A Washington Post article recently highlighted the impressive but uneven progress that Africa has made in its struggle against poverty. The article looked at questions pertaining to material wellbeing, including “the number of times that an average family had to go without basic necessities.” On that measure, Cape Verde saw the most rapid improvement. And so the article asks, “What did Cape Verde do right?”
Cape Verde’s superior infrastructure, the Washington Post explains, is partly responsible for that country’s economic progress. Surely that cannot be the full answer. The United States did not have an interstate road network till the Eisenhower Administration – decades after the United States became the richest and most powerful country in the world. Similarly, Germany was the most powerful and richest country in Europe a long time before constructing its famous autobahns.
In fact, it is Cape Verde’s policies and institutions that we should look to as reasons for that country’s superior performance relative to, say, Liberia, where poverty increased the most – according to the Washington Post. According to the Center for Systemic Peace, Cape Verde is a democracy. Liberia, in contrast, is far behind.
Freedom House, similarly, gives Cape Verde a perfect score on political rights, while Liberia is two points behind them on a seven-point scale.
The Economic Freedom Index only began tracking Cape Verde in 2010, but in that time, its freedom to trade has practically caught up with the United States, where freedom to trade is sadly declining.
The Washington Post’s omissions matter. Focusing on infrastructure development while ignoring political and economic freedoms can lead to what economist William Easterly calls authoritarian development. On this theory, simply furnishing dictators and corrupt governments with technical expertise and aid money will improve conditions for the poor. Evidence shows that this approach to development chiefly empowers dictators while the poor continue to suffer.
Free development, instead, focuses on establishing or strengthening political and economic freedoms for the poor. If given the freedom to do so, ordinary people have a remarkable ability to hold their governments accountable and to improve their lot through production and exchange.
Liberia’s political institutions are moving in the right direction, but have some catching up to do. Cape Verde, on the other hand, is an excellent example of rapid development under conditions of relative political and economic freedom.
Washington Post fact checker Glenn Kessler gives Senator Rand Paul Three Pinocchios for making the following claim on TV:
Ronald Reagan . . . said we’re going to dramatically cut tax rates. And guess what? More revenue came in, but tens of millions of jobs were created.
Before examining whether or not “more revenue came in,” consider just how dramatic the Reagan-era tax changes really were. Under the first bill in 1981, all personal tax rates were eventually reduced by 23%. But it is often forgotten that these rate reductions in were foolishly delayed until 1984. By then, however, the 49% tax bracket was down to 38%, the 24% rate to 18% and the 14% rate to 11%.
When the 1986 Tax Reform took effect in 1988, higher marginal tax rates fell further to 28-33% for those previously in tax brackets of 38-50%. The corporate tax was cut from 46% to 34%. After being reduced to 20% from 1982-86, however, the top capital gains tax was raised to 28% in 1987 before being rolled-back to 20% in 1997 and 15% in 2003.
Mr. Kessler mainly takes issue with Senator Paul’s comment that “more revenue came in” after the highest marginal tax rates on income or capital gains were reduced (I'll deal with jobs issue in a separate blog).
Before considering his evidence, take a close look at the graph below -- which compares reductions in top tax rates for personal income and taxable capital gains with the growth of real federal tax revenues, measured in 2009 dollars.
Aside from cyclical revenue losses in the aftermath of recessions (1982-3, 2001-2, 2008-10), it appears undeniable that real revenues grew most briskly after top tax rates were reduced, including reduced tax rates on capital gains in 1978, 1997 and 2003. By contrast, real revenues were flat or down during years of high tax rates on income and/or capital gains, such as 1969-77. Although early years are not shown in this graph, real revenues were actually lower in 1961 than in 1952 -- a period with 91% tax rates and three recessions.
The graph stops with 2012 because fiscal 2013 includes the fourth quarter of 2012 when taxpayers realized gains and collected bonuses to avoid Obama’s higher tax rates. Thomas Piketty and Emmanuel Saez report that income reported by the Top 1% fell by 14.9% in 2013 when top tax rates on income and capital gains were increased. “The fall in top incomes in 2013 is due to the 2013 increase in top tax rates,” notes Saez.
