Tag: taxpayer

School Vouchers vs. Tax Credits

NRO editor Robert VerBruggen has weighed in a couple of times this week on the relative merits of school vouchers and education tax credits, raising interesting and important issues.

In response to my earlier post today about an education tax credit case now before the U.S. Supreme Court, VerBruggen writes:

If the Supreme Court buys this logic — which I suppose is sound on its face — it could lead to some very interesting programs. Any time it’s illegal for a government to fund something directly, it could simply make a dollar-for-dollar “tax credit” program for it, allowing sympathetic taxpayers to technically “donate” — but actually just redirect the taxes they’d otherwise have to pay — to the cause.

This is actually an argument presented by critics of the program in their brief asking the Supreme Court not to hear the appeal that it… just decided to hear. The fact that this argument is fallacious is no doubt one reason that the Supreme Court decided to reject critics’ request. Here’s where it goes wrong:

Under a constitutional tax credit program such as Arizona’s, the state has no power to pressure/encourage taxpayers to do anything that the state could not do directly. Taxpayers can choose to give no money to religious charities, or to give all their money to them. The state is unable to affect their decisions in any way.

As Ilya Shapiro and I pointed out in Cato’s amicus brief in this case, this is identical to the law pertaining to federal charitable tax deductions. Religious charities get more tax deductible donations than any other kind of entity, and the Supreme Court has repeatedly upheld their constitutionality because the decisions regarding such donations are left entirely to the unfettered choices of private citizens.

While it would be unconstitutional for a tax credit program to only allow donations to religious charities, it is perfectly consistent with the U.S. Constitution and Supreme Court precedent for a tax credit program to be religiously neutral, leaving the donating decisions to private citizens.

But there’s much more to it than this. Credits are not just constitutional, they offer an important advantage over vouchers. Under voucher programs, all taxpayers must support every kind of schooling, which can be a source of social conflict in a diverse society. [Think liberals being forced to fund religious-conservative-capitalist schooling; or conservatives being forced to fund schools supporting homosexuality as natural and without any inherent moral implications]. While this doesn’t violate the U.S. constitution (see Zelman v. Simmons Harris), it’s still a less-than-ideal outcome, as was observed in all three dissents in the Zelman case.

Tax credits, as I explained in the last section of our amicus brief (p. 21), avoid this source of social conflict. Not just families but taxpayers enjoy the benefits of free choice and voluntary association. Tax credits are thus a way to ensure universal access to a free educational marketplace without putting citizens into conflict with one another on matters of conscience. For this and many other reasons, they are the best realistic policy for advancing educational freedom yet devised.

The Case for Auditing the Fed

Recently, the Federal Reserve has significantly altered the procedures and goals that it had followed for decades. Rep. Ron Paul (R-TX) has introduced a bill calling for an audit of the Fed.

Remarkably, there is significant opposition to such oversight, and the political prospects for undertaking such an audit are relatively bleak. In a new paper, Cato scholar Arnold Kling examines the processes and outcomes on which an audit should focus, and looks at opposition to the audit:

We should document why the Fed took each step, what the expected results were, and whether those results were achieved. …The profit or loss of the Fed’s investments would provide a very helpful indicator of whether the Fed’s actions served the economy as a whole or merely transferred wealth from ordinary taxpayers to bank shareholders.

Read the whole thing.

This Is Sparta!

…Sparta, New Jersey that is. Like their fellow citizens in 54 percent of school districts across the state, the people of Sparta rejected their local district’s proposed budget yesterday. That’s the highest rate of school budget rejections since 1976, according to the New Jersey Star Ledger. Why? Taxpayers are tired of the relentlessly increasing per-pupil cost of public schooling at a time when their own household budgets are under pressure. It helped that popular new governor Chris Christie recommended that voters reject their districts’ budgets unless the teachers unions agreed to a one year salary freeze. [HT: Instapundit]

If this keeps up, voters might just decide to dump the government monopoly approach to schooling in favor of an education system that offers families far more choices while dramatically reducing costs.

Obama to Increase FHA Risk

The Federal Housing Administration is heading toward a taxpayer bailout, yet the president’s latest mortgage modification plan would further increase the agency’s exposure to risky mortgages. Mark Calabria calls it a “Backdoor Bank Bailout.”

The administration’s plan would encourage borrowers who owe more than their house is worth to refinance into FHA-insured mortgages. Therefore, the risk of a future foreclosure on these mortgages would fall to the government and taxpayers instead of private lenders.

A recent study from economists at New York University found that the FHA is underestimating its risk exposure. One of the problems is that the FHA isn’t properly accounting for the risk to underwater FHA mortgages that have been refinanced into new FHA mortgages. So it’s hard to see how the president’s plan to refinance private underwater mortgages into FHA mortgages won’t further exacerbate the situation.

