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Like most Americans, I did not receive an advance copy of President Trump’s National Security Strategy. I saw it when it was released by the White House, a few hours before the president’s speech. I wanted to actually read it, or, failing that, to find certain terms, and go back and read the entire document after the president’s speech.

News stories are stressing that great power competition is back. The text of the NSS provides considerable support for that conclusion: Russia appears 15 times; China is mentioned 23 times.

I was most interested in what the president said about Russia in his speech, and how, if at all, that differed from the text of the strategy issued under his name. Before Donald Trump’s election, there was a reasonable argument to be made that the United States should improve its relationship with Russia. During the course of the 2016 election campaign, Trump often claimed that there were areas where the two countries could and should work together. In his speech today, he called attention to information provided to the Russians that allegedly helped thwart a terror attack that, the president said, might have killed thousands.

But hope for improved U.S.-Russia relations has been set back by the credible evidence of Russian interference in the 2016 election. President Trump reportedly, and understandably, hates this story and wants it to go away, as it appears to undermine the legitimacy of his election. But the story has hamstrung how the president talks about Russia, and how his administration has handled U.S.-Russia relations. It has made any actual rapprochement with Russia essentially unthinkable.

The NSS reflects that reality – not candidate Donald Trump’s aspirations.

For example:

Russia aims to weaken U.S. influence in the world and divide us from our allies and partners. Russia views the North Atlantic Treaty Organization (NATO) and European Union (EU) as threats. Russia is investing in new military capabilities, including nuclear systems that remain the most significant existential threat to the United States, and in destabilizing cyber capabilities. ­Through modernized forms of subversive tactics, Russia interferes in the domestic political affairs of countries around the world. The combination of Russian ambition and growing military capabilities creates an unstable frontier in Eurasia, where the risk of conflict due to Russian miscalculation is growing. (pp. 25-26)

[…]

Although the menace of Soviet communism is gone, new threats test our will. Russia is using subversive measures to weaken the credibility of America’s commitment to Europe, undermine transatlantic unity, and weaken European institutions and governments. With its invasions of Georgia and Ukraine, Russia demonstrated its willingness to violate the sovereignty of states in the region. Russia continues to intimidate its neighbors with threatening behavior, such as nuclear posturing and the forward deployment of offensive capabilities. (p. 47)

I also was curious to see how the NSS handled the specific question of Russian interference in politics, generally, and its use of social media, in particular. Does the document, in any way, give credence to the argument that there is something to this story, and that it shouldn’t just be swept under the rug?

Short answer: yes.

Russia uses information operations as part of its offensive cyber efforts to influence public opinion across the globe. Its influence campaigns blend covert intelligence operations and false online personas with state-funded media, third-party intermediaries, and paid social media users or “trolls.” (p. 35)

The NSS claims that the way to combat such influence operations is through a better informed public.

A democracy is only as resilient as its people. An informed and engaged citizenry is the fundamental requirement for a free and resilient nation. For generations, our society has protected free press, free speech, and free thought. Today, actors such as Russia are using information tools in an attempt to undermine the legitimacy of democracies. Adversaries target media, political processes, financial networks, and personal data. The American public and private sectors must recognize this and work together to defend our way of life. No external threat can be allowed to shake our shared commitment to our values, undermine our system of government, or divide our Nation. (p. 14)

I would like to believe that the White House actually believes what the document says. Then again, President Trump has engaged in a relentless battle against the U.S. media, at times seeming to question the value of free speech and free press.

Meanwhile, the Russians aren’t the only ones spreading blatantly false stories that undermine Americans’ confidence. There is no evidence, for example, that the Russians were behind the Maryland man who claimed to have discovered “’Tens of thousands’ of fraudulent Clinton votes in [an] Ohio warehouse.” I am not aware of Russians alleging that Hillary Clinton and John Podesta were running a child sex operation in the basement of a Northwest DC pizzeria, but members of the Trump campaign regularly promoted the views of those who did; Michael Flynn Jr had a direct hand in spreading the story. His father, retired Gen. Michael Flynn, had a history of promoting baseless conspiracy theories, and yet Donald Trump chose him to be his National Security Adviser. The president himself recently spread anti-Muslim messages from a fringe group in the United Kingdom, prompting a public rebuke from British Prime Minister Theresa May. His struggles with basic facts are legendary (in a bad way).

Such behavior doesn’t give me much confidence that the president is as committed to building a resilient country that values individual liberty and individual dignity as his NSS claims. For starters, the president could consult the source of dubious stories before hitting the RT button.

Today is not a proud day for the Washington State Department of Transportation (WSDOT). The agency spent close to $800 million of federal funds on a so-called high-speed rail project between Seattle and Portland–only “so-called” because top speeds would be just 79 mph, which is conventional rail. Much of the money was spent upgrading existing tracks to give passenger trains a shorter (but less scenic) route through and around Tacoma.

As you probably know, the very first train to use this route derailed on an overpass over Interstate 5, blocking half the freeway and killing at least six people. To make matters worse, Mayor Don Anderson of Lakewood, Washington, about 10 miles north of the crash, warned WSDOT a few weeks ago that it was not taking safety seriously enough. “This project was never needed and endangers our citizens,” he cautioned.

To be fair, Mayor Anderson was worried that grade crossings in Lakewood were inadequately protected for 79-mph trains. But his comments more generally suggest that WSDOT was putting the goal of saving Seattle-Portland passengers ten minutes of time–increasing average speeds by just 2.7 mph–ahead of safety.

In response to the accident, President Trump tweeted, “The train accident that just occurred in DuPont, WA shows more than ever why our soon to be submitted infrastructure plan must be approved quickly.” The implication was that this is an example of crumbling infrastructure, when in fact it is an example of misplaced infrastructure priorities.

In fact, what the accident shows is why the federal government should get out of the infrastructure business. As Mayor Anderson said, this project was unnecessary, and it was only done because President Obama wanted to spend billions of federal dollars on ideologically driven high-speed rail projects and WSDOT had a shovel-ready project (despite not being high-speed rail) on which to spend some of those dollars.

Trump’s inclination is to have the federal government back out of the infrastructure-funding game. But many members of Congress in both parties see infrastructure as a store full of candy they can give out to please their constituents and campaign contributors. The danger is that a hastily passed bill will end up spending more billions on unnecessary projects like the Seattle-Portland train.

No matter what speed, intercity passenger trains are obsolete and have been at least since the advent of jet airliner service. Even after hundreds of millions spent on improvements, this particular train would have been slower than driving from Seattle to Portland, but even the fastest high-speed trains are slower than flying.

One airline alone offers nearly two dozen flights a day between the Portland and Seattle airports. People who complain that Sea-Tac Airport is a long way from Seattle would do better to seek more flights out of King County Airport (aka Boeing Field), which is just four miles from downtown Seattle, than to support more trains.

Amtrak’s Seattle-Portland fare is $26 while the cheapest flights are $65. But Amtrak is heavily subsidized by both federal and state governments. Amtrak’s Seattle-Portland trains (which also go to Vancouver, BC and Eugene, OR) earned just under $30 million in ticket revenues in 2016 but cost Amtrak more than $68 million to operate not counting depreciation and other costs that Amtrak doesn’t allocate to individual trains. Meanwhile, subsidies to airlines are small and mostly go to support small-town airports.

On average and including all subsidies, airline travel costs about 16 cents per passenger mile while Amtrak costs about 60 cents per passenger mile. Higher-speed trains may attract more passengers but cost so much more that the costs per passenger mile are at least six times as much as the costs of flying.

Regardless of what you think of Amtrak, the point is that transportation spending decisions should be made by and in response to transportation users, not by politicians, and especially not by federal politicians. The accident in Dupont, Washington was a horrible tragedy, and we don’t yet know exactly what caused it. But, no matter what the cause, it never would have happened were it not for federal involvement in infrastructure spending.

The big question ahead of this year’s presidential election in Chile was whether Chileans were actually fed up with their country’s free-market model, or whether they were satisfied with it, but just indifferent to the ideological debate surrounding it. Up until yesterday’s run-off election, there were mixed signals. However, the decisive victory of center-right Sebastián Piñera over socialist Alejandro Guillier could be interpreted as a popular slap on the back of Chile’s successful economic model.

