Topic: General

Democrats Should Be Heartened by Betsy DeVos

Unless something unexpected happens, tomorrow the United States Senate will vote on Betsy DeVos to be the next U.S. Secretary of Education. And if you are a Democrat sweating through nightmares over what a Trump administration will do to education, you should be pretty comfy with what DeVos has said she’d like to see happen under her watch. As she stated repeatedly in her confirmation hearing, she would not use federal power—and certainly not secretarial power—to impose anything, including school choice, on unwilling states and districts.

But isn’t the vote expected to be as close as last night’s Super Bowl at the end of regulation, with all Dems voting against DeVos and Vice President Mike Pence delivering the final, overtime vote for her? Yup.

You see, over the decades, Democrats, with copious help from Republicans, have tried to make the U.S. Department of Education what it was not originally intended to be, and what with absolute certainty it cannot constitutionally be: a national school board. This vision was exposed in a comment by Senator Patty Murray (D-WA), ranking member of the Health, Education, Labor and Pensions committee, when she warned all who were suffering through the festival of misinformation and grandstanding that was DeVos’s confirmation hearing, that if approved DeVos would “oversee the education of all of our kids.”

This did not elicit the manufactured giddiness that met DeVos’s suggestion that a school with a grizzly fence might have a gun, and that such decisions should be left to states and communities who know their needs better than Washington. But Murray really ought to know that the Constitution and several laws give the feds no authority to “oversee” American education. Moreover, she had only about a year earlier voted for a law—the Every Student Succeeds Act—intended to cage the education secretary after the Obama administration had employed the position to illegally micromanage American education.

Sen. Murray was, though, soon outdone in her hyperbole. Senate Minority Leader Chuck Schumer (D-NY) took his rightful position in the front of the overstatement pack, declaring that DeVos “would single-handedly decimate our public education system if she were confirmed.”

How, exactly, would she do that?

New CBO Numbers and the Simple Formula for Good Fiscal Policy, Part I

The Congressional Budget Office, as part of The Budget and Economic Outlook: 2017 to 2027, has just released fiscal projections for the next 10 years.

This happens twice every year. As part of this biannual exercise, I regularly (most recently here and here) dig through the data and highlight the most relevant numbers.

Let’s repeat that process. Here’s what you need to know from CBO’s new report.

  • Under current law, tax revenues over the next 10 years are projected to grow by an average of 4.2 percent each year.
  • If left on autopilot, the burden of government spending will rise by an average of 5.2 percent each year.
  • If that happens, the federal budget will consume 23.4 percent of economic output in 2027 compared to 20.7 percent of GDP in 2017.
  • Under that do-nothing scenario, the budget deficits jumps to $1.4 trillion by 2027.

But what happens if there is a modest bit of spending restraint? What if politicians decide to comply with my Golden Rule and limit how fast the budget grows every year?

This shouldn’t be too difficult. After all, even with Obama in the White House, there was a de facto spending freeze between 2009-2014. In other words, all the fights over debt limits, sequesters, and shutdowns actually yielded good results.

So if the Republicans who now control Washington are serious about protecting the interests of taxpayers, it should be relatively simple for them to adopt good fiscal policy.

And if GOPers actually decide to do the right thing, the grim numbers in the CBO’s new report quickly turn positive.

  • If spending is frozen at 2017 levels, there’s a budget surplus by 2021.
  • If spending is allowed to grow 1 percent annually, there’s a budget surplus by 2022.
  • If spending is allowed to grow 2 percent annually, there’s a budget surplus by 2025.
  • If spending is allowed to grow 2.63 percent annually, the budget is balanced in 10 years.
  • With 2.63 percent spending growth, the burden of government spending drops to 18.4 percent of GDP by 2027.

To put all these numbers in context, inflation is supposed to average about 2 percent annually over the next decade.

