Archives: December, 2011

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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The DATA Act and Cato’s Transparency Work

In his final “Chairman’s Corner” blog post as head of the White House’s Recovery Act Transparency and Accountability Board, Earl Devaney highlights the need for orderly publication of data about government spending.

There is bi-partisan legislation now in the Congress—it’s called the Digital Accountability and Transparency Act, or DATA Act—that could accomplish this mission. But the reform bill faces an uphill battle, primarily because some in the bureaucracy prefer the status quo—a hodgepodge of data collection and display sites that, frankly, makes no sense at all unless you believe your government should confuse you.

The DATA Act would establish an independent board within the executive branch to track federal spending, and it would require federal agencies and recipients of federal funds to comply with reporting requirements set up by the board.

The board would “designate common data elements, such as codes, identifiers, and fields, for information required to be reported by recipients or agencies” (section 102 of the reported version, adding a new §3611 to title 31 of the U.S. code). The bill’s author, Rep. Darrell Issa (R-CA), spoke at our September Capitol Hill briefing, rolling out our legislative data model.

On Wednesday, another Cato Capitol Hill briefing highlighted the results of our work the last few months to model federal budgeting, appropriating, and spending. Should the DATA Act become law, the model we’ve been working on can illuminate the work of the proposed board. Use of our model will help ensure that the structure of government spending data supports public oversight use cases.

I don’t know that there needs to be a board—certainly not a permanent one. The bill authorizes more money than I think is required for the board, and the Congressional Budget Office’s cost estimate for implementing the requirements of the DATA Act seems wildly high. But the dynamics set in motion by making government spending more transparent may well reduce government spending by well more than even these high estimated costs.

The Defense Authorization Bill: Still Troubled

Both Houses have now passed the 2012 Defense Authorization Bill. The president, having dropped his veto threat, will sign it today. That’s too bad.

Authorization bills, keep in mind, are essentially a collection of restrictions and permissions slips for appropriations. In practice, however, budgeteers and appropriators have more say over how we spend. So while authorizers share responsibility for our bloated military spending, I’ll save my customary complaints on that topic for the appropriations bill and focus here on the new policies this bill sets.

On the positive side, the bill creates several reporting requirements that slightly aid future efforts to trim our military ambitions and spending. It requires the Pentagon to look at accelerating the minor drawdown in nuclear weapons required by the New Start Treaty. Another report is to examine options for shrinking our ballistic missile submarine fleet, which could save several hundred billion dollars annually. The bill also requires the administration to produce “independent” studies of overseas basing costs and opportunities for savings. These reports are not likely to themselves promote much change, but they might serve as ammunition for those that do.

A little-noted problem with the bill is that it authorizes the shift of base Pentagon spending to the Overseas Contingency Operations account—the war account. Because the Budget Control Act caps military spending but not war funding, costs shifted from the former to the latter reduce the cuts needed to get under the caps, creating an illusion of savings. Appropriators are trying to protect around $10 billion in base defense costs for 2012 using this ploy. Analysts are still figuring how big a shift in funds the authorization bill endorses. But as Taxpayers for Common Sense has noted, the answer is at least several billion.

The most odious aspect of this bill is its detention provisions. These sections of the bill are confusing because they seem to say various things that they then unsay. Section 1021 requires the president to place al Qaeda members and their associates, with the exception of American citizens, in military custody and deny them civilian trial. It then destroys this “requirement” by letting the president waive it and claim that it serves “national security interests.” Section 1022 affirms that the president has the authority under the 2001 Authorization of Military Force to detain without trial anyone who belongs to al Qaeda or the Taliban, or associates of those groups who are engaged in hostilities with the United States. Language further down in the section insists that this affirmation does not “limit or expand” the president’s authority or endorse his claimed power to seize suspected terrorists in the United States and deprive them of trials.

What that compromise language section leaves us with—beyond a further muddying of the legal waters—is a punt. The offense to civil liberties is less what the bill does than what it doesn’t: deny that the president can arbitrarily detain without trial anyone he decides is al Qaeda or its helper. So when congressional leaders dismiss civil liberty concerns about the legislation by saying it “merely codifies current law,” one response is that that’s exactly the problem.

But as I noted the other day, it isn’t clear that Congress’s efforts here to keep its hand off current law will entirely succeed. Federal courts hearing cases questioning the constitutionality of war powers, including the president’s right to detain people, tend to consider whether Congress has endorsed or rejected the power in question. Judges may take all this throat-clearing as a tacit endorsement of the president’s claims, making them more likely to survive constitutional scrutiny. The question is not whether there is damage to civil liberties here, but how bad it is.

Cross-posted from the Skeptics at the National Interest.

Russia’s WTO Membership Approved, But Will U.S. Companies Benefit?

At their ongoing ministerial meeting in Geneva, the World Trade Organization’s 153 members earlier today unanimously approved Russia’s accession as a member. The ball is now in the court of the U.S. Congress to effectively ratify this historic development or to forfeit significant benefits for the U.S. economy.

Russia will officially become a member 30 days after its legislative Duma gives its final approval, which is expected to occur in March, April, or May of next year. But U.S. companies will enjoy enhanced access to the Russian market only after Congress votes to repeal application of the 1974 Jackson-Vanik amendment.

The Cold-War-era amendment bars normal trade relations from applying to communist and formerly communist nations that restricted the emigration of Jews. Although that issue disappeared decades ago, the amendment still requires an annual exemption for Russia. As long as the amendment applies, Russia can withhold the more liberal access to its market that it agreed to extend to all other WTO members upon its accession. As Reuters reports today:

The Jackson-Vanik amendment, a 1974 provision linking trade to emigration rights for Soviet Jews, would have to be revoked for Washington to be able to apply so-called “permanent normal trade relations” to Russia.

