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David J. Bier

The Cato Institute published my new briefing paper today showing that just 3 percent of immigrants will receive green cards in 2024. This paper also shows that during the late 19th and early 20th centuries, 98.1 percent of legal immigrants were approved. Starting in the 1920s, Congress capped the number of immigrants and later strictly limited the types of immigrants who could apply, leading to a massive buildup in requests.

I dug through thousands of pages of previously little‐​noticed archival records at the State Department and immigration services to document these changes over the past century. The roughly 35 million requests include people at all stages of any green card process, including people already in the United States. You can see the difference between this year and 1996 below.

This paper is being published on the 100th anniversary of the notorious Immigration Act of 1924, which imposed caps on legal immigration for the first time. This law reversed the previous presumption that was in favor of admission. Current law now assumes every immigrant is ineligible unless proven otherwise, and of course, the caps make overcoming the presumption even more difficult. The effect of this law is visible in the figure below.

This paper explores how this historic level of requests reached this point, breaking down the backlogs by type (lottery, family, employment, asylum, etc.), and it builds on my work from last year, which documents how the current green card rules make it impossible for nearly everyone who wants to immigrate to do so legally. We took the flow chart in that paper and turned it into the​Green​Car​dGame​.com, a platform that allows anyone to see if they can obtain a green card through the current process.

The United States is growing more slowly than at any point in its history—if immigrants enter through a legal and orderly process, the US can handle a much larger immigrant population. America’s labor force is already only growing because of immigrants, but they have not come close to making up for the dramatic decline in US worker population growth. Policymakers should see this backlog as an untapped resource to increase economic growth, but the longer they wait, the more broken the system becomes.

You can read the whole paper here.

Travis Fisher

The Federal Energy Regulatory Commission (FERC) is not a household name, but its impact on the daily lives of Americans is profound. FERC is an independent and bipartisan federal agency, and a well-functioning FERC is essential to a well-functioning energy industry in the United States. The agency is responsible for (among other things):

reliability of the bulk power system (the “grid”),
wholesale electricity markets across the country,
hydroelectric facility licensing (mostly relicensing),
certification of interstate natural gas pipelines, and
siting and construction of liquefied natural gas (LNG) facilities.

FERC’s origin and responsibilities regarding hydropower go back to the 1920 Federal Water Power Act. Most of its present responsibilities come from two major congressional actions in the 1930s—the 1935 Federal Power Act and the 1938 Natural Gas Act (NGA). For more background, see the official “FERC 101” slide deck. Also, I should disclose that I spent about half of my career at FERC and have great respect for my friends and colleagues who work there.

An examination of the natural monopoly premises underlying FERC’s organic statutes is important but beyond the scope of this piece. Those of us who support free markets can debate whether the federal government should have so much authority, but FERC has had a significant level of authority since the 1930s and is not going anywhere soon.

In fact, recent legislative proposals would give FERC an additional responsibility—one that’s presently being abused by the Department of Energy (DOE)—to approve the international sale of natural gas. FERC is responsible for licensing LNG facilities, many of which are for domestic use only. However, under the NGA (as amended by the DOE Organization Act), the DOE is responsible for approving the sale itself—the import or export of the natural gas commodity—if it deems the transaction in the “public interest.”

As Cato’s Scott Lincicome has written, returning the DOE’s LNG authority to FERC is probably a step in the right direction (the NGA tasked the Federal Power Commission with approving international sales of natural gas; the DOE Organization Act created the DOE, renamed the Federal Power Commission to FERC, and gave the authority to the new DOE).

However, any conversation about giving FERC more authority (or encouraging it to push the envelope of its existing authority) should also address the elephant in the FERC room—the near-perennial concern that FERC won’t have enough votes to do its job.

The Quorum Issue, Past and Present

Writing and issuing orders is how FERC operates. By law, FERC needs a quorum of three voting commissioners out of a maximum of five to issue orders, which are typically drafted by FERC’s staff of about 1,500 people. These orders are negotiated and ultimately approved and voted out by the commissioners, who are nominated by the president and confirmed by the Senate. At the moment, the agency has two vacant commissioner roles and three active commissioners. Richard Glick (D) and James Danly (R), each a former chairman and commissioner, left at the end of their terms (in 2022 and 2023, respectively) and have not been replaced.

