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Walter Olson

The Constitution’s Electoral College arrangement for selecting a president has long been the object of popular and scholarly discontent, for well‐​known reasons. It sometimes elevates a winner who lost the popular vote, it gives states influence that is not always proportional to the size of their electorates, it encourages candidates to spend time campaigning in a handful of swing states, and so forth.

In a recent Cato Research Brief in Economic Policy, Georgy Egorov and Konstantin Sonin argue that one countervailing advantage of the Electoral College (EC) often goes unappreciated: it reduces the danger that presidential elections will be decided by fraud or misconduct. To begin with, the EC renders fraud in presidential elections unavailing, and thus disincentivizes it, in states where the race is not going to be close enough for it to make a difference. In the 2020 election, only about a half‐​dozen states were close enough for the Trump campaign to contest after the fact.

What’s more, the latent potential for successful fraud should not be assumed to be evenly distributed among states. Egorov and Sonin argue that states where both parties have significant representation in government are likely to have stronger guardrails against fraud than states dominated by one party. It seems plausible, for example, that “street‐​level” fraud at particular polling places is better checked if prosecutors, judges, and other officials are drawn from a mix of party backgrounds.

And if the question is one of election subversion from on high—say, the governor, state legislature, or county canvassing board that tries to replace the voters’ choice of candidate with a different one after the fact—such subversion is likely to run into strong obstacles in a “purple” state, as it did with Trump attempts to overturn the 2020 election results in Georgia, Michigan, Pennsylvania, and Arizona.

It might be added that to the extent public or judicial scrutiny of election results plays an important role in evaluating fraud claims and deterring election subversion, a system in which that scrutiny can be focused on a handful of states may work more efficiently than one in which every polling place and canvassing board nationwide needs to be scrutinized or recounted from the ground up. Again, the claims of fraud in the 2020 election can serve as an example, since the most straightforward way to reach a conclusion about their merits is to focus on the close states one by one.

The authors model incentives under each system and conclude that the EC’s fraud‐​cabining effects may be especially important in periods of heightened voter polarization:

We developed a theoretical model to determine the resilience of the Electoral College and popular vote system to fraud. Our model measures the resilience of each electoral system as the difference between the fair vote tallies of the two parties that would be required to deter vote fraud. In other words, how far ahead does one party have to be for the other party to perceive committing fraud as futile? Our model demonstrates that when the difference between the fair vote tallies of the two parties is identical in the Electoral College and popular vote system, the incentive to commit fraud is higher in the popular vote system. This means that the Electoral College can tolerate a smaller difference between the fair vote tallies of each party than the popular vote system and result in the same degree of incentive to deter fraud. Perhaps surprisingly, our model shows that an increase in polarization (within or between states) does not hurt the ability of the Electoral College to deter fraud, but it does increase the incentive to commit fraud in the popular vote system.

More Cato commentary on the Electoral College from Robert A. Levy (and more), John Samples (and more), Roger Pilon (Framers “were no friends of direct democracy”), Ronald Rotunda (“prevents candidates with only regional appeal from winning”), and podcasts with Levy, Samples, and author Emily Conrad. Cato scholars were closely involved in the successful 2022 effort to clarify and improve the old Electoral Count Act and replace it with the Electoral Count Reform Act. And Andrew Craig finds fatal flaws in the National Popular Vote Interstate Compact (NPVIC).

Nicholas Anthony

March 7 was a great day for the Cato Institute’s Center for Monetary and Financial Alternatives. While I testified before Congress to defend financial freedom, Norbert Michel was testifying at the same time just down the hall to defend financial privacy. For my part, I warned Congress of the dangers of enacting price controls on financial services.

For those who have not been following the news, the Consumer Financial Protection Bureau (CFPB) has proposed price controls for credit card late fees, overdraft fees, and nonsufficient fund (NSF) fees as part of President Biden’s “war on junk fees.” In total, the CFPB claims these proposals will reduce revenue for financial institutions by more than $12.5 billion per year. As I’ve explained on this blog and in my testimony, these proposed restrictions are likely to result in either a reduction of services or higher costs elsewhere. Neither case is an improvement for consumers.

Yet, this “war on junk fees” goes far beyond financial services. As my colleagues Ryan Bourne and Sophia Bagley have documented, the president’s proposed restrictions cover fees for airplane seating, event tickets, hotels, resorts, funeral homes, early contract terminations, and more. If you find it difficult to see the connection between these fees, you’re not alone. Bourne and Bagley also pointed out that there is “no firm definition of ‘junk fees’ the administration is sticking to” and “the aims of anti-‘junk fee’ policies are often explicitly contradictory.”

Luckily, for those concerned about the future of free markets, Bourne’s latest book, The War on Prices, is set to come out on May 14. The book offers a complete resource for anyone interested in learning what prices are, how they work, and why it’s important to push back against government policies seeking to distort them.

The War on Prices is available for pre‐​order here and will be released on May 14, 2024. In addition to myself, contributors include Brian Albrecht, Pedro Aldighieri, David Beckworth, Eamonn Butler, Vanessa Brown Calder, Michael Cannon, Jeffrey Clemens, Bryan Cutsinger, Alex Edmans, Peter Jaworski, Pierre Lemieux, Deirdre McCloskey, Jeffrey Miron, Liya Palagashvili, Joseph Sabia, J. R. Shackleton, Peter Van Doren, and Stan Veuger

Jennifer Huddleston

Last Thursday, the House Energy and Commerce Committee “favorably reported” a new bill that could ban popular social media TikTok. Advocates of the bill often point to concerns about national security either related to potential Chinese access to American data or to concerns about the potential influence that the Chinese might assert over the algorithm of a popular app.

