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Jeffrey Miron

In September 2024, the Biden administration implemented a 100 percent tariff on Chinese electric vehicles (EVs), citing concerns over China’s subsidies of its EV industry. These subsidies, the administration claimed, allowed Chinese manufacturers to sell vehicles at artificially low prices, putting US automakers at a disadvantage.

This example illustrates a common justification for tariffs: that other countries engage in “unfair” trade practices, such as subsidizing their manufacturing firms. This claim is likely overstated; in many cases the costs of production are lower in poorer countries because labor costs are lower, even adjusting for skill levels.

But some countries do subsidize particular industries, which allows them to sell at lower prices relative to US producers. India provides favorable loans and tax breaks to its sugar industry, while the EU’s Common Agricultural Policy offers direct payments and market interventions to its farmers.

Is that a good reason for the US to impose tariffs on these countries?

No. Subsidies for particular industries harm the countries that adopt them by distorting the allocation of productive activity and forcing residents to pay higher taxes. But such policies benefit the United States overall: while some workers see less demand for their services, the US purchasers of the subsidized products face lower prices, and this stimulates demand, allowing for job creation instead of loss.

Historical evidence supports this: in the five years following the passage of NAFTA, which eliminated most tariffs and trade barriers between the United States, Mexico, and Canada, the unemployment rate fell to below 4 percent while the number of manufacturing jobs increased by half a million. Likewise, estimates from the International Trade Commission and the Peterson Institute suggest a modest positive impact on the labor market and the economy more broadly from the agreement.

If other countries want to “throw money out the window,” the US should stand under that window.

This article appeared on Substack on January 31, 2025. Jonah Karafiol, a student at Harvard College, co-wrote this post.

Neal McCluskey

President Trump and many of his supporters are worried about indoctrination in public schools, especially on matters of race and gender, and their concerns are not without justification. Yesterday, the president issued an executive order (EO) to take that on directly. At the same time, he issued another order focused on the key to ending government indoctrination: “Expanding Educational Freedom and Opportunity for Families.” Unfortunately, both orders walk the edge of violating the Constitution, including by delivering Trump’s preferred brand of indoctrination.

Indoctrination Order

First and foremost, the indoctrination order targets the teaching of what have come to be known as “divisive concepts,” which we have seen laid out in several state laws and which originated in the first Trump administration targeting federal workforce training. These include prohibiting teaching such things as “members of one race, color, sex, or national origin are morally or inherently superior to members of another race, color, sex, or national origin” and “the United States is fundamentally racist, sexist, or otherwise discriminatory.”

Importantly, the only concrete thing the order does regarding divisive concepts is require the secretaries of education, defense, and Health and Human Services—in consultation with the Attorney General—to provide the president with an “Ending Indoctrination Strategy” within 90 days of the EO being signed. That said, it seems likely that the departments, by defining all the listed actions in the divisive concepts litany as discrimination, could find justification to investigate and prosecute school districts, administrators, and even teachers.

But even if they can, should they?

Teaching some of the concepts, such as members of one race, color, sex, or national origin being morally or inherently superior to members of another race, color, sex, or national origin, are pretty clearly discriminatory. However, teaching that the United States is fundamentally racist, sexist, or otherwise discriminatory does not discriminate against any student, nor should it be put off limits by Washington. It might be a terribly inaccurate characterization of the country, but the federal government is not justified in prohibiting discussion of ideas just because the president thinks they are wrong.

Then there is the EO pushing “patriotic education.” It does not simply call for reports; it resurrects the 1776 Commission that Trump created at the end of his first administration and calls on it to “promote patriotic education.” Commissioners will not get paid, but taxpayers will foot the bill for the commission’s administrative expenses. And not only does the EO bring back the commission, it says that “all relevant agencies shall prioritize Federal resources, consistent with applicable law, to promote patriotic education” and identifies specific programs as examples of how to do that. Nowhere does the Constitution authorize the federal government, much less the president alone, to “promote patriotic education.”

School Choice Order

While state and local control of public schooling is much better than federal, the only concrete way to avoid government indoctrination is to let families decide for themselves where the money to educate their children will be used. That means school choice, the subject of the second EO. But even though expanding freedom for families is highly desirable, the Constitution must come first.

Like the indoctrination order, the concrete action embedded in the choice order is mainly secretaries reporting on how they might advance choice. There’s no major problem with that, but it is doubtful they will find much that satisfies two constitutional strictures:

The president cannot make law—Congress must do it.
Outside the District of Columbia, the military, and Indian reservations, Washington has no constitutional authority to drive choice.

The choice order tasks the secretaries of defense and the interior with looking for ways that their departments can supply choice to military families and children eligible to attend Bureau of Indian Education schools. These are within the bounds of federal constitutional authority, in the former case through national defense and in the latter through treaty. But the creation of choice programs must be by Congress, which the Constitution empowers to make law.

The order also calls on the secretary of the Department of Health and Human Services to look for ways that “states receiving block grants for families and children from the Department … can use them to expand educational choice and support families who choose educational alternatives to governmental entities, including private and faith-based options.” The Department of Health and Human Services deals with the nation broadly and has no constitutional authority to deliver school choice, through either presidential or congressional action.

Finally, the choice EO appears to task the Department of Education with quickly advancing choice, saying, “within 60 days of the date of this order, the Secretary of Education shall issue guidance regarding how States can use Federal formula funds to support K‑12 educational choice initiatives.” But immediacy might not be the case, because right after that, the order says, “Within 90 days of the date of this order, the Secretary of Labor and the Secretary of Education shall review their respective discretionary grant programs and each submit a plan to the President.”