Commissioner Allison Clements (D), one of the three sitting FERC commissioners, has announced that she will not seek a second term. Her current term expires on June 30, 2024, but she can stay at FERC until she is replaced or until the end of the congressional session. As Politico reported, Clements’ departure would mean a loss of quorum and a standstill for FERC and the two remaining members, Chairman Willie Phillips (D) and Commissioner Mark Christie (R).

Political transitions are particularly vulnerable moments for FERC. The last time FERC was without a quorum was in 2017, when Republican President Donald Trump designated a new chairman among the three sitting commissioners (all Democrats), and the demoted commissioner promptly departed. The new chairman at the time, Cheryl LaFleur, and Commissioner Collette Honorable were left without a quorum, and FERC attempted to issue as many orders as possible by delegating additional authorities to staff. Ultimately, the period without a quorum lasted six months.

If the White House and Senate do not fill at least one of the vacant seats this year, FERC will again lose a quorum in early 2025. It is unclear who would be at fault, and the lack of clear responsibility could be part of the problem. It takes two to tango—the White House and the Senate. However, in this dance, many FERC insiders would say the Senate takes the lead, in part because the Senate Committee on Energy and Natural Resources (ENR) holds the hearings and markups for incoming commissioners.

Further, as a practical matter, the ENR leaders of each party frequently provide the names of top-tier candidates for the president to officially nominate. Last year, Senator Joe Manchin (D-WV and ENR chairman) recommended former FERC staffer and present ENR staffer David Rosner for the vacant Democratic seat. As of the time of this writing, Senator John Barrasso (ENR ranking member) has not recommended anyone for the vacant Republican seat. (Side note: Senator Barrasso’s wife recently passed away after a long battle with a devastating form of brain cancer, and my heart goes out to the family.)

Given the Senate’s leadership role in approving new FERC commissioners, it can also be a choke point. Senator John Kennedy (R-LA) recently pledged to block all nominations by President Biden—presumably including FERC nominees—until Biden lifts his “pause” on LNG exports. Senator Kennedy said: “Until Mr. Biden drops this battle against American energy, I’m going to block every nominee he tries to place at the State and Energy departments.” Ironically, if Congress returns the LNG authority to FERC this year, only a Biden nominee would rescue FERC from another lost quorum and enable it to approve LNG exports next year.

Solutions to the Quorum Quandary

It should be a no-brainer that the White House and Congress would give FERC every tool it needs to carry out its important work. However, there is no silver bullet solution to the quorum issue. Ideally, when an existing commissioner comes to the end of their tenure, the White House and Senate would move to ensure that the coming vacancy would be filled quickly by a qualified regulator. This should happen on a regular schedule—the five FERC commissioners would each complete their staggered five-year terms (or several of them), and the president and the Senate would work together to make certain FERC always has a full complement of five commissioners.

Sometimes it takes a nudge to get things moving. Consider this piece my polite nudge to Senate and White House leaders: please fill the two current vacancies (and the coming vacancy) because we need a functioning FERC.

Given the hyperpartisan mess we find ourselves in here in the nation’s capital, there are a couple of ways to move forward. First, the tried-and-true method of pairing a Democratic nominee with a Republican seems to work well in getting both approved. Democrats have put a name forward—Republicans should do the same, the president should formally nominate them, and the Senate hearing and markup should follow in short order.

Second, how about something that’s the opposite of tried-and-true? For an independent agency, there has been a dearth of actual independents or third-party nominees. Given the third vacancy created by Commissioner Clements’ coming departure, now is an opportune time to break that trend and nominate an independent thinker who does not identify as Democratic or Republican (in addition to the typical Democratic and Republican nominees). Both parties might scoff at this suggestion, but it is worth wondering why.

Of course, my preference is to have a nonpartisan and free-market thinker at the helm of FERC, and it seems neither political party fully embraces free-market thinking anymore. If the policy debates at FERC continue to be between typical Democrats and typical Republicans along partisan lines, the odds of FERC regulations embracing an open-ended approach to the energy industry will continue to fall.

Conclusion

FERC finds itself once more with an uncertain future. Likewise, much of the US energy industry—surely the large portion directly regulated by FERC—is subject to the same uncertainty. The prospect of another lost quorum at FERC should be enough to get the Senate and White House moving on FERC nominees. The American people need a reliable power grid and abundant natural gas. Let’s hope partisan politicians don’t hamstring FERC again.