Mr. Kessler does not actually deny that “more revenue came in” after tax rates were reduced in 1984 and 1988, even though he accuses Senator Rand of lying about that. Kessler instead tries to attribute much of the (unmentioned) 1981-90 revenue increase to badly-estimated “tax increases” in 1982, 1983, 1984 and 1987. Those tax laws mainly involved in reneging on promises to further accelerate business depreciation in 1984-85, not changes in rates. The 1983 law raised the Social Security tax rate one percentage point, but not until 1988-90.
Kessler also changes the subject from growth of revenue over time to revenues as percentage of GDP. He says, “revenues as a percentage of gross domestic product (GDP), which is the best way to compare across years, dropped from [a record high of] 19.1 percent in 1981 to a low of 16.9 percent in 1984, before rebounding slightly to 17.8 percent in 1989.” Far from being “the best way” to discover whether or not “more revenue came in,” revenues as a percentage of GDP tell us almost nothing about that. The only two times revenues hit 19% of GDP -- in 1969 and 1981 -- the economy and revenues promptly collapsed under that burden.
Kessler then confuses old revenue estimates with actual revenue. He says, “the Treasury Department in 2006 confirmed that tax cuts reduced revenue.” That is untrue – at least three Pinnochios untrue.
The author of that brief 2006 Treasury memo, Jerry Tempalski, simply compiled original static estimates from the Treasury, JCT or “statements or tables included in the Congressional Record without a citation for the source of the estimates.” Tempalski warns that such revenue estimates “do not take into account the effect of the bills on GDP, even though some bills . . . were primarily designed to stimulate the economy.” He also admits that he made “no adjustment for estimates that proved to be inaccurate.” In other words, Kessler's alleged proof is just a list of antique estimates -- some from unknown sources, some known to be wrong, and none of them extending beyond four years.
According to an updated version of this so-called Treasury Department study, the 1964 Kennedy tax cuts, which took rates down from 20-91% to 14-70%, were estimated to lose the equivalent of $64 billion in 2009 dollars. On the contrary, federal revenues in 2009 dollars soared from $710 billion in 1963 to $914 billion in 1967 – an awesome gain of 28.8% in just four years. Similar vintage estimates for rate reductions in 1984-88 are no more credible today than those absurdly erroneous estimates of 1964.
Measured in 2009 dollars, real federal revenues rose from $1.37 billion in 1981 to $1.64 billion by 1990 – a 21.3% gain. President Reagan left office in January 1989 but his tax rates lasted another year. Top tax rates were then increased in 1991 and 1993, but real federal revenues in 1993 were no higher than in 1990 when the top tax rate was 28%. As a share of GDP, revenues were 17.8% in 1989 but remained well below that level until 1995. Revenues again reached 17.9% of GDP in 2007 (despite some revenue-losing 2001-03 tax breaks), but only14.9% from 2009 to 2012.
The usual cheerleaders for Carter-era tax rates jumped on Twitter with shouts of “Voodoo!” and “Smoke and Mirrors” when Washington Post writer Glenn Kessler awarded Rand Paul Three Pinnochios for telling the truth about tax revenues rising from 1981 to 1990. It is Mr. Kessler who deserves Three Pinnochios.
In a Washington Post op-ed laying out his thoughts on the federal role in education, Gov. Jeb Bush wrote, “We are long overdue in setting the lines of authority so clearly.” Alas, the lines he offered would furnish just the sort of “clarity” that has led to nearly limitless federal control over schooling without any meaningful evidence of lasting improvement.
The true heart of what Bush wrote was not his declaration about setting lines, but the three justifications he offered for federal intervention. Washington, he wrote:
should work to create transparency so that parents can see how their local schools measure up; it should support policies that have a proven record; and it should make sure states can’t ignore students who need extra help.
All of this is what has gotten us to the de facto state of federal control we are currently in:
- “Transparency” has come to mean federally driven tests and curriculum standards – the Common Core – because under No Child Left Behind states had been defining “proficiency” for themselves, and it wasn’t sufficiently “transparent” for some people whether “proficient” kids in Mississippi were as educated as those in Massachusetts. Of course, you can’t have much more complete federal control than Washington deciding what students are taught.
