Archives: 01/2019

Venezuela’s Opposition Crosses the Rubicon

Juan Guaidó, the president of Venezuela’s National Assembly, was sworn in today as the country’s interim president. The controversial move was expected after the opposition-controlled legislature last week invoked articles 233, 333 and 350 of the Constitution declaring Nicolás Maduro an “usurper.” President Trump quickly announced that Washington recognizes Guaidó as the legitimate president of Venezuela. Similar announcements came from Argentina, Brazil, Canada, Colombia, and other Latin American countries, as well as Luis Almagro, secretary general of the Organization of American States. This could well be the beginning of the end of the Maduro dictatorship.

Until recently things seemed hopeless for the Venezuelan people, who are suffering from an historic economic meltdown and a staggering humanitarian crisis. The opposition was maimed and deeply divided, with many of its leaders behind bars, in exile, or simply discredited after years of fruitless political maneuvering. But things started to change this year after the 35-year-old Guaidó was elected president of the National Assembly. His fresh and energetic leadership has reignited the support of Venezuelans, 80% of whom want Maduro gone, according to polls.

Moreover, on January 10 Maduro was sworn in for a new six-year term after an election widely seen as fraudulent last May. Several Western governments, including the United States, the European Union, Japan, Canada, and most Latin American countries, refused to recognize Maduro, declaring instead that the National Assembly was the only legitimate political institution in Venezuela.

Things are beginning to fall in place. Targeted Western sanctions are making life increasingly unbearable for key figures within the regime who can’t enjoy their loot outside Venezuela. Even though it is unrealistic to expect that international sanctions by themselves will do the job, it is likely that they will help to crack chavismo on the margins.

The end game, of course, is the support of the armed forces. The top brass of the military is deeply involved in corruption, smuggling and drug-trafficking. That, plus the infiltration of the Cuban secret services among the rank and file, has until now made it very difficult for the military to turn on Maduro. However, the National Assembly recently passed legislation to grant immunity to those officers who facilitate a democratic transition. Western governments should support these efforts.

January 23 is an emblematic date in Venezuela. Back in 1958 people took it to the streets calling for an end to the dictatorship of Marco Pérez Jiménez. Shortly afterwards he was on a plane to the Dominican Republic. Those events are not lost in the minds of hundreds of thousands of Venezuelans who are back in the streets demanding the end of the current dictatorship and the restoration of their democracy. The international community should keep the pressure on Maduro and his thugs, send an unequivocal message to the military, and support the new legitimate president of Venezuela, Juan Guaidó.

Pay for Federal Government Workers

With the backdrop of the shutdown and federal workers going unpaid, the New York Times published a backgrounder last week on federal compensation. It was a fair and balanced piece and highlighted themes discussed in this study on government workers.

The NYT charts government and private sector wage growth. Average federal wages soared during the 1990s and 2000s but have grown more slowly this decade. However, overall federal compensation including benefits has grown briskly in recent years, as I chart below.

Here are highlights from the NYT story:

Verla Bloomfield has the kind of workplace that seems plucked from a different era. She has a pension, a union, several weeks of vacation and a paycheck that has nearly doubled in 14 years. Her employer? The United States government.

… Since 2000, average pay has grown twice as fast for federal employees as it has in the private sector. That’s partly because the federal work force has become more educated and specialized. It is also built into the job. Even without the salaries that top performers can command in the corporate world, government workers who do well are entitled by law to regular pay increases, an increasingly rare guarantee elsewhere.

… As globalization has shuttered factories and decimated entire industries, federal employment has been a bastion of stability.

… But the reality is that people who have held onto their government jobs for many years have not languished in the same role at the same pay grade. They have progressed up the ladder and benefited from regular raises at least every few years. They all have pensions and almost all have health insurance, perks that are harder to come by as an employee in corporate America.

… [Federal worker] Ms. Bloomfield would take stability over a six-figure salary in the private sector any day. Her brother earns much more than she does in technical support in Austin, Tex. But he’s had to switch employers multiple times in the last 20 years because of corporate restructuring and layoffs. “Even though he makes a high wage, he has to live with this uncertainty,” she said. “We don’t have that stress.”

Steve Fosse, a revenue agent with the I.R.S., isn’t sure whether that trade-off is worth it anymore. The first person in his family to graduate from college, Mr. Fosse, 39, took a job with the government because it offered reliability. “I wanted the benefits and the guaranteed paychecks,” he said. For the most part, that dream panned out. Mr. Fosse earns $90,000 a year…

The NYT uses data from the Bureau of Economic (BEA) for its pay comparisons. Federal worker wages averaged $90,794 in 2017, which was 48 percent higher than the private sector average of $61,311. But as the NYT article indicates, gold-plated benefits are a key advantage that federal workers enjoy over private-sector workers.

