Tax Cuts North of the Border

America traditionally has enjoyed a competitive advantage over Canada, but the Conservative government in Ottawa has announced addtional tax cuts, including reductions in the corporate rate. The rest of the world is responding to tax competition, and the high corporate tax rate in the US is becoming an ever-larger problem for American companies in the global marketplace. Unfortunately, there is no groundswell – or even idle gossip – for a reduction in America’s punitive corporate tax. Tax-news.com reports on the new tax cuts in Canada: 

Jim Flaherty, Canadian Minister of Finance, has announced that he will table the second budget of Canada’s Conservative administration under Prime Minister Stephen Harper on March 19, 2007. …Key tax measures contained in the 2006 budget included the long-promised 1% cut in Goods and Services Tax to 6%, a 2% cut in the general corporate tax rate by 2010, eliminating the corporate surtax on all corporations by 2008, axing the federal capital tax, and increasing the amount of income eligible for the lowest rate of corporate tax for small businesses. In addition, this bottom rate will be reduced by 1% to 11% by 2009.

Parents More Schooled. Kids Less Educated. — NAEP

The 2005 NAEP Reading and Mathematics test scores for 12th Graders have just been released.

Here’s the detail you’ll hear in all the media coverage: Reading achievement has hit its lowest point in the entire period since the first comparable score was collected back in 1992. (The math test has changed, so no trend analysis is possible).

Here’s a detail you won’t see in many news stories: The highest degree earned by students’ parents has gone up substantially since 1992. In that year, 41 percent of students reported that at least one of their parents was a college graduate. Today, it’s 47 percent. Researchers have long known that parents’ level of education is a strong predictor of children’s academic success, so this increase in the share of college graduates among parents should be associated with higher student achievement (other things being equal). But achievement went down. Significantly. If the home environment is now more conducive to learning, but less learning is actually taking place, that leaves… the schools.

So: No, the NCLB isn’t helping. No, more money isn’t helping (it’s up more than 20% per pupil since 1992, in real inflation-adjusted dollars). It’s. The. Schools. We suffer from an education monopoly. Monopolies are bad.

A one-size-fits-few state-run school system simply can’t produce the kind of innovation and improvement we take for granted in the competitive, free enterprise sector of our economy. We need to inject parental choice and competition into our education system if we want to see the trend lines going up instead of down.

New at Cato Unbound: Inequality Denialism = Global Warming Denialism?

The Earth is heating up, and so is the conversation on income inequality at Cato Unbound! University of Oregon economist and proprietor of the popular econo-blog, Economist’s View, writes:

This debate reminds me of the debate over global warming, though using the word “debate” implies there is more disagreement than there really is.

[…]

The inequality debate appears to be unfolding similarly with those who would like to avoid policies to address inequality, policies such as more progressive taxation, hoping to keep the first question open as long as possible or claiming that the rise in inequality is the inevitable result of natural market forces and we should not interfere.

Cornell University economist Richard Burkhauser takes exception:

I give Mark Thoma high marks for raising the rhetorical stakes in this debate to the point where those who remain more skeptical of the evidence for substantial increases in income inequality since 1989 are relegated to the status of contrarian ideologues unwilling to sign onto Mr. Gore’s “Inconvenient Truth.” But isn’t this a bit much, even for a true believer?

Burkhauser goes on to argue that there has been no detectable increase in inequality within the bottom 99 percent of the income distribution. But, “what about that other 1 percent?” Burkhauser inquires:

Here Reynolds and [Gary] Burtless strongly disagree. Reynolds argues that even including that 1 percent in the mix there has been no great increase in income inequality since 1988 and Burtless offers counter proof based on other data sets. I am not yet sure who is right between them, but I am very sure that Thoma is wrong. It is still reasonable to be skeptical of both arguments.

Stay tuned for more from Burtless, Reynolds, and Krueger and Perri.

Mugabe Eats Cake, Zimbabweans Eat…

My Cato colleague Marian Tupy is currently traveling in Africa and unable to blog, so I thought I’d post this snippet from from a New York Times story that would be dear to Marian’s heart:

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

Mugabe is a piece of work: Not only has his thugocracy destroyed the civil society necessary for a healthy nation and economy, not only has his monetary policy imploded the Zimbabwean currency, not only will history remember him as (in the words of Nobel laureate Archbishop Desmond Tutu) a “caricature of an African dictator,” but he has the audacity to stage a phony national celebration of his birthday.

Hat tip to the NYT for the great headline, photo, and endquote.

The Man Who Would Not Be King

Today is the 275th anniversary of George Washington’s birth, although the federal government has instructed us to observe Washington’s Birthday (not Presidents’ Day) on a convenient Monday sometime before the actual date. There’s a reason that we should celebrate George Washington rather than a panoply of presidents. As I wrote last year:

George Washington was the man who established the American republic. He led the revolutionary army against the British Empire, he served as the first president, and most importantly he stepped down from power….

[Washington] held “republican” values – that is, he believed in a republic of free citizens, with a government based on consent and established to protect the rights of life, liberty, and property.