Congress has not enacted national school choice. At the very least, it would seem a violation of the spirit of separation of powers if the president were to decide that choice could be delivered by Washington regardless. That said, there are funding sources such as the Student Support and Academic Enrichment Program that could perhaps be interpreted as allowing choice payments. But even if the Department of Education could interpret them as Congress allowing choice as a use, the Constitution still gives the feds no authority to govern education. So the right answer is to end the program, not use it to advance the current administration’s preferred policies.

Conclusion

Indoctrination is a major concern with public schooling because public schooling is government schooling—government-funded and ‑run schools. The solution is choice for families. But the federal government, when dealing with either, must first obey the Constitution, and these EOs come dangerously close to failing in that.

Patrick G. Eddington

FBI director nominee Kash Patel’s confirmation hearing today has already produced news.

Under friendly questioning from Sen. John Cornyn (R‑TX), Patel was asked whether he viewed a warrant requirement to access the stored communications of Americans to be “workable” in the Foreign Intelligence Surveillance Court (FISA) context. Patel responded that such a requirement would “not be comportive” to protecting American citizens.

As I reported last week, federal Judge LaShann DeArcy Hall of the Eastern District of New York ruled that such warrantless “back door” FISA Section 702 database searches constituted a search under the Fourth Amendment and that a warrant would be necessary for such searches. Patel’s stated opposition to the warrant requirement is the first public statement on this issue by anyone connected to the administration since Hall issued her decision. 

I doubt seriously that Patel would’ve made the statement unless the response was worked out with White House officials in advance of his confirmation hearing. If that’s the case, it’s only a matter of time before the administration appeals Judge Hall’s decision, ensuring the legal and political fight over the FISA Section 702 program will play out during 2025.

Adam N. Michel

Last week, the Cato Congressional Fellows discussed the history of radical tax reforms and examples of such reforms in practice.

This overview begins with a brief history of consumption tax reform proposals over the past half-century. It then turns to the Estonian tax system as a real-life model of a simple, flat income tax and describes how the Cato Tax Reform Plan helps policymakers move the US tax code toward one of these ideals. The second-to-last section reviews wealth taxes, another type of radical tax proposal, and the last section reviews significant tax changes between 1970 and the 2010s.

This blog is the third part of a four-part series based on notes from a Cato congressional fellowship series covering the US federal tax code. Part one is on Tax Code 101, and part two is on the Tax Cuts and Jobs Act.

This session was co-taught with Cato’s Chris Edwards.

Brief History of Major Tax Reform Efforts

In the first installment of this series—Tax Code 101—we discussed the differences between consumption and income tax bases. The popularity of flat-rate consumption taxes gained steam in the wake of repeated tax increases in the 1980s and 1990s, punctuated by President George H. W. Bush’s broken promise not to raise taxes.

In December 1981, economists Robert Hall and Alvin Rabushka outlined their flat-tax proposal to fit individual tax returns on a postcard in a Wall Street Journal op-ed. The proposal paired a wage tax and a business cash flow tax to create a consumption tax base. It was later expanded into a book and became an animating feature in Republican politics.

The 1990s saw many competing flat-rate consumption tax proposals. House Majority Leader Dick Armey (R‑TX) and two-time presidential candidate Steve Forbes popularized versions of the Hall–Rabushka flat tax. Ways and Means Committee Chairman Bill Archer (R‑TX) promoted a national sales tax, which later became the Fair Tax proposal for a national retail sales tax. These and similar consumption tax plans, such as Sens. Sam Nunn (D‑GA) and Pete Domenici’s (R‑NM) USA Tax, were the subject of numerous congressional hearings and commissions.

Democrats shared the flat-tax fever. In addition to Nunn, Dick Gephardt (D‑MO), Leon Panetta (D‑CA), and Jerry Brown (California governor and presidential candidate) proposed versions of flat taxes.

In theory, each model of consumption tax—Flat Tax, Fair Tax, USA Tax—has different collection points but similar economic results, all ending with a similar tax base. However, some versions, such as the national sales tax, may require higher tax rates and necessitate repealing the Sixteenth Amendment to ensure the federal government does not end up levying taxes on income and sales, like in European countries where citizens pay significantly higher tax burdens.

Ultimately, a radical overhaul to the tax code never materialized, but the tax cut energy animated many of the policy changes over the past half-century. The last section of this blog includes an outline of the significant tax changes between the 1970s and 2010s.

The Estonian Model

The excessive and overwhelming complexity of the US federal tax system has animated the long-running interest in fundamental tax reforms. However, the very complexity that politicians decry makes reform difficult as vested interests in politics and industry benefit from the myriad special interest loopholes. Simple, efficient tax systems are not just the province of theory; they exist in the real world. The European country of Estonia is a good example.

Estonia ranks first on the Tax Foundation’s annual list of most competitive tax systems. Estonia levies a single-tier flat income tax rate of 20 percent, paired with a distributed profits tax on corporate income. A tax on distributed profits is only assessed when business profits are realized through capital gains or dividend payments. This system eliminates the corporate income tax, removes additional taxes at death, and avoids double-taxing business income. The system is so simple that Estonian taxes are typically filed in about five minutes through an online portal.

