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Jeffrey A. Singer

Earlier this week, the Food and Drug Administration issued a draft of proposed guidelines for clinical researchers conducting trials on psychedelic drugs. Even though the Drug Enforcement Administration categorizes psychedelic drugs as Schedule I (meaning that the law enforcement agency has determined they have “no currently accepted medical use and a high potential for abuse”), clinical researchers have known for decades that psychedelic drugs can help treat a variety of mental health disorders.

Government‐​approved Phase 3 clinical trials of the psychedelic MDMA* (colloquially called “molly” or “ecstasy”) show the drug can be effective in treating post‐​traumatic stress disorder (PTSD). News reports claim the FDA is expected to approve the drug for PTSD treatment later this year. Regulators in Australia approved it last February. The FDA recently approved a clinical trial using MDMA to treat schizophrenia. Psilocybin, the psychedelic found in “magic mushrooms,” has been shown helpful in treating tobacco addiction, depression, and suicidal ideation, particularly in patients receiving palliative end‐​of‐​life care. Research dating back to the 1950s finds that LSD (lysergic acid diethylamide) shows promise in treating anxiety, depression, addiction, and psychosomatic diseases. Of course, none of this matters if the DEA doesn’t agree to reschedule these drugs and continues asserting they have “no currently accepted medical use.” Accepted by whom?

Generally, when the FDA approves a controlled substance for medical use the Secretary of Health and Human Services must next formally request the DEA reschedule the drug. The DEA then has 90 days to issue an interim final rule. But the DEA doesn’t have to follow the health care agencies’ recommendations.

In 1985 the DEA placed MDMA on Schedule I as an emergency action. Clinicians and clinical researchers challenged the decision and, in a 1986 hearing, provided mountains of scientific evidence that convinced administrative law judge Francis L. Young to conclude:

If the Administrator of DEA carefully considers the entire record now provided in this proceeding, there is no reason why he cannot come to the informed decision the law requires of him as the Agency head.
Needless to say, nothing in this opinion is to be taken as being in any way critical of the Agency’s emergency scheduling of MDMA which became effective on July 1, 1985. That action was taken pursuant to certain statutory authority with which this proceeding is not concerned. That action was wholly unilateral, reflecting a view based on evidence then available to the Agency but without opportunity for the presentation of countervailing evidence or argument. This proceeding, a wholly separate process, has provided that opportunity. A complete record, with input from different perspectives, has now been assembled for the benefit of the Administrator, the head of the Agency.
The record now assembled contains much more material about MDMA than the Agency was aware of when it initiated this proceeding by publishing a notice almost two years ago.
Based upon this record it is the recommended decision of the administrative law judge that the substance 3, 4‑methylenedioxymethamphetamine, also known as MDMA, should be placed in Schedule III.
Dated: MAY 22 1986
Francis L Young, Administrative Law Judge

Judge Young vacated the DEA’s decision to place MDMA on Schedule I, placing it on Schedule III (“moderate to low potential for physical and psychological dependence”). One month later, Acting DEA Administrator John Lawn overruled the administrative law judge and moved MDMA back to Schedule I, stating that, though expert clinical researchers presented over 200 cases of MDMA‐​assisted psychotherapy at the hearing, none of them had been published in medical journals.

Think of all the research that has been stifled, and all the lives that could have been saved or improved, if Administrator Lawn had not made that fateful decision.

And it’s not just psychedelics. Who can state with a straight face that cannabis has “no accepted medical use?”

Thus, even if the FDA approves MDMA to treat PTSD and other mental health disorders, clinicians and patients will still have to wait for a law enforcement agency to sign off on the decision. And this is not just a federal law enforcement decision. Each state has its own controlled substance system patterned after the federal system. According to the Multidisciplinary Association for Psychedelic Studies (MAPS), 27 states have laws that require parity with the federal controlled substances schedule. In those cases, the states automatically reschedule controlled substances to conform with a DEA rescheduling. But the remaining 23 states require lawmakers or regulators to make their controlled substance schedules conform.

Recently Representatives Dan Crenshaw, Morgan Luttrell, and Jack Bergman–all military veterans– introduced the “Mike Day Psychedelic Therapy to Save Lives Act,” which would provide federal grants for research into using MDMA to treat PTSD and traumatic brain injury patients. It is gratifying to see lawmakers begin to appreciate the potential benefits of psychedelics.

But law enforcement is in command of the war on drugs. Unless Congress acts, we will continue to see cops practicing medicine. And the people—veterans and non‐​veterans— will continue to suffer.

*3,4‑methylenedioxymethamphetamine

Walter Olson

State legislatures, like other actors in our system of government, are creatures of constitutional law. They are ordinarily subject not only to the federal Constitution but to the constitution, laws and legal decisions of their own states. That’s basic intuition, and six Supreme Court justices agreed today that the Elections Clause does not carve out an exception. That’s consistent with a long line of previous cases and practices from the early days of the Republic through the present day.

As the Court emphasized, state courts do not have free rein to impose their own caprices in this area; federal courts can rein them in if they “transgress the ordinary bounds of judicial review” on Elections Clause matters.