In a recent joint interview with Republican Senator Marco Rubio, Democrat Senator Mark Warner said, “We might have slightly different ways on how we go at this, but we think this is a national security issue.” They are not alone with other government officials like FBI Director Christopher Wray pointing to a Chinese law that requires companies to “do whatever the government wants them to in terms of sharing information or serving as a tool of the Chinese government” as a key reason for national security concerns.

Supporters of the bill are quick to state it is not a “ban,” but the bill does threaten a ban if its conditions are not met. The bill raises serious concerns for speech as well as for future government interventions into social media. (My colleague Paul Matzko discussed some of the concerns about this bill in a piece on Friday.)

What Does the Bill Actually Do?

HR 7521, Protecting Americans from Foreign Adversary Controlled Applications Act, prohibits the distribution, maintenance, or updating of an app “controlled by a foreign adversary” within 180 days of the bill’s enactment unless a “qualified divestiture”—a sale approved by the government’s executive branch to alleviate the underlying concerns—occurs. The bill presumes that TikTok and parent company ByteDance already meet the “controlled by a foreign adversary” standard by naming the app and its parent company multiple times.

Unlike past proposals, the bill provides an option for a sale rather than an immediate ban; however, it creates concerning conditions in that regard as well. The proposal requires the divestiture to be approved by the government, meaning that any proposed buyer would likely be open to significant regulatory scrutiny, particularly given the government’s current positioning towards acquisitions in the tech industry. But still, this distinction will likely be important in any legal challenges to the act even if, in practice, it is unlikely to be different from a true ban.

What Is the Standard and How Might It Apply to This Bill?

As I have discussed in the past, calls to ban TikTok typically raise constitutional concerns not only over potential government actions’ impact on TikTok but also for the potential impact on the First Amendment rights of other companies (like the American‐​owned app stores that carry the app) and its users. Americans would lose a platform they have chosen for expression and app stores would have dictated to them what they could not carry by the government.

Under First Amendment precedents, the government will need to prove that forced divestment or otherwise banning of the app is both based on a compelling government interest and represents the least restrictive means of advancing that interest. In December, a federal district court enjoined a TikTok ban in Montana on First Amendment grounds without specifically articulating a constitutional standard of review. Restrictions on the use of the app on government‐​owned devices presents related but distinct legal questions and have not yet resulted in legal challenges.

A few key questions about its constitutionality would remain, assuming this latest proposal was signed into law. As noted, the courts would have to determine if the government had a compelling national security interest at stake. And those concerns would have to be much more specific than the vague connections often alleged.

Even if the courts found the government’s interest to be compelling, they would then consider if there are less restrictive steps the government could take to resolve its national security concerns, such as the data localization steps proposed by TikTok’s Project Texas.

Since First Amendment challenges are subject to strict scrutiny, and given the risk that other measures with fewer consequences for speech could likely be deemed sufficient given current publicly available evidence, the government would need to build a much stronger case to show such extreme measures are necessary.

Implications of the Proposal for Users’ and Other Companies’ Speech

TikTok has proven to be an immensely popular app with a unique audience, with an estimated 1.5 billion monthly users worldwide; about 150 million Americans subscribe to TikTok. While other platforms may provide similar opportunities, TikTok’s users have found the app to be their preferred choice for expressing themselves.

The presence of other platforms for short‐​form video does not eliminate the concerns of the government foreclosing a platform for speech. It would be as if the government regulated the Wall Street Journal due to its ownership by foreigner Rupert Murdoch but not the Washington Post because it was owned by American Jeff Bezos.

The proposal also has significant impact not only on TikTok but on American companies. Much of the burden for executing such a ban will fall not on TikTok but on the US companies that allow its distribution through various platforms such as app stores and web browsers. As a result, the government is potentially dictating to these companies what information or products they can or cannot carry in their store. Such a position would be anathema to many in the offline world and it should be viewed for what it is in the online world as well.

Conclusion

While many may be quick to point out that the latest TikTok “ban” is not a complete ban the way prior proposals were, the underlying First Amendment concerns remain. There remains an ongoing process with the Committee on Foreign Investment in the United States (CFIUS) to determine what, if any, steps are needed to further protect American data or resolve any other potential concerns. Such a process was designed to make these determinations and would provide evidence of what actions, if any, are necessary related to concerns about foreign ties.

Individuals may come to different conclusions about their personal data security and TikTok, but government intervention must meet a high bar of proof before engaging in such a significant regulation of speech.

Adam N. Michel

Following his State of the Union address, President Biden released his budget proposal for fiscal year 2025. By not addressing the more than $3 trillion of automatic tax increases in 2026, the budget fails to tackle a key fiscal challenge, and if it had, the budget would not reduce the deficit.

As written, the budget proposes $4.9 trillion in higher revenue over ten years through costly tax increases on businesses and individuals. The proposed tax increases would raise US tax rates to some of the highest in the developed world and elevate revenues to 20.3 percent of GDP by 2034, higher than any point in US history.

The budget outlines a tax code that would rely on new and higher taxes on American employers and higher‐​income families, bejeweled with complicated tax credits, exemptions, deductions, and inclusions for Americans at all income levels.

