Archives: 04/2019

The FAMILY Act Costs More than Expected

A new report suggests that the Democrats’ FAMILY Act paid leave proposal is substantially more costly than previously estimated. The difference is meaningful: using more realistic assumptions, the cost of national paid leave is 7-fold greater than previous estimates, and taxpayers would be picking up the tab.

The American Action Forum analysis uses data from Cato’s paid family leave poll to estimate the cost of the FAMILY Act. Previously, assumptions used to model the cost of the program relied on the use of national unpaid leave benefit take-up rates (FMLA), or lesser-known, less generous, state paid leave program take-up rates. Unfortunately, neither are good proxies for the likely use of a paid, nationally-known, and more generous FAMILY Act-like program.

The nationally representative Cato paid leave poll asked directly about respondent’s intended use of a FAMILY Act-like benefit. The take-up rate and benefit use duration for the FAMILY Act were substantially higher than previous estimates that relied on take-up rates for unpaid leave or lesser-known and less generous state programs.

Figure 1: Three Estimates of the Cost of the FAMILY Act 

 Estimates of FAMILY Act Cost

Using more realistic use assumptions, the FAMILY Act would cost 7-fold as much as previously estimated (Figure 1) and require a 2.85 percent payroll tax on workers. For an average worker, that means paid leave would cost $1,440 per year. This is substantially more expensive than previously claimed: elsewhere, advocates assert that the FAMILY Act would require a 0.2 percent payroll tax on workers, at a cost of $75-95 annually.  

Accurately forecasting the cost of paid leave is critical, because Americans are price-sensitive. For example, when costs aren’t mentioned, 74 percent of Americans say they support national paid leave policy. But if paid leave costs workers $1,200 per year, a majority of Americans oppose paid leave. 

It seems likely the FAMILY Act will cost substantially more than advocates claim, either because estimates use erroneous assumptions or because the policy grows substantially over time, as paid leave policies have elsewhere in the world. Either way, taxpayers deserve accurate information about the cost of paid leave before policymakers ask them to sign on the dotted line. 

Housing Prices, Supply, and Innovation

Housing prices have soared in many U.S. and international cities, which has generated affordability problems for middle- and lower-income families. An article in the Wall Street Journal today by Laura Kusisto and Peter Grant notes, “Across 32 major cities around the world, real home prices on average grew 24% over the last five years.”

Kusisto and Grant imply that the blame should be shared: “Governments haven’t had the money to subsidize new supply … The private sector has also fallen short.” And they say, “But no approach has solved the crises and most have other negative ripple effects.”

But then the reporters undercut their own narratives with news about Tokyo:

But one major city has had stable housing prices as a result of pumping out housing supply to keep up with rising demand.

Tokyo is one of the few cities in which supply has kept up with demand, keeping a crisis from developing. But that is due largely to deregulated housing policies that other countries would have a hard time reproducing.

“It goes against the notion of planning and developing cities in an orderly fashion,” said Laurence Troy, research fellow at the City Futures Research Centre of the University of New South Wales, Australia.

So maybe the idea of imposing top-down “order” is harmful. If the government gets out of the way, businesses can invest, supply will increase, and prices will be restrained.

Not only will supply increase, but Kusisto and Grant report that businesses in deregulated markets respond to the high-price problem by innovating to cut construction costs. Thus, the private sector is not “falling short” in places where it is allowed to work its magic.  

On the next page in the Journal today, River Davis reiterates these points in her report on Tokyo’s relatively free housing markets:

In the past two decades, home prices in some leading North American and European cities have skyrocketed. In Tokyo, however, they’ve flatlined.

So why no affordable-housing crisis in Japan? A big factor, experts say, is the country’s relatively deregulated housing policies, which have allowed housing supply to keep up with demand in the 21st century.

With no rent controls and fewer restrictions on height and density, Tokyo appears to be a city where the market is under control—where supply is keeping home prices from rising as drastically as they have in many other major world cities.

… Japan’s current level of housing supply is tied to a package of policy changes—implemented around the turn of the century—that were aimed at restoring the profitability of Japan’s land-development industry, according to Andre Sorensen, a professor of urban geography and a Japan housing expert at the University of Toronto Scarborough.

The Japanese government began relaxing regulations that had restricted supply, allowing taller and denser buildings in Japan’s capital. Private consultants were given permission to issue building permits to speed up construction. “This created something like a free-trade zone in Tokyo,” Mr. Sorensen said.

