December 21, 2017 5:52PM

New Report on Illegal Immigrant Criminality Reveals Little & Admits Its Own Shortcomings

The Department of Homeland Security (DHS) and the Department of Justice (DOJ) today released a report that found that about 94 percent of foreign-born inmates in Federal prisons are illegal immigrants.  That is not surprising, as illegal immigrants convicted of an immigration offense are incarcerated in federal prison and account 7.3 percent of all inmates.  Likewise, drug traffickers who cross international borders are also in federal prison and account 46.3 percent of all prisoners.  Thus, illegal immigrants are overrepresented in federal prison because the federal government enforces immigration laws and many drug trafficking laws but only a small fraction of all those incarcerated for all crimes committed in the U.S. are in federal prisons. 

The authors of this DHS/DOJ report do deserve credit for highlighting its shortcomings.  On the first page, it states:

This report does not include data on the foreign-born or alien populations in state prisons and local jails because state and local facilities do not routinely provide DHS or DOJ with comprehensive information about their inmates and detainees.  This limitation is noteworthy because state and local facilities account for approximately 90 percent of the total U.S. incarcerated population.

The federal prison population is not representative of incarcerated populations on the state and local level, so excluding them from the report means that it sheds little light on nationwide incarcerations by nativity, legal status, or type of crime.  On the last point, it is shocking how unrepresentative federal prison is regarding the types of crimes its inmates are convicted of. In 2016, 67,742 people were sentenced to federal prison.  Almost 30 percent of them were for immigration offenses.  Those immigration convictions comprised 100 percent of the convictions for immigration crimes in the United States in 2016.  By contrast, there were only 85 federal convictions for murder out of a nationwide total of 17,785 murder convictions that year, comprising less than 0.5 percent of all murders.


If Garcia Zarate had actually been convicted of murdering Kate Steinle, then he would have been incarcerated in California state prison and he would not show up as an illegal immigrant murderer in this DHS/DOJ report.  What good is a federal report on illegal immigrant incarceration rates if it would have excluded Kate Steinle’s killer had he been convicted? 

The DHS/DOJ report also explained why they did not include an estimate of illegal immigrants incarcerated on the state and local level:

DHS and DOJ are working to develop a reliable methodology for estimating the status of state and local incarcerated populations in future reports.

A March 2017 Cato Institute Immigration Research and Policy Brief employed a commonly used residual statistical methodology to analyze the incarcerated population in the U.S. Census for 2014.  We found that illegal immigrants were about 44 percent less likely to be incarcerated than native-born Americans.  I look forward to reviewing any methodology that the federal government comes up with but illegal immigrant criminals would have to be severely undercounted in prisons to give them an incarceration rate that even approaches native-born Americans.     

The broad finding among criminologists and economists who study this topic is that immigrants are less crime-prone than natives whether measured by the areas where they live or their incarceration rates.  Although there is less research on illegal immigrant criminals, the general finding is that they are less crime-prone or about as criminally inclined as native-born Americans.  The DHS/DOJ report reveals no new information about incarcerations on the federal level, does not provide evidence for a higher nation-wide illegal immigrant incarceration rate, nor does it support the administration’s plea for more border security.    

December 21, 2017 1:33PM

NRO Article Errs on Tax Cuts

National Review’s Ramesh Ponnuru has a new article, “The Tax Cut Doesn’t ‘Tilt Toward the Middle Class.” The piece apparently responds to commentary by Veronique de Rugy and me about the effects of the GOP tax plan.

Ramesh says:

According to the Joint Committee on Taxation (JCT), households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.8 percent of them under this law in 2025 … Households making $30-40,000 pay 1.3 percent of federal taxes now and will pay 1.4 percent of them in 2025. Households making between $40,000 and $75,000 will see their share of federal taxes unchanged at 10.2 percent.

His point is, “the tax cut reduces tax burdens proportionally,” rather than giving the biggest cuts to the middle, as I found here and here.

Alas, Ramesh used the wrong data. The tables published on the JCT website include reduced subsidies from repeal of the ACA individual mandate. Those would be almost entirely spending cuts, not tax increases. (This JCT score shows that the ACA effect will be $314 billion over 10 years, of which $297 billion, or 95 percent, will be spending).  

