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Kentucky’s teachers embrace a broken pension system - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Tue, 04/17/2018 - 12:56

Last Friday, more than two dozen Kentucky school districts closed as teachers rallied at the state capitol to support a budget that boosted school funding — and to denounce reforms to the state’s pension system.

Kentucky’s dispute follows teacher walkouts in West Virginia and Oklahoma, and a threatened action in Arizona, all of which yielded sizable pay increases and widespread support. And like their peers in other states, Kentucky’s teachers have legitimate concerns. The average Kentucky teacher salary was $52,134 in 2015–16 according to National Education Association data, down more than 2 percent since 2008 — even as Kentucky’s inflation-adjusted per-pupil expenditures rose 14 percent over that span.

Aerial drone footage of the Kentucky State Capitol where thousands of teachers gathered to protest a new pension law. Footage taken by Alex Slitz of the Lexington Herald Leader

Enacted over Governor Matt Bevin’s veto, the new budget will increase per-pupil education funding by $19, amounting to about $12.5 million total. It will also preserve the state’s current level of education funding for other commitments, such as transportation.

But meanwhile, the budget provides $3.3 billion over the next two years for public-employee pensions, a stopgap needed to sustain the state’s strapped system — and a separate bill, SB 151, makes some reforms to that system. Kentucky’s teachers weaken their case by fighting these reforms, which are likely to be a bigger long-term win for teachers than the $19 per-pupil spending boost.

The Bluegrass State, whose pension system S&P has rated as the worst-funded in the country, illustrates how teacher wage stagnation is driven in no small part by pension issues. Former Obama administration official Chad Aldeman has calculated that if Kentucky did not have to spend its money paying down pension debt, teacher salaries would be $11,400 higher today. Nationwide, Aldeman finds that “for every $10 states and districts contribute to teacher pension plans, $7 goes toward paying down pension debt, and only $3 goes toward benefits for current teachers.”

Seen in this light, Kentucky’s bill is a measured attempt to uphold promises to current and retired teachers while addressing pension obligations that are unsustainable and a huge drag on teacher pay. It places new teachers in a “hybrid” retirement plan that includes features of both a traditional pension (like teachers in Kentucky have now) and a 401(k) (like most plans offered in the private sector). Under this hybrid system, new teachers will contribute 9.1 percent of their salary, just as current teachers already do.

However, the state’s contributions will equal only 8 percent of salary for new teachers, as opposed to 12.3 percent for current teachers. Then, upon retirement, instead of receiving a set pension, new teachers will get back everything they’ve contributed plus 85 percent of all investment returns.

The new plan actually produces greater returns for teachers over the first two decades of service than the existing pension plan does, since the traditional pension plan backloads its benefits. New hires who teach for 30 years or more will make out less well than under the current plan, but in a profession where fewer and fewer new hires plan on staying for three decades, the deal makes good sense. Indeed, Aldeman has calculated that over the first ten years of the traditional pension plan, a teacher accrues only about $32,000 in retirement savings, while a teacher would accumulate nearly $85,000 during the period under the new plan.

The bill also stipulates that, while current teachers will still be able to retire after 27 years on the job, those hired next year will have to work longer — until age 57, if they’re on the job for 30 years. SB 151 would also allow the legislature to amend retirement benefits for future teachers, a shift from the current “inviolable” contract.

In short, SB 151 holds current and retired teachers harmless, while creating a better system for new hires. While the bill’s sponsor, Representative Bam Carney, acknowledges that the legislation would save the state only about $300 million over the next 30 years — a tiny fraction of the state’s $33 billion in unfunded liabilities (nearly half of which is in teachers’ pensions) — it would stop the state from accruing additional unfunded obligations.

Why did such a measured bill draw such a vociferous response from teachers? For one thing, teachers are justifiably miffed about how the bill got passed. Originally a bill on sewage funding, SB 151 was amended to include pension reform, went through committee, and passed both the house and the senate — all in one hectic day. Kentucky Education Association president Stephanie Winkler has observed that, due to the crazy process, “No matter what the language of the bill says . . . [legislators] have created an overall environment of deception and mistrust.” For another, teachers are angry following months of vitriolic rhetoric from Bevin, who has called them “selfish and shortsighted” and opined during Friday’s protests that their presence in the capitol meant “children were harmed — some physically, some sexually, some were introduced to drugs for the first time.” Teacher frustration is thus understandable, but can also lead teachers to fight the wrong fight.

Many states are wrestling with a version of Kentucky’s pension problems. In 2015, the National Center for Teacher Quality reported that, nationwide, teacher pension systems had a half trillion dollars in unfunded liabilities. This has practical consequences. Indeed, the University of Arkansas’s Bob Costrell reports that, between 2004 and 2015, pension costs nationwide rose from 4.8 percent to 8.9 percent of education expenditures — meaning less money to support today’s students and teachers.

Teachers in places like West Virginia, Oklahoma, and Arizona are making a good case for higher pay and finding popular support along the way. But digging in for a dogged defense of a deeply indebted, outmoded pension system is the wrong way to tackle teacher compensation. Indeed, such demands will only leave parents, taxpayers, and civic leaders skeptical about whether new dollars are being used to finance debt payments rather than fund teacher salaries or student needs.

Prioritization: Moving past prejudice to make internet policy based on fact - Prioritization: Moving past prejudice to make internet policy based on fact

Tue, 04/17/2018 - 10:00

The internet has evolved from its original design as a backbone-oriented, end-to-end infrastructure for academics to a series of content delivery networks (CDNs) that deliver video entertainment for end users. About 80 percent of today’s internet’s traffic is driven by the business models of Google, Amazon, and Netflix, companies that are both networks and applications undergirded by massive data centers and private networks. While their success underscores their business prowess and compelling content, today’s de facto result is not what the internet’s architects had in mind. Had they known in advance that video would be the main use, they would have selected a different network design.

Via Twenty20

The Federal Communications Commission’s (FCC) 2015 Open Internet Order made a blanket ban on something it called “paid prioritization,” or “the management of a broadband provider’s network to directly or indirectly favor some traffic over other traffic.” The implication is that ISPs can “speed up” traffic, but this is not possible because packets cannot be retransmitted by a network any faster than it receives them. The FCC failed to cite real world examples of the practice or evidence proving its harm. Within network engineering, prioritization refers to scheduling and queuing technologies, which could be envisioned as a bike path and a walking path. If some traffic uses the bike path, it does not disadvantage the walking path traffic. However, the question remains whether the FCC banning the “bike path” altogether disadvantaged some services, as VOIP co-founder Dan Berninger notes in his petition at the Supreme Court. While CDNs perform a service that amounts to paid prioritization, hosting content close to users to shorten the distance it travels for a fee, leading CDN provider Akamai succeeded in its effort to carve out its services from regulation, as the Order’s footnotes attest.

Today’s House Energy and Commerce Committee hearing, led by Rep. Marsha Blackburn (R-TN), is a step toward addressing the wrongs of the Open Internet Order by removing its incentives for arbitrage and ensuring that specific measures regulating network capabilities (e.g., prioritization) are based in science and engineering. Here are some key points paraphrased from the submitted testimony of today’s witnesses.

Richard Bennett:

While 80 percent of the bandwidth is consumed by a few giant players (which essentially don’t contribute to the cost of last mile networks), a diverse pool of users and applications compete for access to critical network resources such as bandwidth, latency, packet loss, and jitter. New networking product lines such as WAN Edge Infrastructure, Software Defined Networking, and Managed Services overcome shortcomings in the internet’s design by enabling dynamic routing or path selection. These devices enable the internet to replace costly private lines for many enterprise applications. ISPs can do the best job of traffic optimization when they can identify the nature and requirements of individual packet streams. The most effective way to do this — while preserving privacy — is to allow application developers to register applications requiring special treatment and even to pay for such treatment in some circumstances. While the average speed of US broadband networks has increased 35 percent per year for a decade, web performance has remained stagnant, even decreasing in 2016. The interests of innovators are best served when they are able to purchase the network services they need without undertaking the breathtaking expense of building the networks of data centers owned by the five largest US firms.

Peter Rysavy:

5G, the next and fifth generation mobile wireless standard, is new network typology and architecture designed to handle different kinds of traffic flows and a wider range of use cases than 3G and 4G. These include autonomous vehicles with crash sensing and mitigation, health biometric sensing and response, telemedicine, and proactive monitoring of critical physical infrastructure such as transmission lines. These applications require minimal delay and high reliability, and this can’t be guaranteed without prioritization. Importantly, prioritization increases the quality of experience across the subscriber base — however bright-line rules against prioritization will deter service development and investment incentives, threatening and undermining America’s leadership in 5G.

Paul W. Schroeder, Aira Tech Corp:

Aira helps the visually impaired enjoy a level playing field with those who can see by leveraging the capabilities of emerging 5G networks. It offers its blind customers instant, next generation wireless access to visual information through smart glasses, augmented reality, machine learning, geolocation, sensors, and trained human agents. Aira won’t work with best-efforts as it requires a robust network with dependable connectivity. Aira employs AT&T’s Dynamic Traffic Management (DTM) solution to ensure users low latency and robust connectivity for the transmission of streaming video. Aira’s customers or “Explorers” use it to navigate city streets and airports, review printed material, catch public transportation, and get real-time assistance for job applications, shopping, and travel.

Claims against prioritization and the counterarguments

Witness and Free Press Policy Director Matt Wood’s testimony was not available at the time of writing, but advocates against prioritization counter that the 2015 order had carve-outs for telemedicine, suggesting that it preserved the “good” uses cases for prioritization. But it’s not logical that only telemedicine should be able to enjoy permissionless innovation while other apps for transportation, supply chain, public safety and so on would be denied.  Such technologies, whether purchased by consumers or companies, can ensure users, for example, a quality video signal during an online job interview when the network is congested or the prioritization of public safety signals during emergencies.

A second claim is that innovative services will never be delivered on the public internet because developers will opt for private networks. Such an option is prohibitively expensive, would increase the cost for end users, and deter innovative service adoption. Moreover, it’s inefficient to build separate networks when the public internet can offer these services the capabilities they need.

The use of prioritization will no more slow the internet than the use of FedEx slows the mail. Indeed Amazon avails its Amazon Prime customers to priority delivery via USPS.

None of America’s key competitors in 5G — Japan, South Korea, or China — has adopted bans on paid prioritization. They would not be so stupid to handicap their citizens and innovators with rules that constrain an advanced network’s capability.

