Archives: 12/2015

The Force Against Hawaii’s Unconstitutional Election Awakens

After the Supreme Court blocked Hawaii’s race-based election pending appeal, its organizers—a government contractor named Na’i Aupuni—canceled it and decided instead to seat all the candidates as delegates to a special constitutional convention for the purported new nation of “native Hawaiians.” The plaintiffs have asked the Supreme Court to find the election/convention organizers in contempt of its earlier order. Meanwhile, the appeal of the district court’s earlier denial of an injunction proceeds in the U.S. Court of Appeals for the Ninth Circuit. Cato has joined the American Civil Rights Union on a brief supporting the challengers. We point out that this is the second time that Hawaii has attempted to conduct a discriminatory voter-registration procedure to facilitate a racially exclusionary election. The first time this occurred, the Supreme Court held that such elections violate the Constitution. Rice v. Cayetano (2000). Things are no different this time. The voter qualification requirements here again make eligibility contingent on ancestry and bloodlines, which are nothing more than proxies for race. (There’s a further requirement that voters affirm a belief in the “unrelinquished sovereignty of the Native Hawaiian people,” which is an ahistorical assertion.) Such a discriminatory scheme is per se unconstitutional under the Fifteenth Amendment.

The U.S. Department of Chutzpah

For PR professionals, the holiday season is like one big Friday at 5:00 p.m. That’s when you release information that you don’t want getting too much attention.

So it’s no surprise that we learned yesterday that the Transportation Security Administration has just awarded itself the authority to make airport strip-search machines mandatory. Until now, having a machine create a digital representation of your unclothed body has had a happy alternative: a prison-style pat-down! (That’s my choice. It’s sometimes a little massage-y.)

It takes a lot of gall for the Department of Homeland Security to make this move now, though—not because it’s the holiday season, but because the DHS (of which TSA is a part) is currently under a court order to establish the legality of its strip-search machine policies in toto.

In July 2011, the D.C. Circuit Court of Appeals ruled that the DHS had failed to follow the procedures required by law when it established its policy of using strip-search machines for primary screening. The court ordered the DHS to “promptly” undertake a notice-and-comment rulemaking. Four years later, our friends at the Competitive Enterprise Institute initiated a new lawsuit seeking to compel DHS to finish what was amounting to an endless rulemaking process.

DHS recently told the D.C. Circuit that it would finish the regulation by March 3, 2016. In the meantime, they’re screwing the lid down just a little bit more on air travelers. Chutzpah!

When the regulation is done, it can finally be challenged under the Administrative Procedure Act’s “arbitrary and capricious standard.” Our John Mueller and Mark Stewart have already shown that strip-search machines are a cost-ineffective security measure.

In a similar vein, rumors are swirling that the DHS will soon announce full REAL ID enforcement at airports. The quiet week between Christmas and New Years seems like a ripe time to get that news out.

They’ve said they’d give 120 days’ notice that TSA is going to start rejecting drivers’ licenses and IDs from states that don’t participate in the national ID system. A December announcement means that April would be white-knuckle time for travelers.

There will not be enforcement, of course. The goal is to bluff about enforcement to state legislatures in advance of their 2016 legislative sessions, so that they’ll pass laws implementing the federal national ID mandate. Just yesterday, two DHS bureaucrats issued orders to Minnesota governor Mark Dayton (D) detailing how the law in Minnesota must change to satisfy their demands.

Federal bureaucrats ordering around governors and legislators! Chutzpah!

DHS isn’t dumb enough to do it … I’m sometimes wrong … but actual REAL ID enforcement at airports would be quite a show. Not only would there be howls of protest aimed at TSA in the media, the DHS would catch a delicious lawsuit from some law-abiding American citizen trying to visit family who is denied the right to travel.

The lawsuit would expose that DHS enforcement is entirely arbitrary. REAL ID is unworkable, and the agency has been handing out waivers like they were candy canes since the statutory deadline in 2008. Having selected a pared-down “material compliance checklist” to treat as compliance, DHS bureaucrats have been arbitrarily claiming that some states are in compliance and some states are not, giving waivers to some states and not to others based on internal, self-selected criteria. That is not how law works, and once they try to enforce, they’ll have to square-up their enforcement efforts with the terms of the REAL ID law, equal protection, and due process.

