Archives: 01/2018

WAPA: The Federal Scandal You’ve Never Heard Of

It is hard to keep track of all the waste, corruption, and mismanagement propagated by government agencies in recent years, including the DOD, PTO, VA, and others.

In researching my new study on the federal Power Marketing Administrations (PMAs), I ran across a story of federal failure that the national media has overlooked.

One of the PMAs, the Western Area Power Administration (WAPA), has been racked by scandal in recent years. WAPA is an agency of 1,450 workers within the Department of Energy.

Investigations found that WAPA employees have been using government credit cards for millions of dollars of personal spending on items such as guns, car parts, and sports equipment. ABC News reported “outlandish spending” by WAPA employees, and Sen. John McCain of Arizona charged the agency with “widespread waste and mismanagement.”

When whistleblowers inside WAPA raised concerns, they were subjected to threats from agency managers to keep quiet. WAPA has apparently accumulated a large slush fund of unobligated revenues, which has helped to facilitate the wasteful and illegal spending.

New Human Freedom Index: A Decline in Global Freedom

The new Human Freedom Index is out today. For a third year, the annual report—published by Cato, the Fraser Institute in Canada, and the Liberales Institut at the Friedrich Naumann Foundation for Freedom in Germany—paints a broad picture of personal, civil and economic freedom in the world. It uses 79 indicators in 12 areas ranging from freedom of religion to freedom to trade.

Here are some highlights. Global freedom has declined slightly compared to last year’s report and compared to 2008, the first year for which we have complete data. Switzerland is the freest country in the world, followed by Hong Kong, which fell from first place for the first time since the rankings began. The United States is ranked 17th, up from its ranking last year of 24th, but down from its ranking in 2008 when it was in 11th place. Other noteworthy countries rank as follows: the United Kingdom (9), Canada (11), Germany (16), Mexico (73), Russia (126), China (130), Egypt (155), Venezuela (158). See the top and bottom five in the chart below.

The areas that saw the largest global declines were the rule of law; freedom of movement; association, assembly and civil society; and expression and information. As a region, the Middle East and North Africa (MENA) is the least free and Western Europe the most free. MENA also saw one of the largest declines in freedom among all regions. While global freedom is slightly down, there is a lot of movement in the ratings, with about half the countries improving, and half doing worse, compared to 2008. The index captures significant declines in freedom in many countries that moved toward authoritarian populism including Russia, Venezuela, Turkey, Hungary and Argentina. The figure below shows Russia’s decline, but also Taiwan’s improvement (East and South Asia are the two regions with the greatest improvements).

There is a strong relationship between freedom and prosperity, with countries in the top quartile enjoying an average per capita income ($38,871) that is far higher than that of the bottom quartile countries ($10,346). Find out much more here about the state of global freedom.

Partisans”R”Us

The success of the corporate tax cut should ultimately be judged by corporate investment levels and wage growth, not share buybacks or one-off bonuses.

Investment is the mechanism through which corporate rate cuts lead to higher productivity and higher compensation, and the Republican plan was explicitly designed to improve the marginal incentive to invest.

Yet announcements made by hundreds of businesses for one-off bonuses for workers and even share buybacks can still be a direct consequence of the tax cut.

There are two economic mechanisms at work here, which John Cochrane has outlined: “incentives” and “cashflow”. The former is the more important, but the latter is what we are seeing so far.

Family & Diversity Immigrants Are Far Better Educated Than U.S.-Born Americans

In exchange for a deal on young immigrant Dreamers, the White House is demanding that Congress reduce legal immigration by ending the diversity visa lottery and almost all family sponsorship categories. On Fox News last week, Attorney General Jeff Sessions made the case for these changes by stating that he wants legal immigrants to “have the education and skill level to prosper in America.” He asked rhetorically, “What good does it do to bring in somebody who is illiterate in their own country, has no skills, and is going to struggle?”

But this generalization about diversity and family-sponsored immigrants is wildly inaccurate. Not only are many of them educated, they are generally much better educated than U.S.-born Americans are. Nearly half of all diversity and family-sponsored immigrants who arrived in 2015 had college degrees. Diversity and family-sponsored immigrants were 62 percent more likely than U.S.-born natives to have graduated college. At the same time, they are no more likely to have dropped out of high school than natives.

Will D.C. End Tipping?

The “Fight for $15” has broken out again in Washington, DC, with the city council considering raising the minimum wage to $15 per hour. The proposal includes a provision to extend that price floor to restaurant and other workers who receive much of their income from tips. Surprisingly—at least for some people—that has generated some push-back from tipped workers.

