Tax Credits We Don’t Need, Tax Credits We Do … Ohio #1

Here is the first of what might become a series depending on the fan mail …

We have tax credits for all manner of things at the federal, state, and local levels that we don’t need and shouldn’t have tax credits for … like hybrid cars, movie production, and lemonade stands (the last one isn’t real as far as I know, but I wouldn’t rule it out).

One of the more popular tax credits is for saving old buildings that some people don’t want torn down but don’t care enough about to save with their own collective money. So they subsidize the renovation with credits. The Plain Dealer editorializes in support:

A state historic tax credit that, shortsightedly, was drastically scaled back this spring has now been expanded, thanks in large part to advocacy by Russell Township Rep. Matt Dolan - a leading GOP candidate to become the next Ohio House speaker - and support from Lt. Gov. Lee Fisher.

The program was revived when Gov. Ted Strickland signed a $1.6 billion economic stimulus bill. That will allocate $120 million in tax credits for developers to preserve and renovate historic properties, most of which are in urban areas.

What most states don’t have are education tax credits – the one and only tax credit that makes fiscal sense because it really does save taxpayers’ money and the only tax credit that actually decreases market distortion rather than increasing it.

But I have a question for Ohio’s politicians; if it’s good to encourage developers to invest in building preservation, why isn’t it good to encourage all taxpayers to invest in education? Are developers and old buildings more important than a child’s future?

Will the Plain Dealer, Rep. Matt Dolan, Lt. Gov. Lee Fisher, and Gov. Ted Strickland come out in support of at least $120 million in tax credits for educating Ohio’s children? If not why not?

Inquiring minds want to know …

Has Trade Saved Us from Recession?

Good news on the economy, sort of. The Commerce Department reported this morning that it has revised the economy’s growth rate in the first quarter of 2008 to 1.0 percent. That is slightly higher than the government’s earlier two estimates and it means we have probably dodged a technical recession, at least for the first half of this year.

Politicians on the campaign trail should take note of the report for a couple of reasons. First, let’s not exaggerate the U.S. economy’s current difficulties. Politicians love a full-blown crisis because it can be used to justify all sorts of regulatory and spending programs. This is not a crisis (and government “stimulus” efforts typically have little effect, anyway).

Second, they should give thanks to America’s more globalized economy for smoothing the business cycle and possibly saving us from full-blown recession this time around. Trade is one of the bright spots of the latest report. While the housing sector has contracted by a quarter, shaving more than a percentage point from overall GDP growth, exports have been going gangbusters. Exports rose by more than 5 percent in the first quarter on an annual basis, offsetting about two-thirds of the negative effect of the housing market.

As I wrote in a Cato Free Trade Bulletin earlier this year on the subject:

[E]xpanding trade and globalization have helped to moderate swings in national output by blessing us with a more diversified and flexible economy. Exports can take up slack when domestic demand sags, and imports can satisfy demand when domestic productive capacity is reaching its short-term limits. … A weakening dollar has helped to boost exports and earnings abroad, but the main driver of success overseas has been strong growth and lower trade barriers outside the United States.

Instead of blaming trade for our current economic slowdown, politicians should be thankful that trade has spared us from something worse.

Pawlenty, Clarified

My recent blog on Minnesota governor — and potential Republican vice presidential nominee — Tim Pawlenty brought a great deal of e-mail from Pawlenty partisans. Most of their criticism was of the “definition of ‘is’” variety. Governor Pawlenty doesn’t support “price controls” for the Medicare prescription drug program, he merely wants the government to “negotiate” prices. (Anyone who thinks that distinction is a difference should read this article by Robert Goldberg or this piece by Benjamin Zycher). And, while he supported one increase in the state’s minimum wage, he opposed a second increase. (So he only abandons conservative principles and basic economics sometimes.) However, in fairness to Governor Pawlenty, two of my criticisms do deserve clarification.

On SCHIP: Governor Pawlenty did not specifically oppose President Bush’s veto of the Democratic expansion of SCHIP. He did praise the bill for “increasing” SCHIP funding, and both individually and as head of the National Governors Program urged the program’s renewal, while the Democrats were trying to override the president’s veto. But he did not specifically call for overriding the veto.

And, on an individual health insurance mandate: Governor Pawlenty’s Health Care Task Force endorsed such a mandate. Although the governor initially hailed the task force report and called it “a framework” for reform in Minnesota, he did later distance himself from the recommendation for a mandate.