The Tax Foundation modeled the economic and budgetary impact of applying the Estonian tax system to the United States. Such a reform would be approximately revenue-neutral, grow the long-run size of the economy by 2.5 percent, raise after-tax incomes by 3.5 percent, and reduce the debt-to-GDP ratio by more than 9 percentage points thanks to the larger economy. The reform could also lead to tax compliance costs falling by more than $100 billion annually. 

Cato Tax Reform Plan 

Big tax reform plans that propose an entirely new tax system to replace the existing system are helpful in setting the goals of reform, but they often obscure the difficult politics of actually doing away with the existing tax code, riddled with popular loopholes and targeted subsidies. The Cato Tax Reform Plan takes the opposite approach, working from the existing tax system to present a list of specific reforms that would be necessary to move the federal income tax to a flat tax with historically low tax rates on business income.

The Cato plan would repeal $1.4 trillion in annual tax loopholes, including energy tax subsidies, corporate research credits, housing tax credits, subsidies for children and work, deductions for mortgages and state and local taxes, exclusions for health insurance, and subsidies for education, among many others.

If Congress entirely eliminated all existing distortionary loopholes, deductions, and credits, it could cut tax rates to near 100-year lows. The plan proposes to:

cut the top marginal income tax rate to 25 percent for workers and small businesses to approximate a flat-tax system;
cut the corporate tax rate to 12 percent, making the United States the most competitive place in the world to do business;
cut the capital gains and dividends tax rate to 15 percent;
allow permanent full expensing for all investments;
create universal savings accounts for nonretirement savings; and
repeal all alternative minimum taxes, additional investment taxes, and the estate tax.

The plan is intended to show that massively pro-growth, fiscally responsible tax reform is only constrained by a political preference for keeping the current level of spending and the trillion dollars of tax subsidies littered through the tax code. The plan is also a comprehensive list of options for tax reform from which less aggressive tax reform plans can be assembled. Congress can and should go further by cutting spending, which would allow deeper tax reductions. 

Ultimately, the policy tradeoff is between the tax base and the tax rates. The more loopholes Congress maintains in the tax code, the higher the tax rates must be. 

Wealth Taxes: Radical in a Different Way

During the 2020 presidential campaign season, Sens. Elizabeth Warren (D‑MA) and Bernie Sanders (I‑VT) proposed wealth taxes, making the policy a central campaign issue. Wealth taxes are neither a feature of income nor consumption taxes, which tax regular economic flows. Instead, wealth taxes are levies on a stock of assets and are intended to be purely redistributive, aiming to reverse a perceived inequality in the distribution of resources. For more on the trends, causes, sources, and benefits of wealth in America, see Chris Edwards and Ryan Bourne’s “Exploring Wealth Inequality.”

Property taxes, such as the ones assessed on your house, are a type of wealth tax, but unlike most other wealth taxes, they don’t subtract liabilities (the mortgage). The United States has the fourth-highest property taxes in the Organisation for Economic Co-operation and Development (OECD) as a share of gross domestic product (GDP). The estate tax on transfers at death is also a wealth tax. 

Net wealth taxes have been tested in other countries and repealed due to high economic costs and administrative burdens. Peaking at 12 in the 1990s, only four OECD countries still impose net wealth taxes today: Colombia, Norway, Spain, and Switzerland. The figure below from the Tax Foundation shows the trend of wealth taxes over time. 

Wealth taxes impose an additional layer of tax on the income generated by the underlying asset. Most wealth is made up of productive assets, such as active businesses or other investments. The capital gains, dividends, and other income earned would have already been taxed through the normal tax system. One recent Biden-era Treasury study found that the wealthiest 92 Americans faced total state, local, federal, and international income tax rates of 59 percent.

Because wealth taxes are assessed on a stock, expressing the actual tax rate in equivalent income tax rates is more informative. Unless the taxpayer is expected to slowly sell off their underlying assets, the tax will be paid from annual income. The table below shows the equivalent income tax rate on underlying assets with different rates of return at different wealth tax rates. At Sander’s top wealth tax rate of 8 percent, any asset earning less than an 8 percent annual pre-tax return would face income tax rates above 100 percent before paying other taxes. 

Such confiscatory tax rates would have myriad negative economic consequences, including disincentivizing entrepreneurship, reducing employment, slowing wage growth, and shrinking domestic output. Wealth taxes also encourage tax planning by highly mobile wealthy individuals who can leave countries with confiscatory tax systems. Before France repealed its net wealth tax in 2018, the government estimated that “some 10,000 people with 35 billion euros worth of assets left in the past 15 years.”

Because of persistent administrative difficulties and taxpayers’ behavioral responses, wealth taxes raise comparatively little revenue. As summarized by Chris Edwards in “Taxing Wealth and Capital Income,” “European wealth taxes typically raised only about 0.2 percent of GDP in revenues. Given the little revenue raised, it is not surprising that they had ‘little effect on wealth distribution,’ as one study noted.”

Significant Tax Changes 1970s–2010s

Revenue Act of 1978: Cut the top effective capital gains rate from 49 percent to 28 percent. A 1979 change relaxed the “prudent man” rule in the Employee Retirement Income Security Act, allowing pension funds to allocate more of their portfolios to higher-return investments, like venture capital. These two changes spurred the modern era of start-up investing, as Edwards notes in “How Wealth Fuels Growth.” The 1978 tax cut passed with bipartisan support, with particularly fervent support from Democrats. 