From his republican values Washington derived his abhorrence of kingship, even for himself. The writer Garry Wills called him “a virtuoso of resignations.” He gave up power not once but twice – at the end of the revolutionary war, when he resigned his military commission and returned to Mount Vernon, and again at the end of his second term as president, when he refused entreaties to seek a third term. In doing so, he set a standard for American presidents that lasted until the presidency of Franklin D. Roosevelt, whose taste for power was stronger than the 150 years of precedent set by Washington.

Give the last word to Washington’s great adversary, King George III. The king asked his American painter, Benjamin West, what Washington would do after winning independence. West replied, “They say he will return to his farm.”

“If he does that,” the incredulous monarch said, “he will be the greatest man in the world.”

And so he was. For more on Washington, check out Monday’s podcast.

Habeas and GITMO

There was an important habeas ruling from the D.C. Court of Appeals yesterday.  The Bush administration likes to deflect questions about its policies with rhetoric like “terrorists shouldn’t be clogging our courts with complaints about bad food at Guantanamo.”  The legal stakes are actually quite serious and will affect not only aliens imprisoned outside the United States but Americans as well.  As the report notes, the legal action will move up to the Supreme Court eventually. 

For Cato work related to the writ of habeas corpus, go here and here (pdf).

Prior coverage of this matter here and here.

Philip Morris v. Williams and Class Actions

Yesterday, the Supreme Court decided–five to four–to strike down a punitive damage judgment against Philip Morris under the Due Process Clause.  (Cato, for the record, filed this brief in the case, written by deterrence theorists Steven Shavell and A. Mitchell Polinsky). For commentary on the case, see here and here.  You can watch me talk about the case on CNBC here.

For my money, the most interesting, and potentially far-reaching, implication of the decision is for class actions seeking punitive damages.  

On page 5 of the slip opinion, the Court says that “the Due Process Clause” prohibits a State from punishing an individual “without first providing that individual with ‘an opportunity to present every available defense.’”

That quoted language (from a non-punitives decision, Lindsey v. Normet) hasn’t appeared in the Supreme Court’s other punitive damage cases.  Its appearance here is significant, because Lindsey’s broad, bright-line language is often invoked by defendants in very large class actions, even those that don’t involve punitive damages.  Their argument goes like this:  When courts ”certify” (authorize) a very large class action, they violate due process if the very scale of the suit prevents defendants from raising individualized defenses that are otherwise available under the statute.  Expect Williams to be cited extensively by class action defendants, particularly in class actions seeking punitive damages.

It’s fairly easy to see why Williams is such a boost for these defendants by looking at the Ninth Circuit’s recent decision in Dukes v. Wal-Mart–which upholds a trial court order certifying 1.5 million gender discrimination claims, seeking $11.5 billion in punitive damages and lost pay. 

As the trial court acknowledged, individualized hearings on employees’ claims—the usual practice in later stages of Title VII cases—were impractical in a class action of the mammoth scale envisioned.  The trial court therefore allowed liability and remedies to be proven based on statistical evidence and formulas, barring defendants from making individualized showings that particular employees weren’t discriminated against in fact.   

Wal-Mart, in turn, argued its due process rights had been violated, because it had been deprived of defenses to which it was entitled.  ”In an individual case,” said Wal-Mart, it could present individualized evidence “to establish a complete defense to liability or preclude the entry of a backpay or punitive damage award.” The Rules Enabling Act guarantees the availability of that kind of defense in a class action to the same extent it is available in an individual case.  Given the punitive damage request, Wal-Mart argued, due process prohibited the court from depriving Wal-Mart of its entitlement to raise such individualized defenses.

Williams gives Wal-Mart much more ammunition than past punitive cases to argue this point on appeal to the Supreme Court.  To be sure, the Court’s aside that “it may be appropriate to consider the reasonableness of a punitive damages award in light of the potential harm the defendant’s conduct could have caused” (emphasis added) throws a possible lifeline to the Dukes plaintiffs.  That allows them to argue that a “rough” statistical measure of the harm that “could have been caused” to individual class members is all the proof necessary to anchor punitive damages in large antidiscrimination classes.  Indeed, the trial court in Dukes envisions exactly such a probabilistic measure at the remedies stage of the trial:  “[O]nly those class members who can make a showing that they were either actually harmed by the discriminatory policy or were at least ‘a potential victim of the proved discrimination’ are eligible to recover [lost pay and, therefore, punitive damages].”

This expansive reading of “potential harm” is, however, inconsistent with the Supreme Court’s careful caveat in BMW v. Gore.  There, the Court said that “potential harm” that can anchor a punitive damages award is confined to additional harm to persons who have actually been injured – for example, added harm that was “likely to result” if a defendant’s wrongful scheme hadn’t been prematurely interrupted.  That’s quite a bit narrower than the expansive concept of “potential harm” used in Dukes, which embraces guesstimates about whether any injury occurred at all.

As a result, Willliams, read in the context of previous cases, scores trouble for large-scale punitive damage classes.