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Chris Edwards

Climate change may increase the frequency of hurricanes that batter coastal regions. In discussing renewable energy and climate change the other day, the Wall Street Journal reported:

Sticking with fossil fuels risks worsening countries’ vulnerability to climate change. The Philippines—which plans to use more gas and renewables—is frequently hit by floods and cyclones and suffers the most weather-related losses of any country as a share of gross domestic product, according to reinsurance firm Swiss Re.

That is not surprising about the Philippines because it consists of 7,600 islands with most of the population living near the seacoasts. The population of 116 million has doubled since 1987, and incomes have risen. So even without climate change, the Philippines would be suffering substantially more hurricane damage.

How about the United States—how much hurricane damage stems from climate change versus population and property value rise? Swiss Re published estimates on residential wind-related losses last year. Their charts below look at the change in annual constant-dollar losses between the 1970s and today. The first chart shows the United States, and the second shows Florida.

Since the 1970s, five times more of the increase in US hurricane damage stems from rising population and property values on the seacoasts than from rising hurricane activity (climate change). In Florida, the damage stemming from rising population and property values is seven times more than from rising hurricane activity.

The charts also show Swiss Re estimates of the offsetting reductions in damage since the 1970s stemming from improved building standards (the pink bars).

These estimates seem like good news because the relatively controllable factors (population on the seacoasts and building standards) have a much bigger impact on damage than the relatively uncontrollable factor (hurricane activity).

Regarding policy, we should repeal government programs that encourage Americans to live on vulnerable seacoasts. One program is subsidized flood insurance, which I’ve written about, as has Peter van Doren. There is also the problem that people are encouraged to live near seacoasts because they assume that governments will bail them out after future hurricanes.

Governments also encourage people to live in less-safe places with infrastructure subsidies. The massive damage from Hurricane Katrina in 2005 stemmed partly from huge Army Corps flood control structures that encouraged development in dangerous low-lying areas of New Orleans. Army Corps infrastructure also damaged wetlands near the city that help protect it from hurricanes. Another issue is that governments fund the rebuilding of infrastructure, such as beaches, in vulnerable seacoast areas after hurricanes.

Unfortunately, we can’t stop hurricanes from battering our seacoasts, and we’ve got Hurricane Helene bearing down right now on the Gulf Coast. We can, however, end government subsidies encouraging people to continue crowding into risky seaside locations. 

Erec Smith

Much has been made about the post–affirmative action dip in college acceptance rates among black students, especially at elite institutions like the Massachusetts Institute of Technology (MIT), where black student acceptance dropped from 15 percent of last year’s class to only 5 percent of this year’s entrants. The hullabaloo is understandable; this drop confirms the worst fears of those who bristled the most at the Supreme Court’s overturning of racial quotas.

That said, there has been a nagging question since the acceptance rates were published, and one that does not seem to be getting any media attention whatsoever: Why aren’t we paying attention to the black students who did get into elite colleges without the assistance of affirmative action? Why aren’t we asking who these students are or what they did to get accepted? Why aren’t they seen as models for other students to emulate?

This tendency to ignore the positive in black student education is nothing new. In Agency, a book outlining ways to empower students toward academic success, Ian Rowe recounts the San Diego Unified School District’s discovery that 20 percent of its black students received a D or worse in their first semester. They expressed a determination to eliminate the obstacles blocking students of color from academic success. But, as Rowe points out, no one thought to ask the 80 percent of successful black students what they did to succeed.

“Were there particular teachers whose students demonstrated gains?,” Rowe wrote. “Did the passing students study more? Did they submit homework on time? Did they take advantage of tutoring hours? Were their parents more engaged? The answer might help teachers and students across the district.”

This, says Rowe, is the problem with so-called anti-racism in education. I have noticed that anti-racist educators, whether in K–12 education or higher education, see the world through a lens already calibrated to emphasize the negative. The rhetorician Kenneth Burke identified a tendency for people to train themselves to select certain themes while deflecting others.

Taking MIT as an example, many choose to select the 10 percent drop in black student acceptance and deflect the 5 percent of successful students. This tendency to select—in a sense, prefer—the negative is identified by behavioral scientists as “negative emotionality.”

