201712

December 20, 2017 9:21AM

Questions to Ask About Amtrak 501

The wreck of the 501--the Amtrak train that crashed near Seattle on Monday--is raising lots of questions about Amtrak operations, but they aren't always the right ones. Here are some questions that should be asked and some of my preliminary answers. Answers from Amtrak (the operator), FRA (the funder), Sound Transit (the track owner), or WSDOT (the train owner) may differ.

1. Congress required passenger railroads to install positive train control (PTC) by the end of 2015. Why did the Federal Railroad Administration (FRA) give money to the Washington Department of Transportation (WSDOT) for a new passenger rail line that would not open until after 2015 when the project didn't guarantee funding for positive train control?

Answer: The Obama administration wanted to distribute high-speed rail funds to as many states as possible in order to build political backing for the program, so it couldn't be bothered with positive train control. The tracks the train was on are owned by Sound Transit, which says it is installing PTC, but it won't be finished until spring. Public releases of WSDOT's application for funds for this train didn't mention PTC.

2. Around 800 people die in railroad accidents a year. PTC would prevent only about 1 percent of these fatalities; far more would be saved by spending the same amount of money on better grade crossings and fencing of rail rights of way. Why do we put so much emphasis on an expensive technology that will do so little?

Answer: Accidents that PTC could have prevented tend to be more spectacular than people getting killed when a train hits their car at a grade crossing. This suggests that, when politicians decide where private businesses spend their money, it'll get spent on grandiose programs rather than things that could really make a difference.

3. When an auto driver runs a red light and kills a pedestrian, we don't blame the auto maker for not making driverless cars sooner; we blame the driver and, perhaps, the people who were supposed to train the driver. Why blame this accident on the lack of positive train control when the train driver should have slowed down and Amtrak should have made sure the driver was qualified to operate this section of track?

Answer: Everyone is looking for a scapegoat, and it is easier to blame an institution than an individual.

4. The train in question had about 250 seats, and this was the inaugural run on this route, which usually generates a lot of interest among rail enthusiasts. Yet there were only 80 passengers on board. Does this confirm that Lakewood Mayor Don Anderson was right when he said "this project was never needed"?

Answer: The big change in Seattle-Portland service was not an increase in speeds but an increase in frequencies (a change that may be delayed by the wreck of one of the new train sets funded by the federal government). Amtrak has only been able to fill 54 percent of this train's seats, and WSDOT was hoping that more frequent and more reliable trains would increase the percentage of seats filled. We'll know more after a year or so, but it doesn't look good if the inaugural run filled less than a third of the seats.

5. Why do so many reporters call this a high-speed train? The top speed between Portland and Seattle is 79 mph, the same as it has always been and the same as most other Amtrak routes. In technical terms, this was a conventional, low-speed train.

Answer: Though this was a low-speed train, it was funded by Obama's high-speed rail fund. By repeatedly using the term "high-speed trains," reporters are keeping that idea in the public consciousness, perhaps in the hopes that Trump's infrastructure plan will include money for more such trains. (This could backfire, however, by making people think that high-speed trains are more dangerous. They aren't--but they are a lot more expensive.)

6. Why do we need passenger trains at all? Amtrak fares from Seattle to Portland start at $26 and cover less than half the costs of the train. Bolt Bus has six buses a day that take less time than the train at fares of around $15. Plane fares start at $65, though most are around $100 (which may still be less than the full costs of Amtrak), and there are dozens of flights a day.

Short-distance trains were made obsolete by buses in the 1920s. Long-distance trains were made obsolete by planes in the 1950s. When other transportation technologies, such as horseback riding, steamboats, and canals went obsolete, we let them go. Why can't we let go of the passenger train?

