Mercatus Site Feed http://mercatus.org/feeds/home/publication/publication/feeds/matthew-mitchell en The Mercatus Center's Freedom in the 50 States Panel http://mercatus.org/video/mercatus-centers-freedom-50-states-panel <h5> Video </h5> <p><iframe width="560" height="315" src="//www.youtube.com/embed/xpC_7xCz_aA?list=PLS8aEHTqDvpIipLwtOZabr7T6OZ8fJYeZ" frameborder="0"></iframe></p> http://mercatus.org/video/mercatus-centers-freedom-50-states-panel Fri, 19 Sep 2014 15:56:58 -0400 Fixing the Federal Budget Featuring Jason Fichtner http://mercatus.org/video/fixing-federal-budget-featuring-jason-fichtner <h5> Video </h5> <p><iframe width="560" height="315" src="//www.youtube.com/embed/cSp-grHU3Kc" frameborder="0"></iframe></p> <p>In our Capitol Hill Campus course, Dr. Jason Fichtner walks through the steps that go into making the federal budget. From its beginnings in the White House, through the many roles Congress takes to authorize and enforce the budget, he navigated the twisting,&nbsp;puzzling conglomeration of&nbsp;bureaucratic steps, political goals, and&nbsp;accounting rules that go into making our government function.</p> http://mercatus.org/video/fixing-federal-budget-featuring-jason-fichtner Fri, 19 Sep 2014 15:47:03 -0400 A Sustainable Approach to Entitlement Reform http://mercatus.org/video/sustainable-approach-entitlement-reform-1 <h5> Video </h5> <p><iframe frameborder="0" src="//www.youtube.com/embed/-T34NgYf7ew" height="315" width="560"></iframe></p><p><span style="font-size: 12px;">Any credible plan to significantly improve the nation's fiscal outlook must address the greatest drivers of future debt: Medicare, Medicaid, and Social Security. But while the need for entitlement reform is no longer in question, policy makers are far from consensus on how, or even when, to begin.</span></p> <p class="p1">Featured speakers include Jason Fichtner, Charles Blahous, Robert Reischauer, and Alice M. Rivlin.</p> <p class="p3">&nbsp;</p> <p class="p3">&nbsp;</p> http://mercatus.org/video/sustainable-approach-entitlement-reform-1 Fri, 19 Sep 2014 15:38:51 -0400 Capitol Hill Campus: Drones, Bitcoin, And 3-D Printing: Regulating Emerging Technologies http://mercatus.org/video/capitol-hill-campus-drones-bitcoin-and-3-d-printing-regulating-emerging-technologies <h5> Video </h5> <p><iframe width="560" height="315" src="//www.youtube.com/embed/u3nauruofrM" frameborder="0"></iframe></p><p class="p1">Technology and innovation are driving forces behind economic growth. As technology expands, quality of life rises across the globe. New technologies always run the risk of having both good and bad uses, but we shouldn’t let fear of the bad prevent us from enjoying the good.</p> <p class="p1">Mercatus Center technology policy scholars Jerry Brito, Eli Dourado, and Adam Thierer discuss the emerging technologies of drones, Bitcoin, and 3D printing focusing.</p> http://mercatus.org/video/capitol-hill-campus-drones-bitcoin-and-3-d-printing-regulating-emerging-technologies Fri, 19 Sep 2014 11:30:01 -0400 Forfeiture and Criminal Proceedings http://mercatus.org/expert_commentary/forfeiture-and-criminal-proceedings <h5> Expert Commentary </h5> <p class="p1">You properly denounce Philadelphia's abominable practice of civil forfeiture to boost its revenues (<a href="http://online.wsj.com/articles/whats-yours-is-theirs-1409702898">"What's Yours Is Theirs,"</a> Sept. 3). Much blame for this frightening state of legal affairs belongs to the late Chief Justice William Rehnquist.</p> <p class="p1">The 1996 case <i>Bennis v. Michigan </i>upheld, by a 5-4 vote, the civil seizure of John and Tina Bennis's car after John pleaded guilty to—and paid a fine for—having sex with a prostitute in the car. The Supreme Court ruled that, according to the tradition of civil forfeiture, Tina Bennis's innocence of her husband's criminal actions didn't protect her from being stripped of her ownership share in the car. Writing for the majority, Mr. Rehnquist further argued that because civil forfeiture was part of Anglo-American common law when the Bill of Rights was ratified, the Constitution allows such civil seizures.</p> <p class="p1">But the chief justice's history was shoddy. When the Bill of Rights was ratified, civil forfeiture was used to seize the properties only of owners who were physically outside of the jurisdiction of a state or federal criminal court. People within an American court's jurisdiction—such as the Bennises in Michigan as well as the Sourovelises in Philadelphia—could be stripped of property only upon a finding of their personal guilt in a criminal proceeding.</p> http://mercatus.org/expert_commentary/forfeiture-and-criminal-proceedings Thu, 18 Sep 2014 11:20:52 -0400 News from Above: First Amendment Implications of the Federal Aviation Administration Ban on Commercial Drones http://mercatus.org/publication/news-above-first-amendment-implications-federal-aviation-administration-ban-commercial <h5> Publication </h5> <p class="p1">Unmanned aircraft systems, commonly referred to as “drones,” have recently become a focus of the media, the public, and policymakers because of their use by the US military. But public- and private-sector interest in domestic use of drones is also growing, especially in the field of journalism. In light of privacy and safety concerns raised by the new technology, the Federal Aviation Administration (FAA) has sought to establish standards that limit the use of drones for “commercial” purposes while allowing experimental and recreational use.</p> <p class="p1">In a new paper for the Mercatus Center at George Mason University, scholars <a href="http://mercatus.org/cynthia-d-love">Cynthia D. Love</a>, <a href="http://mercatus.org/sean-lawson">Sean T. Lawson</a>, and <a href="http://mercatus.org/avery-e-holton">Avery E. Holton</a> argue that the FAA’s actions to prohibit drone use by the media infringe on core First Amendment protections. The FAA should ensure that its efforts to regulate drones are consistent with constitutional principles. The agency should work with news media as key stakeholders in this discussion, and adhere to the Administrative Procedures Act by following a notice-and-comment rulemaking process, allowing all concerned parties, including amateur journalists and citizens, an opportunity to provide guidance about balancing safety, privacy, and freedom of the press.</p> <p class="p2">For the complete study, see “<a href="http://mercatus.org/sites/default/files/Love-Commercial-Drone-Ban.pdf">News from Above: First Amendment Implications of the Federal Aviation Administration Commercial Drone Ban</a>.”</p> <p class="p4">ADVANTAGES OF DRONES IN NEWS JOURNALISM</p> <ul class="ul1"> <li class="li5"><i>Unique perspectives.</i> Drones provide unique perspectives unattainable with other means of news gathering. For instance, they can provide access to the area over a natural disaster.</li> <li class="li5"><i>Safety.</i> Drones are also safer than traditional means of aerial news gathering: helicopters are far more dangerous to humans than unmanned drones.</li> <li class="li5"><i>Cost.</i> Operating helicopters is expensive, and ground reporting also often requires heavy, expensive equipment and manpower, while drones are relatively inexpensive to own and operate.</li></ul> <p class="p4">THE FAA’S DRONE DEFINITIONS AND ATTEMPTED BAN</p> <p class="p1">The FAA definition of an unmanned aircraft system is overly broad, including radio-controlled model aircraft (RCMAs). RCMAs, the type of drones used for journalism, may be no larger than the radio-controlled flying devices marketed as children’s toys, and generally do not meet the definition of an “aircraft” subject to FAA jurisdiction.</p> <p class="p1">The FAA’s broad definition of commercial activity makes no distinction between First Amendment–protected activity and nonprotected commercial enterprises. The primary way the FAA decides whether a drone is legal is by determining who will use it and why, not by checking its technical attributes or determining how, when, or where it will be used. “Commercial” uses of RCMAs, including journalism, must be approved by the FAA, but the FAA has not allowed aerial photography or news gathering.