Archives: 04/2012

Immigration Laws at the Supreme Court: Constitutional but Bad Policy

For anyone suffering from post-Obamacare-argument Supreme Court withdrawal, this Wednesday the Court takes up Arizona’s controversial Senate Bill (“SB”) 1070.  See my blogpost from when the Court granted review for some background.

SB 1070 is much-misunderstood: it has nothing to do with sexy political issues like racial profiling and everything to do with boring legal ones like whether a given state provision is “preempted” by federal law.  That is, do the various parts of the state law – each one of which the Court will be evaluating independently – conflict with federal law (direct preemption) or intrude in an area exclusively reserved to Congress (implied preemption).

United States v. Arizona shows that there’s a difference between what’s constitutional and what’s good policy. SB 1070 was crafted to mirror federal law rather than asserting new state powers that interfere with federal authority over immigration.  That’s why lower courts only enjoined four of its provisions and why the Supreme Court would not be wrong to resurrect even those four.

But beyond this hyper-technical legal analysis, SB 1070 and copy-cat laws elsewhere – some of which go further than Arizona’s and thus are of more dubious constitutionality – highlight the dysfunction in our immigration system.  Given Congress’s failure to act in this area, state governments have spawned a host of federalism experiments.  Many of these laws are terrible policy for reasons ranging from economic effects to the misuse of law enforcement resources.

Legal scholars always enjoy the opportunity to point out laws that they think are constitutional but bad policy.  It makes them feel intellectually honesty (if they have reason to be defensive in that regard).  Well, immigration is the most obvious place where my constitutional and policy views diverge.  The ultimate solution here isn’t for the Supreme Court to strike down the states’ lawful if misguided legislation, but for Congress and the president to enact a comprehensive national reform.

For more on what’s at stake in the case, see my SCOTUSblog essay from last summer, my forthcoming law review article, and my new colleague Alex Nowrasteh’s recent op-ed.  For the briefs and other background materials, see SCOTUSblog’s case page.

Sometimes, Governments Lie (6th Anniversary Ed.)

(This blog post first appeared at Cato@Liberty following the release of the 2006 Medicare and Social Security trustees’ reports. I repost it, with updated links and “exhaustion dates” because sadly nothing else has changed.)

Sometimes, Governments Lie

Year after year, federal officials speak of the Social Security and Medicare trust funds as if they were real.  Yesterday Today, the government announced that the Social Security trust fund will be exhausted in 2040 2033 and that the Medicare hospital insurance trust fund will be exhausted in 2018 2024— projections that the media dutifully reported.

But those dates are meaningless, because there are no assets for these “trust funds” to exhaust.  The Bush administration wrote in its FY2007 budget proposal:

These balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds…are not assets…that can be drawn down in the future to fund benefits…When trust fund holdings are redeemed to pay benefits, Treasury will have to finance the expenditure in the same way as any other Federal expenditure: out of current receipts, by borrowing from the public, or by reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits.

This is similar to language in the Clinton administration’s FY2000 budget, which noted that the size of the trust fund “does not…have any impact on the Government’s ability to pay benefits” (emphasis added).

I offer the following proposition:

If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.

If that’s the case, then these annual trustees reports constitute an institutionalized, ritualistic lie.  Also ritualistic is the media’s uncritical repetition of the lie.

The Supreme Court Denies Certiorari in Challenge to NYC’s Rent-Control Law

Today, the Supreme Court declined to review Harmon v. Kimmel, a case challenging New York City’s rent control law. For a case that merely had the possibility of getting to the high court, Harmon has received a surprising amount of attention. A lot of this attention is due to the persistence of Mr. Harmon, who has admirably been fighting this important battle on behalf of thousands of similarly situated landlords who are forced to subsidize cheap rents, often for tenants who can easily afford to pay the market price. According to the Wall Street Journal, one of the Harmons’ rent-controlled tenants even “owns a second home near the shore in Southampton, where she spends weekends gardening and playing tennis.”

As I said in January in a video, rent control is something that nearly every economist can agree on: it lowers the amount of housing, it lowers the quality of housing, it raises the total costs of finding and securing housing, and it doesn’t even guarantee that those who need cheaper housing will get it. Nevertheless, it seems as if rent control will remain as much a part of New York City’s culture as Broadway theater and pizza.

In addition to the ill-effects of rent control on a housing market, perhaps the most pernicious aspect is that it allows lawmakers to force the costs of subsidizing others onto private individuals. New York City could certainly create a program in which tax dollars are used to directly subsidize the rents of those in need by giving money either to the tenant or to the landlord. The city could also provide more state-built, low-income housing. Either program could achieve the goals of rent control without many of the accompanying negative effects (although, of course, both programs would have many horrible problems of their own).

