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Chris Edwards

In his State of the Union address, President Biden is expected to discuss raising taxes on the rich. As he often does, Biden may claim that the rich pay lower tax rates than firefighters or school teachers or that the rich pay a tax rate of just 8 percent.

A Reuters story on the State of the Union address parrots the White House theme without any independent fact‐​checking: “The average American worker paid about a 25% tax rate in 2022, the OECD reported. White House research found the wealthiest individuals paid about 8% from 2010 to 2018.”

White House “research”? The 8 percent is a concoction by Biden political appointees at odds with data from the US Treasury, Congressional Budget Office (CBO), Internal Revenue Service, and Joint Committee on Taxation. All these official sources find that tax rates on high earners are much higher than tax rates on lower‐ and middle‐​income folks. Let’s look at the Treasury and CBO data.

The first chart shows Treasury estimates for 2024 by income decile and the top 1 percent. The tax rates are all federal taxes (income, payroll, excise, and other) divided by family income. The top 1 percent will pay an average rate of 31.5 percent this year, compared with 10–12 percent in the middle and about 0 percent at the bottom. The rates near the bottom can be negative because of refundable tax credits.

The second chart shows Congressional Budget Office estimates for the low‑, middle‑, and high‐​income quintiles and the top 1 percent. The tax rates are federal income, payroll, and excise taxes divided by household income.

The average tax rate on the top 1 percent has hovered around 30 percent for four decades.

Average tax rates on the low‐ and middle‐​income quintiles have trended downward. Households in the low quintile pay no net federal taxes, while households in the middle quintile paid about 13 percent in recent years prior to 2020. Tax rates plunged in 2020 due to “recovery rebate credits” handed out that year, which were refundable tax credits.

In sum, Treasury and CBO data show that federal tax rates at the bottom average about 0 percent or less, tax rates in the middle average less than 15 percent, and rates at the top average around 30 percent. Average tax rates at the top are twice the tax rates in the middle.

False claims about tax rates on high earners are remarkably persistent given the easy availability of the official data. For further reading on tax rates by income level, see the following blog posts: “Biden Bulldozes Billionaires with New Tax,” “Tax Rates on the Rich,” “Tax Rates by Income Level,” and “Tax Rates by Income Level.”

Romina Boccia and Dominik Lett

Over the past 30 years, we estimate that emergency spending has generated almost $2 trillion in interest costs. Congress should reject the allure of costly, short‐​term budget thinking and offset new emergency spending.

Tonight, President Biden will address the nation in his State of the Union address, outlining his political priorities during this election year. One of the topics he’ll likely discuss is foreign aid for Ukraine—a hot‐​button issue for voters and a major sticking point in the latest round of budget negotiations. Some have framed the multibillion‐​dollar package as a temporary and relatively low‐​cost investment.

Regarding emergency spending, as we pointed out last week, “one‐​time” or “low‐​cost” framing misses the bigger point. Even within a short 10‐​year budget window, a $95 billion foreign aid package adds $41 billion in additional interest costs. Decades of myopic budgeting have driven deficits and debt to record highs. The United States cannot afford to casually deficit‐​spend anymore. Regardless of the foreign policy rationale for additional aid, offsetting new spending is the only fiscally responsible path forward.

The Present‐​Day Cost of Repeated Emergency Spending

Prior emergency spending was almost entirely financed through deficit spending and incurred interest costs that have increased the debt burden. Using our emergency spending data set, we can generate a rough approximation of the interest costs generated from prior emergencies. For this calculation, we assume that all emergency spending added to the deficit and resulted in interest costs paid under a weighted average annual interest rate for all marketable Treasury securities of the relevant year.

In real dollars, the $12 trillion in emergency spending over the past 30 years generated almost $2 trillion of total interest costs to date. And that’s before considering future emergency spending that’s already on the books, including the more than $100 billion Congress plans on spending over the next few years under the Infrastructure Investment and Jobs Act, or any potential emergency spending Congress tends to pass every year, such as disaster relief. The graph below shows historical emergency spending and associated interest costs.

Two trillion dollars is a massive cost to incur for “temporary” emergency spending. That’s roughly equivalent to the amount Congress has spent through the Department of Energy and the Department of State combined over the past three decades. If Congress incorporated interest costs into legislative cost estimates, perhaps legislators would be less prone to spending so recklessly. As it stands, current and future taxpayers will continue to shoulder the burden of past fiscal decisions.

The United States’ fiscal position is deteriorating. This year, net interest costs are expected to reach $870 billion, exceeding the annual defense budget. By 2028, public debt will surpass the World War II record high of 106 percent of GDP. Debt continues to climb rapidly and unsustainably thereafter. Excessive public debt slows economic growth and reduces Americans’ incomes by crowding out private investment and increasing interest rates. Appropriators would be wise to avoid abusing emergency spending and start taking fiscal tradeoff considerations seriously.

