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Marc Joffe

Washington Metro’s extension to Dulles Airport and beyond to Loudoun County provides a new travel option for air travelers and airport employees, but, thus far, it is not attracting enough riders to justify its high costs.

As with most other recent rail transit construction projects, the extension provides a cautionary tale for those who think that massive public investments in new rail infrastructure will greatly improve mobility or solve climate change. It also now seems a particularly unwise move in the face of Washington Metro’s projected $750 million shortfall for fiscal year 2025 as the pandemic‐​related federal aid runs out, with threats of drastic service cuts if additional funding is not secured.

In September 2023, the six stations on the extension reportedly served 6,567 passengers on an average weekday of which 8.3 percent did not pay a fare. Weekend ridership was somewhat lower. These are modest numbers for a project that cost over $3 billion, and ridership numbers are well below expectations.

In 2015, a study referenced by this Washington Post article anticipated the extension would serve 50,000 passengers daily. An earlier study somewhat more plausibly anticipated 17,900 daily trips by the seventh year of operation, which still appears unattainable. The Covid‐​19 pandemic is cited as the reason for low ridership, but even before the pandemic, this estimation would have been extremely optimistic, partly due to an existing decade‐​long downward trend in ridership.

Furthermore, the Dulles enplanement rate has rebounded to pre‐​pandemic levels, so the rather dismal ridership at Dulles Metro station should not be blamed on the pandemic. Nevertheless, of the six new stations, Dulles Airport is the most popular. Two more lightly used stations lie beyond the airport. Planners would have been well advised to terminate service at the airport, avoiding the need to lay five miles of track further to the west.

Furthermore, this is a very expensive subsidy for quick transportation to the exurbs. This volume of riders could easily have been served by a rapid bus service. The former western terminus at Reston is located on a toll road that seldom sees heavy traffic to and from points west, so from the perspective of alleviating traffic it is ineffective.

Some interstates in Northern Virginia feature express lanes for vehicles with at least three passengers or paying drivers. The incentive of free use of the express lanes by high occupancy vehicles has led to the phenomenon known as “slugging”, whereby drivers can pick up riders to freely use the express lanes and beat the traffic. It is to the mutual benefit of both drivers and riders and is an effective and low‐​cost method of reducing motor vehicle traffic and use.

Disappointing cost/​benefit ratios might be a sign to those planning other projects, but, unfortunately, they continue to plow ahead. Next up for the capital region is the Maryland Transit Administration’s Purple Line, a light rail route that will connect New Carrolton, College Park, Silver Spring, and Bethesda. Undoubtedly, it is hard to commute between these destinations via rail now because it is necessary to travel into DC and back out. But it remains to be seen whether the demand for direct service between various Maryland suburbs will justify the project’s costs which recently ballooned to over $9.4 billion.

Rail transit was a great fit for America’s needs in the early twentieth century when systems could be built inexpensively, and many commuters did not yet have access to cars. A century later, conditions have changed. Federal, state, and local governments—unconstrained by the need to cover costs at the farebox—can continue to resist the new reality, but by doing so they make inefficient use of taxpayer funds.

David Boaz

Newspaper headlines proclaim that President Biden has issued a “massive, sweeping, wide‐​ranging” executive order on artificial intelligence. And no one seems to be saying that whatever the content of the order is, “massive, sweeping, wide‐​ranging” regulations should not be issued by one man.

President Biden, members of Congress, and the judiciary should take a look at the White House’s own website, where they would read: “Under Article II of the Constitution, the President is responsible for the execution and enforcement of the laws created by Congress.” Not to make the laws, but to execute and enforce them. If AI needs government attention, it should come from Congress.

Biden is not the first president to believe that his office was invested with kingly powers. Both President George W. Bush and President Barack Obama used executive orders to grant themselves extraordinary powers to deal with terrorism. Lawmaking by the president, through executive orders, is a clear usurpation of both the legislative powers granted to Congress and the powers reserved to the states.

Clinton aide Paul Begala once boasted: “Stroke of the pen, law of the land. Kind of cool.” President Obama declared: “We’re not just going to be waiting for legislation.… I’ve got a pen, and I’ve got a phone, and I can use that pen to sign executive orders and take executive actions and administrative actions that move the ball forward.” President Donald Trump upped the ante: “I have an Article II, where I have the right to do whatever I want as president.”

One of the great concerns of the Founders was to rein in executive power. Thus they wrote a Constitution to divide and limit the powers of all elected officials. But they thought that each branch would be jealous of its own authority and would not tolerate a usurpation of its power by the other branches. Somehow Congress and the courts have lost their taste for conflict with the executive.

No matter what agenda the president seeks to impose by executive order, Congress should stop him. The body to which the Constitution delegates “all legislative powers herein granted” must assert its authority. In a constitutional republic, one man should not have kingly powers — and the Constitution doesn’t grant them to him.

Michael Chapman

When Senator Bernie Sanders (I‑VT) talks about Sweden as a socialist paradise, he is promoting a tax‐​the‐​rich “pipedream” from the 1970s that never really existed, said Johan Norberg, a Swedish author, historian of ideas, and a senior fellow at the Cato Institute. Norberg added that Sweden today is a “much better and much freer place” than it was in the 1970s.

“So today, if Bernie Sanders wants to imitate Sweden, he would have to reform Social Security, partially privatize it,” said Norberg in an interview with ReasonTV, a division of Rea​son​.com. “He would have to … abolish property taxes and inheritance taxes, and stuff like that, implementing national school voucher systems…. So, Sweden today is not what he remembers from the 1970s. It’s a much better and freer place than it was back then.”

Norberg, also a documentary filmmaker, earned his M.A. in the History of Ideas at Stockholm University. His latest book is The Capitalist Manifesto, which was praised by Elon Musk on X. During the ReasonTV interview, Norberg was asked to respond to some of Sanders’ glowing comments about Sweden, which the self‐​described socialist had made during his 2015 presidential campaign.

In an inserted news clip, Sanders said, “In countries in Scandinavia, like Denmark, Norway, Sweden, they are very democratic countries obviously. Their voter turnout is a lot higher than it is in the United States. In those countries, health care is a right of all people. In those countries, college education, graduate school is free. In those countries, retirement benefits, child care are stronger than in the United States of America. And in those countries, by and large, government works for ordinary people and the middle class rather than, as is the case right now, in our country, for the billionaire class.”

