Mercatus Site Feed en America’s Crumbling Infrastructure? <h5> Expert Commentary </h5> <p class="p1">Most politicians and transportation interest groups claim that America’s infrastructure is in bad shape. At a recent House Ways and Means Committee hearing, Chairman Paul Ryan, R-Wis., said our roads and bridges are in “a sorry state.” At the same hearing Bill Graves, president and CEO of the American Trucking Associations, reported, “Two-thirds of highways are in poor or mediocre condition.”</p> <p class="p1">These statements are reinforced every time we drive over a pothole on the way to work. So it’s no surprise that many people think most roads in the United States are of poor quality. However, government statistics tell a different story. U.S. roads and bridges are not falling apart.</p> <p class="p1">Each year state transportation agencies provide the federal government with comprehensive data on highway and bridge conditions. Highway quality is measured by a surface roughness index. The lower the index score, the better the quality of the road. Roads with index scores below 95 are considered to be in good condition, while higher index scores below 170 are acceptable.</p> <p class="p1">The most recent data on highway quality is for the year 2012. The percentage of urban highways classified as either good or acceptable was about 80 percent in 2012, down about 5 percentage points from 10 years earlier. Some of the decline may reflect a postponement of maintenance during the great recession.</p> <p class="p1">Almost 97 percent of rural highways were classified as either good or acceptable in 2012. This is about the same as 10 years earlier. Even with the recent quality drop for urban highways, a high percentage of our highways are in good or acceptable condition.</p> <p class="p1">These figures mask the variation in road quality across states. For example, in 2012, almost 80 percent of Georgia’s urban highways were in good condition—the highest in the country—while about 15 percent of California’s urban highways were in good condition—the lowest in the country. Obviously, highway usage, weather conditions, and the quality of transportation agencies influence these figures. Using state-level quality figures, there is no statistical change in average urban and rural road quality over the 10-year period.</p> <p class="p1">Taking a longer-term perspective, economists at the Federal Reserve Bank of Chicago examined the quality of the interstate highway system for the period from 1980 to 2006. Using surface roughness index data provided by the government, they find the system’s road surface has become smoother and less deteriorated since the mid-1990s.</p> <p class="p1">Transportation agencies report bridges as either structurally deficient or functionally obsolete. A structurally deficient bridge is not considered unsafe, but it does imply a potential reduction in its load-carrying capacity and requires maintenance. A functionally obsolete bridge does not mean it fails to meet current design standards. It may simply mean that traffic flows over the bridge are more than expected.</p> <p class="p1">The quality of bridges in the United States has improved. Using the most recent data, in 2014, 4.2 percent of bridges were classified as structurally deficient, down from 5.7 percent 10 years earlier. There has been little change in the percentage of functionally obsolete bridges over this time span.</p> <p class="p1">Once again, there is variation across states. In 2014, for example, less than 1 percent of bridges in Texas were structurally deficient—the lowest in the country—while in Rhode Island, almost 24 percent were labelled structurally deficient. Conditions and management vary across states, but our bridges do not appear to be crumbling.</p> <p class="p1">If you Google “crumbling highways and bridges” you get quite a few hits. Yet government statistics suggest that our transportation infrastructure is not in bad shape. People’s personal experience partly explains the divergence between hype and reality. Another reason is that our elected officials in Washington can capture votes by sending gasoline tax dollars home. They have much to gain by pushing the idea that our highways and bridges are falling apart.</p> Mon, 29 Jun 2015 14:49:29 -0400 Expecting the Export-Import Bank to Expire <h5> Expert Commentary </h5> <p class="p1">On June 30, the Export-Import Bank of the United States — an agency that mostly extends loans and loan guarantees to large foreign companies to buy U.S. products — will most likely see its charter expire for the first time in 81 years. This state of affairs is nothing short of remarkable, considering that for years, Ex-Im's charter has been reauthorized by Congress without any debates or even formal votes. The change is the result of an intense fight between the people who oppose corporate welfare and those who will support it at any cost.</p> <p class="p1">However, it would be a mistake to see this battle against Ex-Im as an end in and of itself. It is not. The battle is better-understood in the context of a broader rejection of government-funded privileges for a handful of connected actors. Indeed, everywhere we look, big business is teaming up with big government, and that's causing big problems. People know this, and they're sick of it.</p> <p class="p1">Ex-Im is the epitome of that cronyism and has a charter that is set to expire, which is why it became such a great target. For instance, in recent years, some 60 percent of the bank's activities have benefited 10 giant U.S. corporations, with 40 percent benefiting one company alone: Boeing. On the foreign side, the cheap loans are extended to giant state-owned companies such as Mexico's petroleum company, Pemex, and the United Arab Emirates' airline, Emirates. When the Ex-Im financing isn't benefiting a state-owned firm, it is often flowing to very successful private firms with plenty of access to capital, such as the loan extended to the richest woman in Australia to finance her iron ore project at the expense of its U.S competitors.</p> <p class="p1">These Ex-Im companies may enjoy the perks of cheap financing and artificially inflated profits, but it's not fair for the 98 percent of U.S.&nbsp;exports generated without special treatment from the federal government. That's especially outrageous when the program has taxpayers on the hook for $140 billion.</p> <p class="p1">The Department of Energy's 1705 loan program falls squarely in that category. A few years ago, it received a lot of media and political attention when one of its recipients, a solar company named Solyndra, defaulted on its $538 million loan guarantee, leaving taxpayers with the tab.</p> <p class="p1">The overlooked scandal of the 1705, however, is that — as with the Ex-Im Bank — most of its beneficiaries are green energy projects backed by gigantic companies with plenty of access to capital, such as Goldman Sachs and NRG Energy.</p> <p class="p1">But cronyism goes beyond loan guarantees. A 2012 paper by budget analyst Tad DeHaven calculated that subsidies to businesses alone cost taxpayers almost $100 billion each year. The subsidies flow to air carriers, community developers, fisheries and wineries. There are also billions in subsidies to rich farmers, on top of such things as the bailout of the automobile industry, which ended up costing $9.26 billion.</p> <p class="p1">Whatever form it takes, this cronyism is harmful. As my colleague Matt Mitchell explains, "whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector."</p> <p class="p1">The American people are awakening to this reality, and many are demanding change. And they now have champions in Washington to make their voices heard. It's in that broader context that we should understand the battle against the Export-Import Bank. Indeed, I predict that lawmakers and lobbyists defending the many crony programs that exist today will soon find out that the opposition to the Ex-Im Bank is just the beginning.</p> Mon, 29 Jun 2015 14:37:21 -0400 Community Revival in the Wake of Disaster <h5> Publication </h5> <p><span style="font-size: 12px;">Rebounding after disasters like tsunamis, hurricanes, earthquakes, and floods can be daunting. Communities must have residents who can not only gain access to the resources that they need to rebuild but can overcome the collective action problem that characterizes post-disaster relief efforts.&nbsp;</span></p><p><i>Community Revival in the Wake of Disaster</i> argues that entrepreneurs, conceived broadly as individuals who recognize and act on opportunities to promote social change, fill this critical role. Using examples of recovery efforts following Hurricane Katrina in New Orleans, Louisiana, and Hurricane Sandy in Rockaway, New York, the authors demonstrate how entrepreneurs promote community recovery by providing necessary goods and services, restoring and replacing disrupted social networks, and signaling that community rebound is likely and, in fact, underway. They argue that creating space for entrepreneurs to act after disasters is essential for promoting recovery and fostering resilient communities.</p><p>Pre-order at <a href=";st1=9781137559715">Palgrave Macmillan</a> or <a href=";sr=&amp;qid="></a></p> Mon, 29 Jun 2015 13:54:06 -0400 Los Angeles Supporter and Friend Dinner <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Please join us for an intimate dinner and discussion with Dr. Don Boudreaux,&nbsp;Mercatus Center Board Member and&nbsp;Senior Fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This is not a fundraising event, and there is no charge to join us. We are pleased to have you as our guest to show our thanks and appreciation to our donors. Dress is business casual. Please invite friends or associates who might be interested.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">To RSVP for this event, please contact Caitlyn Van Orden at&nbsp;</span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><a href="" style="font-size: 12px; color: #666699;"></a>&nbsp;or (703) 993-4925.</span></p> Fri, 26 Jun 2015 13:22:27 -0400 Costa Mesa Supporter and Friend Dinner <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Please join us for an intimate dinner and discussion with Dr. Don Boudreaux,&nbsp;Mercatus Center Board Member and&nbsp;Senior Fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This is not a fundraising event, and there is no charge to join us. We are pleased to have you as our guest to show our thanks and appreciation to our donors. Dress is business casual. Please invite friends or associates who might be interested.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">To RSVP for this event, please contact Caitlyn Van Orden at&nbsp;</span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><a style="font-size: 12px; color: #666699;" href=""></a>&nbsp;or (703) 993-4925.