The chart below shows BEA data on total compensation, wages plus benefits. Compensation averaged $130,429 for federal workers in 2017, which was 79 percent higher than the private-sector average of $72,992.

The comments by Bloomfield and Fosse in the article illustrate another point. As I discuss here, high job security is an additional government benefit that should be considered when comparing federal to private compensation levels.  

The shutdown has disrupted the lives of federal workers, but generally they have a good thing going with pay, benefits, and job security. If Congress ever gets around to tackling bloat in the federal budget, excessive federal benefits would be a good place to find savings.

Supreme Court Finally Takes Up Second Amendment Case

Yesterday morning, the Supreme Court agreed to hear New York State Rifle & Pistol Association v. New York City, which challenges the city’s ban on transferring even licensed, unloaded guns anywhere outside the city – including to weekend homes or shooting ranges. 

Finally! In the decade since the Supreme Court ruled in D.C. v. Heller that the Second Amendment protects an individual right to keep and bear arms, it has declined to take any cases regarding the scope of that right – until now. Matt Larosiere and I made the case a few weeks ago in the pages of the Wall Street Journal that the Court was neglecting its duty to say what the law is by abdicating its responsibility to resolve important controversies regarding various gun regulations. “The federal circuits can’t even agree on how to evaluate Second Amendment challenges, let alone what the result should be.”

With N.Y. State Rifle & Pistol, the Court can start checking the massive resistance of many states and cities to this important constitutional right. And it can start instructing the lower courts, many of which have treated the right as second-class, how the law works in this area. For law-abiding gun owners and others who wish to exercise their fundamental right to armed self-defense – particularly those who live in places with high crime and woeful policing – this is most welcome news. 

Of course, the justices could end up deciding this case on Commerce Clause grounds – interfering with access to another state’s markets – or the Fourteenth Amendment right to travel, to avoid a possibly controversial Second Amendment ruling. But it’s hard to see that there would be more consensus on those grounds. The real fear is that the Court will simply throw out this categorical ban – as in Heller, which involved a complete ban on possession of handguns – without advancing the larger jurisprudential ball. We’ll see if Justice Brett Kavanaugh, who has a strong Second Amendment record, can convince Chief Justice John Roberts to use higher caliber legal analysis.

Mr. Ferguson Goes to Washington

In the new Cato Institute book Overcharged: Why Americans Pay Too Much for Health Care, Cato adjunct scholars David A. Hyman and Charles Silver share stories of Americans who have been gouged by hospitals and other health care providers—Americans like Eric Ferguson:

After being bitten on the foot by a snake while taking out the garbage, Eric Ferguson went to the Lake Norman Regional Medical Center, where he was given anti-venom and monitored. The hospital’s list price for the medication was $81,000. The discounted price his insurer negotiated was about $20,000. The retail price of anti-venom online? $750.

Overcharged explains that hospitals and pharmaceutical companies can charge such outrageous markups solely because government grants them anti-competitive monopoly powers and encourages widespread third-party payment, where nobody has an incentive to curb excessive prices. 

Today at 2 p.m., Ferguson will tell his story in person to President Trump and members of his cabinet at a White House roundtable on “Fair and Honest Pricing in Health Care.”

While the Trump administration has admirably required hospitals that participate in Medicare to post prices, simply posting “chargemaster” prices won’t make a difference. Chargemaster prices are so complicated, patients wouldn’t use them even if they were spending their own money. And when it’s someone else’s money on the line, forget it.

Overcharged shows price transparency and price competition won’t happen until we let consumers—rather than politicians and employers—control the $3.9 trillion Americans spend on health care each year. 

To watch Eric Ferguson tell his story to Cato last June, click here or see the video below: 



School Choice Is about Taking Innovation to Scale

Only a few years ago, if you’d been, say, dining out with friends, had a drink or two, and wanted to go somewhere else, like maybe home, you pretty much had one choice: call a taxi and hope you got a good one. Today you’ve got lots of options including the good ol’ cab, but also ridesharing networks like Uber, Lyft, and others that connect riders to regular people who are drivers and want to make some money, while often enabling both parties to rate their experiences. It was an idea that started with embryonic efforts in San Francisco around 2010, and just a few years later it is nearly ubiquitous. Innovation went quickly to scale.

