January 11, 2020 1:29PM

Refugees in Texas

On Friday, Texas Governor Greg Abbott (R) sent a letter to Secretary of State Pompeo stating that Texas would not accept any refugees going forward. Governor Abbott is the first governor to request that refugees not be settled in his state since President Trump announced that states and localities would now have to opt in to receive refugees. Texas was the first state to refuse refugees after 42 other states decided to continue to accept them.

Trump’s new executive order requires states and localities to opt in to accept refugees, which is a clear ploy to get them to refuse. There’s no good reason for that as Trump reduced the nationwide number unilaterally, a power given to the president by a Congress that has decided that it doesn’t want to make law anymore, from 84,994 settled in fiscal year 2016 to a cap of just 18,000 to be resettled in FY 2020.

Texas’ refusal to settle refugees won’t reduce the total number settled in the United States, it will just remove Texas from the list of locations where they can settle initially. And that’s significant, because 2,457 refugees were resettled in Texas last year, accounting for 8.1 percent of all refugees resettled in the United States. Of the 978,939 refugees resettled in the United States since 2002, about 9 percent, or 88,572 refugees, were resettled in Texas.

Of course, refugees can move to Texas after they get to the United States but they will have to give up certain public benefits. Since Texas has resettled so many refugees over the decades, many likely will move there to take advantage of the job opportunities and large populations of coethnics which, incidentally, seem to help integration and assimilation. Governor Abbott’s decision changes the initial distribution of refuges, with less impact on their final location.

Ultimately, Governor Abbott’s decision to block refugees in his state is shortsighted. At some point in the future, refugees will be legally resettled in Texas and that state’s Republican Party will pretend that a governor from their own party never blocked them in the first place.

There are a lot of problems with refugee resettlement in the United States, but blocking their resettlement is a cure worse than any mild ailment. Abbott’s decision does nothing to reduce the total number of refugees in the United States, but it certainly makes the Texas state government look bad.

January 10, 2020 4:04PM

Tax Migration New York to Florida

Yesterday, I looked at migration from high‐​tax to low‐​tax states. Today, the Wall Street Journal focuses on wealthy tax exiles from the Northeast in Florida: “President Donald Trump and Carl Icahn both announced in the fall that they’ll be making Florida their primary residence, joining other high‐​profile executives like financiers Barry Sternlicht, Eddie Lampert and Paul Tudor Jones.”

The Journal had accounting firm BDO run some numbers: “A New York couple filing jointly with $5 million in taxable income would save $394,931 in state income taxes by moving to Florida.”

I noted in this study that the wealthy often bring their businesses and philanthropy with them, so the greediness of high‐​tax states really boomerangs on them. As the Journal notes:

Multimillionaires aren’t just moving their families south, they are taking their businesses with them, says Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County. “We’ve brought in well over 70 financial‐​services firms” in the past few years, she says. “The higher the taxes, the more our phone rings.”

You may think it is unfair that states such as New York are losing their residents and businesses. But they’ve only got themselves to blame because the high taxes are caused by excessive spending. Indeed, the difference between total state and local government spending in New York and Florida is staggering.

The chart shows Census Bureau data for 2017. New York and Florida have similar populations, yet state and local governments in New York spent twice as much as governments in Florida, $348 billion vs. $177 billion.

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January 10, 2020 3:03PM

Human Freedom Waning in Many Countries

With the rise of nationalism and hybrid forms of authoritarianism, the rights and freedoms of citizens are under assault in many corners of the globe. Unsurprisingly, among the countries with the most substantial deterioration in freedom in the last year are Angola, Venezuela and Tajikistan. The good news is that freedom has taken root in a diverse set of societies and it’s spreading in many of them.

We recently released the fifth annual Human Freedom Index, the most comprehensive measure of freedom ever created for a large number of countries across the globe. The index covers 162 countries and uses 76 distinct indicators of personal and economic freedom. With the index, my co‐​author Ian Vásquez and I aim to capture the degree to which people are free to enjoy fundamental rights such as freedom of speech, religion, association and assembly, and also measure freedom of movement, women’s freedoms, crime and violence and legal discrimination against same‐​sex relationships. The report is co‐​published by the Fraser Institute, the Cato Institute in the United States and the Liberales institut in Germany.

In this year’s index, we again rank New Zealand and Switzerland as the two freest countries in the world while we again rank Venezuela and Syria last. Canada ranks 4th on the index followed by Australia, Denmark and Luxembourg. Canada has consistently ranked among the top 10 jurisdictions since 2008, which is the earliest year we were able to gather sufficient data to create a composite scoring system to measure human freedom.