With deregulation has come business innovation, which has further restrained prices:

Two of Japan’s largest housing construction companies, Daiwa House Industry Co. and Sekisui House Ltd, both say that the easing of land and construction regulations has helped them build in Tokyo. The companies say that deregulation has benefited them particularly in their ability to expand housing units by replacing low-rise residential complexes with much higher ones.

“A good environment for housing construction is being created,” says Daiwa House managing executive officer Yoshinori Ariyoshi.

To deal with rising construction fees, Mr. Ariyoshi says Japan may have to rely more on prefabricated homes to provide affordable housing. He estimates that about 20% of the country’s homes are already being assembled in increasingly automated factories.

For more on these issues, see Vanessa Brown Calder’s analysis here.  

Americans Love the Military — but They Don’t Think It Needs More Money

Those who call for the United States to pursue an ambitious grand strategy of global dominance (aka primacy) also believe the American people will willingly tolerate much higher Pentagon spending. Some even spell out where the additional money will be found. The members of the National Defense Strategy Commission, for example, declare that policymakers must arrest the rise of non-defense spending, and increase tax revenues, in order to “fully fund America’s defense strategy.” 

Such claims do not square with political reality. As Gallup’s Frank Newport points out “Americans clearly respect and appreciate the military, but generally perceive that the nation’s national defense is strong enough (or even too strong), and that current defense spending is about right (or even too much).” Newport’s colleague Lydia Saad breaks down public attitudes here, finding that just 1 in 4 Americans think we spend too little on the military. There is meager support for higher Pentagon spending even among Republicans: 48 percent believe that military spending is “about right” while just 37 percent want more. Three years ago, these numbers were essentially flipped: 62 percent of Republican respondents thought the United States was spending too little on the miltary, while just 22 percent were in the “about right” camp.

Looking back on Gallup polling data over the last several decades, Newport explains “as defense spending goes up, the percentage of Americans saying the nation spends too little goes down.” And, overall, “attitudes about defense spending…[remain] fairly stable, with Americans almost always saying that spending is either about right or too much.”

He continues:

For those who argue that the U.S. needs a much bigger defense budget in the years ahead, Americans’ upbeat feelings about the military and about the strength of national defense could actually be an obstacle – leading to the complacent conclusion that the military budget doesn’t need to be increased. If things are going well (and if the budget has already been increased), why the need to spend more?

To be clear, if Washington continues to hold out U.S. military power as indispensable to all that is good in the world, and if our political leaders mostly listen to those who contend that “America needs a substantially larger military than the one it now has” – then U.S. taxpayers will have to pay more. Much more. And they’ll also have to tolerate much less spending on nearly everything else.

But it is not too late to revisit our foreign policy goals. As I explain in my forthcoming book, there are many problems with primacy, but its greatest shortcoming may be that it does not align with the wishes of the American people. An alternative approach, one that is better suited to our current political moment, would restrain Washington’s impulses to solve problems through the use of force, or the threat of force, and reaffirm the importance of the many other instruments of American global influence, including diplomacy and responsible statecraft, mutually beneficial trade, and peaceful cultural exchange.

 

Mexican Immigration Enforcement Has Declined in Effectiveness

President Trump has repeatedly criticized the Mexican government for failing to do more to stop the Central American migrants heading north to the United States through Mexico. He tweeted yesterday, “They have ALL been taking U.S. money for years, and doing ABSOLUTELY NOTHING for us, just like the Democrats in Congress!” The truth is more complex. The Mexican government is doing a lot in absolute terms, but its efforts have become relatively less effective over time.

Figure 1 shows the number of apprehensions and deportations of Central Americans from the Northern Triangle by U.S. fiscal year from 2001 to 2019. As it shows, enforcement activity in Mexico peaked during the period in the mid-2000s. It declined from 2006 to 2011, briefly surged in 2015 and 2016, before declining again. The deportation rate has fluctuated year-to-year, but has also fallen from 99% to 83% from 2017 to 2019.

Figure 1: Apprehensions and Deportations by the Mexican Government

Figure 2 shows the number of apprehensions of Central Americans in Mexico and the U.S. Border Patrol from FY 2001 to FY 2019. As it shows, Mexico interdicted the vast majority of Central Americans traveling north in the early 2000s. In 2001, it apprehended eight Central Americans from the Northern Triangle for each that made it to the U.S. southwest border. That rate declined each year through 2014 before improving in 2015 and falling each year thereafter. In 2019, nearly four Central Americans will reach U.S. soil for each apprehended in Mexico. Mexico’s share of total apprehensions fell from 89 percent to an estimated 21 percent in 2019.

