The recession of 2007-2009 knocked the wind out of state government budgets. Yet, as revenues have risen steadily in recent years, some governors have pursued reforms to reduce tax burdens on families and make their states more competitive. Other governors have used rising revenues to expand programs. In their biennial survey, “Fiscal Policy Report Card on America’s Governors 2014” (White Paper), Nicole Kaeding, a Cato budget analyst, and Chris Edwards, director of tax policy studies at the Institute, use statistical data to grade the governors on their taxing and spending records. “Reading the report card and other works by the institute may change some minds,” according to Forbes.com. “But more importantly, it broadens the debate over the role of fiscal policy in particular and government more generally.” Four governors were awarded an “A” on this report card: Pat McCrory of North Carolina, Sam Brownback of Kansas, Paul Le- Page of Maine, and Mike Pence of Indiana. Eight governors were awarded an “F”: Mark Dayton of Minnesota, John Kitzhaber of Oregon, Jack Markell of Delaware, Jay Inslee of Washington, Pat Quinn of Illinois, Deval Patrick of Massachusetts, John Hickenlooper of Colorado, and Jerry Brown of California. “With the economy currently growing, governors and legislatures are having few problems balancing their budgets in the short run, but the states face major budget challenges down the road,” the authors write. At the same time, global economic competition is making it imperative that states improve their investment climates.
IS PRESCHOOL EFFECTIVE?
Demands for universal preschool programs have now become commonplace, reinforced by President Obama’s call for “highquality preschool for all” in 2013. Yet as David J. Armor, professor emeritus at George Mason University, points out in “The Evidence on Universal Preschool” (Policy Analysis no. 760), any program that could cost state and federal taxpayers $50 billion per year warrants a closer look at the evidence on its effectiveness. This paper reviews the major evaluations of preschool programs, including both traditional programs such as Head Start and those considered high quality. As it turns out, these evaluations do not paint a generally positive picture. “The most methodologically rigorous evaluations find that the academic benefits of preschool programs are quite modest, and these gains fade after children enter elementary school,” Armor writes. This is the case for Head Start, Early Head Start, and also for the “high-quality” Tennessee preschool program. Two other high-quality programs have been evaluated using a rigorous experimental design, and have been shown to have significant academic and social benefits, including long-term benefits. These are the Abecedarian and Perry Preschool programs. However, the groups studied were very small, they came from single communities several decades ago, and both programs were far more intensive than the programs being contemplated today. Armor concludes, “Before policymakers consider huge expenditures to expand preschool, especially by making it universal, much more research is needed to demonstrate true effectiveness.”
GOOD INTENTIONS, IMPOVERISHED RESULTS
Over the last half century, federal and state governments have spent more than $19 trillion fighting poverty. But what have we really accomplished? In “War on Poverty Turns 50: Are We Winning Yet?” (Policy Analysis no. 761), Michael Tanner, a Cato senior fellow, and Charles Hughes, a research associate at the Institute, argue that, although far from conclusive, the evidence suggests that we have successfully reduced many of the deprivations of material poverty. However, these efforts were more successful among socioeconomically stable groups such as the elderly than low-income groups facing other social problems. “Moreover, other factors like the passage of the Civil Rights Act, the expansion of economic opportunities to African Americans and women, increased private charity, and general economic growth may all have played a role in whatever poverty reduction occurred,” the authors write. Nevertheless, even if the War on Poverty achieved some initial success, the programs it spawned have long since reached a point of diminishing returns. In recent years we have spent more and more money on more and more programs, while realizing few, if any, additional gains. We may have made the lives of the poor less uncomfortable, but we have failed to truly lift people out of poverty. This should serve as an object lesson for policymakers today. “Good intentions are not enough,” Tanner and Hughes conclude.
The Social Security Disability Insurance (SSDI) program faces imminent insolvency. Annual expenditures totaled $143 billion in 2013, but program receipts amounted to $111 billion-a shortfall that is projected to continue indefinitely. In “SSDI Reform: Promoting Gainful Employment while Preserving Economic Security”(Policy Analysis no. 762), Jagadeesh Gokhale, senior fellow at the Cato Institute, points out that, according to the Social Security Trustees, the program’s trust fund will be fully depleted in 2016, compelling either a large benefit cut or a large tax hike. Neither option will be politically popular. Regardless of the program’s insolvency, SSDI creates substantial work disincentives, causing many with medical impairments who could work to withdraw from the labor force and apply for SSDI. Gokhale advocates a change in the structure of SSDI’s benefit payments to those admitted to the program. Shifting benefits at the margin toward paying beneficiaries to work rather than to remain out of the work force would encourage beneficiaries with residual capacities to return to work. “That shift would serve as a backstop to reduce the economic loss from wrongful allowances of applicants into SSDI,” Gokhale writes. “Such a switch in benefit design can be accomplished without compromising benefit eligibility for those who cannot work.” In this analysis, he explains how to implement such a change to SSDI’s benefit structure and the advantages that would accrue from it.
The use of antidumping measures to protect certain domestic industries may be the most widely abused trade policy instrument worldwide,” writes K. William Watson, trade policy analyst at the Cato Institute. In “Will Nonmarket Economy Methodology Go Quietly into the Night? U.S. Antidumping Policy toward China after 2016” (Policy Analysis no. 763), Watson argues that U.S. authorities reserve their most punitive and abusive practices for goods from China. In those cases, the United States sets antidumping duties using what is called nonmarket economy (NME) methodology. The practice gives license to the U.S. Department of Commerce to ignore Chinese producers’ cost and price data and to turn, instead, to estimates for those data that are punitive and unrealistic. Current WTO rules permit the United States to maintain this discriminatory approach, but that condition will expire in December 2016. Absent a major change in the mindset of U.S. trade officials with respect to Chinese treatment in antidumping proceedings, it is unlikely that the United States will bring its policy into compliance. Watson presents some of the alternative scenarios that might unfold as the expiration date approaches. “The policy that would best serve a strong U.S. trade agenda and the American public is to end NME treatment of China by no later than December 2016,” he concludes. Nondiscriminatory treatment of Chinese imports would bring U.S. trade policy into compliance with WTO rules while reducing the distorting effect of antidumping measures on the U.S. economy.