Three Justices would have held the case moot, of whom two (Thomas joined by Gorsuch) voiced some inclination toward a particular originalist reading that would have accorded state legislatures a broad swath of unreviewable power. Thomas also warns that the Court’s announced standard for reviewing state court action is likely to yield outcomes that are at best unpredictable.

Despite much angst from commentators, it was never likely that today’s Court would endorse a supercharged version of the so‐​called independent state legislature theory. One practical consequence worth noting: some thought the Court might be headed toward reversing its close 2015 decision upholding Arizona’s creation of an independent redistricting commission. That’s now highly unlikely.

Norbert Michel and Jai Kedia

Testifying before the Senate Banking Committee last week, Fed Chair Jay Powell acknowledged inflation has come down but suggested it hasn’t slowed because of monetary policy. Insisting that the Fed still has work to do to bring inflation down, he told the Committee:

I won’t say [food and energy are] not affected at all by monetary policy, but they’re principally affected by other things in the economy.

Really, where monetary policy takes effect is in the service sector, and that’s where we haven’t seen much progress. Inflation, broadly, is coming down, but as I said in my remarks, we still have a long way to go. Inflation’s still running between 4 and 5 percent.

Powell’s remarks bring up several interesting policy questions. For starters, the Fed does not have any particularly good price setting powers for different sectors of the economy, which is why all economists learn that monetary policy tries to stabilize the overall price level. Put differently, there is no reason to expect the Fed’s tightening to affect only the services sector. Given that service‐​based companies are generally less capital intensive than goods‐​producing companies, it makes sense that the service sector may be even less responsive – at least directly – to monetary policy changes.

Moreover, from February through April the average monthly change in the services category for Personal Consumption Expenditures is very close to its long‐​term average. The long‐​term average monthly change, measured from January 1959 to April 2023, is 0.32 percent, while the average change from February 2023 to April 2023 (the three most recent dates available) is 0.35 percent. So, price changes in the service sector have been trending down.

It’s also clear the annual rates of PCE services price increases are elevated at least partly due to the below average changes experienced prior to the COVID crisis. The average monthly change from January 2010 to February 2022, for instance, was just 0.2 percent, while the average from March 2022 to April 2023 was 0.45 percent.

Beyond these simple comparisons of percentages, more sophisticated research suggests that there is little reason to expect monetary policy to have much of an effect on prices in the services industry. As a Cato study using a VAR technique finds, Fed policy has hardly mattered in explaining inflation (services or otherwise). Figure 1 below reproduces the breakdown of inflation into its demand, supply, and monetary policy components from 1960 onwards. As the graph shows, supply factors dominate – they account for over 80% of the variation in service‐​sector inflation, both in the short‐​term and long‐​term. In the near term, monetary policy explains less than 2% of inflation. In the longer term, the effects increase but never account for more than 5% of service‐​sector inflation.

If, as some suggest, the Fed tries to rapidly tighten credit conditions now, it would be doing so primarily because the month‐​to‐​month change in service sector prices remains above its long‐​term average. For the last three months, this average change was just 0.027 percentage points higher than its long‐​term average. For the previous 12 months, it was only 0.13 percentage points higher.

As we’ve argued before, it seems perfectly reasonable that the members of the Federal Open Market Committee would pause their tightening campaign. As a larger issue, it is unclear why people would want any government agency to have the ability to constrain credit for arbitrary reasons such as those discussed above.

For a detailed analysis, please see this Cato working paper.

Marc Joffe

Over the last year, news media have run numerous stories of offices, shopping malls, and other commercial properties going into foreclosure or being sold at substantial discounts. Given local government’s reliance on property tax revenues, a collapse in commercial property values might appear to have disastrous consequences for city and county finances. But circumstances differ widely from one region to another (and even between local governments within a region), so the impact of the commercial real estate decline will vary greatly.

Among the factors we must consider when evaluating the revenue impact of lower commercial real estate valuations are, first, what proportion of revenue comes from property taxes on commercial real estate, next, how closely assessed values tracked market values before the collapse, and finally, whether and when properties will be reassessed to conform with reduced market prices more closely.

San Francisco—a city at the epicenter of the commercial property collapse—provides an example of how to evaluate these three factors. (For more about why San Francisco finds itself at the epicenter please see my recent post on the city’s policy failures.)

Commercial Property Tax Dependency

Local government is heavily reliant on property taxes generally, but many entities diversify their revenue sources with income taxes, sales and excise taxes, and other levies, as well as non‐​tax revenues.

San Francisco anticipates $6.4 billion in revenue in fiscal year 2023–24. Of this total, $4.4 billion is expected to come from tax revenues. The combined city/​county government levies a variety of taxes aside from the property tax, including sales tax, hotel room tax, utility user tax, parking tax, real property transfer tax, sugar sweetened beverage tax, and a unique tax on executive pay. Property taxes are expected to contribute $2.5 billion of the $4.4 billion of anticipated tax revenue.

