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Jennifer Huddleston and Gent Salihu

Prior to the 2022-2023 legislative session, five states (California, Virginia, Utah, Colorado, and Connecticut) had passed consumer data privacy laws, but now the patchwork of state laws has more than doubled. Congress has continued to debate a potential federal standard with the American Data Privacy Protection Act in the 117th Congress being the first such proposal to be voted out of a committee; however, without momentum around a federal standard and with continuing and new concerns about data privacy from consumers, many states are undertaking their own policy actions around data privacy.

The patchwork nature of these individual state laws can potentially amplify compliance costs for businesses operating across different states and create confusion among American consumers whose digital footprint often crosses state borders. The potential financial impact of complying with 50 distinct state laws could surpass $1 trillion over a decade, with a minimum of $200 billion being borne by small businesses. As this patchwork grows, what does data privacy look like as the 2022-2023 legislative session comes to a close?

What happened with data privacy in 2022-2023?

As of 2023, the majority of states have considered data privacy legislation, likely in response to consumer concerns on this issue — 32 state legislatures have kicked off the debate and presented bills. Ten states have already signed comprehensive privacy bills into law. Six states—Florida, Indiana, Iowa, Montana, Tennessee, and Texas—enacted data privacy legislation this year. Oregon is the latest state to pass a comprehensive law, which is now awaiting the governor’s signature. Additionally, there are five more bills under consideration as of July 2023. Most of these bills share similarities with the existing data privacy laws in California, Virginia, and Utah.

States with data privacy acts enacted in 2023 that have followed the California model

Of the five additional states that enacted data privacy laws this year, Indiana and Montana appear to most closely resemble California’s model, which relies heavily on administrative rules. Montana, for example, even goes beyond California by creating a right for consumers to revoke their consent to data processing. None of the states that have enacted laws this year have created a private right of action as seen in a limited capacity in the current California law.

States that have followed the Virginia or Utah model

Notably, a growing number of states have passed or considered a data privacy framework that more closely resembles the laws initially passed in Utah and Virginia. This includes Iowa, Tennessee, and Texas as well as a bill still under consideration in North Carolina. Such models provide baseline protections but typically have fewer obligations or areas of covered data, limit enforcement to the attorney general, and are more likely to provide safe harbors.

Still, each proposal remains unique. For example, Tennessee became the first state to create a compliance safe harbor for companies complying with National Institute of Standards and Technology (NIST) standards. Other states have considered similar carve-outs for existing standards. Such an approach may lessen some problems with the patchwork by providing a way for a single set of best practices that could be compliant from state to state.

Notable privacy bill trends to watch

In addition to the growing patchwork of state privacy laws, this latest legislative term has also provided additional information about the debates around data privacy legislation. Notably, private rights of action continue to raise concerns and may make proposals less likely to succeed. Additionally, a new trend of health privacy-focused bills is emerging at the state level.

Currently, four states that still have active bills—Maine, Massachusetts, New Jersey, and Rhode Island—contemplate creating a private right of action. However, to date, all bills from Hawaii to Mississippi to New York that included provisions on the private right of action have failed. New York’s failed “It’s Your Data Act” had foreseen that consumers “need not suffer monetary or property loss as a result of such violation in order to bring an action for a violation.” The Washington Privacy Act was passed only after eliminating the private right of action, which was later reinstated in a very limited form by allowing a private right of action only for injunctive relief without monetary damages.

The inclusion of a private right of action for statutory violations so that individuals can sue companies without the need to prove that actual harm inflicted upon them has grave consequences. Such private right of action for statutory damages raises significant concerns about how litigation could be used to prevent innovation. While a private right of action wouldn’t pose any significant issues if the burden of proof was solely tied to demonstrating the harm, the problem arises when there’s no requirement to prove harm. Such a provision could prompt a surge in class action lawsuits, thereby impeding innovation, especially among small companies that may become more risk-averse for fear of being sued.

The United States, with its distinct litigation system, and features such as the absence of a “loser pays” rule, is more susceptible to the abuse of the private right of action for statutory violations. Illinois’s Biometric Information Privacy Act provides such a right in the context of certain collection of data and has seen everything from photo tagging to trucking companies be sued. Most of the resulting funds have gone to attorneys, with limited amounts to the class members alleged to be “violated” by the action. In the photo tagging case, Facebook was directed to pay $650 million without the necessity of demonstrating any harm. In the trucking case, truck drivers secured a $228 million judgment because, as employees, they were required to scan fingerprints to confirm their identity, again without the need to show actual harm.

A new emerging trend to watch is the ongoing debate surrounding the sponsorship of bills aimed at regulating consumer health data, primarily focusing on reproductive health data. Washington is the first state to pass such a law, which is set to take effect in 2024. In a post-Roe context, it is likely that similar legislation — particularly in blue states — will emerge, regulating actors that are not governed by HIPAA. Given the broad scope of what is classified as health data, debates on its definition, collection, and usage are likely to be heated. Such laws also raise unique compliance questions for a variety of popular apps that are not regulated as medical devices but provide consumers with empowering ways to track information from blood sugar to mental health.

What do state data privacy laws mean for consumers, innovators, and the federal privacy policy debate?

States are acting on data privacy in part because of the continued interest in the issue from constituents. In 2022, more than 80% of voters polled supported the idea of a federal data privacy law. Given that data privacy remains a concern and due to the lack of progress on a federal bill, it is unsurprising that much of the debate over data privacy has shifted to a local or state level where legislatures are able to move more quickly. But is this good for consumers and innovators?

Is there a case for data privacy legislation anyway?