Romina Boccia

When it comes to government provision of retirement benefits, differences abound. Comparing the US Social Security program to the UK state pension illustrates a stark contrast. While both countries promise an old-age safety net, the US Social Security benefit for the highest-income earners looks more like a golden parachute than what President Franklin D. Roosevelt referred to as “some measure of protection to the average citizen and to his family . . . against poverty-ridden old age.”

Andrew Biggs writes at Forbes (emphasis added):

This year, a two-earner couple who each earned the maximum taxable salary over their careers can retire with combined Social Security benefits topping $96,000. That’s two to three times more than the maximum benefits offered in [the United Kingdom, Canada, Australia and New Zealand]. It’s not remotely needed to prevent poverty, and simply displaces real savings high-earners would do on their own. That in turn reduces economic growth.

As staggering as this figure is, it’s even higher than that. According to the Social Security Administration, in 2024, the maximum benefit for an individual earner who claimed benefits at age 70 and who earned at least the maximum taxable amount for 35 earnings years would be $4,873 per month. That amounts to nearly $117,000 per year for a two-earner couple in which both spouses meet the maximum benefit criteria.

Let’s compare this maximum Social Security benefit to the UK state pension.

A similarly situated UK couple that retired after 2016 could collect a maximum state pension of £21,202.40 today (this amount is expected to increase by 8.5 percent in April to just over £23,000 a year). If we translate that amount into the equivalent number of US dollars using the World Bank’s purchasing power parity (PPP) conversion rate, we arrive at $31,122.22 ($33,760.97 from April on). PPP compares the relative value of currencies by considering the cost of a basket of goods and services across different countries. Converting the state pension benefit from UK pounds into US dollars, using a PPP measure, gives us a better idea for the equivalent amount of dollars needed to achieve a similar living standard in the United States.

Roughly $34,000—that’s how much the UK high-earning couple would collect from the state pension in US purchasing power terms. The US couple would collect more than three times the benefit they would receive in the UK. That’s a staggering difference!

The key to understanding this discrepancy is that the US Social Security benefit is an earnings-related benefit while the UK state pension now offers a largely universal flat benefit.

Under an earnings-related scheme, people with higher earnings over their lifetime receive higher benefits. Social Security’s benefits follow from a complex calculation that factors in a worker’s highest 35 years of earnings, indexes those earnings to wages, and then runs those earnings through a formula, with so-called bend points, that’s structured to be progressive. This design is intended to replace a higher share of pre-retirement earnings for lower-wage workers than for higher-wage workers.

Despite that built-in progressivity, the highest-income earners end up collecting the highest benefits in the United States (while also paying the highest taxes, in absolute terms). See this Urban Institute report comparing lifetime taxes to benefits for different income groups.

An earnings-related scheme tends to be more expensive because it pays higher benefits to medium- and high-income earners. It’s also more complicated to calculate and thus makes it harder for people to figure out what their Social Security benefit will be when they retire. And to the extent that it discourages greater individual savings, it hurts investment and economic growth.

Under a universal benefit regime, everyone who qualifies for a full retirement benefit receives the same amount. That’s the case in the United Kingdom, where the state pension was established to be just above the “basic means test,” or what we might refer to as the poverty level in the United States. Such a flat-rate regime simplifies retirement planning as everyone knows what they can expect from the system and plan for it. Depending on the level at which that universal benefit is set, such a regime can save taxpayers’ money by providing anti-poverty protection in old age at a lower cost than an earnings-related regime.

Andrew Biggs wrote elsewhere:

Social Security reform could more cheaply and effectively protect against poverty in old age, but this would require rethinking how Social Security has traditionally worked. . . . An earnings-based program also locks in what Social Security produces today: unnecessarily generous benefits for the highest earners, who easily could save more for retirement on their own, while shortchanging the Americans most at risk of poverty in old age because they received low pay during their working years. It’s not clear what important public policy problem this is the solution for.

For Social Security to maintain its current benefit structure would require large-scale tax increases that would most likely fall on working Americans through an across-the-board payroll tax rate increase. This would reduce incentives to work, especially among lower-wage earners, and put a damper on economic growth. Congress could also raise payroll taxes to shore up Social Security by lifting the payroll tax cap, which would impose a punitive 12 percent marginal tax increase on higher-income earners. Or Congress could resort to other revenue sources, using general revenues instead of dedicated payroll taxes, to make up for Social Security’s funding shortfall. All these options involve serious tradeoffs, reducing Americans’ incomes and economic growth.