The US now faces a global competition for 5G leadership and can’t afford to be captured by emotional calls to imaginary harms. The Committee is taking forthright, evidence-based leadership in making policy and investigating the facts before making up rules. It’s a standard that all regulatory agencies should adopt.

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Hard Work and Soft Skills: The Attitudes, Abilities, and Character of Students in Career and Technical Education - Prioritization: Moving past prejudice to make internet policy based on fact

Tue, 04/17/2018 - 09:00

Key Points 

  • Previous research shows that students who select into career and technical education (CTE) tracks have, on average, lower test scores than their peers. Yet that same body of research finds that, after controlling for test scores, CTE course takers have higher high school graduation rates, overall educational attainment, or earnings. Our analysis reaches similar conclusions, implying that CTE students have an advantage in noncognitive skills that test scores fail to capture.
  • We find that students who take large numbers of CTE courses by 12th grade had significantly lower 10th-grade test scores. They also have lower self-esteem and motivation in reading and math. These patterns align with conventional perceptions of CTE students—namely, that they are not as academically engaged and adept as their peers.
  • However, we also find that CTE course takers have other noncognitive skills that are higher than otherwise-similar students. Based on behavioral measures of noncognitive skills, we observe that CTE students exhibit more effort on a routine task (e.g., taking a long and boring survey in school). According to teacher reports of student behavior, CTE students are just as attentive as their peers, just as likely to complete their homework, and much less likely to be absent from class.

Read the full report.

Read the brief.

Executive Summary

Career and technical education (CTE) programs are diverse. But, historically, they have all carried a common stigma: They are not academic.

CTE has traditionally been seen as an alternative to academic programs. This nonacademic stigma brings on a stereotype, especially for high schoolers: Students in CTE programs are unmotivated, uninterested in learning, and unfocused. What truth is there in this stereotype? Are students who lack the noncognitive skills generally associated with academic success (e.g., motivation, persistence, self-control, and conscientiousness) more likely to take CTE courses?

We draw on data from the Educational Longitudinal Study of 2002, a US Department of Education survey that followed more than 15,000 American 10th graders for a decade, from 2002 through 2012. The data contain measures of noncognitive skills, such as student self-reports of self-efficacy in academics, teacher reports of student behavior, and observed levels of student conscientiousness and self-control (as measured by survey effort).

We examine two groups of CTE students: students in traditional comprehensive high schools who take CTE courses and students who enroll in stand-alone vocational-technical schools. Our analysis compares these groups of students to students who took few to no CTE courses in high school.

In traditional comprehensive high schools, students with lower test scores in math and reading are more likely to take large numbers of CTE courses. Yet once we control for test scores, CTE course takers are less likely to drop out of high school and on average have higher annual earnings by their mid-20s than students who take few or no CTE courses.

Students who attend vocational-technical schools also have test scores lower than the traditional high school student who takes few to zero CTE courses. Yet compared to these traditional high school students, students at vocational-technical schools are more likely to be employed full time by young adulthood and, hence, appear to have higher annual earnings. What can explain this difference in long-term outcomes?

We find that CTE course takers have other noncognitive skills that are higher than otherwise-similar students. Based on behavioral measures of noncognitive skills, we observe that CTE students exhibit more effort on routine tasks. According to teacher reports of student behavior, CTE students are just as attentive as their peers, just as likely to complete their homework, and much less likely to be absent from class.

In sum, CTE course takers have on average higher noncognitive skills, compared to otherwise-similar students. This conclusion belies the image of these students as unmotivated and unfocused, and it belies the stereotype that CTE programs recruit substandard students. To assess the true value of CTE programs, one should look beyond their participants’ test scores.



Career and technical education (CTE) programs differ in substance and structure, but they have customarily carried a common stigma: They are not academic.

In the United States, CTE is a loose set of programs and policies. All aim to provide students with skills needed for a particular career. CTE can refer to specific programs such as vocational schools or career academies or more vague offerings such as technical education classes or shop class.

CTE programs have historically served as educational alternatives to more conventional high school programs that focus on academics. This nonacademic conception brings an old, durable stereotype: Students in CTE programs are unmotivated, uninterested in academics, and unfocused. What truth is there in this stereotype? We seek to explore this question regarding high school students.

Questions of motivation and focus get to a person’s very character. So we ask: Do noncognitive skills predict whether students will pursue CTE offerings? That is, are students who lack the noncognitive skills generally associated with academic success (e.g., motivation, self-efficacy, conscientiousness, and grit) more likely to take CTE courses?

We use a national, longitudinal data set that allows us to look at students in two CTE settings:

  • Students attending traditional, comprehensive high schools who take CTE courses; and
  • Students attending full-time vocational-technical (voc-tech) high schools.

Do students who select these CTE tracks differ from their peers, in terms of academic achievement, attitudes, classroom behaviors, and other noncognitive skills? Do students in different CTE programs differ from each other?

In common conversation, students who attend vocational-technical schools and students in traditional public schools who predominantly take CTE courses may be thought of in the same way and be similarly stereotyped. However, our analysis shows these two CTE programs are quite different from each other and from their non-CTE peers, in both 10th-grade skills and later life outcomes.

In comprehensive high schools, students with lower test scores in math and reading are more likely to take large numbers of CTE courses. Yet once we control for test scores, CTE course takers are less likely to drop out of high school and on average have higher annual earnings by their mid-20s, as compared to students who take few or zero CTE courses.

Students who attend vocational-technical schools also have lower test scores than the traditional high school student who takes few to no CTE courses. Yet compared to these traditional high school students, students at vocational-technical schools are more likely to be employed full time by young adulthood and appear to have higher annual earnings.

These patterns are consistent with the recent findings of economists Daniel Kreisman and Kevin Stange.1 Students with lower test scores take more CTE courses, yet taking more CTE courses is associated with higher earnings. Assuming that academic achievement is a key driver of long-run life success, this pattern of lower test scores appears inconsistent with the higher earnings experienced by CTE students.

Kreisman and Stange thus hypothesize that students who voluntarily enroll in CTE courses have higher unmeasured skills—presumably noncognitive skills—that lead to later life success. Our analysis will speak to this proposition. In other words, our paper examines a question that previous studies of CTE have almost entirely left out. Test scores aside, do the students who eventually pursue CTE offerings differ from their peers on measures of noncognitive skills?

Exactly what are noncognitive skills? Generally speaking, noncognitive skills are the skills that most standardized tests fail to measure. Such tests capture cognitive skills, by design. More specifically, noncognitive skills consist of character skills, emotional dispositions, and personality traits. Extensive research, including our own previous work, has demonstrated that high school students’ noncognitive skills are important predictors of later life success.2

Noncognitive skills are difficult to measure, especially in schoolchildren; doing so requires a mix of self-reported surveys, third-party reports, and behavioral (or task-based) measures. That is one reason that policy research, including CTE research, relies heavily on tests that assess easier-to-measure skills such as literacy and numeracy.

Self-reports consist of students considering a series of statements such as “I take a positive attitude toward myself” and choosing an item from a scale indicating their degree of agreement. Third-party reports are when others, such as teachers or parents, fill out questionnaires about their students. Such data sources are well-known and frequently used. Behavioral measures based on observing a student completing a task are rarer.

In our previous work, we developed new behavioral measures of noncognitive skills. For instance, we look at the amount of effort that students show when taking surveys.3 These effort-based measures, combined with those available in the Educational Longitudinal Study of 2002 (ELS:02) data set, allow us to conduct a novel study of CTE students.

We explore whether those who sort into CTE courses and vocational-technical schools are measurably different from their peers on several noncognitive skills, including self-efficacy, motivation, and attentiveness. Like practically all the literature on CTE course taking, our findings are descriptive. We examine differences between CTE students and their peers in 10th grade by asking: Do noncognitive skills predict enrollment in CTE courses or vocational-technical school?

As mentioned, student test scores are predictive of CTE course taking. In traditional high schools, the relationship is negative. Students with lower 10th-grade test scores in math and English are more likely to enroll in a higher number of CTE courses by the end of 12th grade.

Regarding noncognitive skills, CTE course takers have poorer attitudes about their math and English language arts (ELA) abilities. True perhaps to stereotype, 10th-grade students who express low opinions of their own self-efficacy, intrinsic motivation, study effort, or extrinsic motivation in these core academic subjects are more likely to eventually take large numbers of CTE courses.

However, on behavioral measures, CTE course takers score better than their peers even after accounting for demographic characteristics and test scores in math and reading. When it comes to teacher reports of student behavior and students’ own behavioral measures of effort, students with higher levels of desirable noncognitive skills are more likely to enroll in CTE courses. In particular, students who according to their 10th-grade teachers were less likely to be “frequently absent” were more likely to take high numbers of CTE courses. Likewise, students who performed better in terms of effort on the survey—that is, they were less likely to skip questions or “just fill in the bubbles”—were more likely to enroll later in CTE courses. In short, students who select into CTE courses act more conscientiously than their peers, even if they express lower self-efficacy and motivation in ELA and math.

We also examine students who attend full-time voc-tech schools. On average, these students do not differ from students who attend traditional high schools in terms of their cognitive and noncognitive characteristics.

Our analysis adds to an extensive descriptive literature on CTE course takers in traditional public schools. Previous and contemporary research shows consistently that students with lower test scores are more likely to sort into CTE classes. Yet, controlling for test scores, CTE course takers fare better at least upon entry into young adulthood. They are more likely to complete high school, and, though they may not necessarily be more likely to complete four-year degrees, they are more likely to be employed full time and have higher employment earnings.4 We observe these same patterns in our analysis.

Read the full report.

Read the brief.