For nearly 20 years after the return of democracy in 1990, Chile enjoyed a political consensus on its liberal economic system. Successive center-left governments deepened the free market policies inherited from the military dictatorship, with evident success: Chile became Latin America’s most prosperous country. However, the free market consensus began to fray late last decade. Driven by massive student protests that demanded more government intervention in education—including universal free tuition in higher education—certain sectors of the erstwhile moderate center-left coalition began to openly question the free-market model. The first spell in opposition of the center-left coalition after the return of democracy in 2010-2014 (Piñera’s first term as president) consolidated this transformation.

When Michelle Bachelet became president again in 2014, her new left-wing coalition included for the first time the Communist Party, which now wields a lot of influence within her administration. Even though Bachelet’s platform called on simply softening the rough edges of the free-market model, some leading members of her coalition openly said the ultimate goal was its dismantlement. Bachelet’s thumping victory in 2013 (with 62.2% of the vote in the run-off and majorities in both houses of Congress) was interpreted as Chileans embracing much more government intervention in the economy. Surely so, in her second administration, Bachelet successfully pushed legislation raising taxes sharply on corporations, empowering unions, introducing new entitlements, and weakening the country’s mostly privately-run education system. In addition, the “No más AFP” movement—calling for an end to Chile’s private pension system—reached a critical mass, congregating tens of thousands of people all over the country in well-publicized protests. Chileans were reneging on their free-market model…

But, were they? Despite the wide margin of Bachelet’s victory in 2013, turnout in the runoff was only 43%. This was the first presidential election in which voting was voluntary—and Bachelet actually received less votes than in her first election in 2009. Some Chilean scholars, like Luis Larraín of Libertad y Desarrollo, a leading think tank, pointed out that surveys showed that a majority of Chileans were satisfied with how things were going in their lives. Moreover, they expressed a preference for policies that emphasize individual responsibility over government assistance. And even though Bachelet was able to pass her reforms in Congress, her government’s popularity plummeted—partly as a result of a corruption scandal that implicated her son.

Economic growth also plummeted. Whereas the economy grew on average 5.3% annually in 2010-2013, since 2014 growth averaged only 1.9% per year. Private employment collapsed and informality rose significantly. “Businesspeople are on the other side of the Andes waiting for the election,” an Uber driver in Santiago told me in October, referring to the lack of investors’ confidence in the policies of the current administration.

However, despite the fact that polls indicated that Sebastián Piñera was the overwhelming favorite to win back the presidency, he underperformed in the first round of the election in November, receiving only 36% of the vote.  More alarmingly, nearly half of voters casted votes for either left-wing or radical left-wing candidates. There again rose the perception that Chileans were indeed turning their backs on the free-market model…

After yesterday’s result, there are good reasons to believe that this is not the case. Guillier moved sharply to the left in the campaign leading to the runoff. It is safe to say that this is the first time that the leading candidate of the leftist coalition used such radical rhetoric against the free-market model. (He even rose eyebrows when he finished a high-profile speech with Che Guevara’s infamous line “Ever onward to victory.”). It is also telling that the turnout in yesterday’s runoff was higher than in the first round in November—actually, it is the highest since voluntary voting was introduced. This indicates that many Chileans believed that there was a lot at stake in this election. It is reasonable to believe that many Chileans who were previously uninterested in the presidential race decided to vote in the runoff when they perceived that Guillier meant to double down on Bachelet’s failed economic policies.

Despite this, Piñera is hardly champion of free-market policies. In his first term as president, he raised taxes on corporations and introduced a multitude of subsidies and transfers. His effort to steal the left flank of the center-left coalition on social policies only pushed if farther to the left. Piñera already announced that he does not intend to reverse Bachelet’s reforms.

Chileans might have dodged a bullet with Gullier, but Bachelet’s harmful economic legacy will stay on.

America’s North Korea strategy is failing.

The Trump administration’s “maximum pressure” approach of increasingly rigid economic sanctions and military posturing has not slowed down North Korea’s missile and nuclear testing schedule. Since Trump took office in January 2017, Pyongyang has successfully tested two different types of intercontinental ballistic missiles, a new intermediate-range ballistic missile, a solid-fuel missile based off a submarine-launched design, and its most powerful nuclear device. The Trump administration has consistently opted to increase pressure on North Korea in response to these developments rather than critically examine whether or not such pressure will change the North’s behavior.

The critical flaw in the U.S. North Korea strategy is its unrealistic objective. Washington demands complete, verifiable, and irreversible nuclear disarmament and is not willing to engage in negotiations with Pyongyang unless the latter makes progress towards this objective.

The current U.S. strategy requires offensively-oriented policy approaches in the pursuit of an unrealistic end goal. In order to achieve denuclearization, Washington must compel Kim Jong-un to part with his nuclear weapons by making the costs of possessing nukes unacceptably high. However, because Kim views nuclear weapons as necessary for the survival of his regime, he is willing to tolerate very high costs in order to keep his nuclear weapons. Short of going to war, it will be practically impossible for the United States to impose a high enough level of cost that compels Kim to denuclearize because possessing nuclear weapons is a matter of life or death in Kim’s mind.

The new sanctions enacted by the Trump administration might slow down the development of new weapons and the rate of production of current systems, but this approach will not achieve the goal of denuclearization. Escalating pressure meant to compel Kim to denuclearize will harden his resolve to keep his nuclear weapons. Moreover, given the small size of North Korea’s nuclear arsenal and the relatively poor state of its early warning and command and control systems, Kim is likely to adopt an offensive nuclear doctrine that calls for the use of nuclear weapons early in a conflict. Without a secure second-strike capability, the best option North Korea has for deterring a U.S. attack is to threaten the use of nuclear weapons before the United States can destroy them.

Washington should put aside its quixotic goal of denuclearization and focus its efforts on deterring the first use of a nuclear weapon by North Korea. Such a goal is easier to achieve and strategically wise for a number of reasons.

First, unlike compellence, deterrence is defensively-oriented and is focused on maintaining a status quo, which is generally easier to maintain than change.

Second, if the primary goal of the United States is deterring North Korea from using a nuclear weapon, then the United States should deemphasize preventive military action against North Korea’s nuclear forces. Threats of a disarming strike against North Korea are counterproductive for deterrence because they enflame crisis instability and push Kim Jong-un into a “use or lose” situation.  

Third, abandoning the objective of denuclearization creates opportunity for greater flexibility in the U.S. approach to North Korea, especially in diplomacy. After all, there is little incentive for Pyongyang to negotiate with Washington if denuclearization is the only acceptable outcome for the United States.  

Using “maximum pressure” to achieve the denuclearization of North Korea will not work. Instead, the United States should focus its efforts on deterring North Korea from using its nuclear weapons. Sanctions and military forces will still play a role in a deterrence-focused strategy, but moving away from compelling Pyongyang to denuclearize would be a wise choice. 

The Congressional Budget Office (CBO) recently released a fiscal impact score for the DREAM Act.  It found that the DREAM Act would increase deficits by about $25.9 billion over the next decade.  There are at least two problems with this CBO score and a solution that should make fiscal conservatives and DREAM Act supporters happy.    

What is the Baseline?

The CBO’s black box fiscal estimates are frequently frustrating and this one is no exception.  The biggest difficulty is telling what their baseline is.  Their baseline could be that 700,000 DACA recipients continue to work legally, which is roughly the current situation but will continue to decline rapidly over the next few years as DACA disintegrates.  The baseline could also assume zero government costs incurred while identifying and deporting immigrants who would otherwise have been legalized, an unrealistic assumption given that this administration is building up an internal deportation apparatus. 

The American Action Forum (AAF) has estimated the federal government’s cost of deportation and indirect costs on GDP.  The AAF findings suggest that removing DACA recipients and DREAMers over the next decade will increase government expenditures by $70 billion to $103 billion and lower GDP growth by about $260 billion.  Both of those swamp and fiscal effects from the DREAM Act.  If the AAF estimates are the baseline, the DREAM Act would actually save hundreds of billions of dollars over the next decade.   

It is difficult to estimate what immigration enforcement will be like over the next decade but at least some of those large costs should be included as part of the baseline in any CBO fiscal cost analysis.  The choice of baseline matters in whether the DREAM Act will be scored as fiscally positive, negative, or neutral.

