Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.

I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America. The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.

Unlike ever before, the world’s producers have a wealth of options when it comes to where and how they organize product development, production, assembly, distribution, and other functions on the continuum from product conception to consumption. As businesses look to the most productive combinations of labor and capital, to the most efficient production processes, and to the best ways of getting products and services to market, perceptions about the business environment can be determinative. In a global economy, “offshoring” is an inevitable consequence of competition. And policy improvement should be the broad, beneficial result.

Countries of the Arab Spring suffer from many economic, social, and political ills. At their center lies the unfortunate legacy of Arab Socialism, which established itself in the region during the 1950s and 1960s. One of its features, besides the ideology of Pan-Arabism and international ‘non-alignment,’ was an emphasis on government ownership and industrial planning. Far from generating prosperity and economic growth, these policies resulted in large, vastly inefficient government-operated sectors in several Arab economies. My new Cato Policy Analysis provides a sense of the magnitude of the problem and of its evolution over time:

In Egypt, for example, the share of government investment fell from around 85 percent in the late 1990s to below 40 percent in 2012. Over the same period of time, the share of government investment in Algeria doubled, from around 30 percent to above 60 percent. Throughout much of the same period, the average for lower-middle-income countries hovered under 30 percent.

Some Arab governments, most prominently Hosni Mubarak’s regime in Egypt, attempted to put in place large-scale privatization programs. However, these were perceived (and rightly so!) as attempts by the political elites and their cronies to simply seize publicly owned assets, without much regard for the future restructuring of the companies and their exposure to competition. My paper reviews the experience of privatization in other countries and tries to provide some practical lessons to policymakers in countries such as Egypt or Algeria.

First and foremost, privatization needs to be perceived as fair and transparent. Bidding should be competitive and open to a large spectrum of potential bidders, domestic and foreign. Second, private ownership of the financial sector is a requisite for successful privatization and restructuring of the rest of the economy–otherwise Arab countries risk creating a dangerous nexus of cronyism through which the state-owned banks and financial institutions would provide funding to newly privatized companies. Third, in order to avoid the danger of simply replacing government-run monopolies with privately-run ones, privatization should be far-reaching and accompanied by broad economic liberalization and opening up both to trade and investment.

Privatization is not very high on the agenda of Arab policymakers or foreign experts, and is typically eclipsed by the more immediate political concerns about the region. It is not, however, an issue that can be simply ignored.

It is a mistake to think that economic reforms can wait until Middle Eastern countries address their internal political and economic problems. There are not many examples of countries that have transitioned successfully to a representative constitutional government while maintaining economic rules that deny opportunity to large segments of the population. State ownership, accompanied by regulations that favor existing state-owned incumbents, are a critical part of the problem facing countries in the MENA region, most notably Egypt, Libya, Algeria, Syria, and Yemen

I don’t follow domestic regulation as closely as many people at Cato, but I keep an eye on it in relation to “regulatory trade barriers” that are being addressed in trade negotiations. In that context, I came accross this EU attempt to crack down on high-wattage vacuum cleaners:

Consumers are being urged to buy powerful vacuum cleaners while they can after it emerged that some of the most powerful models on the market will disappear in September when a new EU rule comes into force.

An EU energy label, to be introduced from 1 September, means manufacturers will not be able to make or import vacuum cleaners with a motor that exceeds 1,600 watts.

…

European commission spokeswoman for energy Marlene Holzner said in a blog: “As a result of the new EU eco-design and labelling regulations, consumers will also get better vacuum cleaners. In the past, there was no legislation on vacuum cleaners and companies could sell poorly performing vacuum cleaners.”

Oh, the humanity! Companies might sell “poorly performing vacuum cleaners” to an unsuspecting public! And only legislation can save the day!

Or — and I know this might sound crazy to some people — we could just rely on consumers to evaluate the vacuum cleaners, buying the better ones and leaving the “poorly peforming” ones on the shelf.

The British burned Washington 200 years ago today. In the Washington Post Joel Achenbach, with help from Steve Vogel, author of Through the Perilous Fight, tells how the day went, including this description of how thorough and careful the British were:

The British knew how to build a bonfire. You just stacked the furniture, sprinkled it with gunpowder and put a torch to it.

They built multiple fires inside the Capitol, immolating the Supreme Court, the Library of Congress and the splendid chambers of the House and Senate.

Later in the evening, Ross and Cockburn made their way to the White House and helped themselves, amid hearty toasts, to the fabulous meal and adult beverages left by Mrs. Madison and her staff. They took a few souvenirs, and one filthy lieutenant ventured into the president’s dressing room and put on one of the president’s clean linen shirts.

Then they set the fires. Up in flames went some of the most beautiful furniture in the country, including pieces obtained by Jefferson in Paris and the private possessions of the Madisons. The fires left the mansion a gutted, smoldering shell.