</span></p> Fri, 26 Jun 2015 13:20:14 -0400 San Diego Supporter and Friend Lunch <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Please join us for an intimate lunch and discussion with Dr. Don Boudreaux,&nbsp;Mercatus Center Board Member and&nbsp;Senior Fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This is not a fundraising event, and there is no charge to join us. We are pleased to have you as our guest to show our thanks and appreciation to our donors. Dress is business casual. Please invite friends or associates who might be interested.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">To RSVP for this event, please contact Caitlyn Van Orden at&nbsp;</span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><a href=""></a> or (703) 993-4925.</span></p> Fri, 26 Jun 2015 13:16:52 -0400 Trans Fat Ban Just a Swing in the Dark <h5> Expert Commentary </h5> <p class="p1"><span class="s1">When in doubt, throw it out. That philosophy seems to be what’s driving the FDA’s policy on trans fatty acids, and, in all likelihood, it’s just wrong. Let’s untangle what has transpired and see why.</span></p> <p class="p1"><span class="s1">First, the FDA probably should have left a big win alone. When the FDA required trans fatty acids to appear on the Nutrition Facts Panel, the food industry reacted immediately – those who could find substitute fats did so, which caused consumption to drop by 80 percent. At the previous levels, there was pretty good evidence that consumption of trans fatty acids at high levels (4 grams) was associated with heart disease.</span></p> <p class="p1"><span class="s1">But what about current consumption at lower levels? The evidence is missing. One might wonder: If it’s bad for you in larger amounts, why isn’t it bad for you in smaller amounts? Well, water is obviously good for you in small amounts, but if you drink too much too quickly, you die.</span></p> <p class="p1"><span class="s1">It turns out that most of the things we eat are like that. Small amounts either pass harmlessly through your body or are good for you. Eat too much, too quickly, and it’s bad or lethal. Drugs are the same way: They may cure you in small amounts but kill you if you take too many of them. Radiation is also the same way; a lot will give you cancer or kill you, but a little bit (it turns out) is good for you. Even some very nasty things like dioxin and arsenic can be good for you at extremely low levels. Salt is necessary for life, but consuming too much is unhealthy.</span></p> <p class="p1"><span class="s1">Even though trans fatty acids likely follow the same pattern – being benign or helpful at low levels – we don’t know that, and we don’t know at what level that may be.</span></p> <p class="p1"><span class="s1">So, shouldn’t we just get rid of it? Probably not, for a couple of reasons.</span></p> <p class="p1"><span class="s1">First, it sets a bad precedent. It takes a nutrition issue and turns it into a safety issue. That’s what the Generally Recognized as Safe or GRAS law is about: safety. If we start doing that for other ingredients – particularly when we don’t have the science to back it up – we are opening up a huge can of worms. Apparently, there are lawyers out there who see this kind of thing as a golden opportunity.</span></p> <p class="p1"><span class="s1">The other reason goes back to missing science. What’s going to take the place of trans fatty acids when you ban it? The FDA doesn’t know, but it moved ahead anyway.</span></p> <p class="p1"><span class="s1">Ironically, this is how we got into this particular mess in the first place.</span></p> <p class="p1"><span class="s1">When food activists became concerned about saturated fat in animal fats in the 1970s, the industry went to vegetable oil but, to make it work, they had to use the hydrogenated variety. No one knew that’s what they were going to do, and no one tried to find out. The same people pushed the FDA to enact the current policy, and they don’t know what the replacement will be either. The good news is that after the labeling came out, the industry generally found better fats to replace trans. It’s not clear what the remaining firms are going to do since, if they could have easily replaced trans, they already would have. Will the replacement be better or worse? No one knows.</span></p> <p class="p1"><span class="s1">This is regulating in the dark. We don’t know if there are levels of trans fatty acids that are benign or perhaps even good for you – but the odds are that they exist. We don’t know what’s going to replace trans fatty acids. We don’t know how many wasteful lawsuits may drive food companies in other, potentially worse, directions. We don’t know how morphing what should be a nutrition policy into a safety policy will entice activists to agitate for more policies that move way ahead of science.</span></p> <p class="p1"><span class="s1">What we do know is that the moment we leave the necessary science and sound policy behind, it’s a crapshoot. If that’s what we are going to do, why we do we need “expert” science agencies?</span></p> Fri, 26 Jun 2015 11:16:56 -0400 State's Exports Won't Collapse If Ex-Im Bank Goes Away <h5> Expert Commentary </h5> <p>With its June 30 expiration date quickly approaching, there are very few working days left should Congress want to address the termination of the Export-Import Bank - a federal outfit that mainly extends loans and loan guarantees to successful, well-connected foreign companies. At the center of the debate has been House Financial Services Committee Chairman Jeb Hensarling, R-Dallas, who noted last month: "The American people do not want privilege and subsidy. What they want is freedom and opportunity." Chairman Hensarling was referring to Ex-Im's problematic, and often corrupt, history.</p><p><a href="">Continue reading</a></p> Thu, 25 Jun 2015 16:03:37 -0400 Mercatus' Graboyes on King v. Burwell <h5> Expert Commentary </h5> <p>Robert Graboyes, a health care economist at the Mercatus Center at George Mason University, had this to say about today's King v. Burwell ruling:</p> <p style="padding-left: 30px;">King v. Burwell is over. The Court has ruled for the defendants (Burwell), and from a rule of law perspective, that's an unfortunate outcome. But as for the fundamental dynamics of U.S. health care, the case was never going to change much. Since World War II, Left and Right have fought bitterly—and almost exclusively—over how to divide up existing health care resources through health insurance coverage. Both sides have obstructed the development of newer, better, and less expensive modes of care—technologies that can bring better health to more people at lower costs, year after year. (For a fuller explanation, see my work, "<a href="">Fortress and Frontier in American Health Care</a>")</p><p style="padding-left: 30px;">Nevertheless, King v. Burwell was an important case. As written, the Affordable Care Act (ACA) offers insurance subsidies only in states that establish their own health insurance exchanges—not in those using the federal government's exchange. But when most states declined to establish exchanges, the Administration decided to distribute subsidies through the federal exchange without clear legal authorization. Today's ruling means the federal government can continue paying subsidies as interpreted, not as written.</p><p style="padding-left: 30px;">With this ruling, the ACA’s status quo remains. In all states (and D.C.), ACA subsidies will be available to individuals. The ruling also preserves the employer mandate (which imposes significant financial and administrative costs on employers) and the individual mandate (which orders Americans to either buy insurance or pay a tax for not doing so).</p><p style="padding-left: 30px;">However, the ACA is still a troubled law. While’s consumer interface is operational, much of the site remains dysfunctional. Oregon spent $300 million only to have its exchange completely collapse. That state now uses Hawaii is terminating its failed exchange. Vermont recently abandoned its exchange-centered single-payer system. Exchanges in California, Colorado, Maryland, Massachusetts, Minnesota, and several other states are suffering serious financial and operational stress. Health insurance premiums nationwide are rising rapidly, and 2017 will likely see huge increases as federal subsidies to insurers end.</p><p style="padding-left: 30px;">The ACA is a massive law, written and passed in haste. Such procedural shortcuts yield unintended consequences and pose unanticipated risks to the American people. The real lesson of King v. Burwell is that transformative legislation should never be written or passed in extreme haste, nor imposed by a single party. Ignoring those principles assures that the Affordable Care Act will remain bitterly contentious and subject to additional litigation for years to come.</p><p><i>For more information, please contact Kyle Precourt at (703) 993-8196 or Camille Walsh at (703) 993-4895.</i></p> Thu, 25 Jun 2015 10:48:11 -0400 Tools for Tracking the Economic Impact of Legislation <h5> Events </h5> <p>Laws passed by Congress impact the economy, but Congress has no systematic way to comprehensively track and assess the economic impact of legislative actions. This is especially difficult when laws empower federal agencies to regulate. While the current budget process scores and tracks the economic impact of spending and taxes, it does not account for the economic consequences of regulation.</p> <p>The Mercatus Center at George Mason University invites you to join Dr. Jerry Ellig, Dr. Jason Fichtner, and Dr. Patrick McLaughlin for a Regulation University to discuss how the budget and regulatory process operate in isolation to each other, and reform options that could improve both systems.</p> <p>This program will:</p> <ul><li>Review the economic information that is important to a well-functioning budget and regulatory process;</li><li>Examine how the current legislative, budget and regulatory processes prevent Congress from knowing the economic results of legislation and regulation; and</li><li>Identify the elements that can improve Congress’s ability to define and oversee public policy priorities. </li></ul> <p>Space is limited. Please register online for this event.</p> <p class="p1">This event is free and open to all congressional and federal agency staff. Lunch will be provided. Due to space constraints, this event is not open to interns.&nbsp;<i>Questions? Please contact Samantha Hopta at </i><a href=""><i></i></a><i>.</i></p> Wed, 24 Jun 2015 15:45:06 -0400 The Challenge of Transparency in Taxation <h5> Publication </h5> <p><span style="font-size: 12px;">Fiscal illusion may not be a household term, but it is nothing new. Coined by Amilcare Puviani in 1903, </span><i style="font-family: inherit; font-weight: inherit;">fiscal illusion</i><span style="font-size: 12px;"> theorizes that the ruling class intentionally misleads the public by exaggerating the benefits of public services and obscuring the total tax burden. The theory was developed and popularized by economist James Buchanan in the 1960s as a way to better understand tax policies and outcomes. While fiscal illusion involves a </span><i style="font-family: inherit; font-weight: inherit;">systematic misunderstanding </i><span style="font-size: 12px;">of both expenditure and revenue policy, scholarly analysis has focused primarily on the revenue side through the examination of tax policies. This policy brief focuses on tax policy and its relationship with transparency as a means of possibly counteracting the effects of fiscal illusion.