When news host George Stephanopoulos then said that Republicans would run an attack ad accusing Sanders of wanting to make America more like Scandinavia, the senator replied, “That’s right, that’s right.” 

ReasonTV host Zach Weissmuller then asked Norberg to comment on Sanders’ remarks.

Norberg replied, “This is why Sweden is not a libertarian paradise. We might have free markets, but we do have a very generous welfare state. It’s true that many of these things are handed out by the government – it’s funded by the government at least through private providers. But the thing is we pay for these things ourselves. That’s an incredibly important point to make. Because there is this pipedream of Bernie Sanders and others that this will somehow be paid for somehow by the rich.”

Norberg continued:

“But Sweden learned in the 1970s. You can pick one: a big generous welfare state or you can make the rich pay for it all. You can’t have both. If you have a universal generous welfare state, and make the rich pay for it all, they will stop being rich. They will move. They will stop starting those businesses, the Ikeas of the future, and will move. Instead, you have to get most of the taxes from low‐ and middle‐​income households. That’s the dirty little secret of the Swedish welfare state.

“The socialists love the poor taxpayers because they are reliable, loyal taxpayers. They don’t dodge. They don’t move to Monaco. They don’t have tax attorneys. So we have the bulk of our government revenue coming from regional and local income taxes, which are flat. Income taxes are not progressive…. Also, things like a value‐​added tax at 25%, in general, on most goods. It’s obviously regressive. The poor pay as much as the rich when they buy food, in taxes.

“This means that when the OECD club of mostly rich countries look at different tax systems around the world, they say that the Swedish system is one of the least progressive tax systems of all. Much less progressive than the United States because America’s welfare state is so small, so you can rely more on the rich. Whereas here, we all have to pay for it.

“The Swedish welfare state mostly just redistributes over an individual’s life cycle. We get lots of stuff when we’re young, in preschool and school, and then we work hard and pay for it all, and then we get much of it back in health care and retirement benefits. Which mostly means, yes, we get lots of stuff but we pay for it all….

“It’s so interesting that socialists keep coming back to Sweden and I think that’s because all their favorite countries constantly fail. Every Cuba and Venezuela ends up with bread lines, millions trying to escape from that horror show. But they always have Sweden. It seems so friendly and successful and yet socialist.

“We have been socialist in Sweden and we have been successful but never at the same time. That’s what Sanders and the others fail to realize. We had that period in the 1970s and 1980s when Sweden was doubling the size of public consumption, raising taxes, regulating everything – price controls, what have you. This is the moment when Bernie Sanders and all those who are sort of stuck in the 1970s, this is what they still remember: ‘Look at Sweden! They’re socialist! But they’re also one of the richest countries on the planet! It seems to be working in Sweden.’

“The problem, of course, is that it’s like that old joke, how do you end up with a small fortune? Well, you start with a large fortune and then you waste most of it. That’s what Sweden did in the 70s and 80s. We were one of the richest countries on the planet before this experiment. And this was based on a 100‐​year period of limited government, free markets, free trade, as late as 1960. We had lower taxes than the United States and most European countries. This brought us all the wealth and all those successful international companies, the Ikeas and stuff, that brought us so much wealth that politicians thought they could just redistribute everything and begin to just jack up spending and taxes.

“Well, they couldn’t. Because the 70s and 80s, that’s the one period in modern Swedish economic history when we lagged behind other countries. This is the moment when we didn’t create a single net job in the private sector, and when entrepreneurs and businesses left Sweden. Ikea left Sweden. Tetra Pak left Sweden. Most successful entrepreneurs left because it was impossible to do business in Sweden. This all ended in a terrible financial crash in the early 1990s.

“So that was a brief period of time and it’s one that we don’t want to go back to in Sweden. Not even Swedish socialists – even they say, okay, we went too far. The Social Democrat finance minister at the time said it was actually absurd and perverse in many ways, what we were trying to do. Since then, Sweden has again become successful. But that’s based on a new period of liberalization and of economic reform.”

Perhaps that is the Swedish model policymakers should try to emulate.

Jeffrey A. Singer

Today, the Reason Foundation released the Drug Legalization Handbook, to which I contributed a chapter. The handbook is a guide for citizens and policymakers who seek a world in which governments no longer arbitrarily ban certain psychoactive substances and wage war on people who consume them.

A key word here is “arbitrarily.” For example, governments allow people to ingest alcohol. This dangerous, potentially addictive, psychoactive depressant can cause liver, heart, and brain damage, stomach and esophageal cancer, and, in some people, induce belligerent behavior. Yet governments put people in cages if they consume opioids—which causes none of those problems—unless they get a permission slip from another adult in the form of a doctor’s prescription. Governments allow people to consume psychostimulants like caffeine and nicotine but punish people for consuming stimulants like cocaine, methamphetamine, and other amphetamine derivatives unless they, too, receive permission from a doctor. Meanwhile, governments incarcerate doctors if their prescribing decisions deviate from government‐​imposed “guidelines.”

The drug war created a dangerous black market governed by the “iron law of prohibition”: the harder the law enforcement, the harder the drug. The “iron law” causes a never‐​ending cycle where more potent drugs emerge to replace older versions sold in the underground market. Heroin replaced prescription pain pills in the black market. Fentanyl replaced heroin. Now, fentanyl mixed with xylazine (“tranq”) has emerged on the scene, along with isotonitazine (“iso”), both of which are more potent than fentanyl. As a result, overdose deaths among people who use black‐​market drugs have skyrocketed.

Yet the drug war criminalizes individuals and organizations who want to prevent death and disease among people who use black‐​market drugs by providing them with harm‐​reduction tools.

The US government arm‐​twists other governments into joining its drug war, fueling corruption and destabilizing the governments of our hemispheric neighbors.

America’s war on some drugs has caused innocent people to die, destroyed families, corrupted institutions, destabilized the governments of neighboring countries, and, in the process, fueled the development of ever more dangerous drugs on the black market. It is the most destructive public policy in modern times.