The JCT produces tables without the ACA subsidies, but they are not posted on the JCT site, in a typical example of the agency’s nontransparency. Phil Kerpen received them from GOP staffers, and they are attached below.

Anyway, here are Ramesh’s points rewritten from the JCT 2025 table that excludes the ACA piece:

Households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.6 percent in 2025. Households making $30,000 to 40,000 pay 1.3 percent of federal taxes now and will pay 1.3 percent in 2025. Households making $40,000 to $50,000 will see their share of federal taxes fall from 2.2 to 2.1 percent, and households making $50,000 to $75,000 will see their share fall from 8.0 to 7.9 percent.

The non-ACA JCT table shows that the percentage tax cuts for the middle groups in 2025 are larger than the cuts for the top groups. So even aside from the (misguided) payroll tax issue raised by Ramesh, the JCT table shows that the GOP bill especially favors the middle class and will make the tax code more progressive (unfortunately).

Here is the JCT table, and Veronique responds to Ramesh here.

December 21, 2017 12:00PM

How Can Republicans Entrench the Tax Cuts?

The peculiarity of Congressional 10-year budgeting has left its mark on the tax debate. In the UK, if something like the Republican bill had passed, it would be regarded as a significant tax cut, pretty much across the board. And rightly so.

As JCT analysis has shown, in 2019, 44 percent would see tax cuts of more than $500, 17 percent tax cuts between $100 and $500, with just 8.1 percent seeing tax increases greater than $100. Even by 2025, just before most of the individual income tax cuts would expire, 56 percent would see tax cuts of more than $100, with just 13.5 percent seeing tax increases of $100 or more. And this includes as “tax rises” the reduction in subsidies paid out as the removal of the individual mandate penalty leads to fewer people opting for health insurance.

As Chris Edwards has explained, even on the JCT’s own figures (which attribute most of the burden of corporate income taxes to the rich), the biggest financial winners in terms of a reduction in the proportion of federal income and corporate taxes they bear will be the middle-class.

Yet the 10-year budget, with expirations of income tax changes required to pass the bill through Senate reconciliation procedures, means Democrats and much of the media have effectively portrayed the reforms as tax cuts for the wealthy. As the income tax cuts and the increase in standard deduction evaporate, the penalty associated with the individual mandate is removed (reducing the extent of subsidies) and the new lower inflation rate for uprating tax band thresholds is maintained, more and more households lower down notionally face a “tax increase” in financial terms according to the law.

The way the media has not explained this distinction between the short and longer-term implications of the law (and how it would be up to Congress to let provisions expire) is breathtaking. On Tuesday, for example, the Associated Press tweeted “BREAKING: House passes first rewrite of nation's tax laws in three decades, providing steep tax cuts for businesses, the wealthy.” No wonder just 17 percent of people think they are getting tax cuts in 2018, against the 80 percent estimated to actually be getting a tax cut of any amount. Liberal economists such as Paul Krugman have embraced the seeming unpopularity of the reform package, and believe the political and electoral implications for Republicans will only be worse once they now start proposing spending cuts.

The Republicans say they want to keep the provisions in the bill in the longer term, making the tax cuts permanent. So what should their message be to voters to make tax reform durable?

First, it seems clear they need to make a huge deal of the expanded paychecks most people will see in February. Given how warped people’s view is of the bill now, critics of the bill will have their credibility undermined if individual voters suddenly realize they really have seen higher take-home pay.

But, second, and more importantly, Republican proponents need to flip critics' attack lines around. Yes, under the law the income tax changes do expire, they should say. But we do not want that to happen. If you like your tax cut, and want to keep your tax cut, then you need to ensure it has Congressional support, and you should pressure your congressmen and congresswomen to curb spending growth so that the tax cuts can be locked-in sustainably.

In other words, they need to use the new baseline from the tax cuts to their advantage, and play on the endowment effect: if you want to keep this extra take-home pay, then push for lower spending delivered by members of Congress committed to smaller government.

December 21, 2017 9:28AM

Bill Niskanen: Monetary Policy Radical

Several days ago a colleague of mine, having been sent a copy of the Niskanen Center's recent conspectus, wondered whether Bill Niskanen, the former Chairman of the Cato Institute after whom the Niskanen Center is named, would have agreed with a claim it made. The claim was that promoting sound monetary policy was basically a matter of encouraging "policymakers to support the Federal Reserve's dual-mandate" and of getting "pro-growth" candidates appointed to the Board of Governors.

