October 7, 2020 12:20PM

Before Reopening, California Counties Must Meet “Equity” Standard

This seems as if it ought to be more controversial: yesterday the state of California implemented a COVID-19 “health equity” metric mandating that counties demonstrate that they are investing in “eliminating disparities in levels of transmission” affecting disadvantaged communities, or have already eliminated such disparities, as a condition of being allowed to reopen economic activity any further. Simply achieving a satisfactory overall low rate of transmission will not be enough.

Notice that the rationale for the policy cannot be simply a concern that a county is not truly safe overall so long as it still has any hot spots of higher prevalence. If that were the concern, the straightforward response would be to require a showing of investment in addressing whatever localized hot spots a county might have, no matter what their racial or socioeconomic composition.

Although the current wave of COVID infection in California tends to correlate with poorer and minority communities, we know that over the course of the pandemic many hot spots have emerged in places that were not especially disadvantaged economically — ski resorts, college towns, places with many international business travelers, and so forth. Apparently it’s going to be fine for a county to reopen in California if it’s got localized hot spots in categories like those, so long as its overall countywide numbers are satisfactory.

Writes local reporter Bill Melugin, “The state will incorporate the California ‘Healthy Places Index’ (HPI) into its decision making for county reopenings. The HPI measures numerous things, including two parent households, voting, alcohol availability, retail density, clean air & water, and ‘tree canopy’.” A related map suggests that communities with high property values and income levels, especially those nearer the coast, tend to dominate the ranks of designated healthy communities.

One hopes that what is going on here is not a threat to restrain economic activity that would otherwise be recognized as low‐​risk as a way of obtaining leverage with which to push counties into “equity” initiatives that go beyond criteria of sound disease control.

October 6, 2020 4:57PM

Blatant Misrepresentations of Qualified Immunity by Law Enforcement

Since the death of George Floyd this past May, and in the wake of the national turmoil his death provoked, both Congress and state legislatures have turned their attention to policing reform -- and in particular, the doctrine of qualified immunity. At the federal level, four separate bills have been introduced (both by Democrats and Republicans) that would eliminate or substantially modify qualified immunity nationwide. Meanwhile, several states have either passed or are currently considering policing reform that would eliminate or limit qualified immunity for state-level civil rights claims.

Unfortunately, the discussion around qualified immunity is plagued by misinformation. Nearly all of the defenses I've seen raised in support of the doctrine display a profound misunderstanding of what qualified immunity actually is and how it works, and I increasingly find that almost all of my public comments on this issue are devoted simply to correcting clear mistakes. Perhaps unsurprisingly, the most common peddler of such misinformation is the law enforcement lobby, which appears to be acting out of a combination of knee-jerk defensiveness and profound ignorance as to qualified immunity reform.

I therefore thought it would be helpful to identify and correct some of the most flagrant misrepresentations of qualified immunity by law enforcement organizations and leaders. The purpose of this catalogue is both to correct the object-level errors on these particular issues, but also to put the public in general, and policy makers in particular, on notice that they should take with a grain of salt any statements about qualified immunity made by the law enforcement lobby. As these examples illustrate, those statements are simply not reliable.

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October 6, 2020 3:57PM

The Reality of Incomes, Taxes and Redistribution in America

As my Cato colleague Chris Edwards mentioned last week, the Congressional Budget Office on Friday released its annual report on trends in U.S. household income, means‐​tested transfers, and federal taxes between 1979 and 2017 (the most recent year for which tax data were available). The CBO report is, as usual, chock‐​full of interesting information, but today I’d like to focus on three findings that challenge common claims regarding taxes, middle class incomes, and wealth redistribution in the United States.

First, and echoing Chris’ post from last week, the CBO shows that total annual federal taxes — income, payroll, corporate, and excise — paid by the richest Americans (households making around $300,000/year or more) have basically doubled since 1979. Over the same period, the middle classes have paid almost the same amount of federal taxes, and the poorest Americans’ federal tax burden has all but disappeared.