The Drug Legalization Handbook, a joint project of the Reason Foundation, the Law Enforcement Action Partnership, Students for Sensible Drug Policy, and the National Coalition for Drug Legalization, shows policymakers how to end the destruction.

The chapter that I contributed to the handbook discusses how drug war enforcers get in the way of providing proper therapy for drug dependence, an example of cops practicing medicine.

Cato Vice President for Research Jeffrey Miron and former Cato Research Associate Erin Partin contributed a chapter called “Taking Drugs Off The Schedule: Eliminating The Controlled Substances Act.”

I encourage people to obtain hard copies of the handbook from the Reason Foundation or download the PDF version and share it with their friends and colleagues.

Jack Solowey and Jennifer J. Schulp

Following Hamas’s blood‐​soaked atrocities in the State of Israel, Senators Elizabeth Warren (D‑MA) and Roger Marshall (R‑KS) have sought to use the October 7 pogrom to gain support for a bill purporting to combat cryptocurrency’s use in financing terror and other crimes.

While the full extent and impact of Hamas’s use of cryptocurrency involves ongoing investigation, we want to leave no room for doubt about the reprehensibility of Hamas’s terror against innocent men, women, and children, including, in the words of President Biden, “Children slaughtered. Babies slaughtered. Entire families massacred. Rape, beheadings, bodies burned alive.”

As for the Warren‐​Marshall crypto anti‐​money laundering (AML) bill that’s being shopped as a response to this terrorism, it’s bad public policy that would, in essence, grant terrorists veto power over the lawful use of technology.

What We Do and Don’t Know About Hamas’s Use of Cryptocurrency

In general, cryptocurrency is not believed to be terrorists’ primary financial tool. According to the US Treasury Department’s 2022 National Terrorist Financing Risk Assessment, “terrorist use of virtual assets appears to remain limited when compared to other financial products and services.” Similarly, the Treasury Department’s 2023 Illicit Finance Risk Assessment of Decentralized Finance concluded that “money laundering, proliferation financing, and terrorist financing most commonly occur using fiat currency or other traditional assets as opposed to virtual assets.”

At Thursday’s (Oct. 26) Senate Banking Committee hearing on “Combating the Networks of Illicit Finance and Terrorism,” witness Dr. Shlomit Wagman—the former Chair of the Israel Money Laundering and Terror Financing Prohibition Authority—put it powerfully:

Let’s not lose sight and focus from the big picture. Crypto is currently a very small part of the puzzle. The major funding channels are, were, and remain state funding. Iran and others, those are the major players. Most of the funds are still being transferred by the traditional channels that we all know from the past: banks, money transmitters, payment systems, hawala, money exchange, trade‐​based terrorism financing, charity, cash, shell companies, and crypto.

This appears to track with respect to Hamas specifically. The terrorist group has used cryptocurrency as only one of many financial tools, fundraising vehicles, and money‐​transfer methods, including fiat currency—in cash and through banks—credit cards, hawalas (informal banking networks relying on credit, cash, and barter), taxation within Gaza, misappropriation of (and indirect subsidies from) humanitarian aid, and investment assets. In addition, Hamas uses webs of shell companies, non‐​profit foundations, and NGOs to conceal its financial activity—methods that long predate crypto’s existence.

An October 10 article in the Wall Street Journal stated that between approximately August 2021 and June 2023, crypto wallets connected with Hamas received around $41 million worth of crypto, based on research from the Israel‐​based crypto analytics firm BitOK, and that wallets linked by Israeli law enforcement to Palestinian Islamic Jihad (PIJ)—a terrorist organization that participated in the October 7 attacks alongside Hamas—received up to $93 million worth of crypto, based on research by Elliptic, another analytics firm.

Notably, Elliptic has since disputed this characterization in an October 25 post. Regarding the claim that Hamas and PIJ raised over $130 million in crypto, Elliptic stated, “there is no evidence to suggest that crypto fundraising has raised anything close to this amount, and data provided by Elliptic and others has been misinterpreted.” The Wall Street Journal has subsequently updated the October 10 article to note that “Elliptic says it isn’t clear if all of the transactions it identified directly involved PIJ, because some of the wallets belonged to crypto brokers that may have also served non‐​PIJ clients.”

Relatedly, in an October 18 post, Chainalysis (another crypto analytics firm) had provided additional context for Hamas‐​linked crypto numbers being floated. While not calling out any specific report or source by name, Chainalysis discussed how “recent estimates” of crypto activity following Hamas’s attack may significantly overestimate the funds in the hands of terrorists, as such figures appeared to Chainalysis to include all funds flowing through service providers, not merely the explicitly terror‐​related funds. According to Chainalysis, the known terror‐​related funds flowing through service providers could be a small fraction of the overall funds those service providers process.

When trying to make sense of reports regarding terrorist‐​linked crypto funds and the relevant caveats, one consideration to bear in mind is that policymakers and law enforcement agencies have different missions—or at least they should. As the Chainalysis post notes, two things can be true at the same time: (1) where service providers specifically serve as terrorist facilitators, “cutting off terrorist access to them” can be an important law enforcement tactic and (2) it may be “incorrect to assume” that all activity of a service provider used by terrorists is terror‐​related. When policymakers fail to understand these nuances, they can end up overstating the relative role that cryptocurrency plays in terror finance.

Additional assumptions regarding the relationship between cryptocurrency and terror finance can include the faulty notion that crypto is somehow a universally untraceable financial silver bullet for terrorists. However, because cryptocurrency transactions settle on open, public ledgers, they produce more of a traceable record than cash does. And while there are privacy‐​enhancing cryptocurrencies and applications, as George Mason University law professor J.W. Verrett explained in a recent Wall Street Journal commentary, such privacy tools “have limited transaction capacities,” making them ill‐​suited to largescale transfers.