My short answer to the question was, "No." But it occurs to me that that answer is worth fleshing-out here, because many people may not be familiar with Niskanen's ideas for improving monetary policy, and because those ideas show that he was far from being a cheerleader for the status quo, or for a more "pro-growth" version of the status quo, whatever that might mean.

The Dual Mandate

For one thing, Niskanen was no fan of the dual mandate. That mandate had its roots in the 1946 Full Employment Act and was formally established by the 1978 Full Employment and Balanced Growth Act, a.k.a. the Humphrey-Hawkins Act. The latter act originally gave the Fed five years to reduce the overall (16 years or older) unemployment rate to 4 percent, while getting inflation down to 3 percent. The assumption that these goals were perfectly compatible rested, at least implicitly, on legislators' belief in the presence of a stable Phillips Curve, implying a negative relationship between the rate of inflation and the rate of unemployment. Yet that belief had already been discredited by empirical developments by the time the legislation was passed.

It did not take long after the passage of Humphrey-Hawkins for wiser Federal Reserve officials, including Paul Volcker (who became Chair in 1979), to conclude that the "dual mandate," far from defining a new and sustainable approach to monetary policy, was simply a nuisance — something they had to pay lip service to, whilst really concerning themselves with keeping a lid on inflation. For the most part they managed this by insisting that, in the long run at least, price stability was itself the best guarantee of "full employment."

Bill Niskanen shared that perspective. Like all monetary economists who take empirical evidence seriously, he knew that the stable Phillips Curve was a myth, while regretting that other "macroeconomists have confused each other, generations of students, and too many policymakers" by pretending otherwise. Indeed, the evidence for the period between 1960 and 2001 suggested a "strong positive relation between the unemployment rate and the inflation rate lagged one or two years." That meant that the best way to achieve a minimum long-run unemployment rate really was to aim at a zero steady state inflation rate.

In short, so far as Niskanen was concerned, the dual mandate was one mandate too many. If anyone doubts it, I invite them to review the opening passages of Niskanen's entry on "Monetary Policy and Financial Regulation" for the 2008 edition of Cato's Handbook for Policymakers. "For the past 30 years," Niskanen observes,

the Full Employment and Balanced Growth Act of 1978 instructed the Board of Governors of the Federal Reserve to establish a monetary policy to maintain long-term economic growth and minimum inflation. As these two goals are sometimes inconsistent, this congressional guidance has not been very effective. The Federal Reserve has had almost full discretion in the conduct of monetary policy, subject only to the balance of current political concerns.

The intent of Congress would be better served and monetary policy would be more effective if Congress instructed the Federal Reserve to establish a monetary policy that reflects both their [i.e. Congress's] concerns in a single target.

A Nominal Spending Target

Yet Niskanen did not favor the single-minded pursuit of zero inflation. Although he preferred a zero steady-state (or long-run) rate of inflation, he believed that that long-run objective was best achieved, not by having the central bank directly target some measure of the price level or inflation rate, but by having it target the growth rate of total spending on goods and services, as measured by the Department of Commerce's statistical series "final sales to domestic purchasers."

A final demand target, Niskanen explained in a 1992 Cato Journal article, is better than a price level or inflation target "because of the different response to changes in supply conditions." Whereas a central bank that stabilizes spending "would not respond to either positive or negative supply shocks," one that endeavored to stabilize the price level at all times would seek to increase the money stock and spending to keep prices from falling in response to a positive supply shock, and would seek to reduce the money stock and spending to keep prices from rising in response to a negative supply shock. While either approach could be consistent with achieving a zero long-run inflation rate, targeting demand reduces the variance of output.

Although Niskanen's choice of a demand measure distinguishes his proposal from those of Scott Sumner and some other Market Monetarists, who would have the Fed stabilize nominal GDP rather than final sales, the difference is one of second-order importance only.[1] Also like some Market Monetarists, and unlike apologists for the monetary status quo, Niskanen favored a monetary rule imposed upon the Fed by Congress, as opposed to unbridled monetary discretion. Congress, he observed in that 1992 article, has delegated its Constitutional authority to "coin money" to the Fed

either without guidance or, more recently, with sufficiently confused, redundant, or contradictory guidance to permit the Fed to chart its own course. We could do worse. The performance of the Federal Reserve has usually been better than that of most other central banks.

