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Michael F. Cannon

That sentence (headline), which appears in a report Rep. Chip Roy (R‑TX) issued this week, is the wisest, most responsible sentence I have seen from a member of Congress in nearly 30 years of working for health reform. 

Let me explain.

The worst thing Congress ever did in health care was to create the (second) federal income tax. Basically, ever since 1913, Congress has taxed compensation that employees receive in the form of cash but not compensation they receive in the form of employer-sponsored health insurance. In effect, the income tax penalizes workers if they want to control their own health insurance dollars and health care decisions.

This “tax exclusion” for employer-sponsored health insurance is the original sin of US health policy. It has wildly increased prices for health insurance and medical care while suppressing the quality of both. Just one example: it is the largest cause of the problem of preexisting conditions. 

The exclusion is thus one mistake that launched a thousand others. In my latest book, I list just a sampling (one dozen) of the subsidy programs, regulations, and further tax provisions Congress has enacted in a series of unsuccessful attempts to correct the problems the tax exclusion creates. 

Making health care better and more universal requires ending the tax exclusion. Ideally, Congress would do so by eliminating federal income and payroll taxes. But really, it should eliminate the exclusion by almost any means necessary. 

Ending or even just reforming the exclusion is politically difficult, however. Inefficient health care providers, insurance companies, and large employers rely on the exclusion to protect them from the harsh judgments of consumers. The exclusion protects those companies by penalizing workers who do business with their competitors. There are a lot of those inefficient producers, and they spend a lot of money lobbying to preserve the special privileges the tax code grants them. Those special-interest groups successfully lobbied Congress to kill the Cadillac tax, for example, which was a rather measly effort to curtail some of the exclusion’s effects.

Roy (along with staffers Michael Davis and Sabrina Hancock) identifies the exclusion as the most important health care problem facing US consumers. It is the most important reason, they explain, why the “government controls more than 80% of health spending” in the United States and (not unrelated) why health care prices are higher than necessary. 

Roy endorses changing the tax code to let workers control the $1 trillion of their earnings and health spending that the income tax and the tax exclusion currently require employees to let their employers control. (Phew, that was a mouthful.)

His proposal should have bipartisan appeal. While the appeal to Republicans is obvious, Roy’s proposal could also warm the cockles of Democratic hearts because it would end many of the inequities the exclusion creates. Such as:

The implicit penalties the tax code imposes on workers without access to employer-sponsored coverage;
Letting high-income executives control the health insurance choices of lower-income employees;
Letting executives control a larger share of the earnings of women, older workers, workers with chronic conditions, and low-income workers;
The inequitable impact that higher medical prices have on workers with low incomes and/​or chronic conditions; and
The “spouse tax,” a near-100 percent tax on thousands of dollars of compensation that spouses would otherwise receive in the form of health insurance.

To name just a few.

Roy’s proposal would also accomplish what the Cadillac tax could not: it would cap the exclusion for high-income earners, thereby shifting the burden of federal taxes up the income scale. 

Democrats should take note. 

Patrick G. Eddington

It’s rare for a sitting federal chief executive to unilaterally order a mass declassification of historical records. Yesterday, President Trump did exactly that via an executive order (EO) directing his acting attorney general and Office of the Director of National Intelligence (ODNI) to work with senior members of his White House staff to come up with a plan and complete a review of the remaining unreleased records on the assassinations of President Kennedy, his brother, former Attorney General Robert F. Kennedy, and Dr. Martin Luther King, Jr. 

The plan for executing the declassification action is to be on Trump’s desk no later than 45 days from the promulgation of the EO, which would be March 9. Trump’s interest in this issue is clearly tied to the desires of Robert F. Kennedy, Jr., Trump’s nominee to head the Department of Health and Human Services, to see the records released. 

As the Washington Times’s Jeff Mordock and Susan Ferrechio noted in their coverage of the announcement, “Mr. Kennedy has long demanded that the files be released on the deaths of his uncle, his father, and King. He believes the government may be connected to all of their deaths.”

By “connected,” Kennedy is insinuating US government officials were somehow responsible for the deaths in some fashion, a popular conspiracy theory for decades. 

Besides his personal and political interest in making the records public is the unusual way Trump is going about it. 

Records as old as the ones subject to his EO are almost certainly in the custody of the National Archives (NARA), and normally it would be NARA officials who would be responsible for the review and release of the records in question. Thus far, administration officials have offered no explanation for this significant—and, in my view, troubling—deviation from past, accepted practice. 

Will this action result in a selective release of information designed to bolster long-held conspiracy theories about the Kennedy assassinations? Unless every single record of the cases and investigations in question is released in full, the public will be no closer to getting answers about what really happened.

Almost six years ago, I wrote a piece for The Hill in which I not only talked about NARA’s refusal to release the remaining MLK, Jr. historical records to Cato (not just the assassination records but the FBI’s remaining surveillance records on King), but also the bureaucratic mindset that causes federal records that are decades old to remain beyond public reach. 

I’m glad Trump has taken executive action on the records involving the Kennedy brothers and Dr. King, but he can and should go vastly further when it comes to historical record declassification.

He should start by issuing a follow-up EO ordering the immediate, full release (i.e., zero redactions) of all federal records 25 or more years old, with the only carve-outs being for information on confidential sources that are still living or cryptologic systems still in use by countries of interest to the American intelligence community. 