A better option would return Social Security to its stated goals of old-age poverty protection by shifting from an earnings-related benefit to a flat benefit that is predictable, transparent, and more effective at providing insurance for struggling seniors. The United Kingdom used to feature an earnings-related benefit in the past but connected the dots that this was an ineffective and excessively costly way to provide seniors with poverty protection in old age. So, in 2014, the UK adopted the new state pension, shifting to a flat benefit model that raised benefits for seniors with low lifetime earnings and reduced benefits for those at the upper end.

Keen readers will observe that reducing higher-income earners’ Social Security benefits after the fact will amount to a de facto tax increase by reducing the amount these individuals will receive in old age without changing the payroll taxes they were required to pay. They’re not wrong.

This is why previous proposals emphasized returning at least a portion of payroll taxes to workers to allow them to save and invest these funds in accounts they owned and controlled. The unfortunate truth is that US legislators procrastinated for too long, allowing the Social Security system to run into the red with a $120 billion annual cash-flow deficit as of 2023 and a $23 trillion long-term unfunded obligation. What remains is to stop the bleeding. Reducing benefits for higher-income earners to keep program costs in check, and especially as part of a more fundamental rethinking of the proper purpose of an old-age-income support program, is a better alternative than raising taxes on current workers. It will inflict lower economic costs and reduce uncertainty over future tax increases from allowing program costs to continue to grow on an unsustainable trajectory.

With Social Security’s trust fund demanding congressional action by 2033 to avert indiscriminate benefit cuts, it’s about time US legislators connect the dots as well.

Marc Joffe

Federal Transit Administration data for fiscal year 2022 show that operating expenses per streetcar ride averaged $10.80 while fare revenues were only $0.97 per ride. As a result, the average streetcar trip—even though it is less than two miles—produced an operating loss of $9.83. This cost primarily falls on the shoulders of federal, state, and local taxpayers. With such short trips, micromobility is a much better option if the policy objective is a reduction in automobile traffic and resulting emissions.

Operating expenses per rider varied widely across systems as the accompanying chart shows. Relatively efficient and well‐​used systems in Tampa, Tucson, Kansas City, and Philadelphia brought down the average. Most systems had operating costs exceeding $16 per ride, which is more than the cost of a short Uber ride.

The cities with the most costly streetcar systems on a per‐​passenger basis are St. Louis (which we discussed previously), Washington DC, and Atlanta. Despite being free, the DC Streetcar carried less than a thousand riders per day in FY 2022. Last year, the DC City Council wisely decided to defer plans to extend the current 2.4‑mile system by an additional 2.2 miles at an estimated cost of up to $100 million.

In 2016, Reason Foundation Transportation Director Baruch Feigenbaum characterized the Atlanta Streetcar as possibly the worst US transportation system ever constructed, noting that the project was plagued with safety problems, disappointing ridership, and fare evasion. Service on the line was suspended between November 2022 and June 2023 because of safety concerns with “the specially‐​crafted $400,000-a-piece wheels” on all four of the system’s cars.

Yet, despite its poor results to date, the Metropolitan Atlanta Rapid Transit Authority is planning a $230 million extension to the streetcar with an estimated completion date in 2028.

The high cost of building and extending streetcar lines is not included in the operating costs listed earlier. And these capital costs are mounting. A 3‑mile streetcar project in Omaha, Nebraska expected to open in 2026 was projected to cost $440 million, up from a 2016 capital cost estimate of $169.8 million. Likewise, a 4.15-mile streetcar project being completed in Santa Ana, California was last estimated to cost $579 million, after multiple upward adjustments. It remains to be seen whether it will actually open next year as expected, and how much it will cost to operate per rider.

Do Benefits Justify the Costs of Construction?

Streetcar project sponsors seeking federal funding are often required to submit benefit‐​cost analyses (BCAs) to justify their plans. In theory, a BCA provides rigorous proof that project benefits exceed costs, and thus merit support. Unfortunately, BCAs often use unrealistic assumptions, such as overstated ridership and understated construction and operating cost estimates.

While Kansas City has one of the more efficient streetcar systems in terms of operating costs, it is not immune to construction costs and time overruns. The 0.7‑mile Riverfront extension has seen its projected cost increase from $20.2 million in 2021 to $61.1 million in late 2023. Construction was originally supposed to start in 2018 and end in 2021; as of now, it is anticipated to be completed by 2025. The extension’s benefit‐​cost analysis was conducted based on the projected construction costs and timeline at the time of its publication in 2018.