The budget does not account for some of the most important and costly automatic tax changes. The budget acknowledges but does not explicitly extend the 2017 Tax Cuts and Jobs Act, which expires at the end of 2025, increasing taxes on virtually every American family. Thus, the budget does not account for the roughly $2 trillion in lower revenue from making the Republican tax cut permanent for people earning less than $400,000 a year (following the president’s pledge not to increase taxes below that income).

The budget also temporarily expands the child tax credit and adds new temporary housing tax subsidies, which could cost another $1.5 trillion over ten years if made permanent. In total, the unincorporated temporary tax cuts described in the budget are likely larger than the headline $3.3 trillion in deficit reduction. 

While the budget is elusive about how the tax code will change for middle‐ and lower‐​income Americans, it is quite detailed in its proposals to increase taxes on their employers and higher‐​income Americans.

The budget includes higher taxes on wage income, higher taxes on investment income, and higher taxes on businesses.

High taxes on wage income reduce the number of hours people work, the incentive to acquire new skills, choice of occupation, and the amount of work effort. The highest income earners are frequently people with unique skills and lots of training, such as doctors, business owners, entrepreneurs, lawyers, and CEOs. Higher taxes on these individual’s wages will translate into strong disincentives against their most productive work.

The US federal tax system is also already very progressive. President Biden claims that the richest Americans pay a tax rate of just 8 percent. However, according to his Treasury Department, the highest‐​income Americans pay the highest average tax rates of more than 33 percent, and the top 10 percent of income earners pay more than 60 percent of all federal taxes (and 76 percent of income taxes). The budget would substantially increase these percentages, making the federal government even more reliant on a smaller subset of taxpayers.

Higher taxes on investment and business income—corporate income, pass‐​through business income, capital gains, and unrealized wealth—directly reduce incentives to invest in and grow the types of businesses that employ millions of Americans and are the envy of the rest of the world. A series of recent papers confirm that the 2017 business tax cuts boosted domestic investment by about 20 percent. Reversing those reforms and adding new tax increases on investment returns will have the opposite effect, depressing the types of activity that lead to higher wages and faster productivity growth. If all of Biden’s tax increase were enacted, Americans would pay income tax rates well‐​above the average across the OECD.

The following list includes some of the president’s major tax proposals.

Increase top marginal tax rate to 39.6 percent. The 2024 tax year top marginal income tax rate of 37 percent applies to income earned above $609,350 for single filers ($731,200 married). The budget proposes returning the top rate to 39.6 percent, where it was in 2017 before the tax cut, and the threshold for the top tax bracket is reduced to $400,000 for single filers ($450,000 married). After accounting for state and local income taxes, Americans in many places, including California, Hawaii, New Jersey, New York, and Washington DC, will face top marginal income rates above 50 percent, which is well above plausible revenue‐​maximizing levels.

Increase corporate income tax rate to 28 percent. The 2017 tax cuts lowered the corporate income tax rate from 35 percent—the highest rate in the developed world—to 21 percent. After accounting for state corporate income taxes, the United States’ current average corporate tax rate remains higher than the worldwide average. Biden proposes raising the corporate income tax to 28 percent, which would leave the US with the second‐​highest corporate tax rate in the OECD, behind Columbia.

Adopts new global minimum taxes. In addition to a higher headline rate, the budget makes major changes to international taxation. The president’s proposals are intended to align the United States with the OECD Pillar Two global minimum tax by 1) modifying the existing global minimum tax (GILTI) and increasing its effective tax rate to 21 percent, 2) replacing the Base Erosion and Anti‐​Abuse Tax (BEAT) with an OECD‐​compliant UTPR, and 3) replacing current intangible investment incentives (FDII) with unspecified research subsidies. The budget would also increase the 2022 Inflation Reduction Act’s 15 percent Corporate Alternative Minimum Tax (CAMT) to 21 percent. The Biden administration proposals would come with high economic costs to US multinationals and expose the US Treasury to potential revenue losses as taxable profits face new incentives to be shifted to other countries.

Tax capital gains and dividends at top rate. Long‐​term capital gains and dividends are taxed at a top rate of 20 percent, plus the 3.8 percent Net Investment Income Tax (NIIT). The lower tax rate on investment income (lower than income taxes on wages) reflects that the investment’s principal has already been subject to wage taxes when it was earned, and the business profits were also already taxed by the corporate income tax. The budget proposes taxing capital gains at the new top marginal income tax rate of 39.6 percent (plus a higher 5 percent NIIT) for taxpayers whose income exceeds $1 million.

Expand Net Investment Income Tax (NIIT) at 5 percent rate. Obamacare’s NIIT of 3.8 percent applies to most non‐​wage passive income (primarily capital gains and other investment income) for taxpayers with income above $200,000 single ($250,000 married). The NIIT was intentionally designed to exempt active business income to spare small and family‐​owned businesses from higher taxes. For incomes over $400,000, the budget proposes expanding the NIIT to include more types of income and raises the rate to 5 percent. Combined with taxing capital gains at top income tax rates, the 5 percent NIIT raises the top federal marginal capital gains tax rate to 44.6 percent.

Quadruple stock buyback tax. The Inflation Reduction Act of 2022 implemented a new 1 percent excise tax on the total value of stock repurchases or “stock buybacks.” A stock buyback is when a business repurchases shares to return unused profits to investors. It is similar to an optional one‐​time dividend payment. The budget proposes quadrupling the new tax on buybacks to 4 percent, which will lower investors’ after‐​tax return on the affected investments and likely induce firms to rely more heavily on dividend payments.