Such taxpayer-funded programs, however, would not serve the immediate goals of many city politicians: to provide benefits seemingly without cost. In a way, rent-control laws are a lot like the individual mandate of Obamacare currently under challenge in the Supreme Court. Both allow lawmakers to use regulatory requirements in lieu of raising taxes to pay for a program (I discussed how this works in Obamacare here). Rent-control laws permit lawmakers to avoid the political accountability of taxpayer-funded, on-budget subsidization by forcing individual property owners to subsidize tenants in the name of the “public good.” Whatever the merits of such a proposal, innocent landlords such as the Harmons should not be forced to become pawns in lawmakers’ attempts to avoid losing the next election.

It is unfortunate that the Court will not hear the case, but I applaud Mr. Harmon for bringing much-needed attention to an important issue.

Romney and Russia: Complicating American Relationships

Mitt Romney has become the inevitable Republican presidential candidate.  He’s hoping to paint Barack Obama as weak, but his attempt at a flanking maneuver on the right may complicate America’s relationship with Eastern Europe and beyond.

Romney recently charged Russia with being America’s “number one geopolitical foe.”  As Jacob Heilbrunn of National Interest pointed out, this claim embodies a monumental self-contradiction, attempting to claim “credit for the collapse of the Soviet Union, on the one hand [while] predicting dire threats from Russia on the other.”  Thankfully, the U.S.S.R. really is gone, and neither all the king’s men nor Vladimir Putin can put it back together.

It is important to separate behavior which is grating, even offensive, and that which is threatening.  Putin is no friend of liberty, but his unwillingness to march lock-step with Washington does not mean that he wants conflict with America. Gordon Hahn of CSIS observes:

Yet despite NATO expansion, U.S. missile defense, Jackson-Vanik and much else, Moscow has refused to become a U.S. foe, cooperating with the West on a host of issues from North Korea to the war against jihadism.  Most recently, Moscow agreed to the establishment of a NATO base in Ulyanovsk.

These are hardly the actions of America’s “number one geopolitical foe.” Romney’s charge is both silly and foolish.

This doesn’t mean the U.S. should not confront Moscow when important differences arise.  But treating Russia as an adversary risks encouraging it to act like one.

Moreover, treating Moscow like a foe will make Russia more suspicious of America’s relationships with former members of the Warsaw Pact and republics of the Soviet Union—and especially Washington’s determination to continue expanding NATO.  After all, if another country ostentatiously called the U.S. its chief geopolitical threat, ringed America with bases, and established military relationships with areas that had broken away from the U.S., Washington would not react well.  It might react, well, a lot like Moscow has been reacting.

Although it has established better relations with the West, Russia still might not get along with some of its neighbors, most notably Georgia, with its irresponsibly confrontational president.  However, Washington should not give Moscow additional reasons to indulge its paranoia.

Cross-posted from the Skeptics at the National Interest.

U.S. Offers to Defend Afghanistan Indefinitely, Afghanistan Accepts

The U.S.-Afghan strategic partnership framework agreed to on Sunday extends America’s presence in Afghanistan beyond 2014 in a desperate attempt to stave off disaster. The pact allows policymakers to perpetuate our military involvement despite assurances that we are withdrawing. Social and economic development programs will also continue with limited gains. The United States intends to nation-build on the cheap, ensuring Afghanistan remains reliant on the Untied States for basic funding and security long into the future.

The pact itself—which was not released—appears to eschew the difficult issues surrounding the exact number of U.S. troops, U.S. bases, and U.S. military aid to Afghan security forces. The estimated cost of training between 230,000-350,000 Afghan soldiers and police could be between $4-6 billion a year, not including the cost of keeping upwards of 20,000 U.S. trainers in the field, which could cost upwards of $15-20 billion (approx. $1 million per soldier). The Afghan government only collects about $2 billion a year in revenue. This does not put Afghanistan on a path to sustainable self-sufficiency, but makes it increasingly dependent on foreign patronage, as it has been for much of its turbulent history. Moreover, while Afghan forces are supposed to take over responsibility of the country, in some insular areas they are despised at least as much as the Taliban.

As the coalition draws down, we can expect more attacks on international compounds and overextended coalition supply lines. Militants get a vote. And for the foreseeable future, Afghanistan will remain a geopolitical battleground, with power split between an internationally backed Western regime and a Pakistan- and Gulf-backed hydra-headed insurgency.

Although Lashkar-e-Taiba and other al Qaeda-linked groups operate in the region, when it comes to capturing and killing terrorists—not indigenous militants—targeted counter-terrorism measures are more effective than expansive counterinsurgency campaigns. With this pact, policymakers are pushing for an open-ended nation-building mission by another name.

Tax Complexity: Am I a Liar?

Andrew Sullivan cited an op-ed of mine last week regarding the complexity of the tax code.

One person commenting on Andrew’s article said:

I am a corporate tax lawyer with 25 years’ experience. I can’t prove it, but in my experience the vast majority of the complexity of the tax law has nothing to do with tax breaks. It has to do with providing precise rules to deal with an infinite variety of structures and transactions, in the face of taxpayers and their tax counsel who are determined to minimize their tax bill. Rules relating to tax breaks are insignificant in volume compared to the rules relating to consolidated tax returns, corporate reorganizations, foreign tax credits, taxation of the foreign subsidiaries of U.S. corporations (Subpart F) and hundreds of other things.