Over the weekend, the Washington Post ran a persuasive op-ed by local bartender Ryan Aston criticizing the idea. Aston writes in part:

There seems to be this myth going around that most tipped employees in restaurants aren’t earning a livable wage; after 13 years in the industry, this baffles me completely. I earn roughly $45 an hour with tips included; I don’t know a single server or bartender in the District whose wages have to be supplemented because they haven’t earned the minimum.

So what happens [if the provision is adopted]? Restaurant profit margins are already often razor-thin, and to be forced to pay the largest (and already highest-earning) portion of a staff four times more than before creates a real accounting problem. Generally, it means you need to bring in more money in sales and cut costs elsewhere. This translates to jacking up menu prices and laying off staff. Whom would this help?

Next, once menu prices have soared and staff has been cut, tips will dwindle. Remember, your weekly budget doesn’t change just because I got a raise. Within a few years, I’d be surprised if anyone tipped at all, and without tips, the incentive to give good service would be nonexistent. The great American bar culture would die. That would be a real tragedy.

Fight-for-$15 supporters may dismiss Aston’s concerns as hypothetical. But he has support from research by California-Irvine economist Richard McKenzie. In the spring 2016 issue of Regulation, McKenzie reports the results of surveys he conducted of food service worker on the effects such policies would have on tipping. He writes in part:

Tipping abolitionists might be surprised to learn that all servers surveyed chortled at the suggested replacement of their tip incomes with a “living wage” of $15 an hour. Most servers responded with comments of the essence,“How stupid can these people be?”

… To examine this issue, I asked the servers I interviewed if the service they provided affected their tips. All strongly agreed it did. Indeed, servers said that if they raised their service level from a “3” (average service) to a “4” (above-average), their average tip percentage (not total tips) would rise by over 25 percent. If they elevated their service from “4” to “5” (excellent service), their average percentage tip would rise another 25 percent, which means that an increase in service level from average to excellent would raise their average percentage tips by 57 percent. All servers strongly agreed that overall service quality would drop precipitously if their tip income were replaced with a fixed hourly wage, especially for “loud,” “obnoxious,” and “arrogant” customers, as well as customers with unruly and messy children.

He concludes:

Tipping abolitionists may be surprised to find that some of the most ardent opponents of tipping abolition are servers and their customers. One North Carolina server volunteered: “I made $60,000 in tips last year, reported $40,000—and had a before tax income of $80,000! That’s why I quit my teaching job.” And customers will likely suffer impaired service as the tipping incentive disappears.

GOP Bill Spends More on Border Patrol in 5 Years Than It Has Spent in 5 Decades

A large group of House Republicans with support from President Trump has united behind comprehensive immigration reform legislation that would be their answer to the DACA impasse. Among other provisions, it would gut legal immigration, criminalize all unauthorized immigrants, and legalize a small percentage of the DACA population. But most pressing for Congress as it debates a long-term spending deal is its authorization of $130 billion in new spending over 5 years, tripling the current Customs and Border Protection budget and executing a six-fold increase in Border Patrol spending.

The Securing America’s Future Act (H.R. 4760) has 77 Republican cosponsors. It would authorize the construction of President Trump’s border wall (p. 254), 10,000 new Customs and Border Protection Officers and Border Patrol agents (p. 319), a biometric surveillance system at airports, seaports, and land ports of entry (p. 357), mandatory E-Verify employment verification program for all workers (p. 87), border drones and other border surveillance (p. 261), and much else. It would require spending more than $40 billion annually and more than $200 billion over five years.

Table: Customs and Border Protection Spending Under H.R. 4760 (In Millions$)

Sources: H.R. 4760 (pp. 349, 349, 262, 349, 349, 354, 355, 368, 368, 368); Department of Homeland Security

The level of spending that the House GOP wants over the next 5 years is twice as much as Customs and Border Protection (CBP) has spent in its entire history since its creation in 2003. For Border Patrol specifically—which is now a component with CBP—it would call for approximately six times as much spending per year and require a five-year total of $120 billion, which is more than Border Patrol has spent in its entire history. Since 1965, the agency has spent about $65 billion, roughly half the amount that the House bill requires over just the next 5 years. The figure below puts the change that the bill would make in historical context. 

Figure: Border Patrol Budget, FY 1965 to FY 2022 (in Million$)

Sources: H.R. 4760; Border Patrol; Massey

This funding request is unreasonable. It is so extreme that it alone could upend a spending-DACA deal because, due to the budget caps on discretionary spending, any new spending on the border would likely need to be offset. The bill itself reduces no other spending, and it makes virtually no serious effort to pay for the bill. Its legalization provisions do require Dreamers to pay a $1,000 border security “fee” (p. 400) but because only 10 percent of the Dreamer population would qualify for the legalization, this would raise at most $250 million—nowhere near the $130 billion in new spending that this bill requires.