End step‐​up in basis at death. Under current law, capital gains are taxed when the gain is realized—when the investment is sold and there is an actual profit to tax. If unrealized capital gains are inherited at death, no tax is due, and the value of the original investment from which taxable gains are measured (the “basis”) is increased or “stepped up” to the current value. Any future gains are taxable to the new owner when realized. Step‐​up in basis protects inheritances, which are often active investments in businesses, from having to be liquidated to pay the tax. The budget proposes eliminating step‐​up in basis, making death a taxable event. The change applies to unrealized capital gains over $5 million for single filers ($10 million married).

Creates “billionaire” minimum tax. The budget proposes a new minimum tax of 25 percent on income and unrealized capital gains for taxpayers with more than $100 million in total wealth. This new minimum tax would be a third, parallel income tax system, adding to the existing alternative minimum tax. The new minimum tax applies to two entirely new tax bases—wealth and unrealized capital gains. Defining and taxing wealth and unrealized capital gains pose numerous practical challenges and high economic costs.

Tax carried interest as ordinary income. Many investment managers are compensated with both a traditional wage and incentive‐​based pay based on the profits from their investments. The portion of the investment earnings shared with the manager is known as “carried interest” and is taxed at lower capital gains tax rates. The budget would recharacterize this investment income, treating it as ordinary wage income.

Other significant tax increases include new limits on the deductibility of wages for highly paid employees, elimination of some 1031 like‐​kind exchanges, permanent limits on loss limitations for pass‐​through businesses, higher taxes on oil, gas, and coal production, limits on retirement contributions for some high‐​income individuals, and a new 30 percent excise tax on digital asset mining electricity costs.

Ultimately, Biden’s budget is a fiscal and economic illusion. On spending, the budget fails to address some of the biggest spending programs in need of reform, such as Social Security, and proposes numerous new and expanded government programs that would make reaching fiscal solvency harder.

On taxes, the budget fails to account for large pending tax increases that, when addressed, will wipe away the claimed deficit reductions. The historically large tax increases on businesses and high‐​income Americans are also inconsistent with the budget’s rosy economic assumptions. The president’s proposed tax increases would be self‐​defeating, shrinking the economy and the tax base his budget relies on for higher revenues.

Colin Grabow

When push comes to shove, can foreigners be counted on to help meet US national security needs? The answer, according to a former deputy undersecretary of defense for industrial policy, is yes. In fact, they might be more responsive than American firms. It’s a reality that should call into question some premises of US trade policy.

In an op‐​ed last week, William C. Greenwalt recalls that during the Iraq and Afghanistan conflicts the US military had a pressing need to obtain specialized steel for its Mine‐​Resistant Ambush Protected (MRAP) program. Thankfully, the US steel industry rose to the occasion, right? Not exactly. In Greenwalt’s telling, the industry—a beneficiary of protectionist measures including tariffs on steel imports and “Buy America” preferences—was not interested in supplying the Pentagon with the necessary materials.

Instead, the US military obtained steel from companies in Australia, Germany, Israel, and Sweden.

“When [the Department of Defense] urgently needed more steel, the US industry basically told Uncle Sam to pound sand,” Greenwalt writes. “Our allies then bent over backwards to help us, when our own industry would not.”

Greenwalt—now a nonresident senior fellow at the American Enterprise Institute—does mention that one US company, Oregon Steel, was an exception to this disinterest. The company, however, ran afoul of protectionist Buy America restrictions due to its use of crucial inputs from Mexico. That necessitated a waiver to obtain the needed materials—one that other US steel firms vigorously opposed. As he writes:

One US company did do something, and that was Oregon Steel. They had a process that could produce the quality of steel that the MRAPs needed but it would require the importation of steel ingot from Mexico to fuel their mills. This would require a waiver from Buy America restrictions that mandated that all steel DoD uses be not only produced, but smelted in the US. US steel industry lobbyists vehemently opposed any such waiver. DoD eventually granted the waiver, thereby increasing MRAP‐​relevant steel production by 40 percent. The brutalist of ironies: The company was purchased by Russians in 2007. The irony that the Russians stepped up to protect our troops while US industry did not was probably not lost on the Kremlin.

As his experience shows, being an American firm—an increasingly nebulous term in this globalized world—does not ensure a company’s willingness to meet US national security requirements. Conversely, being foreign doesn’t necessarily mean a company is unreliable.

This should help inform US uses of trade protectionism. An oft‐​invoked rationale for import barriers is that the US industry targeted for protection would otherwise become dangerously small or disappear. That, in turn, would lead to reliance on allegedly risky foreign suppliers with potentially dire consequences for the country’s defense.

Unsurprisingly, numerous industries employ such logic to their advantage, insisting they are not trying to pad their profits through run‐​of‐​the‐​mill protectionism but looking out for the country’s national security. The steel industry certainly does it. The maritime industry too. Even supporters of sugar protectionism have gotten in on the act.

In fairness, one can readily envision scenarios in which turning to foreign sources for certain items (e.g. military equipment from North Korea) would produce unnecessary and intolerable risks. But this does not justify a simplistic dichotomy in which domestic sources are deemed risk‐​free and foreign ones riddled with danger.

