Archives: November, 2011

The Less-than-Thrilled Case for Extending the Payroll Tax Holiday

When I think about taxes, my first instinct is to rip up the corrupt internal revenue code and implement a simple and fair flat tax.

When I think about Social Security, my first instinct is to copy dozens of other nations and implement personal retirement accounts.

Unfortunately, the political system rarely generates opportunities to enact big reforms that actually solve problems and increase freedom. Instead, we’re stuck with proposals that make things modestly better or modestly worse.

So you can imagine my sense of dissatisfaction that I’m getting peppered with questions about whether the one-year, two-percentage point payroll tax holiday should be extended.

But it’s more complicated than that. The Democrats in the Senate want to make the temporary tax cut even bigger and “offset” that tax cut with some soak-the-rich tax increases. Republicans, meanwhile, are frozen like deer in the headlights. They understandably don’t like the Democrat plan, but they seem reluctant to support anything else, not even a “clean” extension of the current policy.

Here are a handful of observations.

  • The Democrat’s proposal for a one-year payroll tax cut financed by a permanent income tax hike on investors, entrepreneurs, and small business owners would be a big net negative for U.S. job creation and competitiveness.
  • A “clean” extension of the payroll tax holiday would modestly improve incentives for work, but the temporary nature of the tax cut substantially weakens pro-growth effects.
  • Ideally, the extension of the tax holiday should be financed by reducing the growth of federal spending.
  • There are other tax cuts, such as permanent reductions in marginal income tax rates and/or permanent reductions in the double taxation of saving and investment, that would have a better impact on the economy.
  • There are other tax cuts, such as expanded credits, deductions, preferences, exemptions, and shelters, that have no positive impact on the economy.
  • A payroll tax holiday does not undermine Social Security since the Trust Fund is nothing but a big pile of IOUs.
  • The best incremental reform would be a permanent reduction in the payroll tax, with the money channeled to personal retirement accounts. This would lower the tax burden of work while reducing the long-run burden of entitlement spending.

So what does all this mean? Simply stated, there are many other fiscal reforms that are preferable, but a temporary extension of the payroll tax holiday is better than nothing—assuming, of course, it is not poisoned by accompanying class-warfare tax hikes.

Hillary Clinton Heads to Burma

On Wednesday, Secretary of State Hillary Clinton travels to the isolated nation of Burma, officially known as Myanmar, in an attempt to spur the reform process. “After years of darkness, we’ve seen flickers of progress,” said President Barack Obama of the troubled country. By visiting Burma Secretary Clinton can test the new government’s willingness to do more.

Of course, the Clinton initiative may fail. But the main argument for the policy change is not that it is certain to work, but that the alternative has failed. Isolating Burma has achieved nothing.

Burma long has been one of the most tragic of nations. The military regime brutally suppressed the democracy movement led by Nobel laureate Aung San Suu Kyi. Even more deadly has been the half-century long battle with ethnic groups like the Karen, which have sought autonomy in the east.

The United States and Europe responded with sanctions, but to no avail. China took advantage to secure a position of political influence and economic dominance. The military regime continued to live up to its reputation for brutality and corruption.

Now there are “flickers of progress,” as the president suggested. A badly flawed election last year; a new, nominally civilian government; the release of a few political prisoners; liberty for Ms. Suu Kyi, who also has been meeting with government ministers; and a slight break between Burma and its chief patron, Beijing.

Individually these are but small changes, and the Burmese military has previously offered tantalizing reforms only to reverse course, intensifying its brutal suppression of any opposition. However, the combination of many small steps offers hope that something more real may be happening this time. Even Suu Kyi has expressed optimism, and is preparing to reenter politics—legally.

Equally important is the increasing evidence that Burma wants to balance the influence of its imperious neighbor China. For all of the worries in America about Beijing’s growing clout around the world, the People’s Republic of China is finding out—just as the United States discovered years ago—that friends can be expensive to buy and often don’t stay bought.

Engaging Burma could encourage that state to continue on a more independent course—separate from China. The regime isn’t likely to dump its patron, but any distance between the two would be progress. The PRC’s churlish reaction to the Clinton initiative suggests that Beijing is concerned.

An adjustment in U.S. policy toward Burma was sorely needed. Isolation resulted in few positive outcomes. For the most part Asian nations, even America’s friends, ignored U.S. and European sanctions. The regime did not fall; Suu Kyi was not freed; democracy did not come; the ethnic groups did not enjoy peace. The generals simply tightened their grip.