While many polled consumers are in favor of data privacy legislation, there remains a great amount of difference in the actual privacy preferences they have. In fact, the overwhelming support for data privacy becomes far more complicated when you consider questions like how much an individual would be willing to pay for social media or other products as opposed to an ad-supported version. Similarly, research has shown a “privacy paradox” where revealed preferences for privacy tend to be weaker than stated preferences.

If policymakers are to consider legislation around data privacy, they should focus on real and widely agreed-upon harms, not merely expressed preferences. This approach prevents a shift toward a more European “privacy fundamentalism” that is more likely to result in conflicts both with other rights, like speech, as well as create a static approach that could deter innovation including those that may improve privacy.

Understanding the problems of a patchwork approach

The continuing, emerging patchwork of data privacy laws at a state level is likely to lead to both increased costs and confusion. This is true not only for the businesses that handle data but also for consumers.

A state-by-state approach makes it uncertain for both innovators and consumers what may or may not be done with their data. For consumers, this can create confusion about why certain products or features may not be available in their state or what rights they have when it comes to obtaining or correcting their data online. Particularly for small businesses, a state-by-state approach is likely to significantly raise costs as new compliance concerns arise in each state. In some cases, this may result in applying the most restrictive standard necessary, but in other cases, it may require development of specific features to comply. In either case, again both consumers and innovators lose out. Consumers may find themselves losing features because of standards imposed by legislatures in other states and innovators may find themselves focusing on compliance rather than the improvements that best serve their customers.

Far from being the second-best solution, it is almost inevitable that proposals will eventually conflict with one another which makes it impossible to comply with all such state laws. The most obvious example of this would be if one state chooses an opt-out model while another chooses an opt-in model, but many other conflicts could arise around issues such as data minimization or retention.

Given the potential and likelihood for conflicts and the burden on out-of-state businesses, a state-by-state approach also should give rise to dormant commerce clause concerns. The interstate (and international) nature of data means that a federal standard should be considered constitutionally necessary in this case.

Conclusion

The 2022-2023 session saw a doubling of the number of states with consumer data privacy laws. While policymakers may feel they are responding to constituent concerns, the patchwork approach remains problematic for both innovators and consumers.

Nicholas Anthony

Several members of Congress have introduced legislation in response to the concerns that have been voiced over central bank digital currency, or CBDC. To help keep everyone up to speed, the table and paragraphs below offer an overview of the bills that have been introduced during the 118th Congress.

Editor’s Note: The Cato Institute’s Center for Monetary and Financial Alternatives has produced research demonstrating the net risks of CBDCs, and proposed ways for Congress to protect Americans from CBDCs. The Cato Institute does not support any particular piece of legislation. The information below is an educational resource only.

No CBDC Act

Introduced by Senator Mike Lee (R‑UT), the No CBDC Act would prohibit both the Federal Reserve and the Department of the Treasury from minting or issuing a retail CBDC (i.e., a CBDC that would be used directly by individuals). The bill would also prohibit intermediated CBDCs where financial institutions are enlisted to maintain customer accounts on behalf of the government. Furthermore, the bill prohibits the Federal Reserve from using a CBDC on its balance sheet which sets the groundwork for taking wholesale CBDCs off the table. Finally, the bill would also prohibit the Federal Reserve from using a CBDC to conduct monetary policy.

Co‐​sponsors: Senators Ted Cruz (R‑TX), Mike Braun (R‑IN), and Rick Scott (R‑FL)

CBDC Anti‐​Surveillance State Act

Introduced by Representative Tom Emmer (R‑MN), the CBDC Anti‐​Surveillance State Act would prohibit the Federal Reserve from issuing a retail CBDC. The bill would also prohibit the Federal Reserve from using a CBDC to implement monetary policy. Finally, in response to the Federal Reserve’s research and development on CBDCs, the bill would require the Federal Reserve to report the status of CBDC pilot programs to Congress on a quarterly basis.

Co‐​sponsors: Representatives French Hill (R‑AR), Warren Davidson (R‑OH), Mike Flood (R‑NE), Ralph Norman (R‑SC), Byron Donalds (R‑FL), Andy Biggs (R‑AZ), Barry Loudermilk (R‑GA), Pete Sessions (R‑TX), Young Kim (R‑CA), Nancy Mace (R‑SC), Scott Fitzgerald (R‑WI), Bryan Steil (R‑WI), Don Bacon (R‑NE), Mike Bost (R‑IL), Jefferson Van Drew (R‑NJ), August Pfluger (R‑TX), Anna Paulina Luna (R‑FL), Kevin Kiley (R‑CA), Rudy Yakym (R‑IN), Jeff Duncan (R‑SC), Debbie Lesko (R‑AZ), Josh Brecheen (R‑OK), Glenn Grothman (R‑WI), William Timmons (R‑SC), Bill Posey (R‑FL), Marjorie Taylor Greene (R‑GA), David Rouzer (R‑NC), Michael Cloud (R‑TX), Austin Scott (R‑GA), Mike D. Rogers (R‑AL), Mary E. Miller (R‑IL), Christopher H. Smith (R‑NJ), David Valadao (R‑CA), Keith Self (R‑TX), Guy Reschenthaler (R‑PA), Ronny Jackson (R‑TX), Paul A. Gosar, (R‑AZ), Pat Fallon (R‑TX), Randy Weber (R‑TX), and Jake LaTurner (R‑KS)

S. 887

Introduced by Senator Ted Cruz (R‑TX), S. 887 would prohibit the Federal Reserve from offering a CBDC directly to individuals (i.e., a retail CBDC), maintaining accounts for individuals (i.e., FedAccounts), and offering any products or services directly to individuals. In short, it seems that the bill seeks to block attempts to have the Federal Reserve get into the business of commercial banking.