Economic Recovery Tax Act (ERTA) of 1981: Reduced the top personal income tax rate from 70 percent to 50 percent, indexed tax brackets for inflation to prevent “bracket creep,” cut capital gains taxes from 28 percent to 20 percent, expanded IRAs, and allowed accelerated depreciation for business investment. The bill was President Ronald Regan’s first tax cut package and, according to estimates from the Tax Foundation, was both the largest tax reduction in US history and one of the most pro-growth changes, boosting projected long-run GDP by 8 percent. More than half of the 1981 tax cut was ultimately undone by legislation in subsequent years.

Tax Reform Act of 1986: Cut the top individual income tax rate from 50 percent to 28 percent, collapsed the 16 individual income brackets to 2 (15 percent and 28 percent), and lowered the corporate income tax rate from 46 percent to 34 percent. The bill was a revenue-neutral tax reform that paired over 100 revenue-raising tax base broadening changes to offset the steep rate cuts. Many base broadeners increased taxes on investment, such as lengthening depreciation schedules, which made the bill mildly anti-growth, according to some estimates. 

Deficit-driven tax hikes, 1982–1987: Congress passed a series of tax hikes in the 1980s, including the Tax Equity and Fiscal Responsibility Act of 1982, which reversed a third of ERTA’s cuts by increasing corporate taxes and closing loopholes. In 1982, Congress increased the gas tax, increased Social Security payroll taxes in 1983, and included other tax increases in the 1984 Deficit Reduction Act and the 1987 Omnibus Budget Reconciliation Act.

Omnibus Budget Reconciliation Act (OBRA) of 1990: Breaking his “read my lips, no new taxes” pledge, President George H. W. Bush signed OBRA in 1990, which raised the top personal income tax rate from 28 percent to 31 percent and included other tax increases. The tax increases alienated fiscal conservatives and contributed to the 1994 Republican Revolution.

Omnibus Budget Reconciliation Act of 1993: Large tax increases across multiple taxes, including raising the top income tax rate from 31 percent to 39.6 percent, raising the corporate tax rate to 35 percent (from 34 percent), increasing payroll taxes, and raising the gas tax, among other hikes.

Taxpayer Relief Act of 1997: Reduced the capital gains tax rate from 28 percent to 20 percent, created Roth IRAs, introduced a $500 child tax credit, created new education tax subsidies, and moderately increased the estate tax exemption. These tax cuts were a compromise between the Republican majority in Congress and Democratic President Bill Clinton and passed with bipartisan support. 

Bush tax cuts (2001–2003): President George W. Bush enacted a series of temporary tax cuts aimed at encouraging investment. The Economic Growth and Tax Relief Reconciliation Act of 2001 lowered personal income tax rates, cutting the top rate from 39.6 percent to 35 percent, and doubled the child tax credit to $1,000. The Job Creation and Worker Assistance Act of 2002 introduced a 30 percent bonus depreciation to encourage business investment during the early 2000s recession. This provision was later expanded in the Jobs and Growth Tax Relief Reconciliation Act of 2003, which increased bonus depreciation to 50 percent and reduced the top capital gains tax rate from 20 percent to 15 percent and the top dividend tax rate from 38.6 percent (the ordinary income rate, which was being phased down to 35 percent) to 15 percent.

Obama-era tax changes (2008–2012): The Bush tax cuts were extended for two years in 2010 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, which also temporarily reduced the Social Security payroll tax and extended bonus depreciation. In 2012, President Barack Obama signed the American Taxpayer Relief Act of 2012, which made some Bush-era middle-class tax cuts permanent but reinstated the top marginal rate at 39.6 percent. Bonus depreciation was only extended through 2014.

As part of the Affordable Care Act, Obama signed into law a number of additional tax increases, including a 3.8 percent surtax on investment income and a 0.9 percent Medicare payroll tax on high-income earners. 

The next major tax overhaul came with the enactment of the 2017 Tax Cuts and Jobs Act (and the subject of part two of this series). 

Clark Neily

Among the most challenging and important questions in constitutional law is whether the constitutions of the United States and various individual states protect unenumerated rights—and if so, which rights. The Supreme Court has long held that the US Constitution does protect certain rights not explicitly set forth in the text, including the right to guide the upbringing of one’s children.

At issue in M.M. v. King is a policy of certain county jails in Michigan prohibiting in-person visits and forcing pretrial detainees and others to instead interact with their families, friends, and other loved ones exclusively through video conferencing and telephone calls. As a result, presumptively innocent arrestees who are detained pretrial have been prevented from seeing and hugging their own children for weeks, months, or even longer—and for no bona fide penological reason.

A state trial court dismissed a challenge to this no-contact, no in-person visitation policy, finding that the Michigan Constitution does not protect a right to family integrity or specifically for incarcerated parents—including ones who are being held pretrial and are therefore presumed innocent—to hug their own children.

On appeal, Cato joined an amicus brief with more than a dozen other organizations and individuals, including the American Civil Liberties Union of Michigan, the Electronic Frontier Foundation, and the Children’s Law Section of the State Bar of Michigan, arguing that incarcerated parents have a right to in-person visits with their children. Besides the constitutional argument, the brief summarizes extensive social-science data showing that in-person visits (a) mitigate the harm of incarceration to children as well as parents; (b) aid in the peaceful administration of jails by reducing prisoner misconduct and aggressive behavior; and (c) facilitate reentry into society by helping maintain potentially stabilizing family ties.