The CBO versus the National Academy of Sciences

The findings of the CBO report are inconsistent with the National Academy of Sciences (NAS) fiscal cost projection for first-generation immigrants.  The age and education of the immigrants are the two biggest factors that influence their net fiscal impact.  The greater the education and younger the age at arrivals (with some caveats), the more fiscally positive the immigration is.  In contrast, the less educated and older the age at arrival (same caveats), the less fiscally positive the immigrants is.  

Applying the age and education profiles of DACA recipients to NAS findings by age and education in table 8-21 reveals startlingly different results from that of the CBO (Figure 1).  Figure 1 shows the average net fiscal impact by DREAMers by year after legalization.  Just counting the 700,000 DACA recipients should produce a fiscally positive result over the next decade of about $1.6 billion using the NAS methods.  Expanding this to the roughly 2 million or so eligible DREAMers, assuming they have about the same education and age profiles, should produce about $4.6 billion in net positive tax revenues over the next decade.      

Figure 1: Average Fiscal Impact per DREAMers by Year

 

Sources: National Academy of Sciences, Migration Policy Institute, Pew Research, and Author’s Calculations.

This result comes from the age profile of DACA recipients and DREAMers, not from assuming that they will be highly educated.  For the CBO to find that legalization will turn a $1.6 to $4.6 billion dollar surplus into a $25.9 billion deficit requires an enormous increase in benefit usage or a tremendous drop in taxable income or both at exactly the age when benefit receipts drop and taxable income rises for immigrants (Figure 2). 

Figure 2: Taxes minus Benefits for Immigrants, by Age

 

Source: National Academy of Sciences.

Either the NAS is tremendously wrong in its widely praised fiscal cost analysis or the CBO made unrealistic projections and assumptions, perhaps having to do with a possible uptick in family-sponsored immigration after the DREAM Act.  Regardless, one cannot praise the NAS findings and believe the CBO’s.     

Hedging Our Fiscal Bets

Even if you assume that the CBO’s findings are closer to reality than those of the NAS’, there is an easy solution that Republicans should leap for: welfare reform.  As Cato scholars have written about in detail, it is easy, popular, and fiscally prudent to limit non-citizen access to means-tested welfare benefits.  As part of a DREAM Act, Congress could include stricter welfare rules denying all non-citizens access to means-tested welfare, tax credits, and health insurance subsidies.  Congress could then create a special green card for DACA recipients and DREAMers, call it the DLPR, which they cannot use to naturalize for 10 years.  In such a case, they work legally and pay taxes without access to benefits for a decade when they will then have a choice.  Permanently protecting a large population from deportation while also making this fiscal cost argument moot is a good deal and should be taken regardless of CBO findings.       

During his campaign, President Trump promised to prioritize Christian refugees facing persecution, even implying that the Obama administration was actively disfavoring Christians. Many Christian refugee communities in the United States supported him based on this promise. One of his very first executive orders promised to prioritize Christian refugees. Despite these statements, however, President Trump has failed to deliver: his administration has accepted far fewer Christian refugees than in prior years.

According to figures from the U.S. Department of State, the United States accepted 3,671 Christian refugees per month from October 2015 to December 2016. President Trump assumed office on January 20, 2017 and issued his refugee executive order on January 27. The country accepted 1,280 Christian refugees per month from February to September 2017. In other words, the Obama administration was taking in almost three times as many refugees as the Trump administration has.

Figure 1
Monthly Christian Refugee Admissions, Monthly Average of 2016 and Each Month of 2017

Sources: U.S. Department of State (through December 15, 2017)

Over the last decade, the United States has averaged roughly twice as many Christian refugees per month as it is now accepting under the Trump administration. In other words, rather than rescuing more Christian refugees than prior presidents President Trump has halved their numbers. The numbers so far for Fiscal Year 2018, which started in October, are now below 1,000.

Figure 2
Monthly Christian Refugee Admissions, FY 2007 to FY 2018

Source: U.S. Department of State *2016 carries through January 2017

President Trump’s “prioritization” of Christian refugees parallels his prioritization of skilled immigrants in his chosen vehicle for legal immigration reform—the RAISE Act. RAISE simply ends most family-based categories without increasing the number of visas for skilled immigrants, so skilled immigrants are “prioritized” over others, but not in any way that actually eases immigration for them.

In this case, the so-called prioritization has increased the share of Christian refugees from a monthly average of 45 percent from October 2015 to January 2017 to 64 percent in November 2017, while dropping the absolute number. As I wrote last week, the share has increased at the expense of Muslim refugees whose numbers have dropped a staggering 94 percent over the course of this year.

President Trump is no longer a proponent of Christian refugee resettlement. I have previously detailed the administration’s efforts to deport Iraqi Christians, many of whom have lived in the United States for decades. A federal district court has temporarily paused their removals, accusing the Trump administration of impeding the refugees’ efforts to challenge their removals in courts and stating that they are “confronting a grisly fate …  if deported to Iraq.”

The problem is that the administration’s views on all immigrants too easily extend to Christians for its policies to leave them unscathed. Foreign Christians could still “steal” jobs from Americans. They could end up using welfare. They could commit crimes in the United States. Ultimately, these objections to immigration generally generate the results that are clear to all: fewer immigrants of all types.

Last week I sat down to talk tax reform with Nick Gillespie, the editor-in-chief of Reason.com and an all-around guru of libertarian policy and culture. We covered individual and corporate taxes, and then pondered whether Republicans will follow up next year with spending cuts.

The new science fiction movie Downsizing with Matt Damon opens at theaters this week. Wiki provides a summary:

Downsizing imagines what might happen if, as a solution to over-population, Norwegian scientists discover how to shrink humans to 5 inches (13 cm) tall and propose a 200-year global transition from big to small, but with one catch: the procedure cannot be reversed. People soon realize how much further money goes in a miniaturized world, and with the promise of a better life, everyman Paul Safranek (Matt Damon) and wife Audrey (Kristen Wiig) decide to abandon their stressed lives in Omaha in order to become small and move to a new downsized community—a choice that triggers life-changing adventures. To Paul’s horror and outrage, he finds out that Audrey backed out at the last second. After the couple understands that they do not have a future together, they divorce and Paul must now figure out how to start his life over in a completely different world.

That sounds interesting. But I think the following tweaks would have improved the plot:

Downsizing imagines what might happen if, as a solution to over-spending, Cato social scientists discover how to shrink the federal government to 5 percent of GDP and propose a 20-year transition from big to small, but with one advantage: the procedure cannot be reversed. People soon realize how much further money goes in a world with a miniaturized Washington, and with the promise of a better life, most Americans abandon their partisan acrimony and embrace their newly empowered local communities—a choice that triggers life-changing adventures. To widespread horror and outrage, Americans find that a few big government zealots try to sabotage the peaceful transition. After the zealots understand that Americans want freedom, they emigrate to a completely different world to impose their ideas, which are divorced from reality.

For this version, I would cast Vince Vaughn instead of Matt Damon and Julienne Davis instead of Kristen Wig.

Anyway, while we are waiting for Hollywood to make Downsizing 2 along these lines, we should ask policymakers to pursue real-life downsizing of the federal budget. The proposals here would chop spending from 23 percent of GDP to 18 percent. More cuts would be needed to reach 5 percent, but remember that defense is only 3 percent of GDP, and other spending is less important.  

DownsizingGovernment.org discusses how to miniaturize federal agencies. Rather than shrinking bureaucrats to 5 inches tall, it proposes to eliminate their programs, allowing them to start over in the completely different world of the private sector.

Cato’s new E-book, Downsizing Federal Government Spending, includes essays by Cato scholars on how to divorce federal taxpayers from farm subsidies, infrastructure spending, and other programs that shrink their wallets. 

The recently concluded tax reform conference report draft includes a one-percentage-point increase in the corporate tax rate above what both the House and the Senate passed, with some of the revenue savings being used to keep a portion of the deduction for state and local taxes as well as forego delaying its implementation until 2019, as the previous bills proposed. There remains a chance the rate may tick up yet again before negotiations are concluded, especially if other targeted tax breaks get some traction in the Congress over the next few days.

However, even this small diminution in the rate reduction is a mistake: while a one point increase may seem to be a trifle, each uptick in the corporate tax rate represents a large opportunity cost that Congress won’t be able to easily rectify in the future.

My former colleague Gordon Gray and I examined the tax code that emerged from the 1986 tax reform, as well as the various changes Congress made to the code in the subsequent thirty years, in a study published in Tax Notes, to see if we could discern some broad patterns regarding what sorts of changes proved ephemeral and which ended up being permanent.