(In)digesting the DeVos Confirmation Hearing

I got my dinner and a show last night. The dinner was fine, but the show? Not so great. Not much substance was covered in the DeVos confirmation hearing before the Senate Health, Education, Labor and Pensions committee, and when meaty issues were brought up they were too often smothered in gotcha questions and commentary rather than meaningful discussion.

A good part of the hearing was occupied by bickering over each committee member only getting one, five-minute questioning period, and whether or not that was committee tradition or an effort by the GOP majority to protect the witness. Maybe that’s insightful stuff if you care about the politics of all this—though I doubt it—but it doesn’t tell us one whit about where the nominee stands on the federal role in education.

The good news is that when DeVos was asked about her views on federal policy, she was deferential to states and districts. I don’t recall her stating resolutely that the Constitution leaves ed power to the states and the people—she stated little resolutely—but she hit the right notes. Included in that was telling committee chair Lamar Alexander (R-TN) that she would not use the power of her office to try to coerce school choice. She said she would try to convince Congress to push choice—an unconstitutional goal, but at least using the constitutionally correct process—but she would not try to do it unilaterally.

Trump and Trade on the Cato Daily Podcast

This week the Cato Daily Podcast (Subscribe!) focuses on the importance of trade as the Trump Administration arrives next week. Here’s a quick rundown.

Monday:

Daniel J. Ikenson and Daniel J. Mitchell discusses the backgrounds and new roles for Trump’s “protectionist triumvirate” of Wilbur Ross, Peter Navarro, and Robert Lighthizer.

Tuesday:

Simon Lester discusses the potential fallout of President-elect Trump’s taking to Twitter to threaten companies like Carrier, Ford, Toyota, and General Motors.

Nat Hentoff, RIP

Cato Senior Fellow Nat Hentoff passed away on Saturday evening at age 91.  He was a leading authority on the Bill of Rights and most especially the First Amendment.  He authored 37 books and countless newspaper and magazine articles.  He is perhaps most well-known for his opinion articles in the Village Voice, where he wrote for 51 years, from 1957 until 2008.  He joined the Cato staff in 2009 and never stopped researching and writing.  A few years ago, he told me that he was following Duke Ellington’s guide with respect to his own work in defense of the American Constitution:

Rule 1: Don’t Quit

Rule 2: Reread Rule #1

Nat actually knew Duke and many other luminaries, from Malcolm X to Supreme Court Justice William Brennan.  He was a jazz expert, writing on music for the Wall Street Journal.  He often said that “jazz and the Constitution were his main reasons for being.”  He said his passion for jazz and liberty overlapped because they were both about respecting everyone’s individuality.  

Nat was bemused by both his fan mail and hate mail as the years passed.  He didn’t play the political game—he would condemn Democrats and Republicans alike if they attacked constitutional principles. And he was always enthusiastic when he found a member of Congress coming to the defense of the Constitution, such as Senator Russ Feingold’s (D-WI) lone vote (in the Senate) against the Patriot Act in 2001, or, more recently, Senator Rand Paul’s (R-KY) efforts to scale back the surveillance state.  Go here to view an interview with his thoughts on other current events.

Nat said one of the best things about losing his job at the Village Voice in 2008 was that it afforded him the opportunity to (sort of) read his own obituaries.  “Dig this one!,” he would tell me over the phone with a chuckle. 

Interestingly, when asked about his proudest achievement, he would say it was not anything he wrote.  He got an opportunity to work as a producer for a television special about jazz music in 1957.  He jumped at the chance to bring beautiful jazz music into the living rooms of folks who had never really been exposed to it before.  Here is Billy Holiday’s Fine and Mellow from that special.  According to Nat’s relatives, he passed away while listening to his favorite jazz tunes.

We’re sad you’re gone, but we celebrate your good life.  Rest in peace.

Federal R&D Funding

The federal government spent $147 billion on research and development in 2016, including $77 billion on defense and $70 billion on nondefense. Federal R&D spending has risen in recent decades on a constant-dollar basis, but has dipped as a share of gross domestic product. The AAAS has the data here.