I believe we can also do better — much better… .

We could do better, Niskansen said, by having Congress "approve a target path of total demand in the American economy," specifically by passing legislation "that would formally instruct the Fed to follow a specific target path of nominal domestic final sales," and by having "the administration and Congress…monitor the Fed's performance" as often as once every quarter. That monitoring

should focus on the reasons why actual final sales may have differed from the target path in the previous quarter. An increasing difference between the actual and the target final sales over a period as long as two quarters should automatically trigger… a review. There is ample reason to criticize the Fed for an accumulating difference between the actual final sales path and the approved target path. But as long as the Fed maintains a roughly stable level of final sales relative to this path, both the administration and Congress should refrain from criticizing the Fed… .

In his 2008 Cato Handbook chapter, Niskanen offers more specific advice. Congress would be wise, he says,

(1) to specify a target rate of increase of final sales and (2) to instruct the Federal Reserve to minimize the variance around this target rate. The target rate of increase of final sales may best be about 5 percent a year, sufficient to finance a realistic rate of economic growth of 3 percent and an acceptable rate of inflation of about 2 percent.

Niskanen goes on here to accuse the Fed of "creating three 'bubbles' of aggregate demand" — between 1987 and 1991, 1997 and 2000, and 2002-2006 — each of which in turn contributed to bubbles in other markets, followed by recessions. In every instance, Niskanen argues, the Fed appeared to overreact to a previous financial crisis by allowing demand to increase relative to its target path, instead of merely taking steps "to avoid a decline in the growth of demand relative to the target path."

Observe that Niskanen's proposal would place the Fed on a much tighter leash than the one contained in the FORM (Fed Oversight and Modernization) Act, both in its original, 2015 version  and as incorporated in the latest version of the CHOICE Act. Unlike Niskanen's plan, the FORM Act  leaves the choice of a specific monetary rule entirely to the FOMC.

Last Resort Lending

Besides wanting to place strict limits on the Fed's conduct of monetary policy, Niskanen also wanted to curb its emergency lending powers. In particular, he opposed the de facto broadening of those powers that took place during the first months of the most recent financial crisis, observing (again in the Cato Handbook) that

the combination of deposit insurance and access to the [Fed's] discount window created a serious level of moral hazard that reduced the incentive of both depositors and banks to avoid adverse risks. Adding securities firms and the government-sponsored mortgage firms to the list of financial firms eligible for access to the discount window and subject to regulation by the Federal Reserve would only expand the level of moral hazard in the financial system.

Rather than have it permit a permanent broadening of the Fed's lending powers, Niskanen urged Congress to "consider amending the Federal Reserve Act of 1913 to restrict access to the discount window to depository institutions only." Here again, Niskanen goes further than the CHOICE Act, in essentially proposing a complete repeal of the Federal Reserve Act's section 13(3). The CHOICE Act, in contrast, would still allow the Fed to make emergency loans to non-banks, albeit on more strictly regulated terms, and only if the presidents of nine Reserve Banks (along with five members of the Federal Reserve Board and the Treasury Secretary) agree that allowing the firms in question to fail would "pose a threat to the financial stability of the United States.”

Against Central Banking?

The reforms Niskanen favored show that he was far from being a monetary policy conservative, to give that adjective its literal meaning. But was Niskanen really a monetary policy "radical"? Sure, he wanted to limit the Fed's powers. But that hardly means that he questioned the need for a Federal Reserve System, or some other sort of central bank.

Yet question it he did. What's more, he ultimately became convinced that we would, in principle at least, be better off without central banks. I ought to know, because I'm the one who convinced him!

The occasion was the 7th installment of Cato's Annual Monetary Conference, in 1989, at which I presented my paper "Legal Restrictions, Financial Weakening and the Lender of Last Resort." The argument of that paper is, essentially, that financial systems would be robust enough to avoid major crises altogether, and to do so without the help of central banks, were it not for government meddling, including central bank misconduct, that makes them unnaturally fragile.[2]

Niskanen, who was asked to comment on my paper, began his remarks as follows:

May I make a confession. In some areas of public policy I sense that my views are usually radical, in that I am prepared to promise a substantial reduction of the contemporary role of government. In other areas my views are more conservative, more from lack of understanding than from any conviction that the status quo is appropriate.