Co‐​sponsors: Senators Mike Braun (R‑IN), Chuck Grassley (R‑IA), and Rick Scott (R‑FL)

Power of the Mint Act

Introduced by Representative Jake Auchincloss (D‑MA), the Power of the Mint Act would prohibit both the Federal Reserve and the Department of the Treasury from issuing a central bank digital currency. The bill makes it explicit that any decision to move forward with a CBDC must first be authorized by Congress. Notably, the Power of the Mint Act is the first bipartisan piece of legislation to address CBDCs during this Congress—Representative French Hill (R‑AR) joined Representative Auchincloss on the House floor as an original cosponsor during the bill’s introduction.

Co‐​sponsors: Representatives French Hill (R‑AR) and Barry Moore (R‑AL)

Digital Dollar Pilot Prevention Act

Introduced by Representative Alex X. Mooney (R‑WV), the Digital Dollar Pilot Prevention Act would prohibit the Federal Reserve (both the board and regional banks) from establishing pilot programs to test CBDCs without approval from Congress. Given recent concerns about CBDC cronyism, the bill also makes a point to explicitly state that the Federal Reserve can not circumvent this prohibition by partnering with the private sector to contract out CBDC development.

Co‐​sponsors: Representatives Pete Sessions (R‑TX), Bill Posey (R‑FL), Ralph Norman (R‑SC), Byron Donalds (R‑FL), John W. Rose (R‑TN), Andrew Ogles (R‑TN), Jeff Duncan (R‑SC), W. Gregory Steube (R‑FL), Randy Weber (R‑TX), Glenn Grothman (R‑WI), Ronny Jackson (R‑TX), Victoria Spartz (R‑IN), Harriet M. Hageman (R‑WY), Bob Good (R‑VA), Josh Brecheen (R‑OK), Nicholas A. Langworthy (R‑NY), Keith Self (R‑TX), and Thomas Massie (R‑KY)

Conclusion

With so many proposals on the table, the next steps for policymakers will likely involve debates over where to draw the lines on the distinctions between the different bills. Ideally, Congress will prevent both the Federal Reserve and the Treasury from creating a CBDC in retail, intermediated, and wholesale forms.

Will Duffield

In Missouri v. Biden, Missouri and Louisiana have sued the Biden administration for pressuring social media platforms to remove controversial and COVID‐​skeptical speech. On Independence Day, Federal District Court Judge Terry Doughty issued a preliminary injunction barring a bevy of executive branch agencies and specific federal employees from pressuring social media platforms to remove speech.

An accompanying memorandum ruling documents dozens of examples of inappropriate or careless government pressure to censor. Although it is heartening to see courts take jawboning seriously, the judgement illustrates the difficulty of drawing workable lines around government communication with social media platforms.

The injunction prohibits officials from flagging content, pushing for content policy changes, and meeting or communicating with platforms for the purposes of “urging, encouraging, pressuring, or inducing in any manner the removal, deletion, suppression, or reduction of content containing protected free speech.” On its face, this is a broad prohibition. However, what is or is not protected speech is often difficult to determine, and government officials often mistake or exaggerate the First Amendment’s limits.

Indeed, the injunction includes exceptions for “informing” and “contacting” social media platforms about criminal activity, threats to national security, public safety, election interference, and, more generally, “deleting, removing, suppressing, or reducing posts on social‐​media platforms that are not protected free speech.”

These exceptions can be read to cover much of the government speech that prompted concerns about jawboning in the first place. “Contacting and/​or notifying social‐​media companies about … foreign attempts to influence elections” is the whole of the controversy about government involvement in Twitter’s decision to bar the New York Post’s Hunter Biden story from its platform. Judge Doughty didn’t necessarily draw bad lines here – the House’s HR 140, legislation intended to prohibit jawboning, includes unworkably narrow exceptions. It is simply hard to draw feasible lines here.

The tensions between the injunction’s overlapping prohibitions and exceptions show how difficult it is to draw clear lines between constitutionally acceptable notification and even persuasion, and impermissible pressure and bullying. Any practical prohibition will be too narrow and open to abuse, but any prohibition broad enough to resist gaming will prove unworkable when it covers normal government communications.

The memorandum ruling briefly outlines the two standards under which government communications with platforms might be unlawful, drawn from Supreme Court decisions in Bantam Books v. Sullivan and Blum v. Yaretsky. While Blum hinges on “significant [government] encouragement” such that “the choice must in law be deemed to be that of the State”, Bantam Books merely requires government to make a clear threat. I examine both lines of jurisprudence and their implications in greater detail in “Jawboning Against Speech.”

Although the penumbra of government pressure cataloged in Missouri v. Biden might be more easily judged “significant encouragement” than outright coercion, there is good reason to prefer the court use Bantam Books when it decides the merits of the case. Bantam Books is a much more workable standard for addressing government interference in content moderation, where the frequency of private content moderation makes it hard to determine what wouldn’t have been removed but for government pressure. Although outright coercion is less frequent, it is much easier to identify. And starting from government coercion leads to better remedies than treating social media platforms as state actors.

As the judgement illustrates, crafting a workable remedy is difficult. A solution must be able to discourage government pressure upfront rather than bind platforms’ hands after they have been bullied. Outright prohibitions struggle to find workable lines. Beyond the facts of specific cases involving particular government demands, there might not be a goldilocks zone of viable general prohibitions on government communication with private platforms.

