Archives: 10/2012

How Convenient

William G. Shipman, co-chairman of Cato’s Project on Social Security Choice, notes

If you listened to President Obama during the first presidential debate, you’d think job growth during his presidency has been robust. He stated right up front “Over the last 30 months, we’ve seen 5 million jobs in the private sector created.” Well, 30 months is interesting because he’s been president for 44 months, so what’s happened since he’s been in charge? From January, 2009 through August, 2012, the latest Bureau of Labor Statistics data, non-farm private sector employment has fallen by 261,000 jobs. Federal government employment has risen by 14,000, state government jobs have fallen by 158,000, and local government jobs have fallen by 532,000. Total jobs lost: 937,000. If you cherry-pick the data, February, 2010 shows the lowest private-sector employment since Obama has been president, down 4,317,000 jobs since his inauguration. So any comparison using that date as the starting point would result in the greatest growth in employment. It’s also 30 months ago from the Bureau’s latest reported data. How convenient to use that date. Do you think the president knew this, or did he forget that he took office in January, 2009? Cherry picking data to cover the reality of overall job losses does not help the American people go back to work, and it certainly doesn’t help the credibility of the President.

All Eyes on Venezuela on Sunday

Venezuelans will go to the polls on Sunday for their most important presidential election in a generation. At stake is the end of the thuggish, corrupt, and autocratic 14 year-old regime of Hugo Chávez.

The opposition, led by Governor Henrique Capriles Radonsky, has a real chance of winning the vote—if it’s fairly done. The most credible polls show a very tight race with still a number of Venezuelans undecided. However, there are good reasons to believe that most of the undecided are actually “hidden” votes for Capriles, people who are intimidated or afraid to express their support for the opposition candidate.

As I’ve written before, it won’t be a fair election. Four out of the five seats in the National Electoral Council (CNE) are loyal chavistas. The CNE has resorted to increasingly dirty tricks. The latest has been to announce that people who mark one of Capriles’ pictures in the ballot won’t actually be voting for him, but for a lesser known third candidate (see the explanation here).

The electoral registry, which is controlled by Cuban operatives, has increased its size by 58 percent since 2001, even though Venezuela’s population has risen only 18 percent during that period. Fourteen of the country’s 24 states have more registered voters than total adult population. There is even the documented case of 2,272,706 voters that appear to live at the same address.

Thus, even though the opposition claims that it is well prepared to defend its votes at the polling stations, it is very likely that in the dawn hours of Monday, the CNE will announce Chávez as the winner. In my opinion, there is no real scenario under which Chávez would accept defeat by Capriles. The question then becomes: what happens next?

One thing to watch for is the reaction of the so-called Bolivarian militia, which consists of die-hard chavistas that have been well armed with Russian rifles and trained by the government to “defend the revolution.” Some estimates put their number at 25,000 people, enough to terrorize those opposition supporters who might consider going to the streets to protest against electoral fraud. It is still a mystery what the reaction of the army would be if chaos broke out in the streets of Caracas and elsewhere. Several generals have profited enormously from the regime, and they would loath to see Chávez go. But the extent to which they actually control the troops is unknown.

The Obama administration has been wise to avoid making statements about Venezuela’s election prior to the vote. Any comment by a U.S. official will play into Chávez’s hands as a gross interference by the “Empire” in Venezuela’s sovereignty. Nonetheless, Washington should keep an eye on the election and its aftermath. The outcome will likely have far-reaching consequences for the region.

DHS Fusion Centers: Small Part of Homeland Security Waste

Fusion centers are “pools of ineptitude, waste and civil liberties intrusions.” That’s the Washington Post’s summary of a report, two years in the making, released Tuesday by the Senate Homeland Security and Governmental Affairs permanent subcommittee on investigation.

With all due respect to the Senate investigators, who did thorough and commendable work here, it does not take two years and 140 pages to reach their conclusion. Along with the ACLU, Cato scholars have made similar arguments for years.

Fusion centers grew from the revelation in the wake of the September 11, 2001 attacks that federal security agencies, states governments, and local law enforcement were failing to share information about terrorists. Although the attacks resulted as much from the difficulty of distinguishing pertinent information from the rest as from impediments in information-sharing, it was reasonable to address the second problem. But whether that required physical spaces devoted to information sharing—let alone the 70-plus of them we now have spread across the country—is another story.

The wisdom of that spasm of bureaucratic creation turned largely on the truth of the official insistence in the panicky aftermath of the attacks that the United States was rife with thousands of hidden al Qaeda operatives and that mass casualty attacks would occur with the regularity of extreme hurricanes. Predictably, there weren’t enough terrorists to go around. And it doesn’t take Max Weber to see that their dearth wouldn’t cause the searchers to slacken their efforts. Fusion centers became a classic solution in search of a problem.

