January 16, 2018 9:39AM

Year of Federal Spending Cuts, 2018

As an optimist, and I hereby proclaim 2018 “Year of Federal Spending Cuts.” To kick-off the celebrations, Cato has published Downsizing Federal Government Spending.

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The new book discusses federal spending cuts on agriculture, education, health care, infrastructure, welfare, and many other activities. The cuts would save money, boost growth, and increase freedom.

Congress needs to kick the deficit-spending habit, and the new book can help kick-start reforms. Do lawmakers really want to kick younger generations in the teeth by growing the debt? I hope not, but the way some of them spend, it’s as if they know they will kick the bucket before the bill comes due.

You will get a kick out of this book. The kicker? It’s just $9.99 from Amazon.com

January 15, 2018 8:15AM

Privatizing Federal Grazing Lands

The federal government owns 640 million acres of land—mainly in the West—which is 28 percent of land in the United States. For more than a century after the nation’s founding, the federal government aimed to sell or give away western lands to individuals, businesses, and state governments. But by the turn of the 20th century, federal policy came under the sway of progressives, who favored increased federal control.

Progressives had a misguided notion that federal ownership would be efficient and environmentally sound. Broadly speaking, they were wrong. Experience has shown that federal agencies mismanage land from both economic and environmental perspectives, as discussed here and here. The solution is to devolve ownership of most federal land to the states and private sector.

The Bureau of Land Management (BLM) owns about 250 million acres of land, of which about 160 million acres are used for livestock grazing. Cato scholar Steve Hanke championed BLM land privatization as an economist for President Ronald Reagan. He proposed that ranchers be allowed to buy the grazing land that they currently rent from the BLM.

Privatization would create benefits by securing property rights. Currently, ranchers are uncertain about their future access to the federal grazing lands they use, so they have incentives to overstock the lands and disincentives to make capital improvements. Privatization would allow ranchers to plan for the best economic and environmental rangeland management over the long term.

In a new Forbes article, Hanke discusses the privatization proposal he designed in the 1980s, a proposal that Reagan approved of. Hanke’s reform would be fair and efficient for both ranchers and the government. Here are some excerpts:

On Jan. 8, Judge Gloria M. Navarro of the Federal District Court in Las Vegas dismissed charges against Cliven Bundy and his sons Ammon and Ryan, as well as a supporter Ryan W. Payne. The case stemmed from a 2014 armed standoff at the Bundy ranch in Bunkerville, Nevada. The standoff arose over a dispute about government grazing fees, pitting the Bundys against federal officials.

The dispute would not have occurred if the proposal I developed for President Reagan when I served as Senior Economist on his Council of Economic Advisers had been implemented. The proposal was contained in the President’s Budget Message for 1983 fiscal year.

…Until the passage of the Taylor Grazing Act in 1934, the public domain was operated as a large commons. Since the Act, a more orderly method of utilization has been in effect. For the right to use public grazing lands, which cover approximately 155 million acres, ranchers must acquire grazing permits. To obtain these permits, ranchers must pay annual rents to the U.S. Government. By custom, the grazing permits, which number approximately 24,500, are attached to specific parcels of private land.

The linkage between public permits and private land has had a profound impact on the market for private land. The annual public grazing fees have been set below market-clearing levels. As a result, the grazing permit market has been cleared—supply has been equated with demand—not through the public grazing permit market itself, but through the market for the private lands that are linked to the public permits. So, the difference between the public grazing fees that are charged and those that would clear the market for grazing permits has been capitalized into the value of the private lands that permits are attached to.

The linkage, through the capitalization process, between the market for public permits and that for private land has important implications. With the exception of those who obtained the original permits, all ranchers have had to pay two prices for their public permits—a public price, in the form of an annual grazing fee, and a private price, in the form of a premium for their private land.

