Archives: 03/2008

It’s Hard, Let’s Give Up

Now’s no time to go wobbly on school choice. As I point out, again, in my earlier post, school choice programs have proliferated in the last ten years. And, as Andrew Coulson (among many others) points out, they work.

This is a time for hope, not for preemptive surrender.

In the 1990’s, a structured movement for choice was built and some foundational battles were won, for vouchers in Milwaukee and Cleveland, and for tax credits and deductions in Arizona and Illinois, Iowa and Minnesota. In the last seven years, we’ve seen the majority of current choice programs passed. In addition, the policies have been getting better; more expansive and powerful.

Daniel Casse repeats another unwarranted conclusion made by Sol Stern in his poorly argued City Journal essay:

His article “School Choice Isn’t Enough” makes the case that after more than a decade of conservative and libertarian agitating, the school choice and voucher movements have been a colossal failure.

Who ever said that breaking the stranglehold of the largest and most powerful government monopoly in American history was going to be quick and easy?

Ten years, and out? How can anyone justify giving up on a policy movement that has been more successful in the last ten years than in the first ten, that has been most successful in the last five years?

I guess we should kick Social Security reform to the curb, too. And tax reform; ha, what a pipe dream! Spending control? Pah, don’t make me laugh.

While we’re giving up preemptively, why not throw in the towel and just support government-controlled universal health-care. Sure seems hard to stop that one, and we already have that big, popular SCHIP thing anyway.

And people seem pretty cool with the government expanding its education monopoly back to age 3 in pre-K. No sense fighting a losing battle.

Let’s roll up the whole conservative movement … what a colossal failure that’s been!

I can’t for the life of me understand why Reagan didn’t just yell, “Uncle!” instead of “Tear down this wall.” I mean, how long did the Cold War take, and how much did we spend on that whole freedom vs. Soviet Empire waste of time …

Handicapped Kids Don’t Count

Following up on Andrew’s comments

I wish Sol Stern would have the professional integrity to finally correct himself in writing, because others seem to trust him and keep repeating his confusions and inaccuracies.

The latest is from Daniel Casse, who writes a review of Sol Stern’s badly researched and poorly argued City Journal article, “School Choice Isn’t Enough.” In fact, the essay is not about the effectiveness of school choice in improving education, but about a few voucher programs that didn’t measure up to Stern’s wildly unrealistic expectations of how they would transform public schools.

Unfortunately, Casse repeats an erroneous implication from the piece that Stern refuses to correct; “[Stern] points out that today there are only three tiny voucher programs supported by public funds, one in Cleveland, one in Milwaukee, and another in Washington, D.C…” (emphasis added).

In fact, there are twenty-one choice programs in 13 states that allow students to choose private schools with the support of vouchers or tax incentives. Most of these were passed in the last ten years. Just counting recently passed state programs, close to $700,000,000 is used to help more than 700,000 children attend a school of choice.

Eleven of these programs, in eight states, use vouchers. Not three … eleven voucher programs. Most of the ones he missed help 20,000 disabled children attend a school that meets their needs when the public school fails them.

But apparently, handicapped children don’t count for Stern.

Counting only modern state programs, vouchers help around 47,000 children attend schools of their choice with over $275 million.

Across seven states, there are ten education tax credits or deductions, and Stern ignores them entirely. These benefit more than 650,000 children with more than $400 million; five of those programs target low-income families and help 93,000 children attend schools of their choice.

It’s easy to see how someone like Casse, who isn’t in the thick of school choice policy would be misled by Stern’s article; the essay is misleading, in addition to confusing, feather-light on research and evidence, and poorly argued.

It would be nice to have an official correction in print by Stern. But the least he should do is directly address the most important evidence and critiques levied against his argument. Stern’s imprecise and irresponsible article is misleading readers.