George Selgin has convinced me that my conservative acquiescence to the contemporary role of central banks has been misplaced. I had long recognized that central banks were the primary agents of both major recessions and sustained inflation, but I had casually accepted the argument that a lender of last resort and a monopoly of note issue were necessary to prevent panics in a fractional-reserve banking system. …[It] is increasingly clear that the conventional arguments for a central bank are second-best arguments that assume the restrictions that have increased the vulnerability of private banks.

To be sure, Niskanen's new-found understanding didn't cause him to propose that the Federal Reserve Act be repealed in its entirety! It merely caused him to believe that an alternative set of arrangements "would be better… if it could be implemented without transition costs." The challenge is to come up with a transition process that would make the change worth it despite its short-run costs.

Of course I, too, would rather we chip away at the Fed's powers than risk raising havoc by trying to "end" it in one fell swoop. The same goes for many of my fellow free bankers. So Niskanen's position is actually no less radical than ours.

In portraying Bill Niskanen as a monetary policy radical, I've limited myself to his views on the Fed and central banking more generally, without venturing to consider what he had to say about other financial regulatory agencies. But readers may rest assured that his views concerning many of these were equally radical. Had Niskanen had his way, Congress would have done away with Fannie and Freddie, the Community Reinvestment Act, and U.S. support for the IMF; and I'm pretty sure that with a little more digging the list could be made much longer. One thing, though, is certain: Niskanen was never one to settle for conventional wisdom. As he himself explained, when he didn't question some aspect of the status quo, more often than not it was because he hadn't yet had a chance to noodle around with other options.

[1] Unlike final sales, nominal GDP includes spending on private inventories and net imports.

[2] The thesis is essentially the same as that expounded at greater length by Charles Calomiris and Stephen Haber in their 2014 book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit.

[Cross-posted from Alt-M.org]

December 20, 2017 3:06PM

Biggest Tax Cuts for the Middle, Per TPC Data

Republicans have enacted the Tax Cuts and Jobs Act, the largest tax overhaul since 1986. While many people seem to think that the legislation favors the rich, it actually delivers the largest relative tax cuts to the middle class. That is clear if you dig beneath the surface of estimates from the liberal Tax Policy Center (TPC).

TPC’s new analysis shows tax changes for the final GOP bill for households by income quintile (or fifth). But the data is not presented in a neutral context to understand the relative sizes of tax cuts for each group. I present TPC data in context in the table below.

Column 1 shows the GOP tax cuts as a percent of income in 2018 from the new TPC study.

Column 2 shows total current federal taxes (income, payroll, excise, and estate) as a percent of income for 2018, estimated by TPC here.

Column 3 shows the GOP cuts (column 1) as a percent of total current taxes (column 2). The cuts are fairly equal across-the-board, although a little smaller at the top.

However, the tax bill does not change payroll taxes, so including them in the denominator of the column 3 calculation slants the results. Column 4 removes them. (The tax bill tweaks a few minor excise taxes, but with little effect on overall excise revenues, so I removed them also).

Column 4 shows TPC estimates of current-law income and estate taxes for 2018. The bottom two quintiles are negative because those groups do not pay any income and estate taxes, on net.

Column 5 shows the GOP cuts (column 1) as a percent of total current-law income and estate taxes (column 4). Middle-income households will receive a 28 percent tax cut, which is substantially larger than the cuts received by the higher income groups.

This is the fairest way to present the effects of the Republican tax bill. It indicates that for 2018, the tax changes will make the federal tax system more progressive. The GOP tax bill will result in higher earners paying a larger share of the overall federal tax burden.

Media Name: tpc_final_bill.png


A similar analysis of the official Joint Tax Committee data is here.

December 20, 2017 1:34PM

FISA “Reform”: The Surveillance Fear Mongering Campaign Ramps Up

The House GOP leadership must be at least somewhat worried about the prospects for passage of their Foreign Intelligence Surveillance Amendments Act (FAA) Sec. 702 bill, HR 4478, which the House Rules Committee will consider later today in an "emergency" session.