The British also burned the Treasury building, and the building housing the War and State departments. They ransacked the National Intelligencer newspaper office, with Cockburn ordering the seizure of all the letter C’s from the presses so that the editor could no longer write nasty things about him. The Americans themselves burned the Navy Yard to keep the ships and stores out of British hands. 

The invaders spared private dwellings. This was to be a civilized sacking; no rapes, no murders, minimal plundering. They even spared the Patent Office after being persuaded that patents were private property.

One would hate to think that the British army was more respectful of private property rights than the current U.S. government.

To ensure that public discussion remains “uninhibited, robust, and wide-open,” the First Amendment protects speech that is “vituperative, abusive, and inexact.” While nobody will argue that Anthony Elonis’s speech—the subject of a Supreme Court case this coming term—was anything but “vituperative, abusive, and inexact,” there is considerable disagreement over whether his speech should be protected by the First Amendment. 

Elonis’s chosen form of speech was a series of rap lyrics he posted on Facebook under the pseudonym “Tone Dougie.” Many of the lyrics were violent and lurid, and some of those violent images were made in reference to Elonis’s estranged wife, who took them as a threat to her life. As a result of his crude posts, Elonis was fired, his wife obtained a protective order against him, and he was arrested and charged with violating 18 U.S.C. § 875(c), which makes it a federal crime to transmit in interstate commerce “any communication containing any threat to injure the person of another.”

Elonis argued that his rap lyrics were an artistic expression and that because he did not intend them to be a threat, his speech should be protected. The federal district court hearing his case didn’t see it that way. The judge rejected his request that the jury be instructed to consider his actions based on whether he expressed a subjective intent to threaten and instead instructed the jury to judge his speech based on whether a reasonable person would have interpreted the lyrics as a serious expression of intent to inflict bodily injury. Elonis was thus convicted and the U.S. Court of Appeals for the Third Circuit also rejected his argument that a subjective intent to threaten is required before speech loses First Amendment protection.

Now before the Supreme Court, Cato has joined the American Civil Liberties Union, the Abrams Institute for Freedom of Expression at Yale Law School, the Center for Democracy & Technology, and the National Coalition Against Censorship on a brief supporting Elonis’s position. We argue that Supreme Court precedent shows that (1) a subjective intent to threaten is an essential element of a “true threat,” (2) requiring a finding of subjective intent is in line with First Amendment principles, and (3) drawing the line between threat and protected speech carefully is particularly important given the rise of the Internet as a forum of communication—one where it can be easy to take things out of context.

As a matter of most people’s taste, the Internet may well be better off without violent rap lyrics like Anthony Elonis’s. But that shouldn’t matter to this case or how it’s analyzed under the First Amendment, which requires a high standard of proof regarding incitement or threats of violence before individuals can be jailed for their speech. The Supreme Court should take this opportunity to speak that truth freely across all mediums.

Elonis v. United States will be argued at the Supreme Court in November or December.

This blogpost was co-authored by Cato legal associate Julio Colomba.

Over at Reason today, I have more to say (beyond here and here) about recent goings on in Iraq and Syria, and the debate over what, if anything, the United States might have done, or might do now, to change things.

As I note:

some commentators insist that the current chaos is a direct result of President Obama’s reluctance to intervene decisively in the multi-year conflicts in Iraq and Syria. Most notably, Obama’s own former Secretary of State, Hillary Clinton, in an interview with The Atlantic’s Jeffrey Goldberg, suggested that Obama’s failure to aid the Syrian rebels led to the rise of [the Islamic State in Iraq and the Levant (ISIL).

Clinton claims “that the failure to help build up a credible fighting force of the people who were the originators of the protests against Assad … left a big vacuum, which the jihadists have now filled.” Inherent in that statement is the belief that there was a cadre of relatively liberal-minded opponents of Bashar al-Assad’s regime inside of Syria, and that American support would have been the decisive factor in ensuring that they would triumph over both Assad and the ISIL extremists. By this logic, if the United States had chosen to arm the “correct” anti-Assad rebels in Syria, we would not now be bombing ISIL in Iraq.

But experts, including George Washington University’s Marc Lynch, aren’t so sure. Others question how “moderate” some of the so-called moderates really are. Indeed, many so-called moderates, in turns out, are just “Caliphate, later” people. That is, unlike their “Caliphate, now” brethren, they are willing to use U.S. support to overthrow Assad. Once his regime is defeated, however, many will fight to implement an extremist government, one that is likely to be a thorn in the side of their regional neighbors, as well as the United States. That explains, in part, why we are now fighting in Iraq at least some of the people who we trained in Syria, And yet, the interventionist bias—do something—remains pervasive inside the Washington Beltway.

Ironically, many of the same people who are skeptical of government intervention to deal with domestic problems seem to believe that that same government can somehow cure the ills of other nations. This cognitive dissonance reflects what Michael Munger calls a “unicorn” government: “a State that has the properties, motivations, knowledge, and abilities that they can imagine for it.”

