February 24, 2020 3:43PM

Back To the Battlefront on Religious Exemptions and Discrimination Law

The Supreme Court today agreed to review a challenge to Philadelphia’s policy of excluding Catholic Social Services from its foster care system because of its refusal to place children with same‐​sex couples. Fulton v. City of Philadelphia could potentially clarify the heated ongoing conflict over the rights of religious objectors in discrimination law. Potentially is the word because it’s far from clear on what issues the Court will choose to resolve the case.

It might focus on whether the city of Philadelphia overstepped the Court’s Masterpiece Cakeshop guidance by showing improper animus against religion, and if so whether it matters (as the Third Circuit thought it did) that the city would have turned away a secular agency that followed the same placement policy. Or, with more dramatic implications, the Court might revisit its Employment Division v. Smith precedent, which holds that the Constitution affords no right to religious exemption from otherwise neutral and generally applicable laws.

Note that Philadelphia was enforcing a local ordinance of its own making; the case is thus on a very different footing than if it were, say, a challenge to the Obama‐​era regulations (which HHS has since proposed to rescind) that tried to arm‐​twist all states and cities into adopting policies like Philadelphia’s. In the HHS episode, it was the liberal side of the controversy that was trying to impose a uniform standard from coast to coast; in this case, it is some conservative religious groups that hope to do that. Scott Shackford has more in a piece at Reason quoting my views, as does the Christian Science Monitor in a piece last week.

Separately, in a case this morning called Patterson v. Walgreen, Justice Samuel Alito wrote separately in an otherwise routine denial of certiorari, joined by Clarence Thomas and Neil Gorsuch, to say the Court should revisit its 1977 precedent in the case of Trans World Airlines v. Hardiman, which held that the federal law prohibiting religious discrimination in employment does not require accommodation of a worker’s religious practice if doing so would saddle the employer with more than a “de minimis” burden.

I wrote about the Hardison precedent in my 2015 Cato Supreme Court Review article on the Abercrombie & Fitch hijab case: basically, Hardison let employers off easy, at the semantic cost of defining a term of art, “undue hardship,” in a way almost comically opposite to the way it has since come to be used in, say, ADA cases. One result is that religious discrimination complaints in the workplace, while growing, have not emerged as a massive headache for management, nor have they blown up as a series of regular culture war showdowns.

Just as with the better‐​known issue of RFRAs, or Religious Freedom Restoration Acts, the ideological polarities reversed over this period, with liberal forces, at first the strongest proponents of accommodation rights, turning into their strongest critics. Alito’s concurrence makes clear that more battles are likely to lie ahead– unless Congress chooses to change or clarify matters, as it could do quite simply any time by choosing to update the statute.

February 24, 2020 1:38PM

Reading the Tea Leaves from Supreme Court’s Refusal to Review Baldwin v. United States

This morning, alas, the Supreme Court denied review of the Ninth Circuit’s February order in Baldwin v. United States. As I’ve explained before, Baldwin reflected a rare combination of worst‐​practices that would have caught the eye of any Justice intent on revisiting “reflexive” judicial deference to regulatory agencies. Cato had filed a brief urging the Court to take the case.

At issue in Baldwin was the “Brand X” doctrine. Under this principle, courts defer to an agency’s reading of the law, even if the court had an existing and long‐​settled interpretation. Brand X is basically a juiced‐​up version of the famous Chevron doctrine.

I have three quick reactions to the Court’s decision this morning.

First, I want to draw attention to Justice Thomas’s notable dissent to the Court’s refusal to review Baldwin. Thomas had authored Brand X; today, however, he disavowed his prior work. He now believes that Brand X is “inconsistent with the Constitution, the Administrative Procedure Act (APA), and traditional tools of statutory interpretation.” Hear, hear!