In an essay outlining the problems with the concept of microaggressions, psychologist Scott Lilienfeld defines negative emotionality (NE) as “a pervasive temperamental disposition to experience aversive emotions of many kinds, including anxiety, worry, moodiness, guilt, shame, hostility, irritability, and perceived victimization.” Citing studies spanning 25 years, Lilienfeld wrote that “individuals with elevated levels of NE tend to be critical and judgmental of both themselves and others, vulnerable to distress and emotional maladjustment, and inclined to focus on the negative aspects of life.” These individuals “also tend to be vigilant and overreactive to potential stressors” and are “prone to interpreting ambiguous stimuli in a negative light.”

It would seem that those anti-racist educators Rowe identifies share a discourse in which, when it comes to race, only the negative matters. Only the information that solidifies a victim status among blacks is taken seriously. Anything else is invisible.

Let us put a spotlight on the black students who are accepted: the 14 percent accepted at Harvard University, the 9 percent accepted at Brown University, and even the 3 percent accepted at Amherst College. Perhaps we will discover consistencies in study time, familial trends, socioeconomics, or extracurriculars. We won’t really know until we look into it and make our findings known to the public, especially high school students and their parents.

Another positive of this admissions drop in elite colleges is that institutional “mismatch” is less likely. Perhaps the most obvious positive aspect of this development is the very thing deemed negative about it! Because affirmative action is no longer a factor, students who do not have the relevant merit for particular institutions were not accepted. The percentage of students who were not accepted at these institutions may now consider and attend schools that are a better fit for their levels of college preparedness. Theoretically, this would heighten the rate of success for those students, increasing the mere 34 percent of black Americans with an associate’s degree or higher.

John McWhorter discusses this concept of institutional mismatch in his book, Woke Racism: “The discussion of affirmative action implies that the choice [of college or university] is somehow between Yale or jail, as if the few dozen highly selective universities were the only ticket to lifetime success.” However, he saw in the aftermath of California’s affirmative action ban that “students who once would have been ‘mismatched’ to Berkeley or UCLA were being admitted to schools like UC San Diego” where “one in five black freshmen at the latter school were making honors, the same proportion as white ones.” One in five is a significant improvement on the University of California, San Diego’s one black honor student out of 3,268 just a year before the ban.

We have to notice and emphasize the upside to affirmative action’s ban and the resulting drop in black student admission to elite colleges. If nothing else, maybe we should let those accepted black students know they are acknowledged and applauded and let everyone know that schools like MIT and Harvard are not the only options available. Let us build upon the positive. 

Adam N. Michel and Joshua Loucks

About 5 million taxpayers pay, on average, $6 million in penalties each year for spending their retirement savings earlier than the government prescribed. These penalties make lower-income Americans financially worse off and discourage others from saving at all.

Universal savings accounts (USAs) fix this problem. They would give more Americans access to a savings system that protects their investments from multiple layers of tax without punishing them for needing to access their funds on their own timeline.

Benefits, Costs, and Complexity of Current System

The US tax system levies income and payroll taxes on worker’s wages. If any income is saved and invested, the increase in value is taxed again by levies on interest, capital gains, dividends, business income, and transfers at death. Each of these taxes reduces the market’s incentive to save. Qualified savings accounts limit this built-in bias against saving by removing individual-level taxes on investment.

Over half of nonretired adults protect their savings from double taxation by investing through qualified accounts—employer-administered 401(k) retirement accounts, Individual Retirement Accounts (IRAs), and 529 Plan education savings accounts. Taxpayers can contribute tax-deferred income (traditional accounts) or after-tax income (Roth accounts) without any other taxes owed. However, Congress decided that access to qualified accounts should be conditioned on saving for specific purposes. The most widely used accounts are for retirement and come with a 10 percent tax penalty for accessing the savings before age 59.5. A similar penalty applies to improper use of funds from other accounts.

For many young and low-income Americans, the limits discourage them from using the accounts at all. Americans who use these accounts and then have to access their money early for a family emergency or job loss face new layers of taxes. Many low-income workers are automatically enrolled in these programs by their employers, following government incentives or mandates.