The Cato Institute article you link to is filled with lies and half-truths (which is about what I would expect from a Cato Institute article on taxes). The ‘tax rules’ do not span 73,608 pages and do not cover nine feet of shelf space. The standard CCH edition of the Code is 5,500 pages long, but that is highly misleading. That volume is targeted at tax practitioners and includes old statutory provisions that have been repealed or revised. Because of the obscure way that the regs are paginated, it is not easy to tell how many pages they are, but I would estimate it at about 30,000 pages, which includes proposed regs and the preambles to regulations. The entire set of Code and regs takes up about 18 inches on my shelf. To give you an idea about how much the Code and regs have expanded over the years, my set from 1987 takes up around 10 inches.

The volume that Chris Edwards describes in the Cato article probably refers to the bound CCH Standard Federal Tax Reporter, which may indeed cover nine feet and contain 73,608 pages. However, that volume is exclusively designed for practitioners and includes not only the Code and regs, but also commentary written by CCH and annotations from case law.

I don’t understand why people make such snarky comments when they clearly haven’t done their homework. Let me note first that I mainly agree with the writer’s first paragraph, at least with respect to the business tax code. He points to what I call “homemade” loopholes, which are different from the loopholes specifically legislated by Congress for special interests. Homemade loopholes stem from the inherent complexity of taxing business income, and they are an important reason why chopping the high U.S. corporate tax rate would create a large dynamic response from businesses. That is, it would not be worth the cost or legal risk for businesses to invent so many tax avoidance tricks if we had a much lower corporate tax rate. If we cut the rate, the U.S. corporate tax base would expand automatically as homemade loopholes shrank.

Now, about those “lies.” CCH itself publicizes the data I used showing federal tax rules spanning 73,608 pages. The CCH folks have been publishing information on federal taxation since 1913, so they know what they are talking about. Note that I said tax “rules” not tax “code.” The total rules that tax practitioners have to take into account are lengthier than just the code and regulations, and that’s what the broader CCH publication captures.

By the way, my “nine feet of shelf space” comes straight from the IRS National Taxpayer Advocate. This official watchdog agency cites (on pages 4/5) the nine-foot CCH Standard Federal Tax Reporter as one of their metrics of tax complexity. In the past, I’ve called CCH analysts to discuss with them the meaning of their published page counts.

It is true that average households don’t get into the nitty gritty of those nine feet of rules. But many thousands of highly paid professionals do have to on behalf of their individual and business tax clients. That is part of the reason why the current federal tax system is so wasteful. It consumes the time and energy of a huge number of skilled people, probably including the grumpy tax lawyer who called me a liar.

If the CCH page count doesn’t convince Mr. Grumpy that the tax system is wasting a lot of human effort, here is one more IRS Advocate factoid for him to consider (page 5):

Two companies publish newsletters daily that report on new developments in the field of taxation; the print editions often run 50-100 pages and the electronic databases contain substantially more detailed information.

For information on how to fix this mess, see here and here.

Washington’s One Percent

Stories about the wealth of Washington, D.C., have become commonplace, but this Sunday front-page story in the Washington Post adds more details to the lifestyles of the rich and powerful:

At the Collection at Chevy Chase, a $1,100 purple python pump gleams in the window of the Gucci store. Across Wisconsin Avenue at TTR Sotheby’s, sales agents prepare to sell a $32 million riverview home near Annapolis — one of the most expensive properties ever listed in the D.C. area. And at a nearby Whole Foods, BMWs idle in the circular drive as shoppers dash in for $19.99-a-pound Dijon-crusted rack of lamb.

Long before “the 1 percent” became part of the political lexicon, a growing number of highly educated, dual-income families were driving the region’s top income levels into the stratosphere.

To be considered part of the 1 percent in this area, it takes a household income far above the national average of $387,000. The gateway for the region is $527,000. In the District, the top 1 percent of households bring in at least $617,000; in Montgomery County, more than $606,000; and in Fairfax County, $532,000, according to an analysis of census statistics by The Washington Post and Sentier Research, a firm that specializes in income data….

The percentage of area households with impressive, if not eyepopping, salaries has grown as well. In 1980, just 3 percent of households in the region had incomes that were the equivalent of $200,000 or more in today’s dollars. Now [after an increase in the national debt from $1 trillion to $15 trillion] 13 percent do.

Sounds like the Capitol in The Hunger Games. Washington’s citizens are less frivolous, though – despite recent news stories. The one percent in Washington are lawyers, lobbyists, government contractors, and the doctors and entrepreneurs who serve them. But unlike regions where actual wealth is created – software, automobiles, financial services, capital allocation, movies and television, medicine – Washington’s economy is based on the confiscation and transfer of wealth produced elsewhere. As such, Washington’s wealth is a net loss for economic growth in the country.