  1. Daniel Kreisman and Kevin Stange, “Vocational and Career Tech Education in American High Schools: The Value of Depth over Breadth” (working paper, National Bureau of Economic Research, Cambridge, Massachusetts, September 2017),
  2. Mathilde Almlund et al., “Personality, Psychology, and Economics,” in Handbook of the Economics of Education, Volume 4, ed. Eric A. Hanushek, Stephen Machin, and Ludger Woessmann (Amsterdam: North Holland, 2011), 1–181,
  3. Collin Hitt, Julie R. Trivitt, and Albert Cheng, “When You Say Nothing at All: The Predictive Power of Student Effort on Surveys,” Economics of Education Review 52 (June 2016): 105–19,; Albert Cheng, “Like Teacher, Like Student: Teachers and the Development of Student Noncognitive Skills” (working paper, University of Arkansas, Fayetteville, Arkansas, January 2016),; Albert Cheng, Gema Zemarro, and Bart Orriens, “Personality as a Predictor of Unit Nonresponse in an Internet Panel,” Sociological Methods & Research (January 2018),; Collin Hitt, “Just Filling in the Bubbles: Using Careless Answer Patterns on Surveys as a Proxy Measure of Noncognitive Skills” (working paper, University of Arkansas Department of Education Reform, Fayetteville, Arkansas, July 2015),; and Gema Zamarro et al., “Comparing and Validating Measures of Non-Cognitive Traits: Performance Task Measures and Self-Reports from a Nationally Representative Internet Panel,” Journal of Behavioral and Experimental Economics 72 (February 2018): 51–60,
  4. Shaun M. Dougherty, “The Effect of Career and Technical Education on Human Capital Accumulation: Causal Evidence from Massachusetts,” Education Finance and Policy 13, no. 2 (Spring 2018): 119–48,; Michael A. Gottfried and Jay S. Plasman, “Linking the Timing of Career and Technical Education Coursetaking with High School Dropout and College-Going Behavior,” American Educational Research Journal 55, no. 2 (October 30, 2017): 325–61,; and James J. Kemple, Career Academies: Long-Term Impacts on Work, Education, and Transitions to Adulthood, MDRC, June 2008,

Trump’s Syria strike was meant to project strength. It did the opposite. - Prioritization: Moving past prejudice to make internet policy based on fact

Tue, 04/17/2018 - 00:00

In 2013, after Syrian dictator Bashar al-Assad crossed President Barack Obama’s red line and used chemical weapons on innocent civilians, a U.S. official told the Los Angeles Times that Obama’s retaliatory strike would likely be “just muscular enough not to get mocked” but not so devastating that it would elicit a response from Iran and Russia. In the end, Obama backed away from even such a small, feckless strike.

On Friday, Trump carried one out.

Trump deserves credit for acting (now twice) when Obama wouldn’t. He also deserves credit for getting U.S. allies to join us when Obama couldn’t. But let’s be clear: Friday night’s strikes were “just muscular enough not to get mocked.” As a result, they did more damage to the United States’ credibility on the world stage than they did to the Assad regime.

The U.S.-led strike did not hit a single airplane, airfield or delivery system, and it left Syria with chemical weapons capabilities. Even at the sites we did hit, the Syrians had plenty of time to move equipment and chemical stockpiles. There were no reported casualties on the ground, suggesting that the regime had evacuated the targets.

The Syrians know that they won. The Post reports that “on the streets of Damascus, there was jubilation as weapgovernment supporters realized that a more expansive assault would not materialize.” Retired Gen. Jack Keane, former vice chief of staff of the Army, said the Syrians had good reason to celebrate. “The response is very weak in my judgment,” he said. “It should have been decisive, it should have been consequential,” he continued.

Keane said Assad made a bet with his chemical attack and won. As Keane explained, Assad wanted to take out one of the last remaining rebel strongholds in the Damascus suburb of eastern Ghouta, which was holding out despite a brutal, nonstop bombing campaign by the Russians. Assad calculated that he could use chemical weapons to crush the resistance, achieve a military victory and then absorb what he expected to be a limited U.S. strike. So, he launched his chemical strike. Hours later, the rebels capitulated. And just as Assad predicted, the U.S. response was limited — leaving his air power, his command and control, and his chemical weapons capability largely intact. Assad was not punished. Quite the opposite — his attack played out just as he had hoped and predicted. Mission accomplished.

Far from being chastened, the U.S. response will embolden Assad, Russia and Iran. And it will embolden other U.S. adversaries as well.

What lesson did North Korea likely take from Trump’s weak actions in Syria? That the Trump administration is easily intimidated and risk-averse. The reason we didn’t take out all of Assad’s chemical weapons capability is that we were intimidated by Russia. Instead of warning the Russians to evacuate, and telling them we would not be responsible for what happened to their personnel if they failed to do so, we specifically designed our strikes to avoid even the remote possibility of provoking Moscow.

North Korean leader Kim Jong Un understands this. And the lesson he takes is that if Trump won’t take out Syrian airfields because we’re afraid of Russia’s response, then he’s definitely not going to strike Kim’s nuclear and ballistic missile program and risk a North Korean artillery barrage on Seoul.

This is a major setback to the Trump administration’s efforts to stop North Korea from developing the capability to threaten U.S. cities with nuclear missiles. The only way the United States can persuade North Korea to peacefully give up its pursuit of these weapons is if Kim believes Trump’s threat of military force is credible. After Friday’s U.S. actions in Syria, our credibility has been weakened, not enhanced.

News reports indicate that Trump wanted a more robust response but faced resistance from Defense Secretary Jim Mattis, the same man who has resisted giving Trump robust military options for North Korea. If accurate, Mattis did the president a great disservice by scaling down his desired Syrian response. The president’s desire is to project strength on the world stage. Under Mattis’s apparent guidance, he did the opposite.

As a result, Trump is weakened going into his summit with Kim. If Trump had taken no action, it would have been worse — but not by much. Because when you carry out strikes “just muscular enough not to get mocked,” you are projecting weakness — and weakness is provocative.

Misdiagnosing the western crisis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 18:09

Disentangling cause and effect is notoriously hard in social and human sciences, and the current crisis of the West is no exception. Is Donald Trump to blame for the erosion of the “liberal international order”? Is Vladimir Putin undermining our democracies? Has the proliferation of fake news and cognitive bubbles on social media amplified the appeal of authoritarian populists?

There are decent reasons to answer such questions in the affirmative. Trump’s behavior is indeed raising questions about the future of existing international norms and platforms for cooperation, from the World Trade Organization to the Paris Accord. There is no question that the Kremlin is actively exploiting the West’s weaknesses to reassert itself. And the abundance of disinformation and propaganda on social media has clearly changed some hearts and minds.

However, the thrust of causality might well run in the opposite direction. Trump’s attacks on international rules and institutions, Russian interference, and the continuing appeal of fake news can be seen as manifestations of the West’s political and intellectual crisis, rather than its primary drivers. It follows that much of the common response within Western democracies—from attempts by some European leaders to turn Trump into a pariah, through attempts to shut down Russian troll accounts and propaganda websites, to devising a new regulatory regime for social media—are at best Band-Aid solutions to much deeper problems.

Keep reading at The American Interest

Two and a half cheers for the Syria strike - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 15:44

After eight years of passivity and equivocation in the face of the most horrific human tragedies unfolding in Syria, every display of Western assertiveness, however symbolic, is welcome. By all accounts, the Syrian regime, sponsored by Russia and Iran, used chemical weapons repeatedly. It’s hard to argue that Western inaction — particularly President Barack Obama’s 2013 decision not to enforce its red line after the attack in Ghouta — has not increased the Assad regime’s brazenness. Limited as the military significance of Friday’s strikes might be, the loud denouncements from Moscow and Tehran, as well the note of disquiet from Beijing, suggest that the right people have taken note.

A Syrian firefighter is seen inside the destroyed Scientific Research Centre in Damascus, Syria April 14, 2018. REUTERS/Omar Sanadiki

Those who do not trust Donald Trump’s judgment may have their concerns assuaged by the fact the United States is not acting alone but in concert with its key European allies, France and the UK, both governed by conventional and level-headed leaders. In a rare display of health for the transatlantic partnership, even the President of the European Council, Donald Tusk, expressed support for the strikes, saying that “the EU stand with our allies on the side of justice.”

Of course, the intervention is not without its risks. One blemish is the existing divisions among European countries and even within the EU institutions. There, the High Representative for Foreign and Security Policy Federica Mogherini visibly contradicted Tusk by repeating the tired mantra about political, not military, solutions to the conflict and about the need to “shift the focus on diplomacy and peacemaking” — as if that had never occurred to anyone before and as if Mr. Assad, Iran’s mullahs, and the Kremlin were willing to negotiate in good faith.

Another even more pressing problem is that the strikes on Friday do not go anywhere near changing the balance of power on the ground — and much less toward imposing sizable costs on the Iranian and Russian regimes who are effectively controlling the situation. Without a more aggressive posture particularly against Russia — involving additional sanctions against regime officials and oligarchs, asset freezes, and cutting Russian state-owned and state-connected banks from the global financial system — Vladimir Putin has little reason to seriously rethink his complicity in Mr. Assad’s war crimes.

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Big tech using your data | In 60 Seconds - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 15:16

Following the Facebook scandal, many people expressed concerns about how big tech companies take advantage of their users’ data to drive service consumption. AEI’s visiting scholar Mark Jamison advises big tech companies to be transparent about their real business models.

Totalitarian infections can effect everyone - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 15:00

Dario Fertilio’s Il Virus totalitario. Guida per riconoscere un nemico sempre in agguato (Rubettino, 2017), (The Totalitarian virus. A guide to Recognize an Ever-Lurking Enemy). describes an articulated and well detailed “autopsy” of the totalitarian system, using the organic and information technology analogy of the “virus.” The work is divided into four parts and the individual chapters are held together by a systematic plant that the author himself defines: “organic viral model.” In short, Fertilio’s piece argues the infection of the totalitarian virus is the result of an encounter between enzymes and the target cells. In the absence of cellular vehicles, says Mr. Fertilio, the virus cannot replicate and spread throughout the body, or government, and prevent totalitarian government.

@RJSilva via Twenty20

Among the many topics discussed in the volume, one thesis from Mr. Fertilio argues the characteristics of the general problem, which claims “To affirm that totalitarianism either is historical or it isn’t, it is to ignore the general characteristics of a disease.” In practice, the author challenges the interpretation that reduces totalitarianism to its historical expressions and it ends to identify it with the “States and its institutions,” “insignia and armies,” “supreme leaders and economic techniques,” “propaganda methods,” and “diplomatic-military strategies.” According to Fertilio, the reduction of totalitarianism to its insignia denounces a serious lack of theoretical perspective and ability to grasp the phenomenon as a whole.

What are the presuppositions, even theoretical ones, that favor the spread of the totalitarian virus and how can one try to defend themselves? The problem posed by Fertilio tells us in the first place that there is no epoch of history and a geopolitical area entirely protected from totalitarian infection. In practice, democracy and freedom, with all their defects and limits, are not irreversible acquisitions of history and the exclusive prerogatives of some ethnic, national, religious or cultural groups. We are all exposed to infection and we should always keep our guard up.
A fundamental point to understand how to defend from the virus of totalitarianism is to consider the relationship between the general conditions of a society and its vulnerability. In practice, writes Fertilio, “there are recognizable social and political conditions, which we can define as pre-totalitarian, which can function as watchtowers, and resonate like alarm bells.”

