Archives: 12/2013

Congress Fakes Fiscal Responsibility as Uncle Sam Heads toward Bankruptcy

The new budget bill has passed, hiking spending and taxes.  Capitol Hill is back to the bipartisan business of mulcting taxpayers.

Unfortunately, Washington can’t afford to wait for fiscal reform.  The Congressional Budget Office’s most optimistic estimate, the so-called “baseline,” is that Uncle Sam will add $6.3 trillion more in red ink over the next decade.  Annual deficits are expected to begin moving up again in 2016.   

More realistic is CBO’s “alternative” scenario, given how politicians usually behave.  In this case Uncle Sam would run up $8.8 trillion more in red ink. 

These estimates presume good economic times ahead and a minimum of new bail-outs.  Unfortunately, that seems over-optimistic.  Even the Postal Service continues to lose money.

Moreover, the entitlement tsunami—Social Security, Medicare, Medicaid, and now health insurance subsidies—will not have fully developed by 2023.  As a result, warned CBO, without substantial policy changes “debt will rise sharply relative to GDP after.”  Put everything together and economist Laurence Kotlikoff figures that unfunded federal liabilities currently exceed $220 trillion. 

There’s more.  Because federal debt crowds out private investment, CBO estimates that every additional dollar of government debt reduces national saving by 57 cents.  As a result, the GDP likely will drop between four and seven percent, or perhaps even more, by 2038. 

As I observe in my new column in American Spectator online:

In short, borrowing more causes us to owe more and pay more in interest.  At the same time, we will be saving, producing, and earning less.  It’s a prescription for economic and budget disaster.

Unwilling to cut spending, Uncle Sam instead would have to raise taxes or borrow ever more.  Under the alternative scenario the official (exclusive of Social Security-Treasury transfers) debt to GDP ratio would run around 190 percent by 2038, greater than Greece at its worst.  In a paper for the U.S. Monetary Policy Forum earlier this year, economists David Greenlaw, James D. Hamilton, Peter Hooper, and Frederick S. Mishkin posited one scenario under which “The debt/GDP ratio would rise much more rapidly, hitting 304 % of GDP by 2037.”

Moreover, explained CBO, “Growing federal debt would increase the probability of a fiscal crisis, when … the government would thereby lose its ability to borrow at affordable rates.”  Based on international experience, David Greenlaw and his colleagues warned “that countries with debt above 80 percent of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics.”  In that case federal liabilities likely would explode, as they did in the 2008 financial crisis. 

The feedback loop would continue to worsen.  Noted Greenlaw, et al., “If U.S. government finances are not put on a sustainable path, … then the public might expect the Federal Reserve to be forced to monetize this debt.  What would then unhinge inflation expectations would be the fear of fiscal dominance, which could then drive up inflation quickly.”

Amazingly, observed David Greenlaw, et al., “As recently as the 1990s, the United State government was running budget surpluses and there was serious discussion of what would happen if the federal government was able to retire its debt.”  That world is long gone, probably forever. 

Still, Washington is celebrating Good News!  For the first time in five years, the annual federal deficit has dropped below $1 trillion. 

Alas, the cheery interlude will be brief.  Soon the red ink again will be growing, and the more government spends and taxes, the worse will be the economic impact.  No wonder CBO warned of “the unsustainable nature of the federal government’s current tax and spending policies.” 

Washington only faces “difficult choices,” in CBO’s words.  America’s political leaders should be choosing among them instead of passing another dishonest feel-good budget agreement.

You Could Have Read It Here First

If you’ve been reading Cato at Liberty and www.cato.org, then you already know, as the lead story in the Washington Post reported this morning, that both the constitutionality and the necessity of the NSA’s massive surveillance are in doubt:

From the moment the government’s massive database of citizens’ call records was exposed this year, U.S. officials have clung to two main lines of defense: The secret surveillance program was constitutional and critical to keeping the nation safe.

But six months into the controversy triggered by former NSA contractor Edward Snowden, the viability of those claims is no longer clear.