Answer: America was suffering an inferiority complex in the early 1960s. We were losing the space race; some thought there was a missile gap with Russia; Japanese electronics were beginning to take over American markets. When Japan introduced its bullet trains in 1964, suddenly there was one more area in which our technology appeared to be inferior. Never mind that our jet airplanes were several times faster than Japan's trains; Congress began funding passenger trains in 1965, and once a federal program gets started, it generates special interest groups dedicated to keeping it going.

Question: At least Amtrak is getting closer to covering its operating costs, right?

Answer: No, when Amtrak says that, it is lying. Amtrak counts more than $200 million in annual subsidies that it gets from the states as "passenger revenues." Amtrak also pretends depreciation is zero even though, at more than $800 million per year, it is the second largest line item on its operating budget. Amtrak's deferred maintenance has led to a backlog of needs in the tens of billions of dollars. When counting only ticket fares and on-board food service revenues against operating costs, including depreciation, Amtrak operations lose more than $1 billion a year and ticket fares cover only a little more than half the costs.

Question: At least Amtrak's Northeast Corridor makes money, right?

Answer: Only if you don't count depreciation, deferred maintenance, or other costs that Amtrak doesn't try to allocate to individual routes. The Northeast Corridor needs at least $35 billion in rehabilitation work just to bring it up to a state of good repair. Another way Amtrak has made its trains appear to be profitable is by calling much of its maintenance work a capital cost, and Amtrak can't afford to do all of the "basic infrastructure" maintenance needed in the Northeast Corridor, much less the rehabilitation work, without federal subsidies of around $500 million dollars per year (see page 15).

Question: So is Amtrak's maintenance backlog only in the Northeast Corridor?

Answer: No, Amtrak doesn't own most of the tracks it uses outside of the Northeast Corridor, but it still has maintenance needs for its stations and rolling stock. When Amtrak took over private passenger service in 1971, the average age of passenger cars that it acquired from the railroads was 22 years, and they were so worn out that nearly all were replaced within a decade. Today, the average age of Amtrak's passenger cars is more than 30 years, suggesting that it will soon need to spend billions replacing them.

Question: So are all trains obsolete?

Answer: No, only passenger trains are obsolete. Freight trains are extremely productive, and America has the finest, most advanced rail system in the world. That's because it is mostly private and operates to produce profits, not to give politicians ribbon-cutting opportunities.

December 19, 2017 4:33PM

Paul Ryan’s Tax Triumph

Republicans are set to pass the largest federal tax overhaul in decades. The centerpiece of the bill is a reduction of the corporate tax rate from 35 to 21 percent. That reform will help attract global investment to America and boost capital spending, hiring, and wages over time.

House Speaker Paul Ryan of Wisconsin deserves chief credit for the reform. Ryan has pushed tax reform for years, and he keenly understands how high business taxes are undermining U.S. economic growth. Ways and Means chair Kevin Brady of Texas has also worked tirelessly for reform.

Ryan read our book Global Tax Revolution when it came out in 2008, and he discussed some of the themes at a Cato forum on Capitol Hill in 2009. At the time, he was the ranking member on the House Budget Committee. Here are some of his comments:

If you haven’t read this book you should, the book by Chris Edwards and Dan Mitchell. If you go to pages 46 and 47, you will see America is slipping in worldwide competition. America is behind the curve when it comes to the way we tax our businesses and companies, and we’re losing jobs because of it.

… Whether you like it or not, we are in the 21st century global economy. And it matters what the incentives are for the kinds of businesses we want to keep and attract and grow jobs in America.

The GOP tax legislation headed for the president’s desk this week has plenty of flaws, but the corporate reforms are long overdue. At Cato, we have been educating policymakers and the public on the issue since at least this 2002 study on International Tax Competition (co-authored with Veronique de Rugy), as have scholars at Tax Foundation, Heritage Foundation, and other think tanks. It is gratifying that policymakers such as Ryan listened, and have finally moved Congress to make reforms.