- Supporting policies with “a proven record” opens the door for any policies politicians declare “proven.” See, for instance, the rhetoric vs. the reality of pre-K education programs.
- Making sure states “can’t ignore students who need extra help” has also been used to justify national standards and tests. Indeed, it underlies everything Washington does. Sayeth federal politicians, “Some groups aren’t doing so well, and since we spend money to end that we’d better dictate terms. So let’s connect all that money to school nutrition guidelines, teacher evaluations, English and math content, school opening times...”
Quite simply, in setting his lines, Gov. Bush set no lines. Thankfully for him, lines of federal authority have already been drawn. Indeed, they were set centuries ago: the Constitution gives the federal government no authority to impose transparency, offer help, or anything other than prohibit discrimination by state and local governments and govern federal lands.
As I’ve noted before, obeying the Constitution would save folks like Gov. Bush a lot of reinventing work. More importantly, it would save everyone else expensive, ineffectual trouble.
Once again, the Washington Post's education blogger, Valerie Strauss, failed to do her due diligence before posting a hit piece on school choice. A year ago, she falsely claimed that scholarship tax credit programs benefit corporate donors and wealthy recipients. In fact, donors break even at most and the best evidence suggests that low-income families are the primary beneficiaries even in the few programs that are not means-tested. Unfortunately, Strauss has still failed to issue a correction.
Now Strauss has posted an op-ed from an anti-school choice activist in Florida that contains numerous additional errors, which the good folks at RedefinED.org have thoroughly debunked, including the following canard:
“Any way you look at it, private entities receive public tax dollars with no accountability.”
One can certainly debate whether there is sufficient accountability, but there is certainly more than none. All scholarship students take state-approved nationally norm referenced tests such as the Stanford 10 or Terra Nova. The gain scores are reported publicly, both at the state level and for every school with 30 or more tested scholarship students. Additionally, schools with $250,000 or more in scholarship funds must submit independent financial reports to the state.
Not only did the op-ed's author fail to correctly explain the law, she failed to understand that school choice is accountability. As explained in an open letter that the Cato Institute recently issued along with the Heritage Foundation, Friedman Foundation for Educational Choice, and others: "True accountability comes not from top-down regulations but from parents financially empowered to exit schools that fail to meet their child’s needs."
Moreover, the claim that "private entities receive public tax dollars" is also false. The money flows from private donors to private nonprofits to private citizens to spend on their children's tuition at private schools. That the donors receive a tax credit does not transmogrify their donation into "public" money. Indeed, the U.S. Supreme Court ruled that this view erroneously "assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. Private bank accounts cannot be equated with the … State Treasury." Likewise, neither tax deductions for donations to a church nor the church's own property tax exemption mean that churches are therefore funded by "public tax dollars."
The Washington Post has an in-house fact-checking team. They should not have to rely on RedefinED.org or others to ensure the veracity of what their bloggers post.
Today the Washington Post has a story, also featured in their DC-area radio ads, about how some states are looking to change the name of the Common Core, but not the substance, because the brand has gotten too toxic. That the Post has so prominently run such a story shows just how noxious the fumes surrounding the Common Core curriculum standards have become, and it’s great that the paper is shining a light on dubious efforts to quell opposition. But within the story itself are several examples illustrating why, even as disgust over the Core grows, the average person doesn’t know how truly foul much about the Core is.
The Post certainly makes clear how some states are trying to cover the Core’s stench with perfume rather than attack its rot. Basically, states such as Arizona and Iowa are just changing the Core’s name. Speaking to the Council of Chief State School Officers, one of the two professional organizations that created the Core, likely Republican presidential candidate Mike Huckabee captured the tactic in one, succinct sentence: “Rebrand it, refocus it, but don’t retreat.”
That doesn’t sound like addressing people’s serious concerns. It sounds like, well, deception—alas, nothing new in the Common Core sales job.
Unfortunately, the Post’s story is itself guilty of Core-tilted inaccuracy, though whether knowingly or unknowingly is impossible to tell. And the Post is hardly alone among media outlets in these failings.
