Topic: General

Cato’s Ivy League Internship

The Wall Street Journal reports:

While some colleges struggle to fill seats, the country’s most selective ones are becoming harder to get into. Seven of the eight Ivy League schools reported they lowered their acceptance rate for this fall, with Harvard leading the pack by accepting less than 6% of its more than 30,000 undergraduate applicants.

As we’ve noted before, perhaps the only student program more difficult to get into than Harvard is the Cato internship program. This summer we were able to accept 4.9 percent of the more than 800 applicants for internships.

The program’s rigor is similar to the Ivy League, too. But, unlike the Ivy League, Cato interns receive a broad and deep education in the fundamentals of liberty. Each intern is assigned to policy directors at Cato, allowing the intern to delve deeply into a particular area of study. Not only do the interns help Cato scholars with research and work with the conference department to organize policy conferences, debates, and forums, but they attend regular seminars on politics, economics, law, and philosophy, as well as a series of lectures and films on libertarian themes. The interns develop their public speaking skills by presenting policy recommendations and develop their writing skills by drafting letters to the editor and op-eds. After such intense study, they emerge at the end of the summer well equipped to promote and live the ideas of liberty.

Find out more about Cato internships here. Note that the internship program is year-round, and the process is a little less competitive for Fall and Spring internships. We encourage students to consider applying in any season. The deadline for Fall internship applications has passed, and the deadline for Spring is November 1.

Wall Street Journal Condemns OECD Proposal to Increase Business Fiscal Burdens with Global Tax Cartel

What’s the biggest fiscal problem facing the developed world?

To an objective observer, the answer is a rising burden of government spending, which is caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations—as confirmed by BIS, OECD, and IMF data—face a very grim fiscal future.

If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.

But you probably won’t be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy’s productive sector.

They’ve already been busy raising personal income tax rates and increasing value-added tax burdens, but that’s apparently not sufficient for our greedy overlords.

Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a “base erosion and profit shifting” plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.

What is this BEPS plan? In an editorial titled “Global Revenue Grab,” The Wall Street Journal explains that it’s a scheme to raise tax burdens on the business community:

After five years of failing to spur a robust economic recovery through spending and tax hikes, the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.

The Journal is spot on. This is merely the latest chapter in the OECD’s anti-tax competition crusade. The bureaucracy represents the interests of
high-tax governments that are seeking to impose higher tax burdens—a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.

More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.

Reality Hits Sunshine State “Accountability”

Former Florida governor Jeb Bush is arguably the leading supporter of both the Common Core national curriculum standards and top-down, standards-and-accountability-based reforms generally. And there is broad evidence that he had success with his overall education program as governor, though that included a sizable—and likely influential—amount of school choice. Given that success, why does the “accountability” piece of his overall program seem to be eroding, with the state school board voting last week to “pad” school grades, for the second year in a row, greatly reducing how many schools are deemed failures? Answering this is crucial to understanding why top-down reforms like Common Core—even if initially offering high standards and strict accountability—almost certainly won’t maintain them.

Once again, we have to visit our ol’ buddies, concentrated benefits and diffuse costs. Put simply, the people with the most at stake in a policy area will have the greatest motivation to be involved in the politics of that area, and in education those are the schooling employees whose very livelihoods come from the system. And being normal people like you or me, what they tend to ideally want is to get compensated as richly as possible while not being held accountable for their performance.

The natural counters to this should be the parents the employees are supposed to serve and the taxpayers footing the bills. But taxpayers have to worry about every part of the state spending pie, and can’t sustain their focus—or motivation—for long on any particular pie slice. Meanwhile, parents are much harder to organize than, say, teachers and administrators, and are only parents of school-aged children for so long. Political advantage: those whom government is supposed to hold accountable.

That said, in Florida it sounds like many parents and taxpayers may be getting fatigued by test-driven school grades, adding onto the power of employee groups. Like we’ve seen in Texas, Florida’s politics may be reflecting a general exhaustion with standards and testing that fails to treat either students, or schools and districts, as unique. In other words, the likely benefits to breaking down such systems are being felt by more parents and “regular” voters, which doesn’t bode well for standards-and-accountability in Florida.