It is important to note that these figures only authorize appropriations to occur. For the spending to actually occur, Congress will also need to appropriate the funds. However, White House Budget Director Mick Mulvaney told Fox News on Sunday that President Trump rejected an offer from Senator Chuck Schumer (D-NY) specifically because he only offered authorization, so certainly the expectation by the White House and House Republicans is that the Appropriations Committee will also fund the request.

What programs are House Republicans willing to cut to pay for Trump’s wall and border bureaucracy blowup? We must wait and see.

House GOP DACA Bill Would Criminalize Dreamer Poverty

I have written before about how the House GOP DACA bill would legalize some young immigrant Dreamers, but would criminalize them if they failed to maintain an income at least 125 percent of the poverty line. Center for Immigration Studies (CIS) has written a blog post claiming that the bill, the Securing America’s Future Act (H.R. 4760), does not do this. CIS is wrong. First, on pages 390-396, we see the following:

(b) Eligibility Requirements.— (1) IN GENERAL.—An alien is eligible for contingent nonimmigrant status if the alien establishes by clear and convincing evidence that the alien meets the requirements set forth in this subsection. …

(4) GROUNDS FOR INELIGIBILITY.—An alien is ineligible for contingent nonimmigrant status if the Secretary determines that the alien— … (L) if over the age of 18, has failed to demonstrate that he or she is able to maintain himself or herself at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission as a contingent nonimmigrant …

CIS responds that this “does not require that an alien maintain him- or herself “at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission;” rather, it conditions a grant of nonimmigrant status to a showing of an ability to do so at the time of application” (My emphasis). Nothing in the language of subsection (b) actually limits the income “demonstration” to the time of the application. Are all the other requirements also limited only to the time of the application? Can the Dreamers commit felonies and keep their status? Obviously not. But in any case, CIS’s argument ignores page 409, which clearly states that all requirements in subsection (b) are conditions of the status:

The Secretary shall revoke the status of a contingent nonimmigrant at any time if the alien— (A) no longer meets the eligibility requirements set forth in subsection (b).

But revocation of status is not the only penalty for violating the conditions of the status under the bill. On pages 171-172, we see that it creates a new federal criminal offense:

(1) ILLEGAL ENTRY OR PRESENCE.—An alien shall be subject to the penalties set forth in paragraph (2) if the alien—…(D) knowingly violates the terms or conditions of the alien’s admission or parole into the United States and has remained in violation for an aggregate period of 90 days or more

(2) CRIMINAL PENALTIES.—Any alien who violates any provision under paragraph (1)— (A) shall, for the first violation, be fined under title 18, United States Code, imprisoned not more than 6 months, or both; (B) shall, for a second or subsequent violation, or following an order of voluntary departure, be fined under such title, imprisoned not more than 2 years (or not more than 6 months in the case of a second or subsequent violation of paragraph (1)(E)), or both.

Any foreigner who violates “the terms or conditions” of an immigrant’s status will have committed a criminal offense if they did so for more than 90 days. For some reason, CIS never quotes this language. Instead, its post discusses a variety of irrelevant current regulations. The plain fact is that the House GOP would have Dreamers criminally prosecuted and sentenced to up to six months in federal prison if they drop below an annual income of 125 percent of the poverty line for 90 days.

CIS also tries to portray this requirement as no more onerous than the public charge affidavit requirement that all sponsors of legal immigrants already must sign, pledging to maintain the immigrant at an income of at least 125 percent of the poverty line. In that scenario, however, it is the sponsor who is required to demonstrate income, and the legal immigrant can enforce the affidavit against the citizen. This comparison also cuts against the notion that the income requirement is only at the time of the application, since the income requirement for the affidavit is not limited to the time of the application.

In any case, the immigrant is in absolutely no danger of deportation as a result of the citizen’s failure to sufficiently support them. Moreover, the affidavit requirement for the sponsor expires. By contrast, the House GOP bill’s requirement has no termination date. It would continue to require Dreamers to work for the rest of their lives if necessary to avoid status revocation, deportation, and the criminal penalties under this bill. As I have said in my explanation of the legalization provisions on Twitter, this bill treats Dreamers as criminals on parole, not as the Americans that the vast majority of the public considers them to be. 

This treatment makes perfect sense when you consider that the bill also makes it a criminal offense (p. 171-72) to exist in the United States for 90 days without legal status. The House GOP is so determined to see these immigrants as not just illegal, but as criminals that they have decided to try to make their view reality. Given this perspective, it seems perfectly logical to them to treat Dreamers as criminals on parole, not equal members of society.