I don’t think any of this makes him less of a big-government conservative, but I want to make sure my criticism is as accurate as possible.

Supreme Court Crack-Up (and Down with Punitive Damages)

Certain commentators are noting the relative dearth of 5-4 decisions this term after a full third of last year’s cases were decided by that narrowest of margins (with Justice Kennedy in the majority in all of them).  That’s a bit premature, however, as already the last ten days have produced more 5-4 cases than the term leading up to them.  Tomorrow – with the contentious issues of energy deregulation, campaign finance, and, of course, the D.C. gun ban – will no doubt have even more.  They always leave the close cases for the end, folks, and none of today’s four cases were anywhere near unanimous. The two decisions that got all the attention, of course, were Kennedy v. Louisiana (capital child rape) and Exxon v. Baker (punitive damages from the Valdez spill).

I won’t say much about Kennedy, other than that, as he has so, so many times in the past, Justice Kennedy again shamelessly substituted his own policy preferences for the will of the people.  Regardless of one’s views on whether certain types of crimes short of murder (aggravated rape, child rape, treason, etc., etc.) warrant the death penalty, this is an issue properly left to the people and their elected representatives in state legislatures.  We do not pick nine (left alone five) black-robed lawyers to be our moral arbiters, philosopher-kings, or bureaucrats-in chief.  Kennedy versus Louisiana indeed!

As for Exxon, here we have the curious situation on the Court splitting 4-4 (Justice Alito having recused himself for owning Exxon stock) on the question of whether maritime law – the Court was only reviewing issues of federal maritime not constitutional law – permits punitive damages for the acts of agents.  This means that, on that issue, the Ninth Circuit’s opinion is summarily affirmed (without setting Supreme Court precedent), a terrible result because the Courts of Appeal are themselves split.  The Court went on, nevertheless and I think properly, by a 5-3 vote to vacate the $2.5 billion punitive damages award because, under maritime common law, punitives should be limited to the amount of compensatory damages (here $507.5 million).  The trial lawyers, as expected, are upset (about losing 80 percent of their contingency fee).  For further comment both on the issue of deadlock-producing recusals and punitive damages, I’ll save pixels here and refer you to my podcast. [Editor: Subscribe already!]

And again, stay tuned tomorrow for D.C. v. Heller (guns, for which my colleague Bob Levy is co-counsel and in which Cato filed an amicus brief), Davis v. FEC (campaign finance, in which we also have a brief), and Morgan Stanley v. Public Utility No.1 (electricity contracts).  The way the opinions have come down, smart money is on Scalia writing Heller (majority or plurarity) and Alito writing Davis.  Note that all three cases were long ago selected for inclusion in this year’s Cato Supreme Court Review.

Bush Watch

Over at RedState, they’re excited about a video narrated by Sen. Fred Thompson – remember him? – for the President’s Dinner of the National Republican Senatorial Committee and the National Republican Congressional Committee. It’s a fine video, full of stirring music and appeals to freedom and smaller government by Thompson, John McCain, and the President – Ronald Reagan, that is. In 5 minutes and 28 seconds, there was no room for a clip, a photo, or a mention of the current President, what’s his name, Bush.

Republicans are no dummies. If they haven’t had a president they’re proud to be associated with in the past 20 years, they’ll reach back 27 years ago to the first inaugural address of a president they can still sell.

So Much, Yet So Little

Depending on where you live, you might have seen a story in your local paper on a new report finding that test scores have improved under the No Child Left Behind Act, implying — but not outright saying — that NCLB is working.

So why would getting this news depend on where you live? Because the report looked primarily at state tests, and only about 28 states had sufficiently consistent data to do meaningful score analyses. The other 22 had changed their testing in so substantial a way since NCLB’s passage that not even three years of consistent results could be strung together. Which is the biggest non-finding finding of the report: NCLB has instigated so much test engineering — often to make assessments easier — that nearly half of all states have no useful long-term data. And don’t automatically assume that the other 28 haven’t changed things: the report itself notes that they could have made questions easier or harder, changed relative weights of questions, and made other, more subtle changes to their tests.

There are other problems with the study that make it impossible to credit score increases to NCLB, most of which the report is upfront about but news stories rarely feature: There’s no “control group” unaffected by NCLB against whom to compare students “treated” by the law, no ability to tease out the effects of NCLB versus other reforms, etc. The most obvious problem, though, is that in large part because of NCLB, lots of states have testing systems incapable of providing the consistent, long-term results that federal policymakers promised the law itself would deliver.