…To privatize public grazing lands and transfer public grazing permits (surface rights) to private ranchers on an equitable basis, a lump-sum amount should be charged to ranchers. This charge should be set so that it is equivalent, in present value terms, to the amount that the U.S. government would receive in grazing fees over time if the government retained title to the lands and continued to charge an annual grazing fee or rent. In effect, the government would be put in a position in which it is indifferent between receiving a lump-sum payment today or a stream of annual rents over time. Moreover, ranchers would be charged for only that portion of the permits’ value that had not already been paid for through premiums for private land.

…[W]hat would be the benefits associated with this privatization proposal?

First, the productivity of federal grazing lands would increase.

Second, federal revenues would be generated. Instead of receiving annual grazing fees, the federal government would receive an equivalent lump-sum payment.

Third, the annual federal costs…exceed the annual revenues generated from federal grazing lands. Therefore, privatization would eliminate negative cash flows for the federal government. This would obviously benefit all U.S. taxpayers, who must now pay taxes to support the federal government’s retention of public grazing lands.

Lastly, a state and local property tax base would be created. Western dependence on Washington, D.C. would be reduced and federalism would be enhanced.

January 13, 2018 4:07PM

Embarrassing the Country

Rachel Campos-Duffy, the wife of Rep. Sean Duffy (R-WI), cohosting "Outnumbered" on Fox News Friday, complained that Democrats "make our country look bad" by revealing what President Trump said in a meeting with members of Congress:

"I still have a problem with people in a private meeting going out and saying what the president said....It makes our country look bad. I think the Democrats, in this case, should have used some discretion. And even if he did say something like that, not repeat it for the benefit of the country.”

Her comments reminded me of one of my favorite parliamentary exchanges. 

Helen Suzman, the longtime leader of the parliamentary opposition to apartheid, rarely won any votes in the South African parliament. But she did use her position to advocate for human rights and to ask tough questions. 

In a famous exchange a certain minister shouted: “You put these questions just to embarrass South Africa overseas.” To which she coolly replied: “It is not my questions that embarrass South Africa – it is your answers.” 

Republicans who don't want the country embarrassed by the president's insult to dozens of countries and millions of Americans should encourage him not to issue such insults.

January 12, 2018 5:05PM

Federal Gas Tax Increase Misguided

The Trump administration will release its long-waited infrastructure plan in coming weeks. The plan is expected to include $200 billion over 10 years of federal funding. Where will the money come from? The president has pondered raising the federal gas tax.

Revenues from the 18.4 cent-per-gallon federal gas tax go into the Highway Trust Fund, and then are dished out to the states. But 98 percent of U.S. streets and highways are owned by state and local governments, and the owners should do the funding. States that need to improve their highways can increase their own gas taxes, sales taxes, issue debt, add user charges, or pursue public-private partnerships.

There is no advantage in raising federal highway revenues rather than the states raising their own. The states can tackle their own infrastructure challenges, and about half of them have raised their transportation taxes in the past five years.

Supporters of a federal gas tax hike say that the tax has not been raised since 1993, and its real value has been eroded by inflation. That is true. But the federal gas tax rate more than quadrupled between 1983 and 1993 from 4 cents to 18.4 cents, as shown in the chart below. The 4-cent rate would be 9.8 cents in today’s dollars, so the real gas tax rate has risen substantially since the early 1980s.

The chart shows that the states have steadily raised their own gas taxes in recent years. API discusses state gas taxes here, and they emailed me data back to 1994. (I’ve interpolated a few missing years). The state average—currently 33 cents—includes both gasoline excise taxes and other taxes on gasoline.

I hope Trump does not go down the road of gas tax increases. Pumping more money through the federal bureaucracies would fuel more top-down planning and inefficiency. Funding for highways and other infrastructure should be handled by state and local governments and the private sector.  

More on infrastructure here and here

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January 12, 2018 2:34PM

An Invisible Trade War No Longer

As the trade paparazzi speculate about whether and when Trump will impose trade sanctions on China and what those sanctions will be, a trade war is already widening right under their noses. For more than a decade, the United States and China have been quietly waging a trade war in the shadows of public policy.