Selected countries rank as follows: Finland and Germany (tied in 8th place), Sweden (11), United Kingdom (14), Estonia and the United States (15), Taiwan (19), Japan (25), South Korea (27), Chile (28), France (33), Poland (40), South Africa (64), Argentina (77), Kenya (79), Mexico (92), India (94), Brazil (109), Russia (114), Turkey (122), Saudi Arabia (149), Iran (154) and Egypt (157).

This year’s index confirms that global freedom remains in retreat. At a country level, human freedom tumbles in more countries than not, with some 88 countries experiencing a decline in their freedom ratings compared to 70 countries increasing it freedom since last year.

During this same period, we recorded the most significant declines in human freedom in Angola, Seychelles, Venezuela, Brunei Darussalam and Israel. On the positive side, countries that saw improvement in their level of human freedom most were Belarus, Timor‐​Leste, Chad, Gabon and Suriname.

So again, freedom has not only taken root in a diverse set of societies, but it’s also spreading in numerous countries around the globe.

Regional levels of freedom vary widely. The highest average ratings were North America (Canada and the U.S.), Western Europe and East Asia. On the other hand, the lowest ratings were in South Asia, sub‐​Saharan Africa, the Middle East and North Africa.

This article originally appeared on the Fraser Forum on January 2, 2020.

January 10, 2020 1:35PM

The H‑2A Touchback Requirement Makes No Economic or Security Sense

By Tony Webster from Minneapolis, Minnesota, United States - Nipomo Farm Workers, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=61599196

California Farm Workers By Tony Webster from Minneapolis, Minnesota, United States — Nipomo Farm Workers

The House of Representatives passed the Farm Workforce Modernization Act (H.R. 5038) last month. The House bill made some improvements to the H‑2A program, which allows farmers to hire foreign guest workers, but it incorporated into the statute the current regulatory requirement in 8 C.F.R. § 214.2(h)(5)(viii)(C)) that an H‑2A worker may not live in the United States continuously for more than 3 years. The Senate should not copy this mistake.

This provision makes no sense from an economic or security perspective. It imposes costly, needless turnover on U.S. farmers, and by forcing out workers, it unnecessarily creates many more opportunities for visa violations. These arguments actually apply even more forcefully under the bill because it expands the H‑2A program to include year‐​round jobs, unlike the current seasonal jobs that by their nature have a defined end date.

H‑2A Touchbacks Waste Economic Resources

The economic argument against an arbitrary time requirement is simple: losing workers who are creating economic value imposes economic inefficiencies on employers. Turnover has costs associated with lost productivity when the position is unfilled, recruiting and hiring a replacement, training the new hire, and lost productivity from the employee learning the position.

Table 1 reviews the cost of job turnover in a variety of occupations and industries. Unfortunately, I found no study estimating the cost specifically in agriculture, but the consensus across a broad range of industries is that businesses end up paying about a quarter of the person’s salary to replace them.

Table 1: Costs of Turnover in Various Occupations

Turnover Cost Studies Industries Percent of Annual Wages Average Costs Hourly Wage
1 Seninger, et al (2002) Supported Living 24% $3,631 $7.56
2 Larson, et al (2004) Direct support professionals 17% $4,333 $12.45
3 Patterson, et al. (2010) Emergency medical 25% $7,926 $15.71
4 Hinkin & Tracey (2000) Hotels 29% $13,104 $15.95
5 Frank (2000) Grocery Stores 31% $10,848 $17.50
6 Dube, et al (2010) Various 12% $4,563 $18.55
7 Jones (1990) Nurses 37% $19,402 $25.94
8 Barnes, et al. (2007) Teachers 36% $13,446 $30.23
9 Appelbaum & Milkman (2006) Various 25% $16,461 $32.92
10 Wise (1990) Nurses 31% $22,557 $36.89
11 Milanowski & Odden (2007) Teachers 17% $13,969 $41.44
Median All Above 25% $13,104 $18.55

Sources: See Table Text

The average H‑2A worker’s annualized salary was about $25,000 in 2019. One quarter of that would be $6,500. For seasonal farms that plan to hire new crews every year, this requirement may be less of a burden, particularly since the regulations allow the workers to reenter after a 60‐​day departure, so seasonal workers can return home and reenter. But for year‐​round employers, this mandate will be much more expensive. In 2019, the State Department issued 204,000 new H‑2A visas to seasonal workers. If as many nonseasonal workers enter — which is reasonable, should Congress amend the program — simple math would indicate that the three‐​year restriction would cost them more than $1.3 billion annually after the 3rd year.