Moreover, while self‐​custodied crypto assets can resist seizure where law enforcement lacks access to the relevant user and/​or device, cryptocurrencies that are housed with intermediaries (in one form or another) can be, and have been, interdicted. In 2020, the U.S. Department of Justice seized hundreds of crypto accounts related to the financing of al‐​Qaeda, ISIS, and Hamas. Since 2021, Israel’s National Bureau for Counter‐​Terror Financing (NBCTF) reportedly confiscated nearly 200 crypto accounts alleged to be linked to ISIS and Hamas. In 2023, the NBCTF seized millions of dollars’ worth of crypto related to Hezbollah and Iran’s Quds Force. And in the days following the October 7 massacre, the investigations division of the Israeli Police—Lahav 433—stated that they froze certain Hamas crypto accounts.

Dr. Wagman has noted that such seizures address only a fraction of Hamas‐​linked crypto. But that claim should not be mistaken for the separate claim, which Wagman herself debunks, that crypto is an outsized terror finance tool compared to other financial instruments.

In fact, in the face of challenges like crypto asset seizures, Hamas announced in April 2023 that they would stop raising funds with Bitcoin to protect their donors. And although subsequent crypto fundraising efforts in support of Hamas have been identified since October 7, early reports suggest those have raised only minimal funds, and some already have been frozen.

Perhaps one of the best summaries of the crypto landscape’s complex mix of both opportunities and challenges for counterterrorism was stated by Ari Redbord, Global Head of Policy at TRM Labs (a crypto analytics firm): “Crypto and illicit finance is a paradox to some extent. We do have more visibility than before, but don’t have the full visibility.”

The Warren‐​Marshall Bill Is Bad Public Policy

Senators Warren and Marshall have couched their bill—the Digital Asset Anti‐​Money Laundering Act of 2023—as a common‐​sense effort to fill loopholes and “apply the same anti‐​money‐​laundering rules to crypto that already apply to banks, brokers, check cashers and even precious‐​metal dealers.”

This is a gross mischaracterization. Their bill is not designed to fill loopholes but rather gum up the works of the US crypto ecosystem and risk forcing it offshore (and outside the reach of US law).

It’s misleading to suggest that the parts of the crypto ecosystem that are most analogous to banks and brokers—i.e., centralized, custodial crypto exchanges that allow users to buy and sell crypto with fiat money—don’t already face AML rules in the US. Typically, these businesses (so‐​called “fiat on/​off ramps”) are considered money transmitters and “money services businesses,” which are subject to a suite of federal AML and Know Your Customer (KYC) regulations under the Bank Secrecy Act (BSA)—including requirements to register with the Treasury Department, maintain AML programs, verify customers’ identification, employ compliance personnel, report transactions in currency over $10,000, and report suspicious activity. Coinbase, for example, plainly states on its website that it’s required to comply with the BSA, and is quite open about its approach to combatting terror financing.

The Warren‐​Marshall bill would go much further than simply ensuring that like rules are applied to like institutions. By defining digital asset miners and validators—which constitute the computing infrastructure securing cryptocurrency networks and do not directly interface with transacting parties—as “financial institutions” subject to AML/KYC requirements, the bill would place obligations to identify customers and their financial activity on entities for whom this simply wouldn’t make sense and who are incapable of doing so.

The result would be, in essence, a de facto ban on operating the backbone of the crypto ecosystem within the US. (Unfortunately, imposing de facto bans on US crypto activity by subjecting the square peg of crypto technology to the round hole of legacy regulatory frameworks has been a hallmark of the US regulatory approach to date.)

As Ben Samocha, co‐​founder of a number of Israeli crypto projects, including Crypto Aid Israel (a project raising money for the victims of Hamas terror and their families), put it “[c]rypto is here to stay.” Creating unworkable laws in the US would not uninvent crypto, it simply would route it through other jurisdictions and make it impractical for law‐​abiding US citizens to use (for example, to donate to humanitarian projects like Crypto Aid Israel). It’s unclear how driving crypto activity offshore would benefit or protect the US and its allies.

Don’t Give Terrorists the Destroyer’s Veto

Ultimately, crypto technology is a particular type of tool: infrastructure. In a sense, it’s a tool to build other tools. Perhaps unsurprisingly, Israel—nicknamed the Start‐​up Nation—is home to hundreds of crypto startups.

It is, of course, true that one person’s tool is another person’s weapon. Indeed, there’s a salient analogy here: Hamas reportedly has used water pipes—another form of infrastructure—not to irrigate but to manufacture rockets to fire at civilians. Destruction is terrorists’ vocation, and terrorists should not be granted veto power over those using technology to build.

One constructive application of crypto technology has been to use its underlying tamper‐​resistant recordkeeping system to securely document the testimony of Holocaust survivors. We personally could think of few more fitting applications of this idea than securely recording the evidence and testimonies of survivors of Hamas’s October 7 pogrom—the deadliest attack on the Jewish people since the Holocaust. Legislation that would render any use of crypto technology legally untenable would make such projects securing all‐​too‐​necessary witness to atrocities practically unworkable.

While investigations into the full extent of Hamas’s use of all financial tools, crypto included, should continue—just last week both the House Financial Services Committee and Senate Banking Committee held hearings on terror finance, for example—US policy should not give terrorists the right to deny technology to those using it to lawfully and constructively build.

Gabriella Beaumont-Smith

Last Halloween, I wrote about how the devilish Us sugar program makes candy more expensive. This year, as headlined by The New York Times, Halloween candy is even pricier. The New York Times article cites non‐​controllable factors like bad weather and high fertilizer costs, among other problems but curiously misses the US sugar program as a reason contributing to elevated sugar prices. Actually, the piece even goes as far as to blame US reliance on sugar imports as part of the problem:

The United States relies on sugar imports from Mexico, which saw sugar production fall by more than 15 percent this year as a result of drought conditions, according to the U.S. Department of Agriculture. The price of raw sugar traded in global markets, recently around 27 cents per pound, was the highest since 2011.

Parts of Asia, home to several top sugar producers, have also experienced dry weather that hit harvests. India, one of the largest sugar producers in the world, has restricted sugar exports to protect its domestic supply.

The U.S. candy consumer is essentially paying the price for poor crops in Mexico and also Asia,” said John Stansfield, a senior sugar analyst at commodity data platform DNEXT.

So, before I get to this year’s trade‐​related Halloween topic, I would like to fill in some of the gaps in this article. Firstly, while the price of raw sugar traded in global markets was indeed recently around 27 cents per pound, the US price was almost 43 cents per pound. The US sugar program’s purpose is to maintain a higher price for US sugar, thus the domestic sugar price is routinely almost double the global price (see the chart below).