In a three-day span, those rationales were upended by a federal judge who declared that the program was probably unconstitutional and the release of a report by a White House panel utterly unconvinced that stockpiling such data had played any meaningful role in preventing terrorist attacks.

President Obama Is Still the Deporter-In-Chief

Immigration and Customs Enforcement (ICE) released figures showing that they deported fewer people during FY2013 than any year since FY2008 –368,644.  But that number is still higher than at any time during the Bush administration despite the unauthorized immigrant population peaking in 2007.  Just eyeballing the bottom graph confirms that the level of deportations is largely explained by the size of the unauthorized immigrant population (R-Squared=.813).  The more unauthorized immigrants there were, the higher the number of deportations.    

 

Source:  Department of Homeland Security and author’s estimate. 

 So how does Obama’s enforcement record compare to the years before he took office?  Is he under-enforcing or over-enforcing immigration laws relative to what we’d expect given the size of the unauthorized immigrant population?

President Obama is over-enforcing immigration laws.  During his administration a yearly average of 3.37 percent of all unauthorized immigrants have been deported every year compared to just 2.3 percent during President George W. Bush’s administration.  It is true that deportation as a percent of the unauthorized immigrant population have slackened in 2013 but that is still above any year during the Bush administration.

UPDATE: OH Legislator Drops Anti-Homeschool Bill

In the wake of a “grassroots tsunami,” the Ohio legislator who had proposed the worst anti-homeschooling bill to date has now withdrawn the controversial and misguided legislation:

On Thursday, [Democrat State Senator Capri] Cafaro released the following statement in regard to Senate Bill 248 [a.k.a. “Teddy’s Law”]:

“SB 248 was never meant to be a policy debate about educating children in the home. It was meant to address weaknesses in the law pertaining to child protection. Unfortunately, the true intent of the bill to curtail child abuse has been eclipsed the by the issue of homeschooling.”

In fact, the bill was entirely about homeschooling. The bill would have forced all would-be homeschoolers to seek permission from the government to educate their own children at home. Homeschooling parents would have had to submit to background checks and social services would interview each member of the family separately, then the government would decide whether homeschooling was in the children’s “best interest.” In other words, the government would treat all homeschooling parents as child abusers until proven innocent.

 It is said that the price of liberty is eternal vigilance. This episode demonstrates that vigilance pays off.

Reviewing the Review Group: Practice What You Preach

The “President’s Review Group on Intelligence and Communications Technologies” has issued their report. Convened in late summer to advise the president on what to do in the wake of the Snowden revelations (without mentioning Snowden), the group was rightly criticized for its ‘insider’ composition. The report has beaten the privacy community’s low expectations, which is good news. It advances a discussion that began in June and that will continue for years.

Some observations:

- Contrary to expectations, the report is outside the White House’s “comfort zone.” That’s good, because, as noted, this group could easily have decided to ratify the status quo, handing the administration and the National Security Agency a minor victory. The report positioned Senate Judiciary Committee chairman Patrick Leahy (D-VT) to say: “The message to the NSA is now coming from every branch of government and from every corner of our nation: You have gone too far.”

- There is no reason to treat the report as a reform “bible.” This was a problem with the 9/11 Commission report, for example, which was held up as sacrosanct even when it was wrong. The Review Group report is right about some things, such as eliminating administratively issued National Security Letters, it is wrong about some things, and it omits some key issues, such as the government-wide penchant for secrecy that created the current problems.

- Weaknesses are more interesting than strengths, and a particular weakness of the report is its call for retaining the phone calling surveillance program. Recommendation Five calls for legislation that “terminates the storage of bulk telephony meta-data by the government under [USA-PATRIOT Act] section 215, and transitions as soon as reasonably possible to a system in which such meta-data is held instead either by private providers or by a private third party.” The debate over data retention mandates ended some years ago, and the government was denied this power. The NSA’s illegal excesses should not be rewarded by giving it authorities that public policy previously denied it. Outsourcing dragnet surveillance does not cure its constitutional and other ills.