An additional benefit‐​cost analysis was undertaken in 2020, with the main difference being the removal of all mentions of a pedestrian and bicycle bridge that was supposed to be part of the original plan. Despite this, the discounted benefit‐​cost ratios remained similar in 2018 and 2020, at 1.59 and 1.75, respectively. While the rhetorical push for streetcar and other expensive transit projects often relies heavily on sustainability impacts, in both Kansas City BCAs environmental benefits are a tiny portion of the total benefits (3.45 percent in 2018 and 0.55 percent in 2020).

By far, the major contributor to the benefits in these BCAs is the economic impact (95 percent in 2018 and 99 percent in 2020), which is spurious at best, and, even if true, is a shining example of subsidizing individual interests (concentrated benefits and diffuse costs) at the expense of taxpayers.

Instead, if federal, state, and local dollars stayed in the pockets of taxpayers, they would be put to far more productive uses in the market, which would not only allocate resources more efficiently but would allow for innovative, value‐​adding solutions to problems, transportation and otherwise.

The author thanks Jerome Famularo for providing research assistance during the preparation of this essay.

Nicholas Anthony

Today (February 14) marks the two‐​year anniversary of Prime Minister Justin Trudeau’s decision to invoke the Emergencies Act for the first time in Canadian history. The decision was made in order to shut down the Freedom Convoy—a protest organized against government overreach during the COVID-19 pandemic.

At the time, my Cato colleagues Norbert Michel, Walter Olson, and I spoke out against the decision because it marked both an attack on freedom in the current financial system and a cautionary tale of what might happen with central bank digital currency (CBDC) in the future. Yet, looking back, there are even more reasons to oppose Prime Minister Trudeau’s use of the Emergencies Act.

Three Strikes

Although it was largely the Emergencies Act that drew international criticism, the Canadian government tightened its hold on the financial system long before Prime Minister Trudeau’s official announcement. In fact, the experience highlights all too well the extent to which governments can readily pressure and control the financial system with existing tools.

The first strike came on February 2, 2022, shortly after GoFundMe—the primary platform for official donations to the Freedom Convoy—paused all donations to review the protest and make sure the organizers were not violating the platform’s terms of service. The Canadian House of Commons Committee on Public Safety and National Security quickly voted unanimously to have GoFundMe testify before it to “ensure the funds are not being used to promote extremism, white supremacy, anti‐​Semitism and other forms of hate, which have been expressed among prominent organizers for the truck convoy currently in Ottawa.”

With both the Canadian House of Commons and law enforcement crowding around it, GoFundMe announced the next day that it removed the donation page for the protest and froze the accounts following “evidence from law enforcement that the previously peaceful demonstration has become an occupation, with police reports of violence and other unlawful activity.”

The second strike came on February 10, 2022, when the Ontario Superior Court of Justice granted a request from the provincial government to freeze millions of dollars raised on GiveSendGo (the platform chosen after GoFundMe could no longer be used). The decision marked a clear escalation of the government’s response. However, many protestors remained undeterred.

The third, and final, strike came on February 14, 2022, when Prime Minister Trudeau announced that he had invoked the Emergencies Act for the first time since the Act was passed in 1988 and thus authorized the government to take extraordinary measures to respond to the protesters that remained on the streets.

Deputy Prime Minister and Finance Minister Chrystia Freeland explained that the financial activity of protestors could be frozen without a court order:

In invoking the Emergencies Act, we are … broadening the scope of Canada’s anti‐​money laundering and terrorist financing rules so that they cover crowdfunding platforms and the payments service providers they use. These changes cover all forms of transactions––including digital assets such as cryptocurrencies… As of today, a bank or other financial service provider will be able to immediately freeze or suspend an account without a court order.

Taken together, the experience illustrates how governments will use pressure, court orders, and sweeping authorities to use the financial system as a means of control.

A Decision Without Cause

Yet it’s not just the escalating measures that warrant concern. There’s still the question of whether the government was justified in invoking these emergency powers in the first place.

Back in 2022, the Canadian Civil Liberties Association objected to the use of the Emergencies Act saying,

The federal government has not met the threshold necessary to invoke the Emergencies Act. This law creates a high and clear standard for good reason: the Act allows government to bypass ordinary democratic processes. This standard has not been met.