Disclosure is a better approach. If we cannot establish rules to cover every case, we can expose government requests to public scrutiny. On the margin, officials will refrain from sending bullying messages if they know that they will be made public. When jawboning implicates particular speakers, a disclosure regime will make it far easier for them to bring suit. Make no mistake, judicial attention is valuable, and this injunction sends a strong signal that jawboning is a real problem. However, it is problem that will ultimately require congressional action to solve.

Chris Edwards

Federal government debt is rising to dangerous and unprecedented levels. Without reforms, federal debt held by the public will grow from 98 percent of gross domestic product this year to 115 percent a decade from now. Compared to the size of the economy, federal debt and interest costs are headed toward levels never seen in our nation’s history.

The recent bipartisan debt‐​ceiling deal modestly slowed the flow of red ink, but larger reforms are needed. A growing number of fiscal experts are recommending that Congress limit federal debt to 100 percent of GDP (e.g. here, here, and here). That is, Congress should restrain the budget so that debt grows no larger than the economy.

Let’s look at four reasons to cut debt and then examine a plan to hit the 100 percent target with entitlement and federalism reforms.

Four Reasons to Cut Federal Debt

Funding spending with debt pushes costs onto young people in the future. But young people will have their own costs, crises, recessions, and wars to deal with, so burdening them with our costs in addition is unjust.
High and rising debt increases macroeconomic instability, and it will likely prompt a major financial crash and recession, which will cause hardship for many and undermine living standards.
Many statistical studies have found that government debt above about 90 percent of GDP slows economic growth.
Most federal spending goes toward subsidy and aid programs, which help recipients but distort the economy. As such, reducing debt with spending cuts would boost growth as resources were reallocated to higher productivity uses.

Excessive spending is causing the surge in debt. As shown in the chart, CBO expects federal revenues to remain at about 18 percent of GDP in coming years, a bit above the 50‐​year average of 17.4 percent. The problem is that spending is projected to rise to 24.8 percent of GDP by 2033, substantially above the 50‐​year average of 21.0 percent. Reducing spending to the long‐​term average would restrain debt to about 100 percent of GDP.

Entitlement and Federalism Reform Plan

Policymakers should balance the budget and cut debt in the long term, but a good near‐​term goal would be to stabilize the debt at 100 percent of GDP. The plan proposed here would achieve that in 2033 by reducing spending to 21.1 percent that year.

The table shows proposed spending reforms. The entitlement reforms would be enacted in the near‐​term and the savings would increase over time, while the federalism reforms would be phased in over 10 years. The reforms would cut program spending by $1.31 trillion in 2033 and cut overall spending including interest by $1.45 trillion, or about 15 percent of baseline spending that year.

The entitlement reforms include limiting Medicare’s growth rate to the growth rate of GDP beginning in 2026. A good way to achieve that would be to restructure the program around individual vouchers, which would improve choice, encourage competition, and restrain costs. For Medicaid, the plan would convert today’s open‐​ended matching grants to fixed block grants in 2024, which would control federal costs while freeing the states to innovate with their health care systems.

For Social Security, the table includes two straightforward reforms, as estimated by CBO. The first modestly reduces the annual cost of living (COLA) adjustment for benefits, and the second would modestly raise the program’s full retirement age. (For both reforms, I estimated 2033 savings based on the CBO figures for 2032).

The federalism reforms would cut federal aid‐​to‐​states for programs administered by state and local governments. The federal government spends $1 trillion a year on more than 1,300 aid‐​to‐​state programs. The aid system ties the states into regulatory knots, undermines democratic control, destroys accountability, and generates waste, fraud, and abuse. State and local governments should fund their own programs for welfare, housing, transit, education, and many other things.

For programs in the table, the plan would phase in the federalism reforms over 10 years. The states could respond by funding their own programs if they chose, either by raising taxes or creating budget room by cutting other spending. Without all the top‐​down rules imposed by Washington, stand‐​alone state programs would likely be leaner and more efficient.

Final Thoughts

Policymakers may think such spending reforms are radical, but larger reforms have succeeded abroad. Facing a debt crisis in the 1990s, Canada cut its federal spending from 23 percent of GDP in 1993 to just 15 percent by 2006. The government cut entitlements, business subsidies, defense, aid to the provinces, and many other things. It privatized assets such as airports and the air traffic control system. As the government was cut, the Canadian economy boomed for 15 years.

America needs similarly large spending cuts. In addition to the above reforms, we should cut business subsidies, farm subsidies, foreign aid, and energy subsidies. We should also privatize federal assets.

I discuss further reforms here and Romina Boccia proposes reforms here and here.

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Data Notes: the federalism reforms generally involve zeroing out aid to the states for the specified activities. The K‑12 subsidies do not include special education subsidies. The excess highway aid is projected highway outlays that are greater than highway trust fund revenues. The values in the table were sourced from CBO projections and OMB projections.

Adam N. Michel

The current federal budget deficit and the accumulated debt result from Congress spending more than they are willing to raise in taxes. Ultimately, the question of which is more to blame—steady taxes or ballooning spending—will depend on our priors: should the government consume an ever‐​increasing share of private resources, or should its growth be constrained?

However, the recently updated CBO long‐​term budget outlook makes clear that the causes of the future budget deficit is not a question of normative judgment. Tax increases cannot fix the underlying growth of health and retirement spending. Even if tax revenues permanently increased to the levels collected when the United States had a budget surplus in 2000, projected deficits would still rise above 9 percent of GDP by 2053. Tax cuts are not to blame for the demographic and benefit‐​formula‐​fueled growth in mandatory spending.

This short piece will begin with context on U.S. fiscal trends and then discuss the two distinct issues in budgetary sustainability—the growth rate of future spending and the desired level of government spending. Fixing the unsustainable growth rate of federal spending is necessary regardless of the desired level of government spending and preferred tax rates. However, without spending restraint, any tax relief will necessarily be short‐​lived.