- The data retention recommendation is in conflict with another part of the report, which calls for risk management and cost-benefit analysis. “The central task,” the report says, “is one of risk management.” So let’s discuss that: Gathering data about every phone call made in the United States and retaining it for years produces only tiny slivers of security benefit, the NSA’s unsupported claims to the contrary notwithstanding. Considering dollar costs alone, it almost certainly fails a cost-benefit test. If you include the privacy costs, the failure of this program to manage security risks effectively is more clear. The Review Group’s conclusion about communications surveillance is inconsistent with its welcome promotion of risk management.

Most legal scholars and most civil liberties and privacy advocates punt on security questions, conceding the existence of a significant threats, however undefined and amorphous. They disable themselves from arguing persuasively about what is “reasonable” for Fourth Amendment purposes. Concessions like these also prevent one from conducting valid risk management and cost-benefit analysis. Some of us here at Cato don’t shy from examining the security issues, and we do pretty darn good risk management. The Review Group should practice what it preaches if it’s going to preach what we practice!

Obama Commutes Some Sentences

From the Miami Herald:

President Barack Obama on Thursday issued 13 pardons and commuted the sentences of eight individuals.

The commuted sentences involved men and women serving long terms on drug charges, including several sentenced to life without parole.

“Each of them has served more than 15 years in prison,” Obama noted. “In several cases, the sentencing judges expressed frustration that the law at the time did not allow them to issue punishments that more appropriately fit the crime” …

Another prisoner whose sentence Obama commuted, Clarence Aaron of Mobile, Ala., was sentenced to life without parole in 1993 following his conviction on cocaine charges. Aaron has been a “model prisoner (who) has taken courses in religious studies, economics, Spanish, photography and behavioral development,” according to Families Against Mandatory Minimums.

Obama’s actions here are welcome news to the prisoners and their families, but, from a big picture perspective, the president’s actions are stingy and long overdue.  For additional background, go here and here.  The Pardon Power blog has more details.

Flashback:  I call for the Bush administration (2007!) to pardon Clarence Aaron.

E-Verify Deepens Projected Budget Deficits

On Wednesday, the Congressional Budget Office (CBO) released a cost-estimate for the Legal Workforce Act (H.R. 1772). That bill is one part of the House Republican’s immigration reform package that would nationally mandate a version of E-Verify.

Source: CBO Cost Estimate for H.R. 1772 Legal Workforce Act, page 2.  

CBO notes that many unverifiable employees will be pushed deeper into the underground economy by E-Verify – something that is already occurring in states that mandate its use. Some employers would no doubt continue to pay unverified employees, but would do so off the books and off the radar of the IRS and Social Security Administration. While the government would receive an expected $49 billion in on-budget revenues from new sources of income tax revenue and payroll tax revenue from 2014 to 2023, it would lose $88 billion in off-budget revenue during the same period – mostly from Social Security payroll taxes lost as workers join the underground economy. That’s a $39 billion net loss to revenues due mainly to E-Verify.

My colleagues and I have written extensively about the threat that E-Verify poses to employees, employers, and civil liberties. The CBO estimates that expanding E-Verify would cost the federal government $635 million over the 2014-2018 period, followed by a similar amount from 2018 to 2023. That translates to roughly $1.2 billion in new hires, data retention systems, enforcement tools, and other goodies for the Department of Homeland Security.

The Legal Workforce Act would also impose costly new mandates on state and local governments and the private sector. The CBO estimates at least $10 million in total annual costs to be imposed on state and local governments that will be forced to comply (currently, only 20 states mandate the use of E-Verify for new public hires). And the office estimates a minimum cost of $200 million annually from 2016 to 2018 for private sector employers as they struggle to verify an estimated 50 million employees.

The Legal Workforce Act imposes new costs on the federal government, on state and local governments, on employers and employees, and will push some workers further into the underground economy – all without (thankfully) achieving its core objective of excluding unauthorized immigrants from the workforce. While the CBO may not be known for its accurate fiscal projections, the inevitable net fiscal costs of this bill make it hard to draw anything positive from this recent report.    

This post was written wtih the help of Scott Platton.