</span></p><p><span style="font-size: 12px;">While the federal government has taken the lead in implementing efforts toward greater transparency—for example, by creating the easy-to-access website to enable visitors to track the spending of stimulus money—state and local governments are following suit by providing more online information about how they spend taxes. Proponents of increased transparency in the public sector, including elected officials and citizens, believe that transparency is an important tool for holding governments accountable and reducing corruption. In a period when trust in government has hit a record low (24 percent in 2014 and a record low of 19 percent in 2013), increased transparency is viewed as a way of promoting trust and cooperation between government and its citizens.</span></p><p><span style="font-size: 12px;">Despite almost universal support for transparency, there is no clear way of efficiently and effectively achieving this goal. Many such efforts involve posting more information and data online, but data dumping by itself does little to increase transparency. For example, does making 10,000 pages of expenditure and revenue information available online further transparency when the pure volume of information makes it next to impossible for researchers to understand, much less find, what they are looking for? In response to concerns about data dumping, academics and nonprofits have attempted to categorize how open and accessible state websites really are. As of 2013, 43 states have created websites dedicated to fiscal transparency. In many of those cases, however, the fiscal data the states present are not easily accessible or digestible by either nonexperts or scholars—thus the websites are not successful at reaching the majority of the public. Exceptions include the states of Kentucky, Arizona, and New York, which not only present fiscal information on their websites but also provide video tutorials of how to navigate their sites.</span></p><p><span style="font-size: 12px;">Other common methods to increase transparency involve expanding citizen knowledge and participation in the budgetary process. This is done through information sharing in the form of budget briefs and participatory budgeting, whereby citizens choose how and where to spend a portion of their budgets (as is currently done in San Francisco, Vallejo [California], St. Louis, Chicago, New York, and Boston). Participatory budgeting allows citizen groups to create proposals and then vote on them directly, thereby taking control of a portion of government expenditures.</span></p><p><span style="font-size: 12px;">To date, most efforts toward greater transparency in the public sector have targeted the expenditure side of public spending while ignoring the revenue side. For example, in 2013, Michigan began to provide comprehensive line-item budget expenditure reports with expenditures characterized as core services, support services, or work projects. Given polling statistics showing that 76 percent of Americans believe government spends too much, this trend may not be surprising. Despite the lack of attention given to the revenue side, 72 percent of Americans report that the federal government needs to either completely overhaul its tax system or make major changes to it. Perhaps one reason for the emphasis on expenditures rather than revenues is that in many states, revenues are already subject to referendum and tax and expenditure limits and are therefore considered so restricted that states and local governments are less inclined to engage citizens in conversations about tax policy. Or it may be that concerns about accountability are primarily about how the money is being used—not how it is collected.</span></p><p><span style="font-size: 12px;">The lack of public discourse about revenue transparency does not mean that public revenues are at all transparent. This brief discusses revenue transparency with particular attention to what makes revenue instruments transparent, what the obstacles to transparency are, and some options for increasing transparency.</span><br /><br /><b style="font-family: inherit; font-style: inherit;">Transparency and the Fiscal Illusion</b><br /><span style="font-size: 12px;">Transparency in government can be understood as government providing data and information on its operations, management, and policies—that is, clear information on what it is doing and how. Advocates for transparency come from across the political spectrum, from normal citizens, and from numerous nonprofits.</span></p><p><span style="font-size: 12px;">Broadly speaking, a government’s revenues are transparent when people can understand their total tax burden, including fees and license costs. Fiscal illusion research is very concerned with the lack of transparency in government financing. Most research on this topic revolves around the tax burden and finds that fiscal illusion causes citizens to perceive their tax burden to be lower than it actually is. This misperception leads citizens to believe that government services cost less than they do, thereby creating demand for government services to be beyond what is socially optimal. This is troubling because there is also evidence that when citizens understand the true cost of government, their policy preferences change. For example, one study finds that the transparency of the local tax burden has a strong impact on citizen demand for redistributive policies: 90 percent of citizens supported a policy when the tax was opaque versus only 10 percent when the same tax burden was transparent.</span><br /><br /><b style="font-family: inherit; font-style: inherit;">Obstacles to Transparent Revenues</b><br /><span style="font-size: 12px;">There are many obstacles to making government revenues transparent. Some have to do with the nature of the revenue instrument while others are the result of policy choices or tax administration. An underlying reason is the high cost to citizens of getting complete information on their total tax burden. These costs, scholars have argued, lead citizens to choose to be “rationally ignorant” regarding their tax burden, which then allows governments to rely on deceptive or illusionary revenue instruments.</span></p><p><span style="font-size: 12px;">The difficulty of acquiring this information is due to several factors. First, many taxes or fees are paid throughout the year, so citizens who want to capture their full tax burden must carefully monitor each tax payment. Sales taxes are collected on the purchase of most commercial items (not all items, though; for example, many states do not collect sales taxes on food, and in some states food is taxed at the local but not the state level). This means that many Americans pay sales taxes multiple times a day, so to know their total tax burden they would have to keep track of every receipt and be mindful of the sales tax rates in their jurisdictions. This temporal spacing is most apparent in the sales tax, but other common examples are excise taxes (such as for gasoline or tobacco), tolls, park fees, and utility fees.</span></p><p><span style="font-size: 12px;">A second obstacle is the revenue complexity in the American system, in large part because there are a lot of taxes and fees that citizens pay. Fiscal illusion literature has shown that the tax system becomes more opaque as the number of revenue instruments grows. This problem is exacerbated by a reliance on taxes that are less visible and are spread out over time. This becomes especially problematic when citizens must pay the same tax in multiple jurisdictions and to various levels of government. Because citizens may pay federal, state, and even municipal income taxes, they need to understand how their burden is spread over multiple governments.</span></p><p><span style="font-size: 12px;">An additional obstacle is that some tax instruments are inherently less transparent than others. For example, the impact of sales taxes is attenuated by virtue of frequent payment, whereas property taxes, when not paid through escrow accounts, are more transparent because they are made known to taxpayers much less often, typically once a year. Many researchers of fiscal illusion theory point to the very transparency of property taxes as the primary reason why they are so unpopular. Similarly, income taxes </span><i style="font-family: inherit; font-weight: inherit;">should</i><span style="font-size: 12px;"> be transparent, but income tax withholding has made them more opaque. Taxpayers are not confronted with their tax bill and may not keep track of how that burden accrues over the course of the year.</span></p><p><span style="font-size: 12px;">Why would government make its revenues less transparent? The fiscal illusion literature would say policymakers make them less transparent to make them more politically palatable. Another explanation is that as policymakers implement changes to ease administration, a loss of transparency is simply a side effect.</span><br /><br /><b style="font-family: inherit; font-style: inherit;">Strategies to Increase Transparency</b><br /><span style="font-size: 12px;">What can be done to increase transparency on the revenue side? There are numerous strategies, but many are not feasible. For example, revenue systems would be more transparent if revenue instruments were used only by one level of government, not by overlapping jurisdictions. The more levels of government that share a tax base, the more difficult it is for taxpayers to track where their tax money is going, which in turn makes it difficult to hold the appropriate level of government accountable. Another strategy would be to limit the number of revenue streams used at each level of government. If states were financed exclusively by income taxes, citizens could calculate their tax burdens more easily. Under the current system, the citizen has to combine income tax burdens with sales taxes, excise taxes, fees, and so on.</span></p><p><span style="font-size: 12px;">There are more feasible ways in which governments could increase transparency. First, they could choose (if legally able) to rely on more transparent taxes. For local governments this could mean relying more heavily on property taxes and less heavily on sales taxes. Increasing property taxes would most likely be met with a good deal of opposition from the public. The literature provides evidence that more visible and transparent tax structures lead to increased rationality of policy outcomes, so facing the political backlash may be worth it. Furthermore, there is evidence that citizens are more willing to pay higher taxes (and trust elected officials) when fiscal institutions are more transparent.