Another Advantage of Education Tax Credits

Sara Mead’s latest post over at the Quick and the Ed offers yet another opportunity to point out yet another advantage of tax credits over such alternatives as school vouchers or government monopoly schooling.

Before describing that advantage, though, I can’t resist addressing the logical fallacies at the heart of her post. Mead originally argued that tax credits are public money. When that was proven false, she fell back to the claim that tax credits are equivalent to public money in non-legal respects. That, in turn, was proven false in my last post, which contrasted the programs’ categorically different levels of taxpayer compulsion and linked to an exposition of further differences. Mead nevertheless continues to assert that tax credits are equivalent to government money because, she says, they have the same net effect on state budgets and have “a distorting impact on individual incentives.” This is a hybrid of the fallacy of composition and false analogy. The fact that two things share one or more particular traits in common does not make them equivalent. They may, as in this case they do, differ in other material respects. Mead thus remains mistaken in her persistent belief that tax credits are equivalent to government money.

The real reason that her post is worth responding to, however, has nothing to do with its interesting logical fallacies. Rather, it is because she mentions the “distorting impact” of education tax credits on “individual incentives.” In this premise at least, Mead is correct. Education tax credits do affect both parents’ and taxpayers’ behavior, but they do so less perniciously than is the case with either school vouchers or government schooling.

Under scholarship donation tax credits, taxpayers choose the scholarship granting organization that receives their money. If they are not happy with the quality or efficiency of their current choice, they can redirect their next donation elsewhere. Under vouchers or the status quo, taxpayers dissatisfied with the state system who decided to redirect their tax liability to a private scholarship organization of their choosing would eventually find themselves in jail. Their behavior is thus rather more profoundly circumscribed under government-funded programs.

The incentives for parents who claim personal use tax credits are also superior to those faced by parents under vouchers or the status quo. Under the sort of tax credit policy my colleagues and I advocate, the eligibility criterion for the personal use credit would simply be that parents take financial responsibility for their own children’s education (i.e., that the kids not be enrolled in government schools). They could allocate some of the money they saved for home instructional materials and some for tuition, for instance, weighing the value of each according to their own preferences. This ability to weigh alternative educational expenditures against one another produces an incentive for thrift and parental involvement. Such parental budgetary discretion is impossible under the status quo, and more problematic under vouchers (which tend to be limited exclusively to tuition because of the more intrusive regulatory restrictions usually applied to government subsidy programs).

As for Mead’s conspiracy theory about the “real” reason why my colleagues and I support education tax credits, it’s only worth a brief mention: Education tax credits are the best policy option under current conditions, both legally and practically. If conditions change, and I wake up some morning to find that a state has so drastically cut taxes that such a program would not be viable, I will happily suggest alternatives that would still fulfill the public’s unwavering desire for universal access to a good education. That’s provided I’m not struck by a flying pig on the way to work, of course.

Anti-trade Demagoguery from the Eagle Forum

I’m occasionally asked, “If the case for free trade is so solid, why don’t more people agree with it?”  One reason is that it is so much easier to demagogue international trade than it is to explain it.

For example, consider a column posted this morning by Phyllis Schlafly, president of the Eagle Forum. Mrs. Schlafly is a social conservative known mostly for her opposition to abortion and the Equal Rights Amendment, but she also speaks out frequently against immigration and free trade.

In today’s column, titled “The Price Of Imported Food Is Too High,” she takes aim at trade with China, and in particular trade in agricultural goods.

The Clinton Administration conned American farmers into being the principal lobbyists in 2000 for passage of PNTR (Permanent Normal Trade Relations) for Communist China, which gave Chinese goods unconditional access to U.S. markets.

Bill Clinton promised in his State of the Union address that PNTR for China would be a win-win for American agriculture because “this agreement will open China’s market to us.” His Department of Agriculture predicted that the average annual value of U.S. agricultural exports to China would increase by $1.5 billion.

Globalization turned out to be a cheat. Department of Commerce figures show that U.S. wheat exports to China are less today than before PNTR was passed.