Second, the average value of means‐​tested transfers (cash payments and in‐​kind benefits from federal, state, and local governments) has increased for all income groups since 1979, but has grown dramatically for lower‐​income Americans:

According to the CBO, the significant growth in means‐​tested transfers between 1979 and 2017 has primarily been driven by (1) expanding eligibility for middle‐​income groups; and (2) spending on Medicaid (“the largest—and fastest growing—means-tested transfer program”) due to an almost‐​fivefold increase in enrollees (from about 20 million in 1979 to 94 million in 2017) and an increase in average per capita benefits from $1,700 to $5,500 (in 2017 dollars). This trend, of course, is consistent with other data showing the extent to which entitlements have increasingly consumed federal spending in recent years.

Third, the CBO report shows that both median household incomes and average group incomes have enjoyed real (inflation‐​adjusted) gains since the early 1980s, with the aforementioned progressivity of the United States’ tax/​transfer systems playing a big role.

As shown in Figure 3 above, real median household incomes after taxes and transfers saw a 61.1 percent increase between 1979 and 2017. Importantly, the taxes and transfers analyzed by the CBO once subtracted from middle class market incomes but began to supplement them in the mid‐​2000s — a trend my colleague Ryan Bourne noted here a few years ago. By 2017, these taxes and transfers added $3300 (7.7 percent) to median market incomes.

Similar trends apply to average incomes:

As Figure 4 shows (click on various groups to highlight or exclude them), the poorest American households’ average incomes bottom out in 1983 and then grow by approximately 95 percent through 2017, aided substantially and increasingly by taxes and transfers. By 2017, in fact, well over half of these households’ annual income comes from the government. Furthermore, an increasing number of American households (on average) became net recipients of government benefits: the bottom two quintiles paid less in federal taxes than they received in transfers every year since 1979 (with total net benefits increasing substantially through 2017), but they were joined in 2002 by third quintile households (with real market incomes starting around $60,000 per year). By 2017, taxes and transfers added $6,300 to this group’s average market income of $61,700 — a 10.2% gain. The net tax/​transfer burden in 2017 was also much lower — though still net negative — for the fourth quintile of households than it was in 1979, while the top income group saw only modest relief (paying a slightly smaller share, but larger amount, of income to the government on net) over the same period.

As Bourne noted back in 2017, the CBO data are imperfect — for example, excluding state and local taxes and showing only averages (which can hide costs and benefits that certain taxpayers face). Nevertheless, the CBO’s new report adds to the growing body of empirical literature refuting common myths about middle class incomes and the progressivity of the U.S. system. One can (and in my opinion should) question whether that system is delivering the optimal mix of total wage and non‐​wage compensation to American workers, or the whether the significant and increasing redistribution that we employ has proven effective. But those questions don’t change the underlying facts presented by the CBO — facts that are light‐​years away from much of the populist and anti‐​capitalist hysteria we hear right now.

October 6, 2020 1:16PM

Rights against Speech

Why do social media companies have the right to suppress speech on their platforms? In the United States, they may do so because the U.S. Supreme Court has said the First Amendment does not apply to private companies. But the companies want more than sheer discretion, and they seem unwilling to say, “we’re maximizing shareholder value which requires suppressing speech.” Indeed, they seem to want an answer to the question: why should we suppress speech?

This desire for a broader foundation for content moderation has led Facebook to the door of the United Nations and international law. Need to ban “hate speech”? Article 20 of the International Covenant of Civil and Political Rights requires it. And not just of governments. Facebook has signed the Guiding Principles on Business and Human Rights which requires businesses to “respect” human rights.

Susan Benesch treats the issues implicit in mixing content moderation and international law in her essay “But Facebook’s Not a Country: How to Interpret Human Rights Law for Social Media Companies.” The “human rights law” she would have platforms adopt may be found in Articles 19 and 20 of the International Covenant of Civil and Political Rights. Benesch argues that “human rights law,” (hereafter IHRL) suitably modified, can improve and legitimate content moderation. I have my doubts.

International human rights does have a First Amendment of sorts. Article 19 of the ICCPR states:

Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice.

Benesch adds that the ICCPR explicitly prohibits only two kinds of speech: “propaganda for war” and what we have come to call “hate speech” (both in its Article 20). In aggregate these two banned forms of expression “represent only a tiny proportion of all the content that companies restrict under their own rules.” That’s correct. “Hate speech” receives a lot of attention, but it is actually a small part of all speech on social media and of all speech restricted by platform moderators..