Drawing a Line in the Sand

Legislators today can benefit from hindsight. The extravagant pandemic spending spree is in the rearview mirror. Over 30 years, $12 trillion in emergency spending has boosted debt levels to new heights and has already generated roughly $2 trillion in additional interest costs. The long‐​term fiscal costs of myopic emergency budgeting demonstrate why legislators should offset new emergency spending today, either immediately or in the near future.

Offsetting new spending is a common‐​sense, realistic ask. If Biden’s foreign policy priorities really deserve new funding, Congress can scrounge up the funds from elsewhere. Some deficit‐​reducing proposals include reducing subsidies to states and localities, cutting wasteful agriculture spending, or reviewing expired authorizations for potential savings. Without offsets, emergency spending will further worsen the already dire fiscal outlook. It’s time Congress and the executive branch start budgeting responsibly.

Check out our summary highlights on The Debt Dispatch of our policy paper “Curbing Federal Emergency Spending: Government Spending Grows with Excessive and Wasteful Emergency Designations.”

Angelo A. Paparelli and David J. Bier

With spring approaching, US businesses that sponsor noncitizen workers for employment‐​based immigration benefits are accustomed to weathering seasonal changes. Most employers are likely ready for the initial FY 2025 H‑1B lottery registration season. But beyond the usual H‑1B registration pressures, these are the “[immigration] times that try [employer’s] souls.”

American businesses now face particularly inclement headwinds stirred up by US Citizenship and Immigration Services (USCIS), the Department of Homeland Security (DHS) component tasked with deciding immigration‐​benefits requests. Here are the latest USCIS tempests:

Increased Premium Processing Fees

Effective February 26, 2024, the agency (with congressional authorization) imposed higher, inflation‐​adjusted premium processing fees that must be filed to expedite an application. For example, premium processing of:

Form I‑129, Petition for a Nonimmigrant Worker, jumps from $2,500 to $2,805 for most temporary work visa categories, and
Form I‑539, Application to Extend/​Change Nonimmigrant Status, rises from $1,750 to $1,965 for students, exchange visitors, and dependents of noncitizens in work‐​visa status, and
Form I‑765, Application for Employment Authorization, scales from $1,500 to $1,685 for students requesting pre‐​and post‐​completion optional practical training (OPT) or a 24‐​month STEM OPT extension.

Increased Standard Filing Fees

Effective April 1, 2024, a USCIS final rule increases standard filing fees on employment‐​based nonimmigrant petitions (I‑129s) and immigrant petitions (I‑140s). The increase in fees for two of the most heavily used nonimmigrant work visa categories is substantial: H‑1B petitions (+70 percent, from $460 to $780) and L‑1 petitions (+201 percent, from $460 to $1,385, except for small employers and nonprofits). Although filing fees for immigrant petitions increase only 2 percent (to $715), Form I‑485 green card applications to adjust status to legal permanent residence jump 26 percent (from $1,140 to $1,440 for persons 14 and older, if not requiring biometric screening).

Added to the base fees for I‑129s and I‑140s is a $600 “Asylum Program Fee” (except that businesses with twenty‐​five or fewer employees must pay only a $300 surcharge, and nonprofits need not pay this added fee). The final rule is effective on April 1, just in time for H‑1B petitions submitted on behalf of beneficiaries selected in the FY 2025 lottery. For next year’s H‑1B registrations (opening in March 2025), the fee will jump from $10 to $215—an increase of 2,050 percent.

New Mandatory (Not Ready for Prime Time) Forms

Likewise effective on April 1, 2024, USCIS requires that new versions of Forms I‑129 and I‑140 (nonimmigrant and immigrant employment‐​based petitions) to reflect the higher filing fees be submitted. Although the agency, as of March 6, has not released published versions of the final forms (but only previews), it cautions that there “will be no grace period” if earlier versions are used instead.

New Online “Organizational Accounts”

USCIS also announced the launch on February 28, 2024 of H‑1B “organizational accounts,” which in theory will permit an employer, only one attorney in a law firm, and only that lawyer’s designated paralegals to collaborate in the H‑1B online lottery registration process. Although this new online platform promises to be an improvement over the current paper‐​filing process, it will require several rounds of technical updates before it can be widely used, or expanded to other work visa categories.

As now configured, aside from the limits on participation by multi‐​attorney law firms and paralegals assigned to more than one lawyer, the online system requires extensive manual data entry and editing of required information. It has no option for API integration with existing commercial immigration case‐​management software solutions. These constraints will limit its potential for use by employers, attorneys, and their shared paralegals, who must submit registrations for multiple beneficiaries and later submit H‑1B petitions for cases selected in the lottery.