As to the former, the list stretches a mile wide: Congress has changed the top personal tax rates four times since 1986 and seems poised to change it again. It has also tinkered with tax rates on dividends and capital gains numerous times. It has also inserted a litany of tax credits, subsidies and the like over that period as well, in order to encourage us to conserve energy, pollute less, or save more for retirement, or health care, education, or a funeral. A few years ago Rep. Thaddeus McCotter even proposed a tax break for pet expenses.

On the corporate side, Congress has done nearly as much tweaking. For instance, it tends to change the tax treatment of capital investment every business cycle, and a few years ago it created a special tax rate for manufacturers (and other industries with enough juice to be labeled as such). Congress has also modified how overseas income is taxed several times, and altered the code repeatedly to encourage environmentally sound behavior.

What hasn’t changed over the last thirty years? The corporate tax rate. A mere one point increase in 1993 marks its only alteration since the 1986 reform. In the context of our government’s predilection to conduct a wide manner of economic policy through taxes, its stickiness is remarkable.

We suspect the durability of the corporate tax rate owes to the fact that the benefits to reducing the rate can be difficult for voters to comprehend. Opponents of tax reform can simply shout that it is nothing but a giveaway to big business and that has often proven to be enough to get congressmen to back away.

Of course, it is anything but a giveaway. During the three decades of U.S. corporate tax rate stasis, literally every country in the OECD has reduced its tax rate numerous times. In 1987 we had one of the lowest corporate tax rates amongst the group, but today we have the highest by far, which has made it more difficult for U.S. companies to compete against their foreign competitors. From 2000-2012, there were 85 different corporate rate tax reductions in the OECD, I found.

The high U.S. corporate tax rate is especially pernicious, because it is a lousy way to collect tax revenue. Since a good fraction of it is borne by the workers in the form of lower wages, it’s not nearly as progressive as most people assume, and it achieves that progressivity at an extremely high opportunity cost in terms of foregone economic growth. Nobel Laureate Robert Lucas once said that eliminating the corporate tax was the closest thing to a free lunch that he has ever observed in economics.

History has shown that many other changes in the tax reform plan may be unwound in the near future, no matter what the final legislation contains. For better or worse, Congress cannot tie the hands of a future congress. But whatever happens with the corporate tax rate in the final bill will likely remain the law for the foreseeable future, so above all else we should strive to get it right.

And the right rate is the lowest rate possible. 

In their infinite wisdom, the Founding Fathers warned against the dangers of standing armies and determined that it should be civilians, not military leaders, who had final authority over the size, shape, and use of America’s armed forces. Their reasoning was simple. Without civilian control of the military there would be no bulwark against military coup or dictatorship. 

But civilian control should not stop at simple control over the armed forces. Civilian officials must provide active leadership and management of the full spectrum of American foreign policy efforts, from intelligence gathering and alliance building to arms sales and crisis diplomacy and, most importantly, the decision to make war. The old chestnut that “War is too important to be left to the generals” is an old chestnut for a reason: It’s true.

Civilian leaders have institutional incentives to be responsive to the full range of considerations that must inform foreign policy. Military leaders, as well informed and dedicated as they may be, operate with too much occupational bias to be the only source of input to the foreign policy making process. Their input on military matters is critical – but not sufficient. Socialized to look at every mission in black and white military terms, military leaders are in fact poorly suited to exercise the kind of political judgment required in a liberal democracy.

And this is where we have a problem. Since taking office, Donald Trump has made it achingly clear that he has little or no respect for the concept of civilian control, and little interest in exercising the sort of political judgment necessary from the White House.

As a candidate Trump exhibited signs of militarism, but it was his appointment of several current and former generals that signaled the coming erosion of civilian leadership. McMaster, Kelly, and Mattis are all clever and competent people, but  putting military leaders in charge of the Pentagon and the National Security Council began the tilting of the playing field, ensuring that Trump would get a larger dose of the military worldview in every conversation about world affairs.

The real proof of the loss of civilian control over foreign policy, however, has been Trump’s abandonment of diplomacy. First, Trump appointed Rex Tillerson, a man he had never met and whom he clearly did not really trust, as the Secretary of State. Then, he made sure that Tillerson’s main job would not be to act as the nation’s top diplomat and top foreign policy advisor to the president, but instead to perform radical surgery on the State Department. Tillerson’s plans to shrink and reorganize the State Department have already led a large percentage of the department’s most talented people to resign or retire. The failure to appoint new leaders for a vast number of top State Department jobs not only echoes Trump’s disinterest in diplomacy, but also undermines the broader concept of civilian control in foreign policy.

Of course, it’s not clear that Trump even thinks he needs a State Department. When Tillerson was trying to encourage North Korea to sit down for talks with the United States in late September, Trump hamstrung his efforts by issuing a contradictory pair of tweets: “I told Rex Tillerson, our wonderful Secretary of State, that he is wasting his time trying to negotiate with Little Rocket Man…” and then, “…Save your energy Rex, we’ll do what has to be done!”

The implication is clear: not only aren’t Rex Tillerson and the State Department part of the solution, Trump doesn’t even think of Tillerson as being part of his national security leadership team in the first place. It’s hard to imagine any previous president saying “we” with respect to a foreign policy issue and the Secretary of State not being part of that “we.”

Beyond the loss of diplomatic influence and engagement it portends, Trump’s breathless militarism and the loss of civilian control also puts the nation at grave risk. Less than two weeks ago one of Trump’s generals, National Security Adviser Henry McMaster, warned that the potential for war with North Korea was increasing by the day and that there “isn’t much time left” to prevent it. Rather than working with a wide range of civilian and military leaders to figure out how to make diplomacy work in North Korea, it looks like Trump has already decided that the military option is the only one that matters.

When Trump took office, many people hoped that “responsible adults” might be able to moderate his foreign policies. Without greater civilian leadership, however, the prospects for sound foreign policy look grim.

As college students across the country begin their final exams, we are reminded of the unfortunate reality that much of what we learn in school or other parts of life will eventually be forgotten. Usually, this is more of a nuisance than a problem. A failure to recall the finer points of Shakespearean literature is unlikely to trouble most accountants, nor is a marketing specialist apt to lose sleep over lost the ability to define the Pythagorean Theorem. It’s a bigger problem, however, when the Secretary of Commerce forgets some basic lessons of international trade.

Appearing at an Atlantic Council event earlier this week, Commerce Secretary Wilbur Ross argued that the Korea-U.S. Free Trade Agreement (KORUS) should address the U.S. trade in goods deficit with South Korea. Despite the fact that economists generally agree that the trade deficit is not a good indicator of a country’s economic performance—or as our colleague Dan Ikenson argues, is not a problem to solve—Secretary Ross thinks otherwise. In the context of president Trump’s recent visit to Asia, he stated the following:

President Trump…underscored the need to rebalance the KORUS free trade agreement to reduce the substantial trade deficit that we have with Korea. That deficit has nearly tripled to $27.7 billion since KORUS went into effect. Among the most important reasons for the increased deficit has been the imbalance between automotive imports and exports. Our automotive imports from Korea are almost nine times our exports of autos to them. And remarkable as it may sound, we export to Korea more dollars’ worth of corn and beef combined, than we do cars—seems strange for an industrialized economy.

The solution he offered to this “problem” was for South Korea to agree to purchase more liquefied natural gas, petroleum, food products, machinery and industrial equipment from the United States instead of other countries.

There are two basic things Secretary Ross gets wrong with this line of reasoning. First, he misunderstands the one true and nontrivial principle in the social sciences, which is Ricardo’s theory of comparative advantage. Second, by focusing only on goods—and cars in particular—he ignores the diversity of the U.S. economy, and some of its greatest strengths, such as the services industry. We address both in turn.

David Ricardo clearly explained the theory of comparative advantage in On the Principles of Political Economy and Taxation 200 years ago. He stated:

If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity.

The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal.

England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth.

To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth (para. 7.13-7.16).