</p> <p class="p4">FIRST AMENDMENT IMPLICATIONS</p> <p class="p1">Aerial photography and videography are protected under the First Amendment’s free speech clause because they are part of the news-gathering process. The FAA’s requirement that journalists obtain a permit to fly a drone to gather the same type of information a member of the general public could use a drone to obtain without a permit is inconsistent with the First Amendment. Journalists have the same rights to access information as the general public, but the FAA’s regulation treats them differently.</p> <p class="p1">Moreover, the FAA’s regulatory scheme is not content neutral and is an unconstitutional prior restraint on speech:</p> <ul class="ul1"> <li class="li5"><i>It concerns a public forum.</i> The airspace within a public forum, where drones can fly for news-gathering purposes, is itself a public forum, and the government may only restrict the journalistic use of drones with content-neutral regulations of time, place, and manner.</li> <li class="li5"><i>It bans on the basis of compensation.</i> The current FAA regulation does not stipulate when, where, or how a drone may be used, nor does it distinguish between types of drones. Instead, the FAA’s ban focuses on whether compensation is involved. Given that journalists for traditional news media are often compensated—a significant incentive for news gathering under any conditions—the government cannot make this distinction a justification for prohibiting drone use.</li> <li class="li5"><i>It is not narrowly tailored.</i> The FAA’s regulation of drones is not narrowly tailored to protect public safety—the receipt of compensation is wholly unrelated to the safety of drone use.</li> <li class="li5"><i>It is a prior restraint on speech.</i> When the government seeks to stop speech before it happens, it bears a heavy burden in justifying the restriction. In order to enforce a permitting scheme, the government must provide narrowly drawn, reasonable, and definite standards for officials to follow. The FAA has failed to create these standards.</li></ul> <p class="p4">CONCLUSION</p> <p class="p1">The FAA’s attempts to prohibit the use of drones for aerial photography and news gathering violate the First Amendment, because journalists have a constitutional right to access the same information as the general public, and the FAA’s standards lack the rigorously defined, narrowly tailored restrictions the Supreme Court has required for restraints on speech.</p> <p class="p1">The FAA can reverse course by focusing on specific time, place, and manner restrictions, as the First Amendment requires—allowing the news media the opportunity to innovate and improve reporting while saving money and lives.</p> http://mercatus.org/publication/news-above-first-amendment-implications-federal-aviation-administration-ban-commercial Fri, 19 Sep 2014 14:18:59 -0400 Regulation, Media Mergers and the Consumers' Interest http://mercatus.org/expert_commentary/regulation-media-mergers-and-consumers-interest <h5> Expert Commentary </h5> <p class="p1">Leo Hindery Jr. gets it right when noting, "Consumers and viewers won't gain a thing from regulators blocking the media-distribution industry's natural evolution" (<a href="http://online.wsj.com/articles/leo-hindery-the-absurd-opposition-to-media-mergers-1410218261">"The Absurd Opposition to Media Mergers,"</a> op-ed, Sept. 9). But he misses two of the most important reasons why Chicken Little-ism about media mergers is unwarranted.</p> <p class="p1">Even when mergers don't make sense, the market does a better job than regulators of sorting the good from the bad. Remember AOL-Time Warner's 2000 marriage? Their shareholders certainly don't want you to. Regulators worried the sky would fall if they wed, but they divorced just a few years later after losing over $100 billion on the mega-flop. Likewise, <a href="http://quotes.wsj.com/NWSA">News Corp</a>'s <a href="http://quotes.wsj.com/NWSA">NWSA +0.26%</a> 2003 deal for <a href="http://quotes.wsj.com/DTV">DirecTV</a> <a href="http://quotes.wsj.com/DTV">DTV +0.25%</a>was a disaster, and DirecTV was spun off after three years.</p> <p class="p1">There is plenty of churn in the media world with old giants fading away and new players and technologies rapidly emerging. A decade ago nobody predicted that we'd be getting so much of our daily media diet from Google, Apple, Amazon, <a href="http://quotes.wsj.com/FB">FacebookFB +1.00%</a> and other Internet services. Now the old giants have to play ball with them, and there's never been more competition as a result.</p> <p class="p1">Regardless of who owns what, we're living in media's golden age, with unprecedented diversity and consumer choice.</p> http://mercatus.org/expert_commentary/regulation-media-mergers-and-consumers-interest Wed, 17 Sep 2014 14:23:28 -0400 The Medicare Cost Problem Remains Unsolved http://mercatus.org/expert_commentary/medicare-cost-problem-remains-unsolved <h5> Expert Commentary </h5> <p class="p1">On August 28 the <i>New York Times</i> published a provocative article entitled “<a href="http://www.nytimes.com/2014/08/28/upshot/medicare-not-such-a-budget-buster-anymore.html?_r=2&amp;abt=0002&amp;abg=0">Medicare: Not Such a Budget Buster Anymore</a>.” Its thesis was that Medicare no longer poses the budgetary threat it was projected to just a few years ago (the <i>New York Times</i> piece contrasts current projections with those made in 2006), thanks in part to the Affordable Care Act and other changes in the healthcare sector. After its publication, other commentators such as <a href="http://www.nytimes.com/2014/09/01/opinion/paul-krugman-the-medicare-miracle.html?_r=0">Paul Krugman</a> and those at <a href="http://www.vox.com/2014/9/4/6101835/five-reasons-health-care-is-no-longer-a-monstrous-budget-buster"><i>Vox</i></a> picked up the theme, with Krugman arguing that “our supposed fiscal crisis has been postponed, perhaps indefinitely” by the Medicare cost slowdown.</p> <p class="p2">These articles exhibit substantial confusion about the significance of recent changes in Medicare projections. Full understanding of these factors renders it clear that the Medicare cost problem (and the broader federal budget challenge) has not been solved:</p> <p class="p2"><b>#1: That current Medicare spending is lower than projected in 2006 is not significant in and of itself; virtually every relevant economic variable is also lower.</b> Measured in dollars, current Medicare spending is indeed smaller than the 2006 projections. But so is almost everything else pertinent, including cumulative general price inflation, tax revenue, and indeed our whole economy. To see this, let us look at total Medicare spending as a percentage of GDP. (I will use Medicare trustees’ projections rather than CBO’s as the <i>Times</i> did, because CBO made some earlier <a href="http://andrewgbiggs.blogspot.com/2009/06/cbo-clarifies-presentation-of-aging-and.html">mistakes</a> in their health spending analyses that were not corrected until current CBO director Doug Elmendorf came on board in 2009).</p> <p class="p3"><img src="http://mercatus.org/sites/default/files/chart-1-e21-blahous.png" width="480" height="360" /><br /><span style="font-size: 12px;">The reality shown in this graph is quite different from the impression formed by the </span><i style="font-family: inherit; font-weight: inherit;">Times</i><span style="font-size: 12px;"> piece. Yes, in 2006 we thought Medicare spending would be a lot higher than it is now. But we also thought our economy as a whole would be bigger and that Medicare would receive more revenue. As a share of the economy, current Medicare spending is only slightly smaller than expected in 2006. The graph also reveals two other key pieces of the story:</span></p> <p class="p2"><i>a)</i> Medicare spending jumped as a percentage of GDP in 2009 because GDP itself shrank with the recession. The more recent leveling on this graph reflects GDP resuming growth since then.</p> <p class="p2"><i>b)</i> Lower spending in year 2006 itself accounts for most of the subsequent drop relative to 2006 projections, indeed more than the combined effects of all annual changes since then. The 2007 <a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2007.pdf">Medicare trustees’ report</a> attributes the 2006 drop to a one-time “abrupt decline in the number of inpatient hospital readmissions.” That obviously has nothing to do with the ACA, enacted in 2010.