To get these mortgages in better shape so the FHA can insure them, $14 billion in TARP money is going to be used to pay private lenders to reduce the amount borrowers owe on their mortgages. Some of this money will also be used to cover eventual losses on these loans. As a taxpayer whose mortgage is underwater, and who would rather go bankrupt than accept a government handout, I find it infuriating that my tax dollars are being used to bail out others in a similar situation.

But with government housing programs, it’s standard practice for officials to cannonball into the pool and worry about who gets splashed by the water later. On Sunday, CNN.com reported on “FHA’s Florida Fiasco,” where the collapse of the heavily FHA-insured condo market has contributed to the possibility of a FHA bailout. The FHA has now tightened its condo standards, but once again it’s a day late and possibly more than few bucks short.

The new FHA initiative is the latest in a series of efforts to “stabilize” the housing market with more subsidies. Policymakers seem oblivious that it was government interventions that helped instigate the housing meltdown to begin with. The housing market would stabilize itself if the supply of and demand for housing was allowed to be brought back into equilibrium. There would be pain in the short-term, but in the long-term we would have a smoother functioning housing market. Unfortunately, for politicians the long-term means the next election.

Moody’s Caves In to Political Pressure on Municipal Bonds

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

The Census Asks Too Much

Everyone in America, I presume, has just received a letter from the U.S. Census Bureau urging us to fill out our Census forms. Seems like a very expensive way to tell us to watch for the form to arrive in the mail. But I’m particularly interested in why they say we should promptly fill out the form:

Your response is important. Results from the 2010 Census will be used to help each community get its fair share of [federal] government funds for highways, schools, health facilities, and many other programs you and your neighbors need. Without a complete, accurate census, your community may not receive its fair share.

Obviously this is a zero-sum game. If my neighbors and I all fill out the form, then you and your neighbors will get less from the common federal trough. But at least we’ll be getting our “fair share,” as the letter tells us twice in three sentences.

But where does the government get the authority to ask me my race, my age, and whether I have a mortgage? In fact, the Constitution authorizes the federal government to make an “actual enumeration” of the people in order to apportion seats in the House of Representatives. That’s all. Not to define and count us by race. Not to ask whether we’re homeowners or renters. Just to ask how many people live here, so they can apportion congressional seats.

I’m not interested in getting taxpayers around the country to pay for roads and schools and “many other programs” in my community. All the government needs to know from me is how many people live in my house. And I will tell them.

More on the census and the Constitution here.

John Berry: Angry about Federal Pay

The head of the federal Office of Personnel Management, John Berry, has become unhinged by a few recent critiques of federal worker pay. Berry is an Obama appointee who apparently views his role as being a one-sided lobbyist for worker interests, rather than a public servant balancing the interests of taxpayers and federal agencies.

Here is an 11-minute audio interview with Berry on Federal News Radio on Friday, where he lashes out at USA Today, Washington Times, and the Cato Institute. Berry is defensive, emotional, and unwilling to accept that new data might indicate a possible problem with the underpaid federal worker thesis that is constantly pushed by the unions.

What do I mean when I say he is unhinged? An investigation by the USA Today found that in 83 percent of 216 occupations examined, federal workers earned more than comparable private-sector workers. Here is Berry’s response when asked whether he thinks the USA Today analysis is a good one: “It is absolutely not! It comes straight out of the Cato Institute!” But, believe it or not, the nation’s largest newspaper is not part of some libertarian plot.

The most troubling aspect of Berry’s performance is his deliberate effort to wrap himself in the flag and deny that anyone should even ask questions about federal workers during a time of national security concerns. It is strange that an Obama administration official would so vigorously use the Bush administration tactic of “waving the bloody shirt.

Here are excerpts from the interview starting at 1:48 minutes and then 5:54 minutes (my transcription):

Interviewer: “There was a line in this [Washington Times] editorial, one of the first lines, it was the first line of the second paragraph, and that is: ‘Consider how much money a bureaucrat can make for successfully sitting at his desk for a year.’

Berry: …You know, this is the kind of, it’s just a denigration of public service and, and it is, there should be no place for it in our country… And to be denigrated and say that they’re bureaucrats sitting at a desk pushing paper there should be no place in American society for such hyperbole.

Interviewer: I wonder if this is something that comes because of the economy. Where is this upswell of anger coming from?

Berry: …And that’s why I just get steamed when I read something like this because it denigrates that incredible motivation, and like I said to denigrate those who even put their lives on the line day in and day out so that the rest of us and our children can be safe, there should be no place for it. And I think my hope is that a lot of people, not just me, will rise up and respond to this with the anger and the facts that it deserves. Because as long as people can get away with denigrating that level of service, then we are putting at risk the future of our country.”

Have you got Berry’s message? We simply cannot allow people to use their free speech rights to question the operations of government because that will undermine national security. So people need to “rise up” and get “angry,” grab their pitchforks, and head to the homes of anyone who dares question high government worker pay because it puts “at risk the future of our country.”

Good grief!

More from me on federal worker pay here.

(Thanks to Solomon Stein and Justin Logan)