Even if the advocates for U.S. military intervention—on both the left and the right—find that magical, mystical state, they must also show that the problem in question can’t be handled by others, or by nonmilitary means. Just because we have the ability to do something doesn’t mean that we should, or must, do it, nor does it mean that military intervention would improve the situation.

Here, again, some on the right have departed dramatically from their intellectual forefathers who advised that “masterly inactivity” is often preferable to action for action’s sake. Calvin Coolidge advised against the impulse to preemptively deal with any possible problem, no matter how distant. “If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you and you have to battle with only one of them.”

This is particularly sage advice for the United States, a nation with blessed geography and great wealth, and one that has a robust nuclear arsenal and an unrivaled military that is sufficient to deter any nation wishing to attack us directly. Thus the burden of proof for U.S. military intervention should fall on those making the case for action, not those advising against.

So far at least, that doesn’t seem to be the case. The interventionists are still winning.

Philadelphia’s government schools are in the midst of a financial crisis and anti–school choice activists think they found the perfect scapegoat.

Earlier this week, the group Americans United (AU) attacked Pennsylvania’s scholarship tax credit program, claiming that it was partially responsible for Philadelphia’s budget woes.

For the second year in a row Philadelphia’s public schools are struggling to open on time, and it appears deep budget cuts—including money siphoned for a voucher-like program—are to blame. … That’s why it’s important to remember that when voucher [sic] programs expand, it often comes at the expense of public schools.

Curiously, in a post of more than 650 words about Philly’s school funding fiasco, the AU blogger could not find space to mention how much Philadelphia actually spends per pupil. Perhaps that’s because citizens are far less sympathetic to claims of school underfunding when they learn how much is already being spent. Consistent with previous studies, a recent Education Next survey found that support for increasing government school spending dropped from 63% to 43% when respondents were first told how much the schools currently spend.

Philadelphia’s schools are well-funded compared to the national and state averages. As Andrew J. Coulson observed last September, the Philly school district spent nearly $16,000 per pupil in 2013–14, which is about $3,000 above the national average and about $1,000 more than Pennsylvania’s statewide average. It’s even $1,600 more than in-state tuition at Temple University. The $32 million budget cut that AU laments is only about 1% of the city’s $3.03 billion budget (p. 54). Moreover, that “cut” came entirely from temporary stimulus funds that had expired.

The AU blogger also does not offer an explanation for how the Educational Improvement Tax Credit (EITC) supposedly harms government schools. The EITC grants tax credits worth 75% to 90% of corporate donations to nonprofit scholarship organizations that help low- and middle-income families select the schools of their choice. The scholarships averaged only $990 in 2011-12, which is barely 6% of Philadelphia’s per pupil expenditures. Scholarship organizations can use up to 20% of the donations they receive for administrative purposes, so even assuming that every organization used the maximum administrative allowance (though a 2010 state report [p. 33] put the average at 8%), that’s still only $1,237.5 per pupil. Even assuming that every donor received the maximum 90% credit, the EITC reduces revenue by only $1,113.75 per pupil, which is still only about 7% of what Philly spends per pupil.

A 2014 report by the Show-Me Institute estimated that if every scholarship recipient were to re-enter the government school system, it would cost Pennsylvania an additional $826 million per year. If all 59,218 scholarship recipients would have attended private school anyway, then the state is forgoing about $66 million in revenue under the extremely conservative assumptions above. However, given that the average scholarship family’s annual income is only $29,000 (p. 31), the actual number of students who would have attended private school anyway is likely quite low—certainly far lower than 93%, which is the breakeven point. 

In other words, the EITC saves a significant amount of money statewide. The AU needs to find another scapegoat.

They also need to find a new champion—though they railed against Gov. Tom Corbett for supporting the EITC, his electoral opponent Tom Wolf supports it as well, calling it “an effective tool to invest in education and support student learning in a multitude of educational settings.”

So what’s driving Philly’s budget woes? The same growth mismanagement plaguing Pennsylvania statewide:

Pennsylvania public school spending has rapidly increased despite declining enrollment, with little growth in academic achievement to show for it. Since the 2000-01 school year, public school spending has risen 71 percent, from $15.3 billion to $26.1 billion (not adjusted for inflation) in the 2010-11 school year. Over that time, enrollment in Pennsylvania public schools declined by 1 percent, or 22,537 students (from 1,799,691 to 1,777,154), while schools have hired an additional 32,937 more employees, or an increase of 26 percent (from 123,231 to 156,168).

Philly is also spending a lot more on many fewer students. A new Commonwealth Foundation report shows that the Philadelphia school district’s per pupil expenditures increased 21% in inflation-adjusted dollars from 2002-03 to 2012–13, while enrollment fell 25% over the same time period.

Had Philadelphia’s spending merely kept pace with inflation, it would be spending half a billion dollars less today. That would be enough to give all 137,674 students in Philadelphia’s government schools a scholarship of $3,632 to attend the school of their choice, more than 3.5 times the average EITC scholarship. Plus, there would be $2.5 billion left over to run empty schools.