Second, it’s equally notable that Justice Gorsuch did not join Thomas’s dissent. In a 2016 opinion, then‐​judge Gorsuch made a big splash by repudiating Brand X. Thomas’s dissent raises many of the same arguments as did Gorsuch. The upshot is that it doesn’t make much sense that today’s dissent in Baldwin didn’t have at least one other cosignatory.

Third—and most important—today’s decision suggests the Court doesn’t have the appetite to take on judicial deference on statutory questions. Baldwin had been the perfect vehicle to revisit Chevron and its corollary doctrines (like Brand X). By passing on this case, the Court appears to signal that Chevron reform is on the backburner. 

February 21, 2020 4:23PM

Capital Gains Tax Hike a Mistake

Democrats running for the White House are pushing all kinds of tax increases. One bad idea supported by all the leading candidates is to hike the top capital gains tax rate. Capital gains taxes may seem obscure to many people but limiting them is crucial to long‐​term economic growth.

Congress has kept capital gains tax rates below ordinary rates for most of the past century, and nearly all other advanced economies provide favorable rules for gains. Inflation, double taxation, and international competitiveness need to be considered, as I discuss in a new op‐​ed in The Hill.

I am particularly concerned about the negative effects of a capital gains tax increase on entrepreneurial finance. The reward that angel investors receive for putting their time and money into risky startups is a capital gain 5 or 10 years down the road. The angel role is crucial because the economy needs a diversity of startups to discover new products and technologies.

Raising the capital gains tax would induce angels to shift their money to safer investments and the economy would be starved of the funding that high‐​growth companies and technology industries rely on.

Higher capital gains taxes would also reduce entrepreneurship. People considering launching startups would instead take safer wage jobs. The chance to earn a capital gain from a high‐​growth startup would not be worth all the extra stress, risk, and hard work.

Some Democrats used to understand the importance of startup financing. Arguing in favor of a capital gains tax cut in 1978 hearings, Senator Lloyd Bentsen of Texas said, “This country has prospered because we have had a free enterprise system that has encouraged the entrepreneur, the small businessman, to take a risk with the understanding that he was going to be able to keep some of it, if he won.”

What is the best capital gains tax policy? Federal Reserve chair Alan Greenspan got it right at 1997 Senate Banking Committee hearings: “While all taxes impede economic growth to one extent or another, the capital gains tax is at the far end of the scale.” The proper rate for capital gains taxes, Greenspan concluded, is zero.

These ideas are discussed further in The Hill and in this Cato report.

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February 20, 2020 3:38PM

Antitrust Chapter in the Economic Report of the President

This year’s Council of Economic Advisers (CEA) Economic Report of the President (EROP) contains a very heartening chapter on antitrust policy and competition issues. It’s clear the CEA doesn’t buy into the idea that the U.S. has a pervasive “monopoly problem” and is very aware of the danger of simplistic thinking around large digital platforms.

The President’s economic advisers echo much of my recent critique on the use of crude national industry concentration measures as proxies for the health of competition. They bring lots of theoretical arguments and empirical evidence to bear that these are not reflective of relevant product markets pertaining to antitrust enforcement, not least because markets are often incredibly local.

For example, six‐​digit NAICS codes are often used to assess sector‐​level concentration in many studies – and these go as granular as industries such as “book publishers,” “beauty salons,” and “car washes.” But, as a moment’s reflection of these examples suggests, these are clearly not relevant markets for antitrust. A beauty salon in Kenosha, Wisconsin doesn’t compete with one in Dupont Circle, Washington DC. In fact, the EROP highlights evidence I hadn’t seen before:

Werden and Froeb (2018) calculate the volume of commerce of the relevant markets alleged in DOJ merger complaints between 2013 and 2015 as a share of industry shipments in the six‐​digit NAICS sector. They find that in most cases, the antitrust markets accounted for less than 0.5 percent of the six‐​digit NAICS sector. In many cases, this is because the antitrust markets where the DOJ identified a competition problem involved single localities such as a city, State, or region, whereas the NAICS sectors are national.