Of course, some might argue that this requirement forces H‑2A employers to retest again the labor market and so create jobs for U.S. workers. For seasonal employers, the employers have to test the job market every year because the jobs are inherently temporary, and the law requires the labor market test before rehiring. In any case, the Department of Labor reports that the H‑2A labor certification rarely produces any U.S. hires, and it’s worse than a neutral move because the turnover costs get passed on to consumers, which harms U.S. job creation and wages in related industries where U.S. workers are more common.

H‑2A Touchbacks Harm Security

The H‑2A touchback has no benefit for U.S. security either. Every time the law requires a legal temporary worker to return home, it creates the risk (and incentive) for a visa violation. The more required departures, the more visa overstays, and the more immigrants living illegally in the country. The touchback requirement imposes additional overstay risk in two ways: first, it forces out an existing worker, and second, it triggers the entry of a new worker who may or may not be as law‐​abiding as the one who exits.

The best evidence indicates that H‑2A overstays are a very small problem: less than 1 percent of the estimated overstay population had an expired H‑2A visa, according to an estimate by the Government Accountability Office (GAO) in 2012. Nonetheless, forcing legal workers out will create more overstays, and there is no reason to force out a qualified, law‐​abiding worker: just the opposite, there’s every reason to let them continue to work.

The original justification for the three‐​year regulatory requirement limit in 1987 was that a worker cannot qualify as a “nonimmigrant” (i.e. non‐​permanent resident) if the law didn’t require the worker to leave periodically. But this notion is antiquated given the developments in immigration law since then. There are numerous nonimmigrant designations for which there is no time‐​limit. Most relevantly, H‑1B visas provide for indefinite renewals if an employer sponsors them for a green card. Moreover, the workers’ status as nonimmigrants is grounded in the fact that their residence is conditional — permitted only so long as they perform agricultural labor or services in this country.

The economic, security, and legal arguments for the H‑2A touchback lack merit. The requirement actively undermines the economy and security of the country. It is not required by current law, and if Congress reforms the law, it should not require it, particularly for year‐​round employers. Indeed, it should remove the requirement entirely.

January 10, 2020 9:50AM

The Fed’s New Foreign Repo Pool Policy

On November 12th I wrote a longish post explaining how growth fluctuations in two of the Federal Reserve’s less‐​familiar liabilities — the foreign repo pool (FRP) and the Treasury General Account (TGA) — had contributed to a shortage of bank reserves that in turn caused repo rates to spike. I followed that post with a November 14th post describing steps the Fed, the Treasury, and Congress could take to reduce and otherwise tame those liabilities. Finally, in December, I wrote a third post noting that Congress had already implemented one of the reforms I’d suggested (allowing the Treasury to lend its surplus cash on the private repo market), while pointing to further information reinforcing the case for other changes I’d proposed.

Among those other changes, my November 12th post recommended that the Fed take steps to discourage heavy use of its foreign repo pool (FRP), noting that it might do so by

adjusting the FRP rate formula to make the facility less attractive. At the very least, it could quit making its own rate better than corresponding private market lending rates, as it appears to have been doing lately by basing that rate on the SOFR (Secured Overnight Financing Rate). Since the Fed is a uniquely risk‐​free counterparty, it arguably should make its FRP rate not higher but lower than corresponding private market rates. For example, it might set a rate equal to SOFR minus 10 basis points.

Well, it so happens that as I was preparing my December follow‐​up post, the FOMC released the minutes of its December 10 – 11 meeting, buried within which is a brief paragraph noting that

the Federal Reserve Bank of New York communicated to its customers that the remuneration rate on the foreign repo pool will be revised to be generally equivalent to the overnight reverse repo rate. This action may reduce activity in the pool to some extent and increase the level of reserves.

More details on the current workings of the Fed’s foreign repo pool service can be found by clicking here and scrolling‐​down to the “investment services” section.

As many of my readers will know, the “overnight reverse repo rate” the Fed now pays on foreign repo pool investments is also the lower limit of the Fed’s interest rate target range. As such, it is typically below the effective federal funds rate that’s supposed to fall somewhere within that range, and also below other overnight rates, including the SOFR. Consequently, and as can be seen from the chart below, there isn’t all that much difference between what the Fed has chosen to do (the new policy went into effect just before the minutes were released) and what I had suggested it do, except that by providing for a more certain and stable FRP rate “penalty,” my proposal would have constituted a somewhat more reliable means by which to discourage the pool’s overuse.

