Archives: November, 2013

Cato Files Brief in New Hampshire School Choice Case

Opponents of school choice are once again seeking to restrict the ability of parents to select the best education for their child. New Hampshire’s Education Tax Credit program, enacted in 2012, permits businesses who donate to a state-approved scholarship organization to deduct 85% of that donation from their annual taxes. These scholarship organizations then offer students that meet specific criteria scholarships to attend nonpublic schools or schools outside the students’ district, or to homeschool.

Because a large number of New Hampshire’s nonpublic schools are religious, opponents of school choice have challenged the program under, among other things, an 1877 amendment to the state constitution frequently referred to as a Blaine Amendment. Blaine Amendments, which were passed during that period in many states for the sole purpose of preventing Catholic schools from receiving government funding, prohibits “money raised by taxation” from being “granted or applied for the use of the schools or institutions of any religious sect or denomination.”

A New Hampshire trial court found that the Education Tax Credit program violated this discriminatory amendment and that scholarship funds could therefore not be granted to students attending religious schools. But the court incorrectly reasoned that money exempted from taxation under the tax-credit program was the equivalent of a government expenditure of public funds and therefore “money raised by taxation.” This type of reasoning—often referred to as “tax expenditure analysis”—has been explicitly rejected by other state supreme courts and the U.S. Supreme Court.

Indeed, as the Supreme Court held in Arizona Christian School Tuition Organization v. Winn (2011), such an approach “assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands … . Private bank accounts cannot be equated with the … State Treasury.” The trial court’s holding is similarly at odds with the original understanding of the Blaine Amendment and is unsupported by New Hampshire case law. 

The State of New Hampshire and the Network for Educational Opportunity, represented by the Institute for Justice, have taken the case to the New Hampshire Supreme Court. Cato has filed an amicus brief supporting them, arguing that the educational tax credits are not “money raised by taxation” according to the original understanding of the 1877 amendment, New Hampshire case law, and U.S. Supreme Court precedent. The New Hampshire Supreme Court should reverse the trial court and restore a vital source of educational freedom and opportunity.

The case is Duncan v. New Hampshire.

Cato legal associate Lauren Barlow co-authored this post.

The Black Budget, a Sense of Magnitudes

On October 28th, I wrote a blog post, “The NSA’s Rent Is Too Damn High,” in which I looked at the $52.6 billion price tag for America’s spook infrastructure – the so-called “black budget.” When allocated across every American taxpayer, this staggering sum comes out to $574 per taxpayer, per year.

But, there are other edifying ways of gaining perspective on such a whopping amount of money. Doing so is important. Indeed, according to John Maynard Keynes’ biographer, Lord Skidelsky, Keynes believed that a good economist must always have “a sense of magnitudes.”

We can get a sense of magnitudes by looking at this year’s black budget as a portion of the major sources of the federal government’s revenues. The table below tells that tale:

Source of Federal Revenue 2012 Amount $ Billion Black Budget $ Billion Black Budget as % of Revenue Source
Individual Income Taxes $1,132.21 $52.60 4.6%
Corporate Income Taxes $242.29 $52.60 21.7%
Social Insurance Taxes $845.31 $52.60 6.2%
Excise Taxes $79.06 $52.60 66.5%
Estate and Gift Taxes $13.97 $52.60 376.4%
Customs Duties $30.31 $52.60 173.6%
Miscellaneous Receipts $107.01 $52.60 49.2%
Deficit (Borrowing) $1,086.96 $52.60 4.8%
     Source: Congressional Budget Office

Congress Promotes Abuse and Corruption

One story after another emerges about dysfunctional federal programs plagued by waste, fraud, and abuse. The core problem is that the government has grown so large that trying to make it function with efficiency and soundness has become impossible.

But Congress compounds the problem by creating programs that are ideal targets for crooks and scammers, and they resist repealing them even after years of scandal. The Earned Income Tax Credit, for example, has long suffered from an “improper payment” rate of more than 20 percent, which translates into throwing $10 billion of our hard-earned money down the drain every year. Whatever the policy arguments in favor of the program, that level of waste is hugely unfair to taxpayers and the program ought to repealed on this basis alone.