Since the current real estate valuation slump is only affecting certain categories of properties, it is also essential to understand how assessed value breaks down by category. According to San Francisco Assessor’s latest annual report, three major commercial property categories (office, retail and hotel) accounted for 27% of total assessments in 2021. This proportion slightly understates the share of property tax revenue derived from commercial property, because only residential property is eligible for a homeowners’ exemption. In California, this exemption is only $7,000 per owner occupied property and thus not as significant a factor as in Texas.

Overall, San Francisco’s commercial property valuation decline places at risk about $700 million of annual revenue or about 11% of total general fund collections. It is easy to see how this proportion might vary across cities and counties. Suburban communities that are primarily residential are likely to have very little exposure to commercial valuations, while cities hosting large malls and office clusters should be at greater risk.

Assessed Versus Market Values

Due to Proposition 13, the relationship between properties assessed and market value is complex. The 1978 measure limited assessment increases to 2% annually if a property does not change hands and is not subject to major construction. For properties that have not been reassessed since Proposition 13’s implementation, their market values have risen about ten‐​fold on average, but their assessed value have increased by a factor of only about 2.4.

While it is unlikely that many high‐​value commercial properties have avoided reassessment through the entire life of Proposition 13, significant gaps between assessed and market value have emerged over shorter periods: between 2012 and 2022 alone, California property prices more than doubled (it should be noted that I am using a residential price index for these value increases; the changes in commercial property valuations are likely to be different).

To reasonably estimate the potential impact of underassessments, it would be necessary to review a sample of local properties. San Francisco’s City Controller is performing such an analysis but the results have yet to be published.

While no other state has Proposition 13, there can still be variances between assessed and market valuations outside of California. For example, a Georgia property assessor reviewed a sample of ten commercial properties and found that, on average, they were assessed at 40% below market value (his findings were published in a paywalled edition of Fair & Equitable, the magazine of the International Association of Assessing Officers).

Reassessment Timing

Just as assessments may not reflect market values on the way up, they may also lag declining resale values. But this is less affect is less likely to persist given the incentive that property owners have to minimize their property tax liabilities.

In California, property owners can ask their assessor for a reduction, and, if not satisfied, they can appeal the assessor’s decision to a county board. San Francisco’s Assessment Appeals Board has an active docket of appeals cases at the moment, with some filers requesting assessment reductions of more than 50%. In one extreme case, the owner of the Westin St. Francis Hotel in San Francisco’s Union Square is seeking a 90% reduction in its assessed valuation.

Owners of commercial real estate may hesitate to seek downward reassessments if they are marketing their properties since potential buyers might use the lower assessment as a basis for negotiating a sales price. And, in California, at least, retroactive reassessments are not possible. So, in some cases, a commercial property may be assessed above market value at least during the current tax year.

Conclusion

Although San Francisco may be considered ground zero for the commercial property collapse, the budgetary impact has been limited this far. The city’s FY 2022–23 revenues are running just 1% below prior year levels and the city is forecasting small increases for the next five fiscal years. That said, these are nominal amounts, and it is fair to conclude that San Francisco’s projected revenues are expected to grow at or below the rate of inflation and are significantly underperforming recent growth rates.

San Francisco is receiving some protection from undervaluation before the pandemic and revenue source diversification. That said, the city’s unique challenges may also impact its sales tax and hotel room tax collections as well as its property tax revenues.

For other jurisdictions, results can be expected to vary. Blanket nationwide assessments may well prove to be a poor substitute for an in‐​depth look at each city’s and county’s unique characteristics.

David J. Bier

Last month, the U.S. House of Representatives passed the Secure the Border Act of 2023. Among other things, the bill would mandate that all employers use the E‑Verify program to prove that their new hires have federal authorization to work. A coalition of conservative advocacy organizations praised this provision because it would “turn off the ‘jobs magnet’ for illegal immigration.”

But is this good? Should the U.S. government really have the power to “turn off jobs”? The answer for people who believe in limited government is clearly no. The government in a free society should not have the power to decide who can work; free people shouldn’t have to request permission to work; and the founders of this country could not possibly have imagined a scenario where the federal government held a kill switch for everyone’s right to earn a living.

E‑Verify attempts to be a form of electronic national identification. Currently, it just runs a person’s name and Social Security Number against government databases. But the government is already incorporating photo IDs into the program, and it is only a matter of time before that becomes mandatory as well. The Secure the Border Act of 2023 mandates the Secretary of the Department of Homeland Security (DHS) to pilot additional, possibly biometric, verification mechanisms as well.

Mandatory E‑Verify would create a centralized electronic record of all your employment activity, and the inevitable expansion to other economic and social activities would locate within DHS a comprehensive surveillance tool unlike any in the history of the United States. Unlike passive surveillance systems, E‑Verify could quickly be used to “turn off” the rights of people targeted by the government.

Right now, the “banned list” only includes people ineligible to work in the United States (which includes many people here legally but not eligible to work). But the immigration logic behind E‑Verify obviously extends to absolutely anything a person might want to do in the United States while here illegally. Laws already ban or surveil their use of transit, driver’s licenses, bank accounts, apartments, gun sales, and access to certain federal buildings. Will conservatives oppose “turning off the bank account magnet” or allow illegal immigrants to buy guns? I doubt it.