Under a standing EO—EO 13526, Section 3.3, to be precise—automatic declassification of records is supposed to take place when the record becomes 25 years old. The reality is that this simply doesn’t happen—and often what’s required in the case of FBI records is that redactions made pursuant to law enforcement exemptions allowed under the Freedom of Information Act (FOIA) are not reviewed at the same time—meaning that critical information about why a person or organization was targeted in the first place remains hidden. 

Trump could change all of this with the stroke of his pen, and he should. The true, currently classified and hidden history of the United States should be revealed in full. The question is, will Trump do it?

Jeremy Horpedahl

Economics is a powerful set of tools for analysis. It’s also a set of tools that illustrates the idiom that a little knowledge can be dangerous.

A clear example that has come up recently in several areas of public policy is the economic concept of “externalities”—specifically negative externalities. Negative externalities arise when the production or consumption of a good results in costs that are not borne by the seller or buyer. These external “costs—“externalities”—mean that the market does not lead to the efficient level of production we’d expect in a perfectly competitive market (too much is produced). Typically, analysts then jump to propose government action that could improve market outcomes (emphasis on “could”—more on this later).

In a principles of economics class, externalities are typically the first mention of a way in which markets may not be perfectly efficient. They are also often the first call in an economics course for the government to improve on the outcome of competitive markets.

The first remedy usually discussed to improve market outcomes is a tax, usually referred to as a Pigouvian Tax, which can help steer the market toward an efficient outcome. There are many more complications to be added: how can the government determine the correct size of the tax? Is it better to use a quasi-property-right solution? But for many students of economics, taxing the negative externalities is a lesson they come away with.

Several recent public policies show how the “tax the externality” approach has been deployed. These include New York’s road congestion charge, Trump’s tariffs, and electric vehicles (in this case a Pigouvian subsidy).

New York City’s Congestion Charge

This year New York City began instituting a “congestion charge” to enter the area of Manhattan below 60th Street. The fee is $9 for passenger cars during peak hours, charged once per day. Different prices apply to other vehicles, and there are off-peak hours too. The basic premise of the charge is to reduce congestion in lower Manhattan while at the same time raising revenue to improve the subway system.

Peter Coy in the New York Times has connected the issue to externalities: “By driving into a congested area, you are harming the other people who have to deal with that congestion, and you should be charged for your negative externality.” There is some truth to this statement, as my choices as a driver only consider the costs and benefits to me, not any marginal impact my driving has on aggregate congestion. Thus, I impose an externality on other drivers.

However, the clearer case for the so-called congestion charge is simply that scarce resources should be priced. If the government is to provide scarce resources, such as roads, they should charge the users of the roads for consuming the good whenever it is technologically feasible (it is, with electronic tolling). The revenue collected from charging users for the roads could be used to maintain the roads, rather than using general taxation (income or sales taxes) or imperfect user fees such as gasoline taxes. Unfortunately, this is where the real-world application of the principle runs into a problem—the revenue is being diverted to the subway system, not to fund the upkeep of the roads or pay down bonds for road construction.

Oren Cass and Tariffs

It’s no secret that President Trump wants to impose new tariffs. But Oren Cass, writing in The Atlantic, recently made a strange argument in favor of Trump’s tariffs: an externality. What is the externality? Cass argues that decisions by corporations to offshore production to China or decisions by consumers to buy cheap foreign goods have “collective economic, political, and societal harms.” These economic decisions impose costs on others, so Cass tells us this is much like pollution, which calls for a similar policy response: tariffs, a tax on imports.

But this analysis is hopelessly confused. First of all, any economic harms from international trade are already reflected in market prices. Economists refer to these as pecuniary externalities, and there is no justification for taxing these externalities or otherwise intervening since all of the costs are reflected in changing market prices (the price of the good, wages of workers, etc.). 

If we were to tax every economic decision that negatively impacted others, we would be taxing innovators of labor-saving devices and entrepreneurs who start new businesses to compete with existing firms. This broad application of fiscal externalities would be madness, as my Cato colleague Ryan Bourne has explained.

Are there other “political and societal harms” from foreign trade that call for a Pigouvian Tax? Cass doesn’t name them, but only alludes to “the broader importance of making things in America.” He chides economists for not understanding what he means, so count me among the chided economists. At best, he is talking about the related subject of positive externalities (though he, of course, ignores these for trade). But to the extent there are some benefits from making stuff domestically, the economist’s correct policy intervention would be a production subsidy, not a tax on imports, which can harm US manufacturing (as Trump’s steel tariffs did).

Cass tries in his essay to equate a tariff with a carbon tax, but the parallels are only in his mind. Furthermore, do universal tariffs on things like avocados really help bring back advanced manufacturing to the US, something that Cass claims is a goal? But speaking of carbon taxes…

Subsidies for Electric Cars

Speaking of subsidies for positive externalities, there is one final misuse of the externality concept that arises frequently: subsidies for electric cars. Subsidies for electric vehicles are widely deployed, with the federal tax credit of $7,500 being just one example among many others (some US states and foreign countries offer subsidies too). The logic with Pigouvian subsidies is to increase production and consumption, unlike the tax, which is intended to do the opposite.

For a Pigouvian subsidy to be justified, there must be some benefits to those other than the producer or consumer of the good. The alleged benefit of buying an electric car is that you won’t buy a gasoline car and thus will emit less pollution. But this misses the important fact that both kinds of cars emit pollution (the EVs do so indirectly). Thus, from an externalities standpoint, both should be taxed—just a smaller tax for the EV if it truly emits less pollution when all factors are considered. But this is a far cry from an argument for a Pigouvian subsidy. Carbon is carbon, and if we really want to address the issue, a broad-based carbon tax would be the better solution, not subsidizing the lesser of two carbon producers.