Still though, many seem to be conducting the public debate over whether the U.S. has a monopoly problem knowingly using data that is easy to collect but which doesn’t represent actual markets. It’s very pleasing the CEA demurs from this growing trend.

Even better, the CEA report is clearly extremely skeptical of “Hipster Antitrust” calls to broaden the scope of antitrust law and the most interventionist policy proposals on “Big Tech,” including proposals for sector‐​specific remedies such as enforced data portability and interoperability, tougher restrictions on acquisitions, and bringing in a specific digital sector regulator.

Perhaps most pleasing of all though is that the EROP doesn’t fall for the “this time is different” narratives we hear about digital platforms. It’s common to read that because of economies of scale, network effects, data, or firms competing on platforms they operate, that there’s something just unique about today’s tech companies that requires a more “forward‐​looking” antitrust. The CEA cites lots of evidence showing that none of these economic features of these markets ensure sustained dominance, in line with my own work showing how Schumpeterian competition from new products put pay to historical examples of firms said to have just these types of advantages.

The overall chapter concludes:

confusion surrounding the effects of rising concentration appears to be driven by questionable evidence and an overly simple narrative that “Big Is Bad.” When companies achieve scale and large market share by innovating and providing their customers with value, this is a welcome result of healthy competition.

Do read the whole thing. More from me on this issue can be found here, here, and here

February 19, 2020 1:35PM

Book Review: Overturning Brown

Dunbar School Plaque

Despite the fact that minority families tend to want school choice, and certainly desire it more than white families, choice opponents love to imply that the modern choice movement is grounded in segregation. On what do they base this? After the U.S. Supreme Court declared longstanding, government‐​forced public school segregation unconstitutional in Brown v. Board of Education (1954), some people in the South tried to use publicly funded private school choice to avoid integration. Lately, choice resisters have been citing a “new” book by Steve Suitts, former vice president of the Southern Education Foundation and an adjunct lecturer at Emory University, to make their case. The title says it all: Overturning Brown: The Segregationist Legacy of the Modern School Choice.

Why do I put “new” in quotes? Because while the book is technically new, it appears to be an almost word‐​for‐​word reproduction of an article Suitts published last year in Southern Spaces. That he turned the article into a book is fine, but it is important for journalists, wonks, and other readers to know that de facto responses to the book may already be out there. Indeed, I wrote one myself, published by Education Next. So I’m not going to write a review here—it already exists!

My response lays out, in as measured and charitable a way as I could muster, many failings of Suitts’ argument, including his unfair treatment of Milton Friedman, his almost entirely ignoring that Roman Catholics demanded school choice beginning in the 1840s, and his skipping over the Ku Klux Klan working to force all students into public schools in the 1920s. Suitts basically turns a blind eye to the deep pock marks of bigotry all over public schooling, and leaves out much of the history of school choice, to hang the “segregationist” banner on modern‐​day choice supporters.

I won’t add anything here, except to say to journalists, wonks, or anyone else involved in the school choice debate, if you don’t challenge the school‐​choice‐​is‐​segregationist narrative you are doing a major disservice to your readers, policymakers, and anyone seeking truth about American education. Feel free to reach out to Cato’s Center for Educational Freedom whenever you want to put together a full and fair treatment of American education. We all deserve nothing less.

February 18, 2020 1:49PM

H‑1Bs and Underemployment Rates for College Graduates

A persistent complaint about the H‑1B visa program for skilled foreign workers is that employers use it to replace U.S. workers, leading many to fail to find jobs. Of course, it is true that many U.S. college graduates fail to find jobs that use their education, but the fact is that the prevalence of this phenomenon has remained roughly constant for 30 years, even as the number of H‑1B visas issued has escalated.

The data for this post comes from the Federal Reserve Bank of New York’s analysis of the Census Bureau, Bureau of Labor Statistics, and Department of Labor data.