Secondly, the US sugar program implements supply restrictions to keep domestic sugar off the consumer market to maintain a higher price—as my colleague, Colin Grabow puts it, the US government “is, in essence, the leader of a nationwide sugar cartel.” Lastly, the sugar program has strict tariff‐​rate quotas on imports of sugar so that extremely low quantities can be imported duty‐​free, but the excess is subject to tariffs reaching close to 100 percent.

To characterize the US as “reliant” on sugar imports and imply this reliance causes higher sugar prices is misleading. Consumers are paying higher prices because of the US government’s active reduction of the domestic sugar supply and taxes on sugar imports. When uncontrollable factors like weather impact the yields of foreign suppliers, consumers indeed pay even higher prices, but the original culprit of monstrous sugar prices (and thus, candy prices), is the US sugar program.

Now, to this year’s story.

Halloween is the biggest holiday for chocolate sales. Indeed, Americans’ love for chocolate is demonstrated in the time‐​honored tradition of Halloween candy trading with friends and family; most Americans say they would trade their gummy candy for chocolate treats.

The US chocolate trade is relatively free as most cocoa‐​based products and chocolate have zero or very low tariffs. The sugar program creates some hurdles but, overall, the story of bean to bar is a prime example of globalization:

Cacao trees can only grow in specific climates—primarily in Côte d’Ivoire, Ghana, Ecuador, Cameroon, and Brazil. The beans are then shipped around the world to be processed (roasted and ground into cocoa) and then made into cocoa butter, for chocolate manufacturing.

As illustrated in the figure below, based on 2022 trade flows, Germany, Belgium, and the Netherlands are the largest producers and exporters of chocolate and other cocoa‐​based food products, while the United States, France, and Germany are the leading importers of finished chocolate goods. Note, Germany, the Netherlands, and Belgium are leading exporters and importers of chocolate. (If you take our globalization quiz, you’ll learn that often the biggest exporters are also the biggest importers.)

Thanks to globalization, chocolate is integral to US culture, not only serving as currency on Halloween but as a gift on special occasions, and even a daily pick‐​me‐​up.

Travis Fisher

Senator Bill Cassidy (R‑LA) wants to slap a tariff on carbon‐​intensive imports. Last week he told reporters: “What we’re proposing is not a domestic carbon tax, and it is not intended to lead to a domestic carbon tax.” In an article published by Foreign Affairs, Senator Cassidy referred to his carbon tariff policy as a “foreign pollution fee.” One may quibble with the labels, but three things are clear: 1) Senator Cassidy’s proposal is a carbon tax on imports, 2) it will hurt American consumers and some manufacturers, and 3) it lays the groundwork for a domestic carbon tax.

What’s in a Name?

Let’s begin by defining the terms “tariff,” “fee,” and “tax.” According to Merriam‐​Webster, a tariff is “a schedule of duties imposed by a government on imported or in some countries exported goods.” Merriam‐​Webster defines a fee (in the payment context, not the real estate ownership context) as “a fixed charge.” Likewise, Merriam‐​Webster defines a tax as “a charge usually of money imposed by authority on persons or property for public purposes.”

Whether we use the terms tariff, fee, tax, duty, or charge is a matter of semantics. I prefer to use the word tax because people know what a tax is—and a tariff is just a tax on imports. No matter how you slice it or which name you give it, Senator Cassidy’s proposal boils down to the federal government taxing imports based on their carbon intensity. It’s a carbon tax. It may only apply to a narrow set of energy‐​intensive imported goods, but the partial application of a carbon tax doesn’t change the fact that it’s a carbon tax.

[Note: I’m intentionally leaving out the word “dioxide” after carbon for brevity—the compound in question is carbon dioxide or CO2 (or CO2 equivalents in the form of other greenhouse gases).]

Taxing Imports Hurts American Consumers

Senator Cassidy’s plan would establish an import tax based on the carbon intensity of certain imported goods, such as steel from China. Although his Foreign Affairs piece does not mention the level of the tariff or the specific industries and countries involved (apart from targeting China), we know how tariffs tend to reduce the quantity of imported goods and raise prices for consumers.

The economic case against a carbon tax on imports mirrors the case against tariffs in general. Tellingly, the Foreign Affairs piece takes the perspective of American manufacturers of tariff‐​targeted goods rather than consumers (note that Senator Cassidy’s tariff would also hurt domestic manufacturers who use imported steel in their manufacturing process). The Foreign Affairs article refers to “manufacturing” or “manufacturers” more than a dozen times while failing to mention consumers.

An early passage in the article illustrates its anti‐​consumer bias:

The difference in environmental regulation enforcement between China and the United States lowers the cost of manufacturing in China, thereby encouraging US manufacturing and the jobs associated with it to migrate overseas. Such losses for the United States’ economy put downward pressure on its industrial base and American standards of living.

Low‐​cost manufacturing in other countries challenges domestic manufacturing. I do not dispute that point. I disagree, however, when the senator characterizes low‐​cost manufacturing in China as a loss “for the United States’ economy.” American consumers (including consumers of imported materials, some of which are manufacturers themselves) are also part of the economy. Consider this quote from French economist Frederic Bastiat:

There is a fundamental antagonism between the seller and the buyer. The seller wants the goods on the market to be scarce, in short supply, and expensive. The latter wants them abundant, in plentiful supply, and cheap. Our [trade] laws, which should at least be neutral, take the side of the seller against the buyer, of the producer against the consumer, of high prices against low prices, of scarcity against abundance.

A carbon tax on imports would hurt consumers just like other tariff protections enacted on behalf of domestic producers. Cato scholars have pointed out how “the US government systematically ignores consumer or broader ‘public interest’ impact when imposing trade remedy taxes on imports.” Given the lack of attention paid to the consumer by lawmakers, it is no surprise that so many companies can successfully lobby for tariff protection at the expense of consumers. Unfortunately, the consumer is missing from Senator Cassidy’s analysis.