Money deposited in qualified accounts cannot be used flexibly based on an individual’s or their family’s immediate needs. If someone cannot confidently commit to leaving their savings untouched until the government-designated time, it may be wiser for them to avoid using a qualified account altogether.

IRS data show that for the lowest-income taxpayers, penalties for improper use of retirement savings make up a significant portion of their tax liability. Using an average from tax years 2017–2019, Figure 1 shows that 43 percent of all taxes paid by taxpayers with adjusted gross income (AGI) below $5,000 went to penalties for accessing their own money. About 19 percent of income taxes paid by taxpayers with AGI less than $25,000 went to penalties on qualified accounts. 

A Government Accountability Office report also finds that the lowest-income households have the highest rates of early withdrawals. For example, 12 percent of households with incomes less than $25,000 faced the 10 percent tax penalty for early withdrawal, and an additional 9 percent qualified for “hardship” withdrawal exemptions. The hardship exemption requires both IRS documentation and employer approval, demonstrating “immediate and heavy financial need” that can’t be “reasonably obtained” from another source. 

IRS data also show that taxpayers with AGI under $50,000 pay tax penalties on early withdrawals that are about 2 percent of their total AGI. 

Congress’ emphasis on retirement-specific savings doesn’t benefit all taxpayers. Single filers earning less than $47,000—the threshold for capital gains taxes—receive no capital gains tax advantage from qualified savings accounts (although they do benefit from interest income protections). By saving in a retirement account, many low-income Americans face only penalties and no capital gains tax benefit.

Andrew Biggs also explains how low-income earners “who are automatically enrolled in a retirement plan may offset their new retirement savings by increasing their borrowing and debt. As a result, net increases in household net worths may be substantially lower than gross increases in retirement savings.”

Adding More Flexible Savings Options

The ideal tax system would allow unlimited savings and investment without any penalties or second layers of tax on gains from income that has already been taxed. USAs are a more targeted way to mitigate the worst effects of the existing system for most taxpayers.

Congress has historically (albeit temporarily) loosened the restrictions on qualified accounts during economic crises, for example, by expanding eligibility for penalty-free withdrawals during the COVID-19 pandemic, the financial crisis, and many natural disasters. Most recently, in the bipartisan Setting Every Community Up for Retirement Enhancement 2.0 Act, Congress added the ability to roll over unused 529 savings into an IRA account and established an employer-linked emergency savings account. However, these limited exemptions remain highly complex, with numerous rules that discourage use. 

Through these changes, Congress has acknowledged the burden early withdrawal can place on taxpayers. The next logical step is to create universal savings accounts that would function similarly to retirement accounts—income saved in these accounts would only be taxed once but without restrictions on who can contribute, on what the funds can be used for, or when they can be spent. They would be fully owned by individuals and not tied to a specific employer. Removing the tax penalty on all savers is a simple and important step to reduce the tax burden on all Americans, especially those with lower incomes.

Representative Diana Harshbarger (R‑TN-01) recently introduced a bill to establish USAs. Similar flexible savings and investment accounts have been widely used and are popular in Canada and the United Kingdom, where they increased personal savings for young and lower-income individuals.

USAs achieve bipartisan goals of increasing personal savings while reducing the complex and costly penalties on Americans accessing their own money when they need it most. 

Jeffrey Miron

Many conservatives, and some libertarians, endorse work requirements in social safety net programs. That position is understandable, but it is not convincing overall:

Our research examines whether increased EITC [earned income tax credit] generosity reduces the caregiving older adults receive from their EITC-eligible daughters. …

Our findings indicate that when the generosity of the EITC increased, unmarried EITC-eligible daughters provided less assistance with chores and functional limitations to their parents. This effect is especially pronounced among daughters with parents aged 65 and older. …

Our findings highlight an important unintended consequence of including work requirements in social programs and have implications for the well-being of older adults and the structure of social safety net programs.

Thus in this arena, as elsewhere, attempts to control individual behavior can misfire. Perhaps work requirements are still beneficial on net, but the case is far from clear.

This article appeared on Substack on September 25, 2024.

David Inserra

Tad DeHaven

On September 24, Republican presidential candidate Donald Trump told a crowd in Georgia that “tariff” is “one of the most beautiful words I’ve ever heard.” The former president’s affection for taxing goods Americans import is well established. But it seems that as we’ve moved closer to election day, his tariff zeal has intensified. Last week, he said he would use tariffs to lower food prices, a suggestion my colleagues Scott Lincicome and Sophia Bagley have labeled “deranged.” 