Externalities are an important concept for all to consider with taxes, including libertarians to consider. But most applications of externalities in the real world stray significantly from the textbook economic justification, in some cases getting it exactly backward and too often to justify misguided government interventions in the free economy.

Jeremy Horpedahl is an adjunct scholar of the Cato Institute and associate professor of economics at the University of Central Arkansas.

Colin Grabow

As the Biden administration readied its exit last week, the US Trade Representative’s office released a report that found China’s subsidies and other market-distorting measures targeted at various maritime industries to be unreasonable and a burden on US commerce. The result was unsurprising, particularly given previous sympathetic statements from both US Trade Representative Katherine Tai and President Biden for the 2024 petition filed by politically allied unions that triggered the USTR’s investigation into the matter.

The officials’ less-than-neutral stance would perhaps be forgivable had the new USTR report supported its conclusion in favor of the petitioners with compelling facts and argumentation. But that’s not what was delivered. While the report provides voluminous evidence of Chinese market abuses and accurately notes the depressed state of the US shipping and shipbuilding industries, it fails to establish any causal relationship between the two.

Instead, the report’s findings are based on scant relevant evidence and questionable logic. Rather than first establishing facts to inform a carefully considered judgment, the USTR report smacks of a document hastily released to advance a predetermined conclusion beneficial to the outgoing administration’s political allies.

Even the report’s press release is flawed. In it, US Trade Representative Tai states that the United States currently ranks 19th in the world in commercial shipbuilding, while in 1975 it ranked number one with an annual production of over 70 ships.

None of these numbers are correct.

In 2023 (the most recent year for which data are available), the United States ranked 14th. Notably, Tai’s 19th place figure is mirrored in the 2024 petition’s first page (the US position in 2015), while her own USTR report placed the US at 16th (the US position in 2022). As for US performance in 1975, that year’s US Maritime Administration’s annual report shows the United States ranked twelfth—a far cry from first place—with 20 ships delivered (see page 68).

Tai’s inaccurate numbers are sloppy, but they’re small beer compared to the report itself, which—while mangling some facts of its own—fundamentally errs in concluding that China plays a meaningful role in US maritime misfortunes. Below are a few examples of the report’s central (and erroneous) premise:

China’s targeted dominance of the maritime, logistics, and shipbuilding sectors is a key factor that contributes to the United States not being able to achieve shipbuilding and shipping sectors of the magnitude or size necessary to “carry the waterborne domestic commerce and a substantial part of the waterborne export and import foreign commerce of the United States and to provide shipping service essential for maintaining the flow of the waterborne domestic and foreign commerce at all times.” (page 4)
China’s targeting of the maritime, logistics, and shipbuilding sectors frustrates the United States’ ability to maintain sufficient domestic shipbuilding, shipping, and logistics capacity to sustain US commerce, as directed by US law. (page 63)
China’s targeting of these sectors for dominance burdens or restricts US commerce because it undercuts business opportunities for and investments in the US maritime, logistics, and shipbuilding sectors…For China to achieve its targeted dominance, including as demonstrated by explicit global market share targets, Chinese companies must displace foreign companies in existing markets and take new markets as they develop. Such displacement affects China’s current top competitors in Korea and Japan, as well as US shipbuilders… (page 116)

The core flaw in the USTR’s causal argument is that US shipping and shipbuilding firms aren’t merely uncompetitive with China; they’re uncompetitive with every country of maritime significance. If China’s maritime industries ceased operations today, their business would simply shift to other countries with competitive shipping and shipbuilding firms — a group that decidedly does not include the United States.

For all the teeth-gnashing about China, US shipbuilders’ lack of competitiveness is such that their output trails that of even much smaller countries such as the Netherlands and Norway.

Despite this, the USTR report places considerable blame on China for US maritime travails. It states, for example, that in the year 2000 “glimmers of hope” had begun to appear for the US shipping and shipbuilding industries, but that—like other sectors of the economy—they fell victim to the so-called “China shock” stemming from the country’s 2001 accession to the World Trade Organization. As the report states:

A number of US shipyards have been forced to close as cheap Chinese ships have flowed into the global market. For example, Bender Shipbuilding in Mobile, Alabama declared bankruptcy and was sold in 2009, and delivered its last ship in 2012. Avondale Shipyards in New Orleans, Louisiana announced it was closing in 2010 and delivered its last ship in 2014. US shipbuilding employment has seen a corresponding impact. From 2008 to 2021, the number of shipbuilding and repair production workers in the United States fell by 14.9 percent and the number of production hours worked fell by 19.5 percent.

Later, the report quotes Scott Paul, the president of the union-aligned Alliance for American Manufacturing, stating that “US shipbuilding production has declined as artificially low prices of ships flood the market. China’s unfair production practices have made it impossible for American shipbuilders to compete on an even playing field.”

But the global market has little bearing on the fortunes of uncompetitive US shipbuilders, who have long subsisted on the protected Jones Act market for commercial vessels and military sales reserved for domestic shipyards. Indeed, a 2023 Congressional Research Service brief noted that no large US-built ship has been sold to an overseas buyer in decades, while a 1992 US International Trade Commission report noted that the US shipbuilding industry “had not produced a commercial vessel for export (that is, to be foreign-flagged) since 1960.”