As Andrew Coulson explains in the School Inc. clip below, we’ve seen this phenomenon—innovations in goods and services quickly made accessible to basically everyone—over and over. But there is one place where we haven’t seen it. Can you guess what it is? It might be where our assumption has long been that government has to supply a uniform service to everyone.

The clips coming in the next two days of National School Choice Week will give you a little more insight into how free enterprise can transform education for the good, but you’ll need to watch the entire series to get a full understanding of how embracing freedom would unleash transformative innovation. And while you watch, why not have some snacks? Thanks to the free market, you can order just about anything.   

Senate GOP Bill Doesn’t Extend TPS. It Guts It

President Trump announced on Saturday that he had a new plan to open government that includes “a three-year extension of temporary protected status or TPS.” But as in the case of DACA—for reasons I explained here—the actual legislation that Senate Majority Leader Mitch McConnell introduced to implement his proposal does not extend TPS. Rather, it ends it as it exists now, and replaces with an entirely different program with much more restrictive criteria.

Temporary protective status, or TPS, is granted to nationals of country where the government feels it could not, at one time or another, send people back to due to a crisis in those countries, such as a war or natural disaster. Cribbing a lot from what I’ve already written about the DACA provisions of this bill, here is a list of the changes to TPS in the bill:

  1. Ends TPS for 5 of the 9 TPS countries: Under President Trump, the government has terminated TPS for Nepal, Sierre Leone, Liberia, Guinea, Sudan, El Salvador, Haiti, Honduras, and Nicaragua. Yet only the last four nationalities will benefit from this bill at all (p. 1256). To treat this bill as if it reverses Trump’s decisions is incorrect. It maintains the majority of them—notably for Africans who President Trump denigrated in a White House meeting last year.
  2. TPS recipients will lose their jobs: TPS extensions of work authorization are automatically extended but p. 1271 of this bill requires TPS recipients to apply for an entirely new work authorization (p. 1277), meaning that unless courts protect them, there will be a major gap in work eligibility. This is especially true because the government can take a year to enact this new program, virtually guaranteeing that everyone with TPS right now will lose their jobs.
  3. TPS recipients must reapply for initial status: When the government extends TPS, renewals of status are free. But this legislation requires a fee to apply to continue in status (p. 1265). Reapplying for initial status also requires that they reprove their eligibility, which is a costly process and often requires hiring an attorney.
  4. Much higher evidentiary burden: Reapplying will become even more onerous because p. 1256 increases the evidentiary standard to prove eligibility to receive TPS from a “preponderance of the evidence” to “clear and convincing.” The only higher standard of proof in the law is “beyond a reasonable doubt.” People win multi-million judgments based on the preponderance of the evidence standardClear and convincing is often used for cases like withdrawing life support. In the immigration context, USCIS explains that preponderance of the evidence is usually the standard—meaning that “even if the director has some doubt as to the truth,” he should approve “if the petitioner submits relevant, probative, and credible evidence that leads the director to believe that the claim is ‘probably true’ or ‘more likely than not.’” Clear and convincing is used rarely for cases like “to rebut the presumption of a prior fraudulent marriage” (i.e. for applicants the government has reason to be suspicious of). TPS recipients proving that they entered before 2011 or that they resided continuously, for example, just became much more difficult under this legislation.
  5. Massively Increases TPS Application Cost: P. 1243 contains a fine or penalty but rebrands it as a $500 “security fee” to pay for Trump’s “wall.” This is despite the fact that many TPS recipients entered legally and were stranded after hurricanes or earthquakes hit their home countries. This fine comes on top of the normal fees for processing the application, and it essentially increases the cost of the $50 application for TPS status by tenfold. It basically doubles the $495 cost of an extension of TPS work authorization.
  6. Minimum income requirement: P. 1261 would require that TPS recipients prove—again by clear and convincing evidence—that, unless they are a student, they can maintain an income of at least 125 percent of the poverty level during their time in the United States. TPS now has no such requirement. That means retirees, stay-at-home mothers, disabled people, etc. would not be eligible for TPS anymore.
  7. Pay back legally-obtained tax credits: In one of the most bizarre provisions, p. 1262 requires TPS applicants to pay to the U.S. Treasury the value of any legally-obtained tax credits that they have received. This could be thousands of dollars that have already been spent. Not only is this provision not in TPS, it is totally unprecedented in immigration law and would massively increase the cost for many applicants, particularly those with children.
  8. Bars those with pending criminal charges: TPS requires a conviction of a felony or two or more misdemeanors committed in the United States, not a mere charge for any offense at all. Many misdemeanors include minor traffic offenses. But p. 1260 renders anyone with a pending charge ineligible for the new status, even though a conviction for a single misdemeanor wouldn’t make the person ineligible anyway. Given that there’s only a six-month window to apply, this would prevent people from being able to apply at all.
  9. Bars employment “contrary to the national interest”: TPS applicants would now have to prove—by clear and convincing evidence—that their employment would not be “contrary to the national interest” (p. 1271). This provision is bizarre since the purpose of authorizing their employment is that they need to be able to support themselves, which should be always in the national interest, but under the Trump administration, the government may not see it this way.
  10. Keeps TPS recipients from getting permanent residence: Illegal immigrants who also entered illegally cannot adjust their status to legal permanent residence even if they are eligible due to (typically) a marriage to a U.S. citizen. They need to register a legal entry first. Tens of thousands of illegal immigrants received legal permanent residence in this manner under DACA, which offers a similar status to TPS. P. 1273 bars this practice by deeming such entries not a legal “admission” for purposes of adjusting status.
  11. The new status cannot be extended: Unlike TPS, this new status could never be extended by a future administration. All applications must be filed in a 6-month window (p. 1263), and the status would expire after 3 years (p. 1270).
  12. All illegal immigrants are banned from TPS in the future: P. 1275 would create a permanent change to the TPS program, banning anyone who is not lawfully present in the United States from TPS going forward. In other words, no future administration could ever use TPS to grant legal status to someone in the country illegally, even if deporting them was simply not an option.