Conservatives who zealously promote this massive expansion of government power in the name of cleansing the labor market of unwanted foreign workers should think twice about whom a left‐​leaning DHS would want to target years from now. One of the few members of Congress who understands the threat is Thomas Massie (R‑KY) who told the House Judiciary Committee, “Why are we making another list? These always get turned against us and they’re never used for the purpose that they were intended.”

E‑Verify actually has broad bipartisan support. Democrats only oppose it because it is not in a bill with a legalization of illegal immigrants. Under those circumstances, Democrats will gladly hand over federal power over employment to DHS. But once the illegal immigrants are all legal, would E‑Verify keep to its original purpose? I doubt it.

Who could have predicted that Social Security Numbers—which were created solely for the purpose of giving Americans a taxpayer check—would morph into our national ID number attached to health care, banking, and so much else? Of course, many did predict this, and the government assured them that Social Security cards and numbers were not for identification purposes. But that changed very quickly, and an E‑Verify system would evolve along the same lines.

Once the system is nationwide and mandatory for all, every politician will argue, “We already do it for illegal immigrants. Are illegal immigrants any worse than… ‘deadbeat dads,’ ‘tax cheats,’ ‘criminals,’ ‘anti‐​vaxxers,’ ‘gun dealers,’ ‘racists,’ ‘insurrectionists,’ etc.?” Do conservatives trust DHS to define these terms?

The government should not have the power to “shut off jobs,” or shut off housing, or shut off the Internet, or anything else—especially not in a way that allows for targeting of specific, disfavored groups. E‑Verify should not exist. Congress should stop putting hundreds of millions of U.S. taxpayer dollars into it. Since freedom depends on the powers of government being limited, every patriotic American should oppose E‑Verify.

Romina Boccia

The Menace of Fiscal QE
By George Selgin
The Cato Institute, 2020, $14.95, 126 pages

George Selgin’s book The Menace of Fiscal QE, published by the Cato Institute in 2020, is particularly relevant today following debt limit negotiations that demonstrated how reluctant U.S. politicians are to grapple with unsustainable federal spending. The book is about the potential dangers of using quantitative easing (QE) as a tool for financing government spending.

The dangers are manifold. Selgin warns against engaging in fiscal QE because it would undermine the Fed’s independence and credibility, erode democratic oversight and transparency of fiscal policy, and could open the floodgates to backdoor spending. It might also relieve, at least temporarily, the pressure to deal with unsustainable entitlement programs – all while still resulting in higher inflation. The dangers of fiscal QE are great, the harms would be widespread, and the political temptation to use it will grow.

Selgin highlights dangerous precedents in U.S. history when policymaker used QE for non‐​monetary ends and details growing interest in fiscal QE among certain economists and politicians today who are looking for a “free lunch” government funding mechanism.

QE is the practice of the central bank buying large amounts of assets, such as government bonds or mortgage‐​backed securities, to inject money into the financial system. QE can help stimulate economic activity and prevent deflation in times of crisis when interest rates are at their zero lower bound and ordinary monetary policy tools can no longer be relied upon. However, QE also has costs and risks. It distorts asset prices and creates moral hazard, where investors take excessive risks to chase higher yields. Fiscal QE is when the Federal Reserve buys assets and expands the Fed’s balance sheet when there is no compelling macroeconomic reason for doing so, primarily, or solely to support government spending objectives.

Congress’s adoption of the Fiscal Responsibility Act (FRA), which raises the debt limit through 2024 in exchange for weak discretionary spending limits, unintentionally shows how politically tempting fiscal QE is. As the Congressional Budget Office pointed out, debt will still rise substantially, even assuming full implementation of the FRA’s deficit reduction, to 115 percent of gross domestic product (GDP) by 2033. Had members of Congress been serious about controlling the growth in the debt before increasing the debt limit again, they would have adopted meaningful fiscal targets and a pathway to reforming federal health care and Social Security – the key drivers of federal spending growth. Instead, they will have an even bigger fiscal challenge on their hands next time the debt limit comes around, sometime in spring or summer of 2025. Political obstacles to reforming old age entitlement programs create a temptation to find unorthodox ways out of the fiscal mess for some politicians and big government advocates. It’s no wonder some are considering resorting to fiscal QE.

Selgin shares examples of politicians and economists advocating for fiscal QE, including to finance student loan debt forgiveness and the Green New Deal. Selgin also identifies past examples of fiscal QE, including the Fed’s purchase of mortgage‐​backed securities during and after the Great Recession, “not only to stimulate aggregate investment…but also to support the housing market,’ and Congress raiding the Fed’s surplus account to finance infrastructure as authorized in the 2015 Fixing America’s Surface Transportation (FAST) Act. Selgin is not opposed to QE per se, recognizing that there are valid macroeconomic rationales for using it when interest rates are at their zero lower bound. Rather, Selgin only argues against using QE to pursue fiscal policy.