Spending Consistently Outstrips Revenue

Federal spending has been systematically higher than tax revenue for the last half‐​century. Revenues have fluctuated around an average of 17.4 percent of GDP, while spending has followed much larger swings around an average of 20.9 percent. For a brief time between 1998 and 2001, Congress ran a surplus when revenue was high during the strong economy, and outlays dipped due to a temporary political consensus against deficits that limited defense spending, discretionary appropriations, and entitlement growth. Since then, spending has steadily ratcheted up, punctuated by the Great Recession and COVID-19.

Figure 1 shows historical and projected revenue and outlays from 1970–2053. In 2022, federal revenue as a percent of GDP was at a two‐​decade high, and this year’s revenue as a share of the economy is projected to be 18.4 percent of GDP, a whole percentage point above the historical average. Over the next three decades, revenues will remain above the historical average, climbing to 19.1 percent by 2053. After recovering from the pandemic spike, outlays are projected to climb past their current highs, rising from more than 24 percent of GDP in 2023 to 29.1 percent of GDP in 2053.

The CBO projections are subject to some well‐​known flaws. First, it is based on current law, which assumes unrealistic things, such as Congress allowing all the temporary 2017 tax cuts to expire and discretionary spending growing slower than the economy. Second, it cannot account for new spending Congress will authorize in the future, whether due to an emergency—war, recession, pandemic—or politically expedient spending on student loan forgiveness or additional energy subsidies. Third, the projections are based on speculative assumptions about economic growth, inflation, interest rates, and healthcare costs. None of these flaws change the critical takeaway from the CBO projections: even with assumed significant tax increases and conservative spending projections, the federal budget is unsustainable.

Congress has been much better at constraining projected revenue growth than they have been at constraining spending. Spending grows as benefits increase faster than inflation and more people become benefit‐​eligible. Baseline tax revenue grows as temporary tax cuts expire, and inflation slowly pushes people into higher tax brackets. The largest source of additional tax revenue over the next 30 years is inflation‐​caused real bracket creep, accounting for almost twice as much additional revenue as the expiration of the 2017 tax cuts in 2053.

Periodic tax cuts have kept revenue as a share of the economy flat rather than increasing while spending growth remains on a consistent upward path.

Taxes and Fiscal Sustainability

Some commentators have claimed that “without the Bush and Trump tax cuts, debt as a percentage of the economy would be declining permanently.” However, CBO budget projections from before the 2001 Bush tax cuts tell a different story. In 2000, when the U.S. was running budget surpluses, the first line of CBO’s long‐​term budget outlook begins by noting that “projected growth in spending on the federal government’s big health and retirement programs—Medicare, Medicaid, and Social Security—dominates the long‐​run budget outlook.” Even in its most optimistic scenario—in which the federal government saves the temporary surpluses—CBO still notes that “the growing expenditures projected for health and retirement programs would quickly push the budget back into deficit,” and debt would again begin to grow exponentially.

There are some more recent years, such as 2012, when CBO projected declining deficits and debt, but these years are flukes of the current law scoring process in which the CBO assumed both significant automatic tax increases and large automatic spending cuts that Congress never intended to allow. The 2012 alternative baseline, which more realistically assumed Congress would extend the 2001 tax cuts and halt automatic payment cuts to Medicare providers, among other spending increases, showed a more realistic scenario with deficits growing to 17.2 percent of GDP by 2037.

Focus on Unsustainable Spending First

Ultimately, focusing on revenue distracts from fixing the existential fiscal problems faced by the U.S. The growth rate of health and retirement spending is not a problem that can be fixed with higher taxes. As Jeff Miron wrote in 2013, “If higher taxes have even a modest negative impact on growth, tax increases have no capacity for restoring fiscal balance. That finding leaves expenditure cuts—especially to Medicare, Medicaid, and ACA subsidies—as the only viable avenues for significant reductions in fiscal imbalance.”

CBO has similarly warned every year for the past several decades that spending on health and retirement programs cannot continue to grow faster than the economy forever; eventually, something has to give. These major entitlement programs are responsible for almost all of the non‐​interest spending growth over the next three decades and, as a share of the economy, are projected to increase by 36 percent over the same time. Such rapid health and retirement spending growth is neither caused by nor fixable with the tax code.

If Treasury collected as much revenue as it did in 2000 when it had a record 2.3 percent budget surplus, the U.S. would still have a 2022 budget deficit of about 5.1 percent of GDP (compared to the actual 5.5 percent deficit). Figure 2 shows an illustrative estimate of federal deficits if tax revenue increased permanently to 20 percent of GDP, the high revenue mark from the early 2000s. The only slightly larger deficits under CBO’s current law projections show that even significant tax increases cannot compensate for fundamentally unsustainable spending growth.

Debate the Level

After policymakers address the unsustainable growth rate of mandatory spending, they can debate the appropriate size and scope of government. Reasonable people can disagree over the appropriate level of government spending and, thus, the level of revenue.

As I’ve written before, big government is expensive, and advocates of larger government should be clear that by blaming deficits on tax cuts, they are calling for significantly higher taxes on middle‐​class Americans. Additional taxes only on the rich are not a sustainable or mathematically feasible way to fund a European‐​style social welfare state. Paying for the current level of government spending—let alone what some Democrats have proposed—will require an unprecedented tax increase.

Broad‐​based tax increases are also no guarantee of lower deficits and debt. Historically, new or increased taxes to remedy fiscal imbalances deepen and prolong economic recessions, do not reduce debt‐​to‐​GDP ratios, and are associated with new spending in excess of the revenue raised.