Although this policy failure long has been obvious, no one wanted to “reward” the Burmese regime by dropping economic penalties. This left U.S. policy stuck in a political cul-de-sac. Sanctions were ineffective, doing nothing to advance human rights. But they could not be changed for the sake of appearance.

Nascent reform in Burma now offers Washington an opportunity to shift course. No one should get their hopes up. The regime may intend to only adopt a few reforms as window-dressing to win Western aid. Even if the commitment to change is real, the road to a better life for the Burmese people remains long and hard.

Nevertheless, for the first time in years there truly are “flickers of progress” in Burma. The administration is right to try to turn these flickers into something more. A desperately poor and oppressed people deserve a better life.

Cross-posted from the Skeptics at the National Interest.

Apparently a Little Economics Education Does Work on Congress….

While most of my adult life has been devoted to simply imparting basic Economics to policymakers, I have to admit to being a little skeptical as to if they are actually listening.  I’ve seen too many times, especially during my service as staff in the Senate, politicians support policies they have to  know are harmful.  So it always encouraging to see some evidence of Congress taking basic Economics into account.

The evidence is presented in a recent paper in the academic journal Public Choice.  The paper examines the 2007 vote to raise the minimum wage.  After controlling for a variety of factors, the “study finds that members who majored in economics as undergraduates were less likely to vote for the minimum wage increase than their colleagues.”  Again this controls for party and others factors that might also influence a Representative’s decision.  As you probably recall, the vote in question did pass.  So while I’m not suggesting that a few more economists in Congress would solve all our problems, it might actually help.

Little Evidence for Either

No Child Left Behind (NCLB) or Common Core? NCLB and Common Core? If you look at the evidence, the answer to both questions is “no.” There’s precious little evidence that NCLB has worked, and just as little that national standards will do any better.

Despite all the fine sounding talk about the federal government demanding “accountability” and forcing states to improve, NAEP data for long-struggling groups reveals many periods before NCLB with equal or faster score gains than under No Child. In other words, the federal government’s own measure of academic achievement provides no support for the idea that accountability – or anything else under No Child – has translated into better performance.

But hasn’t the problem been the lack of a common measure of “proficiency,” which has allowed states to dodge the hard work of getting all kids up to speed? And isn’t that precisely what the Common Core will fix?

No again. What we’ve learned from not just NCLB, but decades of failed federal education intervention, is that politicians and administrators at all levels will find ways to take federal money while avoiding meaningful consequences for poor performance. And there’s little reason to believe that the Common Core will change that.

For one thing, if the Common Core truly is controlled by states – which, given the Race to the Top, waivers, and federal funding of national tests it clearly isn’t – then states will ignore the standards whenever they’re inconvenient. And if the federal government tries to put the screws to states that underperform? All the teachers’ unions, administrators’ associations, and other groups representing those who would be held accountable will mobilize and have the system gutted. It’s the clear lesson of history.

But isn’t the Common Core so good, and having national standards so important, that we must adopt them?

Yet again, no.

There’s essentially no meaningful evidence that, other things being equal, countries with national standards perform better than those without.  And there is serious disagreement over the quality of the Common Core, including powerful critiques from well known English language arts expert Sandra Stotsky, and the only mathematician on the Common Core Validation Committee, R. James Milgram.

Common Core, No Child Left Behind – both are cut from the same, moth-devoured cloth: top-down government control. In light of decades of costly failure, it is well past time we stop entertaining such fixes and move on to something different. It’s time to focus on fundamentally changing the system so that educators have the freedom to tailor teaching to the needs of unique children, while parents are empowered to hold educators truly accountable. It is time for school choice, which, unlike NCLB and national standards, the evidence very much supports.

C/P from the National Journal’sEducation Experts” blog.

Idiosyncrasy in the New York Times

Webster’s defines “idiosyncrasy” as “a peculiarity of constitution or temperament” or “characteristic peculiarity (as of temperament); broadly: eccentricity.”

And what does the New York Times define as an idiosyncrasy? A headline this weekend tells us that

Idiosyncrasy Runs Deep in the Soil of Wyoming

And what’s this idiosyncrasy? Cowboy poetry? Jackalopes? Being the first state to grant women the vote?