On the twenty-fourth, he threatened a 200 percent tariff on John Deere tractor imports because the company had previously announced plans to shift some production from Iowa to Mexico. This apparently was an off-the-cuff proposal, prompted by the sight of a John Deere tractor behind him at a campaign event in Pennsylvania. He also repeated a threat to automakers that, “We’re going to put big tariffs on those cars that are coming here [from Mexico] at 100 to 200 percent, and they’re no longer going to be competitive … so you better stay in Michigan.” 

Scott’s recent post, “Tariff Myths, Debunked,” is a handy takedown of the protectionist justifications for Trump’s tariff fetish, and Pierre Lemieux further breaks down the economics of tariffs in a new Regulation article, including explaining why the prices of domestic-made goods rise when tariffs are applied. I won’t rehash those arguments here. Instead, I want to say it’s long overdue for Congress to reclaim its constitutional responsibility to “regulate commerce with foreign nations.” 

At Monday’s event in Pennsylvania, Trump asserted to a reporter that he could unilaterally impose widespread tariffs without congressional approval. After initially responding blithely that Congress will approve his tariffs, he said, “I don’t need Congress, but they will approve it … I’ll have the right to impose them myself if they don’t.” 

Trump’s confidence in his presumed omnipotence stems from his administration’s abuse of Section 232 of the Trade Expansion Act of 1962, which allows the president to restrict imports on national security grounds. As a thorough analysis by Scott and Inu Manak explains in detail, this justification is dubious and Trump’s use of it during his 2017–2020 presidency to threaten US allies was decidedly abuse. 

There was bipartisan support in the Senate to rein in executive branch overstep on trade policy during Trump’s time in office but, unfortunately, nothing came of it. Maybe that will now change. Last week, Sen. Rand Paul (R‑KY) introduced his No Taxation Without Representation Act on, fittingly, Constitution Day. The bill is relatively simple: The president could only impose a tariff if Congress receives a proposal from the White House explaining the rationale for it, which Congress would then have to approve. It would apply to the Trade Expansion Act of 1962 and would not affect US embargoes. 

From Paul’s press release:

The No Taxation Without Representation Act seeks to curb the President’s ability to tax Americans by implementing tariffs without Congressional approval. The bill strengthens our system of checks and balances by requiring Congressional consent for any tariffs that significantly impact American businesses and consumers. By restoring the role of Congress in the taxation process, the bill ensures greater accountability, transparency, and long-term economic stability.

Regardless of whether one supports or opposes tariffs generally, our system of government calls explicitly for balance between the branches. With the two candidates for president taking turns sounding like an authoritarian Santa Claus, Trump’s mounting threats to punish American companies with a wave of his wand exemplifies the need to rein in executive overreach.
 

Norbert Michel, Jennifer J. Schulp, and Nicholas Anthony

On Wednesday, September 25, 2024, Senator Mike Lee (R‑UT) introduced the Saving Privacy Act (SPA), a bill that contains major reforms to strengthen Americans’ financial privacy. As many experts discussed at our annual conference two weeks ago, financial privacy has been under fire for the last 50 years, largely because of the Bank Secrecy Act of 1970 (and its many amendments).

A massive federal anti-money laundering regime is now based on this outdated law, but the whole thing is poorly designed, too costly, and ineffective. It also rests on shaky legal grounds, endangering Americans’ financial privacy by weakening the protections they’re supposed to have from the Fourth Amendment. Unfortunately, the United States government has spent decades expanding this regime and encouraging other countries to adopt a similar approach.

What the US should do, instead, is lead the way by enhancing financial privacy and encouraging other countries to adopt the kinds of protections Americans had before 1970. The Saving Privacy Act is a positive step in that direction. 

Much like Rep. John Rose’s (R‑TN) Bank Privacy Reform Act, Senator Lee’s bill would essentially end the practice of requiring banks to act as law enforcement agents and would prevent law enforcement agencies from accessing customers’ financial records without first obtaining a valid warrant. (Unlike Rep. Rose’s bill, Sen. Lee’s bill addresses privacy issues outside the Bank Secrecy Act. For instance, it repeals the Consolidated Audit Trail database and includes a prohibition on central bank digital currencies.)