I believe, in the wake of the Italian political scientist Luigi Sturzo, who has dedicated numerous pages of his sociological and political work on the subject of totalitarianism, that the “monistic” principle can be used as an alarm bell. According to this principle, the irreducible social pluralism would be denied. To express this concept, Sturzo used the expression “plurarchy” (plurarchia), while for Alexis de Tocqueville we could consider the expression “principle of association.” The great merit of the social pluralism that nurtures is nourished in by principles of “plurarchy” and association, and therefore by the participation of people in civil life. On the one hand, it promotes an ever-closer relationship between the social sphere and the political sphere, which does not fade the principle of popular sovereignty in the mists that separate the rulers from the governed. On the other, it allows the identification of public spaces in which people can form an opinion and express it, trying to counteract the formation of conformism, typical of mass societies and all this is in itself a strengthening of the “electoral democracy.” To put it in the words of Etienne de la Boétie in his Politics of Obedience. The Discourse of Voluntary Servitude: “Only be resolved to serve no more, and you will be free!”

Ultimately, to Fertilio, antidote par excellence is always the same, namely: “Ability to direct military intervention, global increase in wealth and its spread, affirmation of a culture of liberties in all areas, legal certainty and alliance of global democracies must have the task of restricting the field of action of the virus, taking away from it the burning material of which it has a vital need. The virus must be starved.” (p.210).

No taxpayer bailout for Puerto Rico’s creditors - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 14:56

Puerto Rico bonds have been the best-performing fixed income investment thus far in 2018. Following the devastation of last year’s Hurricanes Maria and Irma, and the expected migration to the mainland of more than 10 percent of the island’s population, how can this be?

The answer lies in the tens of billions of emergency reconstruction dollars appropriated by Congress, including $18 billion in housing grants alone, and in the dangerously optimistic forecasts of Puerto Rico’s own government. We are convinced that the emergency funds should be used to rehabilitate the island’s economy, as Congress intended, and not diverted to create a windfall for the island’s creditors.

Deputy Secretary of Housing and Urban Development Pamela Hughes Patenaude (L) addresses the media and residents, next to Puerto Rico Governor Ricardo Rossello (C, rear) and Resident Commissionar of Puerto Rico Jenniffer Gonzalez, in a neighbourhood hit by Hurricane Maria in September, in Canovanas, Puerto Rico April 10, 2018. Reuters

Last October, after surveying the wreckage on the island, President Trump said of the island’s $74 billion in debt, “We’re gonna have to wipe that out.” However, despite the devastation caused by the hurricanes, Puerto Rico’s government now inexplicably projects that it is in a better position to pay off its debts than it was a year ago.

Prior to the hurricanes, the government’s fiscal plan, certified by the Financial Oversight and Management Board for Puerto Rico established by Congress in 2016, assumed that Puerto Rico could make debt service payments equal to 25 cents on the dollar. Now, notwithstanding the virtual destruction of its electrical grid, serious damage to other productive infrastructure, the shuttering of many of its businesses and the exodus of many workers and taxpayers, the government is happily forecasting that it could make payments up to 40 cents on the dollar. It is doing so by unrealistically assuming that increased healthcare and reconstruction funds being appropriated by Congress will spur the kind of economic growth not seen on the island in more than a decade, even as it proposes steep cuts to government services and agencies that employ about one-quarter of its formal workforce.

Puerto Rico should be encouraged to plan for a better future. However, excessive optimism that understates the risks associated with fiscal austerity and the eventual withdrawal of reconstruction support will result in a debt restructuring on terms inconsistent with Puerto Rico’s capacity to pay. That will only set Puerto Rico on course for a second debt restructuring.

In making its latest economic forecast, the Puerto Rican government seems to be turning a blind eye not just to the island’s devastation but also to its dismal economic track record over the past decade, when its economy declined by 15 percent — a steady descent punctuated by only one year of growth following a large tax cut. Instead, it seems to have taken the view that a hurricane of epic proportions is in fact a form of divine intervention that will effectively result in a positive shock to near-term growth by way of increased congressional financial support.

One year ago, Puerto Rico’s certified economic plan forecast that a prolonged period of budget austerity would cause the island’s economy to decline by more than 10 percent. Now it is predicting an output level by 2023 that is 10 percent higher than in the previous plan. The government is doing so even though the economy was hit by a Category 5 hurricane, and even though it is proposing less economic reform than in its previous plan and a similar level of budget adjustment.

The island’s infrastructure can be rebuilt with large-scale funding from Washington, but at best its productive capacity would only be restored to its pre-hurricane level. By itself, this funding provides little basis for the hope that the island’s economy can now somehow do very much better than it could before the hurricane. The influx of federal reconstruction dollars certainly could temporarily raise the rate of growth and pull up the level of output. However, once recovery spending wanes, that effect should largely go into reverse — leaving in place long-standing problems like high unemployment and the highest poverty rate in the United States.

Economic research on a wide range of countries that have experienced similar natural calamities over the past 50 years suggests that per-capita GDP is typically lower than projected pre-disaster. It also shows that a crisis-hit economy generally takes a decade or two even to regain its former trend rate of growth.

Importantly, structural reforms such as changes to “ease of doing business” and labor laws — issues on which the governor and oversight board disagree — cannot by any reasonable economic analysis be powerful enough in themselves to offset the loss of federal Medicaid funding, the potential drag from recent changes to the corporate income tax code, and the eventual withdrawal of disaster aid. Yet both the government and oversight board rely on a range of controversial structural reforms to produce decades of sustained growth — a perilous projection.

Yet another factor that would make Puerto Rico’s rosy economic scenario appear highly implausible is population flight to the mainland. The government itself is estimating that as a result of the hurricane, the island will lose more than 10 percent of its people over the next few years. The loss of that large a part of its economically active population is likely to result in a permanent downward shift in the island’s productive capacity.

Puerto Rico’s oversight board, which now must assess the government’s plan, has the responsibility to take a more realistic view, one that accounts for the substantial downside risks to economic growth that remain. One must also hope that it will recognize that Congress intended that U.S. taxpayers’ money should help Puerto Rico recover and should not be used, in effect, to bailout the island’s creditors.

It is our view that the public-sector debt, which consumes roughly 30 percent of the island’s tax revenues annually, must be written down to the maximum extent allowable under the law. This should be done in the interest of getting the island back onto its feet and of avoiding a second debt restructuring.

This week, the oversight board appointed by Congress meets to review the new fiscal plan. For the sake of the island and all U.S. taxpayers, let us hope that its approach to the island’s daunting economic challenges is more prudent than that of the Puerto Rican government.

Paid leave benefit policy needs to take into account the future of work - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 14:28

The United States is the only developed nation in the world without some form of guaranteed paid leave to care for a new child, a seriously ill family member, or one’s own medical needs. Our outlier status means that we have an opportunity to design a policy that takes into account the dramatically different relationships between firms and workers that exist today as compared to those that were in place at the time of the New Deal, when the foundation for existing policies designed to shore up family economic security were built (including Social Security, disability insurance, and unemployment insurance).

A new program should be flexible enough to adapt to changes in the structure of labor markets in the future, to the maximum extent possible. Indeed, shoring up family economic security in the United States going forward requires a serious consideration of the changing nature of work, and paid leave policy presents an important opportunity to do just this.

In general, labor economics provides solid reasons to think twice before designing policies that depend on a clear link between an individual employer and employee. Research demonstrates the role that employer-based insurance can play in creating undesirable “job-lock,” as well as the role that public policies designed to improve benefit portability can play in encouraging productive job-to-job mobility. Policies that decrease job-to-job mobility (and increase job-lock) are problematic, given the importance of job-switching to workers’ upward earnings trajectories and firm productivity. Finally, those most likely to face serious challenges to self-insuring — low-wage workers, for example — are also those least likely to receive benefits from their employers, according to the US Bureau of Labor Statistics.

Three related economic trends characterizing the current labor market have major implications for the design of paid leave policies — and all point to the necessity of ensuring that paid leave benefits are not dependent on a traditional employer-employee relationship.

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First, an increasing share of the American labor market is comprised of “gig” workers, where workers take on short-term jobs, often as 1099 contract employees or as self-employed workers. One recent study by economists Larry Katz and Alan Krueger finds that the share of workers engaged in “alternative work arrangements” (including temporary help agency workers, on-call workers, contract workers, and independent contractors) rose from 10.1% in 2005 to nearly 16% in 2015, accounting for 94% of the growth in GDP over that period.

Second, firms are shedding secondary business functions in order to focus on their primary specialization. Economist David Weil refers to this as the “fissuring” of the workplace, and notes that the split means that many workers have no clear sense of their actual employer, including no meaningful relationship with a company HR department — a key source of managerial decision-making regarding paid time off. (Consider the example of the hotel housekeeper who spends her days cleaning rooms in a large corporate-branded hotel, yet receives a paycheck from an out-of-state cleaning firm with whom the hotel has contracted, and which is managed by people she’s never seen or spoken with.) While more research is needed on the consequences of fissuring for workers across the earning distribution, work from economists Arin Dube and Ethan Kaplan on the consequences of the fissured workforce suggests that, when compared to workers in non-fissured firms, those employed by fissured firms earn lower wages and receive fewer benefits.

Third, today’s part-time worker looks very different from the part-time worker of the mid-20th century. Nearly one-fifth of the American workforce is employed part-time, a number that has remained relatively stable since the 1980s. The composition of the part-time workforce has shifted from primarily married women and young workers to prime-age workers with low levels of education. The share of part-time workers who are “involuntarily” part-time (who would prefer to work full-time if a job was available) is elevated for low-wage workers. Part-time workers are less likely to receive employer-based benefits and more likely to face substantial unpredictability in their work schedules.

A hard look at the current structure of the labor market — and the future of work — suggests that any system designed today ought to de-link specific employers and their employees, and instead focus on employee labor force attachment as captured by other metrics, such as earnings history. The absence of a paid leave policy in the United States provides a unique opportunity to build a system that helps families manage the balancing act between work and caregiving faced by millions of Americans daily. Benefit portability is a basic principle that belongs front-and-center in the paid leave conversation.

Elisabeth Jacobs is a Senior Director at the Washington Center for Equitable Growth.

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Ep. 97: Big Business gets a bad rap - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 13:00

“Small business is the basis of American prosperity.” “Small businesses are overwhelmingly responsible for job creation and innovation.” “Small business owners are the basis for democracy in America.” All these statements are wrong, argues Robert Atkinson, president of the Information Technology and Innovation Foundation. It’s Big Business that’s responsible for today’s gains in income, productivity, and jobs — and policymakers and voters need to recognize these facts. He joins the podcast to discuss this argument from his new book, “Big is Beautiful: Debunking the Myth of Small Business,” co-authored with Michael Lind.