Consider the facts on U.S. farm exports to China. Since 2001, when we made normal trade relations with China permanent, U.S. agricultural exports to China have grown from $2.1 billion to $7.2 billion–an increase of more than $5 billion. Our export of soybeans alone has increased by $1.5 billion, raw cotton by almost $2 billion. Wheat exports, in contrast, make up a small and declining share of our total agricultural sales to China. 

Mrs. Schlafly goes on to rail against tainted pet food recently imported form China. “Maybe China’s poisoning of our pets will be one offense too many to tolerate,” she concludes. 

Food safety is not primarily a problem of imports. Americans have been poisoned recently by meat from Nebraska and spinach from California. The answer is better safety inspections for domestic and imported food alike, not higher tariffs on imports. If we tax imported food, we would merely drive up food costs for American families, especially those on tight budgets who spend a higher share of their income on food. 

It’s regrettable that an organization dedicated to upholding moral and family values would put out such misleading material in effect arguing for higher food costs for millions of American families. 

REAL ID Is a Dead Letter

Ten states have now passed legislation rejecting the REAL ID Act, the national ID law Congress passed without a hearing in May 2005.

Massachusetts may be next. According to the Boston Globe, the registrar of motor vehicles in that state issued scathing comments to the DHS on the regulations implementing the law. Apparently, there were 12,000 comments in total – quite a few of them negative, I’ll wager.

I have testified on REAL ID twice in the U.S. Senate, both times calling the law a “dead letter” – once in the Committee on Homeland Security and Governmental Affairs and once in the Judiciary Committee.

Gonzales’s Gambit

Still more reasons why Gonzales needs to go.

When Attorney General John Ashcroft and FBI Director Robert Mueller are threatening to resign because then-White House Counsel Gonzales is seeking surveillance powers that go “too far” …  you start to get a sense as to Gonzales’s views on state power.  

Cato will be hosting a debate on the NSA surveillance program and more next week.  For additional background, read this.

GOP Debate (Round 2)

A few thoughts on last nights GOP debate: It was a better performance than last time around, but the Republican debate in South Carolina last night showed that there still isn’t a Reagan-Goldwater small-government conservative among the front runners. The candidates tried hard to burnish their conservative credentials, but too often their definition of conservative seemed to come down to talking tough on Iraq and abortion. Among the top-tier of candidates in particular, no one articulated a clear Reaganesque vision of limited government.

A few thoughts on the candidates:

John McCain: He apparently got the decaf coffee this time around. Made some good points on congressional overspending (though the drunken sailor joke is getting a bit stale), but offered unpersuasive defense of McCain-Feingold campaign finance reform bill. And no matter how many times he repeated that if we leave Iraq “the terrorists will follow us home,” it doesn’t make it so.

Mitt Romney: He sure is smooth…but has a little problem with accuracy. He said that he balanced Massachusetts budget without tax increases. The truth is his proposed 2006 budget included some $170 million in increased business taxes. This increase comes on top of previous business tax increases of $140 million during his term, as well as some $500 million in increased fees and other forms or revenue. His support for No Child left Behind cements his credentials as a big-government conservative.

Rudy Giuliani: He had a much better performance this time around. He highlighted his fiscally conservative credentials and made a “libertarian” case for abortion rights. But his superhawk persona risks tipping over into Dr. Strangelove sometimes.

Ron Paul: Still largely alone in carrying the small-government banner, Dr. Paul showed how hard it is to make a complex historical argument in 60 seconds. His point about how US meddling overseas helped precipitate terrorism had substance, but landed with a thud.

Jim Gilmore: Scored points for blaming Republicans in Congress for overspending and for criticism of Romney health plan. Lost points for ducking question on entitlement reform.

Tommy Thompson: Looked like he was suffering from indigestion all night. Struggled to find a government program he would cut, finally coming up with an unspecified CDC “stockpile.” How about the Medicare prescription drug benefit? Oh, that’s right, he supports that one.

Duncan Hunter: Called for Jack Bauer to handle terrorism and sounded like a character on the show. “I’d get SecDef on the phone.” Seems to be going for the Pat Buchanan xenophobia vote, but does anyone care?