Figure 2: Apprehensions and Deportations by the Mexican Government

The Mexican government’s immigration agency—the Instituto Nacional de Migración (INM)—spent $74 million more in 2011 than 2017 (calendar years), increasing expenditures from $200 million to $274 million—a 27 percent jump. Strangely, during this time, the actual formal budget for the INM fell by two thirds. The formal budget is what the federal government appropriates, while the INM has other sources of spending from fees on visas and possibly other sources. It is worth noting that Mexico’s military also engages in immigration enforcement activities, and the federal police force also participates to some extent.

Figure 3: Mexico’s Immigration Agency (INM) Appropriated Budget and Spending

Focusing solely on the period for which we have data, Mexico improved its efficiency in apprehensions per dollar spent from 2011 to 2016 (Figure 4). This metric regressed in 2017 following a fall in apprehensions (driven by a smaller flow). The INM spent $2,841 per apprehension, though it is important to note that this isn’t the amount spent specifically on each apprehension. Rather, it is the total spending divided by total apprehensions.

Figure 4: Mexico’s Immigration Agency (INM) Spending and Spending Per Apprehension

In a development related to its enforcement efforts, the Mexican government created visitor and work visa programs for Guatemala in 2008. They created a humanitarian visa for all Central Americans in 2013 and their asylum program has also expanded rapidly in importance. These avenues (annualized) grew strongly so far in FY 2019 (Figure 5). Total participants in one of these legal immigration program has increased from 106,351 in 2017 to be on pace for 175,272 through January of 2019. Just like in the United States, an asylum application can stop a removal, which may explain the decline in the deportation rate from 2017 to 2019.

Figure 5: Visas and Refugee Applications by Northern Triangle Migrants in Mexic

Mexican immigration enforcement has changed significantly over the last two decades. Immigration enforcement spending has increased, but apprehensions and deportations are not at record highs and the deportation rate has declined in the last two years. Moreover, Mexico’s interdiction rate of Central Americans fell greatly since 2001, even prior to the increases in total flows. This could possibly be related to the increased number of Central Americans who enter Mexico legally and travel with legal status to the U.S. border.

While the Mexican government is increasing enforcement to new levels in recent weeks, it has not shown so far that it can stop enough of the flow to disincentivize future migration of Central Americans. 

Criminal Illegal Immigration Falls 75 Percent

The number of Border Patrol apprehensions is climbing rapidly this year. Border Patrol has apprehended 273,089 people along the Southwest border since the beginning of fiscal year 2019 through to the end of February 2019. If those numbers continue to climb, Border Patrol apprehensions this fiscal year could exceed the annual number in any year since the start of the Great Recession. Even though Border Patrol has apprehended more people in recent years, the number of criminal aliens arrested by Border Patrol has dropped since at least FY 19. 

According to Border Patrol, criminal aliens are those who have been convicted of crimes here or abroad if the conviction is for conduct which is also criminal in the United States. From the beginning of fiscal year 2015 through the end of February 2019, the absolute number and percent of criminal aliens arrested by Border Patrol have fallen in every year (Figure 1). In 2015, about 5.7 of all Border Patrol apprehensions were criminal aliens. For FY 19 through the end of February, only 0.7 percent of people apprehended by Border Patrol were criminal aliens. If the number of criminal aliens apprehended continues to decline apace for FY 19, the absolute number will be 75 percent below 2015.     

Figure 1

Many politicians and political commentators complain that people showing up on the border and entering illegally or asking for asylum are criminals. The falling number of previously convicted criminals showing up is evidence to the contrary. Relative to earlier surges in apprehensions along the border, the larger number of women, children, and asylum seekers means that today’s surge is preferable to previous surges.   

When people were worried about the migrant caravan last year, I wrote a blog arguing that it probably didn’t contain many criminals and likely looked a lot like the rest of the illegal immigrant population. The Border Patrol figures on criminal alien arrests tend to agree with me. Like previous surges of illegal immigration, this one presents problems, but they are better problems than those faced in the past.  

“Closing the Border” Is a Terrible Idea

President Trump reiterated his threat Saturday to “close the border” or “large sections of it” next week. To put it mildly, “closing the border” is a terrible idea. The president cannot close the border to illegal immigration. What he can do—and is already doing—is slow the flow of legal crossings.

