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In Thursday’s Wall Street Journal, Fred Barnes makes a point (paid reg. req.) that I made here last week: Hard as it to believe, Sen. Hillary Clinton may campaign as the least statist of the Democratic presidential candidates. Barnes writes:

As surprising as this may sound, Mrs. Clinton starts her campaign as the Democratic candidate furthest to the right. The only two Democrats who might have gotten to her right — Sen. Evan Bayh of Indiana and former Gov. Mark Warner of Virginia — dropped out of the race. 

I had made that point. And I also noted that Sen. Russell Feingold would have criticized Hillary on civil liberties issues. With Feingold, Bayh, and Warner all out of the running, Hillary’s determination to constrain her big-government instincts during the campaign will be sorely tested as she fends off challengers like Sen. Barack Obama, former senator John Edwards, and maybe former vice president Al Gore.

A footnote: Barnes and I have both ignored New Mexico governor Bill Richardson, who has persuaded Larry Kudlow that he’s a “a pro-growth, tax cutting Democrat.” Maybe moderate Democrats will have a choice after all.

The Republican Future

In today’s Washington Examiner, I have a column on future directions for the Republican party. One point:

Republicans need to look to the future: Younger voters are more likely to be libertarian, more likely to accept gay marriage, and more likely to have voted Democratic in 2006.

Republicans need to reach them before the Democrats lock them in. They can do that with an optimistic, inclusive message of liberating people from the dead hand of the federal bureaucracy — a smaller and less intrusive federal government, encouragement of enterprise and economic growth, a government that respects but doesn’t embrace religion, and a de-escalation of the culture wars.

With Trade Advocates Like These…

My colleague Dan Griswold salutes President Bush for ditching the traditional script and touting the broader benefits of trade in a speech yesterday in New York City. I would like to emphasize how rare, refreshing, and late-in-coming the President’s comments were.

One explanation for the growing resistance to trade liberalization in the United States is that the Bush administration’s “pro-trade” message has been weak, even self-defeating. Typically, when the President or members of his administration take to the podium, the message on trade is monothematic: exports are great and our trade agreements promote them.

The following is an excerpt from a speech the President gave at the headquarters of Caterpillar, Inc. in Peoria, Illinois on Tuesday:

Last year we exported a record $1.4 trillion worth of goods and services. Now, in order to export something, somebody has to make it. In other words, when I talk about numbers, behind the numbers is [sic] people who are providing the service and/or making the product. So the more one exports, the more likely it is people are going to be working.

Not once in the speech did the President allude to the benefits of imports, which are also important to Caterpillar, as sources of components and raw materials. Certainly, the mention of $1.4 trillion worth of exports in the context of the relationship between exports and jobs might invite the slightly curious to scratch their heads and wonder whether last year’s record $2.2 trillion worth of imports had an adverse impact on jobs.

Indeed, that is the central premise of many of trade’s opponents: exports create jobs, thus imports destroy them. By not mentioning that our record level of imports last year occurred alongside economic growth of 3.4 percent, the creation of 2 million net new jobs, and an unemployment rate that ended at a slim 4.5 percent, the President sacrificed an opportunity to drive home the point that imports do not undermine economic growth or job creation.

In fact, Dan Griswold has written extensively on the strong positive relationship between import growth and the growth of U.S. manufacturing output. (Here’s one of his offerings.) Basically, U.S. businesses account for about half of all U.S. imports. If you want to curtail imports, all we need is a handsome recession.

Now consider Exhibit 2. In response to the President’s announcement that he will seek extension of trade promotion authority, which expires at the end of June, U.S. Trade Representative Susan Schwab, yesterday, offered: 

The agreements enacted under TPA have helped us dramatically increase exports, which are likely to be an engine that drives the American economy to continued strong growth this year. U.S. exports to the 10 countries with which we implemented free trade agreements between 2001 and 2006 grew twice as fast as U.S. exports to the rest of world.

Okay, perhaps U.S. exports to those countries have increased faster. But is that all there is to tout?  What about the fact that we can purchase fresh grapes and blueberries, imported from Chile, in the middle of winter, at about the same price we purchase the same fruit from U.S. growers in the summertime?  (Just check the origin labels at your local grocer). By focusing exclusively on export potential, our trade advocates reinforce the myth that trade is exclusively a boon to business (“BIG BUSINESS,” of course), which comes at the expense of ordinary, “middle class” Americans.

Still, worse than the failure of policymakers supportive of trade to articulate its full benefits is when policymakers betray their own ignorance in a way that gives fodder to those counseling retreat from the global economy. Ways and Means Committee Ranking Member Jim McCrery (R-LA) claimed yesterday that “Our free trade agreements since TPA went into effect have reduced our trade deficit by $5.5 billion.”  I’m not sure how that was calculated or what exactly the figure represents, but presumably the comment is intended to demonstrate that trade agreements are good. I think it backfires.