It is hardly surprising that neither the US Constitution nor any state constitution explicitly protects the right of a parent to hug their own children because the idea that the government would gratuitously interfere with such a basic expression of love and affection is almost incomprehensibly dystopian. But the mere fact that a given right is not expressly set forth in a constitution does not mean there is no such right, nor does it relieve the judiciary of its obligation to protect that right from infringement by the government.

Alex Nowrasteh

The evidence is overwhelming that immigrants in the United States have had a lower crime rate than native-born Americans since at least the 19th century. When people learn that fact, they aren’t surprised that legal immigrants have a lower crime rate than native-born Americans, but they are surprised that it’s also true for illegal immigrants. The follow-up question people ask is, “Why do illegal immigrants have low crime rates?” It’s a good question.

After all, illegal immigrants broke immigration laws when they entered or overstayed, and they tend to be younger, male, less educated, have lower wages, and are members of ethnic or racial groups that tend to have higher crime rates among native-born Americans. Thus, it’s understandable why people are perplexed about why illegal immigrants have a lower crime rate in the United States. That’s where theories of crime come in.

Theories can help interpret or explain results, guide research design, help make predictions, and reconcile multiple findings. Listing these theories can help answer the question of why illegal immigrants and other immigrants have a lower crime rate in the United States. You should notice that many of the theories below contradict each other, and some are likely entirely false, but several could be partial explanations.

Professors Charis Kubrin and Graham Ousey have a short guide to these theories in a recent book on immigrant crime, but I will add a few more. I’m partial to theories 1–3, but there are plausible cases for others too.

Theories That Can Explain the Illegal Immigrant-Native Crime Difference

Comparison group effect: Native-born Americans commit more crime than residents of any other developed country and several less developed countries. Illegal immigrants who come here are much less crime-prone by comparison. Even immigrants in Europe, where immigrants tend to have a higher crime rate than native-born Europeans, would have a lower crime rate than native-born Americans if they came here instead. Illegal immigrants are just law-abiding by comparison.
Selection effects: Legal and illegal immigrants tend to think about the future, which is why they incurred a large cost to immigrate in the first place. The present value of work in the United States is greater than work in another country, so they made the investment to come here. People who tend to think about the future commit fewer crimes and have more self-control. That’s why Mexican Americans commit much less murder than Mexicans in Mexico or, generally, than other people from countries that send many immigrants and have higher crime rates. If immigrants to the United States by their region and country of birth had the exact same homicide offending rates in the United States as the countries they came from, the homicide rate in the US would be about 17 percent higher than it really is, and the number of people murdered per year would be higher by about 3,752, according to a back-of-the-envelope estimate. That’s good evidence for self-selection.
Deterrence: The cost of committing a crime for the criminal is the probability that he will be punished multiplied by the harshness of the punishment. If the punishment is higher for illegal immigrants than for native-born Americans, they would be more deterred from committing crimes. The prior two economic theories above and deterrence combine into Gary Becker’s canonical crime model, in which people don’t commit crimes whose expected costs exceed the benefits. If the expected costs and/​or probability of getting caught are higher for illegal immigrants, they’ll be less likely to commit crimes. Deterrence may be higher for immigrants for several reasons, such as greater police presence in immigrant communities because of fear of immigrant crime, or a higher fear of deportation may incentivize them to obey the laws.
Demographics: Immigrants change age and sex structures of the areas where they settle, which can affect crime rates by increasing the share of more crime-prone populations where they settle. An increase of immigrants who tend to be younger males is likely to increase crime while a decrease in that demographic would likely decrease crime.
Poor economic outcomes: Illegal immigrants may do poorly in local economies and have trouble finding jobs. As a result, they could commit more property crimes to increase their incomes. There’s evidence that state-level immigration enforcement laws in Arizona may have increased crime (or not) and that national immigration laws intended to enforce immigration laws increase crime rates. Additionally, prior amnesties for illegal immigrants probably diminished crime for the legalized population because they had additional economic opportunities.
Economic revitalization: Immigrants may do well in local economies, increasing economic and job growth in areas. As a result, more locals and immigrants would have less reason to commit property crimes because they have other opportunities to earn income.
Culture: Immigrants may be more or less tolerant of lawbreaking based on their cultures. Rapid, slow, or nonexistent assimilation may determine how much they adjust over time. Immigrants who don’t assimilate may also develop an oppositional culture that flaunts local norms and rules, leading to higher crime. This theory does not assume that immigrants fail to react to incentives, but the degree to which they would react is somewhat bounded by the culture of their origin countries.
Legal cynicism: Police patrol immigrant neighborhoods more, which could lead to community distrust of the police and criminal justice system, which leads to less willingness to assist law enforcement, which leads to less effective deterrence and higher crime. Illegal immigrants could react poorly to police presence.
Social disorganization: Immigration increases diversity, which causes social fragmentation and the dissolving of social bonds, norms, and other difficult-to-measure social science concepts that cut the cost of committing a crime. As a result of diminished social control through depleted social capital, more people could become criminals.
Social bonds: Immigrants have stronger social bonds with family, local civil society, and churches than native-born Americans do. As a result of these stronger bonds, there are fewer marginalized loners who choose crime, and members of the community are there to help those who are tempted by a life of illegal behavior.
General strain: Illegal immigrants face much strain and uncertainty. As a result, they could react by committing or not committing crimes.
Peer influence: Illegal immigrants fear deportation, so they try to fit in and not draw attention to themselves. One way of doing that is socializing with people who also want to fit in and not draw attention to themselves. Those types of people tend to commit fewer crimes. This is a subcomponent of selection effects.