Which brings us to the crucial point about the Common Core. Supporters have a tendency to promise the world with the Core (often neglecting to mention that it provides no accountability itself) largely because they think the standards are very high. But even if they are lofty, and even if they are initially coupled with common tests with high “proficiency” bars—an increasingly big “if”—because of concentrated benefits and diffuse costs the odds of them staying that way are poor. It is a huge problem that Core supporters need to address, even for people who like the idea of “tough” government standards for schools. But sadly, many supporters seem to ignore the problem, choosing instead to tout how supposedly excellent the standards are, and attack as loony opponents who dare to oppose the Core for numerous, very rational reasons.

Unfortunately, it seems a major reason for adopting that tactic is to shield from honest debate a policy that will, by its very nature, impose itself on the entire country. That’s something no one in the country should be happy about.

A Big, Tiny Deal on Student Loans

After a bit of a false start last week, it sounds again like the Senate is on the brink of a bipartisan compromise that will link rates on federal student loans to overall interest rates. Given all the hubbub that’s surrounded the loans, that’s big news. Given the actual change that would take place, it’s tiny.

Based on reports so far, the plan seems to be to eventually peg all undergraduate loans – both the officially “subsidized” and “unsubsidized” – to 10-year Treasury bill interest rates, adding 2.05 percentage points. Today, that would make the interest rate 4.57 percent. However, it appears that the compromise would put rates at 3.85 percent this fall. That’s no doubt a sweetener to appease student interest groups, whose goal is to get the cheapest loans possible regardless of the rest of the economy, and who don’t think a deal pegging student loans to T-bills is so hot.

To be fair, the deal isn’t hot. It’s barely room temperature. But that’s because it still gives away far too much, not too little. Taxpayer-backed loans that go to almost anyone have been a sweet-sounding disaster, encouraging people to consume education they aren’t willing or able to complete; prodding people who are college-ready to demand things that have little or nothing to do with education; and fueling rampant price inflation throughout the system. And, like last week’s abortive deal, this one appears to eliminate the different rates for the “subsidized” loans – those geared to truly low-income students – and the “unsubsidized” loans that have no income cap. In other words, the student aid system that is already heavily skewed toward the better-off seems likely to become a bit more so.

If this compromise eventually gets signed by the president, it will likely be hailed as a big, bipartisan deal. And maybe politically it would be. But as policy? It would barely register.

America’s Corporate Tax System Ranks a Miserable 94 out of 100 Nations in “Tax Attractiveness”

I’ve relentlessly complained that the United States has the highest corporate tax rate among all developed nations.

And if you look at all the world’s countries, our status is still very dismal. According to the Economist, we have the second highest corporate tax rate, exceeded only by the United Arab Emirates.

But some people argue that the statutory tax rate can be very misleading because of all the other policies that impact the actual tax burden on companies.

That’s a very fair point, so I was very interested to see that a couple of economists at a German think tank put together a “tax attractiveness” ranking based on 16 different variables. The statutory tax rate is one of the measures, of course, but they also look at policies such as “the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, loss offset provision, the double tax treaty network, thin capitalization rules, and controlled foreign company (CFC) rules.”

It turns out that these additional variables can make a big difference in the overall attractiveness of a nation’s corporate tax regime. As you can see from this list of top-10 and bottom-10 nations, the United Arab Emirates has one of the world’s most attractive corporate tax systems, notwithstanding having the highest corporate tax rate.

Unfortunately, the United States remains mired near the bottom.

Can Egyptian Democracy Arrive on the Back of Tanks?

U.S. foreign policy has resulted in many grand failures. Egypt has joined the pantheon.

That nation long has been a national wreck. Washington emphasized “stability” since Cairo backed U.S. policy and preserved peace with Israel. 

Two years ago the people of Egypt finally had enough. Unfortunately, Hosni Mubarak’s fall loosed Islamist forces. The Muslim Brotherhood’s Mohamed Morsi was elected president and won approval of an Islamist-oriented constitution. 