This kind of reform restores the proper balance—as provided by the Fourth Amendment—between Americans’ privacy rights and law enforcement’s ability to gather evidence to enforce laws. It would protect individuals’ financial privacy and improve federal agencies’ abilities to prosecute criminal activity rather than sift through millions of low-value reports. This kind of reform is long overdue.

Travis Fisher and Joshua Loucks

The 1981 song Red Barchetta by the band Rush tells the story of a man who gleefully commits a weekly crime—driving a brilliant red Ferrari 166MM (barchetta being Italian for “little boat/​craft”) and ultimately outsmarting and outdriving the authorities. The story is a warning to people who love to drive because, in the dystopian future setting of the song’s plot, a “motor law” makes driving the car illegal.

The song itself is an exhilarating ride. If you haven’t listened to it recently, do your ears a favor and check it out here. And the political lesson is clear: a future in which the government tries to arrest you for driving a vintage Ferrari—or any car you like—would be awful and should be relegated to science fiction.

Not so fast, say the officious pencil pushers at the US Environmental Protection Agency, who issued a regulation earlier this year that would force a transition to electric vehicles (EVs). The EPA expects the tailpipe emissions standards to push two-thirds of new vehicles sold in 2032 to be EVs (today, EVs make up something like 7.6 percent of new vehicles sold in the United States).

Opponents of EV mandates typically cite things like range anxiety (which prevents the long drives that are “a hallmark of American car culture”), higher cost (EVs cost over $56,000 compared to $48,000 for gas-powered vehicles), and the lack of available charging infrastructure (despite the $7.5 billion in the 2021 Infrastructure Investment and Jobs Act to expand this infrastructure, the government had spurred the construction of just eight electric charging stations in over two years).

These are valid concerns, but what if you just like driving a car with an internal combustion engine? We have nothing against EVs. But if you love driving a gasoline-powered vehicle (for whatever reason), by God, this is America, and no one at the EPA should tell you what kind of car to love.

The formal name of the EPA rule is the “Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles.” Although the rule has a longwinded name, it would swiftly limit consumer choice for passenger vehicles. Under the guise of reducing “climate pollution,” the Biden-Harris administration’s EPA believes it has ample authority to reshape the American automotive industry.

How would an agency obtain such authority? Despite recent Supreme Court decisions to the contrary, the EPA has decided its sweeping new authority comes from existing statutes.

First, as summarized by Jonathan Adler in the Cato Supreme Court Review (an amazing resource), the 2022 decision in West Virginia v. EPA “rested on the longstanding and fundamental constitutional principle that agencies only have the regulatory authority Congress delegated to them” and found that “[e]xtraordinary assertions of regulatory authority… required a clear delegation from Congress.” Notably, WV v. EPA was the first case to invoke the “major questions doctrine” in a majority opinion by the Supreme Court. 

Second, the 2024 decision in Loper Bright Enterprises v. Raimondo limited the deference agency decisions will receive from courts and officially ended the era of so-called “Chevron deference.” Interestingly, the doctrine of Chevron deference was named for the 1984 case Chevron v. NRDC, which gave deference to—you guessed it—the EPA.

Taken together, these recent Supreme Court rulings illustrate how, thankfully, administrative law is beginning to side a little more with the freedom of the individual over the authority of the administrative state. They also show how untethered the EPA’s regulations have become from underlying statutes. Still, the EPA can’t help but shoot its shot—in fact, it has become effective at achieving its desired outcome even when it loses in court.

Defenders of the EPA’s rulemaking say it’s not a mandate, per se, but merely an emissions standard. My question back to them is: What’s the difference? If the result of an emissions standard is to limit choice and force an entire industry—and every American consumer—in a direction few of us want to go, can we at least call it a de facto mandate?

Further, what would stop the EPA from tightening its emissions standard even further and creating a real-deal EV mandate? The line is blurry. There’s even a separate EPA waiver program through which 17 states have now adopted California’s EV mandate.