As Greenwalt’s column makes clear, such thinking doesn’t comport with real‐​world experience. Indeed, in some instances, the reverse may hold. To reflect this reality, numerous trade barriers—particularly with trusted friends and partners—should be reduced in scope or removed entirely. Repealing the Berry and Kissell Amendments, removing Section 232 tariff rate quotas on steel imports (at a minimum from countries such as Japan, the European Union, and South Korea), and at least reforming the Jones Act to allow the purchase of ships from allied shipyards all offer excellent potential starting points. The capabilities of US allies should be treated as resources to be harnessed rather than threats to be feared.

Chris Edwards

President Biden has released his proposed federal budget for fiscal year 2025 and beyond. The proposal includes a raft of spending increases, including new subsidies for childcare, housing, college, health care, paid leave, refundable tax credits, home care, and many other things. It also includes a bevy of large tax increases, including higher rates on individual income, corporate income, and capital gains.

The chart below shows the Biden projections for federal revenues and spending as a percentage of gross domestic product (GDP). The budget claims a “commitment to fiscal responsibility,” but you can see that spending remains at a much higher level than pre‐​COVID, and there continues to be a giant gap between revenues and spending. The budget would add $17 trillion to government debt over the coming decade.

Indeed, the fiscal reality is worse than shown in the budget because of smoke and mirrors. The budget, for example, shows nondefense discretionary spending falling from 3.5 percent of GDP this year to 2.5 percent in a decade. That would be great if Biden put in motion such spending cuts, but that is not what the administration is planning to do.

Another trick is accounting for a subsidy hike in the first year, but then assuming it’s not continued after that. The budget proposes expanding the child tax credit at a cost of $210 billion in 2025, but then assumes the expansion expires after that. Yet we know that if Biden is reelected, he would likely push to extend the higher credit after 2025 for a 10‐​year cost of $2 trillion or more.

On the revenue side, the bevy of tax hikes will not happen if Republicans hold either chamber in Congress. And the projected revenues from the hikes are likely overstated even if they did pass because the hikes are on the very responsive tax bases of capital income and high‐​earner income.

The Biden budget promises “meaningful deficit reduction through measures that reduce wasteful spending” but does not deliver. Members of Congress wanting better ideas to cut waste should consult here, here, and here.

Ryan Bourne and Sophia Bagley

The White House has launched new fronts in its war on market prices. Last week, the Biden administration announced a “Strike Force” to “crack down” on “illegal and unfair pricing.” The Department of Justice and Federal Trade Commission (FTC) will apparently oversee a new interagency effort “to root out and stop illegal corporate behavior that hikes prices on American families through anti‐​competitive, unfair, deceptive, or fraudulent business practices.”

What does this mean? In late 2022, with inflation taking off, the Biden administration declared it was going after so‐​called “junk fees,” defined then as charges that were “designed either to confuse or deceive consumers or to take advantage of lock‐​in or other forms of situational market power.” The opening salvo incorporated attacks on the way airlines charge families on basic economy tickets to guarantee seats together, hotel resort fees, early termination fees for communication services, and overdraft and credit card late payment fees that the White House deemed “excessive.”

Looking at this assorted list of gripes, our briefing paper last year showed the Biden administration was willfully misleading the public on the scale and importance of “junk fees.” The primary effect of squeezing one type of fee or charge, we said, would be to raise other charges or the basic product price. What’s more, regulating firms’ pricing structures as proposed would bring significant unintended consequences, because what often seemed like annoying “junk fees” served important economic functions, from increasing transparency to deterring risky behavior.

Overdraft fees, for example, internalize the risks and costs to banks of taking on customers likely to overdraw. Banning or capping overdraft fees can lead to higher minimum balance requirements that lock out lower‐​income consumers from the banking system entirely. Early termination fees for TV services likewise facilitate firms to offer lower up‐​front installation and hardware prices that can help liquidity‐​constrained customers, while providing more certainty over revenue that allows these businesses to make risky long‐​term investments and serve niche markets. Banning these fees could therefore lead to higher basic prices and less access to services for certain customers.

Yet the administration’s efforts have ignored these concerns, seeking to limit a host of “junk fees” through regulatory rules. The FTC is currently working on a broad rule that would ban companies in general from using “hidden and surprise fees” by forcing them to list a total, all‐​inclusive price upfront. The Federal Communications Commission has proposed a rule to ban early termination fees for cable and satellite companies and will vote soon on a mandate for “all‐​in” pricing for advertising these services.

The Consumer Financial Protection Bureau has lowered its price cap on credit card late fees to $8 from $32, while they are currently crafting rules that would limit the ability of large banks to use overdraft loans, limit banks from charging overdraft fees that exceed their costs, and ban non‐​sufficient funds fees from debit card, ATM, or certain app transactions. While there’s no proposal yet to ban fees for sitting next to your child on flights, the administration launched a dashboard on the Department of Transportation’s website to monitor these fees and pressure airlines to change their pricing structures.

What’s now obvious is that the administration’s ambitions don’t stop here. The FCC is also circulating a rule that would ban “bulk billing” arrangements “by which landlords or providers charge everyone living or working in a building for a particular internet, cable, or satellite service, even if they don’t want it or haven’t opted in.” And a blog put out by the White House last week listed “junk fees” that supposedly cost consumers $90 billion per year, including charges as wide‐​ranging as “airline baggage and change fees,” “food delivery service fees,” “restaurant service fees,” “apartment application fees,” and “event ticket fees.”