As Congress prepares for the 2025 fiscal cliff when the 2017 tax cuts expire and taxes automatically increase on basically every American, legislators should be clear that by keeping taxes low, they are also committing to constraining the level and growth of federal spending. Without spending restraint, any tax relief will necessarily be short‐​lived.

Neal McCluskey

If we could have only gotten “yes, affirmative action,” or “no, affirmative action,” as the outcomes in Students for Fair Admissions v. Harvard, which the U.S. Supreme Court decided last week, you should have pulled for the decision the Court delivered: public colleges, or privates that receive federal funding, cannot use race as a factor in admissions. Other things equal, we want people treated as individuals, not as members of a race, as director of Cato’s Center for Constitutional Studies, Anastasia Boden, wrote soon after the decision was announced.

But Students for Fair Admissions did not present a simple choice, at least as policy goes, nor are all things equal. The decision combined two cases: One against the University of North Carolina – a state school – the other against private Harvard University. Those schools, by virtue of one being a government institution and the other not, should not be treated the same. It is much more consistent with a free society, as well as diverse views about what constitutes a fair admissions policy, to allow private institutions to make their own decisions than to have government, especially Washington, impose uniform rules on all.

Of course, higher education involves a great deal of federal money, especially in the form of grant and loan aid to students, as well as research. That gives the federal government a large financial presence in the ivory tower. But even with that, the default should be autonomy for private institutions – there is more freedom with funding and no strings than with strings attached.

Affirmative action is, crucially, different from past racial discrimination, in which people of specific races, especially African Americans, were intentionally kept out of institutions because of their race, as opposed to schools seeking to be more inclusive of all racial groups. Indeed, as the dissent in Students for Fair Admissions emphasized, affirmative action is, at least in part, intended to more fully incorporate African Americans into higher education specifically because they suffered centuries of rank, race‐​based discrimination and oppression.

One can disagree with that reparative reasoning, yet still see how decent people can support it.

The other major argument for allowing colleges to take race into account in admissions is that there is educational and social value to a racially diverse student body. This might not be empirically proven – little involving human beings is – but it is easy to conceive how a student’s education would be enriched by learning and living with students of diverse backgrounds. And research suggests that when people from different groups come together, it helps to build bridges among them.

There are, simply, reasonable grounds for assembling racially diverse student bodies. But if so, why only allow leeway for private institutions? Why not public, too?

Because public colleges and universities are government institutions, receiving funding directly from state taxpayers and answerable to the state. And government actions are ultimately done at the point of a gun – a legal monopoly on force that can result in jailing or worse for those who do not comply. Hence, government was the primary enforcer of past racial injustice, from slavery, to Jim Crow, to discriminatory allocation of housing assistance. That power makes it inherently more dangerous to let government consider race in allocation of resources than private institutions. As former Center for Constitutional Studies Director Ilya Shapiro wrote in Cato’s amicus brief asking the Court to join Students for Fair Admissions’ suit against Harvard with its suit against UNC:

Racial preferences by private universities certainly have negative effects on individuals too. But it is one thing to be viewed through a racial lens by a private institution or fellow citizen, quite another—and substantially more harmful—for a polity to reduce people to racial identifiers. Government racial classifications demean all citizens. Grutter v. Bollinger, 539 U.S. 306, 353 (2003) (Thomas, J., concurring in part and dissenting in part).

The majority in Students for Fair Admissions acknowledged that there might be reasonable grounds for universities to consider race in constructing classes. A footnote saying that military academies were not part of the decision mentions that a federal government brief argued that at such institutions “race‐​based admission programs further compelling interests.” The footnote says that the majority “does not address the issue, in light of the potentially distinct interests that military academies may present,” seemingly conceding that some schools might need to balance students’ races.

Justice Sotomayor picked up on this in her dissent, noting that many schools have military training programs, and other institutions also have “distinct interests”:

To the extent the Court suggests national security interests are “distinct,” those interests cannot explain the Court’s narrow exemption, as national security interests are also implicated at civilian universities. See infra, at 64–65. The Court also attempts to justify its carveout based on the fact that “[n]o military academy is a party to these cases.” Ante, at 22, n. 4. Yet the same can be said of many other institutions that are not parties here, including the religious universities supporting respondents, which the Court does not similarly exempt from its sweeping opinion. See Brief for Georgetown University et al. as Amici Curiae 18–29 (Georgetown Brief ) (Catholic colleges and universities noting that they rely on the use of race in their holistic admissions to further not just their academic goals, but also their religious missions); see also Harvard II, 980 F. 3d, at 187, n. 24 (“[S]chools that consider race are diverse on numerous dimensions, including in terms of religious affiliation, location, size, and courses of study offered”).

Recognizing that race can matter, the majority identified an avenue by which schools can consider it: if an applicant writes an admissions essay that mentions how their race has impacted them. “[N]othing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise,” says the decision.

Neither federal student aid nor research funding require the federal government to take a position on the “right” admissions policy. Student aid is directed to institutions based on millions of recipients making choices about the colleges they wish to attend. They can freely decide, using their own, diverse weightings of competing values, including academic performance and racial inclusivity, which institutions have acceptable policies, and which do not. Research funding, meanwhile, should be aimed at a particular end – gaining new knowledge in a specific area – not supporting an institution.

Absent compelling evidence that their policies are intended to exclude specific racial groups, as opposed to maximize inclusivity, private institutions accepting federal funds should be able to set their own admissions policies. This might require amending Title VI of the Civil Rights Act, which is the Court’s basis for applying its affirmative action prohibition to private colleges.