</p> <p class="p2">Many of the same factors that reduced Medicare spending have reduced Medicare payroll tax revenue by even more. As a result the Medicare Hospital Insurance Trust Fund is actually in weaker condition than projected in 2006, not stronger. This next graph shows how despite starting from a stronger position, the HI fund has been depleting faster than then projected. Thus whatever factors have slowed Medicare HI spending are outweighed to date by the factors that have reduced HI tax revenues.&nbsp;</p> <p class="p3"><img src="http://mercatus.org/sites/default/files/chart-2-e21-blahous.png" width="480" height="360" /><br /><span style="font-size: 12px;">Clearly it is not telling the whole story to proclaim that slower Medicare spending growth is solving the program’s financial problems. As but one additional example, consider that at the start of this year the HI fund had </span><a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2014.pdf" style="font-size: 12px;">$205 billion</a><span style="font-size: 12px;"> in assets. In 2006 the trustees thought that number would be </span><a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/tr2006.pdf" style="font-size: 12px;">$270 billion</a><span style="font-size: 12px;">.</span></p> <p class="p2"><b>#2: Health cost inflation is not and never was the biggest problem projected for Medicare; population aging was, and that problem remains.</b> It is helpful to slow excess health cost growth but Medicare’s biggest source of financial strain is the sheer number of people coming onto its rolls. CBO estimates that only 33 percent of the growth in all major federal health program spending projected through 2039 is due to excess cost growth, population aging being a bigger factor. This is especially true for Medicare specifically because it serves the senior population.</p> <p class="p2"><b>#3: The ACA’s cuts in future Medicare spending do not translate into lower federal health spending overall, because the ACA spends those savings on expanding Medicaid and subsidizing coverage under new health insurance exchanges.</b> Analysts (including <a href="http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12033/12-23-selectedhealthcarepublications.pdf">CBO</a>) widely agree that the ACA will cut the growth of Medicare spending; they also agree that the ACA significantly increases total federal health spending. Instead of solving the problem of federal health spending driving budget deficits, the ACA shifts health spending from one program to another and does more of it.</p> <p class="p2"><a href="http://www.economics21.org/commentary/guide-2014-medicare-trustees-report">This year</a> the Medicare trustees (I am one, as are four members of the Obama Administration cabinet) lowered our projections for future Medicare spending growth relative to last year’s report. But the factors cited above are among the reasons why <a href="http://www.socialsecurity.gov/OACT/TRSUM/index.html">we also wrote</a> that “notwithstanding recent favorable developments… Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation.” And my fellow public trustee Robert Reischauer and I wrote in the same report, on the question of whether “a recent slowdown in national health expenditure growth may indicate less urgency in legislating Medicare financing corrections,” the answer is, “unfortunately, this is not the case.”&nbsp;</p> <p class="p2">Despite public statements to the contrary, the financial problems caused by rising Medicare spending are far from solved.&nbsp;</p> http://mercatus.org/expert_commentary/medicare-cost-problem-remains-unsolved Thu, 18 Sep 2014 11:33:46 -0400 More Sales Tax Exemptions, Higher Sales Tax Rates http://mercatus.org/publication/more-sales-tax-exemptions-higher-sales-tax-rates <h5> Publication </h5> <p class="p1">State and local governments often increase sales taxes to generate additional revenue; however, projections of added revenue tend to be over-optimistic, in part because sales tax exemptions tend to increase along with the tax rate. These charts illustrate the relationship between average sales taxes and exemptions among the states (five states without sales taxes were removed, as was Hawaii because of its complex tiered system).&nbsp;</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C1-salestax-Stratmann-large_0.png"><img height="397" width="585" src="http://mercatus.org/sites/default/files/C1-salestax-Stratmann-small.png" /></a></p> <p class="p1">The average sales tax rate is 5.6 percent, ranging from 2.9 percent to 7.25 percent. The average number of exemptions is 24 and ranges from 19 to 31. The analysis suggests that the addition of five exemptions is correlated with an increase in the sales tax rate of at least 0.5 percent, and vice versa. This means that if a state has a current sales tax rate of 5.6 percent and adds another five exemptions, the state can be expected to increase the sales tax rate to 6.1 percent. Conversely, if a state increases the sales tax rate, more lobbying by special interests in that state will likely lead to five additional exemptions.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/C2-salestax-Stratmann-large.png"><img src="http://mercatus.org/sites/default/files/C2-salestax-Stratmann-small.png" width="585" height="398" /></a></p> <p class="p1">Similarly, the second chart demonstrates the effect on the sales tax rate of adding or eliminating just one exemption. The estimates indicate that a one-unit increase in the number of exemptions is associated with an increase in the sales tax rate between 0.10 and 0.25 percentage points—depending on whether a “broad” or “narrow” measure of exemptions is used.&nbsp;</p> <p class="p1">Government agencies should consider this relationship between sales taxes and exemptions, and the unintended consequences that ensue, when making predictions. Changes in sales taxes can distort consumption of certain goods. Moreover, higher sales taxes tend to lead to increased lobbying activity, which creates additional distortionary effects on consumer choices and market transactions.&nbsp;</p> http://mercatus.org/publication/more-sales-tax-exemptions-higher-sales-tax-rates Wed, 17 Sep 2014 12:40:23 -0400 More Capital, Safer Banks http://mercatus.org/expert_commentary/more-capital-safer-banks <h5> Expert Commentary </h5> <p class="p1">Unless you’re on the receiving end, it’s hard to approve of corporate welfare like government decreed loan guarantees. That principle underlies recent debates my colleague, <a href="http://mercatus.org/veronique-de-rugy">Veronique de Rugy</a>, has taken part in over <a href="http://mercatus.org/publication/us-export-import-bank-review-debate-over-reauthorization">the Export-Import Bank’s future</a>. Similarly, unless you think your deposits lie in a troubled bank, it’s hard to approve of bank bailouts, such as those we saw after the 1982 Latin American debt crisis, the savings and loans crisis and now the most recent crisis. That principle underlies the “Wall Street vs. Main Street” debate.</p> <p class="p1">My colleague <a href="http://mercatus.org/matthew-mitchell">Matt Mitchell</a> points out <a href="http://mercatus.org/publication/pathology-privilege-economic-consequences-government-favoritism">there are many forms of corporate welfare</a>, including direct cash subsidies, government decreed loan guarantees, bailouts and expected bailouts. The 1971 bailout of Lockheed Martin appears to be the first for the U.S. government. Then, in 1984, we saw the U.S. government bailout Continental Illinois during the savings and loans crisis. Since then, it seems investors think politicians will bail out large banks, and politicians — knowing that voters don’t like this — look for ways to make it seem as if banks pay for those bailouts.