China’s pursuit of technological know-how has included objectionable tactics, such as the implementation of discriminatory innovation policies, intellectual property theft, forced technology transfer, and cyber-espionage. The U.S. government’s response has included the informal decision to put the U.S. market off limits to China’s most successful technology companies and to make U.S. technology more difficult for Chinese companies to acquire. What that means is that globally successful information and communication technology (ICT) companies, such as Huawei Technologies, have been informally blacklisted from selling network gear to America’s telecommunications companies, and selling computers, smartphones, and other electronic devices to U.S. consumers. 

It also means that the Committee on Foreign Investment in the United States (CFIUS), through imminent legislative and regulatory changes, will soon complete its metamorphosis from a body that reviews proposed foreign acquisitions and helps the parties mitigate potential security risks associated with those deals into an insurmountable obstacle to any significant acquisitions of U.S. technology by Chinese companies.

I wrote about this metastasizing trade war and its adverse repercussions in Forbes the other day, but wanted to provide an update on the rapidly changing landscape.

On January 9, Rep. Mike Conaway (R, TX, 11thintroduced legislation that not only forbids U.S. government agencies from purchasing ICT equipment produced by Huawei, ZTE (another Chinese ICT company), or their subsidiaries and affiliates, but also forbids those agencies from doing business with any entity that uses equipment produced by those companies.

Should HR 4747, the “Defending U.S. Government Communications Act,” become law, it’s difficult to imagine that Beijing would remain welcoming of U.S. technology companies and products in China for much longer.

In my estimation, this is going to be the most explosive trade issue of 2018 and beyond.



January 12, 2018 12:38PM

DACA Deal Should Exclude Expensive Biometric Exit System

President Trump is promoting comprehensive immigration legislation drafted by key House Republicans that touches on all aspects of the system. The bill would provide legal status to young immigrants, cut legal immigration, and provide for more border agents, but one provision should not be ignored: a biometric exit system. It’s a big waste of money, and Congress should resist efforts to fund it.

Biometric exit’s logistics are difficult

Current law requires the Department of Homeland Security (DHS) to collect a biometric identifier—in practice, fingerprints and digital photos—from foreign visitors entering and leaving the United States. In theory, this system would allow them to identify individuals who overstay their temporary visas. After 9/11, DHS implemented the entry half, but it still has not rolled out a system for those exiting.

The biometric entry system—known as US-VISIT—was relatively easy to implement because foreign visitors to the United States already underwent screening at ports of entry, and as a security tool, it made sense. It allows DHS to confirm that a person trying to enter is the same person who applied for a visa overseas, which undermined visa fraud and the use of aliases in the visa entry process.

The biometric exit system has no similarly easy path to implementation. Airports are not set up to screen travelers exiting the United States. As the Government Accountability Office (GAO) has found, “airports generally do not have designated and secure exit areas for conducting outbound immigration inspections, nor are there checkpoints for travelers to pass through where their departure is recorded by a U.S. immigration officer.”

At land ports of entry, the situation is even more hopeless. GAO found that “many land POEs do not have sufficient space to deploy equipment and staff.” Moreover, a biometric exit system would require motorists to stop and physically leave their vehicles. GAO notes that this “would cause extensive delays.” DHS did test biometric exit kiosks for pedestrian traffic, but these failed because agents had to spend too much time helping people and desert conditions damaged the equipment.

Biometric exit is an unnecessary expense

Nor does biometric exit have the same benefits. DHS already tracks most overstays using airline flight manifests. Airlines send DHS the names of anyone who has boarded an outbound flight, and DHS compares this information against US-VISIT entry information. In 2016, this flight manifest system identified 544,676 people as having overstayed and not left the country—1 percent of all air and sea entries.

While some share of these people—mainly Canadians and Mexicans—may have left through ports of entry, this system identifies a massive pool of people who DHS could target for removal operations, but they don’t. DHS spends only 2 percent of its time investigating overstays. Of the nearly 700,000 foreign visitors that DHS has identified as overstays from 2004 to 2012, it arrested only 9,000 (1.2 percent).