If the exclusive purpose of trade policy is to promote exports, then it’s pretty easy for trade’s detractors to point to the massive and growing trade deficit and conclude we are losing grievously at trade. Our $800+ billion trade deficit is larger today than when TPA was enacted in 2002.  Using McCrery’s logic, trade is thus a menacing plague. I don’t know, maybe this is just a naïve thought but if you base the thrust of the case for trade on the export side, then the massive and growing trade deficit is all of a sudden an albatross around the necks of liberalizers. But the truth is that the trade account has virtually nothing to do with trade policy and efforts to somehow connect the two cannot serve a pro-trade agenda.

It’s no wonder we are having a national debate on the merits of trade, despite the overwhelming evidence of the relationship between greater openness and economic growth. Policymakers who claim to favor trade liberalization have been incapable or unwilling to articulate the complete and proper argument. That will have to change soon.

What’s the Matter with “Thoughts from Kansas”? (Part 1)

In a recent post, I argued that mandating the teaching evolution by government fiat is not only ineffective but illiberal, divisive, and counterproductive.

I always like to preface my comments on this subject with the disclaimer that I am a card-carrying evolutionist. Joshua Rosenau, a grad student in ecology and evolutionary biology who blogs at “Thoughts from Kansas,” is unconvinced. He writes that my “consistent treatment of evolution as if it were anti-religious by its nature suggests that [my] views are more… nuanced than [I’m] letting on.”

This comment is worth exploring. Let’s start with an excerpt from a recent interview with Richard Dawkins, one of the most influential evolutionary biologists of our time:

Terrence McNally: When and how did you become an atheist?

Richard Dawkins: I suppose it was discovering Darwinism. I was confirmed into the Church of England at the age of thirteen. I then got pretty skeptical about it, but retained some respect for the argument from Design – the argument that says living things look as though they’ve been designed, so they probably have been. I then learned the real scientific explanation for why they look as though they’ve been designed, and that was enough for me. I lost my religious faith pretty much then.

Evolution isn’t so much anti-religious as un-religious. While it is possible (indeed common) to simultaneously understand evolution and be religious, it is not necessary to be religious once you understand evolution. The existence of humanity can be explained by purely natural causes, so “God the Creator” becomes an extraneous assumption. And when hardcore empiricists come across an extraneous assumption, they, like Richard Dawkins, have a tendency to pull out Ockham’s razor and shave it off. (And if my own views on this subject are relevant: I liked Ockham’s razor so much, “I bought the company.”)

Learning about evolution thus leads at least some people find religion superfluous. But many believers see faith in God as crucial to individual morality and even to the survival of civilization, so naturally they are apprehensive about the teaching of human origins as a purely natural process. In fact, opposition to scientific materialism was the main motivation behind the creation of the Discovery Institute’s Center for Science and Culture – the chief advocacy organization for “Intelligent Design” and “teaching the [purported] controversy” over evolution.

So, even though natural evolution is not intrinsically incompatible with faith, it is decidedly unpopular with many of the faithful.

That’s one important clarification out of the way. Here is another. Joshua characterizes my argument as follows: “his claim is that the only way to end the wars over creationism would be to let children learn whatever they want in schools that their parents pay with other people’s tax dollars.” That last bit is mistaken.

I am highly conscious of the social conflicts that arise when people are compelled to pay for instruction that violates their convictions – as paying for creationist schools would likely violate Joshua’s. In fact, that compulsion is one of the key causes of our never-ending battles over the content of public schooling. That was a central point of the paper by Neal McCluskey that launched this conversation.

Fortunately, there is a way to ensure universal school choice without forcing anyone to pay for instruction that offends their deeply held values: cut taxes on middle income families so they can spend more of their own money on their own kids’ education, and offer tax credits for donations to private scholarship granting organizations.

The tax cuts, or personal use tax credits, already exist in Illinois, though they are very limited in size. Essentially, parents who choose to shoulder the cost of their own children’s education would receive a dollar for dollar reduction in their state and local taxes, up to some pre-determined limit. This would put government and non-government schools on a more even financial playing field, and bring the option of independent schooling within easy reach of far more families.

But personal use tax credits can’t help low-income families that have little or no tax burden. To serve those families, tax credits would be offered to businesses and individuals who donate to private scholarship granting organizations (SGOs). Those organizations would, in turn, provide tuition assistance to low-income families. Such programs already exist in Pennsylvania, Arizona, and Florida, though they, too, are currently quite limited in scope.

Combining and expanding these two kinds of tax credit programs would ensure universal access to public and private schools of parents’ choosing, without forcing anyone to pay for schooling that violated their convictions. Taxpayers, not just parents, would have choice, since they could pick the SGO to which they made their donations (or choose not donate to such an organization at all). Pennsylvania has 42 SGOs, and Arizona has more than 140. It isn’t hard to find one consistent with your values, whatever those values happen to be.

I’ll respond to Joshua’s other thoughts from Kansas in a subsequent post.