Robert Atkinson is the president of the Information Technology and Innovation Foundation, a think tank focused on science and tech policy. He’s also a senior fellow at the Brookings Institution, serves on the advisory councils of several different institutions, and has worked in government under presidents Clinton, Bush, and Obama in various capacities.

You can subscribe to this podcast on iTunes or Stitcher, or download the podcast on Ricochet.

Renewed Chinese cyberespionage: Time for the US to act - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 04/16/2018 - 10:00

Chinese cyberespionage is on the rise again, despite a 2015 US-China agreement to curtail commercial cybertheft. These potential acts of defiance come as the US and Beijing are moving toward confrontation across a wide number of economic and strategic fronts. Reports from two leading US cybersecurity firms, FireEye and CrowdStrike, have identified a “surge in espionage targeting cloud services, telecommunications companies, and law firms.” And several months ago, Chinese hackers took over a popular security tool to introduce malware into some 18 specific high-tech companies.

U.S. President Donald Trump and China’s President Xi Jinping make joint statements at the Great Hall of the People in Beijing, China, REUTERS.

Meanwhile, last week at the annual Boao Forum (China’s Davos), Chinese President Xi Jinping promised to increase intellectual property (IP) enforcement, prompting President Donald Trump to praise Xi for his “enlightenment” on IP. The president clearly should check more carefully with his intelligence agencies before handing out such plaudits.

Let’s review the history and continuing issues relating to cyberespionage. While official documentation is scarce, a deluge of anecdotal evidence has pointed to China’s multifaceted effort to steal knowledge from patents and copyrights across the globe — particularly from leading American high-tech multinationals. Estimated losses run to more than $300 billion per annum. In September 2015, after directly threatening retaliation against Chinese companies, President Barack Obama convinced Xi to agree to a pact (not legally binding) between the two countries that stipulated that neither government would “knowingly” allow the theft of IP for commercial purposes.

Although there was some disagreement at the outset as to whether the Obama-Xi agreement produced a decline in Chinese cyberattacks, as time went on, it did seem that while such actions never ceased entirely, they were much less frequent. The Obama administration, led by Assistant Attorney General John Carlin, insistently proclaimed that Obama’s action had introduced new international norms and caused “China to change its behavior.” In retrospect, and given recent Chinese actions, the story is more complicated.

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The decline in the number of Chinese-related cyberattacks also stemmed in part from changes within China itself. Briefly, even before the 2015 pact, Beijing had moved to reform and more closely supervise Chinese cyberespionage activities. China steered away from so-called vacuum cleaner espionage that scooped up reams of information with little regard to sophisticated secrecy. As part of President Xi’s anti-corruption campaign — and sweeping moves to centralize decision-making — freelance ventures between People’s Liberation Army officers and outside groups were sharply curtailed. The new goals focused on more national security–directed espionage, although the lines between national and economic security remained somewhat blurred by dual-use technology. But as Michael Chertoff, former head of the Department of Homeland Security, stated: “It doesn’t strike me as unlikely that the word went back, ‘Guys, cool the hot-rodding. If there’s something worth stealing, do it, but do it in a way that’s not so obvious.’”

Recent examples of cyberespionage made public by private security firms illustrate this pattern. Chinese-related hackers have sought information about radar capabilities and movement detection devices from private defense contractors in support of Chinese reactions to US movements in the South China Sea and more general hacking of academic and private-sector engineering labs. Testing the limits of the 2015 agreement, Chinese-controlled hackers have also sought to steal information from US financial firms to gain inside information related to future Chinese corporate acquisitions in the US and Europe.

All of this forms the backdrop to upcoming trade negotiations between the Trump administration and Beijing’s leaders. The president has come back to IP theft repeatedly (and correctly). Regarding continued Chinese cybertheft, the US should adopt the following strategy:

  • Within the limits of intelligence disclosure (and the US intelligence agencies should be leaned on to reveal more than they normally wish), the US negotiating team should provide evidence (with specific examples) that the US has the capability to track and attribute IP theft to Chinese-controlled groups; and
  • The US should warn Beijing that in the future, if Chinese IP theft is identified in advanced R&D and production related to high-tech products or processes, the US will ban Chinese companies that have benefitted from this theft from operating in the US market — even if there is no direct “smoking gun” leading directly back to the individual companies.

Beyond this, it would also be wise for the two countries to establish a single official or office that can act as a liaison when IP theft is alleged in either country.

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Some thoughts, facts, and charts for Tax Day: Bring us back to 1913; or better yet, bring us back to 1912! - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 04/15/2018 - 14:46

We are quickly approaching the deadline for filing (and paying) our federal and state income taxes (extended to Tuesday, April 17 this year because April 15 falls on a Sunday and Monday is Emancipation Day), and that means it’s time for my annual post at tax time to help put things in perspective.

1. Some Historical Perspective. “In the beginning” when the US federal income tax was first introduced in 1913, it used to be a lot, lot simpler and a lot easier to file taxes; so easy in fact that it was basically like filling out your federal tax return on a postcard.

For example, page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including two pages of worksheets, the actual one-page 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions for 2017, without any forms or schedules, runs 107 pages (forms and schedules are available separately here and here).

Individual federal income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 (more than $12.7 million in today’s dollars). The personal exemption in 1913 was $3,000 for individuals (more than $76,000 in today’s dollars) and $4,000 for married couples (nearly $102,000 in today’s dollars), meaning that very few Americans had to pay federal income tax since the average annual income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 2013 here for tax brackets expressed in both nominal dollars and inflation-adjusted dollars and the 2017 tax brackets here.

2. Tax Graphic of the Day (above). Some more historical perspective….

3. Opportunity Cost. In a 2012 report to Congress (most recent data available), the National Taxpayer Advocate estimated that American taxpayers and businesses spend 6.1 billion hours every year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out their tax forms. In addition, Americans will spend an estimated $10 billion for the services of tax preparation firms and $2 billion on tax-preparation software programs like TurboTax that still require many hours of time.

The amount of time spent for income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round (or 2% of total US payrolls of 148.2 million). By way of comparison, the federal government currently employs 2.8 million full-time workers, and Wal-Mart, the world’s largest private employer, currently employs 2.2 million workers worldwide and 1.3 million workers in the US (both full-time and part-time). At the current average hourly wage of $22.42 an hour, the dollar value of the opportunity cost associated with tax filing would be $136.7 billion, which is more than the GDP of 18 US states last year.

As T.R. Reid pointed out in a New York Times op-ed last year at this time, it really doesn’t have to be that way. For example:

In Japan, you get a postcard in early spring from Kokuzeicho (Japan’s I.R.S.) that says how much you earned last year, how much tax you owed and how much was withheld. If you disagree, you go into the tax office to work it out. For nearly everybody, though, the numbers are correct, so you never have to file a return.

4. Tax Progressivity. And just how progressive is the US federal income tax system? Very, very progressive, see the chart above showing average effective tax rates by various income groups based on IRS data here for 2015 (most recent year available). That pattern of income tax progressivity explains why almost all federal income taxes are paid by the top income groups (see next few items).


5. Tax Progressivity and Tax Burden. According to the most recent IRS data, the federal income tax shares by six different income groups in 2015 are displayed in the chart above. Almost all federal income taxes (97.2%) are paid by the top 50%, more than 2/3 of income taxes are paid for by the top 10% and nearly 40% of taxes are paid by the top 1% of taxpayers. For all of the criticism and negative publicity the “Top 1%” get, I’d like to personally thank that group this year at tax time for shouldering such a disproportionate share of our collective tax burden – that group of Americans with income above $480,000 in 2015 generated 20.65% of the nation’s Adjusted Gross Income but paid 39% of all federal income taxes. It’s a form of “disparate impact” on the 1% that we all benefit from! So, I say “Thank You Top 1%” from all of us in the bottom 99% for your valuable and significant contribution to our nation’s tax burden.


6. Tax Burden of the Top 1% vs. the Bottom 95%. The chart above gives us another perspective on the tax burden of the top 1% of taxpayers over time and compares the tax share of that group to the tax burden of the bottom 95% in every year between 1980 and 2015 (most recent year available from the IRS). In 2015, the top 1% earned 20.65% of the total income reported to the IRS (as mentioned above) and paid more than 39% of all federal income taxes collected ($588 billion). The bottom 95% of US taxpayers earned 64% of total income (almost three times as much as the top 1%) and paid only 40.4% of the total income taxes collected ($588 billion). So once again, to the 1.4 million taxpayers in the top 1%, I say “Thank You” for paying almost as much in federal income taxes in 2015 as the nearly 140 million taxpayers in the bottom 95% by income.


7. Bowling vs. Taxes. Speaking of the progressivity of income taxes, here’s a thought about the way we tax income vs. the way we score bowling. Under the scoring rules of bowling, you get rewarded, not penalized, for being successful. If you get a spare, the scoring system rewards you by adding the pins from the next ball into the current frame, and if you get a strike you get rewarded by adding your next 2 balls into the current frame.

Under our progressive income tax system with 7 tax rates in 2015 increasing from 10% to 39.6%, you get penalized, not rewarded, for being successful, productive and entrepreneurial, because the more you earn, the higher the tax rate you pay. The top marginal income tax rate has been as high as 91% in the 1950s and 1960s, and 70% in the 1970s. If we scored bowling the way we tax income, we would subtract, not add pins for a spare or strike, i.e., penalize successful bowling. If we taxed income the way we score bowling, we would have lower, not higher, tax rates on our most successful income-earners.

8. Coincidence? Why are Tax Day (April 15) and Voting Day (first Tuesday in November) so far apart? Couldn’t we move Tax Day to the first Monday in November or Voting Day to the first Tuesday following April 15? And maybe end tax withholding so that Americans would pay their federal income taxes as a lump sum right before voting?

9. What’s In a Name? Why do we call the IRS a “service?” Couldn’t it have been named a department like Labor, a bureau like the BLS or the FBI, a commission like the FTC, an administration like FDA, an agency like EPA, etc.? And have you ever noticed that “The IRS” spells “Theirs”? Hmmmmmmm

10. 20 Inspirational Quotes about Taxes from Forbes, here are a few good ones:

“The taxpayer: that’s someone who works for the federal government, but doesn’t have to take a civil service examination.”–Ronald Reagan

“We have what it takes to take what you have.”–Suggested IRS Motto

“It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.”–John F. Kennedy

I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money.”–Arthur Godfrey

“A liberal is someone who feels a great debt to his fellow-man, which debt he proposes to pay off with your money.”–G. Gordon Liddy

Happy Tax Day 2018!