</span><br /><span style="font-size: 12px;">Other ways that government can increase revenue transparency are less structural in nature. Through increased citizen education and engagement, citizens can come to understand the ramifications of different revenue policies, including what their respective tax burdens actually are. Governments could provide taxpayers with “receipts” for different tax instruments, which break down how much of a citizen’s taxes goes to each government program. In November 2014, a bipartisan effort in Oklahoma, the Taxpayer Transparency Act, led to the creation of a taxpayer receipt. It is intended to foster understanding of how taxes support state government and to enable citizens to hold their elected officials more accountable—ultimately leading to superior outcomes. However, citizens must first know their tax burdens to input them into the tax receipt form and receive a breakdown of what their taxes are paying for.</span></p><p><span style="font-size: 12px;">One of the few other states to adopt a taxpayer receipt is Utah. The Utah system requires citizens to input their income tax burden on a receipt form, but it also allows citizens to estimate their own sales tax burden or provides an estimate based on a citizen’s income. While this system is imperfect—for example, it does not take into consideration family size or the individual taxpayer’s preferences or behaviors—it does provide a reasonable estimate of the taxpayer’s </span><i style="font-family: inherit; font-weight: inherit;">state</i><span style="font-size: 12px;"> sales tax burden, thereby increasing transparency of sales tax revenue. To make this process even more transparent, Utah could link to the receipt once income taxes are filed to use taxpayers’ personal information to populate the receipt, compare this information to the average burden in the state, and include estimates of all other taxes and fees.</span></p><p><span style="font-size: 12px;">Beyond creating a taxpayer receipt, few states and local governments are making an effort to increase revenue transparency. One exception is momentum toward shining a light on tax expenditures—that is, government spending through the tax code using various forms of tax breaks. While this approach does not directly help citizens understand their true tax burden, tax expenditures are not only a form of public spending; they also affect many aspects of tax policy and equity. For example, Massachusetts now publishes its tax expenditures budget, allowing taxpayers to view all tax expenditures and the magnitude of each. The budget focuses on expenditures from three categories of taxes: personal income tax, corporate income tax, and sales tax. Vermont passed a law in 2013 mandating that the government must evaluate and provide justification for all tax expenditures. While these efforts make substantial progress in making government more transparent, both governments and citizens need to do more to fight fiscal illusion as it applies to tax burdens.</span></p><p><span style="font-size: 12px;">Citizen outreach and education is difficult and costly. Governments have to use scarce resources to find ways to get citizens to engage. However, such efforts would be worthwhile if governments could inform citizens as to&nbsp;the scope of government activities, the reason government provides services and their benefits, and how much those services cost and how they are financed. Such knowledge, were it accessible, would allow citizens to make better-informed decisions about their desired level of taxes and services.</span></p><ul class="ul1"> </ul> Wed, 24 Jun 2015 15:05:59 -0400 America's Coming Transfer of Wealth <h5> Expert Commentary </h5> <p><span style="font-size: 12px;">Does it seem as if some lawmakers have the attention span of a toddler? Several years ago, concerns about the debt and overspending were all the rage. These worries have dissipated almost entirely as deficit levels have gone down from their sky-high summit in 2009. And just like that, lawmakers have gone back to overlooking our long-term fiscal situation and the unsustainable path the nation is on.</span></p><p><span style="font-size: 12px;">Case in point: the latest projections from the Congressional Budget Office. According to the CBO's annual Long-Term Budget Outlook, if current laws were to remain unchanged, government spending as a share of gross domestic product would reach 22.2 percent in fiscal 2025, up from 20.5 percent today. By then, even under a very rosy GDP growth scenario, the debt would amount to 78 percent of the economy. To put this number in perspective, the debt-to-GDP ratio was 35 percent in 2007. In 2040, the debt could reach a whopping 103 percent of GDP. Spending on interest alone would consume 4.3 percent of GDP, a dramatic increase above the current 1.3 percent. Putting that in dollar terms, interest on the debt would jump from $235 billion to over $2.2 trillion. That's a lot of money.</span></p><p><span style="font-size: 12px;">The deterioration comes fully from the explosion of major health care programs, Social Security and escalating interest on debt costs. More precisely, Medicare, Medicaid, Affordable Care Act subsidies and Social Security are the drivers of our future debt. Spending on these programs alone could reach 11.8 percent of GDP in fiscal 2025 and 14.2 percent of GDP in 2040, up from 10.1 percent today.</span></p><p><span style="font-size: 12px;">Because spending on entitlements will continue to outpace all other spending for years to come, they will consume a large and increasing share of the budget. In layman's terms, it means that the future of our government will be mostly to spend money on older Americans for their retirement and health care.</span></p><p><span style="font-size: 12px;">Despite federal revenues slightly increasing during the coming decade, the government could still run cumulative deficits of $7.4 trillion over that 10-year period, according to CBO forecasts.</span></p><p><span style="font-size: 12px;">Of course, all of the policy uncertainty in Washington, not to mention the CBO's required current law projections, will not yield perfectly accurate forecasts. If lawmakers were to make changes to current law — say, repeal the sequester cuts or scheduled tax increases or fail to implement some of the "savings" in the president's health care law — then deficits and debt would be significantly higher than the amounts reported under the current base line.</span></p><p><span style="font-size: 12px;">For example, under the alternative scenario, the CBO projects that debt would reach 86 percent of GDP in fiscal 2025, and spending would be 22.9 percent of GDP. In 2040, debt as a share of GDP would be an unimaginable 156 percent. And of course, the more debt you have the more interest you pay. Interest on the debt would equal 6.3 percent of GDP, or $3.2 trillion.</span></p><p><span style="font-size: 12px;">Now, if you are not freaked out enough, the CBO also looks at the negative impact on the economy of accumulating such levels of debt. In that scenario, higher debt means lower growth, and that increases our debt to 175 percent of GDP.</span></p><p><span style="font-size: 12px;">And who do you think is going to shoulder this lower growth and higher debt? The younger generations will. Without any changes to our enormous entitlement programs, we are about to witness the most massive transfer of wealth from the relatively poor and young to the relatively rich and old in society. It is time for members of Congress to stop acting like toddlers and refocus on changing the path we are on.</span></p><ul class="ul1"> </ul> Wed, 24 Jun 2015 13:08:53 -0400 Sharing Economy Innovators Shouldn't Be Shackled by Rules for a Bygone Era <h5> Expert Commentary </h5> <p class="p1">Whether or not you're a father who received a new table saw for Father's Day, you can still enjoy the smell of fresh sawdust thanks to the rise of the sharing economy.</p> <p class="p1">Communication innovations like the Internet, smartphones and the emergence of platform firms (like Craigslist, eBay, Airbnb and Uber) allow greater individual-to-individual communication than ever before. This expands each person's social network and the corresponding informal economy, lowering the cost of access to goods and services – especially those that we only occasionally need – and enhancing our quality of life by freeing up money and resources to be spent on other things.</p> <p class="p1">A great example of this is the humble stud finder. Most of the time stud finders simply occupy space and get in the way of finding your other tools, but when you want to hang your new flat screen TV they are absolutely indispensable. Before the advent of the sharing economy this meant that most households ended up with their own combination stud finder/dust collector. Now with smartphone apps like <a href="">1000 Tools</a> and <a href="">NeighborGoods</a>, rather than paying $20 for something that you only use a couple times each year (at best), the option exists to borrow or rent it from a nearby neighbor for a couple dollars. Even better, you could rent out your own and turn your dust collector into a money-maker.</p><p class="p1"><a href="">Continue reading</a></p> Wed, 24 Jun 2015 18:28:52 -0400 The Effect of Property Reassessments on Fiscal Transparency and Government Growth: Evidence from Virginia <h5> Publication </h5> <p class="p1"><b>I. Introduction</b></p> <p class="p1">The conventional view of real property tax that is taught in most American public finance textbooks states that, unlike the case with taxes on flows of exchanges, the valuation of the taxable property stock (i.e., property assessment) is irrelevant to the revenue it produces. Barring special legislation that seeks to link property values to property tax revenues, the primary purpose of property assessment is simply to maintain a distribution of the tax burden that is proportional to the share of property assets across taxpayers. The nominal property tax rate, as Netzer (1964, 207) explains, “is essentially a residual, derived by determining the level of expenditures, subtracting state aid and other non-property tax revenues from budget outlays, and comparing the remainder with assessed values. .&nbsp;.&nbsp;. Assessed values are no more ‘actual’ as determinants of property tax yield than are a number of other factors.” Of course, this process is often confusing to the public, perhaps because the more frequent exposure to tax rates on market exchanges (e.g., sales or income taxes) results in an emphasis on monitoring rates as a signal for public revenue growth. There has been mounting empirical evidence (e.g., Mikesell 1978, 1980; Bloom and Ladd 1982; Ladd 1991; Ross and Yan 2013; Brien 2014; Ihlanfeldt and Willardsen 2014) against this residual view of property reassessment as a budget-neutral process, and researchers are finding instead a propensity for property tax revenues to grow with these events.