The Washington Post discusses another long-abused activity today—contract set-asides for small businesses. The article profiles how a Virginia businessman hit the jackpot with $1 billion of federal contracts by posing as a “disadvantaged” and “small” business under the Small Business Administration’s 8(a) program. The Post found that this Mercedes-driving owner of a luxury home is certainly not “disadvantaged,” and his business empire is not “small.”   

The whole thing is disgusting, and I suspect a congressional committee will hold an oversight hearing to pretend to be concerned about the case. But the SBA 8(a) program gets abused over and over, as do other federal preference activities, such as Alaska Native Corporations. All such preferences ought to be abolished, and the government should live up to the goal of “Equal Justice Under Law” engraved on the Supreme Court building.

Indeed the entire SBA ought to be abolished. The agency’s programs distort the economy and promote crony capitalism. Americans are sick of dysfunction in Washington, but if they want the government to operate with any degree of integrity and competence they should demand much less of it.

The Return of the Chimney Sweep

Chimney sweeps are making a comeback in Great Britain. “According to the National Association of Chimney Sweeps,” the Telegraph reports, “Britain is experiencing the largest boom in chimney sweeping since Victorian times. ‘It’s been remarkable,’ said president Martin Glynn. ‘When we started NACS in 1982, there were just 30 members. Today we have 540 members nationally.’” The reason? Gas and electricity prices have risen so high that people prefer to burn wood in their previously unused or underused fireplaces.

Why are the energy prices so high? The British government’s pathological obsession with renewable sources of energy. Converting renewable energy (e.g., wind and solar) is much more expensive than conventional sources of energy (e.g., coal and gas). Since the government mandates that a certain percentage of energy consumption has to consist of renewable sources, energy prices are rising – fast. 

That leads to this amazing paradox: Progressivism started in Victorian England – a time and place of tremendous and unprecedented material and social progress that, nonetheless, also had a darker side. The stories of workers living in freezing and damp dwellings, children chimney sweeps suffocating while on the job, and environmental degradation, were both horrific and true.The evolution of progressivism has come full circle and progressives have turned reactionary: To combat the (highly uncertain) effects of climate change, modern-day progressives have embraced policies that lead to more burning of wood, freezing homes for the poor and vulnerable, and chimney sweeps back at work.

Ending Nuclear Overkill

Benjamin Friedman and I have an op-ed in today’s International New York Times  (and the New York Times iPad app, I just checked) which calls for shrinking the U.S. nuclear arsenal, and moving from a triad of delivery systems—bombers, land-based intercontinental ballistic missiles (ICBMs), and submarine-launched ballistic missiles (SLBMs)—to a submarine-only monad.

The main focus of the piece is on the strategy that led to the enormous growth of the arsenal in the 1950s and 60s, and the attendant history of the triad. We go into the history to show that the strategy driving our nuclear force posture is outdated and based on inaccurate assumptions. The rationale for the triad is equally dubious given the vast technological gains since ICBMs and SLBMs were first developed and deployed.

But the international system has obviously changed since the days of the Cold War. Potential targets for American nuclear weapons are growing scarcer. New nuclear powers like North Korea struggle to deploy even a handful of delivery vehicles. Targeting China’s few long-range missiles demands intelligence to find them, not sheer numbers of warheads to hit them. And Russia’s plans to modernize its non-nuclear forces suggest that it is not aiming for nuclear parity.

The op-ed draws from our recent white paper, “The End of Overkill?” and will be the subject of an upcoming event on Capitol Hill, for those of you who missed the policy forum at Cato last month. We’ve spoken and written about the paper before, but my hope is that additional exposure will draw attention to an understudied phenomenon: nuclear overkill. Placement in the New York Times certainly should help.

The fiscal situation helps, too. As we explain in the paper and the op-ed, the various military services grabbed a share of the nuclear mission in order to grow their budgets in the 1950s. Even the Army, effectively barred from developing strategic nuclear weapons, managed to get into the nuclear strategy game through “flexible response,” the claim that the presence of large numbers of U.S. troops stationed in Europe enhanced our ability to deter attacks on our allies. Such claims were dubious even then, but few people were inclined to scrutinize them.

By contrast, today’s budget battles are forcing the services to compete with one another, and with themselves (e.g., surface ships vs. submarines in the Navy, or ICBMs vs. fighter aircraft in the Air Force). In that context, as we conclude in the op-ed:

Budget-conscious service chiefs may see nuclear weapons as an attractive target, especially given their irrelevance in recent wars.

