Cato Daily Dispatch for December 30, 2005
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Resolve to Cut TaxesBlessed Are the Merciful
The High Cost of Higher Education
Resolve to Cut Taxes
"A surprise awaits the nation's highest earners when they file their 2006 tax returns. Their taxes are going down again -- whether or not Congress passes the investor tax cuts the lawmakers have been promising," according to The New York Times editorial. "On New Year's Day, two additional tax cuts will kick in, allowing people who earn upward of $200,000 a year to claim bigger write-offs for a spouse, their children and other expenses, like mortgage interest on a vacation home.
"The bolstered write-offs were enacted in 2001, but with a delayed start date because of their high cost: according to Congressional estimates, the new breaks will cost $27 billion over the short term, exploding to $146 billion from 2010 through 2019. By then, most of the benefits would flow to taxpayers who make more than $1 million a year."
In "A Proposal for a 'Dual-Rate Income Tax,'" Chris Edwards, Cato's director of tax policy studies, writes: "Despite recent income tax cuts, the federal tax system remains terribly inefficient and complex." Edwards proposes a dual-rate tax plan, which "would cut tax rates on wages, income from savings, and small businesses. It would simplify the tax code and increase horizontal equity, while providing low-income tax relief. The corporate tax rate would be cut sharply. The dual-rate tax would increase fairness and spur growth, while taking a big step toward a simple consumption-based tax system."
Blessed Are the Merciful
"President Bush demonstrated again this month that penitent lawbreakers have little chance of gaining a pardon unless their crimes were non-violent and occurred years before he took office. Bush granted 11 pardons last week," reports USA Today. "He seems inclined to show mercy to people who have surmounted their mistakes."
In "Begging His Pardon," Gene Healy, a Cato senior editor, writes: "It's unfortunate that it takes the indictment of a high-ranking White House official to remind Washington that the president has the 'Power to grant Reprieves and Pardons for Offenses against the United States.' In an era in which the federal criminal justice system is becoming ever more centralized and punitive, there are many federal prisoners who are far better candidates for a pardon than I. Lewis 'Scooter' Libby Jr. Yet they have gone unnoticed by a president whose exercise of the pardon power has been timid at best.
"The federal criminal code now provides for more than 4,000 federal crimes and many harsh mandatory minimums. A more vigorous use of the pardon power could help mitigate the inevitable injustices. Even better would be the wholesale reform of the federal laws that lead to sentencing overkill in the first place. President Bush could start the process by closing this year with mercy for some."
The High Cost of Higher Education
"[L]awmakers are on the verge of passing legislation they say will eventually kill the [interest rate] subsidy [on student loans] that refused to die," The Washington Post reports. "Twelve years ago, Congress passed a law meant to phase out an obscure interest rate subsidy for providers of student loans. But the lenders exploited legal loopholes and falling rates to enlarge their take from the federal government -- aided recently, critics charge, by an acquiescent Bush administration."
In the Cato Policy Analysis "Making College More Expensive: The Unintended Consequences of Federal Tuition Aid," professor Gary Wolfram argues that instead of making college more affordable, federal aid programs are actually driving up the cost of tuition. Wolfram shows that financial aid programs, including the Federal Work Study Program and the Perkins Loan Program, are increasing the cost of tuition. Additional federal support increases the demand for college tuition; this is followed by even more federal support, which again boosts the demand for college aid.
The author urges Congress to "consider a phase-out of federal assistance to higher education over a 12-year time frame" instead of expanding the government's present system. Wolfram adds that encouraging people to go to college should be a task left to states and individuals because the Constitution does not give the federal government power to provide education.
Greg Garner, editor, ggarner@cato.org