</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2014/09/15/higher-capital-requirements-can-help-end-bank-bailouts?src=usn_tw">Continue reading</a></p> http://mercatus.org/expert_commentary/more-capital-safer-banks Tue, 16 Sep 2014 14:00:06 -0400 Debt and Deficits in CBO’s Updated Budget Outlook: 2014 to 2024 http://mercatus.org/publication/debt-and-deficits-cbo-s-updated-budget-outlook-2014-2024 <h5> Publication </h5> <p class="p1">This week’s charts use data from the Congressional Budget Office’s (CBO) recently released <a href="http://www.cbo.gov/publication/45653">update</a> to its Budget and Economic Outlook to show the trends and components of projected debt and deficit increases. The charts show that debt and deficits will continue to grow over the coming decade, although enacting certain policy changes—such as freezing most discretionary spending at current levels or extending expiring tax cuts—could over the next decade shrink deficits by $615 billion or add $897 billion to baseline deficit projections, respectively.&nbsp;&nbsp;</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/C1-Deficits-vero-CBO-large.png"><img src="http://mercatus.org/sites/default/files/C1-Deficits-vero-CBO-small_0.png" width="585" height="424" /></a></p> <p class="p1">The first and second charts display historical and projected trends in baseline federal debt held by the public and deficits, respectively, in real 2013 dollars. The third chart displays the cumulative fiscal effects of various policy changes that, if enacted, could increase or decrease projected deficits over the coming decade.&nbsp;</p> <p class="p1">The first chart shows the unprecedented growth in federal debt projected by CBO over the next decade. Our current debt level of $11.9 trillion is expected to reach $12.7 trillion by the end of 2014, after which debt will grow by an average annual rate of 4 percent. CBO projects that debt will exceed $18.6 trillion by 2024, which translates to a 46-percent increase in the debt in just a decade. If these projections come to pass, then federal debt will have grown by an astounding 1044 percent since the relatively modest $1.6 trillion debt level of 1974.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/C2.-Debt-vero-cbo-large"><img height="425" width="585" src="http://mercatus.org/sites/default/files/C2.-Debt-vero-cbo-small" /></a></p> <p class="p1">The second chart displays the actual and projected deficits or surpluses that influence the debt levels displayed in the first chart. The decline in deficits that began in 2010 is expected to continue for the next two years, but CBO projects that deficits will grow by an average annual rate of 3 percent over the next decade, increasing from $502.4 billion in 2014 to $867.5 billion by 2024. While deficits are projected to decrease slightly in 2017 and 2024, they increase overall by 73 percent by the end of the decade. However, CBO’s deficit projections could differ from actual deficits if certain policy alternatives take effect.</p> <p class="p5"><a href="http://mercatus.org/sites/default/files/C3-Cumulative-Deficit-Scenario-large.png"><img src="http://mercatus.org/sites/default/files/C3-Cumulative-Deficit-Scenario-small.png" width="585" height="424" /></a></p> <p class="p1">The third chart displays how the cumulative fiscal effects of each policy from 2015 to 2024 deviates from CBO’s baseline, along with the sum of all changes. In some cases, policy changes could improve the deficit picture. For example, if Congress decides to freeze discretionary spending for 2015 through 2024 at the nominal 2014 level, then CBO projects that cumulative deficits from 2015 to 2024 will be $615 billion less than the baseline scenario.</p> <p class="p2">Other policy changes could add to projected deficits and worsen the fiscal outlook. Maintaining the current Medicare payment rates for physicians would yield a cumulative deficit that exceeds the baseline by $131 billion. If Congress decided to extend expiring tax cuts or remove expected sequester cuts, then actual deficits would cumulatively exceed baseline deficits by $874 billion and $897 billion, respectively.&nbsp;</p> <p class="p1">The high debt levels that CBO projects will be a significant barrier to economic growth if not addressed. Policy changes that focus on improving the debt and deficit picture will therefore improve the United States’ prospects for economic growth as well.</p> http://mercatus.org/publication/debt-and-deficits-cbo-s-updated-budget-outlook-2014-2024 Wed, 17 Sep 2014 14:35:09 -0400 FCC Open Internet Reply Comments http://mercatus.org/publication/fcc-open-internet-reply-comments <h5> Publication </h5> <p class="p1">Designating Internet service providers (ISPs) as telecommunications providers and common carriers subject to Title II regulations contradicts the stated intention of Congress:</p> <p class="p2">It is the policy of the United States . . . to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.<sup>1</sup></p> <p class="p3">The Federal Communications Commission (FCC) should tread cautiously as it considers once again bringing ISPs and parts of the Internet under greater regulatory scrutiny. The regulatory zeal and mixed messages displayed by net neutrality supporters is alarming considering the stakes and should signal to the FCC that regulatory humility is called for.</p> <p class="p4">This reply comment argues that imposing regulatory burdens on ISPs and Internet companies would likely harm consumers and competition. Bringing ISPs under Title II’s obligations would also be legally unsound. First, as&nbsp;<span style="font-size: 12px;">commenters point out, the Internet functions very differently from telephone networks and common carriers. This has legal import and it is uncertain, to say the least, that the FCC could reinterpret the law, “reclassify” broadband provision as “telecommunications,” and have that designation upheld by a court. Second, years of carrier experimentation with priority traffic reveal that the “virtuous cycle” of online innovation is not harmed when ISPs engage in nonneutral behavior. That open Internet supporters cannot agree on whether and in what manner non-neutral behavior should be allowed reveals the ambiguity around priority treatment of broadband traffic. Because priority treatment tends to be used by smaller carriers serving consumers with idiosyncratic needs, regulators should permit nonneutral behavior except when it is anticompetitive or harming consumer welfare. Finally, Title II has several undesirable ancillary effects, including tacitly sending an encouraging message to illiberal foreign governments about Internet regulation.</span></p><p class="p1">DISCUSSION</p> <p class="p3">Though an effective rallying cry, there is no consensus about what “net neutrality” or the “open Internet” means when it comes to putting rules on paper. Professor Barbara van Schewick has said, “If there is no rule against blocking in a proposal, it’s not a network neutrality proposal. That’s the one defining factor that holds all net neutrality proposals together.”<sup>2</sup> That limitation—a no-blocking provision—is supported by nearly every commenter in this proceeding, including the ISPs. Agreement on what else neutrality requires is difficult to ascertain. Commenters’ demands for regulatory action under Title II of the Communications Act are many and often mutually exclusive, rendering the campaign spurring the FCC to act nearly incomprehensible. The motivating factor is not the legality and efficacy of Title II rules but a general sense of grievance towards ISPs. It should trouble the commission that there is no agreement on even basic facts about what the FCC should attempt to accomplish. Net neutrality proponents admit in this proceeding that while the open Internet debate originally focused on blocking and discrimination on the “last mile” connection between an ISP and its customer, “it has since evolved into a number of sub-debates,”<sup>3</sup> including interconnection, content delivery networks, data limitations, zero-rated applications, and even whether search algorithms need to be neutral. Those sub-debates themselves reveal disagreements in the general net neutrality community.</p> <p class="p4">Commenters favoring “strong” net neutrality—like Free Press and Netflix—unconvincingly assert that common carrier regulation is deregulatory.<sup>4</sup> This view is undermined, ironically, by the very commenters whipped into a frenzy by these net neutrality proponents. As one representative commenter says, “I support a Title II approach— we need more regulation.”