One way to justify fusion centers was to expand their enemy to “all hazards.” A second was to exaggerate the terrorist menace, for example by insisting that its quiescence indicated that it was not weak or absent, but well-hidden and patient (note: the absence of evidence is evidence of absence, especially when you are searching a lot; it’s just not proof of absence). Of course, advocates overstated the fusion centers’ contribution to terrorism arrests. And even without arrests, they could conflate activity with success, by pointing to, for example, leads pursued and cases opened as if they were security itself. That last technique continues today in the pushback  to the Senate report.

Keep in mind that fusion centers, which cost federal taxpayers at most a few hundred million a year, are symptoms of a larger problem. The entire national security apparatus has grown by leaps and bounds since 2001 thanks to a threat that has, thankfully, proved vastly weaker than most thought.

Romney and Obama on the Role of Government

President Obama and Mitt Romney effectively delivered clashing statements on the role of government last night. That’s an issue I discuss in the latest issue of Reason, in a review of two new books, To Promote the General Welfare: The Case for Big Government, edited by Steven Conn, and Our Divided Political Heart: The Battle for the American Idea in an Age of Discontent, by E. J. Dionne, Jr. It’s not online yet, so you’ll have to go to the newsstand to buy a copy! Obama seemed to be channeling the Conn book, with its endless repetition of “things the government did for us”:

I also believe that government has the capacity – the federal government has the capacity to help open up opportunity and create ladders of opportunity and to create frameworks where the American people can succeed. Look, the genius of America is the free enterprise system, and freedom, and the fact that people can go out there and start a business, work on an idea, make their own decisions.

But as Abraham Lincoln understood, there are also some things we do better together.

So in the middle of the Civil War, Abraham Lincoln said, let’s help to finance the Transcontinental Railroad. Let’s start the National Academy of Sciences. Let’s start land grant colleges, because we want to give these gateways of opportunity for all Americans, because if all Americans are getting opportunity, we’re all going to be better off. That doesn’t restrict people’s freedom; that enhances it.

And so what I’ve tried to do as president is to apply those same principles.

Romney had a different view:

The role of government – look behind us: the Constitution and the Declaration of Independence.

The role of government is to promote and protect the principles of those documents. First, life and liberty. We have a responsibility to protect the lives and liberties of our people, and that means the military, second to none. I do not believe in cutting our military. I believe in maintaining the strength of America’s military.

Second, in that line that says, we are endowed by our Creator with our rights – I believe we must maintain our commitment to religious tolerance and freedom in this country. That statement also says that we are endowed by our Creator with the right to pursue happiness as we choose. I interpret that as, one, making sure that those people who are less fortunate and can’t care for themselves are cared by – by one another.

We’re a nation that believes we’re all children of the same God. And we care for those that have difficulties – those that are elderly and have problems and challenges, those that disabled, we care for them. And we look for discovery and innovation, all these thing desired out of the American heart to provide the pursuit of happiness for our citizens.

But we also believe in maintaining for individuals the right to pursue their dreams, and not to have the government substitute itself for the rights of free individuals. And what we’re seeing right now is, in my view, a – a trickle-down government approach which has government thinking it can do a better job than free people pursuing their dreams. And it’s not working.

His rhetoric was certainly more appealing to libertarian voters. But when Romney waxes eloquent about freedom, the rubber rarely meets the road. He’s the father of the health care mandate. His view of liberty, above, is a strong military. His closing argument, about the candidates’ “two very different paths,” ended with a promise not to cut Medicare or the military. He promised to deliver “energy independence” and to crack down on countries that sell us goods.

More on why libertarians are skeptical about big government here – and in Reason!

The Tax Policy Center’s $5 Trillion Blunder: “Nonpartisan” nonsense

In “The $5 Trillion Question: How Big Is Romney’s Cut” Wall Street Journal reporters Damlan Paletta and John D. McKinnon echo, once again, the journalistic convention of contrasting “the nonpartisan Tax Policy Center” with “the conservative American Enterprise Institute.”  In the English language, the opposite of “conservative” is not “nonpartisan.”   On the contrary, the phrase “nonpartisan” applies equally to the American Enterprise Institute (or Cato Institute) as it does to Tax Policy Center (TPC) – a front for the Brookings Institution and Urban Institute.   To be “nonpartisan” does not mean non-ideological, unbiased or even competent.  It simply means following a few rules so the IRS will allow the organization to receive tax-deductible contributions.   Governor Romney wants to severely curb such deductions (including his own), which does not necessarily make the TPC a disinterested observer, even if there really were one or two closet Republicans (or even non-Keynesians) at the TPC.

 

The U.S. already cut marginal tax rates across-the-board by more than 20 percent in 1964 and 1984 (the 1981 law, like that of 2001, was foolishly phased-in).  In both cases, the Table shows that revenues from the individual income tax were higher than before, as a share of GDP.  The economy grew much faster too, raising payroll and corporate tax receipts.   Until the TPC can explain how and why that happened, they cannot even pretend to predict that Romney’s more modest tax reform will lose any revenue, much less $5 trillion.  Incidentally, deductions were not significantly curbed in the tax laws of 1964 or 1981, or in the Tax Reform of 1986 (which merely substituted reduced itemized deductions for a much larger standard deduction).  If Romney puts a cap on deductions, either as a percentage of AGI or as a dollar limit, the net effect of his plan would raise revenues, particularly from people like Warren Buffett and Mitt Romney (who deduct millions in charitable contributions).