</p> <p class="p3">This paper is intended to extend the literature on property reassessment and property revenue into a broader test of the effect of fiscal illusion on public-sector growth. Fiscal illusion posits an asymmetry between citizens and their government representatives that results in the growth of government. The theory states that public-sector agents will seek out instruments that cause taxpayers to underestimate the cost of government and increase budgets beyond what would have been approved if this cost were fully perceived. There are numerous hypotheses within this theory over the specific mechanisms for raising funds and distributing them. On the expenditure side, public choice theory generally predicts that politicians will favor visible spending programs for which they can take credit, but scholars have pointed out that this hypothesis is less likely to be true if the expenditure draws visibility to the revenue side (e.g., Turnbull 1998). There are several hypothesized mechanisms in fiscal illusion theory by which fiscal resources could be raised, including the use of public debt and the complexity of the tax system, among others. The administration of the property tax in local public budgeting is particularly well suited for testing the revenue elasticity hypothesis of fiscal illusion. This hypothesis posits a mechanism in which taxpayers confuse tax rates for tax bills, and as a result, growth in the tax base is more apt to become new spending rather than a reduction in the tax rate.</p><p class="p1">As Oates (1975, 141) explains:</p><blockquote><p class="p1">What the proposition under study seems to imply is that people will not object to increases in public expenditure if they can be funded with no increase in tax rates (that is, from increments to revenues resulting solely from growth in income), but they will not support an expanded public budget if it requires a rise in tax rates. This suggests what people care about is not their tax <i>bill</i>, but rather their tax <i>rate</i>. Viewed this way, the hypothesis simply is not consistent with our conventional description of rational behavior; it implies that consumer-taxpayers are subject to a kind of “fiscal illusion.” (original emphasis)</p></blockquote> <p class="p1">One of the empirical challenges of the revenue elasticity hypothesis is that it usually results in legislative transaction costs that are difficult for researchers to observe; hence, the lack of rate changes in response to base growth might be rational adherence to voter preferences rather than indulgence in the voters’ misperceptions of government cost (Wagner 1976). Although state policymakers may incur separate deliberation costs for expenditures and appropriate tax rates, the residual rule in local government has no such distinct legislative costs because the rates are automatically calculated on the basis of the adopted budget, which rules out these transaction costs as a competing explanation for rate persistence.</p><p class="p3"><a href="">Continue reading&nbsp;</a></p> Tue, 23 Jun 2015 09:42:44 -0400 “Information Sharing”: No Panacea for American Cybersecurity Challenges <h5> Publication </h5> <p class="p1">As the number and cost of information security incident failures continue to rise, the federal government is considering legislative responses to address national cybersecurity vulnerabilities. Federal proposals from the executive and legislative branches emphasize increasing “information sharing” about cyberthreats among private and public entities to improve system preparedness. However, preexisting government, public-private, and private sector information sharing initiatives have not succeeded at preventing cyberattacks as proponents of these initiatives allege. Additionally, longstanding federal information security weaknesses render the federal government an especially poor candidate to manage large amounts of sensitive private data, as the recent massive information breach of the Office of Personnel Management (OPM) demonstrates.</p> <p class="p2">After briefly outlining the current cybersecurity information sharing proposals, we will examine the performance of the many similar programs that the federal government has operated for years. The government’s inability to properly implement previous information sharing systems even internally, along with its ongoing failures to secure its own information systems, casts doubt on the viability of proposed government-led information sharing initiatives to improve the nation’s cybersecurity. We will then examine the flawed assumptions that underlie information sharing advocacy before exploring solutions that can comprehensively address the nation’s cybersecurity vulnerabilities.</p> <p class="p2"><b>What Do Information Sharing Initiatives Propose?</b></p> <p class="p2"><b> </b>The premise behind cyberthreat information sharing initiatives is that network administrators who notice a new kind of attack or vulnerability can help others to defend against intrusion by quickly publicizing the discovery. In practice, however, private entities can be reluctant to share such threat information for several reasons, including their desires to protect customer privacy, trade secrets, or public reputation. Advocates argue that the federal government can increase information sharing among entities, and therefore improve cybersecurity, by extending legal immunity to private corporations that share private customer data with federal agencies in a compliant manner.&nbsp;</p> <p class="p3">Several such proposals have been introduced this year. The House of Representatives passed the Protecting Cyber Networks Act in April of 2015, which would shield private entities that shared cyber threat indicators with federal agencies from legal action by aggrieved parties. The Senate’s version of an information sharing bill, the Cybersecurity Information Sharing Act (CISA), proposes similar policies. On the executive level, president Obama proposed a plan to promote information sharing among private and public entities and created through executive order a new Cyber Threat Intelligence Integration Center (CTIIC) to coordinate information sharing under the Director of National Intelligence (DNI). The Department of Homeland Security (DHS), Department of Defense (DOD), Department of Justice (DOJ), and DNI would be empowered to receive, analyze, store, and disseminate sensitive threat data from private entities to varying degrees under each proposal. In contrast, members of the House who see protecting strong encryption as a solution to strengthen both privacy and security have passed an amendment to the Commerce, Justice, and Science appropriations bill to prevent the National Institute of Standards and Technology (NIST) from weakening encryption standards. While information sharing proposals are currently intended to be voluntary, some have suggested that such initiatives will not work as intended unless made compulsory. On the other hand, sharing cyberthreat information with government agencies raises concerns from privacy and civil liberties groups, even when sharing is nonmandatory. Laws like CISA could open another channel for intelligence agencies to extract private data for criminal investigations completely unrelated to cybersecurity.&nbsp;</p> <p class="p2"><b>Existing Federal Sharing Programs Have Not Worked</b></p> <p class="p2"><b> </b>Information sharing initiatives are not novel. A 1998 presidential order authorized the formation of public-private partnerships to share threat information within critical infrastructure industries. Dozens of such Information Sharing and Analysis Centers (ISACs) have coordinated cyberthreat information flows among public and private entities since that time. Additionally, at least 20 federal offices already carry out missions that prioritize information sharing and public-private cybersecurity coordination. The National Cybersecurity and Communications Center (NCCIC), a DHS cyberthreat coordination center, houses the US Computer Emergency Response Team (US-CERT), which has served as the primary cyberthreat collection, assistance, and notification center since it was founded in 2003. President Obama created the CTIIC in February 2015 to advance information sharing goals along with the NCCIC, the Federal Bureau of Intelligence’s National Cyber Investigative Task Force, DOD’s US Cyber Command, and “other relevant United States Government entities”—which could amount to several dozen offices. Such overlapping roles and unclear lines of communication results in waste, inefficiency, and poorer security outcomes.</p> <p class="p3">Despite the ample resources devoted to this task, the federal government has struggled to effectively collect and share incident information internally and with the private sector. ISACs can cease to operate if members do not actually share valuable information. A DHS Inspector General Report finds that the NCCIC faces large challenges in effectively sharing information among the appropriate parties. As of October 2014, the NCCIC had not even developed a common incident management system to coordinate information sharing—five years after being formed to do so. US-CERT has yet to develop performance metrics to gauge and improve effectiveness, despite serving as the main federal cybersecurity consultant for over a decade. Additionally, private sector threat analysis efforts often outpace US-CERT in breach notification. Indeed, DHS has at times been unable to even adequately share threat information within its own offices. In March 2013, DHS’s own US-CERT issued a warning about Windows XP vulnerabilities to government and private sector partners. But by November of that year, DHS’ Inspector General reported that several DHS computers were still running a vulnerable version of Windows XP, even after other DHS representatives ensured they had stopped running that version.&nbsp;</p> <p class="p2">The Congressional Research Service notes “greater information sharing may, in some instances, effectively weaken cybersecurity by creating an overwhelming amount of information, eliminating the capacity to pay attention to truly important alerts.” The federal government sought to overcome this challenge by developing technological tools to surveil network activity, called the “EINSTEIN” projects, yet these projects often run over cost and perform worse than anticipated. Indeed, the EINSTEIN projects failed to identify the recent OPM hack. However ambitious their design, these programs have so far proven too technologically crude to handle the complex central identification and communication efforts intended to protect federal systems. There may never be enough EINSTEINs in the world for DHS, DOD, and DOJ to adequately coordinate and respond to the massive amounts of private data that would be collected under CISA.