This example highlights an important element of comparative advantage. First, even if one country is the best at everything (in other words, has an absolute advantage), it is still better served by focusing on what it produces best, and importing the remaining items. Why? Because an absolute advantage does not necessarily equal a comparative advantage, as the latter is based on the opportunity cost of making one thing over another. For instance, if planning a birthday party with a friend, and you’re better at both baking cakes and writing nice invitations but only slightly better at the invitations, it makes more sense for you to bake the cake and for your friend to send out the invites than for you to do both. It not only is more efficient, but it also spares up the time you would have spent writing those invitations to focus on making an even better cake. Essentially, comparative advantage allows for greater investment in the thing you are good at, and in turn, makes you better at it over time.

This logic is easily applied to the bilateral trade relationship between the United States and South Korea. Blessed with vast amounts of land ideally suited both for cattle grazing and growing of corn, the United States enjoys a considerable comparative advantage in such products and is the world’s largest producer of both. Lacking such geographic advantages but possessing a highly-skilled workforce and some of the world’s leading manufacturing firms, South Koreans instead specialize in the production of cars. By focusing on what each country does best, and then engaging in trade, the citizens of both countries are made better off. Rather than building cars, Iowa corn farmers raise crops, harvest them, and then send them to foreign lands where in exchange they receive cars and other needed goods. To force South Korean autoworkers to grow their own corn or Iowa farmers to build their own cars would be to live in a less prosperous world.

Also overlooked by Secretary Ross is that a country as vast and economically developed as the United States is able to enjoy comparative advantages across multiple sectors and industries. In addition to being an agricultural juggernaut, the United States is—perhaps contra the popular narrative—a manufacturing powerhouse with output near record highs. While the U.S. does indeed send large amounts of beef, corn, and other agricultural products to South Korea—$6.2 billion worth in 2016—these are dwarfed by its manufacturing exports.  Indeed, one category of manufacturing exports alone, machinery, saw exports ($6.1 billion) nearly equal to agricultural products in their entirety. In addition, the U.S. exported another $5.3 billion worth of electrical machinery, $5.2 billion in aircraft, and $2.9 billion worth of optical and medical instruments, in addition to vehicle sales of $2.2 billion.

Beyond its massive agricultural and manufacturing sectors, the United States—like most advanced economies—is also increasingly oriented towards the production of services where it possesses considerable expertise. Not mentioned by the Commerce Secretary is that the United States exported $21.6 billion in services to South Korea in 2016 and was left with a trade surplus in this sector of $10.7 billion.

Unlike the goods trade deficit, Secretary Ross has made no indication that he believes this particular trade surplus to be a problem or that he intends to pressure Americans into purchasing additional South Korean services to achieve balance. Nor should he. Rather, the citizens of both the United States and South Korea should be left to their own devices to purchase the products and services they desire and trade as they see fit with minimal interference. Instead of bemoaning a goods trade deficit that is more statistical quirk than indicator of economic vitality, or puzzling over why the United States does not export more of a particular good, Ross would do better to spend his time removing the remaining barriers to trade between the United States and South Korea and allowing the miracle of comparative advantage to work its magic. 

It was reported last week that a Republican working group is considering a proposal to link spending caps to the growth of actual or potential GDP. This is encouraging, and much more economically sensible than rigid balanced budget legislation.

I’ll write about other countries’ experiences with backward-looking rules in the future. But one country which uses forward-looking estimates of potential GDP to determine overall government spending is Chile. Indeed, economists such as Jeffrey Frankel have previously written glowingly about Chile’s fiscal rule, which Frankel concluded had constrained government debt whilst being flexible enough to allow automatic stabilizers to operate.

First, some background: in 2000 the Chilean government voluntarily adopted a structural budget surplus rule of one percent of GDP each year. This was lowered to half a percent of GDP in 2007, and then to a simple balanced structural budget rule in 2009 once government debt had essentially been paid off.

What does this mean in practice? A committee of independent experts meets once a year to provide the government with estimates of potential GDP. A separate committee assesses whether copper prices (a key driver of revenues) are higher or lower than trend. These two opinions are put together to determine an estimate of government revenues for the year if the economy was operating at its potential with copper prices at their long-term level. This determines the total maximum spending level allowed in the budget plan for the year. In other words, spending is capped based upon an estimate of tax revenues if the economy was at potential.

Unlike strict balanced budget proposals, the Chilean rule allows automatic stabilizers to operate, and the overall budget balance to fluctuate with the state of the economy. The government runs a deficit if output and revenues are below potential, and run a surplus if output and revenues rise above potential. Debt therefore acts a shock absorber for unforeseen deviations in economic activity. Provided the potential of the economy is estimated accurately, this means a balanced budget over the economic cycle. With economic growth then, such a rule theoretically means the debt-to-GDP ratio should gradually fall.

Crucial to the rule’s success, then, is accurate and unbiased estimates of the economy’s potential. Chile’s independent committees are designed to mitigate against the politicization of these. It’s hoped they reduce the incentive to be overoptimistic about the economy’s potential to justify higher spending. Given this independence, under Chile’s rule there are no sanctions if within a year the structural balance requirement is breached, and no adjustment in future budgets required from worse-than-expected deficits.

How has this framework performed since implementation? Prior to the financial crisis, Chilean central government debt fell sharply as a result of running sustained structural surpluses, and Chile’s sovereign debt rating improved. In fact, even the announcement of the rule in 2000 improved Chile’s creditworthiness. Frankel shows public spending fluctuated much less than in previous decades and GDP volatility declined substantially between 2001 and 2005.

The virtues of such a rule really became apparent though just before the financial crisis. President Michele Bachelet was pressured to substantially increase government spending given sustained strong GDP growth and a high world price of copper. Yet unlike the US in the early 2000s, IMF data shows that in 2007 Chile resisted these pressures and ran an overall budget surplus of 7.9 percent of GDP, with the independent experts judging most of the strong budget performance as resulting from the economy running above its potential.

This proved prescient. By 2009, the budget had swung to a 4.2 percent deficit as the global recession hit. General government debt increased again due to this large borrowing, but Chile had been so fiscally prudent prior to the crash that even today the IMF believes general government debt is only 21.3 percent of GDP, and net debt just 1 percent of GDP.

More recently, however, some of the difficulties of the rule have been in evidence. Chile raised its corporate income tax rate from 17 to 20 percent under President Sebastian Pinera in 2011, and has since raised the rate further to 25.5 percent under President Bachelet, with the intention to provide revenues for education and social spending. But during this period of higher taxes and steep spending increases (overall spending has increased by 3.8 percentage points of GDP since 2011), annual real GDP growth has performed consistently below expectations, and copper prices have been low. The result has been unforeseen structural deficits, with gross government debt near-doubling between 2013 and 2017, and net debt drifting back into positive territory, despite a pick up in global growth.

This highlights a key challenge of linking spending to potential GDP: it can be inherently difficult to assess, particularly when major supply-side policy changes occur. Calculating “cyclically-adjusted revenues” to determine spending caps requires accurate assessment of a) the health of the economy in real time, b) the “output gap” – i.e. how far the economy is away from its potential, c) how moving to potential affects revenues. All are highly uncertain and difficult to calculate.

Despite the existence of Chile’s fiscal rule then, and previous commitments to it, slower than expected growth after the crisis saw President Sebastian Pinera downgrade its stringency – aiming to hit a target of a 1 percent of GDP structural deficit by 2014. President Bachelet, in the face of sluggish growth and structural deficits being revised upwards, then began basing fiscal targets on a trajectory for the structural deficit (which should fall by 0.25 percent of GDP per year) rather than specific levels.  The IMF now believes that Chile’s slow growth reflects lower potential GDP, and that the country was running a structural deficit of 2.2 percent of GDP in 2016. S&P this year downgraded Chile’s credit rating.

Chile’s experience then clearly the strengths and weaknesses of fiscal rules based upon potential GDP. In theory, and when potential GDP is estimated accurately, a structural balance rule delivers counter-cyclical fiscal policy (the correlation between Chile’s budget surplus and real GDP growth since 2007 is 0.65, see the chart below), balances budgets over the economic cycle and leads to a gradual reduction in the debt-to-GDP ratio. Independent committees, in Chile’s case, likewise help to mitigate against politicians spending near-term budget windfalls or using them to justify more optimistic forecasts.

Chile’s Counter-Cyclical Fiscal Policy

Source: International Monetary Fund Fiscal Monitor October 2017

 

But potential GDP is tough to measure. Under Chile’s rule, no additional constraints are placed on government spending to correct for mistakes. Ultimately, when potential GDP was revised down, and structural deficits up, successive governments chose not to adjust spending accordingly, but aimed to return to something closer to structural balance over a longer period. This highlights the limits of fiscal rules in general, and the need for political will in ensuring they are not abandoned.