I say this because this morning, the House GOP leadership circulated a wanted poster-style flyer of a dead man: Haji Iman, the alleged ISIS deputy finance minister and second in command to ISIS leader Abu Bakr al-Baghdadi, who was killed in eastern Syria on March 25, 2016. The flyer puts the phrase "ISIS" in a huge font, just in case the reader wasn't getting the message.

Claiming that "Iman would still be plotting to kill Americans without Section 702," the flyer then makes an interesting admission: that the search for Iman "was ultimately successful based almost exclusively on intelligence activities under Section 702" (emphasis added).

Not only does the flyer provide no proof that Iman was planning attacks on the United States, it omits the fact that both the Iraqi and U.S. governments had previously claimed repeatedly that Iman had been killed—six times, in fact.

As I've noted previously, two other major post-9/11 surveillance programs—the illegal STELLAR WIND mass surveillance program, and the PATRIOT Act's Sec. 215 telephone metadata collection program—failed to stop a single attack on America. If it took the NSA two years to find Iman using Section 702 "almost exclusively" after claiming repeatedly the man was dead, it should raise major questions about the veracity of the official government (and now House GOP leadership) account of this incident and the effectiveness of the Section 702 program.

And then there's that tantalizing phrase—"almost exclusively."

The flyer admits that programs besides Section 702 were responsible for finally—allegedly—killing Iman. So Section 702 collection was not, apparently, a "but for" capability (i.e., but for Section 702, Iman would still be alive). How effective is Secton 702? We don't know. There's never been an independent, case-by-case audit of claimed Section 702 "successes" during the nearly 10-year life of the program. And the bill being considered by the House Rules Committee today does not call for such an audit.

What the flyer also doesn't say is that as written, HR 4788 would effectively expand warrantless surveillance under Section 702, including potentially against purely domestic targets. Given the abuses of the Section 702 program that have been exposed over the past several years, HR 4478 is an amazing statement of the contempt the House GOP leadership has for the Fourth Amendment rights of Americans.

December 20, 2017 1:28PM

Was There Fraud in Honduras’ Election?

There is a lot of circumstantial evidence pointing to electoral fraud in Honduras’ presidential election. Yet neither the opposition nor international electoral observers have conclusively demonstrated that such has occurred. In other words, there is a lot of gun smoke in the room, but no smoking gun.

Perhaps the most damning piece of circumstantial evidence so far is a statistical analysis by Georgetown professor Irfan Noorudin at the request of the Organization of American States (OAS). It demonstrates that:

The Honduran national election of 2017 experienced a dramatic vote swing away from the opposition alliance and towards the incumbent National Party. This analysis raises doubts about the plausibility of such a reversal of fortunes. If one believes the vote tallies to be accurate, it is plausible to have such a swing. But the pattern of votes, particularly in turnout rates, is suspicious. As documented above, there’s a marked break in the data that is hard to explain as pure chance.

Noorudin firmly concludes: “On the basis of this analysis, I would reject the proposition that the National Party won the election legitimately.”

Partly based on this analysis, the OAS Electoral Observation Mission in Honduras stated it could not be certain about the validity of the results. OAS Secretary General Luis Almagro has called for a new election.

But despite how compelling Noorudin’s analysis is, there is still a missing link that he mentions: the vote tallies from polling stations. Up until now, neither the opposition nor international observers have presented evidence showing that the vote tallies were systematically altered.

Given the magnitude of the alleged fraud—a little over 50,000 votes to swing the election—one would expect that during the recount the international observers would have discovered plenty of evidence of how vote tallies were tampered with or did not match the amount of votes registered in each ballot box. While the OAS found irregularities in a “small number” of vote tallies, it does not mention anything significant enough to change the result.

Thus, all the suspicion lies on how the computer system went down when opposition candidate Salvador Nasralla was ahead with 57% of vote tallies counted and the subsequent dramatic (and statistically implausible) swing in favor of president Juan Orlando Hernández. However, the results announced by the Electoral Tribunal are ultimately backed up by physical vote tallies from each polling station.

And that is the conundrum: Either widespread fraud was conducted with surgical precision up to a point where a multitude of international observers cannot conclusively prove that it happened, or the statistically implausible actually happened and Hernández won the election fairly.