Whether immigrants have a lower crime rate than native-born Americans is ultimately an empirical question. Theories of why people choose to commit or not commit crime from sociology, criminology, and economics are a good starting point for explaining differences in crime between the two groups. 

Scott Lincicome and Alfredo Carrillo Obregon

President Donald Trump has repeatedly threatened to impose 25 percent tariffs on all goods imported into the United States from Canada and Mexico, with the levies coming as soon as this Saturday, February 1. As Cato scholars and others have repeatedly explained (and as recent history has shown), these new US import taxes, as well as retaliation against US businesses that the Canadian and Mexican governments have promised, would cause significant damage to the US, Canadian, and Mexican economies. And due to these economies’ decades-long integration (thanks to good ol’ specialization and comparative advantage), particular industries and individuals would disproportionately suffer from the tariffs. 

This blog post, the first of a series that we’ll publish over the next month, focuses on one such industry—US-based manufacturers of motor vehicles and parts—and provides seven charts showing how Trump’s tariffs will harm US automotive operations and workers, as well as American car consumers.

Mexico and Canada Are the United States’ Top Trading Partners for Automotive Goods

Mexico and Canada are both the main sources of US imports of motor vehicles and motor vehicle parts and the major purchasers of US exports of these same products. As Figure 1 shows, both countries together account for nearly half of US imports and exports of motor vehicles and parts.

A 25 percent tariff on these products would not just harm US consumers—both individuals buying vehicles and manufacturers using automotive inputs—but could also expose US companies to decreased sales in, and potential retaliation from, Canada and Mexico.

Cars Sold in the United States Have High Shares of Mexican and Canadian Value-Added

As noted above, decades of free trade have caused the US, Canadian, and Mexican automotive industries to be highly integrated, with producers in all three countries shipping finished goods and parts across the United States’ northern and southern borders. Table 1 below shows this integration in practice, documenting car models marketed in the United States that have high shares of Mexican and Canadian value-added. (The American and Canadian automotive supply chains are so interlinked that the National Highway Traffic Safety Administration’s list does not distinguish between American-made and Canadian-made content embedded in these vehicles.) 

A Tariff on Cars “Made in Mexico” Would Harm American Workers and Companies

The table above also shows that many cars sold in the United States are made in Mexico with core parts from the United States and Canada, meaning that much (if not most) of the vehicles’ value comes from work performed by American workers and companies during production. As Figures 2 and 3 below show, this economic reality applies more broadly to the North American auto industry. In particular, a 2019 paper found that US-made content accounted for nearly three-quarters (74 percent) of the foreign value-added embedded in vehicles imported by the United States from Mexico. A recent analysis from the Peterson Institute for International Economics further calculated that 38 percent of the total value-added of vehicles imported to the United States from Mexico was American-made.

As Figure 4 shows, moreover, Mexican government data on the country’s exports of passenger vehicles to the United States show that about half of these goods were made by Detroit automakers.

These figures again underscore that high tariffs on “Made in Mexico” vehicles would harm many American companies and workers.

Mexico and Canada Are Also Major Sources of Non-Automotive Inputs for the Automotive Industry

The harms to American automotive producers from Trump’s proposed tariffs would not just stem from increased duties on vehicles and auto parts, but also from duties on non-automotive inputs. Steel provides a useful example. In 2019, the US government agreed to remove “national security” (Section 232) tariffs on steel and aluminum imported from Canada and Mexico, and today these two countries account for nearly 40 percent of all US imports of steel mill products, as well as over half of US imports of flat steel, which is used extensively in the automotive industry (Figure 5).

Given these quantities and the known effects of the Section 232 tariffs on US steel (and aluminum) prices, resuming them or otherwise applying new 25 percent tariffs on Canadian and Mexican steel would likely harm most American manufacturers of motor vehicles and parts by significantly raising their input costs. According to a 2023 report from the US International Trade Commission, the Section 232 steel and aluminum tariffs disproportionately harmed six US motor vehicle and parts manufacturing sub-industries, thus significantly reducing their production.[1] Several auto industry representatives also reported to the Commission that “section 232 tariffs on steel have led to decreased supplies of automotive steel products and increased input costs for automotive manufacturers,” as well as longer lead times due to “limited availability of steel inputs.” And the Center for Automotive Research calculated in 2019 that Section 232 tariffs on steel and aluminum from Canada and Mexico alone cost US light vehicle manufacturers almost $500 million per year (in 2019 dollars). [2] New tariffs on these metals would thus cost American automotive manufacturers dearly.

Multiple Tariffs on a Single Product?

The North American automotive supply chain is so interwoven across all three USMCA countries that an engine, transmission, or other automotive component might cross the US-Canada and US-Mexico borders as much as seven or eight times before it ends up in a finished vehicle. As a 2017 Bloomberg report documented, this dynamic applies not just to complex parts but relatively simple ones too. In particular, the authors tracked the journey of a capacitor, a simple electrical component in a circuit board, incorporated into a car seat. As Figure 6 shows, by the time the capacitor was embedded in a finished seat, it had already crossed from one North American country to another four times.

Given this dynamic, the effects of tariffs are highly uncertain, and industry experts have no idea whether Trump’s proposed 25 percent tariffs would be levied on a single component every time it crosses US borders or just once. In the former case, the tariffs’ costs would multiply greatly, further slowing (or even shutting down) the North American automotive supply chain. 