Fiscal QE proponents claim that it can provide a free lunch for the government, by allowing it to spend more without raising taxes or borrowing from the public. They also argue that fiscal QE can boost aggregate demand and economic growth more effectively than conventional monetary or fiscal policy. Selgin debunks both arguments, pointing out that fiscal QE would have inflationary consequences, shift risks from bondholders to taxpayers, and impair central bank independence. He also demonstrates that fiscal QE would not stimulate the economy more than conventional policy, but rather create distortions and inefficiencies in resource allocation and income distribution, including generating financial instability by encouraging excessive risk taking among investors. Selgin concedes that despite fiscal QEs downsides, it has great appeal largely due to fiscal illusion. He writes:

“[M]yopic politicians have long been tempted to exploit a central bank’s lending powers even when doing so ultimately sponsors unwanted inflation. “Printing money” can be much easier than raising taxes, and less costly in the short run than competing with private sector borrowers for credit. Also, the public may not grasp the connection between fiscal QE and any inflation that follows.”

While this author is squarely in the camp of those who believe that current government spending is unsustainable and threatens America’s prosperity, Selgin’s arguments should appeal to a broader audience. By enabling “backdoor” spending, that is, spending that bypasses congressional appropriations, resort to fiscal QE should also concern those who believe that the federal government isn’t spending enough. Anyone who cares about democratic, transparent government, regardless of their views on the proper size and scope of federal spending, should find a Fed that blurs the lines between fiscal and monetary policy unacceptable.

Selgin urges the Fed to restore its pre‐​crisis operating procedures to limit the dangers of resorting to fiscal QE. Specifically, the Fed should return to a corridor system, where it sets a target range for the overnight interest rate and adjusts its supply of reserves accordingly. “A corridor system reform would guard against fiscal QE by constraining the size of the Fed’s balance sheet,” explains Selgin.

It wasn’t until 2009 when the Fed began paying interest on reserves that the central bank inadvertently severed the link between the size of its balance sheet and inflation. Under the current floor system, the Fed can use QE without losing control of inflation by adjusting the rate of interest it pays on bank reserves. In the same vein that the Fed might be pressured by Congress to fund government spending via QE, it could be pressured to not raise rates when inflation takes hold to avoid an economic downturn.

Given congressional reluctance to reform entitlement programs that are the major drivers of increased spending and debt, it would be wise for the Federal Reserve to close off an avenue for fiscal QE before it’s too late. The temptation to use the central bank balance sheet to fund federal government spending without having to resort to taxation or borrowing will only rise as the federal debt grows ever larger. Fed officials and others directly involved in Fed policy should heed Selgin’s warning.

Thomas A. Berry

Today in United States v. Hansen, the Supreme Court upheld the federal criminal prohibition on encouraging or inducing violations of immigration law. To do so, the Court adopted a narrow interpretation of the statutory language at issue. The Court held that, in the context of this particular statute, the words “encourages” and “induces” are terms of art referring to the criminal concepts of facilitation and solicitation. The Court thus held that the law criminalizes “only the intentional solicitation or facilitation of certain unlawful acts.” On that basis, the Court declined to strike down the law as facially overbroad under the First Amendment.

The Court’s opinion, written by Justice Amy Coney Barrett for seven justices, conceded that “encourage” and “induce” both have very broad dictionary definitions. In the abstract, these words can simply mean to “inspire with courage, spirit, or hope” and to “move by persuasion or influence.” Both the Ninth Circuit below and the defendant in this case argued that the words in the statute had these broad meanings. That is why the defendant argued that the law could criminalize even an “op‐​ed or public speech criticizing the immigration system and supporting the rights of long‐​term undocumented noncitizens to remain.” Cato filed an amicus brief supporting the defendant providing similar examples, including a viral video arguing that “even if a noncitizen is violating the law, it’s better to stay here and prosper in America.”

The Court conceded that if the statute potentially criminalized op‐​eds or speeches, “its applications to protected speech might swamp its lawful applications, rendering it vulnerable to an overbreadth challenge.” But the Court held that the statutory words “encourages or induces” should be interpreted not based on their dictionary definitions but rather based on their “specialized, criminal‐​law sense.” And under that interpretation, the Court held that the statute “reaches no further than the purposeful solicitation and facilitation of specific acts known to violate federal law.”

The Court’s interpretation rested largely on statutory context, reasoning that “when a criminal‐​law term is used in a criminal‐​law statute, that—in and of itself—is a good clue that it takes its criminal‐​law meaning.” And to resolve any remaining ambiguity, the Court also invoked the doctrine of “constitutional avoidance,” which urges courts to adopt an interpretation of a statute that would make the statute constitutionally sound. As the Court put it, “When legislation and the Constitution brush up against each other, our task is to seek harmony, not to manufacture conflict.”

The majority opinion is written with an unmistakably skeptical eye toward the First Amendment overbreadth doctrine. The Court sets the tone by noting at the outset that “An overbreadth challenge is unusual.” The Court further tips its hand by emphasizing that “To justify facial invalidation, a law’s unconstitutional applications must be realistic, not fanciful.” In a concurring opinion, Justice Clarence Thomas goes even further, arguing that the facial overbreadth doctrine has carried the judiciary “far afield” from its “constitutional role.”