The implications of letting bygones be bygones in this way and only adjusting spending decisions on a forward-looking basis might not be significant for a country starting with low levels of government debt, such as Chile. But a rule which allowed such mistakes without consequence could cause considerably more damage for a country with already high debt-to-GDP levels, such as the US.

Rules based on potential GDP are theoretically appealing and work well if estimates of potential are accurate. But that’s a big if.

All I want for Christmas is for the U.S. to only fight the wars it has to and to stay out of all the others. The lives of young Americans are too high a price to pay for wars driven by threat inflation, ego, or fool-hardy social experiments.

First, we’re Americans. Enough of the hand wringing. Islamist-inspired terrorists do not hide around every corner. Instead, we have been and continue to be quite safe. The threat from groups operating within failed states like Afghanistan, Iraq, Syria, and so on pales in comparison to Hitler’s armies marching across Europe and our nuclear Cold War with the Soviet Union, despite President Trump’s attempts to equate the three.

Second, the unseemly traits of ego, vanity, and hubris should not push us to fight when we don’t have to. Teddy Roosevelt had it right: Walk softly and carry a big stick.

Third, American lives and financial treasure should not be spent on cool sounding social experiments like, “democracy will flourish in Muslim-majority states in response to U.S. invasions.” Since 9/11, though, all three U.S. administrations have referred to Afghan and Iraqi leaders as “reliable partners” at one time or another, while extolling democratic progress in both countries.

The data, however, provide no support for those claims. As of today, Freedom House gives both countries it’s lowest rating—“not free.” And, in terms of corruption, Iraq and Afghanistan’s governments rank worse than 94 and 96 percent of all governments worldwide.

All war is darkness. My Opa spoke those words to me 40 years ago. I remember it vividly because as he shared that one sentence, he pointed to the bullet hole in his shoulder and the shrapnel scar on his neck. He had barely survived the war as an enlisted man in the German army; and when the war ended, he found his home country had become East Germany. Three years later, he took my Oma and (then) three year old dad and they escaped to the west. Eventually, they made it to America.

My war experiences have been much briefer than my Opa’s, but I get his point. All war is darkness, so for the sake of those sent to do the fighting, the war has to be a necessary one. And our war on terror isn’t.

Let’s bring America’s sons and daughters home for the holidays. We’ll all be the better for it.

On December 4, 2017, the U.S. Supreme Court allowed the third version of the President’s travel ban, which limits the entry of citizens from eight countries, to go into effect. The White House claimed the Supreme Court decision as a victory, with spokesman Hogan Gidley saying, “The proclamation is lawful and essential to protecting our homeland. We look forward to presenting a fuller defense of the proclamation as the pending cases work their way through the courts.”

While the domestic implications of the Supreme Court’s decision will unfold in the next few weeks, the foreign policy implications will be widespread, and potentially damaging to U.S. interests and reputation.

Before delving into the foreign policy implications, however, it is important to note two important aspects of the U.S. Supreme Court that determine the impact of its decisions on U.S. foreign policy. First, even though the judiciary is constitutionally designed to check against executive power expansion, past administrations, along with the Court itself, have taken a narrow view of the Court’s authority when it comes to interpreting international laws and foreign policy. Second, and most importantly, the Supreme Court has interpreted the Case or Controversy Clause of Article III of the Constitution in a way that prohibits the courts from issuing advisory opinions. The Court’s decision on the travel ban, however, is to stay the district court’s preliminary injunction, which is a temporary maintenance of the status quo. The Court has decided to the let the ban be implemented while the merits of the ban continued to be argued in lower courts.

Yet, even though the Court’s decision does not necessarily mean that the ban will ultimately be upheld, the decision has had three immediate—and negative—foreign policy implications. 

The first, and most obvious, implication is the sustainment of the faulty link between immigration and terrorism. Cato’s Alex Nowrasteh and David Bier have written extensively on the flawed logic and harmful effects of the travel ban on immigration to the United States. One of the unintended consequences of the Court’s decision was a reinforcement of President Trump’s troublesome rhetoric on immigration, highlighted when the president commented on the most recent failed terrorist attack in New York City. President Trump argued that the current immigration system is, “incompatible with national security” and that Congress must end “chain migration,” which refers to the ability of U.S. citizens to sponsor their siblings for U.S. visas, even though there is little evidence indicating that such a measure will make America safer.

The second implication of the Supreme Court decision is connected to the growing anti-Muslim sentiment within the United States, which has entered the Trump administration’s foreign policy in the form of the travel ban and policy on refugees. Six out of the eight banned countries are Muslim-majority (Chad, Iran, Libya, Syria, Somalia, and Yemen) and the president has often referred to the ban as the “Muslim Ban.” Similarly, the president has stated that his administration will prioritize Christian refugees. While the Supreme Court decision is not a final ruling on the merits, the Trump administration has called it a victory. Thus, the Trump administration appears to have taken the Court’s decision as a signal that its third attempt at a travel ban will ultimately survive judicial review. 

The third, and final, implication of the Court decision is the worsening of U.S. relations with both Iran and North Korea at a time when tensions are already high. Anti-Americanism is steadily on the rise in Iran, while relations with North Korea have been escalating to a point where some analysts fear an onset of a nuclear war.

So for Christmas, if I could have one wish granted, it would be to end the travel ban in its entirety. Not only is the ban based on a false narrative and poor empirical analyses, but it also fails to make the United States more secure. Furthermore, it constantly undermines U.S. interests abroad. 

The Supplemental Nutrition Assistance Program (SNAP) is one of the costliest welfare programs at about $70 billion a year. Not only is it costly, but a large share of the benefits are not used as intended.

Recipients are supposed to use SNAP or food stamp benefits to “make healthy food choices” and “obtain a more nutritious diet.” But it turns out that about $15 billion of food stamp spending goes for junk food, such as candy and cola. Many recipients are not making the nutritious choices the government intends.

The Trump administration is expected to pursue welfare reforms next year, and trimming food stamp benefits is one priority. The Washington Post says that the U.S. Department of Agriculture (USDA)

is considering proposals to let states impose new restrictions on purchases of soda and candy and require SNAP candidates to apply in person, according to the Secretaries Innovation Group (SIG), which represents state social service secretaries from 20 Republican administrations. The agency is also considering a proposal to allow states to reduce payments to some groups of people, including undocumented immigrants’ citizen children.

… In the past, the USDA has rejected requests from states to take some of the actions SIG has suggested, particularly limiting the types of foods that people can buy with food stamps.

… One of the more controversial proposals involves a recommendation that the USDA ban “harmful” foods, such as soda and candy, from being purchased with food stamps. SIG also proposes that the program allow the purchase of only specific, “approved” foods, similar to what the Women, Infants and Children (WIC) program does.

“The Supplemental Nutrition Assistance Program is intended to subsidize nutrition for needy families,” reads SIG’s proposal, which was submitted to the USDA and Republican congressional leadership, and obtained by The Post. “However, too many recipients are utilizing their benefit to purchase items that are not only void of nutrition, they are damaging to their health.”

The article says “SNAP is America’s largest anti-hunger program,” but the main food-related health problem for low-income households today is not hunger, but obesity. Americans with low incomes are more obese than people with high incomes, on average. In general, people with low incomes are not suffering from too little food, but from too much of the wrong kinds of food.

So ending SNAP’s subsidies for junk food would be a pro-nutrition way to cut demand for the program and reduce taxpayer costs. Federal reforms to allow states to restrict benefits would move in the right direction. If food stamps could be only used for items such as fruits and vegetables, it is possible that fewer people would use the program and costs would fall.

For more on federal food subsidies, see here.

Five successive Secretaries of Defense have asked Congress for permission to reduce excess and unnecessary military bases. The fairest and most transparent way to make such cuts is through another Base Realignment and Closure (BRAC) round. So far, however, the SecDefs’ requests have gone unanswered. For their sake, but mostly for the sake of the men and women serving in our armed forces, I want one, too. All I want for Christmas is a BRAC.