The Tax Policy Center’s fundamental error is to assume no behavioral response at all to lower tax rates – an “elasticity of taxable income” (ETI) of zero.   The academic evidence is that ETI is at least 0.4 for all taxpayers, as Martin Feldstein observed, mostly because ETI is above 1.0 for the top 1 percent, as I recently explained in the Journal.  Cut top rates and the rich report more income; raise top rates and much of their income disappears – through reduced economic activity and increased avoidance.

 

Post-Debate Analysis: Debunking Obama’s Flawed Assertions on Tax Deductions and Corporate Welfare

In a violation of the 8th Amendment’s prohibition against cruel and unusual punishment, my brutal overseers at the Cato Institute required me to watch last night’s debate (you can see what Cato scholars said by clicking here).

But I will admit that it was good to see Obama finally put on the defensive, something that almost never happens since the press protects him (with one key exception, as shown in this cartoon).

This doesn’t mean I like Romney, who would probably be another Bush if he got to the White House.

On the specifics, I obviously didn’t like Obama’s predictable push for class warfare tax policy, but I’ve addressed that issue often enough that I don’t have anything new to add.

I was irked, though, by Obama’s illiteracy on the matter of business deductions for corporate jets, oil companies, and firms that “ship jobs overseas.”

Let’s start by reiterating what I wrote last year about how to define corporate income: At the risk of stating the obvious, profit is total revenues minus total costs. Unfortunately, that’s not how the corporate tax system works.

Sometimes the government allows a company to have special tax breaks that reduce tax liabilities (such as the ethanol credit) and sometimes the government makes a company overstate its profits by not allowing it to fully deduct costs.

During the debate, Obama was endorsing policies that would prevent companies from doing the latter.

The irreplaceable Tim Carney explains in today’s Washington Examiner. Let’s start with what he wrote about oil companies.

…the “oil subsidies” Obama points to are broad-based tax deductions that oil companies also happen to get. I wrote last year about Democratic rhetoric on this issue: “tax provisions that treat oil companies like other companies become a ‘giveaway,’…”

I thought Romney’s response about corrupt Solyndra-type preferences was quite strong.

Here’s what Tim wrote about corporate jets.

…there’s no big giveaway to corporate jets. Instead, some jets are depreciated over five years and others are depreciated over seven years. I explained it last year. When it comes to actual corporate welfare for corporate jets, the Obama administration wants to ramp it up — his Export-Import Bank chief has explicitly stated he wants to subsidize more corporate-jet sales.

By the way, depreciation is a penalty against companies, not a preference, since it means they can’t fully deduct costs in the year they are incurred.

On another matter, kudos to Tim for mentioning corrupt Export-Import Bank subsidies. Too bad Romney, like Obama, isn’t on the right side of that issue.

And here’s what Tim wrote about “shipping jobs overseas.”

Obama rolled out the canard about tax breaks for “companies that ship jobs overseas.” Romney was right to fire back that this tax break doesn’t exist. Instead, all ordinary business expenses are deductible — that is, you are only taxed on profits, which are revenues minus expenses.

Tim’s actually too generous in his analysis of this issue, which deals with Obama’s proposal to end “deferral.” I explain in this post how the President’s policy would undermine the ability of American companies to earn market share when competing abroad - and how this would harm American exports and reduce American jobs.

To close on a broader point, I’ve written before about the principles of tax reform and explained that it’s important to have a low tax rate.

But I’ve also noted that it’s equally important to have a non-distortionary tax code so that taxpayers aren’t lured into making economically inefficient choices solely for tax reasons.

That’s why there shouldn’t be double taxation of income that is saved and invested, and it’s also why there shouldn’t be loopholes that favor some forms of economic activity.

Too bad the folks in government have such a hard time even measuring what’s a loophole and what isn’t.

How the Media Undermined President Obama’s Debate Performance

The media elites are surprised and disappointed by President Obama’s debate performance last night. They are partly to blame. If they had spent the past four years challenging the president as aggressively as they did his predecessors, he would have been far better prepared to defend his record and respond to criticism. But instead of pitching him curves and fastballs, they’ve mostly lobbed him Nerf balls. Even the Pew Charitable Trusts, hardly a Republican operation, found after his first 100 days in office that the media coverage of President Obama was twice as favorable as that received by President Bush and 50% more favorable than that received by President Clinton. Things haven’t changed much since, and the American people know it. This summer, a Rasmussen poll found that “likely voters, by a five-to-one margin, believe that America’s media is in President Obama’s pocket and will treat his candidacy better than challenger Mitt Romney.”

After tonight’s debate, perhaps the media will realize that the old adage applies to them: you only hurt the one you love.