There are, alas, no easy answers to questions of race because of the centuries‐​long, stark clash between our ideals of colorblind equality and what our government and society have actually done. When we have such wicked problems, it is best to let diverse people make decisions for themselves, weighing their own valuations of goods including colorblindness, racial diversity, repairing historical wrongs, and more.

It is best to embrace what should always be our default: liberty.

Gabriella Beaumont-Smith

On July 4th, many Americans will take to the outdoors to celebrate the Declaration of Independence from my home nation, Great Britain. These days, most people know to lather on sunscreen when spending time outside in the summer (though dermatologists insist sun protection is necessary year‐​round). However, sun protection is not only about safety and avoiding painful sunburn but an anti‐​aging procedure. Now that you can safely tan from a bottle, SPF is ubiquitous—in skincare products, lip balms, and makeup. You can even protect yourself from harmful UV rays with special clothing and umbrellas.

While the sun care aisles in stores make it look like the variety in sunscreen and sun protection‐​related products is diverse, the truth is that the actual UV blockers in products available in the U.S. have barely evolved in the last 40 years. The reason is that the Food and Drug Administration has not approved a new active ingredient for sun care products in decades.

The FDA regulates sunscreen as an over‐​the‐​counter drug, and the agency must evaluate and approve the ingredients before the product can be marketed. To reduce the level that UVA and UVB rays can penetrate skin, active ingredients called “filters” are used. In the U.S., only some physical and chemical filters are permitted, but they tend to either leave that chalky residue or make your skin feel greasy. Many consumers have reported that sunscreens available in other countries, primarily the European Union (EU), Australia, and Japan, are much better. The EU allows 27 different active ingredients to block sunburn and skin damage, whereas the FDA has only approved 17. The number of approved ingredients matters because not all filters can seamlessly be formulated into sunscreens or other suitable products for skin application. Moreover, some of the ingredients approved in the EU and Japan but not the US are more effective and long‐​lasting. As a result, the products do not need to be applied as often, giving consumers more bang for their buck.

But, without FDA approval for new and improved active ingredients, foreign companies selling better sun protection products cannot gain access to the U.S. market, and therefore impede consumers from buying superior sun protection. These types of regulations are known as “non‐​tariff barriers (NTBs),” and are an unfortunate response to the considerable trade liberalization that has occurred in the last 75 years. It is estimated that over 75 percent of U.S. industrial imports (essentially everything but agricultural products) are affected by some type of NTB, compared to 50 percent of U.S. industrial imports that are subject to tariffs. Put differently, one‐​quarter of U.S. industrial imports are free from NTBs and one‐​half are free from tariffs. Thus, the coverage of barriers to U.S. imports remains high, costing consumers.

So, as you celebrate America’s Independence Day, remember the importance of liberty because it affects everything, even the quality of your sunscreen.

Marc Joffe

California and Florida now have approved budgets for the fiscal year beginning July 1, 2023, giving us the opportunity to compare spending across two large states with different governing philosophies.

Both overall and per capita, Florida spends far less than California. Further, it is not clear that the California state government provides much incremental value to its residents for all its extra spending.

Figure 1 compares total anticipated spending by Florida and California for the current fiscal year broken down into three broad categories: general funds, other state funds, and federal funds. The last category represents money coming from the federal government largely to support each state’s Medicaid program, but for many other purposes as well. The other two categories of spending are supported by taxes, fees, and service changes collected by the state government. The ink is still not dry on California’s budget so the categories aside from General Fund are estimates subject to change.

To improve comparability, Figure 2 divides total state spending by recent population estimates to arrive at per capita figures. California’s Department of Finance estimates the Golden State’s population was 38.94 billion on January 1, 2023, while Florida’s Demographic Estimating Conference estimates a Sunshine State population of 22.61 million as of April 1, 2023. For the rest of 2023, it looks like California’s population will remain nearly flat while Florida will continue to grow, albeit at a slower pace than it did during the pandemic.

We see that on a per capita basis, California state government spends about double the amount Florida does. Since states must balance their budget, the main reason California can spend far more than Florida is that the Golden State has a personal income tax. Florida, by contrast, is mostly reliant on sales and excise taxes for its non‐​federal revenue.

It is important to factor in this institutional difference when comparing the governors of these two states. Florida has been a low tax, low spending state for decades, and California has been at the opposite pole for a long time. While Florida has never had a personal income tax, California’s has been in place since 1936.

That said, those of us who prefer smaller government could still applaud Florida’s current and recent administrations for resisting the temptation to impose a personal income tax and thereby grow state spending.

Supporters of bigger government might criticize Florida for skimping on needed spending, but to make that criticism effectively, they would have to show that California’s spending is benefiting its residents. Obviously, some California residents benefit from the state’s copious spending by receiving the funds, but what about the general public?

For example, the state’s High Speed Rail Authority has already spent over $11 billion. Contractors and their employees have benefited from these expenditures, but the riding public is almost certain to see no benefit until at least 2031, when, maybe, the first lightly travelled segment of the state’s high‐​speed rail system will open. Meanwhile, Floridians will be able to travel between Miami and Orlando by rail starting in September, thanks to private investment and without the expenditure of taxpayer funds.

Because different states organize their budgets differently, it is challenging to determine which spending categories are driving the gap between California and Florida. But education appears to be one key area. While California Gov. Gavin Newsom’s final budget called for $103.3 billion in K‑12 and higher educational spending, Florida’s approved budget only included $30.3 billion for these purposes.