Looking through this panoply of complaints and proposals, three problems with this agenda become obvious.

First, there is no firm definition of “junk fees” the administration is sticking to. The White House blog says “junk fees” “are fees that are mandatory but not transparently disclosed to consumers,” for example. Yet airline baggage fees are not mandatory. Nor overdraft fees. Nor credit card late fees. Nor even early termination fees. They are either payments for services or fees charged for breach of contract.

It would clearly be more accurate to say that “junk fees” as weaponized by the White House are any fees the administration identifies some customers might dislike or find annoying. That means this war on prices is likely to create substantial uncertainty for a raft of businesses in the future.

Second, as a result of this ill‐​defined approach, the aims of anti-”junk fee” policies are often explicitly contradictory. The proposed rule on bulk billing implies it is unfair and uncompetitive for landlords owning apartment blocks to bundle up charges, such as for broadband, into a total rent price, for example. The Biden administration says it doesn’t want tenants paying for services they haven’t opted into. Yet much of the rest of the anti-”junk fees” agenda encourages the bundling up of fees into a “total price.”

The White House wants everyone else to pay more, for example, to guarantee parents and children can sit together on flights, rather than airlines charging those families directly. The Biden administration wants food delivery services to wrap up their fees into a total price upfront rather than separating them out and informing consumers at the end of a transaction. And it wants all other customers to pay higher prices rather than allowing communications companies or banks to charge customers for early terminations of contracts or overdrawing their accounts.

Finally, the administration remains highly economical with the truth on how much “junk fees” cost consumers. In its recent blog, the White House’s Council of Economic Advisers estimated that “junk fees” in the US economy total approximately $90 billion per year, or $650 per household. Yet even the White House admits “in the absence of these fees, businesses would likely raise their advertised prices to some degree.” No kidding.

To justify the implication of significant customer losses, the administration therefore just asserts that “junk fees” themselves are anti‐​competitive, suggesting that by eliminating them, market prices would fall substantially. This seems unlikely. Instead, to a first approximation, it’s more accurate to say that competitive conditions in most industries are independent of the structure of prices, such that capping or banning some fees will simply increase basic prices or other charges, with little net savings to consumers. In certain cases, the existence of fees may even be pro‐​competitive, allowing greater access to services for more consumers, or providing better transparency over costs that helps inform consumers.

The White House claims, for example, that the CFPB’s anti-”junk fees” actions alone will save customers $19.5 billion, including $10.5 billion from reducing credit card late fees. Yet reducing the cap on credit card late fees is not the end of the matter. The agency itself admits that such a rule may raise the interest rates issuers charge, increase minimum payment amounts, or lead to adjustments to credit limits to reduce the risks of customers who tend to make late payments. These will offset the total price of using credit cards for many customers. In fact, risky consumers who lose access to services face, in effect, an infinite price rise.

Faced with voters still angry about the episode of high inflation they’ve endured, the anti-”junk fees” agenda has allowed the administration to deflect blame to corporations for unpopular fees and charges. The more the White House pursues this agenda, however, the more incoherent the restrictions on fees become, and the more fanciful the estimates of the benefits to customers.

For more on “junk fees” see our briefing paper here. Or pre‐​order the forthcoming Cato book, The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy.

Clark Neily

The Constitution has a variety of countermajoritarian structures and provisions, some of which the Supreme Court enforces vigorously, some of which it enforces sparingly, and some of which it has rendered functionally meaningless through judicial abdication. On March 4, the justices consigned to the latter category Section 3 of the Fourteenth Amendment, which states that “no person” may hold public office who, having sworn an oath to support the United States, engages in insurrection.

The decision—or, more precisely, its rationale—was quickly condemned by various commentators, including Ilya Somin, David French, and Michael Rappaport, among others. The essence of those critiques is that the justices made an extraordinary claim—namely, that Section 3 only applies to a given insurrectionist if Congress specifically says so—without providing extraordinary evidence or argument to support that claim. 

I strongly agree that the court’s reasoning in Trump v. Anderson was both exceptionally unpersuasive and more consequentialist than originalist. Moreover, I expect that the per curiam opinion’s analytical shortcomings will become even more clear as scholars continue to reflect on its reasoning and implications. But instead of taking yet another swipe at the justices’ ends‐​oriented rationalizations, it’s worth noting how familiar the decision felt to judicial‐​engagement favoring libertarians—a case of “déjà vu all over again,” as Yogi Berra might say.

If you asked a bunch of Constitution‐​loving classical liberals to name the worst, most momentous, and jurisprudentially indefensible Supreme Court decisions of all time, chances are two cases would be at or near the top of most lists: Wickard v. Filburn (1942), and the Slaughter‐​House Cases (1873).

The reason so many libertarians so revile Wickard and Slaughter‐​House is that those decisions respectively gutted the Constitution’s two most important protections of individual liberty. Wickard, which famously asked whether the federal government could micromanage a farmer’s entirely local, noncommercial production of wheat under Congress’s power “to regulate commerce…among the several states,” marked the functional end of enumerated federal powers and any serious effort to respect the Tenth Amendment’s command that powers not delegated to the United States be reserved to the states or the people.

As a result, we went from a world in which almost nothing that individuals do was any business of the federal government to a world in which virtually everything people do falls under the suzerainty of multiple federal bureaucrats.