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December 19, 2017 3:14PM

Spending Subsidies in Tax Code: Almost $100 Billion

The Republican tax bill not only cuts taxes, but also increases spending through refundable tax credits. The plan will increase spending directly by increasing child tax credits, and increase spending indirectly by changing low-income provisions that affect spending on the earned income tax credit (EITC).

The chart shows estimated fiscal 2017 and 2019 outlays on the EITC, child credit, and American Opportunity Tax Credit (AOTC). The 2019 figure includes a $12.6 billion increase from the GOP tax bill, as estimated by the Joint Committee on Taxation in endnote 2 in here. (I’ve excluded the ACA piece).

Outlays on refundable credits or subsidies will jump from $85.1 billion in 2017 to an estimated $97.7 billion in 2019. This amount is not a “tax cut.” Rather, it represents taxes extracted from other workers and businesses, having all the usual negative effects.

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See here for a critique of the EITC.

Current law spending on the EITC, child credit, and AOTC in the budget (Table 26-1). 

December 19, 2017 2:26PM

Trump’s New National Security: Literally and Seriously Awful

National security strategies are strange beasts. Their glittering generalities and kitchen sink approach to detailing threats, interests, and priorities can make it difficult to know how literally, or seriously, to take them. All strategies reflect on the importance of American leadership and bask in the warmth of American values. And thanks to the growing bipartisan consensus around primacy since the end of the Cold War all strategies have more or less looked the same. Each one promises a stronger and safer America with help from our trusted allies. Given this, most Americans would be hard pressed to tell one national security strategy from the next.

Sadly, Trump’s 2017 National Security Strategy contains not only the worst elements from the past, namely the pursuit of primacy and a commitment to an endless war on terrorism, but also charts new territory by embracing a new nationalism that unnecessarily elevates immigration to a national security threat and retreats from the post-World War II commitment to free trade.

Though Trump’s penchant for military solutions has always been obvious, the extent to which his new security strategy embraces primacy is disappointing. As a candidate, Trump railed against the war in Iraq and nation building abroad. The national security strategy, however, calls for the United States to “compete with all tools of national power to ensure that regions of the world are not dominated by one power.” The strategy also calls for an expanded – and unending – war on terrorism. In short, Trump intends to commit the United States not only to a globe-straddling military presence and to counterproductive and unending military intervention, but also to risking conflict with nations like China over regional issues that mean very little for American national security. 

Unsurprisingly, given the turn to primacy, Trump’s strategy also calls for “rebuilding” America’s military, despite the fact that the United States already possesses the world’s most powerful military, spends more on defense than the next seven nations combined, and enjoys an alliance system that far outstrips those of Russia or China. In the end, any boost in defense spending will only add to the national debt while doing little for American security.

With regard to the economic side of foreign policy, Trump’s abandonment of decades of American support for international free trade regimes signals a dangerous form of economic nationalism. Trump’s withdrawal from the Trans-Pacific Partnership, his criticism of NAFTA, and his repeated complaints about the use of unfair trading practices by China, Japan, and other trading partners, make it clear that Trump either does not understand or does not trust the process by which the United States and the rest of the world rebuilt the global economy after World War II. Contrary to Trump’s insistences, however, protectionism and trade wars will do nothing to make America great again.

Finally, Trump’s inclusion of immigration, legal and illegal, as one of the major components of the national security strategy is not only unprecedented, but it smacks of a nativism that identifies threats not based on objective metrics but on cultural differences and vague notions of “us versus them.” None of Trump’s proposed policies, from building a border wall to banning travelers from Muslim-majority nations to extreme vetting or reducing legal immigration, are based on solid evidence about likely harms to Americans. None of these policies will improve national security. Instead, Trump’s strategy is only likely to inflame tensions among races, nations, and religious groups.

Experience with previous national security documents suggests that we should treat Trump’s new strategy more as a guide than as gospel. It’s a safe bet that Trump, even more than most presidents, will deviate from the script as threats arise and opportunities emerge. But to the extent that Trump follows his new playbook, we can expect many of the same problems that have bedeviled U.S. foreign policy for the past sixteen years along with a host of new ones.