According to the Pentagon’s latest estimates, the military as a whole has 19 percent excess base capacity. If it helps to visualize the nature of the problem, nearly 1 in every 5 facilities that DoD operates are superfluous to U.S. national security, or their functions could be consolidated into other facilities elsewhere. This is important because requiring the military to carry so much overhead necessarily compels the services to divert resources away from more important things – from salaries and benefits for military personnel, to maintenance and upkeep for their equipment, and even to the purchase of new gear.

As Secretary of Defense James Mattis said in congressional testimony earlier this year

Of all the efficiency measures the Department has undertaken over the years, BRAC is one of the most successful and significant – we forecast that a properly focused base closure effort will generate $2 billion or more annually – enough to buy 300 Apache attack helicopters, 120 F/A-18E/F Super Hornets, or four Virginia-class submarines.

There are two leading arguments against a BRAC, but neither is very convincing. The first envisions a vastly larger military – especially a larger Army – and concludes that a BRAC at this time would be premature because it would deny some hypothetical future military the land and other facilities it needs in order to train and operate effectively.

But BRAC rounds don’t eliminate every square inch of infrastructure not deemed essential in the present-day; they merely grant the Pentagon the authority to more efficiently allocate scarce resources, and respond to changing circumstances. Each of the past five BRAC rounds have cut an average of about 5 percent excess capacity. The military will always retain a surplus as a hedge against future contingencies. 

What’s more, the latest estimate was constructed around the force structure from 2012, when the U.S. military was engaged in major operations in Iraq and Afghanistan. Given other pressures on the defense budget, and federal spending in general, it seems highly unlikely that the military will grow back to 2012 levels. But in the extreme scenario in which the military’s needs are dramatically greater than at any time in the recent past, I’m confident that the federal government could obtain what it needs. After all, the U.S. military was tiny for most of our history, and yet we somehow managed to find new locations for bases when they were truly needed for the nation’s security (e.g., World War II).   

The second argument against BRAC has less to do with the military’s requirements, and is more about the impact of base closures on local communities. For the Pentagon, BRAC is like a shiny package wrapped with a bow under the Christmas tree. For locals, BRAC is a lump of coal in the stocking.

Except that we shouldn’t look at BRAC in this way. To be sure, base closures are disruptive to communities that have grown dependent upon the economic activity that a base generates. A few places have struggled to adapt after their local base closed and the troops moved away. But the actual experiences of defense communities reveal a more complex, and ultimately more optimistic, reality. Most communities are able to find more productive uses for properties previously trapped behind fences and barbed wire. Most are able to attract new businesses, from a diverse array of industries. Some have taken pride in granting the public access to newly open space. The array of uses for former bases is practically limitless (see, for example, Atlanta, Georgia; Austin, TexasBrunswick, MaineGlenview, Illinois; and Philadephia, Pennsylvania). A future BRAC round could be less disruptive than in the past if affected communities plan well, take account of lessons learned elsewhere, and apply some best practices to ease the transition.

As Secretary Mattis practically pleaded in a cover letter to the most recent report:

every unnecessary facility we maintain requires us to cut capabilities elsewhere. I must be able to eliminate excess infrastructure in order to shift resources to readiness and modernization.

If Congress doesn’t grant his wish, perhaps Secretary Mattis will climb onto Santa Claus’s lap, and whisper his desires into the jolly old elf’s ear – but I hope, for both men’s sake, it doesn’t come to that.

The U.S. Department of Justice, November 17 [press release/memo]:

Today, in an action to further uphold the rule of law in the executive branch, Attorney General Jeff Sessions issued a memo prohibiting the Department of Justice from issuing guidance documents that have the effect of adopting new regulatory requirements or amending the law. The memo prevents the Department of Justice from evading required rulemaking processes by using guidance memos to create de facto regulations.

In the past, the Department of Justice and other agencies have blurred the distinction between regulations and guidance documents. Under the Attorney General’s memo, the Department may no longer issue guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch….

“Guidance documents can be used to explain existing law,” Associate Attorney General Brand said. “But they should not be used to change the law or to impose new standards to determine compliance with the law. The notice-and-comment process that is ordinarily required for rulemaking can be cumbersome and slow, but it has the benefit of availing agencies of more complete information about a proposed rule’s effects than the agency could ascertain on its own. This Department of Justice will not use guidance documents to circumvent the rulemaking process, and we will proactively work to rescind existing guidance documents that go too far.”

This is an initiative of potentially great significance. For many decades, critics have noted that agencies were using Dear Colleague and guidance letters, memos and so forth — also known variously as subregulatory guidance, stealth regulation and regulatory dark matter — to grab new powers and ban new things in the guise of interpreting existing law, all while bypassing notice-and-comment and other constraints on actual rulemaking. To be sure, many judgment calls and hard questions of classification do arise as to when an announced position occupies new territory as opposed to simply stating in good faith what current law is believed to be. But the full text of the memo shows a creditable awareness of these issues. Note also, even before the Justice memo, Education Secretary Betsy DeVos’s statement in September, on revoking the Obama Title IX Dear Colleague letter: “The era of ‘rule by letter’ is over.”

Another notable pledge in the DoJ press release:

The Attorney General’s Regulatory Reform Task Force, led by Associate Attorney General Brand, will conduct a review of existing Department documents and will recommend candidates for repeal or modification in the light of this memo’s principles.

Note also this recent flap over certain financial regulations and the possibility that they may have been issued without notice to Congress, which could preserve Congress’s right to examine and block them under the terms of the Congressional Review Act. [cross-posted from Overlawyered; earlier in this space on the era of “rule by letter” at the Education Department]

Yesterday, Bangladesh-born Akayed Ullah attempted a suicide bombing in New York City.  Fortunately, he only injured a few people and severely burned his own torso.  Ullah entered the United States on an F4 green card for the brothers and sisters of U.S. citizens.

Some are using Ullah’s failed terrorist attack to call for further restricting family-based immigration and the green card lottery.  After hearing about the failed terrorist attack, President Trump argued that “Today’s terror suspect entered our country through extended-family chain migration, which is incompatible with national security … Congress must end chain migration.”  Rep. Bob Goodlatte (R-VA), Chairman of the House Judiciary Committee, also argued for ending chain immigration and the visa lottery program.  He said ending those green card programs “would make us safer.”

Neither President Trump nor Rep. Goodlatte indicated how much safer ending chain immigration or the diversity visa would make us.  Since September 2016, I have been updating information on the number of people killed in a terrorist attack on U.S. soil by foreign-born terrorists according to the visa they initially used to enter the United States.

From 1975 through December 11, 2017, foreign-born terrorists who entered on a green card murdered 16 people in terrorist attacks on U.S. soil.  Assuming all of those green cards were issued in the family reunification categories or through the diveristy visa lottery, the chance of being murdered in a terrorist attack committed by a chain immigrant or a diversity visa recipient was about 1 in 723 million per year.  The chance of being murdered in a non-terrorist homicide during that time is about 1 in 14,394 per year.  In other words, your annual chance of being murdered in a normal homicide is about 50,220 times greater than being killed in a terrorist attack by a chain immigrant or an immigrant who entered through the diversity visa lottery.

At least six of those victims were Argentinians here on a tourist visa, leaving 10 Americans as victims.  If we take American nationalists at their word and only consider the harm of foreign-born terrorist attacks on U.S. citizens, then we would have to exclude those six victims of terrorist attacks by chain immigrants and diversity visa winners.  This crazy nationalist calculus means that the annual chance of an American or a resident of the United States being murdered in a terrorist attack on U.S. soil committed by a chain immigrant or diversity visa winner is about 1 in 1.2 billion per year.  Your annual chance of being murdered in a normal homicide is about 80,352 times greater than your chance being killed in a terrorist attack by a chain immigrant or an immigrant who entered through the diversity visa lottery.

Of the 3,037 people murdered in terrorist attacks on U.S. soil during that time, about 98 percent perished in the 9/11 attacks.  Foreign-born terrorists who entered on tourist and student visas account for 99 percent of all murders committed by foreign-born terrorists on U.S. soil since 1975.  The annual chance of being murdered by any foreign-born terrorist during that time is about 1 in 3.8 million per year.

The 1 in 723 million chance a year of being murdered by a foreign-born terrorist who came in as a chain immigrant or on a diversity visa is the greatest possible risk, as I assume that all terrorists who entered on green cards did so through one of those two paths.  These numbers could change in the future and perhaps chain immigrants or those who entered on the diversity visa will become especially dangerous at some future date. That, however, is thin support for Trump’s policy proposal to remove about 400,000 green cards annually.  Whatever other merits could accrue from reforming chain immigration or the diversity visa, security is not a serious one as the danger is already so low.