What violence Wickard did to enumerated powers, Slaughter‐​House did to unenumerated rights by transforming the Fourteenth Amendment’s sweeping command that no state shall “abridge the privileges or immunities of citizens” into a sophomoric assurance that people have proper access to federal seaports, subtreasuries, and land offices, as well as the ability to claim the protection of the federal government when on the high seas—matters that had precisely zero connection to the drafting and ratification of the Fourteenth Amendment or Congress’s goal of ensuring equality and freedom from tyrannical state governments.

Unfortunately for liberty and limited government, the Supreme Court’s cop‐​outs in Wickard and Slaughter‐​House continue to exert their doleful influence today. Thus, for example, in Gonzalez v. Raich (2005), the Supreme Court held that Congress’s power to regulate commerce among the states includes the authority to criminalize the purely local cultivation and noncommercial distribution of a plant (cannabis), thus ensuring that the federal government may continue waging its brutal, ineffective, and endlessly criminogenic war on drugs.

Similarly, the court’s failure to interpret the Fourteenth Amendment’s Privileges or Immunities Clause consistent with text, history, and tradition means that countless unenumerated rights such as occupational freedom receive no meaningful judicial protection. The result is a haphazard jurisprudence of liberty in which some plainly fundamental rights are protected (such as the right to guide the upbringing of one’s children and even the right of prisoners to get married), while others—including access to potentially lifesaving drugs for terminally ill cancer patients—are not. 

Sadly, there is nothing new in Anderson’s decision to pass the buck to Congress for enforcing Section 3’s bar against insurrectionists holding federal office, and the justices’ inability to articulate any truly persuasive rationale for doing so is a familiar hallmark of the Supreme Court’s kick‐​the‐​can jurisprudence of constitutional abdication.

Here’s a final point for those who snidely suggest that Anderson’s purported unanimity provides some measure of assurance against error: Wickard too was unanimous, and it represented the death knell of the Constitution’s single greatest protection against overweening federal power. Moreover, if we think of Anderson as an 8–1 decision, as it appears it very nearly was, then it joins a veritable rogue’s gallery of illegitimately government‐​empowering cases that all but one justice got wrong:

Plessy v. Ferguson (embracing the infamous “separate but equal” doctrine for racial segregation)—overruled unanimously by Brown v. Board of Education
Bradwell v. Illinois (upholding state ban on female lawyers)—overruled implicitly by subsequent equal‐​protection cases, including Craig v. Boren 
Buck v. Bell (upholding eugenic sterilization)—overruled implicitly and unanimously by Skinner v. Oklahoma
Minersville School District v. Gobitis (upholding mandatory flag salute)—overruled by West Virginia State Board of Educ. v. Barnette
Harlow v. Fitzgerald (inventing doctrine of qualified immunity from whole cloth)—not yet overruled, but we’re working on it

Those who wrote and ratified the Fourteenth Amendment well understood the evils of insurrection and the importance of denying public office to miscreants who defy legal norms in the pursuit of political power. The Supreme Court’s bowdlerizing of their handiwork in Trump v. Anderson is disappointing—yet disappointingly familiar. 

Marc Joffe

The Maryland Department of Transportation recently announced yet another delay of the Purple Line’s opening to Winter 2027, five years after its initially planned completion in 2022. The 16.2‑mile light rail project, which will connect New Carrollton and Bethesda in Washington, DC’s northern suburbs is also way over budget.

The full extent of the Purple Line construction cost overrun is not fully known because it is embedded in an opaque Public Private Partnership (P3) relationship under which contractors are participating in the project. As originally planned in 2016, Maryland agreed to pay the contractor group $5.6 billion to build and operate the system for thirty years.

By 2022, contract amendments had increased this amount to $9.3 billion, but the portion of the increase attributable to construction cost overruns is not clear. The latest delay will add a further $425 million to the overall contract cost.

And this may not be the last delay or cost overrun that the project will experience. Maryland Transportation Secretary Paul Wiedefield was hesitant to commit to no more deadline extensions for the Purple Line opening. He considers it likely that further time and cost overruns can arise from testing the transit network’s systems, which evokes the eerie possibility of neighboring DC Metro’s $55 million project to fix wheels on its 7000‐​series fleet.

While the Purple Line’s costs were greatly underestimated, its benefits are likely to be vastly overestimated. Total projected Purple Line ridership was expected to be 69,300 in 2040. This estimate, dating to August 2013, was reached based on the assumption that Washington metro area transit ridership would steadily increase over time.

The opposite has turned out to be the case, with the decade of the 2010s seeing a downward trend in DC Metro ridership. The pandemic and the work‐​from‐​home trend have further reduced ridership. DC Metro ridership in 2023 was only 50.6 percent of that of 2012, which would have been the most recent available ridership data at the time of the estimate’s publication. Notably, the Metro stations that lie on the Purple Line (New Carrollton, College Park, Silver Spring and Bethesda) now see even smaller proportions of their 2012 ridership than the system overall (32 percent, 40 percent, 45 percent and 41 percent, respectively).

The Purple Line also is not expected to offer substantial time savings for riders between WMATA stations. The above chart compares the estimated Purple Line travel times between transfer stations to the DC Metro with the travel times on existing WMATA service at 5:00 p.m. on weekdays. In fact, in some cases, the Purple Line takes longer than existing transit options, such as the trip from Silver Spring to College Park, and the trip from Bethesda to New Carrollton, both of which would be trips more quickly made on the DC Metro. In fact, the only station pair that would see more than a 20 percent reduction in time due to the Purple Line is the trip from Bethesda to Silver Spring, which is a route well‐​served by frequent bus service that takes at most 24 minutes during peak hour. While the current bus route from College Park to New Carrollton runs infrequently, under the no‐​build option for the Purple Line the frequency of that bus would increase from every 30 minutes to every 10 minutes.