Failure to do so would allow Russia to deny the United States preferential access to its markets in what would amount to an own-goal for U.S. businesses such as Pepsico or Alcoa that have already invested billions of dollars in Russia.

With Washington and Moscow exchanging reproaches over the conduct of Russia’s parliamentary vote, repealing Jackson-Vanik will be a challenge as Republicans, who control the House, gird for next year’s U.S. presidential election.

“Russia’s membership in the WTO marks an important milestone in its history, but there is hard work yet to be done on the American side,” said Edward Verona, head of the U.S.-Russia Business Council, a business lobby that backs Russian WTO entry.

“If Jackson-Vanik still applies to Russia once it accedes, then U.S. companies and farmers will be at a disadvantage to their global competitors and will not have access to the preferential trade regime negotiated over the last 18 years.”

As for our take on why Congress should repeal Jackson-Vanik as soon as possible, you can read the long and the short of it on our website.

The Political Dynamics of Vouchers and Credits

The battle over school choice in Pennsylvania is instructive in many ways. The most obvious lesson is that education tax credits are easier to pass than are vouchers, ceteris paribus.

But why? The results of a recent poll from UnitePA and the Independence Hall Tea Party make the basic answer fairly plain: education tax credits are substantially more popular than vouchers. More than mere popularity is important, however. Credits are supported, on balance overall, by Democrats, and by a massive 30 points by Republicans. Both liberals and conservatives support credits overwhelmingly.

Vouchers are opposed on balance overall and by Republicans in particular. Unfortunately, this means that Republican legislators who may support vouchers for ideological reasons face a Republican electorate that is decidedly opposed to them. This has consequences; we saw a major rift among the Tea Party groups in PA this year over the issue, with many groups opposing the voucher bill. Between the flak he is sure to get from the government-school lobby and the instinctive opposition to vouchers from many Republican voters who like the public schools and dislike government handouts (which is how vouchers are perceived), a Republican legislator might well put his seat at risk by voting for a voucher.

Democrats actually support vouchers on balance, but less than they do credits. The crosstabs for this poll reveal huge margins of support for vouchers by African-American and low-income citizens, followed by liberals. However, all the affluent liberal interest groups are absolutely opposed to vouchers. With the support of these elites and the assistance of the government-school lobby, a Democratic legislator is extremely unlikely to put his seat at risk if he votes against a voucher bill.

Here’s the problem: vouchers sound like a Progressive policy. Vouchers send government checks to low-income families, which sounds to many voters like some form of welfare. But it is adamantly opposed by liberal elites and supported by conservative elites.

Education tax credits bridge this political disconnect, drawing more support and less opposition across the political spectrum. And credits happen to be better policy to boot.

These lessons hold across the country, in state after state. And yet vouchers, more often than not, are the primary focus of national school choice organizations that provide advice, assistance, and money to proponents of school choice at the state level. A reassessment of how the school choice movement’s resources are invested is long overdue.

SEC Claims Fannie and Freddie Were Deep into Subprime Lending

One of the regular claims from Fannie Mae and Freddie Mac apologists (you know who you are) is that the two entities were blameless as they weren’t involved in subprime. Back in 2008, Paul Krugman went so far as to say, “they didn’t do any subprime, because they can’t.” Just taking 10 minutes to read the actual statute and regulations would have revealed to him that they actually could. Krugman went on to say, “Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.” Of course, just reading Fannie’s 10-K would have revealed that claim to be false. But why let facts get in the way?

Fortunately, the Securities and Exchange Commission has decided that not only could the GSEs buy subprime, but they did in fact do so and, even worse, they lied about it. The SEC’s complaints can be found here, and despite all the legal jargon, they make for quite an interesting read. If you’d like something with a little less legalese, my analysis of the GSEs’ role in subprime reaches similar conclusions.

Now of course, just like anyone else, former Fannie and Freddie executives deserve their day in court and should be assumed innocent until proven guilty. I hope that, in this instance, the SEC abandons its usual flawed practice of reaching settlements and avoiding trials. The public policy issues are simply too important here to let the executives just pay a settlement and bury the agreement. After having spent, so far, $160 billion bailing out these entities, the public has a right to know what was happening inside them. And of course, if the executives are innocent, they have the right to see that displayed before the public in a court of law.

PA Senate Should Unwrap the EITC Bill

It’s often difficult to recognize the value of things we already have and easy to take old gifts for granted.

For much of this year, an intense and bruising battle has raged over the issue of education vouchers in Pennsylvania. This week, the House once again rejected the voucher proposal that has passed the Senate and is supported by Gov. Tom Corbett.

Overlooked amidst the tumult is another, better school choice bill passed months ago by the House and now waiting for action in the Senate. The House passed a huge expansion of the Educational Improvement Tax Credit (EITC), more than doubling the size of the program with an astonishing 96 percent in favor to 4 percent opposed. At current levels of student support, it would help more than 60,000 additional children get a good education.

The EITC program has been a priceless gift to the children and state of Pennsylvania each year since 2001, helping to improve public schools and allowing taxpayers to invest education dollars more effectively. And an expanded credit program would bring the gift of a good education to tens of thousands more children, the gift of empowerment to thousands of parents.

The Senate can easily deliver these gifts to Pennsylvania for the New Year; just unwrap the EITC bill passed by the House and take a vote.