When nothing works - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 04/15/2018 - 14:00

Why do Millennials like socialism? According to a recent poll, 58 percent of Americans between the ages of 18 and 25 have a favorable view of it, compared with only 23 percent of those between 55 and 64. It would be easy to chalk up this difference to the idea that people get smarter as they get older. But there are other reasons that this generation has soured on capitalism and that their views may not change much as they get older.

An Occupy Wall Street protester joins a demonstration at Times Square, New York October 15, 2011. Reuters

Start with this: Ninety percent of Americans born in 1940 made more money than their parents. But as Malcolm Harris writes in his book Kids These Days, “it’s a coin flip whether or not we’ll out-earn Mom and Dad.” Nor, he argues, is this a problem that America can grow its way out of. “The American dream isn’t fading,” he says. “It’s being hoarded.” Harris suggests that America is no longer a country of social mobility—and, more sobering, the problem is not only class stratification but generational decline.

Harris is not an economist or a politician. He is a journalist born in 1988 and he seems to fancy himself—to borrow a phrase from Lena Dunham—a voice of his generation. He suggests that all the familiar complaints older people have about his cohort—that they are snowflakes, that they are lazy, that they are narcissists—are really the result of the circumstances they were put in by their elders.

“Over the past 40 years,” Harris argues, “we have witnessed an accelerated and unprecedented pace of change” The capitalist system is one that is “based on speed, and the speed is always increasing.” This growth “requires a different kind of person, one whose abilities, skills, emotions and even sleep schedule are in sync with their role in the economy.”

When politicians, policymakers, and businesspeople talk in rosy terms about the need to develop “human capital,” Harris sees something nefarious going on. The forces of society have aligned to make us “think about young people the way industry and the government already do: as investments [or] productive machinery.”

The training begins very young: “In the shadow of this high-stakes rat race, child-rearing has gone from harm prevention to risk elimination.” The claim here will be familiar to anyone who has come into contact with children in the past two decades. More of their time is supervised. More is spent on homework and in organized sports and extracurricular activities than ever before. They have fewer opportunities to hang out with friends or simply pursue the activities that interest them. “American kids and teens, across race, gender, and class lines are spending less time doing things that make them happy,” Harris claims, “and more time doing things that make them especially unhappy.”

But is this really because we are more likely to see kids as “machinery” than we did in previous eras? Obviously not. When children were laboring on farms or in factories, they were also human capital, it’s just that they were much more expendable because we had more of them. Perhaps more of their time as eight-year-olds was unsupervised, but more of their time as 15-year-olds was spent in wage-earninedug work.

Now parents can focus all of their attention on one or two children, and if we don’t do everything in our power to make sure they finish college and are employable in a white-collar job, we have failed. Harris argues that this way of thinking is responsible for kids being assigned multiple hours of homework each night with little discernible impact on their educational performance. Meanwhile, the zero-tolerance policies at schools that can get kids suspended or kicked out for looking at another child the wrong way are secretly a way to make sure kids stay on the straight and narrow path to a productive job—a path that is laid out before kindergarten begins.

But while parents (and schools) may have made this their goal, society’s forces seem to have aligned to make that goal less attainable. Harris argues, correctly in my view, that throwing everyone into college and using government loans to pay for it has created a system stacked against the students: “As anyone who has seen an infomercial knows, affordability isn’t just about cost, it’s about the repayment terms.” He writes: “Washington’s program for higher education accessibility isn’t based on the ‘No one turned away for lack of funds’ logic of a punk show at a Unitarian church; it’s closer to ‘At no money down anyone can get behind the wheel of a brand-new Mustang.’ This is how the president can call an escalation in average student debt an achievement in accessibility.”

The president he is talking about is Barack Obama. Harris criticizes both Republicans and Democrats for the problems resulting from a push for universal higher education and federal financing of it. The ideas that supposedly alleviate the financial burdens—like letting students pay off a percentage of their income over long periods of time—are little more than indentured servitude to the government. Harris has a reasonable understanding of the perverse incentives and crony capitalism that have made much of higher education so expensive and so useless. But rather than conclude that maybe the government shouldn’t be in the higher education business at all, he blames corporate America for these problems.

Harris wonders about the purpose of this push for more college access. The jobs Americans have today are worse than before. They are working longer hours, for lower wages and less security. In a chapter called “Work (Sucks)”—I don’t understand the parentheses, either—Harris concludes that “the owners of land, real estate, stocks and bonds have increased their rate of gain at the expense of everyone else.” Moreover, “the path from worker to owner gets steeper and more treacherous, and since few Millennials are born with a stock portfolio, fewer of us will make it up the mountain than in past generations.” Finally, he suggests that there are a “sufficient number of Millennials … willing to do whatever it takes to be a winner in the 21st-century economy. There are many more of us willing to do the work than there is space on the victors’ podium.”

This last claim is especially odd, as a dip in the birth rate means there are fewer 18- to 25-year-olds than there have been in decades; colleges are actually scrambling to trim faculty in order to prepare for this baby bust. Maybe the post-college podium seems crowded, but in reality it hasn’t gotten worse. As for the idea that this generation wasn’t born with a “stock portfolio,” you may rightly wonder which one was.

Throughout Kids These Days, Harris returns to his worry that we are living in a gig economy, that too many of the costs of training for jobs, of getting into particular fields have been pushed onto the shoulders of individuals. Government is not picking up the slack—or not effectively—and neither are businesses. Sure, it’s nice that the barriers to entry have lowered—anyone can be a wealthy YouTube star now—but at what cost? It’s every Millennial for himself.

Again, we might ask: Compared with whom? Like many commentators on the left and the right, Harris seems to long for the America of the 1950s and ’60s. He sings the praises of days when union membership was higher. What Harris wants is “solidarity.” He is at a loss for how to regain it. At the end of the book, he advises readers that the usual liberal solutions are not going to improve our society. It won’t help to buy environmentally friendly products or give to charity—“a lot of nonprofit work … involves sucking up to rich people.” Forget about protesting—the police will outgun you and outlast you. Voting is nice but the system is rigged. He even throws his hands up at the favorite idea of keeping money out of politics—if people had the power to pass “a constitutional amendment to disconnect economic and political power, then we wouldn’t need the reform in the first place!”

The fact that Harris rejects these feel-good liberal impulses may give us hope that the Millennials might just develop some common sense after all. But the fact that Harris cannot think of a single thing people can do to improve their lot is also telling. There is no mention of religious communities or local politics. Forget about bowling leagues or other voluntary organizations—the idea of strengthening family bonds (or the idea that they have been weakened in recent decades) is completely absent. If Harris is right, the Millennial generation offers fertile ground for conservatives looking to recruit those who are tired of politically correct nostrums and who wonder if human beings might be more than cogs in a political and economic machine.

The House Ag Committee’s Farm Bill proposal improves SNAP, but not enough - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 19:25

The House of Representatives Agriculture Committee released its proposal for the 2018 Farm Bill this week. The legislation covers federal agriculture policy, but also provides re-authorization for the country’s main food assistance program, the Supplemental Nutrition Assistance Program (SNAP).

The SNAP portion of the Farm Bill makes a number of needed improvements, but notably misses the mark on strengthening the nutritional aspect of the program. Here are a few key takeaways:

While the SNAP portion of the Farm Bill makes a number of needed improvements, it fails to improve the nutritional aspect of the program. REUTERS/Mario Anzuoni

1) The proposal includes funding for two different approaches aimed at improving nutrition among SNAP participants. One involves a retailer-funded incentive program, where stores provide a bonus to SNAP recipients who purchase fruit, vegetables, or milk. The retailer-funded bonus would be reimbursed by the federal government. The second approach is to double-down on incentives and provide funding for states to offer incentives to SNAP participants to purchase fruits and vegetables.

Regrettably, the farm bill proposal includes nothing to test the impact of SNAP restrictions on nutrition and health. Past research already shows that incentive programs (such as the retailer-funded program) increases consumption of fruits and vegetables, but does nothing to reduce the consumption of harmful foods like sugary beverages. Not addressing the issue of sugary beverage consumption among SNAP participants in the farm bill misses a critical opportunity to improve the health of low-income households.

2) The farm bill proposal appropriately addresses the issue of “categorical eligibility.” Categorical eligibility is when a household is automatically eligible for SNAP because they receive a benefit or service from another means-tested program. This provision has been used in many states to eliminate the asset test for SNAP (see a good explainer here). The farm bill proposal makes it clear that categorical eligibility only makes a household eligible for SNAP if they receive a cash benefit from another program. Ultimately, this reflects the original intent of the provision, in which recipients of cash assistance from SSI or TANF are automatically eligible for SNAP, instead of allowing states to use it to expand SNAP eligibility.

The proposal also increases the asset limits from $2,000 to $7,000 and $3,000 to $12,000 for households without and with an elderly person, respectively. And it increases the vehicle allowance to $12,000. Increasing the asset limits is a fair approach to no longer allowing states to eliminate the asset test entirely.

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3) Under current law, states have the option of requiring that SNAP participants cooperate with the child support enforcement agency. The farm bill proposal eliminates the state option and makes it mandatory, similar to what is currently required in TANF. A report published in 2016 through AEI and authored by Dr. Daniel Schroeder called for something similar. As he concluded, this “would ensure the [child support enforcement] program would help keep families with children out of poverty and make sure absent parents meet their responsibilities.”

4) In perhaps the most consequential change, the proposal calls for extending work requirements in SNAP. Under existing law, adults aged 18–49 who are capable of work but have no dependents can only receive SNAP benefits for 3 months in a 36 month period unless they work or engage in a work activity for 80 hours in a month. The proposed farm bill extends these requirements to parents of school-aged children and up to age 60. It also requires that states offer services that satisfy the requirements and provides funding to help them do it.

This would be a major step forward in reorienting safety net programs towards work. We know that most SNAP recipients who are capable of work are already working or have worked in the past, but many are not. In fact, as my colleague Robert Doar pointed out in a recent testimony, more than 9 million SNAP recipients appear able to work but do not report earnings to the SNAP agency. An expectation of work and funding to support it, as proposed in the farm bill, could reduce that number, move even more families toward work, and ensure that SNAP supports work rather than enables unemployment.

One concern, however, is the ability of states to waive the work requirement when state unemployment rates are higher than the national average. This is currently allowed for adults without dependents and the farm bill proposes to extend it to those newly eligible for the requirement. But it unfairly benefits states with unemployment rates consistently higher than the national average. For example, California has not had a work requirement for more than a decade, even though the state unemployment rate is 4.3%. A better approach is to tighten the criteria for which a state can qualify for a waiver, perhaps by only allowing a waiver if a state has an unemployment rate 20% higher than the national average and greater than 8%.