How much should the federal government spend on R&D? AAAS data show that 23 percent of federal spending is for “basic” research, 25 percent is for “applied” research, and 52 percent is for “development.” Most economists would support the basic part, but be more skeptical of the applied and development parts because the private sector handles those activities.

The largest portion of federal nondefense R&D is for health care. In the Wall Street Journal today, a professor emeritus at Harvard Medical School questions the value of this funding. Tom Stossel argues that the private sector makes most medical advances:

The assumption seems to be that the root of all medical innovation is university research, primarily funded by federal grants. This is mistaken. The private economy, not the government, actually discovers and develops most of the insights and products that advance health. The history of medical progress supports this conclusion.  

… In America, innovation came from physicians in universities and research institutes that were supported by philanthropy. Private industry provided chemicals used in the studies and then manufactured therapies on a mass scale.

… Since then, improvements in health have accumulated. Life expectancy has increased. Deaths from heart attack and stroke have radically decreased, and cancer mortality has declined. New drugs and devices have ameliorated the pain and immobility of diseases like arthritis. Yet the question remains: Is the government responsible for these improvements? The answer is largely no. Washington-centric research, rather, might slow progress.

… By contrast, private investment in medicine has kept pace with the aging population and is the principal engine for advancement. More than 80% of new drug approvals originate from work solely performed in private companies.

Cato’s Terence Kealey is also a skeptic of government-funded science.

Topics:

Concerns about the”Border Adjustable” Tax Plan from the House GOP, Part II

I wrote yesterday to praise the Better Way tax plan put forth by House Republicans, but I added a very important caveat: The “destination-based” nature of the revised corporate income tax could be a poison pill for reform.

I listed five concerns about a so-called destination-based cash flow tax (DBCFT), most notably my concerns that it would undermine tax competition (folks on the left think it creates a “race to the bottom” when governments have to compete with each other) and also that it could (because of international trade treaties) be an inadvertent stepping stone for a government-expanding value-added tax.

Brian Garst of the Center for Freedom and Prosperity has just authored a new study on the DBCFT. Here’s his summary description of the tax.

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation. This mercantilist system is based on the same “destination” principle as European value-added taxes, which means that it is explicitly designed to preclude tax competition.

Since CF&P was created to protect and promote tax competition, you won’t be surprised to learn that the DBCFT’s anti-tax competition structure is a primary objection to this new tax.

First, the DBCFT is likely to grow government in the long-run due to its weakening of international tax competition and the loss of its disciplinary impact on political behavior. … Tax competition works because assets are mobile. This provides pressure on politicians to keep rates from climbing too high. When the tax base shifts heavily toward immobile economic activity, such competition is dramatically weakened. This is cited as a benefit of the tax by those seeking higher and more progressive rates. …Alan Auerbach, touts that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and that it would “alter fundamentally the terms of international tax competition.” This raises the obvious question—would those businesses and economists that favor the DBCFT at a 20% rate be so supportive at a higher rate?

Brian also shares my concern that the plan may morph into a VAT if the WTO ultimately decides that is violates trade rules.

Second, the DBCFT almost certainly violates World Trade Organization commitments. …Unfortunately, it is quite possible that lawmakers will try to “fix” the tax by making it into an actual value-added tax rather than something that is merely based on the same anti-tax competition principles as European-style VATs. …the close similarity of the VAT and the DBCFT is worrisome… Before VATs were widely adopted, European nations featured similar levels of government spending as the United States… Feeding at least in part off the easy revenue generate by their VATs, European nations grew much more drastically over the last half century than the United States and now feature higher burdens of government spending. The lack of a VAT-like revenue engine in the U.S. constrained efforts to put the United States on a similar trajectory as European nations.

And if you’re wondering why a VAT would be a bad idea, here’s a chart from Brian’s paper showing how the burden of government spending in Europe increased once that tax was imposed.