During his campaign, President Trump promised to ban all Muslims outright until he could figure out “what is going on.” He later explained that this idea had developed into several policies that would have the same effect. Since his inauguration, Trump has begun to implement them—they include slashing the refugee program, banning all immigration and travelers from several majority Muslim countries, and imposing new burdens on all visa applicants as part of “extreme vetting” initiatives. So far, these policies appear to have “worked,” strongly reducing Muslim immigration and travel to the United States.

Muslim refugee admissions have fallen dramatically over the past year. According to figures from the State Department, Muslim refugee flows fell 94 percent from January to November 2017 (the last full month of available data). In calendar 2016, the United States admitted almost 45,000 Muslim refugees, compared to a little more than 11,000 in 2017—fully half of those entered in January and February. Of course, the administration has cut refugee flows generally, but the Muslim share of all refugees has dropped substantially too—from 50 percent in January to less than 10 percent in November.

Figure 1
Monthly Muslim Refugee Admissions for Each Month of 2017 and Average for 2016

 

Source: U.S. Department of State *Monthly average, **Through December 11, 2017

This year’s drop is even more substantial when compared with the trend. In only one year over the last decade has the number of Muslim refugee admissions fallen, and Muslim admissions have increased on average 18 percent annually from 2007 to 2016.

As for foreign travelers and immigrants seeking to live permanently in the United States, the State Department does not ask on its visa application form about their religious affiliation (thankfully). But based on the number of visas issued to nationals of the nearly 50 majority Muslim countries, it certainly appears that the Trump administration policies have affected them as well.

America issues two types of visas—“immigrant” for permanent residents and “nonimmigrant” for temporary residents—mainly tourists, guest workers, and students. For Muslim majority countries, the average monthly permanent visa issuances during the period of March to October 2017 (the only months that are available so far) dropped 13 percent from the monthly average in FY 2016. Average monthly visa issuances for temporary residents—tourists, guest workers, and students—from majority Muslim countries have dropped 21 percent from the FY 2016 monthly average.

Figure 2
Average Monthly Visa Issuances—Permanent and Temporary—2016 and 2017

Sources: U.S. Department of State, “Monthly Nonimmigrant Visa Issuance Statistics”; “Monthly Immigrant Visa Issuance Statistics”; “Nonimmigrant Visas Issued by Nationality”; “Immigrant Visas Issued

During the last decade, majority Muslim countries have never—even during the recession—seen temporary visa issuances fall by more than 1 percent in a single year and immigrant visas never more than 7 percent. From 2007 to 2016, temporary visa approvals for nationals of these countries actually grew 8 percent annually and permanent visas 9 percent annually. Again, compared to the expected increases, the declines are even more remarkable.

Immigration and travel from all countries has also declined this year, but the declines for Muslim majority countries were larger. They saw their share of all immigrant visa issuances fall 3 percent and their share of temporary visa approvals by 15 percent.

The visa declines disproportionately affected certain countries. In particular, they impacted the eight majority Muslim countries that President Trump has singled out in his three “travel ban” executive orders—Chad, Iran, Iraq, Libya, Syria, Somalia, Sudan, and Yemen. (Iraq and Sudan are technically now off the list, though Iraqis are supposedly subject to higher scrutiny. Chad was added in September.)

All eight countries received fewer visa approvals, and collectively, their monthly average immigrant visa issuances fell a collective 36 percent, while temporary visas fell 42 percent. These declines occurred despite court orders that barred full implementation of the ban until this month.

Figure 3
Average Monthly Visa Issuances—Permanent and Temporary—2016 and 2017 for Eight “Travel Ban” Countries

Sources: U.S. Department of State (See Figure 2)

The decline in Muslim refugee admissions is almost entirely a consequence of policy. The administration selects the number and types of refugees that it wants. President Trump promised to “prioritize” Christian refugees, and he has done so, not by increasing their numbers—the number of Christian refugees has declined as well—but by decreasing Muslim admissions.

Policy is at least partially culpable for fewer visa approvals. Almost 80 percent of the drop in immigrant visas came from the eight targeted countries, but these countries explain only 14 percent of the drop in temporary visas.

The Trump administration has rolled out other policies designed to target Muslim extremists that include more complicated and lengthy immigration forms and requirements to supply more evidence to support certain claims, such as past addresses and jobs. These could be increasing the costs associated with an application, forcing immigrants to hire attorneys or simply delaying their applications. Accounts of mysterious visa denials for Muslim applicants have serviced as well.

Undoubtedly, some Muslim travelers are also afraid to travel to the United States right now—stories of lengthy detentions and other mistreatment at the border for Muslims could dissuade Muslims from even applying. Regardless, President Trump is certainly fulfilling a major campaign promise: few Muslims are entering the United States. One can only hope he will figure out “what is going on” soon.

Pundits of every political persuasion decry corporate lobbying in Washington, and a major tax bill is a great opportunity for businesses to gain benefits if they convince members of Congress to help them out. However, battles over tax provisions are sometimes not what they appear on the surface.

For years, liberal pundits have characterized efforts to repeal the estate, or death, tax as the plutocrats pulling the levers of power on the Republican side of the aisle. But a new investigative piece at Daily Caller by Richard Pollock exposes the lobbying that is undermining good policy on estate taxation.

I favor estate tax repeal, for numerous reasons, as I laid out here. One reason is the large waste of resources spent on paperwork and avoidance. I noted:

The estate tax is probably the most inefficient tax in America. It has a high marginal rate and is very difficult for the government to administer and enforce. It has also created a large and wasteful estate planning and avoidance industry. The industry overflows with high-paid lawyers and accountants doing paperwork, litigation, asset appraisals, and creating financial structures to minimize the tax burden using trusts, life insurance, and private foundations.

Pollock explored lobbying by the life insurance industry to retain the estate tax, and the large revenues the industry earns on estate planning and avoidance services:

The life insurance industry has handsomely profited from the estate tax for years through the sale of “survivorship,” or second-to-die life insurance policies that generate billions of dollars in sales. The insurance industry provides these products to cover the estimated estate tax the policyholders’ children or heirs would have to pay upon their death. The policies are a more affordable way to pay the tax to the federal government.

For example, if a husband or wife estimates their heirs could face $1 million in estate taxes, they could buy a life insurance policy that pays out $1 million upon their death. That sum is free of income tax. The costs for the $1 million whole or universal survivorship policy could cost them pennies on the dollar, making the protection affordable.

“If properly arranged, a survivorship life policy will be tax free to the beneficiary, no estate tax and no income tax,” one organization boasts on its website, adding, “If, for example, you only pay over time $200,000 of premiums into a $1,000,000 policy, you’ve effectively paid $1,000,000 of estate tax for $200,000! Twenty cents on the dollar!”

The life insurance industry has been tight-lipped about how much money they make from these policies. Survivorship policy “represents approximately four percent of the life insurance market and 10 percent of premium for companies who offer it annually,” according to a June 13, 2017 report by the Insurance News Network. That amount would deliver as much as $24 to $30 billion in annual profits to the industry based on premium data from the Insurance Information Institute.

… As talk of full repeal of the death tax echoed through the walls of Congress, “panic” gripped the life insurance industry, its estate planners and insurance agents, according to industry insiders. “All estate planning has almost come to a halt over the last six months due to the possibility of significant changes to the estate tax laws, and in particular, the possibility there could be repeal,” said retired estate planning lawyer Steve Hornig, in an interview with TheDCNF. Hornig opposes the estate tax.

“I would classify it as a panic in the industry,” added Ted Bernstein, who is a retirement-planning and life-insurance specialist in Florida and who supports the estate tax. “Survivorship insurance will go away completely if the legislation passes as expected.” “Permanent insurance policies,” he added, “are a very significant percentage of the life insurance sales of the leading life insurance companies in the U.S.”

… Between 2015 and 2016, lobbying expenditures by [the] American Council of Life Insurers were estimated at $9.4 million, according to the nonpartisan Center for Responsive Politics. The insurance council has 30 full-time paid lobbyists …

In Congress, the House tax bill included estate tax repeal, while the Senate expanded the exemption. We will see in the coming week or two whether lawmakers will buck the life insurance lobbyists and repeal this inefficient tax.

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