Figure 1 compares H‑1B visa issuances to underemployment among college graduates for each year from 1990 to 2019. There’s not a statistically significant correlation between H‑1B visas and underemployment among recent college graduates nor among all college graduates. The overall underemployment rate fluctuated within a range of just 2.9 percentage points over 30 years. The underemployment rate was 34 percent in 1990 when the H‑1B premiered and 34 percent in 2019 after three decades of use. The rate has varied more widely among recent college graduates, but there’s still no statistically significant correlation there (and the coefficient is negative anyway).

These facts will not stop opponents of the H‑1B visa from claiming that H‑1B workers have some more subtle effects that this overall metric demonstrates. But the knowledge that the significant amount of underemployment among American college graduates entirely predates the H‑1B program should lead policymakers to realize that underemployment is a persistent problem, and not one that they can easily fix by nixing the H‑1B.

February 18, 2020 10:03AM

Mississippi Supreme Court Continues to Turn the Corner on Judicial Deference

Thanks to the Constitution’s federalist structure, America has fifty administrative states in addition to the federal leviathan.

Sometimes, state and federal governments jointly administer “cooperative federalism” programs established by Congress and state legislatures, such as the Clean Air Act or Medicaid. More often, state regulatory agencies implement local regulations, independent of the federal government. Here, the quintessential example is zoning.

These programs, in turn, engender controversies that go before state courts. Thus, administrative law develops independently in each state.

Take Chevron deference, the most famous principle in (federal) administrative law. Under the Chevron doctrine, Article III courts yield to an agency’s interpretation of the law—including the scope of the agency’s own authority—even if the court thinks that it has a better reading of the statute.

At the state level, however, only a subset of courts has adopted a Chevron-like approach to statutory interpretation.

In a landmark 2008 article, Michael Pappas surveyed state courts to discern how they interpret laws that empower regulatory agencies. Many such courts review statutes as a blank slate, without any deference to government agencies. Others were deferential. A couple courts operate anti‐​deference doctrines; that is, they expressly discourage reliance on an agency’s interpretation of the law. In short, there is a great deal of variety in approaches.

Of course, legal doctrine is fluid. It’s always changing. Which brings me to what’s going on in Mississippi.

In 2008, when Pappas performed his survey, he described Mississippi courts as affording “strong deference” to a state agency’s statutory interpretation—stronger than even Chevron.

But the state’s supreme court pivoted 180 degrees a decade later in King v. Mississippi Military Department. In that case, the court unanimously ended the practice of giving deference to state executive agencies’ interpretations of statutes.

Now, the court seems to have its eyes set on another major deference doctrine. Up to this point, I’ve been discussing statutory interpretations. Yet agencies also interpret their regulations, which have the force and effect of law (just like a statute).

Judicial deference to an agency’s regulatory interpretations is even more controversial than statutory deference. With either doctrine, courts arguably abdicate their duty to “say what the law is.” But regulatory deference further offends our constitutional structure by allowing the rule‐​writer to serve as the rule‐​interpreter.

While the Mississippi Supreme Court gives this kind of deference–for now–change is on the horizon.

Last week, in Central Mississippi Medical Center v. Mississippi Division of Medicaid, three judges on the court announced that the “practice of the courts deferring to an executive‐​branch interpretation of agency regulations should end.”

Though the three judges were in the minority, the politics of the decision indicates that their argument enjoys momentum. As a general matter, progressives support deference, while conservatives oppose these sorts of doctrines. In this context, it is noteworthy that two of the court’s most liberal justices (Kitchens and King) were among the avowed opponents of regulatory deference. This strongly suggests that the doctrine’s days are numbered in Mississippi.

Were the Mississippi Supreme Court to jettison judicial deference to an agency’s regulatory interpretation, the justices would be following in the footsteps of the nation’s high court. Last summer, the Supreme Court gutted the doctrine at the federal level.