The Avondale and Bender shipyards cited by the USTR report offer good examples of the lack of exposure to international competition (itself a notable contributor to the industry’s problems). For at least 30 years before its closure, the Avondale shipyard exclusively built ships for Jones Act and defense customers (and, before being defunded in 1981, a federal shipbuilding subsidy program). Bender was similarly dependent on building vessels for a captive domestic commercial market as well as occasional Navy contracts.

Put simply, neither Avondale nor Bender lost contracts to Chinese firms (or any foreign shipyard) because they never competed with them.

Beyond claims that China has contributed to US maritime struggles since 2000, the USTR report also alleges that Chinese policies are hindering efforts to revitalize the US maritime industry. It credulously quotes, for example, a letter from the Shipbuilders Council of America holding Chinese subsidies responsible for an inability of “private-industry US shipyards to compete for contracts to build or repair ships for international commerce.”

To substantiate these claims, the report offers the example of specialized vessels to construct offshore wind turbines. As it states:

Despite this strong demand signal [for offshore wind vessels], few US vessels are in development or construction. For example, while the [National Renewable Energy Laboratory] report indicates that four to six wind turbine installation vessels are needed, only one purpose-built offshore wind installation vessel has been launched in the United States. This is in part due to China’s flooding the market with offshore wind installation vessels, which decreases US shipyards’ perceived cost competitiveness and artificially restricts the ability of shipowners to compete for available work.

For example, the US-built offshore wind installation vessel capable of installing the largest wind turbines is reportedly expected to cost approximately $715 million. By contrast, a European vessel operator has contracted a similar vessel to be built in China for only $400 million, due in part from cost savings from building two similarly designed vessels in China. This initial contract price provides an indication of the impact of China’s unreasonable acts, policies, and practices. From an initial cost perspective, the Chinese-built wind tower installation vessel was 25 percent less expensive than a wind tower installation vessel built in United States. Yet, as detailed above, the non-market advantages that flow from China’s targeting of this sector for dominance confer artificial cost advantages to Chinese shipyards through related party transactions, labor rights violations, mispriced and misallocated financing, underpriced steel and other inputs, and others. With cost reductions from matured vessel designs, and costs and pricing reflecting series orders, US shipbuilding could be considerably more competitive.

Such language creates the impression that, but for China, US shipyards could compete in the construction of highly sophisticated wind turbine installation vessels. But such an outcome is beyond difficult to believe as US shipyards can’t compete with other foreign shipbuilders that construct WTIVs either.

While the report highlights the construction of a wind turbine installation vessel for $715 million in the United States compared to $400 million for a “similar” vessel in China, it neglects to mention that a South Korean shipyard contracted to build the exact same model vessel as the one currently under construction in a US shipyard for $330 million—less than half the US price and less than the China price.

Thus, even in China’s absence, vastly uncompetitive US shipyards would still be out in the cold.

Perhaps with this in mind, the report attempts to justify its finding by employing yet another argument. Beyond alleged past and current damage inflicted, the report claims that Chinese policies burden US commerce by creating undue risk. As it states:

China’s targeting of the maritime, logistics, and shipbuilding sectors for dominance burdens or restricts US commerce because it creates economic security risks from dependence and vulnerabilities in sectors critical to the functioning of the US economy.

A disparate set of facts are mustered to substantiate this claim. The report points out, for example, that 22 percent (hardly an overwhelming number) of the non-US flagged ships that entered US ports in 2022 were Chinese-built.

This fact is soon followed by the assertion that “Over-reliance on a single economy for shipping, shipbuilding, and logistics increases the cost of any disruption,” and a digression into the costs of disruptions to shipping in the Red Sea, their knock-on effects, and a claim that similar disruptions in the South China Sea could cause a $5 trillion decline in global GDP.

How this relates to Chinese subsidies in shipbuilding and related maritime industries, however, is a mystery. Would a Red Sea-style shipping disruption be less damaging if the vessels involved were constructed outside of China? The report never says.

The report is perhaps on firmer ground with its argument that China’s shipbuilding dominance could allow it to prioritize the orders of Chinese and other shipowners over those of US shipowners. Even so, this is a hypothetical outcome rather than one borne out in practice. Furthermore, Chinese shipyards still aren’t the only game in town with numerous capable shipyards remaining in South Korea, Japan, and elsewhere.

Such odd argumentation feeds a sense that the report’s conclusion was determined long before evidence was compiled, with much argumentative pasta flung at a wall in the hope that some would stick. That the report’s sources include an op-ed published just 48 hours before the report’s release only adds to such suspicions.

To be clear, the report’s flaws do not absolve China of distorting the global maritime market. That Beijing lavishes substantial subsidies on its shipping and shipbuilding industries is well documented. But the real question is whether such policies have even the slightest explanatory power for the US shipping and shipbuilding industries’ moribund state and lack of competitiveness — a situation that long predates China’s maritime rise. The answer is clear.

The incoming Trump administration will undoubtedly be tempted to seize on the new USTR report to justify new tariffs on China. But if administration officials seek to reverse US maritime fortunes, their time would be better spent examining possible reforms to address US policy failures than blaming others for long-standing ills.

Romina Boccia and Dominik Lett

The California wildfires have been devastating—not only in their human and environmental toll but in their mounting economic costs. In contrast to the typical federal disaster process, some Republicans have floated the idea of conditioning further federal disaster relief on forest and water management changes in California. This idea of explicitly conditioning disaster aid would be somewhat unprecedented for domestic disaster aid policy, but it could encourage more thoughtful state-level decision-making in the future if done correctly.