<sup>5</sup></p> <p class="p5">Similarly, while Title II supporter Public Knowledge distances itself from designating broadband a public utility,<sup>6</sup> Popular Resistance, ColorOfChange.org,<sup>7</sup> and literally tens of thousands of commenters characterize net neutrality as making the Internet a “public utility regulated in the public interest without discrimination.”<sup>8</sup></p> <p class="p4">The FCC has confronted similar grievances before. Many parties bemoaned the purported loss of the “end-to-end” principle in the late 1990s and the FCC’s choice a few years later to decline to impose open access on cable modems.<sup>9</sup> Advocates wanted ISPs treated as Title II common carriers then. Many of their predictions about cable investment and broadband innovation proved incorrect,<sup>10 </sup>and the FCC should be skeptical of their repackaged arguments today.</p> <p class="p6"><a href="http://mercatus.org/sites/default/files/Skorup-FCC-open-internet-PIC-091514.pdf">Continue reading&nbsp;</a></p> http://mercatus.org/publication/fcc-open-internet-reply-comments Mon, 15 Sep 2014 16:25:14 -0400 Removing Roadblocks to Intelligent Vehicles and Driverless Cars http://mercatus.org/publication/removing-roadblocks-intelligent-vehicles-and-driverless-cars <h5> Publication </h5> <p><i>This paper has been accepted for publication in a forthcoming edition of the Wake Forest Journal of Law &amp; Policy.</i></p><p class="p1">Intelligent cars are possible today after decades of research and development in vehicle automation and computer processing. Advanced intelligent vehicle technology can bring significant economic and social benefits. Unfortunately, policymakers often impose “precautionary principle” policies on developing technology, stunting growth and discouraging innovation. Though it is well intentioned, trial-without-error policymaking results in fewer choices, lower-quality goods and services, and diminished economic growth. Regulators should not demand that developers prove that intelligent vehicle technology will not cause any harm.</p> <p class="p1">In a new study for the Mercatus Center at George Mason University, scholars <a href="http://mercatus.org/adam-thierer">Adam Thierer</a> and <a href="http://grad.mercatus.org/ryan-hagemann">Ryan Hagemann</a> argue that “permissionless innovation”—the primary driver of entrepreneurialism and economic growth in many sectors of the economy—should be the default principle for policymakers addressing the rise of intelligent vehicles. Any perceived or actual problems with new technologies can be corrected later through better-informed policymaking.&nbsp;</p> <p class="p2">For the complete study, see “<a href="http://mercatus.org/sites/default/files/Thierer-Intelligent-Vehicles.pdf">Overcoming Roadblocks to Intelligent Vehicles</a>.”</p> <p class="p3"><span style="font-size: 12px;">"PERMISSIONLESS INNOVATION” AND INTELLIGENT VEHICLES</span></p> <p class="p1">Policymakers should focus on clearing existing roadblocks to the development of intelligent vehicles, and exercise restraint regarding hypothetical concerns about their use. “Permissionless innovation” is the idea that experimentation with new technologies and business models should generally be permitted by default. Permissionless innovation brought the Internet, an open and lightly regulated platform that allows entrepreneurs to adopt new business models and offer new services without first seeking approval from regulators.</p> <p class="p1">Increased use of intelligent vehicle technology will bring social and economic challenges, but governments should maintain a flexible system that deals with real problems rather than hypothetical ones. Additionally, the problems that may arise due to intelligent vehicles should be understood in context. For example, in 2012, 33,561 people were killed and 2,362,000 injured in traffic crashes, largely as a result of human error. Reducing the number of accidents by allowing intelligent vehicle technology to flourish would be a success. If regulators hinder accident-reducing innovative technology, avoidable injuries and deaths will continue unnecessarily.</p> <p class="p4">ECONOMIC CONSIDERATIONS</p> <ul class="ul1"> <li class="li5">Driver errors resulting in accidents cost $300 billion annually in the United States. While intelligent vehicles will not be 100 percent accurate 100 percent of the time, they will likely achieve a level of control and awareness that no human could possess, thus reducing the economic impact of accidents. Additionally, insurance premiums could fall or even disappear entirely.</li> <li class="li5">Intelligent vehicles will also reduce congestion and lower fuel consumption. In 2011 congestion caused drivers to spend an extra 5.5 billion hours on the road and purchase 2.9 billion gallons of fuel at a cost of $121 billion. Intelligent vehicles will help reduce human-initiated driving errors, allowing vehicles to travel at higher speeds and closer together, reducing congestion costs.</li> <li class="li5">Increased use of intelligent vehicles may cause some sectors of the economy to change or disappear entirely, such as professional driving of taxis, buses, and trucks. However, policymakers should not choose winners and losers in the market; that benefits entrenched industries, not consumers. If regulators in the early 20th century had curtailed the development of the automobile for the sake of carriage drivers and woodworkers, whose livelihoods depended on horse-drawn carriages, the world might never have seen Henry Ford’s Model T.</li></ul> <p class="p4">SOCIAL CONSIDERATIONS</p> <ul class="ul1"> <li class="li5">A cultural shift toward roadways with entirely driverless vehicles will not happen overnight: comprehensive change takes time. As consumer demand for intelligent vehicles increases, market penetration will increase in proportion. While some may resist changing traditional cultural norms about hitting the “open road” as a driver, eventually most people will accept the benefit and value of accommodating a cultural shift.</li> <li class="li5">Security concerns may slow the adoption of intelligent vehicles, but concerns over remote car-hacking are likely overblown. Manufacturers have powerful reputational incentives to continuously improve the security of their systems and adopt best practices within the industry, much as the information-technology sector has taken steps to secure its networks. Legislation and regulation is unnecessary and could hinder growth in the industry.</li> <li class="li5">Intelligent vehicles also raise privacy concerns. Manufacturers and application developers would be wise to develop best practices for data retention, consumer consent to collection and sharing, and safeguarding collected data. But imposing burdensome privacy regulations during the development of this technology would create complex and costly tradeoffs, possibly resulting in higher costs for consumers, a decrease in content and services, and less competition in the market.<span style="font-size: 12px;">&nbsp;</span></li></ul> <p class="p4">EMBRACING CHANGE: GENERAL RECOMMENDATIONS TO PROMOTE INTELLIGENT VEHICLES</p> <p class="p1">The government’s approach here should be&nbsp; guided by humility and patience, allowing intelligent vehicle technology to develop while refraining from overbearing regulation. Lawmakers should sunset any laws that inhibit innovation and experimentation. Policymakers should also examine infrastructure and network operations, as well as licensing issues. In the private sector, businesses should work together and with policymakers to overcome hurdles to the widespread adoption of intelligent vehicle technology, and stakeholders should develop clear and fully transparent guidelines and best practices to allay safety, security, and privacy concerns.&nbsp;</p> <p class="p1">Additionally, government data collection should be constrained to the fullest extent possible. Consensual data collection should be allowed between consumers and producers of goods and services, which will translate to practical benefits, cheaper systems, and a more robust marketplace.