There’s no more crucial an example of this than the piece’s description of the Obama administration’s role in getting states to adopt the Core. Twice the article says the administration gave its “endorsement” to the Core, as if the President simply blurbed the back cover of the standards or was filmed hauling lumber in his Ford Common Core 150.
But the administration didn’t just say “Man, this Core is great!” No, it told states that if they wanted to compete for part of the $4.35-billion Race to the Top—a chunk of the “Stimulus”—they had to promise to adopt the Core. And if they wanted waivers from the almost universally disliked No Child Left Behind Act, they would have only one option other than the Core to show that their standards were “college and career ready.”
There’s a reason most states promised to adopt the Common Core before the final standards were even published: They had to for a shot at federal money!
Unfortunately, the Post’s article not only ignores the federal coercion behind the Core, but does so after stating that “the standards were established by state officials with bipartisan support and quickly earned widespread approval.” If you ignore the big federal bribe in the room, that makes Core adoption sound like the “state-led and voluntary” process Core supporters love to tell us it was. But, of course, the bribe was there, so readers are getting at least an incomplete—and definitely pro-Core slanted—picture of what happened.
Making matters worse, soon after stating that there was a mere “endorsement” of the standards by the administration, the article says, “[Core] opponents include tea party activists who say the Common Core standards amount to a federal takeover of local education.” Readers seeing this without knowing about the serious federal coercion involved reinforces the meme that tea party types are kooks who see phantom federal control behind everything they don’t like. It also backs up Core supporters’ tactic of dismissing opponents as nuts rather than dealing with their myriad, grounded concerns.
The article has other problems, but the failure to report on the absolutely real federal coercion behind the Core is the most damaging. A big part of the opposition to the Core is driven by the fact that it is a one-size-fits-all regime being inserted into schools largely by the power of a central government that has no authority to do so. This opposition is made more virulent by the mantra of supporters that the Core is “state led and voluntary” and the aggravating assertion that any who say otherwise are “misinformed” or willfully lying.
To be sure, people on all sides of the issue say things that are wrong—some probably intentionally. But for the public to know the truth, news reports must give the full, basic facts about the Core and its implementation. This is especially important because, as this article does a great job of making clear, some politicians will definitely deceive the public if they think it will help their cause.
A Washington Post editorial today pushes back against the argument that a Trans-Pacific Partnership agreement would exacerbate income inequality. Amen, I suppose. But in making its case, the editorial burns the village to save it by conceding as fact certain destructive myths that undergird broad skepticism about trade and unify its opponents.
“All else being equal,” the editorial reads, “firms move where labor is cheapest.” Presumably, by “all else being equal,” the editorial board means: if the quality of the factors of production were the same; if skill sets were identical; if workers were endowed with the same capital; if all production locations had equal access to ports and rail; if the proximity of large markets and other nodes in the supply chain were the same; if institutions supporting the rule of law were comparably rigorous or lax; if the risks of asset expropriation were the same; if regulations and taxes were identical; and so on, the final determinant in the production location decision would be the cost of labor. Fair enough. That untestable premise may be correct.
But back in reality, none of those conditions is equal. And what do we see? We see investment flowing (sometimes in the form of “firms mov[ing],” but more often in the form of firms supplementing domestic activities) to rich countries, not poor. In this recent study, I reported statistics from the Bureau of Economic Analysis revealing that:
Nearly three quarters of the $5.2 trillion stock of U.S.-owned direct investment abroad is concentrated in Europe, Canada, Japan, Australia, and Singapore. Contrary to persistent rumors, only 1.3 percent of the value of U.S.-outward FDI [foreign direct investment] was in China at the end of 2011.
Meanwhile, the United States (not China or Mexico) is the world’s #1 destination for FDI:
With a stock valued at $3.9 trillion, the United States is the top single-country destination for the world’s FDI outflows. There are plenty of reasons for that being the case, including the facts that the United States is the world’s largest market and has a sound legal system and a relatively transparent business environment. More than $4 out of every $5 of that stock (84.2%) is owned by Europeans, Canadians, and Japanese, with the U.S. manufacturing sector accounting for a full third of its value, making it the primary destination for inward FDI.