Bottom line: The SNAP proposals in the farm bill have been criticized as too partisan, perhaps jeopardizing passage of other needed agriculture policy improvements. It remains to be seen whether House Republicans will compromise on some of these SNAP provisions to get a broader farm bill passed. But with the exception of not addressing the harmful effects of sugary beverages in SNAP, the House Agriculture Committee’s approach is a welcome change to years of ignoring the role of employment in SNAP.

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North Korea will be watching what Trump does in Syria - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 19:00

President Trump’s decision last year to launch 59 Tomahawk cruise missiles at a Syrian air base was intended to send the Assad regime a message that its use of chemical weapons would no longer be tolerated. But the strikes also had a broader purpose: showing other regimes that the Obama era of U.S. weakness was over, and that America’s adversaries would have to adjust their calculations about our willingness to act in response to their provocations.


Now, a year later, the Assad regime has reportedly defied Trump by its apparent launch of another chemical weapons attack. Once again, how Trump responds will have consequences far beyond Syria. With a high-stakes summit with North Korean dictator Kim Jong Un coming up, Trump needs to keep in mind how his next move in Syria will be seen not just in Damascus, Tehran and Moscow but also in Pyongyang. He should use his next strikes on Syria both to punish dictator Bashar al-Assad and to demonstrate to Kim what might happen to North Korea if it continues to pursue nuclear intercontinental ballistic missiles (ICBMs) that could destroy American cities.

Last year, Trump delivered a measured, proportionate response to Assad’s chemical attack, hoping this would deter the Syrian dictator. According to retired Gen. Jack Keane, former vice chief of staff of the U.S. Army, “What we shouldn’t do is another measured, proportionate response yet larger. That won’t deter him.” Instead, Keane says, “What we have to do is . . . destroy all his capabilities that deliver those weapons.” The United States should take out all of Assad’s rotary and fixed-wing aircraft, Keane says, and destroy all of his airfields, aviation fuel at those airfields, aviation maintenance equipment and aviation munitions. “If he still has artillery-delivered chemical weapons,” Keane says, “then we should take down his artillery as well.”

In other words, another “bloody nose” strike — even a bigger one — is not enough. We need to conduct large-scale operations that will destroy Assad’s weapons-of-mass-destruction capability. Such an attack would eliminate Assad’s ability to commit chemical weapons atrocities. Just as importantly, it would also provide an unspoken preview for Kim of what could happen to his nuclear and missile programs if he persists in developing and testing the capability to threaten the United States with nuclear destruction.

Sen. Lindsey O. Graham (R-S.C.) has suggested that Trump should also consider taking out Assad with a “decapitation” strike. “Assad and his inner circle should be considered war criminals, legitimate military targets,” Graham said this week. “If you have the opportunity to take him out, you should.”

Graham is absolutely right that Assad and his cronies are legitimate military targets, but Trump should hold off on such a strike — at least initially — and instead warn Assad that he reserves the right to hit leadership targets directly if he retaliates. Why? Because Trump wants Kim to see that a similar military operation against North Korea’s weapons of mass destruction would not necessarily result in regime destruction — as long as Kim does not retaliate.

By acting decisively in Syria, Trump also has an opportunity to send a message not just to North Korea but also to China that he is not bluffing when he threatens to act against Kim’s regime. Chinese President Xi Jinping was with Trump at Mar-a-Lago when he launched last year’s strikes against Assad, and the Chinese leader responded by stepping up economic pressure on Pyongyang. A large-scale operation to eliminate Assad’s capability to produce weapons of mass destruction would be a wake-up call to China that Trump is willing to take similar action against North Korea; it would also create an incentive for Xi to step up the pressure for denuclearization.

Trump also needs to stop talking about withdrawing U.S. forces from Syria. An American withdrawal would not only allow Assad to escalate his brutal campaign of atrocities in Syria, but also it would tell Pyongyang that Washington does not have the stomach to see its military campaigns through. If Trump can’t keep 2,000 U.S. troops in Syria, Kim would calculate, he would hardly have the fortitude to see through a much more difficult military intervention against North Korea.

Trump has an opportunity to end Syria’s ability to massacre innocent men, women and children with weapons of mass destruction. But he also has a chance to show Pyongyang before the summit meeting that his threats of military action are more than bluster.

The success or failure of that meeting depends on whether Kim believes Trump is serious about taking military action — which is why Kim will be carefully watching what Trump does next in Syria.

High on the hog: Rethinking earmarks and Congress - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 18:45

On this AEI Events Podcast, AEI hosts an expert panel to examine the merits and drawback of reintroducing, reforming, or avoiding congressional earmarking. This event is moderated by AEI’s Gary J. Schmitt, and participants include Jay Cost of the Weekly Standard, Jason Grumet of the Bipartisan Policy Center, and Frances Lee representing the University of Maryland College Park.

Congress approved a moratorium on earmarks in 2010 in face of accusations of wasteful spending and transactional politics powerfully invoked by the controversy over the “bridge to nowhere.” In the years since, Congress has suffered from an inability to solve hard problems. Numerous congressional reformers connect this gridlock in part to the absence of earmarks, which gave elected legislators “skin in the game” and an incentive to deliberate about bipartisan policymaking. Others argue that a return to earmarks will only complicate the legislative agenda and potentially further enhance the public’s skepticism about Congress and its members. Join the conversation here.

AEI’s Gary Schmitt makes the opening remarks (0:55), Frances Lee kicks off the discussion (5:38), Jay Cost shares his thoughts (16:39), Jason Grumet offers his take (32:19), Gary raises questions (42:49), and audience Q&A (1:00:34).

Watch the full event here.

Subscribe to the AEI Events Podcast on Apple Podcasts.

This event took place on March 20, 2018.

There is no one magic fix to american health care - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 18:03

Editor’s Note: This interview between April Xiaoyi Xu and Thomas P. Miller originally appeared in The Claremont Journal of Law and Public Policy on April 13, 2018. The original post can be seen here.

CJLPP: It has been announced that the Trump administration is cutting the Affordable Care Act’s advertising budget by 90 percent, as well as reducing spending on groups that help customers find the appropriate insurance plan. Do you think this will impact the effectiveness of the program? If so, how?

Miller: We have had some experience with that during this last enrollment season. They shortened the dates and did not put the same amount of money into the various groups that were engaged in the enrollment processes. Despite this we got about the same amount of people enrolling. It did not seem to make a difference because the biggest difference is how much you are being subsidized. The minimum is fairly high and it is not going to get much lower as long as the current subsidy structure remains in place. In the same way, reducing the enrollment period in half didn’t make a big difference because most of the people enrolled very early. There was not a great demonstration of the extra volume that came from those investments.

@jsdaniel via Twenty20

There are other parts of the healthcare system where we should be spending more money, with the goal of making it easier or practical for people to use it. This does not mean just enrolling them in an insurance plan. We have a very complex system, which is bizarre, confusing, and demoralizing to patients. Not only while you are in the hospital, but also when you are seeing a physician. Knowing that they are only able to communicate with you in the allotted three minutes that they have scheduled for you in their office. There is a very important and neglected aspect of healthcare, which is to make it practical, understandable, and workable for real people. That may involve public investment, because it will not come privately. Rather than try to add more extensive services that people either don’t know they have or don’t use, we should invest more on decision support and patient engagement. A worthwhile contribution would be to prioritize ways in which the system becomes real to people so that they can have a role, a voice, and a choice. However, we tend to have a lot of self-interested groups who make sure they get their operations funded, but don’t necessarily deliver the actual care that affects people’s real lives, for both health and economic reasons.

CJLPP: Continuing with the Affordable Care Act, the Trump Administration also decided to repeal the individual mandate. For those of us who are not familiar, what is the Obamacare individual mandate? And what does its repeal mean for Americans?

Miller: Well the individual mandate had a mixed progeny. It was put into the Affordable Care Act for multiple reasons but particularly as a way to derive a budget score. It did not work out that way, but that was just one part of it. The creators of the ACA were trying to throw together different items to create the pretense that everything was paid for and was offset with other revenues to pay for the expenses. Now it was never collected, but this scoring approach was another way to do a short-term fix. Also, those who like the Affordable Care Act and those who engineered it tell people not only is this stuff good for you, you don’t have any choice, you are going to have to get it anyway. And they were hoping that they would bring in people who would pay more for care than it was worth to them, mostly younger people or slightly up the income ladder, who didn’t think they needed as much health insurance, because they needed that money to pay for other people. That was the main engineering purpose of the individual mandate.

Now, let’s move over to reality. In practice, the individual mandate was the most disliked part of the Affordable Care Act, even by the people who were not even affected by it and already had coverage. People did not like the idea of being told they have to buy something as a government requirement. There were also legal arguments. I was involved in some of this litigation, which went up to the Supreme Court to determine whether it was unconstitutional or not. We got a split decision due to the oddities of Chief Justice Roberts. Because it is disliked, it was always a very weak individual mandate that acted as a suggestion. Once they ran into trouble, the Obama administration put in all kinds of special exceptions and exemptions from the mandate. In addition, there is an un-affordability part of it.  You are not subject to it if it costs more than a certain amount, if you don’t file taxes, or if your state didn’t pass the Medicaid expansion The actual numbers of people who were subject to the individual mandate would admit that they had not gotten the insurance on their tax forms and then paid the penalty.

So unsurprisingly, all the promises of the individual mandate did not materialize. It took a long time in the world of budgetary scoring for the Congressional Budget Office to recognize this. They began to recognize, “Oh, I guess we were a little on the high side there,” so they started marking it down. People are not going in the streets to say, “We have to get that individual mandate back.” The way it worked was, people enrolled in the exchanges if they were getting a lot of subsidies, and if they were not they didn’t. That was the magic, if you give people money, if you subsidize them, they will come—whether they like it or not. In my opinion the individual mandate was a bad idea and did not keep with our values and history. I would be opposed to it in theory and in principle. But I didn’t need to make those arguments. I wrote a lot about the individual mandate and all the practical impediments to it, and how the opposition had more than enough to kill it off.

CJLPP: Do you think the Affordable Care Act has shifted Americans expectations of government involvement in healthcare?