</p> <p class="p4">CONCLUSION</p> <p class="p1">Policymakers should embrace permissionless innovation when dealing with intelligent vehicle technologies. They should not live in fear of hypothetical worst-case scenarios related to security, safety, and privacy. While disruptive at times, these new technologies will bring incredible economic and social benefits to society. In the near future, it will be very difficult to use a car to hurt yourself or others. The sooner that day arrives, the better.</p> http://mercatus.org/publication/removing-roadblocks-intelligent-vehicles-and-driverless-cars Wed, 17 Sep 2014 12:20:35 -0400 Why the Economic Gender Gap Will Eventually Close http://mercatus.org/expert_commentary/why-economic-gender-gap-will-eventually-close <h5> Expert Commentary </h5> <p class="p1">Debates over the supposed differences between men and women are a staple of pop culture. But two new books offer an economic look at the evidence, giving support to both pessimistic and optimistic perspectives on the direction of gender relations and the prospects for more fairness and equality.</p> <p class="p1">The first book, “<a href="http://press.princeton.edu/titles/10362.html">Why Gender Matters in Economics</a>” (Princeton University Press, 2014) by Mukesh Eswaran, an economics professor at the University of British Columbia, draws on data from past economic studies conducted under laboratory conditions to show how gender influences financial actions and relationships.</p> <p class="p1">In one set of these experiments, called the dictator game, women were found to be more generous than men. Players were given $10 and allowed but not required to hand out some of it to a hidden and anonymous partner.&nbsp;<a href="http://www.jstor.org/stable/2565789">Women, on average</a>, gave away $1.61 of the $10, whereas men gave away only 82 cents.</p> <p class="p1">In another test, called the ultimatum game, one player received $10 and then decided how much of it to offer to a partner. (Let’s say the first player suggests, “$8 for me, $2 for you.” If the respondent accepts the offer, that’s what each gets. If the respondent is offended by the unequal division or dislikes it for any other reason, he or she may refuse, and then no one gets anything.)</p> <p class="p1">The depressing news was this: <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.2001.tb00060.x/abstract">Both men and women</a> made lower offers, on average, when the responder was female. Male proposers offered an average of $4.73 to male respondents, but only $4.43 to women. More painful yet was the behavior of female proposers, who, on average, offered $5.13 to men but only $4.31 to women. It seems that women were seen as softies who were willing to settle for less — and the discrimination was worse coming from the women themselves.</p> <p class="p1">Another economic test involved a game in which players would fare best collectively if they cooperated, and yet individuals had an incentive to act more opportunistically for a higher payoff. The laboratory result was that women were more likely to start off by cooperating, but then would learn through bitter experience that they’d be taken advantage of if they continued to do so. By the time this game was played over multiple rounds, the initially cooperative behavior of the women <a href="http://www.sciencedirect.com/science/article/pii/S0167268199000384">converged into the more opportunistic behavior</a> of the men, but women’s initial reluctance to use cutthroat strategies still brought them losses.</p> <p class="p1"><a href="http://bit.ly/1wgs2WO">In another setting</a>, women seemed quite willing to compete against other women but much less willing to compete against men. And in yet another study, <a href="http://www.people.hbs.edu/kmcginn/PDFs/Publishedarticles/2005-Constraints%20and%20Triggers-Bowles%20Babcock%20McGinn.pdf">women negotiated harder</a> when they were working on behalf of others rather than for themselves, which implied a reluctance to push their own interests.</p> <p class="p1">In sum, these research results suggest that women are perceived as easier to take advantage of in a variety of economic settings. That’s the bad news, and it comes from measuring a difference in gender behavior at a specific point in time.</p> <p class="p1">There is greater cause for optimism, however, when we study changes over time. We find the more positive evidence in another new book, “<a href="http://press.princeton.edu/titles/10402.html">The Silent Sex: Gender, Deliberation and Institutions</a>” (Princeton University Press, 2014) by Christopher F. Karpowitz, professor of political science at Brigham Young University, and Tali Mendelberg, professor of politics at Princeton.</p> <p class="p1">Drawing upon data from politics, business meetings and behavior in the corporate boardroom, they portray a society where women participate less in many public settings, especially those in which real power is exercised. This links up with the experimental results described in Mr. Eswaran’s book, because an underparticipating group that doesn’t resist discrimination is more likely to suffer.</p> <p class="p1">This sounds gloomy so far. But the authors show that once women achieve a critical mass in a particular area, their participation grows rapidly, at least after basic norms of inclusion have been established.</p> <p class="p1">In fact, the general method of economics provides foundations for some feminist views. First, economics emphasizes that incentives matter and that incentives can be changed. These are common themes underlying feminist thought, which stresses how a fairer social environment can give people greater reason to choose better behavior.</p> <p class="p1">Second, the long-term response to a change in incentives is often much greater and more important than the short-term response. For instance, Mr. Karpowitz and Ms. Mendelberg show that, over time, men behave in a less stereotypically male way when more women are participating in an organization or an activity.</p> <p class="p1">As a former chess player, I am struck by the growing achievements of women in this great game — one in which men were once said to have an overwhelming intrinsic advantage. (Among the unproven contentions was that men were better at pattern recognition.) Although women were never barred from touching the chess pieces, strong female players were few in number.</p> <p class="p1">These days, many more women play very well, and the gap between the top men and women in the game is narrowing. <a href="http://skepchick.org/2014/04/guest-post-gender-inequality-in-chess/">The main driver of the change</a> appears to be that more and more women are playing chess, creating a cycle of positive reinforcement that encourages ever more women to excel. We’ve seen a similar dynamic in the workplace, as more women have made great strides in the areas of law, medicine and academia. And this process may spread to other sectors of the economy as well, such as technology industries.</p> <p class="p1">This longer-term, optimistic perspective has deep roots in economics, and was articulated eloquently in “<a href="http://www.gutenberg.org/ebooks/27083">The Subjection of Women</a>,” John Stuart Mill’s 19th-century essay. Mill said men and women were indeed different, but he saw the achievements of women as dependent on incentives and the work environment, which he thought could be improved beyond what most people in his day — and perhaps ours, too — could easily imagine. For all the sexist behavior we economists measure in the lab, the research around the bigger picture is supporting Mill’s optimism about a better world to come.</p> http://mercatus.org/expert_commentary/why-economic-gender-gap-will-eventually-close Mon, 15 Sep 2014 11:04:12 -0400 The War on Vertical Integration in the Digital Economy http://mercatus.org/publication/war-vertical-integration-digital-economy <h5> Publication </h5> <p><iframe style="border: 1px solid #CCC; border-width: 1px; margin-bottom: 5px; max-width: 100%;" scrolling="no" marginheight="0" marginwidth="0" frameborder="0" height="355" width="425" src="//www.slideshare.net/slideshow/embed_code/15232018"> </iframe></p><p>This presentation was delivered before the Southern Economic Association on November 16, 2012. Examines concerns about vertical integration in the tech economy and specifically addresses regulatory proposals set forth by Tim Wu (arguing for a "separations principle" for the tech economy) &amp; Jonathan ZIttrain (arguing for "API neutrality" for social media and digital platforms. This presentation is based on two papers published by the Mercatus Center at George Mason University: “Uncreative Destruction: The Misguided War on Vertical Integration in the Information Economy” &amp; “The Perils of Classifying Social Media Platforms as Public Utilities."