In any case, Benesch believes bans on propaganda for war and “hate speech” will be quite limited because any restrictions must be “provided by law [and]…necessary.” Like others, she believes the terms “by law” and “necessary” support a tripartite test for any restrictions on speech under ICCPR. As I noted in my earlier post, this test demands that a restriction on expression must be clear enough to follow, must serve a legitimate state purpose, and must be the least intrusive means to that end.

Benesch argues that IHRL is likely to improve social media speech regulation. As noted, if only two kinds of speech may be banned, many social media speech restrictions must fall. And the remaining restrictions, strictly grounded in the ICCPR, might become more legitimate and acceptable to users. Moreover, IHR would give the companies “a stronger basis to resist improper pressure from states to suppress speech.” Benesch may not be correct, however, that platform adoption of international law would prohibit only two kinds of speech.

Article 19 of the ICCPR also states that free expression “carries with it special duties and responsibilities.” It may therefore be subject to certain restrictions. But the grounds for restriction seem limited: “respect of the rights or reputations of others” and “the protection of national security or of public order (ordre public), or of public health or morals.” Such are the legitimate purposes demanded by the tripartite test noted earlier.

Propaganda for war and “hate speech” are fairly concrete terms, however controversial. “Rights” is a pure abstraction. How can we attach some concrete meaning to this term? Benesch lists the sources of rights under international law:

the International Bill of Rights and the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work. For speech regulation the relevant documents are in the Bill of Rights, which includes the Universal Declaration of Human Rights (UDHR), the International Covenant on Civil and Political Rights (ICCPR), and the International Covenant on Economic, Social, and Cultural Rights (ICESCR).

That’s a lot of documents and a lot of rights presumably and thus a lot of reasons to restrict speech. And we are still quite abstract.

Fortunately the United Nations has provided us with a brief compendium of human rights. By my count there are 21 human rights including “freedom of opinion and expression” and another dozen “Human Rights Protections of Specific Groups.” Among the rights discussed are “the right to an adequate standard of living,” “the right to social security,” “the right to health,” and “the rights to work and to just and favorable conditions of work.”

In other words, governments or social media companies do not lack for justifications for restricting speech, all legitimated by international law which the companies themselves have endorsed. The “legitimate purpose” part of the tripartite test may be satisfied in many ways. Indeed, the right to free expression itself seems to be just one right among many, any one of which in some circumstances might trump “voice.”

Yet some experts might reply that free expression is different: restrictions on voice must be legal and proportionate. Perhaps when put in the balance against speech all thirty of those rights recognized by IHRL will turn out to be too vague and too intrusive to justify limits on voice. But the rights against speech are many, and time is long. I assume speech will give way later if not sooner.

Whether international law turns out to be an improvement on social media community standards depends less on the content of human rights law and more on how those rights are weighed against free speech. IHRL may turn out to be the root cause of illiberalism without borders, but it will require assistance from social media companies and their helpers, the putative proximate causes of a decline of free speech. On the other hand, the tripartite test may ultimately vindicate a broad right to free expression online if the interpreters of IHRL care more about speech than they do the 30‐​odd rights that might justify limitations on it. But giving primacy to free expression among our rights would be a more secure path forward and that international law does not do. The tech companies and their content moderators may recognize such primacy. Will they?

October 6, 2020 8:00AM

The Low‐​Income Housing Tax Credits Scam

Since 1986, low‐​income housing tax credits (LIHTCs) are the main way in which the federal government tries to increase the amount of affordable housing for low‐​income families. Yet they have become an enormous scam that allows non‐​profit organizations such as Habitat for Humanity to pad their budgets building expensive housing that is mostly rented to middle‐​income people.

As described in this 2017 Cato Institute bulletin, the Internal Revenue Service allocates tax credits to state housing agencies each year. The agencies then give them to developers that are often non‐​profit organizations. The developers can sell the tax credits to raise funds to build new supposedly affordable housing. The IRS currently distributes about $10 billion worth of tax credits a year, more than three times as much as the Department of Housing and Urban Development (HUD) spends building public housing, which was less than $2.9 billion in 2020.