But President Morsi failed politically and economically. After just one year, millions of demonstrators demanded his ouster. Neither side was much interested in compromise, so the generals staged a coup.

The Obama administration stands helplessly in the middle, denounced by the Brotherhood and anti-Morsi protestors. Yet the administration still refuses to follow the law, which mandates an end to foreign aid in the event of a coup.

Although Morsi was responsible for his failures, he was obstructed at many turns. The opposition behaved little better, failing to organize effective political parties and develop political leaders. 

As I write in my latest American Spectator article:

The military’s coup cannot be disguised as something else.  Imagine U.S. army units invading the Oval Office, arresting President Barack Obama and his senior aides, detaining hundreds of top Democratic Party officials, closing down MSNBC and other Democratic-leaning media, appointing Chief Justice John Roberts as caretaker president, and shooting pro-Obama protestors.  Americans would call it a coup.  Even conservatives would call it a coup. 

Unfortunately, coups rarely yield democratic results, especially when staged against freely elected officials.  A coup is by definition force and necessarily relies on repression.  The result is more often extended dictatorship—Spain 1936, Iran 1953, Chile 1973, and Greece 1967, for instance—than renewed democracy.

Electoral defeat would have discredited the Brotherhood, but political martyrdom may revive the organization. And if the Brotherhood does not receive credible assurances that it will be allowed to fairly compete in the future, political Islam in Egypt and elsewhere may turn sharply against democracy. The nightmare scenario is Algeria, where a decade of civil war followed the suppression of Islamists who were poised to win a parliamentary election.

In any case, the military is no friend of secular liberals and the freedoms they hold dear.  Nor are the generals likely to slink into the background after having been handed the keys to the kingdom. Indeed, the coup precedent will remain, ready for use against the next president who expands his powers, fails to fix the economy, and offends well-organized groups.

There is no good answer. Egypt likely faces more short-term violence and certainly faces long-term instability. Washington can do little. The administration should follow the law and cut off aid. Then, having long underwritten autocracy, the U.S. government should get out of the way.

Yes, Aid Fuels Tuition Inflation

At this point, I think I’ve said all I need to about the doubling of interest rates on subsidized federal student loans. Basically, the doubling won’t have a big impact one way or another, but putting a little more payment burden on the students consuming higher education is probably a good thing. Why? Because cheap aid encourages students to demand stuff they otherwise wouldn’t, and enables colleges to raise their prices at excessive rates.

That said, since the nation will likely be talking about student aid for a while longer, now is probably a good time to reprint – and expand – the list of empirical studies that have, in one way or another, found that schools in large part capture aid money rather than becoming more affordable. The list probably isn’t exhaustive, and there are many limitations that make it impossible to prove that aid fuels inflation, but combined with the logic that you’ll willingly pay more if you have someone else’s money, these studies show that there is very good reason to conclude that aid is counterproductive:

John D. Singell, Jr., and Joe A. Stone, “For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid,” Economics of Education Review 26, no. 3 (2006): 285-95.

Bridget Terry Long, “How Do Financial Aid Policies Affect Colleges? The Institutional Impact of Georgia Hope Scholarships,” Journal of Human Resources 30, no. 4 (2004): 1045-66.

Bradley A. Curs and Luciana Dar, “Do Institutions Respond Assymetrically to Changes in State Need- and Merit-Based Aid? ” Working Paper, November 1, 2010.

Rebecca J. Acosta, “How Do Colleges Respond to Changes in Federal Student Aid,” Working Paper, October 2001.

Michael Rizzo and Ronald G. Ehrenberg, “Resident and Nonresident Tuition and Enrollment at Flagship State Universities,” in College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby, (Chicago, IL: University of Chicago Press, 2004).

Nicholas Turner, “Who Benefits from Student Aid? The Economic Incidence of Tax-Based Federal Student Aid,Economics of Education Review 31, no. 4 (2012): 463-81.

Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” NBER Working Paper No. 17827, February 2012.

Lesley J. Turner, “The Incidence of Student Financial Aid: Evidence from the Pell Grant Program,” Columbia University, April 2012.