Despite these concerns, the project is very unlikely to be stopped, as it is more than 65 percent complete. The Purple Line serves as a costly reminder of what not to do. Maryland policymakers should reconsider other costly rail transit ideas, such as the Baltimore Red Line or an extension of the Purple Line further into Prince George’s County or Virginia.

If Maryland does go ahead with other projects. It should reconsider its P3 model. The main benefit of P3’s is the transfer of risk from taxpayers to contractors. In this case, it appears that the private participant is being allowed to shift cost overruns to the state agency. Under a best practice P3 agreement, the private entity would absorb cost overruns along with the impact of lower‐​than‐​expected ridership.

The author would like to thank Cato Research Associate Jerome Famularo for his help with this post.

Clark Packard

Last week, dozens of members of the House Republican Study Committee introduced the Countering Communist China Act (CCCA), which would, among other provisions, revoke Beijing’s Permanent Normal Trade Relations (PNTR) status and dramatically increase tariffs on all imports from China. The legislation comes on the heels of the House Select Committee on the Chinese Communist Party’s (Select Committee) report recommending a similar policy late last year. My Cato colleague Scott Lincicome and I documented the myriad problems with revoking PNTR in a blog post last year, but it is worth pointing out that it would be particularly bad for American farmers and ranchers.

First, American farmers and ranchers are consumers. Revoking PNTR and then raising taxes significantly on all imports from China—to about 32 percent if China were moved to column 2 of the Harmonized Tariff Schedule as proposed in the bill—would raise prices on everyday household items as well a number of farm products and equipment from China, including fertilizer. Increased input costs would make American farm products less globally competitive.

Likewise, the bill would inevitably lead to Chinese retaliation against American goods and services exports. This is not idle speculation; it is exactly what happened when the Trump administration levied tariffs on Chinese imports. China hit American exports—particularly agricultural products—with significant tariffs in retaliation. Today, China’s retaliatory tariffs are imposed on about 60 percent of American products at a rate of about 21 percent, which had a very clear detrimental impact on American exports.

Take soybeans, for example. A 2022 US Department of Agriculture (USDA) study found that soybeans accounted for 71 percent of US agriculture losses during the trade war. A 2021 paper for the China Economic Review found that, as a result of the trade war, China increasingly purchased soybeans from Brazil instead of the United States. In 2023, Bloomberg noted that Brazil increasingly dominates China’s massive soybean market while the US lags behind, which was not the case in the decade prior to the trade war. Last month, Bloomberg similarly reported that “American farmers have started to lose their dominance in global grain shipping as Brazil strengthens its position,” as US farm income is set to experience its biggest slump since 2006.

The nearby chart shows foreign purchases of American soybeans began to fall during the height of the US‐​China trade war between 2018–2020. Though purchases of American soybeans have rebounded slightly, the US is still lagging well behind Brazil.

It’s not just soybeans that were affected by Chinese retaliatory tariffs. The USDA estimates that the value of sorghum exports to China fell by nearly 95 percent, oil seed values fell more than 90 percent, tobacco fell nearly 100 percent, wheat fell nearly 90 percent, pork fell by nearly 70 percent and beef fell by nearly 35 percent during the trade war. In total, the value of agricultural exports to China fell by 76 percent during the trade wear, which resulted in an approximate loss of nearly $26 billion in 2019. The losses from the trade war were concentrated in Midwestern states, including Iowa, Illinois, Kansas, Minnesota, Indiana, Nebraska and Missouri.

The fallout was so severe for American agricultural exporters that the Trump administration had to dust off a New Deal‐​era program, the Commodity Credit Corporation, to funnel about $30 billion worth of payments to farmers and ranchers hurt by foreign retaliation. The payments have dried up, but the market losses continue. To be clear, the 2018–2020 episode would be minor compared to the type of retaliation China would impose on American agriculture if the US revoked PNTR and raised tariffs on all Chinese products entering the US at an average rate of above 30 percent as the bill would do. Fiscal conservatives worried about the ballooning debt and opposed to crony capitalism should be particularly concerned with the prospect of more taxpayer‐​funded bailouts.

Not everything in the CCCA is bad for American agriculture. The bill seeks to expand trade and investment with allied and Asia‐​Pacific nations, which tend to heavily protect their agricultural markets. Specifically, Section 105(d) of the bill authorizes the executive branch to enter into trade negotiations and trade agreements with Taiwan, the Philippines, Indonesia, Thailand, Malaysia, New Zealand and the United Kingdom. Meanwhile, Section 105(e) would apply expedited fast track congressional consideration of such agreement(s). This is a good start, but it should go further and include Japan, arguably the United States’ most important ally in the world right now, as well as Vietnam. While this certainly wouldn’t make up for lost access to China’s massive market, it could mitigate the fallout a bit.

The United States has very legitimate complaints about Chinese international trade and investment practices, particularly surrounding technology, which should be met with a straightforward, comprehensive response from Washington, as Scott Lincicome and I laid out in a Cato policy analysis last year. But raising taxes dramatically on American consumers and conscripting American farmers and ranchers into a trade and technology war won’t change Beijing’s predatory behavior.