Today, the courts seem to agree. On January 23, 2024, a federal judge concluded that “there was no national emergency justifying the invocation of the Emergencies Act and the decision to do so was therefore unreasonable and ultra vires.” (The Canadian government announced that it will appeal the decision.)

Conclusion

Prior to Prime Minister Trudeau’s decision, freezing the bank accounts of protestors had been a strategy only used by authoritarian regimes, not one of the freest nations in the world. As Walter Olson warned at the time, the decision underscores “how dangerous it is to arm the government with the kind of financial and emergency powers that can bypass due process, bring targets to their knees through economic incapacitation without trial, and shred privacy.”

Whether you agree with the protestors or not, moments like these should be a wake‐​up call for how quickly governments can amass and enforce sweeping powers that can stop people in their tracks.

Jeffrey Miron

Is decriminalization or legalization the better alternative to the war on drugs?

Decriminalization means the elimination of criminal penalties for possession of small amounts. This lowers the “full” price for drugs, thereby increasing demand. Because most negatives of prohibition grow with the size of the black market (violence, overdoses, corruption, racially biased policing, infringements on civil liberties), decriminalization plausibly increases such harms. The only clear benefit of decriminalization is that users do not face jail time or criminal records.

This perspective raises a question: why has decriminalization sometimes reduced the negatives of prohibition?

The answer is that decriminalization sometimes involves not just reduced penalties for possession but also reduced enforcement against production and distribution. Scaling back enforcement means less disruption of the underground market, which should reduce violence, and expansion of the scope for medical provision, improving quality control and reducing overdoses. 

This perspective explains why Oregon and other places that decriminalize do not experience obvious reductions in overdoses or crime; that is exactly what we should expect unless decriminalization involves lower supply‐​side enforcement.

Under full legalization, drug markets move fully above ground (assuming regulation and taxation are moderate), which eliminates the “drug‐​associated” ills due to prohibition. The history of alcohol in the United States is a perfect illustration; violence in the alcohol trade was absent both before and after Prohibition, and accidental overdoses soared during Prohibition.

This article appeared on Substack on February 13, 2024.

Patrick G. Eddington

In a fiery 40‐​minute press conference attended by almost a dozen House Freedom Caucus (HFC) members, the group discussed the current state of play in the legislative battle over reauthorization of Title VII of the Foreign Intelligence Surveillance Act (FISA), and specifically the Section 702 FISA mass electronic surveillance program that has been the subject of controversy and abuse throughout its fifteen‐​year existence.

Some made clear they were tired of the “spying and lying” and the efforts of other House members to “subvert” the Fourth Amendment (in the words of Rep. Scott Perry [R‑PA]). Rep. Tim Burchett (R‑TN) warned that “we could lose our country” unless real reforms to the FISA Section 702 program are enacted. Rep. Warren Davidson (R‑OH) reminded everyone that “Freedom lost is rarely regained,” and repeated his call for an amendment process to improve a leadership‐​driven FISA bill that every speaker harshly criticized.

The HFC’s top priorities: mandating a warrant requirement for FISA Section 702 database searches involving American citizens, and the enactment of the “Fourth Amendment is Not for Sale Act” to close the “data broker” loophole, which currently allows the FBI and other law enforcement organizations to simply buy sensitive data on US citizens without ever having to get a warrant.

The House Rules Committee will meet tomorrow to decide whether to make such amendments in order in time for an expected Thursday House floor fight over the fate of FISA Section 702.

While the current FISA fight is over the FBI accessing reams of US Person data via the Section 702 database, Bureau personnel are hardly the only federal employees engaging in classified digital fishing expeditions on Americans. The Central Intelligence Agency (CIA) has had its own problems in this area.

As a result of an ongoing, multi‐​year Freedom of Information Act (FOIA) lawsuit against the Privacy and Civil Liberties Oversight Board (PCLOB), Cato recently received a number of highly redacted CIA IG reports covering portions of the prior decade, primarily during the last year of the Bush 43 and Obama administrations.

Of particular note on p. 38 of the CIA IG Semiannual Report covering January to June 2011, is this passage:

For nearly eighteen months, a CIA officer used CIA computer systems to conduct unauthorized searches for information on multiple individuals, including American citizens. The punchline: “DOJ declined prosecution in favor of Agency administrative action.”