</p> <p class="p2"><b>Systemic Security Weaknesses Plague Federal Systems</b></p> <p class="p3">Federal information sharing initiatives have proven unsuccessful in stemming the number of reported agency information security failures. These longstanding cybersecurity weaknesses and failures render the federal government a poor candidate to manage more private data as has been proposed. The number of incidents reported to US-CERT increased by 1,169 percent since fiscal year (FY) 2006, reaching an all-time high of 69,851 last year. Additionally, federal agencies have in general struggled to secure personally identifiable information (PII) of personnel and civilians. Almost 40 percent of the roughly 300,000 reported federal information security incidents from FY 2009 to FY 2014 involved sensitive PII being potentially exposed to outside groups.</p><p class="p3"><a href=""> <img height="305" width="585" src="" /></a></p> <p class="p3">The recent OPM hack clearly highlights the dangers of entrusting massive amounts of private data to federal agency management. Recent reports reveal that, contrary to early official statements that hackers only gained a limited amount of information, the Social Security numbers and addresses of over 14 million current and former employees and contractors, including intelligence and military officials in the most need of data protection, were extracted by foreign hackers. In addition, hackers accessed reams of Standard Form 86 questionnaires used for conducting background checks, which contain sensitive data about applicants’ family, friends, and former coworkers. Despite serving as the central human resource department for the entire federal government, OPM did not employ any security staff until 2013. Much of the data was not even encrypted. Early reports that the federal government’s EINSTEIN threat detection system identified the breach were similarly incorrect; a product demonstration by an outside vendor reportedly first found the hack in April. Information sharing legislation could expand the circle of Americans harmed by such government breaches.</p> <p class="p3">Importantly, the agencies that would be entrusted with significant new data extraction and management responsibilities under CISA reported alarming security breaches last year. DOJ employees downloaded malicious software onto agency computers 182 times in FY 2014 and reported a total of 3,604 incidents for the year. Of the 2,608 reported DHS failures, employees reported 1,816 pieces of computer equipment lost or stolen. DOD personnel downloaded malware onto network systems 370 times and reported roughly 2,500 employee policy violations in the past year alone, as well as 1,758 other incidents. Additionally, each agency has suffered major system infiltrations by malicious hackers in recent years—sometimes involving sensitive data extractions by hostile external groups. If these agencies’ already weak information management capacities are further strained, the rate of PII exposures could ultimately increase—and even have the unintended consequence of <i>weakening</i> cybersecurity and <i>increasing</i> attacks on federal systems. Malicious hackers would, after all, know that these ill-defended agencies would be managing massive amounts of potentially valuable data, thereby creating a tempting target for infiltration.</p> <p class="p2"><b>We Need Better Cybersecurity Solutions</b></p> <p class="p2">The professional information security community is accordingly skeptical that such calls for top-down, government-driven information sharing of cyberthreats will actually diminish or prevent breaches. One poll of privacy and security experts from across the government, private sector, and academia finds that 87 percent do not believe that CISA-style information sharing initiatives will “significantly reduce security breaches.” Some respondents replied that while information sharing may be useful on the margins, placing it as the center of a top-down, government-driven panacea to protect national networks is inadequate and even counterproductive. Others in the security community are concerned that such initiatives merely use the guise of cybersecurity to push through measures secretly intended to increase surveillance of online activity.&nbsp;</p> <p class="p3">Most agree that information sharing alone will not significantly improve cybersecurity preparedness. Industry studies find that external attacks only constitute 37 percent of reported root causes; system glitches and human error, respectively, make up 29 percent and 35 percent of the remainder. This Band-Aid solution does not address the core problems of poor security practices, inadequate user education and authentication requirements, and proper investment in defensive technology. In the worst-case scenario, high-profile information sharing measures like CISA will serve to ultimately weaken cybersecurity if they instill a false sense of security among government and private actors, leading them to neglect these other critical factors that are arguably more imperative for robust cybersecurity.</p> <p class="p3">This is not to say that there is nothing to be done about cybersecurity. Instead of relying on a rigid top-down plan managed by poorly secured government agencies, public and private entities should work together using a “collaborative security” approach that fosters collective responsibility, evolutionary consensus, and nested decision making. Government officials should encourage, not weaken, good security practices like strong authentication and encryption. Legislation that protects and encourages the use of strong encryption will do far more to promote strong cybersecurity. Federal officials should stop contradicting each other on the need for strong encryption, and encourage efforts like CIO Tony Scott’s policy to require encrypted connection for all government websites. Likewise, government agencies should cease the practice of purchasing “zero-day exploits,” or publicly unknown security vulnerabilities, without notifying the relevant parties of discovered system weaknesses. Finally, government agencies can simultaneously improve their own system defenses and promote private sector security by purchasing cybersecurity insurance policies for their own networks and thereby stimulating this industry.&nbsp;</p> Wed, 24 Jun 2015 01:41:03 -0400 Poor Federal Cybersecurity Reveals Weakness of Technocratic Approach <h5> Publication </h5> <p class="p1">A comprehensive assessment of federal cybersecurity reveals a landscape rife with institutional uncertainty, office redundancy, and suboptimal agency outcomes. This year’s catastrophic breach of the Office of Personnel Management’s (OPM) unencrypted database exposing the Social Security numbers, addresses, financial information, and security clearances of over 14 million current and former federal employees, intelligence and military personnel, contractors, and countless other family members, friends, and associates listed in federal background checks serves as only the latest reminder of these ongoing and dangerous vulnerabilities. The typical federal response to information security vulnerabilities has been to increase spending, create new bureaucracies, or institute new rules and standards, rather than focus on results. This approach has served largely to increase the confusion of the people charged with implementing federal cybersecurity policy, to the detriment of outcomes.</p> <p class="p1">This paper will review the laws and standards governing federal cybersecurity policy and will highlight how overlapping responsibilities and unclear lines of authority have accompanied increasing rates of federal information security failures. The paper will then describe how these systemic cybersecurity weaknesses demonstrate the federal government to be an especially poor candidate for managing national systems, and it will explain the shortcomings of a top-down, technocratic approach.</p> <p class="p2"><b>Uncoordinated Bureaucratic Growth</b></p> <p class="p2">The federal government has tried to coordinate effective public and private information system management through several legislative and executive means over the past two decades. President Clinton’s Presidential Decision Directive 63 (PDD-63) in 1998 developed an outline for a public-private partnership to “eliminate any significant vulnerability to both physical and cyber attacks on our critical infrastructures, including especially our cyber systems.” Clinton’s National Plan for Infrastructure Protection (NIPP) of 2000 addressed in more detail “critical infrastructure assets” deemed so vital to the nation that their incapacity would have a crippling effect on the country. Congress passed the Federal Information Security Management Act (FISMA) in 2002, which outlined legislative milestones and increased federal investment in agency information security systems in an effort to meet the newly established standards by the end of the decade. In 2003, President Bush implemented a new and slightly different national cybersecurity initiative called the National Strategy to Secure Cyberspace, which prioritized cybersecurity threat identification, response, and notification. It did not mention PDD-63 or the NIPP once.</p> <p class="p1">Five years later, Bush’s classified Comprehensive National Cybersecurity Initiative (CNCI) again attempted to outline an authoritative federal cybersecurity strategy emphasizing threat detection and information sharing. President Obama has likewise contributed to the thicket of federal cybersecurity, first by issuing a Cyberspace Policy Review in 2009 that encouraged a unification of overlapping policies and increased investment, education, and cyberthreat information sharing among public and private entities. In 2013, Obama issued an executive order calling upon the National Institute of Standards and Technology (NIST) to develop cybersecurity standards for critical infrastructure assets, called the “Cybersecurity Framework.” A spate of cybersecurity bills were signed into law in late 2014, which separately defined the National Cybersecurity Communications Integration Center as the main federal cyber information sharing hub, authorized NIST to facilitate the Cybersecurity Framework, amended the FISMA reporting processes, and increased cybersecurity workforce examinations and placements. Now, Congress and the White House have developed proposals to increase federal influence over private cybersecurity practices by extending legal liability to private corporations that share sensitive customer data with federal agencies. Yet the existing problems plaguing federal network security are substantial, unaddressed, and likely to undermine the effectiveness of these proposals.</p> <p class="p2"><b>Federal Cybersecurity Policy Lacks Focus</b></p> <p class="p1">In spite of, or perhaps because of, these accumulating efforts and offices, federal cybersecurity policy has lacked a unified focus for as long as it has existed. The growing mass of information security procedures and rules already “vary in terms of priorities and structure” while at the same time do not “specify how they link to or supersede other documents,” nor “describe how they fit into an overarching national cybersecurity strategy,” reports the Government Accountability Office (GAO). Priorities and responsibilities change in tandem with evolving technology and security concerns. However, the complexity and inconsistency of federal cybersecurity initiatives is such that implementation has tended to diverge from the intended strategy. Additionally, basic goal metrics like milestone and performance measures, cost projections, and specific roles and responsibilities for each agency are rarely considered in strategy documents. Confused or overwhelmed personnel have struggled to comply with new iterations of federal cybersecurity policies, as annual FISMA reports demonstrate. GAO investigations of federal incident report procedures find that agencies do not effectively or consistently follow procedures in roughly 65 percent of reported incidents.