Conclusion

As I wrote late last year, the US automotive industry is a great example of the complexities of 21st-century manufacturing and the benefits of globalization:

[I]t’s widely acknowledged by automotive industry experts that freer trade and investment have generally fueled the growth and stability of North American automotive production since the 1990s.… By permanently reducing trade barriers, trade agreements have been credited with attracting more foreign investment and boosting overall industry competitiveness by lowering production costs (e.g., via imported inputs), utilizing national comparative advantages, and opening overseas markets. 

It’s also a stark example of how and why tariffs would harm the modern US economy, including the manufacturing sector and American consumers. Automotive industry experts have warned that the tariffs would quickly “add a minimum of thousands of dollars” to the price of a new car in all three countries.

Hopefully, cooler heads prevail.

Jeffrey Miron

On January 12, California Governor Gavin Newson signed an executive order waiving permitting requirements for homeowners and businesses affected by the fires in Los Angeles and Ventura counties. The directive suspends sections of the California Environmental Quality Act (CEQA) and the California Coastal Act, aiming to expedite the rebuilding of as many as 12,000 homes destroyed in the fires.

Even before the fires, the typical home in California was $790,742, 220 percent of the national average. Moreover, the Wall Street Journal points out that California’s onerous building codes and permitting fees contribute to astronomical “affordable” housing costs, where units can cost $1 million to build. The state’s regulatory framework is widely regarded as a significant barrier to development; by requiring environmental reviews and opening the door for lawsuits, CEQA and the Coastal Act delay projects for years, driving up costs and discouraging investment.

Governor Newsom’s executive order waives permits previously justified as necessary for environmental protection and sustainable development. But if these regulations were essential before the fires, why suspend them now? The risks they seek to mitigate, such as soil erosion and waterway contamination, still exist post-fire and may be amplified by rushed rebuilding.

On the other hand, if these regulations were always excessive, then why limit their suspension to fire recovery? In the past, CEQA exemptions have been granted for high-profile projects such as sports stadiums and affordable housing developments. These cases highlight an inconsistency: the state recognizes that CEQA hinders timely and efficient development but has so far resisted broader reform. Why not reform or relax the laws to make them less onerous everywhere, rather than relying on piecemeal exceptions during crises?

Newsom’s executive order exposes a fundamental tension in California’s housing policy. If the regulations are too restrictive for disaster recovery, they are likely too restrictive broadly. And if they truly are necessary, they should remain, even in the face of the fires.

This article appeared on Substack on January 29, 2025. Jonah Karafiol, a student at Harvard College, co-wrote this post.

Mike Fox

In March 2020, the US Attorney’s Office for the Southern District of New York descended into chaos as one of its cases collapsed. Widely regarded as the most prestigious office in the nation, these “esteemed” prosecutors admitted in an internal email to lying to a federal judge and seeking to conceal evidence from the defense during an ongoing trial. This win-at-all-costs mentality doesn’t instill confidence, much less respect and admiration.

Unfortunately, it gets worse. The tainted prosecution of Ali Sadr Hashemi Nejad demonstrates not only the lengths to which some prosecutors will go to secure a conviction, but also how the most powerful actors in our criminal justice system are the least accountable.

Federal prosecutors accused Nejad of violating US sanctions against Iran. In the middle of the trial, prosecutors sought to introduce a new exhibit that had not previously been disclosed to the defense. An Assistant United States Attorney suggested they bury the new exhibit in a stack of papers the prosecution was obligated to disclose, hoping defense attorneys wouldn’t notice.

Incredibly, prosecutors continued to turn over new evidence to the defense after the jury voted to convict Nejad, including a recording of an FBI interview with a witness that cast doubt on Nejad’s culpability. Belatedly realizing the gravity of their failure to timely disclose critical evidence, prosecutors moved to dismiss. But US District Judge Alison Nathan insisted on a full accounting of the prosecution team’s misconduct. She ordered prosecutors to provide a full list of exculpatory material and identify all the prosecutors and supervisors implicated in the misconduct and subsequent coverup—which almost never happens. Judge Nathan vacated the tainted verdict, dismissed the charges with prejudice, and urged an investigation by the Department of Justice’s Office of Professional Responsibility (OPR).

In the half-century since its inception, the Office of Professional Responsibility has become a veritable graveyard where allegations of prosecutorial misconduct go to die. OPR was established in 1975 by a directive from then-Attorney General Edward Levi in response to the fallout from the Watergate scandal. Levi tasked OPR with “[r]eceiving and reviewing any information concerning conduct by department employees that may be in violation of law, regulations or orders, or applicable standards of conduct.” But OPR has operated in a shroud of self-imposed secrecy and anonymity—too often sweeping egregious allegations of prosecutorial misconduct under the rug.

The Office of Professional Responsibility not only fails to hold prosecutors accountable but refuses as a matter of official policy to even identify the lawyers involved or publicize the circumstances surrounding the misconduct. Each fiscal year, OPR publishes an annual report. These reports expose a substantial number of instances of prosecutorial misconduct and lapses of professional judgment by Justice Department attorneys. The reports summarize the investigations and inquiries undertaken by OPR, but they deliberately omit the names of the prosecutors involved and other identifying details, such that it is impossible to tell what actually happened. Findings rarely lead to discipline and without transparency, Justice Department attorneys are not subject to public scrutiny.