December 19, 2017 9:56AM

All We Want for Christmas

If you read the blog regularly, you might have noticed a pattern recently: Cato’s foreign policy scholars weighing in to see if Santa might be able to improve U.S. foreign policy for us. After all, American leaders seem perpetually unwilling to do so, and the Trump administration’s new National Security Strategy doesn’t seem to offer much more hope for a more realistic, sensible approach to foreign policy either.

Our scholars asked for a variety of foreign policy changes, some big and some small. Some would be relatively easy to achieve if the political will were there, such as Chris Preble’s request for a new round of Base Reallocation and Closure (BRAC), or Eric Gomez’s desire for a better North Korea strategy. Others might be more challenging, like Trevor Thrall’s call to rebalance civil-military relations in favor of civilian leadership.

But all the suggestions share one thing in common: they would all make U.S. foreign policy more rational, effective or accountable to the public. You can check them all out here, along with a more satirical take on the question in the Christmas episode of Power Problems, our foreign policy podcast.

So all we want for Christmas is…

 

…a BRAC (Chris Preble)

…Information about U.S. Military Deployments (Emma Ashford)

…to Fight Just the Necessary Wars (Erik Goepner)

Civilian Leadership of U.S. Foreign Policy (Trevor Thrall)

…the Travel Ban to End (Sahar Khan)

…a New North Korea Strategy (Eric Gomez)

...and an F-35 (or just better defense policy, budgeting and a partridge in a pear tree) 

 

December 19, 2017 9:28AM

Immigration in the National Security Strategy

Perhaps the most unusual feature of the Trump administration’s new National Security Strategy (NSS) is its heavy focus on domestic issues. Though the document covers issues from infrastructure to the manufacturing base, this is perhaps most apparent in the document’s strong focus on immigration. While previous NSS documents have briefly addressed the question of illegal immigration, this document is perhaps unique in its assertion that legal immigration is also a national security concern.

Certainly, the document does address some accurate immigration and border-related concerns, though it massively overstates their impact. Terrorism and transnational criminal networks do pose a threat to the United States, even if this threat is typically overblown. The NSS wades into murkier waters when it states that: 

“illegal immigration… burdens the economy, [and] hurts American workers…”

But while this is inaccurate, it is not entirely out-of-step with previous administrations and their approach to illegal immigration. The most jarring difference between this and prior NSS documents, however, comes in the Trump administration’s characterization of legal immigration as a national security concern, stating that:

“We will also reform our current immigration system, which, contrary to our national interest and national security, allows for randomized entry and extended-family chain migration.”

The NSS calls for increased vetting of legal immigrants and higher standards for immigration to avoid the ‘national security risks’ created by legal immigration, though the document never actually defines what these risks would be.

Perhaps most disturbing is the characterization of student visas as a potential security threat, with the NSS promising to consider restrictions on foreign students who wish to study STEM subjects in order to prevent technology transfer and intellectual property. Though the document initially places this restriction in the context of students from countries under sanctions – presumably suggesting that nuclear proliferation is a key concern – a later passage suggests that it might be applied more broadly:

“Part of China’s military modernization and economic expansion is due to its access to… America’s world-class universities.”

The implication is that it is not only sanctioned states where potential international students might be subject to such restrictions.  Chinese students are especially prominent in American universities where they make up 31 percent of all foreign students and 30 percent of all foreign-born STEM students as of May 2017.  However, they are not the source of technology breaches. Students at the University of California are not stealing F-35 blueprintshackers are.   

Even if Chinese students trained at American universities were a major source of technology for China’s military, boosting the number of skilled immigrants who can work and live here after finishing their educations will greatly diminish the number who move back to China and work in defense industries there.    