</p> <p class="p2"><a href=""><img height="307" width="585" src="" /></a></p><p class="p2"><span style="font-size: 12px;">Similarly, the federal government lacks public resources detailing the total number of federal cybersecurity offices. An initial investigation finds a total of 62 separate federal cybersecurity centers as of fiscal year (FY) 2015. Of these, 20 prioritized facilitating information sharing among federal offices or between public and private entities; 14 were housed by the Department of Defense (DOD) and specifically focused on “cyberwar” training, preparedness, and missions; 13 were dedicated to education and research programs; ten were tasked with maintaining federal network security or overseeing FISMA; and the remaining 5 offices were dedicated to fighting cybercrime under the direction of the Federal Bureau of Investigation (FBI).&nbsp;</span></p> <p class="p1">Many of the offices were identified to operate under nearly identical mission statements with no clear distinction in operations. The GAO has reported for years that such overlapping and unclear responsibilities in federal cybersecurity policy have limited the offices’ ultimate effectiveness. Often, various agency representatives interpreted their responsibilities in a different way than outlined in the text of a law. Merely imposing new policies on top of old ones, therefore, is unlikely to rectify the systemic barriers to security compliance that have bedeviled personnel for so many years.</p> <p class="p1">Additionally, the National Security Agency (NSA) assumes a larger role in federal cybersecurity than is often publicly acknowledged. The NSA’s intelligence culture and byzantine organization adds another level of confusion and complexity into federal cybersecurity policy that ultimately flummoxes coordination and undermines outcomes. Former NCSC director Rod Beckstrom said he resigned partially because the NSA’s dominant influence in cybersecurity policy crowded out his office’s efforts. Additionally, the NSA has been unable to stem state-backed hacking despite its considerable tools of data extraction and surveillance. In June of 2015, the <i>New York Times </i>and <i>ProPublica</i> revealed that the NSA and FBI had joined forces to track online activities of suspected state-backed cyberterrorists overseas by directly extracting data from the backbone of Internet traffic. Still, the massive OPM hack of critical federal data was not identified by the NSA, but by an ordinary product sales demonstration. More generally, it bodes poorly for security outcomes that a clandestine agency with a known bias toward weakening encryption standards should take a leading, but hidden, role in cybersecurity provision.</p> <p class="p2"><b>Confusion and Noncompliance Stymie Effectiveness</b></p> <p class="p1">It is not surprising that, given the chaos of existing federal security directives, the rate of reported federal information security incidents has significantly increased over the years despite billions in increased FISMA investments. OMB’s annual report on federal information security practices and incidents for FY 2014 revealed that the total number of reported federal information security failures had increased by an astounding 1,169 percent, from 5,503 in FY 2006 to 69,851 in FY 2014.</p> <p class="p2"><a href=""><img height="297" width="585" src="" /></a></p> <p class="p1">Some information security failures are the direct result of personnel noncompliance with established policies. Policy violations, where federal employees fail to follow prescribed data management practices, constituted the largest bulk of reported failures last year behind the catchall “other” category and noncyber incidents involving physical media. The OPM, for example, did not even encrypt the sensitive datasets that were recently hacked. On the other hand, compliance on paper with established federal procedures does not always translate to good security outcomes. The National Aeronautics and Space Administration (NASA) received high scores for FISMA compliance, yet reported the highest number of information security failures of all agencies in FY 2014. This suggests that FISMA compliance alone does not ensure better security outcomes, so agencies that focus on optimizing FISMA metrics may be ignoring fundamental security vulnerabilities more in need of attention.&nbsp;</p> <p class="p1">In many cases, agencies do not properly train employees in general preventative cybersecurity practices. Several agencies reporting the lowest levels of personnel training—including the State Department, Department of Health and Human Services (HHS), and DOD—are prime targets for malicious hackers because they manage large and sensitive datasets, including personally identifiable information of personnel and civilians. Each of these agencies has suffered from major database hacks in recent years.</p> <p class="p1">Similar challenges plague even federal cybersecurity professionals. Communication problems between agency human resource departments and information technology managers result in poor outreach to qualified hiring candidates and ultimately an underqualified federal information security workforce. Additionally, Chief Information Officers (CIOs) for federal offices report that compensation packages available for personnel lag far behind prevailing private sector incomes and prove inadequate to attract the “best and brightest” cybersecurity and information technology talent. After hiring, many agencies—including HHS, DHS, the Department of Justice, and the Department of the Treasury—did not require cybersecurity professionals to undergo training or certification programs for several years. The most recent IT Workforce Assessment for Cybersecurity study, a self-reported survey of federal cybersecurity professionals undertaken by the Federal CIO Council, finds that lowest average proficiencies of cybersecurity personnel are in digital forensics, threat analysis, and cyber operations—areas critical to robust cybersecurity provision.&nbsp;</p> <p class="p2"><b>A Case Study in Technocratic Weakness</b></p> <p class="p2">The federal government’s continued failures to secure its own information networks indicate a fundamentally flawed approach to cybersecurity. Sweeping technocratic solutions are iteratively imposed every few years with little-to-no understanding or continuity with previous policies. Abstract consistencies in top-down planning break down on the human level as personnel struggle to make sense of redundancies and eventually ignore complex reporting and procedural standards. Fundamental issues of talent recruitment and personnel training go relatively unaddressed as offices struggle to keep up with the changing security checklists, which may or may not actually translate to good cybersecurity outcomes.&nbsp;</p> <p class="p1">Merely increasing the number of resources or procedures dedicated to federal cybersecurity is unlikely to improve a system built on fundamentally flawed assumptions and processes. Recent proposals to expand the federal government’s role in private cybersecurity provision are more questionable still, given the federal government’s failures to adequately protect even its own systems. To truly improve cybersecurity preparedness, unsuccessful top-down technocratic measures should be replaced by self-organizing collaborative security approaches that emphasize flexibility, evolution, consensus, participation, and incrementalism.</p> Wed, 24 Jun 2015 01:44:09 -0400 Repealing the Affordable Care Act Would Lower Federal Deficits <h5> Expert Commentary </h5> <p>The Congressional Budget Office (CBO) has just released a&nbsp;<a target="_blank" href="">report</a>&nbsp;on the budgetary and economic effects of repealing the Affordable Care Act (ACA). Press reports reflect what CBO has reported pursuant to its scoring instructions – specifically, that relative to its scorekeeping baseline, repeal of the ACA would&nbsp;<a target="_blank" href="">worsen the federal deficit but bolster the economy</a>. CBO’s new inclusion of economic feedback with the score – finding that the ACA’s adverse economic effects make the deficit<a target="_blank" href="">$216 billion</a>&nbsp;worse over the next decade than it otherwise would be – is naturally fostering additional attention. Less noted, however, is the important fact that CBO’s analysis actually indicates that repealing the ACA would lower, not increase, federal deficits.</p> <p>As&nbsp;<a target="_blank" href="">CBO states</a>, "the analysis presented in this report is based on the spending and revenue projections contained in CBO's March 2015 baseline, as adjusted for subsequently enacted legislation." Repeal of the ACA is compared to this adjusted baseline. Though euphemistically referred to as a "current law" baseline, it actually does not reflect current law, by lawmakers' direction.</p> <p>Current law differs from CBO's budget baseline in a very important way, as its&nbsp;<a target="_blank" href="">March 2015 Budget Outlook</a>&nbsp;explains:</p> <blockquote><p>In keeping with the rules in section 257 of the Deficit Control Act of 1985, CBO's baseline incorporates the assumption that scheduled payments will continue to be made in full after the balance of the trust fund has been exhausted, although there is no legal authority to make such payments.</p></blockquote> <p>In other words, CBO is required to assume that after a Social Security or Medicare trust fund is depleted, full benefits would continue to be paid even though this is not permitted by law and there is no historical precedent for such action. Though the passage above explained CBO's treatment of Social Security disability insurance, the same scoring rules apply to Medicare spending. The fact that CBO does not score literal Medicare law is hugely important to evaluating the ACA, which makes big changes to Medicare.</p> <p>Let's look at the numbers to make the point clear. Over the next five years, CBO finds that repealing the ACA would improve the fiscal outlook relative to the scorekeeping baseline, whether or not economic effects are considered.</p> <p><img height="375" width="600" src="" /></p> <p>&nbsp;</p> <p><img height="370" width="600" src="" /></p> <p>&nbsp;</p> <p>Of note, this indicates the ACA's effects have significantly worsened since CBO scored a similar repeal bill in 2011. Back then&nbsp;<a target="_blank" href="">CBO projected</a>&nbsp;repeal would worsen federal deficits by $62 billion from 2016-2020, relative to the baseline. The time by which CBO now finds repeal would worsen federal finances relative to the baseline has been postponed, to the second half of the current ten-year window.