Ben Stein Should Stick with Acting

I’ve always enjoyed reading Ben Stein’s descriptions of life in Hollywood in The American Spectator. And his performance in Ferris Bueller’s Day Off is a cult classic. Unfortunately, his writings on economics are somewhat less fulfilling. A recent open letter to John McCain in the New York Times argues for “much higher taxes on the truly rich” and assumes that it is impossible to control government spending:

All politicians campaign on the promise to cut federal spending by identifying hitherto unfound waste, fraud and corruption. None of them ever do so in a meaningful way. …That is the first thing you need to know. The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting. …In fact, tax cuts lower federal revenue and generate federal deficits. …What to do? …You can propose still more tax cuts… Or, you can raise taxes. But whom to tax? …The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion. …we can have some integrity and levy taxes equal to what we spend. 

Stein’s analysis is horribly wrong. First, he asserts that government spending cannot be reduced and that this means either runaway deficits or higher taxes. While it would be nice if government outlays actually were reduced, a more modest measure of success is whether the private economy is growing faster than the government. If that happens, deficits will fall since tax revenues generally increase at least as fast as nominal GDP. This modest level of fiscal discipline is not an impossible task, as former Cato expert Veronique de Rugy has shown (here and here). Before urging Senator McCain to raise taxes, perhaps Stein should be arguing that the presumptive Republican nominee merely hold the growth of government to, say, the rate of inflation.

Stein is equally misguided on tax policy. He correctly notes that many Republicans have wrongly claimed that all “tax cuts pay for themselves.” Indeed, that is the same point I made in the Center for Freedom and Prosperity’s first video on the Laffer Curve. But he fails to realize that there are some tax policies that have very significant Laffer-Curve effects, and the second video in the series specifically shows that Stein’s proposal of ”much higher tax rates” on the rich almost surely would backfire.

Weekly Standard Argues, Weakly, for Standards

In the current issue of the Weekly Standard, speech-writer Daniel Casse opines on the school choice debate sparked last month by Sol Stern. Casse begins by uncritically repeating Stern’s claim that the American school choice movement has stagnated for over a decade. In attempting to defend that claim, Stern failed to mention that five new education tax credit programs have been created over that time, harnessing hundreds of millions of dollars and serving a hundred thousand or so children. These programs have grown significantly since their inception and will likely continue to do so. Stern’s omission had already been corrected by several different scholars weeks ago, and for Casse not to mention this shows either poor judgement or poor research on his part.

Casse goes on to dismiss responses to Stern by Robert Enlow, Neal McCluskey and myself as “doctrinaire” in our support for education markets over government school monopolies. But to be doctrinaire is to be impractical and inflexible. I am neither. There are education policies already enacted in several states that, if simply allowed to grow over time, will eventually have very good prospects for creating market forces in education. One example is Pennsylvania’s Education Improvement Tax Credit, which allows businesses to make donations to private scholarship funds that serve low income children, and get a 90% tax credit in return. There are certainly ways to accelerate the advent of real market forces, Cato’s own Public Education Tax Credit model legislation is one, but even the expansion of existing programs could eventually do the trick. That is a practical solution.

And as for flexibility, I would be quite ready to change my position favoring real market reform over central planning in education if the preponderance of evidence changed accordingly. No such change seems iminent. I maintain a spreadsheet of the international research comparing public and private provision of education across 7 or 8 different outcomes (mostly academic achievement and efficiency). These studies span the past 25 years, and of the 91 statistically significant findings I’ve collected, 82 favor private schooling. If these studies are winnowed down so that we look only at those comparing government schools to markets of minimally regulated private schools paid for at least in part by parents, there are 34 statistically significant findings, 32 of which favor market provision. The less intrusive the state is, and the more market-like the schools are, the better private schools work. The latest version of this literature review has yet to be published, but the detailed original 2004 version is available on-line, as is a brief updated discussion at the end of a paper released last year on the No Child Left Behind act.

If anyone is doctrinaire in this debate, it is the advocates of government mandated curricula and educational standards who seldom present any sort of empirical evidence in support of their views, with the exception of an occasional anecdotal reference to some place that has standards they like.

As I pointed out in the Washington Post on-line last year, it is not government standards that produce excellence, but the competitive pursuit of excellence that drives up standards.

Goliath vs. Goliath?

A further development in the cross-border supply of gambling and betting services broke today when the European Union announced they would launch a formal investigation into the selective (and retroactive) prosecution of European gaming interests by US authorities.