The CIA employee in question should’ve been prosecuted, and it’s worth noting that if the reforms proposed by the HFC and their Democratic Caucus allies were enacted, such unauthorized searches would be federal crimes with respect to FISA Section 702. What’s needed is reform that encompasses all such database searches at every federal agency and department.

Anastasia P. Boden, Brent Skorup, and Alex Khoury

In spring 2023, Governor Henry McMaster of South Carolina signed a law establishing an Education Scholarship Trust Fund Program (Program). The law provides eligible low‐ and moderate‐​income families with a trust fund account, up to $6,000 per eligible student, per school year. Parents can direct funds towards a variety of education‐​related expenses, including after‐​school tutoring, special needs accommodations, and tuition and fees associated with transferring between public schools or attending a private and independent school.

It’s this latter, “school choice,” aspect of the law that has prompted a legal challenge. In October 2023, before the initial trust fund accounts could be created and used by parents, a collection of parents, the state chapter of the NAACP, and a state teachers’ union petitioned the Supreme Court of South Carolina to prevent the Program’s implementation. They allege the Program violates the state Constitution on several grounds, including that the state‐​funded Program lacks a “public purpose” and, thus, violates Article X, section 5. On December 12, 2023, the court agreed to hear the case, called Eidson v. South Carolina Department of Education.

Cato has filed an amicus brief in support of the Program. Our brief highlights that the Program has several “public purposes” that would benefit South Carolina and its residents.

First, the Program is created to increase students’ and public schools’ academic performance. Providing new funds to parents to supplement their child’s education with after‐​school or weekend classes, test prep, or tutors amounts to a self‐​evident public purpose that tends to improve students’ academic performance.

Further, the controversial school choice aspect of the program also has a public purpose. The Program allows some low‐ and moderate‐​income parents who are unhappy with their assigned public school to transfer their child to a new school. Empirical research highlighted by EdChoice and others shows that programs like this provide accountability to assigned public schools and have a positive effect on public school operations or students’ academic performance.

Second, our brief argues that the Program would reduce conflict about education policy. Americans’ preferences about education policy vary greatly. Many South Carolina parents are deeply unhappy with the curriculum, funding, homework, or disciplinary policies at their assigned public school. This results in parent resentment, school board fights, and occasional litigation.

Cato’s Neal McCluskey and others have highlighted how school choice programs reduce social friction by allowing parents to transfer their children to public and independent schools that do not undermine the parents’ educational and civic values.

Lastly, our brief argues that the Program would reduce sectarian conflict about education policy.

Many South Carolina parents are religious, and there is an undeniable parental appetite for religious instruction and prayer in public and independent schools, where children spend most of their waking hours. However, public schools are constitutionally prohibited from providing religious instruction.

The Program has a “release‐​valve” effect because it enables religious minorities to hire like‐​minded tutors, enroll their child at a religious independent school, or transfer their child to a public school that parents believe will not undermine the religious teaching their children receive at home. The Program, therefore, should reduce sectarian conflict over education policy and improve parental satisfaction with their school.

For these reasons, our brief urges that the South Carolina Supreme Court find that the Education Scholarship Trust Fund Program confers a public benefit to South Carolina and its residents that is consistent with the state Constitution.

Jeffrey Miron

Adopted in the wake of the Civil War, Section 3’s intent was to prevent Civil War leaders from serving in high federal office. That goal was understandable, but Section 3 has implications that might give pause.

Section 3 is anti‐​democratic. If voters want an insurrectionist, perhaps they should get an insurrectionist. (Democracy, per H.L. Mencken, is the theory that the people know what they want and should get it good and hard.) In some cases, insurrectionists have good reasons for their actions (think the Revolutionary War). Relatedly, Section 3 punishes the losers from internal conflicts, which might inhibit reconciliation.

And if Section 3 keeps a popular candidate off the ballot, that will likely increase polarization and resentment amongst the candidate’s supporters, perhaps to the point of further, and worse, insurrection.

An earlier version of this article appeared on Substack on January February 10, 2024.

Adam N. Michel

In a landmark move, nearly 140 countries, including the Biden administration, have rallied behind a new global tax system spearheaded by the Organisation for Economic Co‐​operation and Development (OECD). This initiative is aimed at increasing taxes on international businesses and puts American companies squarely in the crosshairs.