Are BASF, Michelin, BMW, Siemens, Airbus, InBev, Honda, Kia, Ikea, Shuanghui (recent Chinese purchaser of Smithfield Hams) and thousands of other foreign-headquartered companies invested here because labor is cheapest in the United States? They are here because firms conduct value-added activities wherever it makes the most sense to do so, given all of the considerations and restrictions that affect costs. For so many reasons, the United States is still the top destination for investment in manufacturing and most services industries.
So stop. Just stop.
The editorial also indulges the most persistent myth of all, that increasing exports while minimizing imports is the purpose of trade agreements. As I’ve written on countless occasions in numerous different ways, increased imports are the real benefits of trade. Our exports are what we use to pay for our imports. If you prefer paying less for your products at the grocery store, you should prefer exporting less for the products you import. And for those concerned about income inequality—the editorial’s presumed audience—it is worth understanding that import competition increases choices and reduces prices, which means imports increase real incomes.
The editorial concedes that imports from Vietnam may increase under the TPP (“suppose [the bilateral deficit] were to double”), but that the deficit “would still be tiny relative to the overall U.S. trade balance.” Instead of apologizing and rationalizing, as though this development were a cost, why not point out how lower-income Americans, in particular, would experience a lower cost of living because trade would reduce the cost of their clothing and footwear?
We need to do better a job explaining how trade does not lend itself to sports metaphors. Exports are not our "points." Imports are not "their" points. The trade account is not a scoreboard. It is not Team America against the world. Trade is about mutually beneficial exchange between individuals in different political jurisdictions, and to the extent that those kinds of transactions are subject to the whims of politicians, more and more resources will be diverted from economic to political ends.
Though it may have had good intentions, the Washington Post should know better than to perpetuate simplistic myths spun by well-compensated K Street consultants on behalf of the business, labor, and environmental interests that benefit financially from restrictions on trade and investment.
Last week, a New Hampshire trial court declared that the state’s nascent scholarship tax credit (STC) program could not fund students attending religious schools. The Granite State’s STC program grants tax credits to corporations worth 85 percent of their contributions to nonprofit scholarship organizations that aid low- and middle-income students attending the schools of their choice.
Writing on the Washington Post’s Answer Sheet blog, Professor Kevin Welner of the University of Colorado at Boulder mocked supporters of the program who criticized the decision. Welner argues that school choice advocates should have expected this decision, declaring that it was “unsurprising” that the court should find the program (partially) unconstitutional. But what Welner calls unsurprising is actually unprecedented.
Only toward the bottom of his post does Welner reveal that the only high courts to address the issue thus far—the U.S. Supreme Court and the Arizona supreme court—have ruled STC programs constitutional in their entirety. Indeed, though all but two of the remaining ten states with STC programs have similar “Blaine Amendment” provisions in their state constitutions, opponents haven’t even bothered to challenge their constitutionality. Additionally, other state courts have ruled on the question of whether tax credits constitute “public money” in a manner consistent with the previous STC cases, demonstrating that the courts’ rulings were not the aberrations that Welner imagines them to be.
If school choice supporters had a reason not to be surprised, it was because the ACLU and Americans United for Separation of Church and State shrewdly went judge shopping. That’s why they brought their lawsuit in Strafford County instead of Merrimack County, where the state capital is located. Their strategy seemed to pay off, as the judge’s decision relies heavily on the dissenting opinions in the U.S. Supreme Court and Arizona supreme court decisions, and misapplies the limited precedent from New Hampshire. Nevertheless, the final decision rests with the New Hampshire supreme court. As I detail below, logic and precedent suggest that they should overturn the lower court’s decision.
Welner claims that the question of constitutionality rests on what he calls the “tax expenditure doctrine”:
This doctrine looks at the practical effect of tax credits and thus treats them as analogous to direct government expenditures (both are charges made against the state treasury). In fact, the entire legal appeal of the convoluted [scholarship tax credit] mechanism is built around courts not understanding that doctrine.