As Congress weighs a possible federal response, legislators should pursue a disaster policy that not only addresses the immediate crises but also aligns incentives with the underlying risks that drive up disaster severity and costs.

The Problem with the Current Process

The devastation wrought by California’s most recent wildfires and the ongoing federal response is a microcosm of a joint federal-state disaster process that shifts the costs of poor state and local disaster management onto national taxpayers. This inadvertently can increase the severity and cost of disasters, contributing to a vicious cycle of never-ending emergencies.

In the immediate aftermath of a disaster, the Federal Emergency Management Agency (FEMA) and other federal emergency agencies coordinate with state and local authorities to respond to the crisis. Over the following weeks, months, and years, the federal government provides additional funds for disaster recovery. Under the Stafford Act, FEMA is supposed to cover 75 percent of disaster recovery costs for most jurisdictions, with states and localities covering the remaining 25 percent.

In practice, the president usually waives these cost-sharing requirements, shifting the entire cost onto federal taxpayers. Such was the case for the most recent California wildfires, with Biden waiving the 75 percent cost-sharing requirement. On top of this, the federal government routinely passes enormous supplementals after disasters occur to support rebuilding efforts. The costs of these disasters can linger for decades and contribute directly to the long-term budget challenge, with FEMA still doling out money for Hurricane Katrina (2005) this fiscal year.

By shielding states from the financial consequences of poor disaster prevention and mitigation, routine federal bailouts incentivize behaviors that increase disaster costs, such as encouraging development in high-risk disaster-prone areas. California, with the largest state economy in the United States, has significant capacity to enhance its disaster prevention and response efforts. However, well-intentioned state policies—such as keeping insurance costs low to ensure housing affordability and prioritizing forest preservation—can unintentionally reduce insurance coverage and undermine disaster resilience. When federal taxpayers consistently shoulder disaster recovery costs, it also reduces the financial incentives for states to consider tradeoffs and mitigate future risks.

The Case for Conditioning Aid

While conditioning disaster aid is relatively rare in the US domestic context, it is not without precedent. As outlined above, current law requires states to match a portion of disaster costs to receive federal aid. Additionally, flood disaster aid recipients must purchase flood insurance as a condition of receiving federal disaster relief. Internationally, conditions on all types of aid are more commonplace, with varying degrees of effectiveness.

To maximize the effectiveness of conditions on US disaster relief, conditions ought to be in the best interests of the aid recipient (California), germane to the disaster at hand, and not overly burdensome. California will be unlikely or unable to comply with a raft of unachievable conditions. Similarly, tying disaster aid to non-disaster-related conditions, such as changes to immigration policy, opens a pandora’s box of bad faith conditions. Should Texas, for example, be required by some future Democrat administration to raise its minimum wage or change its policy on abortion to receive federal disaster aid? Republicans should be wary about setting a new precedent they will regret in future years.

If lawmakers choose to condition federal aid to California, they should establish clear, outcome-based conditions directly tied to reducing wildfire risks and improving disaster resilience. Two specific reforms stand out as particularly relevant:

Accurately pricing risk in insurance policies: California’s insurance regulations, which include price controls and restrictions on insurers’ ability to adjust premiums based on risk, distort market signals and encourage irresponsible development. Conditioning federal aid on California aligning premiums with actuarial risk would encourage the state to overhaul its insurance regulations, deterring new developments in high-risk fire zones and mitigating future disaster costs.
Promoting better land management: There are several regulatory and legal barriers (both state and federal) to prescribed burns and mechanical treatment that have contributed to fuel buildup in its forests, increasing wildfire intensity. Here, the federal government can work with state and local governments to reduce bureaucratic obstacles to responsible land management. Tying federal aid to measurable reductions in fuel loads, for example, would incentivize more proactive forest management.

Balancing Compassion with Accountability

The federal government shouldn’t simply bail out California without considering the long-term implications for fiscal responsibility and disaster resilience. By conditioning aid on targeted reforms, Congress could encourage California to address some systemic mismanagement issues while reducing the need for future federal interventions.

Michael F. Cannon

If you’ve never listened to the Tradeoffs podcast, this episode would be a good place to start. It’s a 25-minute look into why so many people think the Medicaid program needs reform.

Medicaid is a government program that subsidizes health insurance, medical care, and long-term care for about 80 million people or 19 percent of the population (depending on the measurement). The federal government provides most of the funds by offering to match every dollar states spend with anywhere from one to nine federal dollars. 

Host Dan Gorenstein: “For every dollar states pay for Medicaid, the feds cover something like anywhere from 50 to 90 cents of that dollar.”

Producer Ryan Levi: “Right … And Tom Scully—who ran Medicaid for President George W. Bush—says with the feds picking up such a big part of the tab, states can go wild.”

Tom Scully: “It’s not your money. You’re spending federal tax dollars. So why not expand?”

Little wonder that this year, Medicaid will spend close to $900 billion.

Unlike just about every other discussion of this issue you will find in the media, the Tradeoffs team addresses the most reliable and important study that anyone has ever conducted on Medicaid: the Oregon Health Insurance Experiment.

Ryan Levi: “In 2008, Oregon expanded its Medicaid program. And the state used a lottery to decide who was able to join, so researchers could follow the people who got on Medicaid and the people who didn’t to see what the difference was.”

Dan Gorenstein: “Right, and this is a big deal in the research world because this type of study is what’s called a randomized controlled trial, which is considered the most rigorous type of study around.”