As countries around the world begin to implement the OECD system and Congress considers the US role, my latest Cato Policy Analysis provides an overview of the international tax system and how we got here. I present data on profit‐​shifting trends and propose forward‐​looking reforms.

You can read the full report here. What follows is a brief summary.

A Decision of Global Magnitude

In 2025, the United States Congress will face a decision that could redefine the contours of international taxation, tax competition, and global economic growth. The choice is stark: conform to the OECD’s proposed tax increases or break free from what is an aspiring international tax cartel.

The OECD’s proposal aims to disproportionately burden US firms with tax increases using a Two‐​Pillar framework. Pillar One aims to change where some companies pay taxes, selectively moving toward a system based on customer location instead of business activities. Pillar Two includes a series of new rules that enforce a global minimum tax of 15 percent.

The OECD has strayed far from its original mission of reducing international business taxes. Today’s proposals resemble an international tax cartel more focused on extracting revenues from America’s leading firms than fostering a conducive environment for global trade and economic expansion.

If the OECD’s tax increases move forward as currently conceived, it risks depressing global investment and institutionalizing a Eurocentric fear that tax competition and successful multinational businesses will undermine their ability to pursue economic planning and wealth redistribution. 

Unraveling the Myths of Profit Shifting

The core of the OECD proposal is built on two ideas that are either wrong or dramatically overstated. First, tax competition will deprive countries of the revenue necessary to support the modern welfare state. Second, profit shifting—whereby firms move paper profits to reduce tax burdens—is a significant and growing problem. Both propositions are exaggerated to the point of being inaccurate.

While it’s true that corporate tax rates have declined over the past few decades, this has not resulted in diminished tax revenues, quite the opposite.

Figure 2 from the report shows:

Corporate tax revenue as a share of the economy increased from 2.2 percent in 1981 to 3.5 percent in 2021 across 19 OECD countries. Corporate tax revenue as a share of all revenue has also increased since 1981, rising from 8.6 percent of total revenue to 9.4 in 2021. These trends are even more impressive given that the average statutory corporate income tax rate across the same OECD countries was cut in half during the same time, falling from about 48 percent in the early 1980s to 24 percent in 2021.

Profit shifting to tax havens is also much smaller than typically conceived. Measured correctly, corporate profits in tax havens amount to about 8 percent of total US corporate profits (or as much as 11 percent).

Figure 6 from the report shows two different measures of tax haven profits of US multinationals. The chart shows the share of total US corporate income reported in tax havens grew modestly over time and following the 2017 corporate tax cut, fell to its lowest level in a decade. The data suggest that a lower corporate tax rate is one of the most effective reforms to reduce profit shifting.

A significant share of corporate profits in low‐​tax countries are not shifted there artificially but are associated with real investments. However, even the artificially shifted profits still bring benefits.

This body of research indicates that access to tax havens acts like a tax cut on investment that increases investment everywhere, including in nonhaven jurisdictions. Rather than a global scourge that erodes the tax base of high‐​tax countries, low‐​tax countries help allocate global capital in the face of inefficient tax systems to the benefit of workers and investors around the world. Cutting off domestic business access to low‐​tax countries is a lose‐​lose; it hurts real foreign and domestic economic activity.

A Fragile Consensus and the Path Forward

Instead of yielding to the OECD’s new global tax, the United States has the opportunity to opt out of the OECD system and redefine itself as the world’s premier business destination. Boosters of the OECD plan will have you believe that the United States is boxed in. The new world order tax cartel is here to stay, and it’s time for Congress to get on board. Fortunately, cartels are inherently unstable, and the agreement is more fragile than the boosters let on.

Instead of ceding authority to the OECD by adopting their new taxes and enacting new rules to stop businesses from leaving the United States, Congress should focus exclusively on increasing the attractiveness of the United States as an investment destination.

My recommendations include slashing the corporate tax rate to 12 percent (if not eliminating it), permanently expanding full expensing to attract new domestic investment, and completing the transition to a fully territorial tax system. With a low enough rate, Congress could repeal most of the complicated alphabet soup—GILTI, FDII, BEAT, CAMT—of existing international rules and minimum taxes.

These reforms would directly support American workers and investment by making the US a preferred destination for new jobs, factories, intellectual property, and easy‐​to‐​move profits. They would undermine the OECD global tax project by opting out of its scheme, lowering the risk that the destructive tax hikes will move forward as currently conceived.

Read the full report here.