Fortunately, Congress has a voice in this process. On the one hand, it could pass new legislation granting the EPA explicit authority to forcibly remove the internal combustion engine from American automobile markets. We don’t suspect that would be a popular policy. On the other hand, it could use the Congressional Review Act (CRA) to disapprove and reject the EPA’s rulemaking.

The latter is precisely what the House of Representatives did last week, in a bipartisan vote of 215 to 191. Under the structure of the CRA, the Senate would also have to pass the resolution, and then it would head to President Biden’s desk for signature. Given the likely veto from President Biden, the CRA would require a veto-proof majority. The margin in the House was approximately 53 percent, which would fall short.

We have a better idea. What if the types of vehicles we drive weren’t dictated by Congress or the EPA? What if the government got out of the auto industry altogether? Note that many of the major car manufacturers in the US have “curbed their EV ambitions in recent months” as they have become aware of the lack of demand for EVs. Maybe the American people know more about what they want than federal bureaucrats.

Vehicle mandates—de facto or direct—push us closer to the dystopian future imagined in Red Barchetta, when people have lost liberty and the pursuit of happiness. As the song warns, these mandates force us to comply with burdensome rules rather than allowing us the freedom to chart our own course. The “better, vanished time” in Red Barchetta is right now, and we should fight to keep it. 

Romina Boccia

Today, September 25, the House Budget Committee will consider the Stop the Baseline Bloat Act (H.R. 8068), an important step toward addressing the budget distortion caused by including temporary emergency spending in the Congressional Budget Office’s (CBO) baseline. This flawed approach creates a distorted view of the budget, allowing “emergency” funds to quietly inflate future spending projections. It also makes maintaining current levels of discretionary spending seem like a deficit reduction.

Emergency spending provisions—meant to address unforeseen crises—are being treated as permanent expenditures, undermining the purpose of emergency appropriations and skewing fiscal decisions.

As bill sponsor Rep. Glenn Grothman (R‑WI) pointed out during a recent hearing with CBO Director Phillip Swagel, the practice of extending temporary emergency spending, like the $95 billion aid package for Ukraine, Israel, and Taiwan, across a 10-year window artificially inflates future projections. This adds about $900 billion to the budget baseline, despite being billed as “one-time” money.

Dr. Swagel agreed that emergency spending should not be treated as permanent, noting that the CBO is bound by statute to extend it. This statute distorts the fiscal picture, leading to what Dominik Lett and I have called an “insidious ratcheting effect,” where spending is biased upwards as emergency funds inflate the baseline, making it easier for legislators to justify additional spending.

The Stop the Baseline Bloat Act, introduced on a bipartisan basis by Rep. Glenn Grothman (R‑WI) and Rep. Ed Case (D‑HI), would correct this by instructing the CBO to remove emergency spending from baseline projections, treating this spending as an exemption rather than as part of the regular budget.

This matters because the CBO budget baseline serves as the benchmark for evaluating fiscal policy. Whether something is scored as a spending increase or cut depends on the baseline. The current baseline approach, however, includes temporary emergency funds alongside regular discretionary appropriations and projects both to grow with inflation. The problem? By projecting temporary emergency expenditures as if they were permanent, the CBO’s current practice artificially inflates discretionary spending estimates.

According to Rep. Case (D‑HI):

“The path out of our growing budget crisis starts with accurate and transparent budgets. A budget that inflates prior year spending to conceal real growth year-to-year is neither accurate nor transparent. Our measure would eliminate these budgetary tricks that conceal our dangerous journey into fiscal irresponsibility.”

As Rep. Grothman (R‑WI) noted:

“The CBO cannot continue to create a budget baseline that justifies outrageous spending levels. Getting the country’s fiscal house in order starts with an unbiased CBO baseline.”

And as I’ve stated previously:

“The Stop the Baseline Bloat Act would [ensure that] when Congress decides to rely on emergency and supplemental funding to increase topline levels, a spending increase gets scored as such.”

To curb reckless spending, Congress should accurately account for emergencies in the budget. Honest budgeting is critical, and excluding emergency appropriations from the baseline is a key step in the right direction.

For a more comprehensive treatment of emergency spending and its fiscal impact, see “Curbing Federal Emergency Spending | Cato Institute”

Matthew Cavedon