Ryan Levi: “Right, and this is so far the only randomized study of Medicaid and its impacts. And the researchers found that people on Medicaid were more likely to get preventive care, less likely to be depressed, less likely to get hit with big medical bills and reported being in better health.… But researchers also found no differences when it came to physical health.”

Josh Archambault: “The Oregon study found that those that were on Medicaid were no different in their health outcomes than if you were uninsured.”

The hosts also include clips from Brian Blase (Paragon Health Institute) and me.

Give it a listen for crucial information about Medicaid that most coverage omits. For recommendations on how Congress should cut Medicaid spending, click here.

Alex Nowrasteh

Shortly after being inaugurated, President Trump issued an executive order that purports to restrict birthright citizenship. The only authority he invoked for redefining some features of birthright citizenship was “the authority vested in me as President by the Constitution and the laws of the United States of America.”

Birthright citizenship has been the norm in the United States since before the passage of the Fourteenth Amendment and even before the American Revolution, going back to Calvin’s Case in 1608 that established jus soli in all areas ruled by the English Crown. In 1869, the British jurist Lord Chief Justice Alexander Cockburn summed up English law as:

By the common law of England, every person born within the dominions of the Crown, no matter whether of English or of foreign parents, and, in the latter case, whether the parents were settled or merely temporarily sojourning, in the country, was an English subject, save only the children of foreign ambassadors (who were excepted because their fathers carried their own nationality with them), or a child born to a foreigner during the hostile occupation of any part of the territories of England. No effect appears to have been given to descent as a source of nationality.

American courts affirmed jus soli before the Civil War, as attorney Alexandra M. Wyatt wrote for the Congressional Research Service in 2015. She mentions several cases, such as the 1824 Supreme Court case of M’Creery’s Lessee v. Somerville, where the court proceeded on the assumption that three girls born in the United States were citizens even though their father was an Irish citizen who never naturalized. In the 1844 case of Lynch v. Clarke, a New York court held that Julia Lynch, who was born to Irish nonimmigrant sojourners in New York, was a US citizen. The most relevant quote from Lynch v. Clarke was this:

I can entertain no doubt, but that by the law of the United States, every person born within the dominions and allegiance of the United States, whatever were the situation of his parents, is a natural born citizen.

That standard was then codified in the first sentence of Section 1 of the Fourteenth Amendment to the Constitution, also known as the citizenship clause, which reads:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.

The only exceptions are those who are not under the jurisdiction of the US government, such as the children of diplomats, who are not under the direct power of the American government. Many online commentators point to a quotation by Senator Jacob Howard, who introduced the Fourteenth Amendment and defended it, to argue that the amendment wasn’t intended to create birthright citizenship. During one debate, Howard said:

This amendment which I have offered, is simply declaratory of what I regard as the law of the land already, that every person born within the limits of the United States, and subject to their jurisdiction, is by virtue of natural law and national law a citizen of the United States. This will not, of course, include persons born in the United States who are foreigners, aliens, who belong to the families of ambassadors or foreign ministers accredited to the Government of the United States, but will include every other class of persons.

Howard’s first sentence is just an affirmation of the old English common law rule of jus soli that the United States inherited from Great Britain and that was earlier enforced by US courts, except for slaves and American Indians. But the second sentence is being misread online by people who support revoking birthright citizenship. The phrase, “This [the citizenship clause of the Fourteenth Amendment] will not, of course, include persons born in the United States who are foreigners, aliens, who belong to the families of ambassadors or foreign ministers,” is being interpreted by some to mean that the three groups—foreigners, aliens, and those who belong to the families of ambassadors—are not children. 

Wait a second, did you notice the difference between my summary and the original quotation? I inserted the word “and,” while Howard did not. That’s because Howard was describing the families of ambassadors as being foreigners and aliens. Howard did not list three distinct groups of people who were not under the jurisdiction of the US government; he described one group: ambassadors and their US-born children.

The 1898 Supreme Court decision of United States v. Wong Kim Ark established that the US-born children of immigrants were and remained citizens even if there were changes in law that would not have allowed them or their parents to legally immigrate here or naturalize. The Court held that a person born in the United States to Chinese parents who had traveled to China in his early 20s was a citizen of the United States and could not be denied reentry to the United States by the Chinese Exclusion Act. Combined with the earlier English common law, its application to the United States before the Civil War, and its codification in the Fourteenth Amendment to correct the Dred Scott v. Sandford decision that repudiated centuries of English and American law, it’s clear that the children born on US soil to nonimmigrants on worker or student visas, illegal immigrants, or mere travelers are US citizens.

Many lawyers, attorneys, and scholars will recount the above legal debate far better than I have. There are other issues that should be addressed if birthright citizenship is to no longer be the law of the land. 

To start, there are practical problems. There is no central registry of American citizens; native-born Americans show their birth certificates as evidence of citizenship. Everybody born here who registers their birth is granted a certificate in our decentralized system. Naturalized immigrants simply show their naturalization documents. When either receives a passport, they use it to show citizenship. Trump’s order is prospective for those born to some noncitizen migrants, but if the courts uphold it, then he will issue future executive orders to broaden its scope—possibly to people who are already adults. At a minimum, any broadening will cause mass administrative chaos and uncertainty. Even if the executive order is not broadened, the chaos will still spread with births. If birth certificates are not good enough anymore, then we’d have to rely on proving that our parents were citizens or had another immigration status that allows their US-born children to be citizens. Can you do that?