No, here’s what the Times finds idiosyncratic:

Wyoming’s way — always idiosyncratic in the windblown, rural grain that mixes mind-your-own-business cowboy libertarianism and fiscal penny-pinching — is getting its moment in the spotlight.

Yep, what the New York Times finds idiosyncratic in a nation formed to guarantee the inalienable rights of life, liberty, and pursuit of happiness is a libertarian spirit combined with fiscal conservatism.

It’s not clear that Wyoming lives up to this picture: The Cato Institute’s Fiscal Policy Report Card on America’s Governors noted in 2006 that Wyoming’s budget had risen 60 percent in less than four years. And the Mercatus Center report “Freedom in the 50 States” put Wyoming barely above the national median for both personal and economic freedom. But the libertarian instincts are there, as Jason Sorens and I found in calculations of voter attitudes in the states.

So let’s hear it for “mind-your-own-business cowboy libertarianism and fiscal penny-pinching” – may it spread beyond the four corners of idiosyncratic Wyoming.

The Future of Growth

Just in case you were wondering where future growth might come from, the Washington Post reports:

a new analysis warns that the Washington area doesn’t have nearly enough housing for the wave of new workers that will arrive in coming decades.

Researchers at George Mason University say the area is projected to add more than a million new jobs by 2030.

That’s the future we can expect if we don’t start constraining the size, scope, and power of the federal government: further transfers of wealth from the rest of the country to Washington, from the productive sector to the redistributive and regulatory sector.

FDA Considers Mandatory Salt Reductions

With little publicity, the federal Food and Drug Administration has begun laying groundwork for one of the more audacious regulatory initiatives of the Obama administration: mandatory reductions in the salt content of processed foods in the supermarket aisle and at restaurants.

In a September 15 “Request for Comments, Data, and Information” (PDF) published in the Federal Register, the FDA solicits from the public “comments, data, and evidence relevant to the dietary intake of sodium as well as current and emerging approaches designed to promote sodium reduction.” Among the specific ideas it has in mind: setting federally prescribed “targets” for “stepwise” reductions in the amount of salt allowable in various foods, the phased nature of the reductions indicated because consumers’ “taste preference for sodium is acquired and can be modified.”

Various government programs (notably in Mayor Bloomberg’s New York City) already arm-twist producers into supposedly voluntary reductions, but the FDA notice hints broadly that voluntary measures will not suffice. Its public comment period ends next Tuesday, November 29; let’s hope the agency gets an earful from citizens about the importance of freedom and consumer choice.

As I noted last month in a Cato podcast with interviewer Caleb Brown, the FDA’s new initiative plunges it deeper into social engineering than it has gone in the past. It’s one thing to limit adulteration or contamination of foods, or the use of mysterious chemical additives; it is another to order the reformulation of recipes to reduce intake of a substance that 1) occurs naturally in virtually all foods; 2) is beneficial to health in many circumstances; and 3) has been sought out and purposely added to the human diet through recorded history.

As the FDA acknowledges, salt is far more than a flavor enhancer, capable of such miracles as turning vegetable soup into something small children will gladly eat. It also continues to be (as it has been through history) vital in preventing a wide range of bacterial spoilage and food poisoning dangers in the food supply. It also assists with texture, appearance, and shelf life. Consumers notice when it is missing, as Campbell’s found when it was forced by lagging sales to restore salt to its Select Harvest soup line, and as H.J. Heinz found when it faced a consumer revolt in Britain after reformulating its HP Sauce at the urging of the British government (see Telegraph and Daily Mail accounts).

As I noted a while back, the government’s dietary advice has changed often through the years, and its recommendations in retrospect have regularly proved to be unfounded and even damaging. Sure enough, reports have begun to come out that the salt panic has been exaggerated and may even pose some health dangers of its own. “New review questions benefit of cutting down on salt,” reported Reuters about a new review of more than 160 scientific studies published in the American Journal of Hypertension. “It’s time to end the war on salt,” per a July Scientific American article by Melinda Wenner Moyer.

And as for post-Thanksgiving dieting? As Reader’s Digest points out, eating more produce and less processed food is known to be a healthy step, and will much reduce your sodium intake. In the mean time, you can file comments here about whether you’d like to go on making these choices yourself, or have FDA Commissioner Margaret Hamburg make them for you.