayers, and government money brings stifling government regulations. Furthermore, giving vouchers only to kids in or around “failing schools” won’t produce a dynamic market because there is an ambiguous, limited, and potentially shifting customer base. A failing-schools voucher program is a terrible policy design.

The EITC should not be legislatively handcuffed to vouchers. Vouchers are an inferior policy and a proven political liability. For once the popular, politically smart, most principled, and most effective thing to do are all the same; drop the voucher drama and expand the education tax credit program.

California Wants Amazon to Tax Californians

The Los Angeles Times has a good article on California’s move to require Amazon and other out-of-state retailers to collect taxes for it. Good because it accurately portrays what’s happening. Many such stories will say that California is seeking to tax Amazon. In fact, says the headline, “California Tells Online Retailers to Start Collecting Sales Taxes From Customers.”

You see, Californians generally don’t pay their “use taxes“—the alternative to sales taxes, for things brought into the state from outside. If the tax authorities tried to collect use taxes, going door to door to tally up the goods that haven’t yet been taxed, there would be bedlam.

So they want out-of-state companies that sell into California to collect the taxes that the state’s residents would pay. But in 1992, the Supreme Court found in a decision called Quill v. North Dakota that states can’t require out-of-state retailers to collect taxes for them. Doing so would create too great a burden on interstate commerce.

If an Internet retailer has a significant presence in a state, then the state can require the retailer to collect and remit sales taxes. (It’s no longer interstate commerce—get it?) So Amazon and other retailers are doing the sensible thing: shedding ties to California, such as with their affiliate marketers. Reports the Times:

Amazon and online retailer Overstock.com Inc. told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of so-called click-through customers. … Both Amazon in Seattle and Overstock in Salt Lake City have told affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers.

The natural result of California doing yet more to make the state uninhabitable for business comes at the end of the story. Californians who earned and spent money in California as part of the Internet remote sales ecosystem plan to move elsewhere:

One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state. “Will it be Las Vegas or Scottsdale or Ensenada?” he said. “It’s a question of where, not if.”

In the Quill case, the Supreme Court invited Congress to change the rule that it laid down. If it saw fit, Congress could permit states to export their tax responsibilities to businesses in every other state. But this would cut off the healthy tax competition you see happening in the area of remote sales; both taxes and tax collection burdens would rise.

Profligate and tax hungry states like California are desperate to overturn Quill in the courts or through the Congress. Here’s hoping they fail.

$2 Trillion in Cuts in Perspective

Congressional Republicans have said that spending cuts must be at least as large as an increase in the debt ceiling. Negotiations over lifting the debt ceiling are ongoing, but the “magic number,” so-to-speak, would be around $2 trillion in spending cuts.

Cutting $2 trillion in federal spending sounds like a lot, but it’s actually relatively small because the cuts would likely occur over ten years. According to the Congressional Budget Office’s most recent budget baseline, the federal government will spend almost $46 trillion over the next ten years.

The following chart shows what $2 trillion in spending cuts over the next ten years looks like when measured against the CBO’s baseline. Even with the cuts, federal spending would still increase by $1.8 trillion:

Rather than actually cutting spending, federal spending (and debt) would continue to grow – just at a slightly lower rate. And as Chris Edwards continues to warn, there is a strong possibility that some or all of the “cuts” could be phony.

The Sixth Circuit Got It Wrong

Today’s 2-1 Sixth Circuit Obamacare decision was an exercise in unwarranted judicial deference, not by the author of the majority opinion, Judge Boyce Martin, who regularly rubberstamps misuses of federal power, but by concurring Judge Jeffrey Sutton, who avoided the logical implications of this ruling and punted the main issue to the Supreme Court.  Under a document establishing a government of enumerated and therefore limited powers, the burden is on that government to prove that it has the power to do something, not on the plaintiffs to disprove that power.  Never has the Supreme Court ratified the federal power to force someone to buy a product in the marketplace under the guise of regulating commerce.  Indeed, never, not even during the height of the New Deal, had Congress asserted such a power—until the health insurance mandate. 

To allow such a power now is to read out of the Constitution any structural limitations on federal power, which, as Justice Kennedy reminded us for a unanimous Supreme Court two weeks ago in Bond v. United States, are the Constitution’s first and greatest protectors of liberty.  While a progressive like Judge Martin could be expected to accept any exercise of federal power, it is shocking that an avowed constitutionalist like Judge Sutton requires Congress to show only a rational basis behind what it does—a “reasonable fit” between the means it chooses and the ends of regulating interstate commerce—to survive constitutional scrutiny.  Under such logic, Congress can do anything it wants so far as it is essential to a larger regulatory scheme.  That cannot be the law.