Should DHS try to show that it has rational criteria for refusing IDs, that may bring in the question of ID security, which, like strip-search machines, is another cost-effectiveness loser. I won’t belabor that point, but my Christmas list includes a TSA and DHS operating under the rule of law, required to defend its programs in light of solid points made by security analysts like this guy Adam.

Learn more than you ever wanted to know about REAL ID from this recent Hill briefing.

H-2B Expansion Doubles Down on Successful Border Control Strategy

The recent Omnibus increased H-2B visas for seasonal non-agricultural workers by not counting some renewals against the annual cap of 66,000.  Numerical estimates of the increase vary widely but the Congressional Budget Office estimated 8,000 additional H-2B visas will be issued in 2016.  This small policy shift is consistent with channeling would-be illegal immigrants onto temporary work visas – a strategy that has succeeded in decreasing unlawful immigration. 

There has been a dramatic decrease in Mexican unlawful immigration over the last decade.  The majority of illegal immigrants apprehended along the border had always been Mexican until 2014.  Beginning in 2006, with the slowdown in the housing boom, fewer Mexicans started coming to the United States illegally which led to fewer apprehensions.  The number fell to 229,178 in 2014, down from 1,073,468 in 2004. 

Mexican illegal immigration did not rebound after the Great Recession because the United States had expanded temporary migration programs that allowed far more Mexicans to enter lawfully.  Mexican migration to the United States didn’t disappear – it just became legal.  The Omnibus’ modest expansion of H-2B visas builds on this successful strategy by widening the legal pathway for lower-skilled migrant workers.

The Omnibus’ H-2B visa reform is an important, albeit small, part of continuing this strategy.  H-2B admissions are up 20 percent from 2002 to 2013 while the percentage of Mexicans getting those visas rose from 64 to 84 percent.  As the H-2B expanded, it also Mexicanized, diverting many would-be Mexican unlawful immigrants and their families onto legal temporary migrant visas. 

Warren Buffett’s Tax Rate Rhetoric

Billionaire Warren Buffett is campaigning with presidential candidate Hillary Clinton, and he is echoing her class warfare rhetoric. In Nebraska the other day:

As Mr. Buffett introduced Mrs. Clinton, he outlined statistics showing that the richest 400 Americans saw their incomes rise sevenfold between 1992 and 2012, the most recent year IRS data were available. During that period, their average tax rate dropped by about one-third, he said.

Buffett is referring to this data published by the IRS. The sevenfold increase Buffett refers to is not adjusted for inflation. The IRS provides a column with inflation-adjusted income, but Buffett decided not to use that data.

But the main problem with Buffett’s statement is that the one-third tax rate drop is explained by 2012’s lower capital gains and dividend tax rates. Buffett probably wants people to believe that nefarious loopholes caused the drop, but the real reason was a serious policy change widely supported by economists and tax experts.

Under the income tax, dividends and capital gains are generally taxed at both the corporate and individual levels. That double taxation creates serious distortions, such as inducing U.S. corporations to become excessively indebted. The capital gains and dividend tax rate cuts under George W. Bush (now rescinded) partly fixed the double taxation.

In the following table, I roughly recalculate the 1992 and 2012 tax rates for the Top 400 excluding the reduced-rate dividends and capital gains. (Capital gains had a reduced rate both years, and dividends had a reduced rate in 2012).

Without the reduced rates on capital gains and dividends, the average tax rate for the Top 400 was virtually unchanged—25.6 percent in 1992 and 25.4 percent in 2012.

So Buffett’s complaint about the tax rate on top earners is really a complaint about tax reforms for capital gains and dividends. Rather than trying to inflame liberal voters with out-of-context data, Buffett should provide his economic arguments about the proper treatment of capital gains and dividends in the tax code.

I provide the arguments for reduced capital gains tax rates here. Just about every developed country has reduced capital gains tax rates. In 2012 the average tax rate across the OECD was just 16 percent. So Buffett should explain why he thinks all those countries are getting it wrong on capital gains.