A group called Seattle for Growth has compiled a list of 89 low‐​income housing projects funded since 2008, with links to the complete financial applications for 30 of those projects. A handful of these projects were built by the city or county housing agencies, while all of the rest were built by non‐​profit organizations such as Mercy Housing, which builds and operates housing projects in eighteen states ranging from Washington to Georgia.

The 89 projects included 6,700 housing units built at an average cost of $300,000 (in today’s dollars). While $300,000 sounds affordable in a city in which the median housing price is $780,000, the housing units built by the non‐​profits averaged less than 700 square feet in size, compared with more than 3,000 square feet for new homes built in the West in 2019.

According to the Census Bureau, new home construction in the West costs an average of $139 per square foot. Another source says that home construction in Seattle costs $141 per square foot. Yet, according to the financial applications, the non‐​profits in Seattle are spending more than $530 per square foot building supposedly affordable housing.

Of this $530, an estimated $258 per square foot would be spent on actual construction, with another $15 per square foot for “contingencies.” The rest includes a variety of fees for the architects, the developers (meaning the non‐​profits), and the government. All of the developments also included large common areas such as hallways and, in some cases, parking structures, and these added considerably to the total cost.

There are several reasons why the costs are so high. The first is that neither the IRS nor HUD provide much oversight over how the funds are spent. Since no one in the federal government pays any attention to how low‐​income tax credits are spent, developers are free to spend as much as they want. A 2018 GAO report found projects ranging from under $100,000 to more than $700,000 per unit, and few if any state agencies seemed to judge projects based on their costs.

A second problem is that Seattle has an urban‐​growth boundary that has greatly increased the price of land in the region. According to a 2017 study published by the National Bureau of Economic Research, the average price of land in Seattle is more than $1.3 million per acre, compared with under $300,000 per acre in fast‐​growing regions that have no urban‐​growth boundaries such as Atlanta, Houston, and Raleigh.

A third and even bigger problem is that most of the Seattle projects weren’t really built to provide affordable housing; instead, they were built to provide customers to the region’s light‐​rail system. LIHTCs can pay for no more than 70 percent of the cost of housing projects; to be eligible for state and city housing funds covering the remaining 30 percent, Seattle projects have to meet a number of specific requirements including “compact development,” “access to public transportation,” and “walkable neighborhoods.” As a result, all but two of the 30 projects whose applications I examined were mid‐​rises (4- to 6‐​story) or high‐​rises (7‐​plus stories). Such projects are much more expensive to build due to the need for more structural steel and concrete, not to mention all of the common areas they require that aren’t needed for single‐​family homes.

“Government will malperform if an activity is under pressure to satisfy different constituencies with different values and different demands,’’ wrote Peter Drucker in his 1989 book, The New Realities. ‘‘Performance requires concentration on one goal.” Agencies administering affordable housing funds have lost sight of their goal and so the money they spend doesn’t help as many people as it could.

Not that the 6,700 units of housing in Seattle’s 89 projects help that many low‐​income people. Many of those units are available to any household that earns less than the Seattle-areas’s median income, which was $93,000 in 2019, and only a few are affordable to those who truly have low incomes. Despite the fact that the non‐​profits that built the projects spent none of their own money on the capital costs, the rents they charge for most of the apartments are higher than truly low‐​income people can afford to pay.

According to the Census Bureau, the poverty line for a Seattle family of four is under $33,000 a year. Under requirements that households spend no more than 30 percent of their incomes on housing, a family earning $33,000 a year can afford to spend $825 a month on rent and utilities. Yet only ten of the 110 units of the Capitol Hill TOD, a project now being built with low‐​income housing tax credits, will be priced this low. The average unit in the complex will require an income of $40,000 a year, and the most expensive $56,000. This means that most of the 110 units are really middle‐​income housing.

This isn’t just a Seattle problem: such high‐​cost housing is being built using affordable housing subsidies in many states. As the Los Angeles Tenants Union observes, “U.S. housing policy has become a market‐​driven, mixed‐​income program of ‘Affordable Housing’ for carefully selected, mostly middle‐​income tenants, largely excluding the very poor.”