The concern raised by both the majority and concurring opinions is that a defendant may challenge a statute as overbroad even though the statute would be constitutional as applied to the conduct of that particular defendant. Justice Thomas objects that under overbreadth doctrine, courts can “declare laws unconstitutional in the abstract without the law ever being applied against any individual in an unconstitutional manner.”

But this concern is convincingly rebutted in a dissenting opinion by Justice Ketanji Brown Jackson, joined by Justice Sonia Sotomayor. As Justice Jackson noted, “it makes little sense for the number of unconstitutional prosecutions to be the litmus test for whether speech is being chilled by a facially overbroad statute. The number of people who have not exercised their right to speak out of fear of prosecution is, quite frankly, unknowable.”

Justice Thomas thus takes too narrow a view of when a law has been “applied” in an unconstitutional manner. A law affects conduct when someone self‐​censors to avoid risk, which means an overbroad law has in fact been “applied” and has in fact limited freedom of speech even in the absence of a prosecution. Facial overbreadth challenges are often the only means of attacking laws that have real effects on freedom of speech.

Justice Jackson’s dissent also explains how the overbreadth doctrine plays a crucial role in encouraging Congress to write criminal statutes with precision. For decades, Americans have rationally erred on the side of caution when speaking on immigration issues due to this statute, not knowing exactly where the line of criminality falls. Because the law remains on the books, questions about whether particular future applications might be unconstitutional are left “up in the air.” Although an as‐​applied challenge to a particular prosecution can still be raised in the future as part of a criminal defense, the risk of jail time if a defendant guesses wrong on the constitutional question is not a risk that anyone can reasonably be expected to take.

Indeed, one key question about the statute is explicitly left unanswered by the Court’s opinion: whether it is constitutional to criminally punish speech that facilitates or solicits a mere civil (as opposed to criminal) violation. The Supreme Court has never answered the question whether speech can be criminally punished when the conduct facilitated by that speech is not itself a crime. And many of the immigration violations covered by the law are indeed civil, rather than criminal, violations. Yet the only way to resolve this question, after the Court’s decision, is to raise it as a defense in a criminal prosecution.

Finally, Justice Jackson’s dissent notes another key problem with the Court’s decision: the government has, on many occasions, adopted a much broader reading of this statute when doing so was in the government’s interest. Indeed, at an earlier stage of this very case, the government fought against an interpretation of the law requiring that intent be proved for conviction. As Justice Jackson writes: “In its role as prosecutor, the Government often stakes out a maximalist position, only later to concede limits when the statute upon which it relies might be struck down entirely and the Government finds itself on its back foot.”

Unfortunately, that gambit paid off in this case. The government received the benefit of an arguably broad law for decades, but now a narrowing construction has saved that same law from constitutional challenge. When courts allow the government to shift its interpretation of statutes to its own benefit, the liberty of the people is often on the losing end at every stage of the process.

Colleen Hroncich

Education entrepreneurs come from all walks of life. Monica Hall, founder of THRIVE Christian Academy near Atlanta, didn’t set out to start a school. She was serving as an Army chaplain and gradually realized her soldiers needed more support. This prompted her to open a community center focused on well being. She was also a youth pastor at a nearby church, and people started asking her to add tutoring at the center or start a school. Monica was initially reluctant, but after a few different people suggested something similar, she realized maybe this was what she was meant to do.

In 2013, Monica opened THRIVE Christian Academy, which stands for Truth, Humility, Respect, Integrity, Victory, and Excellence—the six pillars of the school. There were initially just two students—both children whose parents helped inspire her to create the school. Because she only had two students, Monica met up with homeschoolers throughout the year for various activities. She finished the school year with three students and gave them each a “brag book” that compiled some of the things they’d done during the year.

One of the parents shared photos of the brag book on Facebook where a local teacher saw it. The teacher showed up at Monica’s door one day and said she wanted to be part of the school. “I don’t have any kindergartners and you teach kindergarten,” Monica recalls telling the teacher. The teacher said three of her fellow teachers also wanted to join THRIVE and assured Monica that students would come if she hired the teachers.

She was right—THRIVE opened the new school year with 56 students, pre‐​K3 to 5th grade. Enrollment kept growing. Monica added a middle school and then a high school. The first graduating class was 2020—the COVID class they called themselves. In Georgia, things started opening back up from COVID-19 restrictions by the end of May, so they held that first graduation on Juneteenth. Monica expects to have around 300 students when school is back in session this fall.

THRIVE utilizes a unique blended curriculum that pairs high‐​quality video lessons with in‐​person instruction from dedicated teachers. This allows students to have a more tailored, individualized experience. Monica estimates that around 40 percent of her students have special needs. Most of them just need extra attention and are integrated into the general education population.

“Some have a significant educational delay, like maybe they’re in 6th grade but they read on a 2nd grade level,” she says. “So, let’s figure out where the stepping stone was missed. Let’s fill in that gap, and let’s just watch you accelerate.” 14 students have more intensive needs and are in their own classroom with a dedicated teacher and aide, which is pretty impressive for such a small school.

The school also offers a variety of extracurricular academic activities, including debate, robotics, geography and spelling bees, a science fair, and math, history, and quiz bowls. Each year, they take an enrichment trip; previous destinations have included Washington D.C., New Orleans, Memphis, Niagara Falls, Baltimore, and Chicago.