Tax-Funded Media Bias

This morning on Anti-Marketplace Radio–heard on tax-funded NPR stations–there was a fine example of the quiet, unconscious liberal bias that pervades NPR and other mainstream-liberal media. Host Scott Jagow interviewed Jody Heymann, director of the McGill Institute for Health and Social Policy, who had just published a report on paid leave around the world. The segment began, “The U.S. lags far behind the rest of the world when it comes to workplace policies such as paid maternity or sick leave.”

Then Jagow asked, “Where else is the U.S. falling short?” Noting that no federal law mandates paid vacations or sick leave, he asked, “How much are states picking up the slack and how much is the private sector picking up the slack?”

So where’s the bias? Let us count the ways. First, of all the studies in the world, only a few get this kind of extended publicity. It helps if they confirm the worldview of the producers. For instance, I don’t believe Marketplace covered this Swedish study (pdf) showing that the United States is wealthier than European countries (perhaps most provocatively, that Sweden is poorer than Alabama – perhaps because Europe has the kinds of laws the Heymann study advocates). Second, Heymann was allowed to appear without a critic. Third, the interviewer never asked a critical question. He never noted that the countries that Heymann was praising are poorer than the United States and in particular that many are suffering from high unemployment brought on by such expensive labor mandates. Fourth, look at the language of the questions: “lags behind,” “falling short,” “picking up the slack.”

The unstated, perhaps unconscious, premise is that countries should have mandatory paid leave and other such programs. If we don’t, we’re “falling short” and someone must “pick up the slack.” Language like that, which is very common in the media, posits government activism as the natural condition and then positions any lack of a government program as a failure or a problem.

Bush’s Standard Health Insurance Deduction: Tax Hike or No?

National Review’s Ramesh Ponnuru takes the Bush administration’s economist Kate Baicker and spokesman Tony Snow to task for what he suggests is a misleading representation of the President’s proposed “standard health insurance deduction.”

Briefly, under that proposal, most people who purchase health insurance would receive a substantial tax cut.  However, some workers would no longer be able to exempt from taxation the full amount of their health benefits.  Individuals who now receive more than $7,500 in health benefits, and families that receive more than $15,000 worth, would have to pay taxes on the difference. 

Ponnuru writes:

Snow and Baicker are right to say that if the proposal becomes law, compensation packages will adjust, with expensive plans being scaled back and the savings passed on in higher wages. But those higher wages will be taxed. No matter how the compensation package is rearranged, the percentage of compensation that is taxed will go up for these people.

My Cato colleague Arnold Kling concurs.  I disagree.

I think there are ways to avoid a tax increase, though I agree with Ramesh that this New York Times article didn’t do enough to explain how. 

In today’s New York Sun, I discuss the prospect of tax increases on workers with expensive health benefits:

Though that’s troubling, it is by no means certain. In fact, those workers may not face a net tax increase at all, because the President’s proposal would reduce other costs on those same workers. One such “tax” is the higher health care costs that result from the current employer-sponsored system. The President’s proposal would reduce that tax. Another is the current penalty imposed on workers who do not buy coverage through an employer. The President’s proposal would eliminate that tax.

Finally, when premiums exceed the proposed deductions, employers could reduce health benefits and shift the difference to other untaxed compensation, such as contributions to health savings accounts, life insurance, or 401(k)s. That would leave those workers with zero additional taxes. Or they could shift that difference to wages, in which case the workers would pay taxes on it, but their take-home pay would rise.

Of course, it would become more difficult to avoid a tax increase over time.  The deduction amounts would rise with overall inflation, while health insurance premiums traditionally have risen much faster.

I’ll be discussing these issues with Kate Baicker and the Urban Institute’s Len Burman at a Capitol Hill briefing tomorrow.

Hurray for Profits

Good news from the oil industry: ExxonMobil announced a record after-tax profit of $39.5 billion for 2006.

http://news.yahoo.com/s/ap/20070201/ap_on_bi_ge/earns_exxon_mobil

That is great news because it means the company will have more funds to reinvest in exploration, refinery expansion, drilling platforms, chemical plants, and all those other brilliant machines that American families benefit from every day.

The firm invested $20 billion in exploration, structures, and equipment in 2006 and $18 billion in 2005. See here and here.

High profits are a signal to ExxonMobil management, other energy companies, and Wall Street to feed this industry more capital and to continue increasing energy production. That’s good news for U.S. energy security and U.S. consumers.

The bad news with high corporate profits is that governments confiscate so much of them. In 2005, the firm paid current income taxes of $23 billion on pre-tax profits of $59 billion, for an effective income tax rate of 39%. (The firm also paid $31 billion in excise taxes to governments). Of course, Exxon simply collects these taxes on behalf of governments–the ultimate burden falls on individuals.

(In 2006, income taxes were $28 billion on pre-tax earnings of $67 billion, but I couldn’t find the breakdown of current vs. deferred tax)

Anyway, kudos to Exxon for their fine performance!