There are other interesting things about the IRS data on the Top 400. Buffett, Clinton, Sanders, and the rest would have us believe that this is a permanent group of the wealthy aristocracy. Actually, there is huge turnover in the Top 400, as I discuss here. Most reach this top group for only a single year, often when they are selling their family businesses and realizing a capital gain. The IRS table shows that 68 percent of all income of the Top 400 is capital gains.

Finally, the IRS data show that the share of overall federal taxes paid by the Top 400—even with the reduced capital gains and dividend tax rates in 2012—rose from 1.04 percent in 1992 to 1.89 percent in 2012. Buffett is quoted saying of the Top 400, “the game has been stacked in their direction.” But if the Top 400 are paying a higher share, the game is clearly stacked against them.

Are We Entering The Age of Exponential Growth?

In his 1999 book The Age of Spiritual Machines, the famed futurist Ray Kurzweil proposed “The Law of Accelerating Returns.” According to Kurzweil’s law, “the rate of change in a wide variety of evolutionary systems (including but not limited to the growth of technologies) tends to increase exponentially.” I mention Kurzweil’s observation, because it is sure beginning to feel like we are entering an age of colossal and rapid change. Consider the following:

According to The Telegraph, “Genes which make people intelligent have been discovered [by researchers at the Imperial College London] and scientists believe they could be manipulated to boost brain power.” This could usher in an era of super-smart humans and accelerate the already fast process of scientific discovery.

Elon Musk’s SpaceX Falcon 9 rocket has successfully “blasted off from Cape Canaveral, delivered communications satellites to orbit before its main-stage booster returned to a landing pad.” Put differently, space flight has just become much cheaper since main-stage booster rockets, which were previously non-reusable, are also very expensive.

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Vilsack to Congress: Give Me More Money or I’ll Let the West Burn

Congress rejected the Forest Service plan to give the agency access to up to $2.9 billion a year to suppress wildfires. In response, Secretary of Agriculture threatened to let fires burn up the West unless Congress gives his department more money. In a letter to key members of Congress, Vilsack warned, “I will not authorize transfers from restoration and resilience funding” to suppress fires. If the Forest Service runs out of appropriated funds to fight fires, it will stop fighting them until Congress appropriates additional funds.

This is a stunning example of brinksmanship on the part of an agency once known for its easygoing nature. Since about 1990, Congress has given the Forest Service the average of its previous ten years of fire suppression funds. If the agency has to spend more than that amount during a severe fire year, Congress authorized it to borrow funds from its other programs, with the promise that Congress would reimburse those funds later. In other words, during severe fire years, some projects might be delayed for a year–hardly a crisis.

Yet Vilsack and the Forest Service are intent on turning it into a crisis. In a report prominently posted on the Forest Service’s web site, the agency whines about “the rising costs of wildfire operations”–that cost not being the dollar cost but the “effects on the Forest Service’s non-fire work.”

No Honor among Thieves: Congress’s Inane Scheme to Rob the Fed

On December 3, Congress passed a new highway and transit bill allocating $305 billion over the next five years.  Part of the funding, allegedly $35.8 billion, will be taken from the Federal Reserve’s capital account.  Further details on the maneuvering between the Senate and House versions, and Fed objections, are here, here, and here.  Under the final compromise bill, about 8 percent of the Fed’s $35.8 billion contribution will involve a diversion of dividends from commercial banks, but the remainder is just a silly and deceptive gimmick for covering future federal expenditures.  Both the banks and the Fed failed in their last-minute efforts to curtail these provisions during the debate over the omnibus spending bill that Congress passed last week.

To appreciate exactly what these provisions will do, we need to examine more closely the nature of the Fed’s capital account.  The Fed is only nominally owned by its member banks, which comprise all nationally chartered banks and eligible state-chartered banks that choose to join.  Member banks are required to hold an amount equal to 6 percent of their own capital and surplus in the “shares” of their respective district Federal Reserve Banks.  Half of this amount is paid in; the other half is subject to call by the Fed’s Board of Governors.  As member banks increase or decrease in size, their holdings must be adjusted accordingly.  Obviously these “shares” are not like ordinary shares.  They cannot be bought or sold on a secondary market, nor are they in any sense residual claims to the Fed’s earnings.