Getting Closer to a Domestic Carbon Tax

Despite Senator Cassidy’s claim that his foreign pollution fee “is not intended to lead to a domestic carbon tax,” that is exactly what it would do, for at least three reasons. First, the foreign pollution fee concept may not be workable under World Trade Organization (WTO) rules without a domestic carbon tax. Second, applying a carbon tax on imports would require a new bureaucracy to keep tabs on the carbon intensity of traded goods. Third, a carbon tax on imports would require translating carbon emissions into dollar amounts, which is one of the biggest hurdles faced by advocates of a domestic carbon tax.

Regarding WTO rules, the CLC stated in a September 2023 report:

Commentators and some countries have raised concerns about the consistency of these measures with the rules of the [WTO], particularly to the extent that they rely on national average carbon intensity values for covered products, are not paired with a domestic carbon price, or attempt to address concerns about economic competitiveness in addition to reducing greenhouse gas emissions.

If advocates of a foreign pollution fee are faced with the choice of pairing it with a domestic carbon tax to satisfy WTO rules or dropping the scheme, which will they choose?

Regarding the new bureaucracy needed to count carbon, Senator Cassidy and others have drafted legislation called the PROVE IT Act to clear that hurdle. The PROVE IT Act would establish the Department of Energy as the carbon counter in chief. The act was introduced by Senators Chris Coons (D‑DE) and Kevin Cramer (R‑ND) and co‐​sponsored by Senator Cassidy along with Senators Angus King (I‑ME), Lisa Murkowski (R‑AK), Martin Heinrich (D‑NM), Lindsey Graham (R‑SC), Sheldon Whitehouse (D‑RI), and John Hickenlooper (D‑CO). This looks like a “who’s who” of bipartisan carbon taxers, but don’t take my word for it. The pro‐​carbon tax Niskanen Center said:

If the PROVE IT Act becomes law, it will be a meaningful step toward collecting product‐​level emissions data. Getting better at measuring, reporting, and validating product‐​level emissions is critical for implementing a border adjustment under a carbon tax.

Regarding the level of the carbon tax on imports, any legislative proposal (or the agency implementing it) will have to come up with a dollar amount to tax carbon dioxide emissions. Economists believe this is an all‐​important step—according to Pigouvian theory, the level of the tax determines whether it increases or decreases social welfare. But the “correct” level of a carbon tax is difficult to estimate and depends on a host of politically charged decisions, like how to count costs (and benefits) and whether to weigh impacts in the distant future heavily (by applying a low discount rate) or lightly (by applying a high discount rate).

Critics of carbon pricing are correct to point out that the “correct” level of the tax—the marginal social cost of carbon emissions—is so dependent on input assumptions as to be useless in guiding public policy. A neutral perspective might be that there is a lot of wiggle room. Interestingly, carbon tax supporters admit the same thing:

There is considerable uncertainty about the magnitude of the social cost of carbon. Under the Obama administration, a task force consisting of 12 US government agencies was put together to employ several climate‐​economy models and come up with an estimate of the social cost of carbon. They came up with a range—actually, a very wide range. They couldn’t rule out the possibility of a near zero social cost or a cost of around $100 a ton.

Further, establishing the level of carbon tax through protectionist trade policy almost guarantees the process will be guided by politics rather than a thorough, scientific, and economically informed attempt to price carbon at the marginal social cost of emissions. I predict that whatever carbon price is implied in defining the “foreign pollution fee” in Senator Cassidy’s plan will be held up by advocates of a domestic carbon tax, who will say “Aha! This is the magic number we’ve been looking for!”

Conclusion

Senator Cassidy’s foreign pollution fee proposal is a carbon tax on imports, and it would hurt consumers just like other tariffs. Contrary to the senator’s stated intentions, it would take us one step closer to a domestic carbon tax—one based on protectionist trade policy rather than environmental economics.

Colin Grabow

Last week I mentioned the use of bleak language by members of the commentariat to describe the state of US manufacturing, but I had no idea such a prime example of this mistaken rhetoric would present itself so quickly thereafter. Writing in the Wall Street Journal last week, Oren Cass called for raising tariffs to rescue an industrial base he described as “reeling.” But both Cass’s premise and prescribed remedy are badly flawed. United States manufacturing remains in robust health and new tariffs will only undermine the sector.

Although various metrics exist for assessing the state of manufacturing, perhaps the best one is output. The goal of manufacturing is production, so how much stuff is being produced? The answer, as I explained in a recent essay, is quite a lot. In fact, the sector’s output is currently only five percent off its all‐​time high.

Other metrics painting an even rosier picture. In terms of real value‐​added, the sector reached a record high last year.

And measured by value‐​added per worker, U.S. manufacturing is significantly ahead of other advanced economies such as South Korea and stands head and shoulders above China.

Such productivity allows Americans to produce massive quantities of goods with fewer workers than in decades past. And the quantities produced are massive indeed. In 2019, US firms exported over $1.3 trillion in manufactured goods. This includes high‐​tech products such as aerospace and aircraft parts ($60.1 billion), integrated circuits ($41.2 billion), and medical instruments ($29.4 billion).

The United Nations’ 2022 edition of its International Yearbook of Industrial Statistics found that the United States was the world’s third‐​leading exporter of medium‐​high and high‐​technology manufactured goods.

United States manufacturing is not only deep but broad. Beyond high‐​technology products, UN data show the United States is also a leading producer in numerous other areas, including paper and wood products, beverages, and coke and refined petroleum products. Of 23 manufacturing categories examined by the International Yearbook of Industrial Statistics, the United States was either the leading or second‐​leading manufacturer in 21 of them.

And yet we are to believe that is an industrial base that is reeling?

Given such realities, Cass’s task of finding the data to portray US manufacturing as being under siege is a difficult one indeed. To marshal evidence for his case, the executive director of American Compass states the following:

Whereas real manufacturing output doubled from 1980 to 2000, it rose only 7% from 2000 to 2020. As a result, after holding steady for 50 years, manufacturing employment collapsed by one‐​third, eliminating more than four million jobs. Automation is not the story here. To the contrary, manufacturing productivity has declined over the past decade—a shocking trend incompatible with a well‐​functioning capitalist system—leaving the sector far less competitive.