  • Mexico is America’s 2nd largest export market and 3rd largest total trading partner.
  • U.S. border crossings with Mexico handle a half a trillion dollars in trade each year. Nearly half enters through Texas where two thirds of illegal border crossings have occurred this year.
  • Each year, U.S.-Mexico border crossings permit the entry of more than 190 million people and 6.3 million commercial trucks.
  • Nearly 5 million American jobs depend on U.S.-Mexico trade.
  • Mexico exports to the United States $26 billion in intermediate goods (components of final products), meaning that closing the border would be like building a wall in the middle of a factory floor.

Even a temporary slowdown would have significant effects:

  • The temporary closure of the San Ysidro port in California last year—in order to tear gas migrants trying to cross—cost businesses $5.3 million.
  • During that shutdown, traffic diverted to the Otay Mesa port resulting in 5 hour waits there.
  • Normal lengthy waits to cross into the U.S. resulted in lost output of $6 billion in 2009 in California alone.

Other presidents have intentionally slowed traffic at ports of entry, but none since the implementation of NAFTA in the 1990s. Even then, the economic costs were significant. As the Boston Globe described President Nixon’s insane drug control strategy in 1969:

Cars and trucks were all checked for illegal contraband, and, as the day wore on, drivers who’d waited for hours without air conditioning or water were strip-searched. Over the next two weeks, as tens of millions of dollars evaporated from the economies of the border towns, Nixon came under enormous political pressure to back off. La Prensa — San Antonio’s bilingual newspaper — headlined one of its front pages “Humiliating Mexicans,” and Diaz accused Nixon, in terms that would be particularly ironic nearly 50 years later, of creating a “wall of suspicion” between the two countries. Almost no marijuana was seized.

Allan Golombek’s description in Real Clear Politics of the results of the GM Canada strike may also be revealing:

The three-week long GM Canada strike in 1996 serves as a good example of what actually happens when imports stop flowing into the United States. The strike by the Canadian auto plant didn’t just idle four assembly plants and numerous other facilities in Canada. Because GM operations were tightly integrated even then, the interruption of the flow of parts and vehicles had a swift domino effect, almost immediately prompting the company to close plants and lay off close to 2,000 workers in Michigan and upstate New York. Many other GM plants in the United States were subsequently slowed and stopped. Auto analysts estimated the automaker was a day or two away from having to shut down most of its North American operations when the strike ended after three weeks.

President Trump’s strategy is to scare the Mexican government into stopping Central Americans from coming North. But the Mexican government is already desperately trying to do just that based mainly on its own internal political considerations. Last week, even before these threats, it stopped issuing humanitarian visas to Central Americans and deployed its military to create an inland checkpoint line across the Isthmus of Tehuantepec—the narrowest point of Mexico.

Mexico’s prior attempts to control the flow have only achieved temporary results as it only forces smuggling networks to adjust their strategies. Ultimately it will take changes to U.S. visa policy to provide an alternative to traveling through Mexico to permanently reduce the flow.

Reporters Accept Illogical Gas Tax Narrative

Here is the framing of countless news articles on infrastructure: the streets have potholes; the federal gas tax has not been increased since 1993; experts are quite sure we need a federal hike; the states have increased their own gas taxes; only misguided fears of a public backlash stand in the way.

Reporters should be more skeptical about this lobbyist-driven narrative. Here is my unpublished letter to the Wall Street Journal in response to their latest story following the pro-tax script.   

Gerald Seib is right that there is some bipartisan support for a federal gas tax increase and that the tax was last raised in 1993.

However, Seib’s article also reveals why a federal hike makes no sense: “Since 1993, 39 states have voted to raise state fuel taxes.” States can raise funding for their own highways whenever they want, and state funding makes more sense than rule-laden and pork-barrel federal funding. Virtually all highways—including the Interstates—are owned by the states, and with ownership comes responsibility.

Lastly, note that while the federal gas tax has been flat at 18.4 cents per gallon since 1993, it had more than quadrupled from 4 cents per gallon in 1983. The 1983 rate is equal to 10.3 cents in today’s dollars, so there has been a substantial real increase in the gas tax rate since then.

I have added a title to the Journal’s photo.

This Is a Local Government Responsibility

More:

Gas tax diversions

Federal gas tax increase not needed

Chamber of Commerce wrong on gas tax

Highways background

Infrastructure background