The Treasury Should Revive the Snow Plan for Limiting GSE Debt Issuance

Despite both the recent release of a set of “GSE reform principles” by the Mortgage Bankers Association and Treasury Secretary Designee Steven Mnuchin’s promise to prioritize reform of Fannie Mae and Freddie Mac, as matters stand such reform seems likely to remain stalled for some time: while there may be a consensus to “do something,” there is far less agreement concerning what that something should be.

To jump start the debate, protect taxpayers, and encourage a more private mortgage market, Mr. Mnuchin, if confirmed, should strongly consider reviving a plan developed by his predecessor, John Snow. That plan would take advantage of the Treasury’s authority to place limits on Fannie and Freddie’s debt issuance to reduce those agencies’ indebtedness. The reduction can and should be done in a controlled manner that could be easily reversed if necessary; a 5 percent monthly reduction, for instance, should work smoothly.

Corporate Tax Cut and Border Adjustment

The House Republican tax plan would cut the federal corporate tax rate from 35 percent to 20 percent, but it would broaden the tax base in a misguided way. It would deny businesses a deduction for their imported inputs to production, but exempt exports from their taxable income.

This base change would raise tax revenues by about $100 billion a year, which is causing major blowback in the business community. It would be a radical change in the structure of business taxes and cause large disruptions in the supply chains and tax liabilities of many firms. No other nation that I am aware of structures their income tax base that way.

I’m for radical change in the tax system, but not radical change that would increase taxes on so many businesses and make the system more complex. Yes, border adjustment would reduce tax avoidance and cut compliance costs related to transfer pricing, but it would create other avoidance and compliance issues by spurring manipulation of imports and exports on tax returns.

Most supporters of border adjustment know that the economics of it are dubious, but support it anyway because it would limit the deficit impact of tax reform. That’s an understandable goal, but there are three better solutions than broadening the tax base in a way that would harm companies.

1) Match a corporate tax rate cut with corporate welfare spending cuts. Romina Boccia, Tom Schatz, and I identify $50 billion in corporate welfare cuts in a new op-ed. And it’s easy to find another $50 billion in cuts in tables 1 and 2 here to match the $100 billion from border adjustment. Unlike the proposed tax base broadening, spending cuts would boost growth by reducing microeconomic distortions caused by federal programs.

Stingray: A New Frontier in Police Surveillance

I’ve written previously on this blog regarding stingray devices: powerful surveillance tools which allow law enforcement agents to spy on the cell phones of unsuspecting Americans, often without judicial or legislative oversight.

For a deeper dive into the subject, I’ve put together a policy analysis detailing the past history, present issues, and future prospects of stingray devices and police surveillance more generally.

From the executive summary:

Police agencies around the United States are using a powerful surveillance tool to mimic cell phone signals to tap into the cellular phones of unsuspecting citizens, track the physical locations of those phones, and perhaps even intercept the content of their communications.

The device is known as a stingray, and it is being used in at least 23 states and the District of Columbia. Originally designed for use on the foreign battlefields of the War on Terror, “cell-site simulator” devices have found a home in the arsenals of dozens of federal, state, and local law enforcement agencies.

Signing the Executive Order to Find Out What’s In It

The flawed implementation of President Trump’s executive order banning immigration from seven majority Muslim countries brings to mind then-Speaker of the House Nancy Pelosi quip about Obamacare that “we have to pass the bill so that you can find out what is in it.” Now it seems President Trump had to sign the order to find out what was in it.

Every day, the president and the administration appears to be discovering new implications of the vague order, and laws are being made up on the fly with press releases and emails, rather than through our country’s democratic process. The executive order purports to “suspend entry into the United States, as immigrants and nonimmigrants… aliens from [seven] countries.” Nearly every word choice leaves room for uncertainty, creating the inevitable confusion and chaos that followed.

Suspend

Consider the first word, “suspend.” Because the order allowed for case-by-case exceptions, no one knows who is actually “suspended” from entering. The administration is only slowly revealing some criteria for these waivers in press conferences and press releases. The exceptions are also apparently not being applied at consulates where a categorical ban on all visa applications and interviews is in effect.

Entry

The second word, “entry,” would seem not to apply to those already inside the United States, yet the administration is applying the ban to them anyway, formulating the policy in an unpublicized email to employees—many of whom were shocked by the announcement.