</p> <p><img height="383" width="600" src="" /></p> <p>This latest projection of future deficit reduction depends in large part on estimates of escalating revenues from provisions including the yet-to-be-implemented excise tax on high-end "Cadillac" health insurance plans, as well as high-income surtaxes affecting rising numbers of taxpayers. Time will tell whether these tax provisions are implemented as written long enough to eventually produce these large beneficial fiscal effects.</p> <p>Such uncertainties aside, to understand the true net fiscal impact of repealing the ACA one must understand the treatment of Medicare underlying the score. CBO's latest report says that repealing the ACA would add roughly $800 billion in Medicare costs over ten years relative to the scorekeeping baseline.</p> <p>&nbsp;</p> <p><img height="365" width="600" src="" /></p> <p><span style="font-size: 12px;">But repealing the ACA would not actually increase Medicare expenditures by $800 billion. Due to the trust fund spending limitations described above, Medicare was already required to spend less than this additional $800 billion prior to the ACA's passage, and would similarly be required to spend less than that if the ACA were repealed. CBO's latest estimate does not permit us to know exactly how much less. But we can make an educated guess, enough to be certain that repealing the ACA would lower projected federal deficits.</span></p> <p>We know for example from CBO's&nbsp;<a target="_blank" href="">March Medicare baseline</a>&nbsp;that the agency projects the Medicare HI trust fund balance to be $199 billion by the end of 2022. CBO's latest score indicates that repealing the ACA would increase Medicare costs by&nbsp;<a target="_blank" href="">$410 billion</a>&nbsp;through that date. Thus, if just half of those additional costs are in Medicare HI, its trust fund would be entirely depleted by 2022 (and possibly earlier) and its spending authority thus curtailed.</p> <p>Again, CBO's latest does not provide enough detail for us to know how much repealing the ACA would lower federal deficits. But we can be highly confident that it would. In my 2012 paper on the&nbsp;<a href="">fiscal consequences of the ACA</a>&nbsp;I found that through 2021, only a little more than one-third of the Medicare savings credited to the ACA under the scorekeeping convention was actually new savings relative to prior law. Through 2025 we would expect the proportion to be still less.</p> <p>Thus, although the scorekeeping conventions require CBO to find that repealing the ACA would increase Medicare spending by roughly $800 billion, the actual figure is almost certainly below $250 billion--or, at least $550 billion lower than the directed score. Given that this total score shows repeal adding either $353 billion or $137 billion to the deficit, depending on whether economic feedback effects are included, the actual change in law under repeal would clearly reduce the deficit.</p> <p>All this can be verified by cross-checking&nbsp;<a target="_blank" href="">CBO publications</a>&nbsp;against one another (or by consulting other sources such as&nbsp;<a target="_blank" href="">CRFB</a>) to confirm that its scorekeeping conventions, as required by lawmakers, deviate significantly from actual law. Given the importance of these deviations with respect to Medicare spending, CBO should consider disclosing these realities more directly in future evaluations of the ACA, such as the one it may need to issue after&nbsp;<a target="_blank" href="">King v. Burwell</a>.</p> <p>In the meantime, however, we have yet another report showing the ACA's finances turning out worse than previous projections and, properly understood, also showing that repeal--whatever its other policy virtues or drawbacks--would improve the fiscal outlook.</p> Mon, 22 Jun 2015 11:24:49 -0400 Do Governments Impede Transportation Innovation? <h5> Publication </h5> <p class="p1">Government barriers often slow the adoption of new technologies. For example, the entrepreneurs who have started ride-sharing businesses such as Uber and Lyft are facing significant challenges from entrenched taxicab regulatory systems. A century ago, “jitneys”—cars or small buses that transported people short distances for a fee—faced similar challenges, in this case political lobbying by the railroad monopolies with which they competed.</p> <p class="p1">In a new study for the Mercatus Center at George Mason University, economist Robert Krol demonstrates that governments are more likely to set up barriers to new technology when the performance advantage of the new technology is small or incremental and lobbying costs are low. Incumbent businesses threatened by a new technology may use the government to block businesses using the new technology from entering the market. Ultimately, government protection of incumbent businesses reduces consumer well-being.</p> <p class="p2">To read the study in its entirety, see “<a href="">Do Governments Impede Transportation Innovation?</a>”</p> <p class="p4"><b>ECONOMIC THEORY: TECHNOLOGICAL PROGRESS AND LOBBYING</b></p> <p class="p1">The study uses an economic model that relates the performance advantage of a new technology and political lobbying costs to the chances that a new technology will be adopted in the transportation sector of the economy. Governments are less likely to impede transportation innovation when the performance advantage of the new technology is large and the costs of lobbying are high. On the other hand, if the performance advantage is small or incremental—which is often the case early in the development of a new technology—then it is easier for incumbent businesses to lobby the government to block the new technology.</p> <p class="p4"><b>KEY FINDING: TECHNOLOGY IMPROVES TRANSPORTATION</b></p> <p class="p1">The same technology-impeding lobbying from incumbent businesses, such as taxicab companies, can be seen today as new transportation technology seeks a foothold in the economy.</p> <p class="p5">Wireless Communication Has Given Rise to Ride-Sharing Businesses That Compete with Traditional Taxicabs</p> <ul class="ul1"> <li class="li6">New transportation firms such as Uber and Lyft seek to provide flexible, cheap services that are attractive to consumers. But incumbent taxicab firms continue to lobby for government regulations and use the legal system to raise entrance costs in order to reduce competition from ride-sharing services.</li> <li class="li6">Ride-sharing companies can make local transportation less costly and attract customers away from traditional service providers, such as taxis. Ride-sharing companies also provide flexible employment opportunities. Unfortunately, many governments around the world are protecting the monopoly positions of taxicab companies at the expense of consumers.</li> <li class="li6">This opposition to ride-sharing companies echoes past regulatory policies limiting competition from jitney services. Jitneys emerged in the early 20th century in response to high fares for short-distance travel. Incumbent businesses, such as electric street railways, successfully lobbied city officials to block the expansion of jitney services. Jitneys mostly benefited a small group of residents, primarily businessmen and younger people living downtown. Railroads already held a monopoly and helped subsidize cities, making lobbying costs relatively low.</li> </ul> <p class="p5">GPS Technology Has Led Businesses Involved in Vehicle Manufacturing and High Technology to Develop Driverless Cars</p> <ul class="ul1"> <li class="li6">While they are now only in the development stages, driverless cars will likely reduce traffic accidents, increase mobility for the young, old, and handicapped, and improve highway efficiency.</li> <li class="li6">Once on the road, driverless cars have the potential to negatively impact the profitability of a wide range of institutions, including auto body shops, long-haul trucking unions, and insurance companies.</li> <li class="li6">Industries that are harmed by the development of driverless-car technology may try to slow the adoption of driverless cars despite their welfare-improving possibilities.</li></ul> <p class="p4"><b>CONCLUSION</b></p> <p class="p1">Rather than regulating ride-sharing businesses in the same manner as traditional taxicabs, governments should deregulate existing taxicab companies. This will allow them to compete on the same playing field as the new entrants and adopt new technologies that benefit consumers. For driverless cars, policymakers should apply a light regulatory hand and allow the technology to evolve in the market. Heavy regulation in the early stages of a new transportation technology is likely to slow its development, which can harm consumers.</p> Mon, 29 Jun 2015 14:48:06 -0400 Adam Thierer Discusses Online Privacy Regulation at the Washington Legal Foundation <h5> Video </h5> <iframe width="480" height="360" src="" frameborder="0" allowfullscreen></iframe> <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;480&quot; height=&quot;360&quot; src=&quot;; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> Fri, 19 Jun 2015 13:25:57 -0400 The Sharing Economy: Perspectives on Policies in the New Economy <h5> Events </h5> <p>The sharing economy’s rapid rise has transformed how many people work and live, from commuting, shopping, eating, vacationing, and even borrowing money. Firms like Uber, Lyft, and Airbnb seem to be grabbing headlines on a daily basis as they grow into billion-dollar ventures, disrupt local businesses, and create new policy questions for regulators.</p> <p><span style="font-size: 12px;">To help shed light on these issues, the Mercatus Center at George Mason University invites you to join research fellow Christopher Koopman for a Capitol Hill Campus presentation examining the economics and policy issues surrounding the sharing economy.</span></p> <p>&nbsp;<span style="font-size: 12px;">Mr. Koopman will cover issues, such as:</span></p> <ul><li>What is the sharing economy? </li><li>How does it work? </li><li>Why are incumbent industries and local regulators so eager to attack these firms? </li><li>Are these business models truly unfair and anticompetitive? </li><li>What can federal policy makers do to encourage entry, competition, and consumer protection in this new and evolving space?</li></ul><div><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Space is limited. Please register online for this event.</p><p class="p1" style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This event is free and open to all congressional and federal agency staff. Lunch will be provided. Due to space constraints, this event is not open to interns.&nbsp;<i>Questions? Please contact Samantha Hopta at&nbsp;</i><a href="" style="font-size: 12px;"><i></i></a><i>.</i></p></div> Wed, 24 Jun 2015 15:34:57 -0400