Pentagon competition helped create the triad; restored competition could help kill it.

You can read the whole thing here.


New Study Explains How and Why Parents Choose Private Schools

Why do parents choose a particular school? What information do they consider in making that choice? Do they prioritize high standardized test scores, rigorous college preparation, moral or religious instruction, or something else?

This morning, the Friedman Foundation released a new study, “More Than Scores: An Analysis of How and Why Parents Choose Private Schools,” that sheds light on these questions. The study surveyed 754 low- and middle-income parents whose children received scholarships from Georgia GOAL, a scholarship organization operating under Georgia’s scholarship tax credit law.

The study’s findings provide analysts and advocates across the education policy spectrum with much to consider. 

Victory for Cato: Feds Now Seeking Input on the Social Cost of Carbon

It’s about time!

For months, we have been hammering away at the point that the Feds’ current determination of the social cost of carbon is grossly out of touch with the relevant scientific literature and economic guidance.

Perhaps in response to the fact that they can’t argue against what we have been saying, the Administration has finally capitulated and is opening up their determination of the social cost of carbon (SCC) for public comment.

Their SCC calculation—in keeping with the playbook of the president’s Climate Action Plan—is a backdoor way of implementing a carbon tax. And it is slowly, pervasively, and worse of all, silently, creeping into all of our lives.  We’ve been trying to stop all of this by, at the very least, pulling back the cloak of secrecy and trying to make this once-esoteric  subject a topic of dinnertime conversation.

Meanwhile,  the government’s regulatory push using the SCC continues.

The Institute for Energy Research has recently identified nearly 30 federal regulations which have incorporated the SCC into their cost benefit analysis (and several more have been recently announced).

The SCC is used to make regulations seem less costly.  We say “seem,” because the “benefit” from reducing carbon dioxide (CO2)  emissions, as valued by the SCC, is likely never to be realized by the American consumer—yet the other costs (such as increased manufacturing costs) most assuredly will be.

The SCC is a theoretical cost of each additional CO2 emission. But the theory is so loosey-goosey that with a little creativity, you can arrive at pretty much any value for  the SCC—a point noted by M.I.T.’s Robert Pindyck in an article for the Summer 2013 edition of Cato’s Regulation.

As the Obama Administration wants to regulate away as many carbon dioxide emissions as possible, it is in its own self-interest to try to arrive at the highest SCC value possible.  This way, the more that CO2 emissions are reduced, the more money is “saved.”

Or so the idea goes.

But their path towards a high SCC is one away from both the best science and the most common-sense economics.

We imagine that readers of this blog probably are well-aware of the details behind this reality, as we have laid them out on many occasions,  so we won’t go into them again here.

Instead, we want to point out several opportunities to draw further attention to the short-comings in the Administration’s SCC determination.

The period for accepting public comments on several proposed rulemakings is open, and provides a good opportunity to remind the issuing agency what they did wrong. For example, here is a recently-announced regulation proposal from the Department of Energy (DoE) which seeks to impose higher energy efficiency rules for residential furnace fans. It employs the SCC to make this rule seem a lot sweeter than it actually is.

We have already submitted comments on several of these proposed regulations, including DoE regulations to increase the efficiency standards for Microwave Ovens, Walk-In Freezers, and Commercial Refrigeration Equipment.

So, it’s important that  the White House’s  Office of Management and Budget (OBM)  just announced that the social cost of carbon determination currently in force will be open to public comment starting sometime in the presumably near future (keep an eye on the Federal Register for the official announcement).

While it is too early to tell, this willingness to hear public comments on the SCC probably originated from the comments received on the Petition to Reconsider the proposed Microwave Oven ruling—the first rulemaking to incorporate the Administration’s latest-worst iteration of the SCC (which was about a 50% increase over its original figure). There hasn’t been an official announcement as to the result of Petition, but the scientific argument against it is a Cato product.

More than likely, though, this will all be for show.  The feds could selectively use some comments and  somehow find a way to raise the SCC even further.  Like we said, that’s easy to do—crank down the discount rate, or  crank up the damage function (make-up new damages not included in the current models)—even while paying lip service to the lowered equilibrium climate sensitivity and the CO2 fertilization effect.

We’d be more than happy to be wrong about this. But until then, our efforts to set things straight will continue.