Monica wants to make sure THRIVE alum have plenty of options in the future. “We make sure that they apply to at least three colleges, and we have a 100% acceptance rate now,” she explains. “So far from the senior classes, probably about 60% of them are in college.” The others are pursuing various careers like the Army, EMT, modeling, and entrepreneurship. “For me, the point of requiring them to apply is that they know they always have that option,” says Monica. If they start down one path and it doesn’t work out, they’ll “forever know that push comes to shove I’ve been accepted to schools before. I can go back and go to college if I decide to do that.”

Like most of the education entrepreneurs I talk to, Monica says if you have the urge to open your own school, just do it. “It wasn’t the ideal time for me when I started THRIVE—my son was two weeks old on the first day. I carried him in there in a car seat, fed him, burped him, put him down, and went next door to welcome two 1st graders for the first day of school,” she says. “But the feeling isn’t going to leave. You’re going to keep feeling this tug until you do it, so you’re going to be sleepless anyway. You may as well just go ahead and jump out there and trust God to catch you.”

Marc Joffe

On June 21, the North Carolina State Senate overrode Governor Roy Cooper’s veto of SB 299, which imposes penalties on local governments that fail to file their financial audits within one year of the fiscal year’s end. The matter now moves to the State Assembly which overwhelmingly passed the measure in May. Timely financial reporting is not only a sign of good stewardship, but it is also necessary for effective monitoring of local government finance.

The last two cities to file municipal bankruptcy petitions, Fairfield, AL and Chester, PA, were substantially delinquent in releasing their financial audits. Neither was in compliance with the nine‐​month deadline the federal government imposes for Single Audit reporting, which is required of all governments spending more than $750,000 of federal funds in a given fiscal year.

The one‐​year threshold for penalties set by SB 299 is longer than the federal deadline, double the six‐​month timeframe recommended by the Government Finance Officers Association, and three times as long as the four month deadline set by the North Carolina Local Government Commission (LGC).

The penalty SB 299 would impose is modest. If a county or municipality has failed to file its audit after one year, the state would withhold from its sales tax revenue distribution an amount equal to 150% of the cost of the required audit. According to state data, audit fees range from $5,000 or less for smaller communities to as much as $200,000 for larger cities and counties. The withheld sales tax revenue would be released by the state whenever the audit is filed or two years after the fiscal‐​year end date, whichever comes first.

Although Governor Cooper’s veto message cited the financial hardships for smaller local governments, units affected by the measure are not necessarily one‐​horse towns. For example, as of this writing, Caswell County had yet to file its 2021 audited financial statements, which were due to the State Treasurer on October 31, 2021. In its 2020 fiscal year, the County spent over $29 million and employed over 200 individuals.

Another non‐​compliant government is Spring Lake, a suburb of Fayetteville with a population of 11,762. This entity has also not filed FY 2021 financial statements, but, unlike Caswell County, it is facing severe financial distress. In his FY 2022 budget message, Spring Lake’s town manager wrote:

The Town of Spring Lake is in a strained financial situation. Expenditures have exceeded revenues for the past several years, fund balance appropriations have been made each year in all funds to produce a seemingly balanced budget, and budgets that were adopted were not implemented.

After that, the LGC voted to assume control of the town’s finances. State Treasurer Dale Folwell who chairs the LGC said:

We want to save Spring Lake. We are here to assist the town to correct past mistakes and missteps, get on sound, sustainable financial footing, act in accordance with the law and provide confidence to residents that their hard‐​earned tax dollars are being carefully and properly spent.

Perhaps if Spring Lake had met its financial reporting deadlines, problems could have been identified earlier and the state takeover could have been avoided.

LGC’s action in this case shows why North Carolina is a national leader in local government financial stability, with a relatively high proportion of cities and counties carrying top credit ratings. But it was not always that way.

In the late 1920s, North Carolina counties began suffering municipal financial distress due to excess borrowing and poor expenditure controls. During the Great Depression, many North Carolina local governments defaulted on their municipal bond obligations.

During this time Governor Max Gardner asked the Brookings Institution to evaluate state government operations and make recommendations for reform and reorganization. Brookings analysts recommended the formation of a dedicated state agency to oversee county and municipal finances.

In 1931, the state legislature implemented Brookings’ plan by creating the Local Government Commission. LGC approves all local bond issuances, sells debt to municipal bond investors, oversees annual local government financial audits, monitors county and municipal financial condition, and intervenes in cases of severe distress.

Delayed audits impede LGC’s oversight responsibilities and jeopardize the record of local government fiscal discipline built up over the last ninety years. As such it is reasonable for state officials to insist on timely audits and to create incentives for local governments to provide them.

Adam N. Michel

In 2017, Republicans passed the Tax Cuts and Jobs Act, which cut taxes for the vast majority of Americans and simplified taxpaying by making modest reforms to, among other things, the system of itemized deductions. One of the most politically contentious reforms was a new $10,000 cap on the state and local tax (SALT) deduction. This revenue‐​raising change was critical in offsetting the cost of the individual tax cuts, and without it, extending the tax cuts will be next to impossible.