</p> http://mercatus.org/publication/war-vertical-integration-digital-economy Fri, 12 Sep 2014 17:03:38 -0400 The Challenge of Benefit-Cost Analysis As Applied to Online Safety & Digital Privacy http://mercatus.org/publication/challenge-benefit-cost-analysis-applied-online-safety-digital-privacy <h5> Publication </h5> <p><iframe src="//www.slideshare.net/slideshow/embed_code/39018575" width="425" height="355" frameborder="0" marginwidth="0" marginheight="0" scrolling="no" style="border: 1px solid #CCC; border-width: 1px; margin-bottom: 5px; max-width: 100%;"> </iframe></p><p class="p1">"The Challenge of Benefit-Cost Analysis As Applied to Online Safety &amp; Digital Privacy." A slide show by Adam Thierer presented on January 17, 2012 before George Mason University Law &amp; Economics Center conference on Privacy, Regulation, &amp; Antitrust.</p> http://mercatus.org/publication/challenge-benefit-cost-analysis-applied-online-safety-digital-privacy Fri, 12 Sep 2014 16:59:15 -0400 Internet of Things & Wearable Technology: Unlocking the Next Wave of Data-Driven Innovation http://mercatus.org/publication/internet-things-wearable-technology-unlocking-next-wave-data-driven-innovation <h5> Publication </h5> <p><iframe src="//www.slideshare.net/slideshow/embed_code/39018957" width="427" height="356" frameborder="0" marginwidth="0" marginheight="0" scrolling="no" style="border: 1px solid #CCC; border-width: 1px; margin-bottom: 5px; max-width: 100%;"> </iframe></p> <p class="p1">"Internet of Things &amp; Wearable Technology: Unlocking the Next Wave of Data-Driven Innovation." A presentation by Adam Thierer made on September 11, 2014 at AEI-FCC Conference on "Regulating the Evolving Broadband Ecosystem."</p> http://mercatus.org/publication/internet-things-wearable-technology-unlocking-next-wave-data-driven-innovation Fri, 12 Sep 2014 17:05:00 -0400 The Debt Deniers Who Threaten America’s Future http://mercatus.org/expert_commentary/debt-deniers-who-threaten-america-s-future <h5> Expert Commentary </h5> <p class="p1">There is no shortage of both real and imagined crises vying for the headlines these days. Left relatively unchallenged, largely ignored, or often denied by Washington and the media, however, is one of the gravest internal, self-made threats to our economy: the crisis of government debt. Most economists agree that the United States federal debt poses a real and serious problem for our future, but for the debt deniers, such warnings fall on deaf ears.</p> <p class="p1">As the latest Congressional Budget Office (CBO) report notes, even with the recent—and temporary—decline in budget deficits, government debt continues surging to historic levels. In 2007, for example, debt owed to outside investors (called “debt held by the public”) equaled about 35 percent of the nation’s gross domestic product (GDP). Today this debt level is 74 percent—or nearly three-quarters the size of our entire economy—and is projected to grow larger from there.</p> <p class="p1">Yet even this is optimistic. It assumes Congress will maintain ambitious spending controls currently written in law, such as tight restraints on Medicare spending imposed by the Affordable Care Act. If Congress fails on even some of its savings promises, according to CBO estimates, debt could explode to twice the size of the entire economy in 25 years.</p> <p class="p1">Even President Obama’s 2010 bipartisan National Commission on Fiscal Responsibility and Reform acknowledged the gravity of the problem, warning: “America’s long-term fiscal gap is unsustainable and, if left unchecked, will see our children and grandchildren living in a poorer, weaker nation.”</p> <p class="p1">The Commission recommended that we sharply reduce tax rates (we haven’t), contain healthcare costs (we haven’t) and make Social Security solvent (we haven’t). In fact, some call for spending <i>more</i> on infrastructure, raising Social Security benefits, and boosting the prices consumers must pay for extensive and onerous regulations.</p> <p class="p1">Indeed, where Congress fails to pass desired spending bills; instead, it often accomplishes goals by passing regulations to control banking, health care, energy and the environment that raise prices for consumers in a still-suffering economy.</p> <p class="p1">We now have over one million regulatory requirements, and <a href="http://regdata.org/index.php?type=regulatory_restrictions&amp;regulator%5b%5d=0"><b>we are adding about 21,000 each year</b></a>. Far too often these regulations are passed without any evidence that they will accomplish anything and, in fact, may make matters worse with unintended consequences. Paying for them is no different from taxation except that the taxes are hidden and often regressive.</p> <p class="p1">Just how deep in debt are we? The nation today has a gross debt level (total deficits minus total payments out of surplus) in excess of $17 trillion and an astonishing gross debt-to-GDP ratio of more than 100 percent.</p> <p class="p1">There are lots of models to project the growth in the debt, but none of them projects a decline. If you add up all of our IOUs and liabilities, as economist <a href="http://mercatus.org/publication/assessing-fiscal-sustainability"><b>Laurence Kotlikoff’s recent research reveals</b></a>, our true fiscal gap exceeds a jaw-dropping $205 trillion. That’s more than $650,000 of debt for every American alive today. Much of this unseen debt lies in commitments the federal government made to seniors—such as health care and retirement benefits—but for which it has no plan to finance.</p> <p class="p1">Some debt deniers claim we can tax the rich to get out of debt. This is also wholly unrealistic. America’s rich simply aren’t rich enough to pay our massive debts. Economist <a href="http://mercatus.org/antony-davies"><b>Antony Davies</b></a><b> </b>points out that if we were to impose an effective tax rate of 88 percent on the top five percent of U.S. income earners, we could just barely balance the budget for <i>one year</i>. When France tried to pay off its national debt by imposing massive taxes on its richest countrymen, those citizens revolted by threatening to leave the country and take their riches with them.</p> <p class="p1">Rising debt levels threaten to drown our communities. States and localities that depend on the federal government during fiscal emergencies can no longer do so. But the debt deniers continue to argue that this spending is good for the economy and that every dollar the government spends “multiplies” into more wealth for the economy. They call it “investing.” Considering our fiscal and economic situation, it’s more accurate to call it “profligacy.” Ask any family how building up huge debts by spending more than they make is likely to work out for them.</p> <p class="p1">Economists cannot pinpoint when the debt-to-GDP ratio will make borrowing impossible and <a href="http://mercatus.org/publication/united-states-debt-crisis-far-solved"><b>force the United States into default</b></a>, like Greece. However, each day that we ignore the debt, our risk of drowning in it becomes more likely. It is time for the debt deniers to face facts so we can work together to solve this problem—before it’s too late.