The passage, however, is self‐​refuting. If manufacturing output has steadily increased yet employment has fallen by a third, it defies credulity to claim that this is anything other than an automation story. How could it be otherwise?

Data further point toward the role of automation. From 2000 through 2010, manufacturing labor productivity increased by approximately 45 percent, while from 2010 to the present it dipped by just under 3 percent. In other words, manufacturing labor productivity is significantly higher today than at the turn of the millennium—exactly what one would expect given rising output and a notable decline in employment.

Little wonder a 2015 study found that productivity growth was responsible for 88 percent of manufacturing job losses in recent years.

Furthermore, the modest decrease in productivity since 2010 has correlated—not surprisingly—with an increase in manufacturing employment.

But even if US manufacturing was in poor health, Cass’s prescription of increased tariffs is an odd elixir. As with many US industries, imported inputs play an important role in allowing manufacturers to keep costs down and stay competitive. Raising tariffs, and thus the cost of inputs purchased from abroad will only undermine the ability of US manufacturers to compete in the global marketplace.

After all, we’ve been down this road before. In 2020 economists Kadee Russ and Lydia Cox calculated that the increased cost of steel and aluminum—an important input for numerous manufacturers including automakers and machinery producers—due to tariffs imposed by President Trump led to approximately 75,000 fewer jobs in manufacturing. Notably, that figure does not count additional losses suffered by US exporters resulting from retaliatory tariffs imposed by other countries on US exports.

Despite such public policy missteps, the United States continues to enjoy a thriving, dynamic manufacturing sector. The threat that the country’s manufacturers should be on guard against is not imports, unbalanced trade, or other alleged bugaboos but quack cures being peddled to relieve American industry of non‐​existent or exaggerated ills.

Adam N. Michel

The OECD has been working with European countries and the Biden administration to rewrite the rules that govern how international businesses are taxed on their global profits. This sprawling effort is made up of two pillars, which, taken together, threaten higher and more complicated taxes on global businesses. I’ve written about the costs and consequences of Pillar Two here, here, and here.

Pillar One aims to redistribute $205 billion of multinational corporate profits to countries based on customer location, regardless of a company’s physical location. Like Pillar Two, Pillar One primarily targets America’s more profitable firms.

Pillar One’s chief selling point, as told by OECD officials and the US Treasury, is that it will fix the instability caused by unilateral digital services taxes (DSTs) and other similar measures aimed at adding a second layer of tax on primarily US‐​based online service providers. The OECD’s recently released Pillar One Multilateral Convention (MLC) draft and explanatory documents (encompassing over 900 pages) show how it could further destabilize the international tax system and fail to eliminate DSTs.

Background

The current international tax system generally distributes corporate profits based on where those profits are generated, usually aligned with physical production, employees, or intellectual property. Pillar One turns this paradigm upside down. So‐​called Amount A of Pillar One siphons off a portion of these profits and redistributes them based on where customers are located, irrespective of the company’s physical presence. The new rules apply to companies with more than €20 billion in revenues (falling to €10 billion after seven years) and a global profit margin above 10 percent.

Amount A is intended to replace a patchwork of DSTs, which some countries have begun implementing based on revenue from local users. In July 2023, some countries agreed to freeze the implementation of their DSTs for one year while Pillar One negotiations progressed.

For the MLC to take effect, at least 30 jurisdictions, making up 60 percent of in‐​scope multinationals (assigned via a point system), must sign the agreement. This threshold requires US adoption by gaining two‐​thirds support in the Senate, a tall order in the current political environment.

Pillar One’s Arbitrary Profit Reallocation

Amount A introduces a series of new and arbitrary formulas and thresholds to allocate taxing rights toward seemingly political ends. The new tax introduces unpredictability and new political incentives into a system previously governed by understood norms.

One central aspect of this arbitrariness is the criteria defining which businesses fall within the scope of the new rules. The chosen thresholds, based on profit margins and annual revenues, are not rooted in a new or consistent theory of taxation; they are chosen out of political convenience to maintain consensus and target certain types of firms, such as US‐​based technology firms.

This political ambiguity extends to the treatment of newly defined “tail‐​end revenues”—those that firms could not trace to a specific consumer location. The OECD plan would allocate these revenues to lower‐​income countries. This redistribution based on development level adds a vaguely defined element of “global need” to the growing list of ways the OECD wants to allocate corporate profits (i.e., customer location and value creation).

Moreover, the MLC’s approach to specific industries raises questions. It pointedly exempts extractive sectors such as mining and oil, although these industries, like digital companies, often separate their operational jurisdictions from the locations of their end consumers. The policy is instead aligned with targeting specific business models, adding another layer of complexity and subjectivity to the proposed international tax law. If policymakers think a new tax is necessary, it should be applied equally.

Without the protection of norms around physical presence and value creation, there is no logical end to how best to divvy up corporate income among the 140 countries that have signed up for the OECD project. Thus, Pillar One invites a future where tax regulations are constantly in flux, driven by ever‐​changing political landscapes and threats of unilateral action.

Pillar One Does Not Eliminate Digital Services Taxes

The Pillar One proposal was initially advanced as a solution for unilateral DSTs. Instead, the MLC may actually encourage similar unilateral actions in the future. 

In 2019, France and a handful of other primarily European countries enacted or proposed DSTs targeting prominent US technology firms. In response to the French proposal, President Trump threatened tariffs on French exports, and the DST‐​implementing countries used the resulting risk of escalating retaliatory tax and trade measures to move the OECD international tax rewrite forward.

The MLC lists nine DSTs and similar measures meant to be replaced by Pillar One and outlines prohibited activities that resemble these taxes. Notably, the rules are written so countries can adopt Pillar One to capitalize on the redistributed tax revenues or continue with their domestic DST. For example, Canada will decide if their projected $1 billion a year in DST revenue will exceed their share of revenue from the Pillar One allocation. Countries with the most aggressive unilateral taxes will have the smallest incentives to join the agreement.

Furthermore, entrepreneurial countries may be able to reform some of the most discriminatory features of their DSTs so as not to trip the specific OECD Pillar One definition. In doing so, countries with carefully designed out‐​of‐​scope digital taxes could raise revenue with novel unilateral measures and still benefit from Pillar One’s allocation.