Tom Tancredo: Gets points for exposing his opponents flip flops, but failed to make his own case. I don’t agree with his position on immigration, but surely he has a better explanation for it than he gave. Loses points too for his gratuitous slap at Islam.

Mike Huckabee: His sense of humor plays well, but defense of tax hikes didn’t fly. He may win Mr. Congeniality, but didn’t do anything to win the nomination.

Sam Brownback: I’m sorry, was Sam Brownback part of this debate?

Of course the format and the questions didn’t help, but as I warn in my book, Leviathan on the Right, unless Republicans rediscover their limited government roots, they are destined for a repeat of their 2006 defeat. Last night gave a few small hints in that direction, but they still have a long way to go.

Irish Business Leader Explains Why Optional Tax Base Harmonization Leads to Mandatory Tax Rate Harmonization

Big businesses have rarely been principled defenders of individual liberty. A good example is the fight over a harmonized corporate tax base in Europe. Some multinational companies like this approach because it means one tax return instead of 27 tax returns. But this short-sighted approach overlooks the inevitable misuse of power by politicians who will want to manipulate the system for their own benefit. An Irish business leader explains in the Financial Times:

Businesses should wake up to the fact that, if work to harmonise European Union tax systems succeeds, they will face huge uncertainty regarding their tax liabilities, pay higher tax bills and face a more rigid corporate tax regime. Lázsló Kovács, the tax commissioner, is firmly set on introducing a legislative proposal by the end of 2008 to harmonise the corporate tax base across the Union. …Separate accounting for cross-border transactions within a group would be eliminated, and group profit would be shared by means of a set formula between member states and taxed at the rate applicable in each state. …To date, business has expressed surprisingly little scepticism about this untested assertion. Such a sanguine attitude is misplaced.

 …companies doing business in Europe would pay higher tax bills. …CCCTB would drive some investment to more flexible and competitive tax jurisdictions outside the EU. Business lobbies have only backed the scheme if CCCTB is optional for companies. But, for how long could it remain optional? If simplicity and a reduction in administration costs are part of the raison d’être , then running an additional system side by side with national tax regimes makes no sense. The Commission said in 2006 that: “CCCTB should initially [my italics] be proposed as optional for companies”, and on May 2 it said: “CCCTB should be optional … where these [existing rules] are maintained alongside the CCCTB by member states.” …Despite assurances that it does not intend to extend this work to cover the tax rate, the Commission has a long history of pushing for harmonised tax rates – and a common tax base is a prerequisite of tax rate harmonisation. When the Commission embarked on this initiative, France and Germany made no secret that their end-game was tax rate harmonisation.

Lobbying Reform Reformed

The Politico offers an article about House Democrats and their effort to legislate about lobbying. The Senate passed a lobbying bill in January.

The road to the Senate bill included a struggle over the disclosure of funding for grassroots lobbying. Groups like the National Rifle Association or the National Right to Life Committee sometimes pay firms to communicate with citizens and urge them to contact their members of Congress on issues of concern to the group. The usual “reform groups” wanted the Senate to force disclosure of the sums spent mobilizing public opinion in this way. The Senate left disclosure out of their bill.

The effort to mandate disclosure resumed when the House took up lobbying reform. We held a forum on the topic that can be seen here. It now appears that the mandated disclosure will not appear in House version of the bill though it may be offered as an amendment.

The grassroots lobbying disclosure effort looked a lot like normal politics. The new majorities in Congress were (on the whole) Democratic and liberal, the groups that would be forced to disclosure their political activities were (on the whole) Republican and conservative. The new powers-that-be were apparently looking at ways to harass and perhaps discourage speech they did not like. As I said, normal politics.

Why has mandated disclosure apparently failed? A leader of one of the targeted groups told me that she hoped Speaker Pelosi would include the mandate in the lobbying reform bill. This leader believed the Speaker and her party would end up with a political black eye from the fight. Perhaps Speaker Pelosi agreed in the end.

For now, at least.