This is yet another twist in the saga first brought to light by Antigua’s case against the United States in the WTO. That case (summarized here and updated here, here, here, and here) sparked a slew of indirectly related skirmishes, a plethora of “David vs. Goliath” headlines, and an unprecedented reaction from the United States to pick up their ball and go home. The various twists and turns of the dispute have provided ample fodder for trade junkies in the form of commercial and systemic issues: Does the WTO dispute settlement mechanism provide effective recourse for big as well as small members? How should WTO members respond when one of their cohorts wants to change the nature of the contracts between the parties? How do members balance their rights and obligations in the context of issues of public morals?

The questions look far from answered because if the EUs investigation proceeds, a new WTO case could be on the horizon. Although the EU and the United States came to a settlement in December over the United States’ wish to withdraw its commitment to open its market to the cross-border supply of gambling and betting services, the details of that settlement are sketchy. And the December deal pertains to compensation for the withdrawal of market access going forward: unless and until that deal is ratified by all WTO members (including those who are asking for compensation of their own), the U.S. obligations stand and so does the ruling that found the United States was in breach of those obligations.

In other words, while the United States might eventually be able to get away with changing its obligations to provide WTO members access to the lucrative U.S. gambling market, in the meantime their (discriminatory?) prosecution of offshore interests leaves them vulnerable.

State Politicians Want Rich People to Leave New York

In a rather self-destructive move, Democrats in the New York State Assembly are proposing a huge increase in the income tax rate on the state’s most productive and valuable people. A column in the New York Post correctly warns that this will drive entrepreneurs and investors to other states.

The State Assembly Majority announced yesterday that it’s considering a dramatic increase in state personal-income taxes that will come down hardest on New York City residents and the key industries that are the engine for economic growth across the state. …the measure would hike personal-income taxes 1 percent on households earning more than $250,000, 2 percent for those over $500,000 and 3 percent for those over $1 million. This translates into a combined city-state income tax of 11.5 percent to 13.5 percent. Add in federal taxes, and the burden approaches 50 percent. Taxes in New York City already are nearly 50 percent more than in any other US city. …This approach is also a money-loser for the state. Gov. Arnold Schwarzenegger last week said that half of California’s $14 billion deficit is due to people and business leaving the Golden State because of high taxes. If the Assembly measure passes, many of the city’s highest earners and biggest taxpayers – who all enjoy global mobility – are likely to pack up and leave. It’s a great economic development strategy – for New Jersey, Connecticut, Florida and London.

States such as Maryland and California already have demonstrated the damage caused by high state tax rates, but New York politicians apparently are oblivious to the real-world impact of such policies or they put class-warfare politics above every other relevant consideration.

Pennsylvania Proposes to Defraud Non-Pennsylvanians

From an article in the Pittsburgh Post-Gazette:

Pennsylvania hospitals and other medical providers often seek higher state reimbursements for treating low-income, elderly and disabled people under the state’s Medical Assistance program.  Now the state Department of Public Welfare has come up with a new tax idea that would make higher payments possible by placing an “assessment” on the profits of general hospitals in two counties, Allegheny and Philadelphia…

Public Welfare Secretary Estelle Richman … said that such a levy on net patient revenues at acute care hospitals in the state’s two largest counties would have two benefits: it would increase state Medical Assistance payments for services to the elderly and poor, and would also enable health providers to get higher federal Medicaid reimbursements, which rise as state payments rise…

DPW spokeswoman Stacey Witalec … said the proposed hospital assessment “is similar to other assessments we already have in place,” such as ones on nursing homes.  “The basic model is to increase the amount of federal match [funds] that we receive to support our Medical Assistance program,” she said. Other states have such hospital assessments in place, she added.

In other words, Pennsylvania pretends to give its hospitals higher Medicaid payments.  Based on those “higher” payments, the Commonwealth pulls down additional “matching” federal Medicaid dollars – which is a fancy way of saying it takes money from taxpayers in other states.  Then, Pennsylvania taxes back the money it pretended to give its hospitals.  Thus the federal Medicaid program allows Pennsylvania to siphon money away from other states.

That sound you hear is your pocket being picked.