But it is not clear that California is getting much additional bang for the extra bucks it is spending. Standardized test scores reported by the National Assessment of Educational Progress (NAEP) show Florida equaling or exceeding California. In one extreme example, Florida ranked fourth among states in Mathematics at the fourth‐​grade level while California ranked 38th.

Further evidence of relative policy effectiveness can be gleaned from interstate migration. In recent years, California has been shedding people while Florida has been gaining them. Many Americans have been voting with their feet for the governing style of Florida (as well as Texas), and against that of California (as well as New York).

Much of the public debate between California and Florida policy revolves around social issues on which many libertarians (including this author) prefer the Golden State’s approach. But, for less politically engaged citizens, their view of state government revolves more around the quality of services provided and the economic costs imposed, directly or indirectly. Viewed from this perspective, California does not appear to be coming out ahead.

Chris Edwards

Federal government spending is soaring and debt will soon reach record highs compared to the size of the economy. Rising spending and debt are undermining growth and may push the nation into a financial crisis.

As the federal government’s size has expanded, the scope of its activities has also grown. The government subsidizes farming, health care, school lunches, broadband, rural utilities, energy, rental housing, aviation, passenger rail, public broadcasting, chip manufacturing, job training, foreign aid, education, urban transit, space exploration, and hundreds of other activities.

For decades, the government has published an official list of all its grant or subsidy programs for the states, businesses, nonprofits, and individuals. The list used to be called the Catalog of Federal Domestic Assistance but is now called Assistance Listings. The list is a rough indicator of the steadily expanding scope of federal interventions.

The chart shows that there are 2,418 federal grant or subsidy programs in 2023, more than double the number in 1990. Each new subsidy program requires higher taxes or more federal borrowing. Each subsidy generates a bureaucracy, spawns lobby groups, and encourages more special interests to demand handouts.

The rise in size and scope of federal subsidies means that Americans are losing their independence. State and local governments, businesses, nonprofits, and individuals that become hooked on subsidies become tools of the federal government. They have less incentive to work and innovate, and they shy away from criticizing government policies.

Let’s all celebrate July 4, but remember that the path to freedom and prosperity is to cut the size and scope of the federal government.

____________________________

Data Notes: Counts for 2020 and 2023 are from July listings under grantsgov here. Previous years were counts based on hardcopy and electronic versions of the Catalog of Federal Domestic Assistance. The new Assistance Listings keeps the same CFDA numbers. The counts should be considered only a rough measure of federal subsidies since what constitutes one program and one grant is rather loose.

An example of a new grant program is CFDA 20.939 for safe streets enacted in 2021. You can get a sense of the bureaucracy in this one new subsidy program reading the materials here and here. There is no reason for this new federal intervention, as the states themselves are in favor of safe streets and have their own revenue sources.

Thomas A. Berry

Next term, the Supreme Court will decide two cases raising questions unique to the social media age. Many public officeholders have social media accounts that are not formally run by the government, but which the officeholders nonetheless use to discuss public affairs. In Port Huron, Michigan, the city manager used a Facebook account to discuss COVID-19 emergency measures and other city policies. In Poway, California, two school board members used Facebook and Twitter accounts to discuss school district issues. When these officeholders were criticized by constituents on their social media accounts, they “blocked” some of those users, which prevented the constituents from reading or commenting on the officeholders’ posts.

The officeholders in both cases were sued by their constituents for these social‐​media blockings, and both cases raise a novel question. While private citizens are free to ignore or engage with the speech of others as they please, the government has special obligations under the First Amendment. Government officials may not block access to government forums (say, a town meeting held at City Hall) on the basis of a citizen’s viewpoints. When the officeholders in these cases blocked other users from accessing social‐​media accounts that discussed government affairs, were the officeholders acting as private citizens or as agents of the government? In other words, were the blockings “state action” subject to First Amendment limits?

While the disputes in both cases are between the officeholders and the blocked constituents, there are also third parties involved whose First Amendment interests should not be overlooked: the social media platforms themselves. To address this concern, Cato has joined NetChoice, Chamber of Progress, and the Computer & Communications Industry Association to file identical amicus briefs supporting neither party in both cases. No matter which way the Court rules on the question at hand, it should be careful to avoid mistakenly suggesting that the private platforms themselves can become state actors.

In our briefs, we make three key points. First, as private platforms, social media sites have their own First Amendment right to decide who uses their services and on what terms. The Supreme Court has held that a private newspaper has a First Amendment right to reject an editorial. Miami Herald v. Tornillo (1974). Social media sites similarly have the right to reject comments and accounts, a right that they make explicit in their terms of service.

Second, private platforms do not become “state actors” simply by virtue of hosting government officials. A private newspaper does not become a state actor simply by virtue of running an editorial written by the president, and a social media site similarly does not become a state actor by virtue of hosting an account operated by the president. Social media sites provide tools like “blocking” to all users. If a government official misuses such a tool and violates the First Amendment, the liability lies solely with the official, not the platform that provided that neutral tool.

Third and finally, public officials may not commandeer the editorial controls of social media platforms to indirectly censor user speech they could not regulate directly. The Supreme Court has held that indirect government censorship, known as “jawboning,” can violate the First Amendment when the government impermissibly pressures private actors. Bantam Books v. Sullivan (1963). But crucially, the remedy once again lies in suing the government actors, not the private platform that has been pressured. The Court should make clear that if there is any indication of jawboning in this or any other case, that does not transform a social media site into a government actor or a proper defendant.

Like any tool of communication, social media can be used for the good, the bad, and the illegal. Where to draw the line in these cases is a difficult question. But no matter what, the Court should remember that tools of communication are distinct from their users. The Court’s decisions should not blur the lines between private platforms and their public users.