There’s already an American law for inheriting citizenship referred to as jus sanguinis. It is intended for children born to US-citizen parents overseas, but it can be quite cumbersome. It’s certainly more complicated than showing a birth certificate that says you were born in the United States. The elimination of birthright citizenship could eventually place every single person in America in the precarious position of having to prove American citizenship via descent to justify their own citizenship or that of their children.

Creating a national registry of citizens would avoid some of the confusion described above. Of course, that would add another layer of complex determinations of citizenship at birth at potentially many thousands of locations by either immigration law experts or bureaucrats. This would be a managerial nightmare and not quite the destruction of the administrative state that we were all promised by the Trump administration. Then what happens to the share of children born here who are stateless, the people born in the United States who are ineligible for American citizenship and don’t have it from their parents’ home countries?

The practical administrative effects are bad, but the broader impact of revoking or constraining birthright citizenship on assimilation is worse. At a minimum, about 7 percent or so of those born on US soil each year would not be US citizens if birthright citizenship were revoked along the lines of the Trump executive order. That condition would worsen the assimilation of the children of immigrants and their descendants in the United States. After all, the children born here who aren’t citizens wouldn’t pass citizenship on to their US-born children if they married other noncitizens. It’s easy to see how that would produce worse outcomes—just look at Europe.

The German Citizenship and Nationality Law of 1913 only granted citizenship to those with at least one parent who was a German citizen at the time of the child’s birth, a fairly extreme version of jus sanguinis. Those citizenship laws created an assimilation crisis after World War II when post-war guest worker programs admitted many Turks, Tunisians, and Portuguese to work in the booming economy. Many of these workers stayed and had children who weren’t automatically citizens.

Among other causes, a lack of citizenship led to resentment among generations with only partial allegiance to the country of their birth. German-born noncitizens formed “parallel societies” and were more prone to crime and political radicalism than German-born German citizens. Germany provides the best opportunity to study the effects of birthright citizenship on assimilation. In 1999, the German parliament amended that law to create a birthright citizenship component for children born on or after January 1, 2000, if at least one parent had been ordinarily residing in the country for at least eight years. The law also created a transition period for many children born from 1990 through 2000 to be naturalized if they met the requirements of the new law.

This change in German citizenship law prompted a flood of research on how the new law affected immigrant assimilation in Germany, as I have written about. Economists Ciro Avitabile, Irma Clots-Figuera, and Paolo Masella looked at how the new German law affected parental integration in a peer-reviewed paper published in the prestigious Journal of Law and Economics. Their paper uses responses from the German Socio-Economic Panel survey to see how immigrants whose children were affected by the new citizenship law changed their behavior relative to those unaffected. The paper focuses on measurements of these immigrants interacting with Germans (visiting or being visited by a German in a social situation), speaking German, and reading German newspapers. On all three metrics, the immigrant parents of children who could be naturalized became more integrated.

The effects were small but noticeable. The percentage of immigrant parents who had interactions with Germans rose from 71 percent before the reform to 77 percent afterward; the ability to speak German rose from 65 percent before the reform to 69 percent afterward; and reading of German newspapers increased from 2.6 to 2.9 on a five-point scale (1 is home country papers only, and 5 is German papers only). Importantly, the measure of speaking German doesn’t control for fluency. They also found that the outcomes are larger for immigrants who came from a country that speaks an Indo-European language. Importantly, Turkish is not an Indo-European language. For those from a non-Indo-European language group, the reform had no effect on language acquisition, but it increased their interactions with Germans to the same degree as those of Indo-European language speakers.

Taking a wider view of the impact of this law in Germany, Avitabile, Clots-Figuera, and Masella, the same economists mentioned above, published a peer-reviewed paper in the American Economic Journal: Applied Economics that looks at how child citizenship laws affected fertility decisions among immigrants. Fertility is partly (but not entirely) influenced by culture, so many social scientists and economists think it is an important indicator of immigrant assimilation. Consistent with Gary Becker’s quality-quantity model of fertility, they found that birthright citizenship reduced immigrant fertility and improved their health by cutting obesity and improving the social-emotional outcomes of the affected children. Again, the effects are small, but the citizenship reform moved immigrants closer to German fertility and health norms.

Researchers Nicolas Keller, Christina Gathmann, and Ole Monscheuer also examined how fertility and family structure change under the altered citizenship laws. They found that within 7.2 years of eligibility for citizenship, the immigrant-native fertility gap fell by 20 percent by raising the age of first births to immigrant mothers and reducing the likelihood of them having children. The citizenship reform also narrowed the marriage gap between German and immigrant women by 45 percent and German and immigrant men by 50 percent. Immigrant women were also more likely to marry men who were not from their own country of origin after the reform, but the effect was small.

Christina Felfe, Helmut Rainer, and Judith Saurer found that immigrant parents enrolled their children in preschool at a higher rate after the citizenship reform, closing the gap with native Germans. They also enrolled them earlier in primary school and pushed their children into the university track at higher relative rates. Furthermore, reported “attention deficits” and “emotional problems” for the children of immigrants also decreased in schools relative to natives, while there was no effect on reported “social problems,” “German language proficiency,” or “school readiness.” Another paper by Felfe, Rainer, Saurer, and Martin Kocher found that the educational achievement gap between young immigrant men and their native male peers nearly closed due to the reform and that immigrant boys became more trusting. The latter effect virtually eliminated in-group favoritism for immigrant boys. The granting of citizenship to immigrant children also reduced return migration and increased the rate at which mothers who stay at home with their children were counted among the parents whose children were affected.