</p> http://mercatus.org/expert_commentary/debt-deniers-who-threaten-america-s-future Fri, 12 Sep 2014 15:14:28 -0400 Todd Zywicki Discusses, "Consumer Credit in the American Economy" on Wall Street Journal Opinion http://mercatus.org/video/todd-zywicki-discusses-consumer-credit-american-economy-wall-street-journal-opinion <h5> Video </h5> <iframe width="640" height="360" src="//www.youtube.com/embed/75PRVjAGTmo" frameborder="0" allowfullscreen></iframe> <p>Todd Zywicki Discusses, "Consumer Credit in the American Economy" on Wall Street Journal Opinion&nbsp;</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;640&quot; height=&quot;360&quot; src=&quot;//www.youtube.com/embed/75PRVjAGTmo&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/todd-zywicki-discusses-consumer-credit-american-economy-wall-street-journal-opinion Fri, 12 Sep 2014 15:25:56 -0400 Principles of a Privilege-Free Tax System, with Applications to the State of Nebraska http://mercatus.org/publication/principles-privilege-free-tax-system-applications-state-nebraska <h5> Publication </h5> <p class="p1">Nebraska is one of several states considering ways to make its tax code more efficient and fair. Every state’s code includes special privileges for politically favored industries, businesses, or groups of people, which typically require higher taxes on other economic activity.</p> <p class="p1">As economist Jeremy Horpedahl demonstrates, these tax favors have real costs for working taxpayers. In a new Mercatus Center at George Mason University study, he defines government-granted tax privileges and outlines key principles for reforming sales, property, and income taxes, and economic development tax incentives.</p> <p class="p1">The basic principle of a privilege-free tax system is simple: No individual or business should be treated differently from any other similarly situated individual or business. After removing privileges, policymakers should next lower tax rates across the board, in a way that applies equally to all taxpayers.&nbsp;</p> <p class="p1"><a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d807%2f%409-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4406508&amp;Preview=False&amp;DistributionActionID=20078&amp;Action=Follow+Link"><b><i>To read the paper in its entirety, click here</i></b></a><b><i>. See below for the author's case study on Nebraska, and for general principles all states can apply.</i></b></p> <p class="p2"><b>Case study: Nebraska</b></p> <p class="p1">If Nebraska eliminated tax privileges and used the resulting revenue to lower tax rates, the average family in the state would save over $3,200 dollars, with no reduction in government services or spending.</p> <ul class="ul1"> <li class="li3">Nebraska doled out over $2 billion in economic favors through its tax code in 2012, the latest year for which full data is available.<ul class="ul2"> <li class="li3">These privileges equal about ten percent of Nebraska’s total 2011 revenue, and about 29 percent of its total sales, income, and property tax collections.</li> </ul></li> <li class="li3">Sales tax favors accounted for $654.8 million of this figure—equal to about 27 percent of total 2011 sales tax collections.<ul class="ul2"> <li class="li3">Horpedahl recommends that Nebraska begin taxing services, which should not be distinguished from physical items for economic purposes.</li> <li class="li3">Tax exemptions on specific goods including fuel, groceries and motor vehicle trade-ins should be removed (the benefits these provide to the poor could be offset in other ways).</li> <li class="li3">Finally, taxes on intermediate business-to-business transactions should be eliminated, because these amount to double taxation after business-to-consumer transactions are taxed.</li> </ul></li> <li class="li3">Property tax favors accounted for $475.6 million.<ul class="ul2"> <li class="li3">These privileges take three main forms: the Homestead Exemption, Property Tax Relief Credit, and the 25% tax break for agricultural and horticultural land, which is treated differently than other business real estate.</li> </ul></li> <li class="li3">Income tax favors accounted for $841.5 million.<ul class="ul2"> <li class="li3">Horpedahl recommends removing itemized deductions that don’t apply equally to all Nebraskans, such as the Home Mortgage Interest Deduction.</li> <li class="li3">Expanding the state’s Earned Income Tax Credit could offset the costs of other tax reforms for low-income Nebraskans.</li> </ul></li> <li class="li3">Tax credits for economic development accounted for $123.3 million.<ul class="ul2"> <li class="li3">These incentives are so generous that Nebraska has the lowest effective tax rate for new businesses, but only the ninth-lowest for established businesses.</li> <li class="li3">Companies earned a total of $332 million in tax credits (not all of which have been spent yet). Together the used and unused credits equal 71 percent of the corporate taxes collected by the state since 2006.</li> </ul></li> </ul> <p class="p2"><br /> <b>Principles of a privilege-free tax system for all states</b></p> <p class="p1">The author estimates that nationwide, state tax privileges cost American taxpayers $432.5 billion annually—about 40 percent of the roughly $1 trillion they spend on federal tax expenditures.</p> <p class="p1">&nbsp;<i>Sales Taxes</i></p> <ul class="ul1"> <li class="li3">Intermediate business-to-business transactions should be exempt from taxation because different industries have different production processes which require varying amounts of transactions. Levying sales taxes only on final consumer purchases avoids this problem.</li> <li class="li3">There is generally no sound economic reason for treating services differently from goods. As the economy becomes increasingly service-based, state sales tax revenues as a percent of the economy will tend to decline, requiring higher taxes elsewhere to fund a given level of government spending.</li> <li class="li3">Exempting basic necessities like groceries from taxation, while well-intentioned, is not an effective method for assisting those in poverty. Better options include making Earned Income Tax Credits more generous.</li> </ul> <p class="p1">&nbsp;<i>Property Taxes</i></p> <ul class="ul1"> <li class="li3">The primary form of economic privilege found in the property tax is the practice of taxing property at different rates (or assessing it differently) based on how the property is used, such as differentiating between personal, business, and agricultural properties. It is somewhat strange to single out agricultural property as being distinct from business property.</li> <li class="li3">While a privilege-free property tax is ideal, a policy of property tax exemptions for low-income taxpayers would be preferable to current system.</li> </ul> <p class="p1"><i>Income Taxes</i></p> <ul class="ul1"> <li class="li3">Economic privilege in the income tax code arises when individuals or corporations are able to lower their tax burden by engaging in certain activities. Even if it does have some benefits for society, the costs must also be considered.</li> <li class="li3">One major example of privilege in federal and state income tax codes is the home mortgage interest deduction. This is the largest explicit form of tax privilege offered to individuals at the federal level, yet only about one-fifth of taxpayers take this deduction. The benefit for middle-class families (those with $30,000–$75,000 in annual income) is on average between $100 and $200. Meanwhile, about three-quarters of high-income taxpayers with more than $200,000 in annual income take the deduction, and receive almost $1,800 on average.</li> </ul> <p class="p1">&nbsp;<i>Economic Development Tax Incentives</i></p> <ul class="ul1"> <li class="li3">Tax incentives intended to spur economic development through job creation and increased economic activity are often justified by politicians on efficiency grounds. However, upon close examination, this is frequently overstated.</li> <li class="li3">Many state governments offer businesses that agree to relocate to their state the right to pay lower tax rates, or avoid one or more taxes, typically for a limited time. Most recent research suggests that, at least on average, these tax incentives do not pay off for local and state governments.</li> <li class="li3">Not only do bureaucrats lack the information to pick which companies will succeed, they may also lack the incentive due to the lobbying of potential beneficiaries. Thus, states may find it in their interest to avoid all such development-based tax incentives in a privilege-free state tax code.</li> </ul> http://mercatus.org/publication/principles-privilege-free-tax-system-applications-state-nebraska Tue, 16 Sep 2014 11:28:11 -0400