The public tends to view non‐​profit organizations as more altruistic than private developers, but this reveals that non‐​profits are just as money‐​grubbing as anyone else. If they were really concerned about helping low‐​income people, they would be lobbying to abolish the urban‐​growth boundaries that have made land expensive in West Coast urban areas such as Seattle, Portland, San Francisco, San Jose, and Los Angeles. But such land‐​use regulations actually work in their favor since they increase the number of people who need “affordable housing,” so the non‐​profits make no complaint about the boundaries.

Without the boundaries, most low‐​income housing would not be needed. In Buckeye, Arizona, which may be the most developer‐​friendly city in the country, builders are selling new 2,094-square-foot homes for $264,990, or $126.55 per square foot. That includes the land, permits, hookups, architecture fees, and everything else that costs $532 per square foot in Seattle affordable housing projects.

It is clear that the low‐​income housing tax credit program is not accomplishing its goals and should be abolished. For more information, download my complete report on this program.

October 5, 2020 2:17PM

We Can Help You, Samantha Bee!

Dear comedian and television host Samantha Bee,

From this new video, I see you have worries about school choice. I get it. We all hear lots of scary stories about freedom. But I have good news for you – we have what you need to sleep well at night (other than watching your show, of course)!

This Wednesday, you could get a free copy of Cato’s new book School Choice Myths, signed by editors Corey DeAngelis and me, that will give you everything you need to see that school choice isn’t the boogeyman. It’s much more like Hulu, Apple TV, and YouTube—those terrific things that enable us to watch not just government TV, but countless shows of our choosing. You know, shows like yours—especially yours—rather than just PBS NewsHour, or Antiques Roadshow, or whatever the British Broadcasting Company—not even our own broadcasting company—deigns to let us colonists watch.

Anyway, how can you get that coveted, free signed copy of School Choice Myths? Register for our online launch event this Wednesday, where not only will you get the book if you submit a question or comment that Corey and I select as one of the best (hint: we won’t know if your writing staff helped!) but you’ll get lots of great information from our expert panel of contributors, also for free!

Free School Choice Myths Contest ad

You really can’t lose!

Of course, you may not win the contest and then would have to buy the book, but it would be well worth the price to set your mind at ease:

  • Worry that school choice programs are unaccountable: Read chapter nine!
  • Think kids remaining in public schools get left behind: See chapters six, seven, eight, and eleven!
  • Despair over “free market fundamentalism”: Not sure what that means, but enjoy chapters ten and twelve (and the entire book if you really just mean “freedom”)!
  • Too much religion (or something like that): Chapters one, three, and four!
  • “Sell our kids off to the free market”: That sounds, like, Hunger Games-level horrible. Oh, the images in your mind! Anyway, see chapter five.

Ms. Bee, all of us at Cato’s Center for Educational Freedom want you to feel better. We hope you’ll tune in Wednesday, and if you’re really on your game, maybe your question or comment will make you a winner—and finally of something you won’t just shove in a closet.

Sincerely,

Neal McCluskey and all of us here at Cato CEF

October 5, 2020 8:54AM

Cato Releases Fiscal Report on Governors 2020

The Cato Institute has released its 15th biennial Fiscal Report Card on America’s Governors. The report grades state governors on their tax and spending records since 2018. Governors who have restrained taxes and spending receive higher grades, while those who have substantially increased taxes and spending receive lower grades.

Four governors were awarded an A: Chris Sununu of New Hampshire, Kim Reynolds of Iowa, Pete Ricketts of Nebraska, and Mark Gordon of Wyoming.

Seven governors were awarded an F: Ralph Northam of Virginia, Andrew Cuomo of New York, Gretchen Whitmer of Michigan, Phil Murphy of New Jersey, J. B. Pritzker of Illinois, Kate Brown of Oregon, and Jay Inslee of Washington.

The report examines the tax and spending choices made by each governor. It also discusses current state budget issues, including rainy day funds, marijuana taxation, revenue stability, and labor union policies.

Governors across the nation are facing tough fiscal choices, but the need for restraint and recovery is an opportunity to prune low‐​value spending and pursue pro‐​growth tax reforms.

The report on the governors is here.

Today at 11am, Cato’s Peter Goettler and Chris Edwards welcome New Hampshire Governor Chris Sununu for an online discussion about state fiscal policy. Edwards and the governor will discuss the advantages of the unique and restrained structure of New Hampshire government.