As Chief Justice Marshall wrote nearly two centuries ago, any legislation Congress enacts under its power to make laws that are necessary and proper for executing an enumerated power must “consist with the letter and spirit of the [C]onstitution.”  A constitutional interpretation resulting in Congress being the judge of its own powers, that forces people to engage in commerce rather than regulating existing commerce, fails that test. 

Judge Sutton does well to describe the Supreme Court’s inflation of federal authority over the last 75 years and is to be commended for demanding that the Court “either should stop saying that a meaningful limit on Congress’s commerce power exists or prove that it is so.”  But he has it backwards in saying that it’s not the role of the lower courts to invalidate legislation that goes beyond even the modern warped doctrine; the decision on whether to expand existing Supreme Court precedent is precisely that ultimate court’s alone.

If the Court joins the Sixth Circuit and goes there, it would mean putting the final nail in federalism’s coffin.  But I doubt that proposition will find five votes—and before then we may even see decisions to the contrary from one or more circuit courts.

Judge Mark Wolf, Criminal Informants, and the FBI

Judge Mark Wolf  gets some well-deserved recognition in a New York Times editorial today for his spectacular effort to bring some accountability to the FBI scandal involving gangster informants.  Here’s an excerpt:

The judge uncovered that John Connolly Jr., the F.B.I. agent who was their handler, had protected Mr. Bulger, a 15-year informant, and Mr. Flemmi, a 25-year informant, as they committed murder and conspired with the Mafia, in exchange for leads about the Mafia. It was Mr. Connolly who tipped off Mr. Bulger that he was about to be indicted and sent him on the lam. Judge Wolf testified against the F.B.I. agent at a 2002 trial before another judge. Mr. Connolly was sentenced to 10 years for racketeering, obstruction of justice and making false statements to investigators….

Judges are supposed to dispense justice but rarely root out crimes. As a result of Judge Wolf’s courage and persistence, the government has paid more than $100 million in claims to families of people murdered by informants shielded by the F.B.I. There is no good evidence that the F.B.I. has set up independent oversight of its informants program like what the judge called for. It’s high time.

It’s a good editorial that’s on the mark.   Of course, in a just world, Judge Wolf’s picture should have been on the cover of the Times, not the fugitive who is thought to be responsible for countless crimes.

And in a just world, the corrupt FBI agent, John Connolly, would have had to pay for his own legal expenses.  Even though he had more than a million dollars in assets (pensions, vacation home, power boat, etc), a federal magistrate said he was “indigent” and that taxpayers should pay for his legal defense.  Not a public defender, mind you, but a top law firm in Boston.   Just one of the many sordid aspects of the whole affair.

Here’s a link to Judge Wolf’s exhaustive ruling.  Here’s a link to a Cato event that I hosted on this scandal.

So What If Corporations Aren’t People?

As Julian Sanchez detailed yesterday, those who complain about fewer restrictions on corporate political speech but celebrate the freeing of restrictions on corporate videogame speech are in a bit of a logical pretzel.  But ultimately both those who think corporations have speech rights and those who don’t miss the larger point: it’s not about corporate rights but the rights of the individuals who freely associate and thus pool their speech via the corporate legal form.

That is, it really doesn’t matter that “corporations aren’t people.”  Of course they’re not living, breathing human beings, and their ”personhood” for legal purposes is just that: a convenient legal fiction.

To elaborate on these ideas, Cato legal associate Caitlyn Walsh McCarthy and I have  written a law review article titled “So What If Corporations Aren’t People?”  Here’s the abstract:

Corporate participation in public discourse has long been a controversial issue, one that was reignited by the Supreme Court’s decision in Citizens United v. FEC, 130 S. Ct. 876 (2010). Much of the criticism of Citizens United stems from the claim that the Constitution does not protect corporations because they are not “real” people. While it’s true that corporations aren’t human beings, that truism is constitutionally irrelevant because corporations are formed by individuals as a means of exercising their constitutionally protected rights. When individuals pool their resources and speak under the legal fiction of a corporation, they do not lose their rights. It cannot be any other way; in a world where corporations are not entitled to constitutional protections, the police would be free to storm office buildings and seize computers or documents. The mayor of New York City could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there. Moreover, the government would be able to censor all corporate speech, including that of so-called media corporations. In short, rights-bearing individuals do not forfeit those rights when they associate in groups. This essay will demonstrate why the common argument that corporations lack rights because they aren’t people demonstrates a fundamental misunderstanding of both the nature of corporations and the First Amendment.

This article is still being edited – it won’t appear in the John Marshall Law Review till the fall – so comments are welcome.  Thanks to Eugene Volokh for making suggestions on an earlier version.

Update: Larry Solum has “recommended” our article on the Legal Theory Blog.  Thanks!