The revocation of birthright citizenship not only goes against almost 420 years of legal precedent but also will raise practical difficulties for native-born Americans regardless of their parentage. Furthermore, revoking birthright citizenship will likely worsen assimilation outcomes for the children of immigrants who aren’t born citizens. Perhaps those added problems are worth it in exchange for large benefits, but proponents of revoking birthright citizenship can’t point to any of those. With the law, tradition, common sense, reason, and empirical evidence on the side of maintaining birthright citizenship, we can only hope that the courts maintain our exceptional system in its current form. 

Thomas A. Berry

Are you graduating from law school this year, or have you graduated from law school in roughly the past three years? Do you want to write briefs on the most important cases of the year to defend individual liberty and robust constitutional rights? Then apply to be a legal associate at the Cato Institute for the 2025–2026 term.

Are you a current law student looking for a summer internship, and do you likewise want to research and write on the most important cases in the country? Apply for a Cato Institute internship with a placement in our Center for Constitutional Studies, where you’ll support everything the Center does.

As I recently recounted, I had both of these jobs early in my legal career, and both were vital to my development as a lawyer, thinker, and writer. Legal associates are given the independence and trust to take the initiative at every stage of the brief-writing process. This includes developing arguments, communicating with party counsel, researching, and drafting. Legal associates receive intensive, one-on-one training and feedback to develop their legal writing skills. Cato amicus briefs are routinely filed in the US Supreme Court, federal appellate courts, and state supreme courts. 

In addition, legal associates assist in other projects, such as editing the Cato Supreme Court Review and researching and writing for other Cato strategic initiatives. Associates are fully immersed in the intellectual life of the Cato Institute and have opportunities to meet and assist scholars in a wide range of issue areas.

The legal associate job is ideal training for a career in pro-liberty litigation. Legal associates have gone on to work at such pro-liberty organizations as Pacific Legal Foundation, Institute for Justice, National Federation of Independent Business, Competitive Enterprise Institute, Texas Public Policy Foundation, NetChoice, Mountain States Legal Foundation, National Right to Work Legal Defense Foundation, Liberty Justice Center, Washington Legal Foundation, as well as state and federal clerkships, Capitol Hill jobs, and many more. And a legal internship at Cato is an ideal stepping stone for a post-graduation legal associate position.

If you are interested in applying and would like more information, feel free to reach out to me at tberry@​cato.​org. And if you would like me to speak at your law school about both the associate and internship positions, I will do everything I can to visit in person or otherwise will speak by Zoom. Legal associates will begin in late summer or early fall (exact dates flexible), and summer internships will last from late May to mid-August. Applications for the legal associate position are open through February 28, and applications for summer internships are open through February 18. I can attest that for the right lawyers, both jobs can be life-changing, and so I hope you’ll consider applying.

Jeffrey Miron

A long-standing concern about immigration is that it might reduce job opportunities for native workers:

In 1882, the US government passed the Chinese Exclusion Act, which banned laborers born in China from entering the United States and prevented individuals born in China already residing in the United States from obtaining citizenship or reentering the country.… Proponents argued that Chinese workers—who constituted 12 percent of the male working-age population and 21 percent of all immigrants in the Western United States—reduced economic opportunities for white workers.

Yet in 1882, similarly to now,

many business owners opposed the act. They worried that highly productive Chinese labor could not be easily replaced and that a sweeping ban would lead to significant economic losses.

So what were the act’s effects? According to recent research,

the act reduced the Chinese labor supply by 64 percent. A reduction occurred for both skilled and unskilled workers.

This is presumably what the act’s supporters intended. In addition, however,

the act reduced the white male labor supply by 28 percent and lowered this group’s lifetime earnings.

Further, and relevant to current debates,

the act reduced total manufacturing output by 62 percent and the number of manufacturing establishments by 54–69 percent.

What is the explanation? Reduced immigration means higher labor costs. This implies reduced output, and thus reduced demand for native labor, even if businesses partially substitute native for immigrant labor. Reduced immigration can therefore be “lose-lose,” hurting native workers and businesses, in addition to harming immigrants.

This article appeared on Substack on January 23, 2024.

Adam N. Michel

Last week, a copy of House Budget Committee Republicans’ draft menu of reconciliation options leaked to the press. The document is impressive in its breadth and willingness to seriously consider the tough budgetary trade-offs Republicans have ahead of them. The 51-page document includes potential tax and spending changes across 11 committees.

Many of the options are versions of proposals included in the Cato Tax Plan and our lists of reconciliation-eligible spending cuts for 2025. Despite its length, the list is by no means comprehensive—it leaves out trillions of dollars in tax and spending savings options that should undoubtedly be part of the conversation. It also includes economically destructive proposals like new tariffs and other tariff-like border adjustment taxes.

No list or process is perfect, but the thankless work the Budget Committee is doing will be essential if Republicans want to pass a permanent, pro-growth tax package that takes seriously President Trump’s campaign promises to shrink the size and scope of government.

The table below includes tax items listed in the committee’s leaked document. The proposal titles and estimated budgetary effect are from the original document, which also includes in-depth descriptions. The three new columns include an assessment of the policy (good, bad, needs improvement), notes on the change, and suggested reading for more information about each change. Be sure to expand the chart to see the last 24 lines. 

This blog is intended to provide support, awareness, and feedback on the work that Chairman Jodey Arrington and his Budget Committee Staff are doing. Products like this options list will be key to ensuring the final reconciliation package(s) doesn’t only cut taxes but also shrinks the federal government.