In fact, the U.S. Supreme Court spent considerable time in ACSTO v. Winn weighing whether tax credits and deductions are constitutionally equivalent to tax expenditures. The majority concludes that they are not:
Like contributions that lead to charitable tax deductions, contributions yielding [scholarship] tax credits are not owed to the State and, in fact, pass directly from taxpayers to private organizations. Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence. Private bank accounts cannot be equated with the Arizona State Treasury.
In other words, the Supreme Court clearly understood Welner’s argument, and they rejected it. The doctrine Welner presents as settled and obvious is actually quite controversial, and even its proponents are “still debating among themselves how to define tax expenditures—nearly two generations after the concept was introduced.”
Welner asserts that there is no “practical” difference between a credit and a direct expenditure. From an accounting perspective, whether the government spends $100 or forgoes $100 in revenue makes no difference. However, this facile understanding of scholarship tax credits fails to capture its full fiscal impact, since there are also corresponding reductions in state spending. The Court spends several pages exploring the various possible fiscal scenarios that could result from a tax credit program, including the possibility that the program would save money (as is the case in Florida). The Court concludes:
It is easy to see that tax credits and governmental expenditures can have similar economic consequences... Yet tax credits and governmental expenditures do not both implicate individual taxpayers in sectarian activities. A dissenter whose tax dollars are “extracted and spent” knows that he has in some small measure been made to contribute to an establishment in violation of conscience... When the government declines to impose a tax, by contrast, there is no such connection between dissenting taxpayer and alleged establishment. Any financial injury remains speculative. And awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own consciences.
Hence the Court rules that though tax credits and direct expenditures may be similar in effect, they are significantly different in design and implementation. This difference is then appropriately reflected in the court’s treatment of the laws. While the U.S. Supreme Court’s decision is not binding on a New Hampshire court’s understanding of the state constitution, the logic of distinguishing between the policies still applies.
Moreover, even if the state court wrongly understood tax credits to be “public money,” New Hampshire precedent favored upholding the program. Though New Hampshire’s supreme court has never ruled on the constitutionality of a school choice program, there have been several, sometimes conflicting, non-binding advisory opinions. Based on the precedent, former NH Supreme Court Justice Charles Douglas III has argued that even traditional vouchers would be constitutional because the benefit to religious organizations is indirect and incidental to the choices of parents.
Indeed, the lower court judge even relied on (and misapplied) the test established in a 1955 Opinion of the Court, which declared that it would be constitutional for the state to fund students attending nursing school, even if the school was religiously-affiliated:
Our state Constitution bars aid to sectarian activities of the schools and institutions of religious sects or denominations. It is our opinion that since secular education serves a public purpose, it may be supported by tax money if sufficient safeguards are provided to prevent more than incidental and indirect benefit to a religious sect or denomination. We are also of the opinion […] that members of the public are not prohibited from receiving public benefits because of their religious beliefs or because they happen to be attending a parochial school. [emphasis added]
When the state sends state funds directly to a private school, that clearly qualifies as “direct” support. Courts have differed when a state grants funding to parents who then to choose where to spend it, with the majority of state courts understanding this as “indirect” and a minority finding it to be “direct.” However, until now, no court has ruled that money which never enters the state treasury but instead flows from a corporate donor to a nonprofit to parents to their school is anything but “indirect.”
Moreover, like a patient choosing to spend Medicaid funds at a Catholic hospital or a needy individual spending SNAP funds on food for a religious feast, any benefit to a religious institution is only incidental to the choices of the beneficiaries.
The 1955 opinion was reaffirmed in subsequent opinions, though a non-binding opinion in 1969 stands out as a notable exception. The opinion advised that a proposed $50 property tax credit for private schooling would be unconstitutional because it lacked any provision “restricting the aid to secular education.” This new test contradicts the court’s previous understanding of the constitutional requirements. Had it ever been fully adopted, it would have also adversely impacted other state programs, such as state aid to college students and the longstanding property tax exemptions for houses of worship and religious schools.
In any case, the New Hampshire supreme court does not consider its earlier advisory opinions to be binding because they are not litigated cases in which parties on each side present their strongest arguments. Additionally, the advisory opinions interpreted the state constitution in light of federal First Amendment jurisprudence. If the NH supreme court continues that tradition, then they will uphold the scholarship tax credit program in its entirety.