The US Should Negotiate Trade Agreements with Both the UK and the EU

I recently testified at a joint subcommittee hearing held by the House Foreign Affairs Committee about prospects for a US - UK free trade agreement (my written statement is here).  I focused on the possible content of the agreement.  In my view, the lengthy – and so far unsuccessful – US trade negotiations in the Pacific region (the TPP) and with the EU (the TTIP) are an indication that perhaps we have expanded trade agreements to cover too many issues.  If we want the US - UK trade negotiations to be completed any time soon, we need something more modest, focusing on trade liberalization and doing less global governance.

One issue I did not cover in my written statement, but which came up in the questions during the hearing, was how the US should approach its trade negotiations with the EU after Brexit.  Everyone seemed to agree that the US should pursue a free trade agreement with the UK as soon as permitted (although there are disagreements about when that can occur).  But what should happen to the ongoing trade negotiations with the EU?

The Trump administration has not made any official statement on its view of the TTIP, but there are a couple worrying signs.  First, the Financial Times notes the Trump administration’s preference for bilateral trade deals, and quotes Peter Navarro, the head of the White House National Trade Council, saying that he thinks the TTIP is a multilateral deal:

The new president says he prefers bilateral trade deals rather than the broad multilateral accords pursued by Barack Obama, his predecessor. Mr. Trump last week also withdrew from a 12-country Pacific Rim deal negotiated by Mr. Obama. 

“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr. Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.”

While this is not a definitive statement of US policy, it may suggest reluctance among some people in the Trump administration to continue the negotiations with the EU.

Topics:

The Masked Agitator Veto

The leaders of the University of California at Berkeley lacked power to prevent Milo Yiannopoulos from speaking on their campus yesterday. A subset of the university’s faculty urged their Chancellor to do just that. His spokesman replied, “Our Constitution does not permit the university to engage in prior restraint of a speaker out of fear that he might engage in even hateful verbal attacks.

Most protesters opposed the event peacefully. Some did not: “security officials claim about 150 ‘masked agitators’ joined the demonstration, setting fires, throwing molotov cocktails and rocks and attacking some members of the crowd.” Yiannopoulos’ speech was cancelled in the interest of public safety.

The faculty members seeking to censor Yiannopoulos did not cover themselves with glory, but the people resorting to violence were the true villains in this narrative. They achieved through violence what could not be achieved by law.

Of course, it is possible the university did not try very hard to hold the event. But the Chancellor faced down a part of his own faculty, and the Berkeley College Republicans thanked the university police and the administration “for doing all they could to ensure the safety of everyone involved.” It does not appear the administration came up short. To the contrary, they appear to have fulfilled their obligations. They deserve praise.

This morning President Trump tweeted “If U.C. Berkeley does not allow free speech and practices violence on innocent people with a different point of view — NO FEDERAL FUNDS?”

Notice U.C. Berkeley is the subject of both actions. But the Berkeley Chancellor supported the speech, and we have no evidence that he or any other person acting on behalf of Berkeley incited violence yesterday.

I do not see how attacking people who have observed constitutional norms will encourage others to also respect free speech.

Walter Olson has more on the federal funds aspect of all this.

On Friday, February 3, at noon, Cato will host a discussion of President Trump and free speech. You can register here or walk in tomorrow.   

Trump, UC Berkeley, and the Federal Funding Whip

A President may not find it simple or straightforward to use direct executive orders to cut off funds to universities that tolerate disruption of speech or exclude speakers based on the content of their speech. (That’s this morning’s Presidential tweet story, if you slept in.) But the power that the Department of Education and allied agencies have gathered to themselves over university life has steadily mounted, often against feeble resistance from the universities themselves, as in the Title IX instance. That gives an administration plenty of handles to make its will known, a process previewed in October, as to Trump, by Chronicle of Higher Education correspondent Steve Kolowich, who also spoke to me for the story. He quotes Alexander Holt, an education-policy analyst at New America, saying: “I could see a Trump administration going crazy on these ‘Dear Colleague’ letters.”

Two years ago I cited several examples of rule by Dear Colleague letter, as I called it, in this area. (More here.) And I noted one big problem with invoking judicial oversight to check the federal government’s power:

It may be difficult to persuade a college to serve as a test case, given the annihilating possibility of a federal funds cutoff as the penalty of its presumption.

University administrators have submitted meekly for years now to rule by federal “Dear Colleague” letter. Now it will be Trump appointees writing those letters. If the administrators wish to retain some measure of independence from control by Washington, D.C., they may need to grasp that the hour is growing late – and that it wasn’t such a good idea to grow dependent on the federal dollar in the first place. (adapted from Overlawyered).