Miller: Yes, particularly in the beginning. Every time you establish a new program where it looks like someone is getting something for less than it costs and someone else is paying for it, it becomes difficult to take it away. Once the act is put into practice and implemented with a constituency, people are going to notice, “Wait a minute, I got this before and now you are going to take it away?” That is the politics of modern entitlements, which makes them hard to cut back. You can nibble at the edges but it is hard to usually go at it head on, short of major political or economic swings in a strong direction. Sometimes things get built into the scenery and become taken for granted. Then to change it is considered revolutionary and disruptive, or changing something that is already settled. This happens not just among patients and consumers, it is everyone who is feeding off of it. The healthcare community, which is getting more revenue as a result of the Affordable Care Act is saying, “This is what my business plan is and here is what my revenue prospects were, repealing this would upset everything so I am going to hold on for dear life to retain this.” So, it is easier to stop new additions than to take away ones that have been in place for a number of years. This is what the Republicans in office are finding out along the way.

CJLPP: Considering the publicly funded healthcare systems in much of Europe, do you think a similar system would ever be able to work for the United States? Why or why not?

Miller: We would have to camouflage this type of system even more than we currently do. We have a lot of government sponsored healthcare, directly and indirectly, and not everyone acknowledges it. If you add up Medicare and Medicaid and other lesser programs, you realize that about 45 percent of the healthcare dollar is already accounted for. If you add onto that the other ways in which the public sector is either indirectly subsidizing bills or controlling what is being bought and sold, you get well past 50 percent. So, that is where we already are. The question is how it will adjust in the future. We always try to mix and match. For instance in Medicare, we have a growing portion of Medicare called Medicare Advantage, which is a private-sector-like plan under a lot of public rules. It is not Medicare in the traditional sense, but rather looks more private compared to what it was a couple decades ago. It is growing, partly because it does a better job, and partly because more was invested in it compared to the old Medicare system. Medicaid has grown substantially under the Affordable Care Act, and that although the care is mostly brokered and managed by private insurance companies under state rules and state contracts, it is still more public than it is private. European or other public-sector countries have more faith and adherence to government regulation and are more bureaucratized and transparent.

The US likes some subsidies, we like regulatory advantages, and we often don’t look at the total balance sheet and realize how much of it is being run through our political processes. We are not Europeans, we don’t like to get on trains, we would rather get in cars. We are not as solidarity-oriented and collectivist as most of the European nations are. Now most European nations are not invested completely in state socialism either, if you do your research, you will find out that the private sector still plays some role, but they are further in that direction than we are. Also, we are less tolerant of explicit price controls. We like our price controls disguised a little bit.

CJLPP: Americans have shown considerable discontent with our country’s healthcare policy in recent years, whether that be insurance inequity, high costs or quality issues. In your view, what would be the ideal construction of healthcare policy in America?

Miller: I never worry about what an ideal construction in healthcare policy would look like. Our policy is so backward that any improvement will be a step in the right direction. Before we reach for the ideal, we need to start adopting better practices. Having said that, while we may not be good at producing a good healthcare system, we are excellent at producing healthcare system criticism. People will often draw a distinction between not liking their doctor or their health plan, and not liking the rest of the system. But at the same time, people do not want what they have to be disrupted. Generally, there are a lot of people who don’t like their healthcare whatsoever right now and have had bad experiences. Considering the history of healthcare, we have been on a slow slide downward, step-by-step, incrementally getting worse. If we want to improve it, we are going to have to climb that steep hill step-by-step, rather than thinking there is going to be one sudden breakthrough moment where everything changes and it all transforms magically.

CJLPP: Finally, do you have any advice for students looking to make a difference in US healthcare policy and law?

Miller: Do something different. We have tried almost all of the bad policies we could possibly imagine. So, don’t be afraid to suggest something different, it might not be new, but it might have been discarded or dismissed. Because most of what has been established as conventional wisdom has been wrong. And it has affected the lives of a lot of people. We have redirected resources that could have improved people’s health, improved their lives, and better matched what their values and preferences are. But, because policy is driven by people who are already doing quite well for themselves, important priorities often go overlooked.

CJLPP: Thank you very much for your time.

Five things that should top the US delegation’s Summit of the Americas agenda - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 16:04

This weekend, Vice President Pence and a US delegation that includes Senator Marco Rubio will travel to Lima, Peru for the Eighth Summit of the Americas. The Summit brings together heads of state from throughout the Western Hemisphere to address issues of common interest and offers an important platform for the US to engage the region.

Though President Trump’s absence will make it more difficult, Vice President Pence, Senator Rubio, and the other members of the delegation can still take advantage of the opportunity presented by this summit to achieve important goals and secure vital progress on key issues. REUTERS/Mike Brown

The White House recently announced that President Trump will not attend the Summit citing the US response to recent chemical weapons use in Syria. His absence will likely make it more difficult for the US delegation to achieve its goals and establish the close hemispheric cooperation required on concerns ranging from the crisis in Venezuela to trade. However, Vice President Pence, Senator Rubio, and the other members of the delegation can still take advantage of the opportunity presented by this summit to achieve important goals and secure vital progress on key issues. Here are five key areas where the US delegation should try to move the needle:

1) Transnational organized crime

Transnational criminal groups arguably pose the biggest threat to security and stability in the hemisphere. They are the driving force behind countless regional security challenges, from gang and cartel violence to insurgency, drug trafficking, and terrorist finance.

The Trump administration has made countering transnational organized crime a priority and has taken a forward leaning stance in working to counter the threat, particularly in Venezuela. But in order for the United States to effectively pursue the evolving threat of transnational organized crime, it will need to maintain and expand strong working relationships with the region’s governments. Increasing regional cooperation and establishing and updating legal frameworks for sanctions and countering illicit finance and terrorism should be key goals for the Summit.

2) Venezuela

One of the top matters of concern at the Summit will be the humanitarian disaster in Venezuela. There is little question that the continued rule of Nicolás Maduro and his corrupt narco-dictatorial regime is untenable. As Venezuela’s once-vibrant economy plunges further into the abyss, it is incumbent upon the region to address the collapse and punish the Maduro regime for its blatant attacks on human rights, the rule of law, and democracy.

The delegation should reiterate US support for efforts by the Lima Group and others to hasten peaceful, democratic change in Venezuela and urge the regional community to prepare an economic rescue package which can be implemented in a democratic, post-Maduro Venezuela. The delegation must also pursue a united strategy with the region’s leaders to punish the Venezuelan regime and its officials with sanctions and ensure that the regime is isolated both economically and diplomatically.

3) Refugee flows

The refugee crisis in South America is a direct result of the slow-motion collapse in Venezuela and it threatens to eclipse the refugee crisis stemming from Syria. Millions have already fled Venezuela and sought refuge in neighboring countries, particularly Colombia and Brazil. Refugees often end up in areas of those countries that are already struggling with poverty and a lack of state resources. To prevent the crisis from further destabilizing the region and overwhelming Venezuela’s neighbors, the US should continue to support efforts to resettle these refugees and work with other countries in the region to minimize the strain on Colombia and Brazil.

4) Trade opportunities

The Trump administration is purportedly interested in using the Summit to advance mutual trade interests and position the United States as the “partner of choice” for the attending nations. There are even indications that the administration is seeking a US return to the Trans-Pacific Partnership. Given its proximity and immense economic power, the United States has been a natural “partner of choice” for Western Hemisphere countries for many years.

Latin America accounts for anywhere from a fifth to a quarter of America’s international trade. And the president will be pleased to note that America actually runs a trade surplus with the region. Increased trading ties with allies like Colombia, Chile, and Argentina will be mutually beneficial and help counter growing Chinese influence in the region.

5) Curbing the influence of China and Russia

Shortly before announcing his departure, Secretary of State Rex Tillerson warned of the growing regional influence of Russia and China in Latin America, accurately stating that “Latin America doesn’t need new imperial powers that seek only to benefit their own people.” Tillerson is correct in that these authoritarian countries are seeking to engage further in the region for both political and economic reasons.

They are attempting to fill a perceived void left by a US pullback in engagement and trade in the region. The delegation should emphasize a desire by the US to begin filling the void back in. Unlike with these competitors, further American engagement in the region could help buttress democratic principles and promote much-needed legal reforms.

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Fed risks roiling global markets - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 04/13/2018 - 15:17

Normalising interest rates after several years of ultra-easy monetary policy was never going to be easy for the US Federal Reserve. The grim global political environment raises the difficulty level even further.

Interest rates around the world have dropped to levels that presuppose that risky borrowers will not face any major political or economic setbacks in the near future. This leaves the Fed with the narrowest of paths to tread. It needs to raise interest rates to curtail inflation. However, it needs to do so without causing disruptive credit repricing that could disturb financial markets.

Chairman Powell tours mHUB Chicago following a speech to the Economic Club of Chicago. Federal Reserve | Flickr

Developments in Italy, the euro area’s third largest economy and the world’s third largest sovereign bond market, with more than $2.5tn in outstanding debt, illustrate the trial facing the world’s major central banks. Ample global liquidity and bond buying by the European Central Bank has allowed the Italian government to borrow at 2% despite the country’s high public debt, unstable banking system and sclerotic economy. Strikingly, this is below the corresponding 3% rate at which the US government borrows.

A storm appears to be gathering in Italy just when the Fed might be forced to raise interest rates at a faster pace than intended and as the ECB is planning the conclusion of its bond buying programme. More than half of voters in the March general election supported populist anti-euro parties. This makes it all too likely that the next Italian government will be headed by either the eurosceptic Five Star Movement or the League. Neither of these parties are known for their support of budget discipline or economic reform.

Italy seems to be only the first of several systemically important countries that might face political setbacks in 2018. The left-leaning populist Andrés Manuel López Obrador is heavily favoured to win the Mexican presidential election in July. This could complicate negotiations with the US over the North American Free Trade Agreement and unsettle Mexico’s investment climate.

Brazil, Latin America’s largest economy, is similarly likely to suffer economic fallout following its general election in October. The country’s public finances are unsustainable, as evidenced by a budget deficit of close to 9% of GDP, and the Petrobras scandal has irreparably discredited the establishment political parties. Brazil will probably find itself saddled with a populist president who will be ill-equipped and unwilling to address its serious public finance issues.

All of this leaves Fed Chair Jay Powell with an unenviable task. He must find a way to raise interest rates to prevent President Donald Trump’s expansive budget policy from causing the US economy to overheat. Yet he must do so without unsettling major troubled countries abroad, which could roil overstretched global financial markets. It is a daunting challenge for the most experienced of policy-makers, let alone the nascent chair of the world’s most important central bank.

Desmond Lachman is a Resident Fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the Chief Emerging Market Economic Strategist at Salomon Smith Barney.


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