Expanding an exit system to land ports of entry would only add to the massive stack of uninvestigated visa overstays. Biometric exit without much more aggressive interior enforcement serves little purpose, while coming at a great cost. The Senate Judiciary Committee in 2013 obtained an estimate from DHS that full biometric exit would cost $25 billion—airports would cost $6.4 billion alone.

This only includes the cost to the government. It ignores costs to travelers and businesses who are delayed leaving the country. Delays entering the United States along the southern border already cost the U.S. economy billions—more than $6 billion in California alone. Congress should work first to reduce these delays that have serious negative impacts on the economy before imposing an expensive system with a dubious purpose.

Overstay crackdown isn’t worth it

Some might argue that the biometric exit would be valuable if DHS simply spent more time targeting overstays. But the department’s priorities make sense. Every visitor to the United States receives thorough vetting before entry, while people who cross the border do not. Thus, starting with border crossers is logical from a security perspective.

Overstay investigations are exceptionally labor intensive for low priority offenders. Consider that of the 44,500 overstay leads that DHS investigated from 2004 to 2012, it arrested just 9,000, mainly because nearly half ended up leaving the country or adjusting to a legal status before an apprehension was made. Another quarter were never located. This is a huge investment for few arrests.

By contrast, DHS currently apprehends illegal immigrants—including some overstays—mainly after states and localities arrest them for local crimes. Prioritizing overstays would mean passing on people who 1) are guaranteed arrests and 2) are alleged to have committed some other violation of law beyond immigration offense. To target both overstays and those arrested by local police would require far more resources than Congress currently spends on enforcement. Even then, it’s not clear that overstays would be DHS’s priority. There are criminal fugitives who could be tracked down.

Biometric exit is a costly enforcement hammer without any nails to strike. DHS is already well aware of many visa overstays, but prioritizing them would mean ignoring higher priority and easier arrests. Without dramatic reductions in the illegal population, a crackdown on visa overstays will never make much sense, making biometric exit almost entirely superfluous.

January 12, 2018 12:17PM

Colorado: Where Anyone Can Squelch Political Speech

With school board elections approaching, Tammy Holland purchased ad space in her local paper to inform her neighbors about their available options when it came time to vote. For this brazen exercise of her free speech rights, Ms. Holland found herself forced to expend considerable time and resources to defend her actions in court, twice. You might wonder how this could happen in a “free” country that ostensibly enjoys the blessings of the First Amendment. Unfortunately, Colorado’s byzantine system of campaign and political finance regulations not only turn a blind eye to First Amendment concerns, but actively incentivizes politically motivated, retaliatory litigation. 

Colorado is unique in being the only state to effectively outsource enforcement of its campaign finance regulations by allowing “any person who believes” that campaign finance laws are being violated to “file a written complaint with the secretary of state.” Filing a complaint triggers a litigation process culminating in a court hearing before an Administrative Law Judge, much like a trial. After Ms. Holland was dragged into court on the whim of individuals who took issue with her speech, Campaign Integrity Watchdog (CIW)—an outside group that was not a party to the litigation—filed a motion requesting the court seal otherwise public records because they contain information related to campaign finance settlements. If the court grants CIW’s request, the public will never be able to access vital information about how these cases are resolved. In an effort to protect the public’s right to know, Cato has joined the Reason Foundation to file an objection to CIW’s motion.

Citizens should be able to access information about how their campaign finance laws are enforced. As the United States Supreme Court has long held, it is presumptively the right of the public to access and know the contents of court filings. Judges are obligated to avoid secret trials, which are anathema to a free society. And, in the context of Colorado’s campaign finance laws, which encourage individuals to function as an arm of the state by instructing them to “prosecute” perceived violations, it is doubly important that the public have access to relevant court filings and records. Denying CIW’s motion and allowing access remains faithful to the presumption that, in the criminal context, plea agreements should be open. Sealing the records would contravene the long-established common law right of access to judicial records and the local rules of the District Court of Colorado. In the interest of transparency, public access, and freedom from political prosecution, CIW’s motion to restrict should be denied.