The Justice Department is the only federal agency whose inspector general lacks the authority to investigate allegations of professional misconduct by agency lawyers. The Inspector General Act of 1978 created an arbitrary carveout for Justice Department lawyers. For years, members of Congress on both sides of the aisle have tried to close this loophole, which shields Justice Department lawyers with the power to deprive us of our liberty from independent oversight and accountability. This double standard exists even within the Justice Department, where all other employees are subject to inspector general investigations. If reintroduced and enacted, the Inspector General Access Act would transfer the responsibility to investigate allegations of misconduct relating to an attorney’s authority to investigate, litigate, and provide legal advice from the OPR to the Office of the Inspector General. Meaningful oversight by the Inspector General would bring needed independence and accountability to a workforce known for its opacity and lack of candor.

The botched 2018 prosecution of Nevada rancher Cliven Bundy further illustrates the need for independent oversight of federal prosecutors. Rampant prosecutorial misconduct deprived not only the defendants but also the public of a fair trial and resolution. Whistleblower Larry Wooten, who led the investigation for the Bureau of Land Management, unearthed a widespread pattern of misconduct, contending that supervisory agents had failed to turn over required discovery to the prosecution team that would likely have helped the defense, including by supporting its factual theories and impeaching key government witnesses.

In 2018, District Judge Gloria Navarro found that federal prosecutors “[v]iolated the universal sense of justice.” Citing flagrant prosecutorial misconduct, she dismissed with prejudice the charges against Cliven Bundy, his two sons, and an alleged co-conspirator. Judge Navarro was particularly concerned with how prosecutors failed to disclose video that documented the presence of snipers around the Bundy Ranch prior to the 2014 standoff. The U.S. Court of Appeals for the Ninth Circuit—in affirming the dismissal—noted “[t]hat the deliberate choices to withhold those documents were not cases of simple misjudgment.” The panel explained how the “[f]acially exculpatory evidence directly negated the government’s theory that the defendants lied about fearing snipers.”

Cliven Bundy’s experience is far from alone. In U.S. v. Chapman, the Ninth Circuit affirmed the dismissal of an indictment upon finding that prosecutors “[f]ailed to meet their obligations to disclose over 650 pages of documents to the defense.” Both cases happened under the leadership of longtime First Assistant and then Acting U.S. Attorney Steven Myhre. When Myhre’s tumultuous tenure finally came to an end—without explanation—he became “senior litigation counsel” and was tasked with mentoring and training young prosecutors. It is both troubling and telling that a federal prosecutor with a record of persistent misconduct would be entrusted to mold future generations of federal prosecutors.

Oftentimes, evidence of prosecutorial misconduct only comes to light when cases go to trial. Yet, due in great part to often highly coercive plea bargaining, only about 2.3 percent of federal cases go to trial. This makes it all the more important to hold prosecutors accountable when they are caught engaging in misconduct. If a doctor were to amputate the wrong limb you can rest assured that they would be identified, subject to personal liability, and barred from practicing medicine. Yet when federal prosecutors fail to live up to their ethical obligations, the public is kept in the dark. Shifting the Office of Professional Responsibility’s function to the Office of the Inspector General would put federal prosecutors in line with the rest of the federal workforce and help to expose and address pervasive prosecutorial misconduct.

Colleen Hroncich

Standardized testing isn’t the be-all and end-all of education. Still, the results of the National Assessment of Educational Progress (NAEP), known as the Nation’s Report Card, show important educational trends. Unfortunately, today’s (Jan. 29) release of the latest results isn’t showing good trends, although results aren’t as bad as some predicted coming out of COVID-19.

But not as bad doesn’t mean good. In reading, results show the largest percentage of eighth graders scoring below NAEP Basic in the assessment’s history; for fourth graders, the percentage scoring below NAEP Basic was the largest in 20 years. Only around 30 percent of students in either grade performed at or above the NAEP Proficient level in reading.

Math results weren’t much better. While there was a slight uptick in scores, only 28 percent of eighth graders and 40 percent of fourth graders performed at or above NAEP Proficient.

While these overall numbers are concerning, digging deeper shows more troubling results. The gap between the highest- and lowest-performing students has continued to grow. In math, student scores in the top quartile improved while those in the bottom quartile fell for eighth grade and remained stagnant for fourth. In reading, both age groups had bigger drops for lower-performing students compared to the higher-performing students.

It’s worth noting that these worrying results come after billions of dollars in federal funding to schools that were specifically earmarked for efforts, such as tutoring, that were meant to address the learning interruptions during the pandemic. They say money can’t buy happiness; apparently, it can’t buy better test scores either.

The Nation’s Report Card is useful for taking a broad look at educational achievement throughout the country, including by state, district, school type, and various demographics. But it’s an aggregate measure. It doesn’t tell us about individual children and their educational needs. And it doesn’t offer solutions for how to ensure those needs can be met.

NAEP scores will receive lots of media attention in the coming days. Based on history, there’s no reason to think that attention will do much to improve the educational experience for kids. Sure, parents can look and see if their district or state improved across various metrics. But that information doesn’t equip them to choose other options for their children.

Parents need educational freedom more than they need NAEP scores. The spread of school choice programs that allow funding to follow students to a variety of educational options is helping parents choose where and how their children are educated. This is crucial considering test scores are just one of many things parents and children care about when it comes to education—and they tend to be pretty low on the priority list. School choice lets families factor in things that are more important to them, such as safety, values, and environment.

So, by all means, dig into the NAEP results and see where scores are improving, falling, or staying flat. But don’t forget that the bigger picture is really the smaller picture—the individual students who should have access to educational options beyond their assigned schools.