Although in recent weeks the overnight‐​reverse repo (ON-RRP) rate has generally been only 3 – 7 basis points lower than the SOFR, to judge by the decline in the FRP since the Fed announced its new policy, the change seems to have made a difference, though a late‐​December jump makes one wonder whether the trend will continue:

But let us not look a gift horse in the mouth! The step is certainly one in the right direction. Now we can only hope that the Fed and the Treasury will work together to come up with a plan for reining‐​in the TGA, which so far shows no signs of tapering.

If they need advice on how to do it, I refer them to the links at the top of this post!

[Cross‐​posted from Alt‑M.org]

January 9, 2020 3:29PM

Gains From Deregulation Undone by Tariffs

By Jeffrey Miron and Erin Partin

Optimism among U.S. manufacturers was near an all‐​time high in early 2017. Just eleven days into his presidency Trump signed an executive order specifically targeting overregulation. According to a survey by the National Association of Manufacturers, an advocacy group representing 14,000 U.S. companies, 93.3 percent of respondents felt optimistic about their company’s outlook. This optimism was driven by an expectation that the new administration would focus on deregulation, which would benefit the domestic manufacturing industry. The administration’s commitment to deregulation kept industry confidence high through much of 2017 and 2018 as regulations continued to be repealed.

This figure shows the results of a NAM survey with the percent of respondents expressing a positive outlook each quarter from 2016-2019

However, the escalating trade war with China is erasing many of the gains from deregulation. Small and medium sized firms are being hit hard by high tariffs on steel and other imported components. The only hope for many companies is to apply for tariff exemptions, but the process is often opaque, arbitrary, and tilted heavily in favor of larger firms with strong lobbying power.

Pro Publica reports:

“Companies with enough resources and savvy can not only push their own cases, they can work to undermine those of competitors.”

“With new tariffs being announced and lifted on a few days’ notice and trade agreements constantly being renegotiated, companies have scrambled to protect themselves. Tariff exclusions are highly sought after because they offer a huge competitive advantage — especially if a rival still has to pay. The review of exclusions is happening on a compressed time schedule, with little warning before tariffs and a complex set of rules that few people understand go into effect. And there are no second chances.”

“The Commerce Department at first had projected that it would see only about 4,500 applications — a threshold that was passed almost instantly. According to a regulatory filing, USTR estimated that each exclusion request would take applicants two hours to prepare, at a cost of $200 each, and two and a half hours for USTR to process. For the China tariffs, adjudicating cases is expected to take 175,000 staff hours over the course of a year, at a cost of $9.7 million.”

Trump’s trade war is harming U.S. manufacturers, their employees, and their customers. While it may be too soon to determine the damage to the economy, the thirty percent drop in manufacturer confidence over the past year does not bode well.

January 9, 2020 10:07AM

Migration to Low‐​Tax States Continues

The Census Bureau has released estimates of state population changes between July 2018 and July 2019. One component of population changes is migration between the states. The new Census data show that Americans are continuing to move from high‐​tax to low‐​tax states.

This Cato study examined interstate migration using IRS data and found that people are moving, on net, from tax‐​punishing places such as California, Connecticut, Illinois, New York, and New Jersey to tax‐​friendly places such as Florida, Idaho, Nevada, Tennessee, and South Carolina. The Census data confirms the trends.

In the chart, each blue dot is a state. The vertical axis shows the one‐​year Census net interstate migration figure as a percent of 2018 state population. The horizontal axis shows state and local household taxes as a percent of personal income in 2017. Household taxes include individual income, sales, and property taxes. The red line is a fitted regression line.

On the right, nearly all of the high‐​tax states have net out‐​migration. The exception is Maine. The blue dots on the far right are Hawaii and New York, which each have domestic migration losses of nearly 1 percent a year.

On the left, nearly all of the net in‐​migration states have taxes of less than about 8.5 percent. If policymakers want their states to attract residents, they should reduce their household tax burdens to 8.5 percent of personal income or below. The outlier at the bottom left is Alaska.

Interstate migration patterns tend to persist over time. The biggest loser states, such as Illinois and New York, have large and chronic problems. To stem the losses and strengthen their economies, these states should reduce taxes, slim down their governments, and cut regulations to enhance freedoms.

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