Politicians representing high‐​income congressional districts in high‐​tax states, such as California, New York, and Illinois, have since campaigned on repealing the SALT cap. This same group of legislators is threatening to derail the Republican’s new economic tax package because it does not increase or eliminate the SALT cap. Democrats dealt with a similar dynamic on major legislation last year.

As the 2025 expiration of the 2017 tax cuts draws closer, members of Congress need to remember that a simpler tax code with lower tax rates must also limit or repeal special interest provisions, such as the SALT deduction. It’s much harder to cut tax rates without broadening the tax base.

Below is a refresher on why the costs of the SALT cap are overstated and why the cap is good policy in its own right.

Does the Cap Hurt?

Estimates show that more than 95 percent of taxpayers benefited from a tax cut in 2018 or saw no change in their tax bill. This leaves a small minority of taxpayers who could have seen tax increases. Higher taxes for some is a predictable outcome of any reform that attempts to limit special interest tax provisions that provide large benefits to a few taxpayers at the expense of others.

However, the problem of higher taxes due to the SALT cap is often overstated. In the hardest‐​hit congressional districts in New York and California, with the largest share of taxpayers with estimated tax increases, 88 percent of taxpayers benefited from a tax cut or saw no change.

So why the disconnect? Even higher‐​income taxpayers who face the new SALT limit likely saw a tax cut for three reasons.

First, the tax law doubled the standard deduction, so many people who previously itemized their taxes now take the larger standard deduction instead.

Second, tax rates were lowered for people at all income levels. The SALT cap increased some people’s taxable income, but lower tax rates mean most people still come out paying less in total taxes.

Third, the 2017 law raised the exemption for the alternative minimum tax (AMT), which denied 5 million higher‐​income AMT‐​paying taxpayers any SALT deduction. The AMT is a parallel tax system that generally applies to taxpayers with large deductions and certain types of income, requiring them to calculate their taxes twice and pay whichever tax is higher. For these taxpayers, the SALT deduction increased from zero to $10,000.

Why Cap SALT?

The SALT cap and other limits on itemized deductions make tax cuts possible, simplify taxpaying, and reduce subsidies for high‐​income taxpayers and state governments.

Capping the SALT deduction is a crucial ingredient in the classic tax reform recipe of lower tax rates, offset with a broader tax base. The $10,000 SALT cap and other limits on itemized deductions raised $668 billion over ten years, one of the largest individual tax changes used to pay for lower tax rates.

Without the SALT cap and other revenue‐​raising components of the 2017 compromise, the old tax rules will snap back in 2026, bringing back the old AMT, higher marginal tax rates, and smaller standard deduction. This is the counterfactual; it is not an option to eliminate the SALT cap in isolation. Without limits on itemized deductions, the rest of the tax cuts are unsustainable. Full SALT deduction for higher tax rates is a bad trade for almost all taxpayers—even those in high‐​income coastal states.

The SALT cap also simplified taxpaying. The tax code offers taxpayers the choice of taking a flat standard deduction ($27,700 for a family in 2023) or the sum of a list of itemized deductions for specific expenses, including mortgage interest, state and local taxes, and charitable giving. In 2017, 30 percent of taxpayers used the more complicated itemized system. After Congress capped the SALT deduction, curtailed other itemized deductions, and doubled the standard deduction, 9.5 percent of taxpayers itemized their taxes. By one estimate, this saves taxpayers about 100 million hours of time that they would have spent filing their more complicated tax returns.

In addition to simplifying and cutting taxes, capping the SALT deduction was a good governance reform. The SALT deduction is a subsidy for high‐​income taxpayers in high‐​tax states, paid for by the rest of Americans. It created perverse incentives that limited the cost to states for increasing their taxes because higher‐​income taxpayers could write off the tax on their federal return. As I’ve written elsewhere, before the 2017 cap, “the average millionaire living in New York or California deducted more than $450,000 worth of SALT; the average millionaire in Texas deducted only $50,000 and therefore paid close to $180,000 more per year in federal taxes.”

With an uncapped SALT deduction, middle‐​class taxpayers are forced to subsidize millionaires who could use the SALT deduction to write off hundreds of thousands of dollars from their federal taxes. Without the cap, taxpayers with identical incomes pay different amounts in federal taxes based entirely on their state of residency.

The new federal tax code cut taxes for most taxpayers and flipped the incentives for state governments so that inefficiently high state taxes are no longer subsidized by taxpayers in more responsible locals.

A Path Forward

The SALT deduction is still distorting tax policy even in its limited form. For example, the poorly conceived temporary $4,000 bonus deduction proposed in the Tax Cuts for Working Families Act, part of the Republican economic tax package, is the result of SALT politics. The proposal attempts to give additional tax relief to taxpayers concerned by the SALT cap.

As initially proposed by House Republicans in the lead‐​up to 2017, the correct policy is to repeal the SALT deduction entirely. The $10,000 cap was a political compromise necessary to get enough votes for the bill. Raising or lifting the cap significantly reduces revenue, making it harder to extend or expand the tax cuts when they expire at the end of 2025.