Once again, this legislation should not be described as an extension of TPS when, in fact, it guts the program for existing recipients and removes it as an option for many future immigrants as well. This legislation does not follow through on the president’s promise.

Winner and Loser States from Centralized Government

Ninety years ago, two-thirds of government spending in America was state-local and one-third was federal. Today, it is the reverse with about two-thirds federal and one-third state-local. American government has become larger and much more centralized. That centralization has made winners and losers among the states as vast flows of taxpayer cash pour into Washington and are then dispersed through more than 2,200 federal spending programs.

In 2019, the federal government will vacuum $3.5 trillion from taxpayer pockets in the 50 states, borrow $1 trillion from global capital markets, and then turn on the leaf blower to scatter $4.5 trillion back out across the 50 states. Many billions of dollars will stay in and around Washington to pay for the leaf-blowing operations.

The Rockefeller Institute of Government has released a very useful report detailing these cash flows. The report calculates a “balance of payments” for each state in 2017, which is federal spending in each state less taxes paid to the federal government by individuals and businesses in each state. The winner states have a positive balance and the loser states a negative one. Federal spending includes four items: benefits (such as Social Security), state-local grants (such as Medicaid), procurement (such as fighter jets), and compensation paid to federal workers.

On a per capita basis, the biggest winner states are Virginia, Kentucky, and New Mexico. Virginia has a lot of federal employees, contractors, and the world’s largest naval base. Kentucky receives a lot in benefits, contracts, and grants, and has Senator Mitch McConnell. New Mexico has a lot of federal employees, contractors, and Los Alamos.

The biggest loser states are Connecticut, New Jersey, and Massachusetts. Those states have a large number of high-earning individuals who get hit hard under the “progressive” federal income tax.

Figure 1 below shows data from the Institute’s report. Taxes per capita are on the horizontal axis and spending per capita on the vertical axis. Each dot is a state. The totals allocated for 2017 were $3.1 trillion in taxes and $3.8 trillion in spending, leaving out five percent of taxing and spending that could not be allocated by state.

Generally, states on the bottom right are the losers and those on the top left are winners.

Connecticut is on the far right paying $15,462 in federal taxes per capita but receiving only $11,462 in federal spending. Connecticut would be better off in a decentralized United States with citizens paying most of their taxes to state and local governments rather than the federal government.

Every state is actually worse off than indicated in Figure 1 because federal borrowing in 2017 allowed spending to be 20 percent larger than taxes. But borrowing is not a free lunch. It creates a cost that will hit residents of every state down the road—borrowing is just deferred taxes.

For Figure 2 below, I scaled up federal taxes to include both current and deferred. That is, I scaled up taxes for each state the same percent so that total federal taxes for the nation equals total federal spending. With that adjustment, Connecticut residents paid $18,586 in current and deferred taxes per capita and received only $11,462 in spending. Connecticut residents are only getting back 62 cents for every dollar owed to Washington.

The patterns exhibited in the figures have persisted for decades. High-income states such as Connecticut have been penalized by the overly progressive federal income tax for a very long time. The interesting political question is why do they stand for it? Why do members of Congress from high-income states support a highly progressive federal income tax that particularly harms their own states?