Conclusion

While lengthy and complex with many additional specific problems, the fundamental flaw in Pillar One is conceptual. The rules will not fully replace DSTs while creating new forms of unpredictability in their wake. It is more apparent than ever that the OECD’s proposal will only add to the political disagreements over the international tax system, making them worse.

Romina Boccia and Dominik Lett

The Biden administration is requesting another federal agency‐​sized supplemental. This time, it’s $56 billion in new emergency spending for natural disasters, childcare, and high‐​speed internet. With deficits in the trillions and interest rates at historic highs, Congress should stop adding fuel to the deficit fire.

The administration’s latest emergency supplemental would spend more than the Agency for International Development, the Small Business Administration, or the National Aeronautics and Space Administration (NASA) received in individual funding this year. This request also comes on top of the $106 billion in emergency aid for Israel, Ukraine, and other foreign policy issues the administration recently requested. And don’t forget the $16 billion in emergency disaster aid Congress already approved in a short‐​term spending extension in late September.

If Congress passes the $162 billion in combined emergency spending, legislators will erase any theoretical savings that could have been achieved for fiscal year 2024 under the May Fiscal Responsibility Act, which set caps on discretionary spending. Congress should reject phony emergency spending and consider Biden’s “critical needs” request as part of the regular appropriations process, subject to existing spending caps.

Emergency spending should be reserved for priorities that are necessary, sudden, urgent, unforeseen, and not permanent—few of the line items included in Biden’s latest supplemental meet these criteria. Moreover, Congress should adopt emergency spending offsets to curtail abuse of this budget category for the primary purpose of evading current spending caps in the future.

Disaster Relief

About half ($24 billion) of the new domestic supplemental would address disaster‐​related issues. From that amount, $9 billion would cover a preexisting Federal Emergency Management Agency (FEMA) Disaster Relief Fund budget shortfall that legislators have been aware of for months.

The remaining $15 billion in disaster funding includes support for crop insurance, housing, transportation infrastructure, education, small business disaster loans, and more. Many of the line items the administration claims require emergency spending are barely disaster‐​related and do not meet the essential criteria that justify emergency deficit spending.

Take $600 million for purchasing two new aircraft for “hurricane and extreme weather forecasting efforts.” These funds would replace existing aircraft expected to be decommissioned in 2030. Likewise, the National Aeronautics and Space Administration (NASA) requests $180 million to “begin efforts to safely dispose of the International Space Station.” According to NASA, the International Space Station should be operable “through 2030.” These issues do not qualify as urgent or unforeseen and certainly do not represent vital emergency needs.

Then there is $68 million in general funding for the Centers for Disease Control and Prevention (CDC) and $63 million in base pay increase for the Department of Interior wildland firefighting workforce. Neither of these issues arose suddenly, nor are they non‐​permanent expenditures. Salary increases and agency‐​wide funding belong in a base budget request, not an emergency supplemental.

Some of the spending the administration asks for should not be happening at all. Take the $3 billion in “support to farmers and ranchers with crop losses from natural disasters.” As Cato’s Chris Edwards points out, federal crop insurance subsidies lack transparency, crowd out private risk management solutions, primarily benefit extremely wealthy producers, and harm the environment—all at taxpayers’ expense.

Rather than responsibly plan for natural disasters, the federal government uses a separate deficit funding stream to plus‐​up agency and program accounts. Congress should stop abusing emergency spending to fund reoccurring issues and make room in the regular budget for essential disaster relief.

Childcare

The administration requests $16 billion for “child care stabilization funding…mitigating the likelihood that providers will close or raise costs for families.” The new funding is supposed to replace previous childcare emergency funding passed in the American Rescue Plan of 2021 and would be provided through the Child Care and Development Block Grant.

This is not an issue that suddenly arose. Moreover, federal funding that comes with strings attached also carries unintended consequences. As Cato’s Ryan Bourne explains,

“[F]ederal subsidies entrench onerous state childcare regulations. The Childcare Development Block Grant authorizes and governs the federal childcare subsidy program known as the Child Care and Development Fund (CCDF), which provides financial assistance to low‐​income families. The Child Care and Development Block Grant (CCDBG) Act of 2014 requires that providers receiving grant funds meet group size limits, age‐​specific child‐​to‐​provider ratios, and staff qualification requirements, as determined by the state—regulations that, as noted above, reduce supply and increase prices.”

Pet Projects

The remaining $16 billion in emergency funding is spread across several pet projects.

The administration requests $6 billion for high‐​speed internet subsidies and $3 billion for communications providers to remove “insecure equipment and software from US communications infrastructure.” Continuing broadband subsidies and reimbursing communications companies for “ongoing” efforts to secure communications infrastructure responds to neither an unforeseen nor a sudden emergency.

Another $3 billion would go to the Department of Energy, including $2.2 billion to improve long‐​term domestic uranium enrichment and $278 million to speed up the construction of the Isotope Production & Research Center at the Oak Ridge National Laboratory. Neither issue qualifies as sudden or non‐​permanent.

Another $4 billion would be spread across opioid harm reduction, low‐​income home energy assistance, international food assistance, and non‐​profit grants related to counterterrorism. Some of these programs, like the Low Income Home Energy Assistance Program (LIHEAP) and US Department of Agriculture Food for Peace grants, are regularly funded either fully or partially through emergency spending. These are all issues that should be discussed within base budgets that are subject to spending limits.

Reject Deficit Spending for ‘Emergencies’

Congress should reject unnecessary and unjustified emergency spending. If some of the issues the administration highlights necessitate funding, Congress should consider it as part of annual appropriations. We must get Congress out of the habit of myopically passing supplemental emergency funding requests.

Congress should further offset new emergency spending by requiring future cuts to pay for expenditures that violate agreed‐​to budget caps. Emergency spending offsets would promote forward‐​thinking fiscal planning and deter the irresponsible use of deficit‐​fueling emergency spending for recurring, predictable issues.

Overreliance on emergency spending for issues that should be part of basic budget discussions erodes trust in the government’s capacity to budget responsibly and directly contributes to the long‐​run fiscal challenge. With deficits in the trillions and interest rates at historic highs, taxpayers cannot afford more mindless emergency spending.