Huge percentages of Chinese skilled workers who were educated in the United States and then moved back to their homeland would return here if they had an offer of permanent residency (green card) and the better career opportunities that would undoubtedly accompany such immigration status.  According to a poll compiled by Vivek Wadhwa, a whopping 71 percent of U.S.-educated Chinese students who returned to China would either move back to the United States or seriously consider it if they could get a green card.  It is hard to see how locking skilled Chinese STEM workers and scientists in China will hamper their technological development for national security purposes.

The folly of restricting the immigration of STEM workers for national security reasons is best summarized by the tale of Qian Xuesen, a young rocket scientist who emigrated from China in 1935.  Legendary aerospace engineer, mathematician, and physicist Theodore von Karman pronounced Qian an “undisputed genius.”  He helped research jet propulsion, rockets, and then joined the Manhattan Institute during World War II.  In 1949, he was named the first Director of Caltech’s Jet Propulsion Lab (JPL) during the early years of the Cold War. 

Qian had two problems: U.S. immigration law and Cold War paranoia.  Qian never naturalized and on an immigration form in 1947, he answered that he was not a member of a group conspiring to overthrow the U.S. government.  Later unfounded allegations that he associated with Communists led to the revocation of his security clearance and his resignation from the JPL.  Despite almost no evidence and frequent denials by him and officials, the federal government ordered him to be deported for answering “no” on that 1947 form and eventually exchanged him for several downed American airmen.

John Logsdon, former director of the Space Policy Institute at George Washington University, said that “[Qian] was Joe McCarthy’s present to the Chinese.”  In Communist China, Qian is known as the Rocket King where he was foremost responsible for the research, design, and creation of Communist China’s missile and satellite launch program, including short, medium, and intercontinental ballistic missiles. After Qian’s deportation, the United States had one fewer potential subversive who could funnel secrets to the Chinese government while China gained a more advanced rocket, satellite, and nuclear program.

It seems unlikely that the Trump administration even knew about this episode, but they should.  The lesson here is not that Qian should have been deported sooner or never allowed into the country.  On the contrary, we think the lesson is that the U.S. government should not have panicked over a minor threat and deported a brilliant rocket scientist to an unfriendly power. The U.S. economy and national defense would have continued to benefit from Xuesen’s expertise, much as the United States can benefit today from the technological skills of immigrants.

In short, the Trump administration’s new National Security Strategy takes a decidedly unconventional approach to immigration, both by including it in the document in such detail, and by including various aspects of legal immigration alongside more commonly cited concerns about crime and illegal immigration. Denying America the skills and intellect of future legal immigrants is a poor way to improve our economy. And if the improving technological prowess of states such as China poses a potential threat to U.S. national security, locking more scientists inside of China seems a particularly poor way to deal with it.  

December 19, 2017 8:48AM

Final Tax Bill: Biggest Cuts for the Middle

The Joint Committee on Taxation (JCT) has released its distributional analysis of the final Republican tax bill. The bill provides even larger percentage cuts for middle earners than previous versions of the legislation.

If the legislation is enacted, higher earners will pay an even larger share of the overall income tax burden than they do now. Our highly “progressive” income tax will be even more progressive. That approach is counter to sound fiscal governance and undermines the growth potential of tax reform, but that is what Republicans are delivering.

Looking at JCT’s table for 2019, second column, the percentage cuts are roughly similar across income groups from $20,000 to $1,000,000. But the JCT table slants the results by including payroll and excise taxes. The table under-measures the percentage cuts to the middle compared to the top.

The table below takes estimated payroll and excise taxes out of the JCT data. It shows individual and corporate income tax cuts as a percentage of estimated individual and corporate income taxes paid under current law. Middle-income households will receive by far the largest percentage income tax cuts in 2019.

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Data Notes: Households less than $40,000 are shown as “n/a” because they do not pay income taxes in aggregate. JCT does not appear to publish current law estimates of individual and corporate income taxes only for 2019, so I estimated them using ratios from this TPC table