Continuing USCIS Illegal and Intrusive “Site Visits”

In its final fee rule, USCIS rejected public comments, including those of the Cato Institute, which challenged a $91.4 million (73.6 percent) payroll increase allocated to the USCIS Fraud Detection and National Security Directorate (FDNS) since 2016 to conduct investigations (euphemistically described as “site visits”) at employer businesses and worker residences. In doing so, the agency claimed that “FDNS’s work does not fall into ‘intelligence’ and/​or ‘investigations’ work that the [Immigration and Nationality Act] assigned to [US Immigration and Customs Enforcement (ICE)],” and that, in any event, the issuance by the Secretary of DHS of Homeland Security Delegation No. 0150.1 expressly authorized USCIS to “investigate alleged civil and criminal violations of the immigration laws.” Apparently, USCIS thinks that when it “investigates,” it is not an “investigation.”

USCIS’s response to public comments omitted any discussion of relevant provisions of the Homeland Security Act of 2002 (HSA), which limited the actions of USCIS to engaging solely in the “adjudication” of petitions and applications seeking immigration benefits and naturalization (6 U.S.C. § 271(b)), and exclusively tasked another bureau, now comprised of ICE and US Customs and Border Protection, with the powers of immigration‐​related investigations and intelligence gathering (6 U.S.C. § 251(3) and 6 U.S.C. § 251(4)).

Most importantly, the HSA prohibited the DHS secretary from recombining the two bureaus into a single agency or otherwise combining, joining, or consolidating functions or organizational units of the two bureaus with each other (6 U.S.C. § 291(b)).

USCIS is impermissibly using user fees meant for adjudications to conduct investigations that ICE could be doing using congressional appropriations. It will therefore likely require litigation to demonstrate that the USCIS/FDNS program of site visits is unlawful because Homeland Security Delegation No. 0150.1 was issued in violation of 6 U.S.C. § 291(b).

* * *

Despite the recent USCIS changes and the agency’s starkly increased fees, there is little reason for employers and their sponsored noncitizen workers to expect that USCIS’s service levels will soon improve, or that immigration backlogs will decline significantly. USCIS rejected Cato’s comments that the agency should tie any fee increases to shorter processing times, meaning that the agency is about to get substantially more money with virtually no accountability.

In responding to public comments on the fee rule, and in its other public actions, USCIS has apparently not heeded concerns that its adjudicators are taking substantially more time to decide cases, and issuing more requests for additional evidence; its petitions and applications have grown in page length (thus taking longer to decide); and its officers often ask for evidence possessed by third parties that have no voice or standing in a pending matter. Worse still, by continuing the FDNS/USCIS investigative site visit program even though it is unlawful under the HSA, and by opting for an asylum surcharge on employers’ petitions through an “ability‐​to‐​pay principle for determining user fees,” USCIS may well trigger a repeat of litigation challenging and enjoining the new filing fees, which will only prolong and exacerbate delays and backlogs.

From the perspective of American employers sponsoring noncitizens for immigration benefits, the weather in US immigration is very unseasonable.

Angelo Paparelli, a Partner in Vialto Law (US) PLLC, has received the highest peer rankings in immigration law over several years from Chambers USA, Chambers Global, Legal500, and Best Lawyers in America. An elected Fellow in the College of Labor and Employment Lawyers, he is a prolific blogger and policy advocate on the US immigration system, offering constructive solutions to help maintain and enhance America’s economic prosperity, political freedoms, and heritage as a nation of immigrants. This article reflects only the views of its authors.

Alex Nowrasteh

Last week, I published updated research on illegal immigrant homicide rates in Texas, settling a disagreement with the Center for Immigration Studies (CIS). As a brief recap, I discovered unique crime data from Texas that showed illegal immigrants have lower criminal conviction and arrest rates than native‐​born Americans and that legal immigrants had the lowest of all.

CIS claimed that I undercounted illegal immigrant criminals because I didn’t request the right kind of data from Texas. I spent 16 months writing numerous FOIAs (PIRs in Texan parlance) to guarantee that there was no undercounting or double counting of illegal immigrant criminals.

Turns out that I was correct all along, and CIS was wrong. CIS overstates the illegal immigrant homicide rate by relying on data that double‐​counted some illegal immigrant murderers.

CIS is now claiming that I made a “brazenly false claim about [their] illegal immigrant crime research.” Below are some claims made by CIS, followed by my responses.

There was no double‐​counting in the data we received from DPS. DPS sent us an “illegal” column, which counts illegals identified at arrest, and a separate “prison” column, which counts illegals identified in prison. As Chrystal Davila at DPS explained to us in an email on October 19, 2022, those columns do not overlap: ‘Data request results that include an illegal column and a prison column will not count the same person twice. If they are in the illegal column, they have been identified by DHS through PEP, and possibly in prison. If they are in the prison column, they have only been identified while in prison with TDCJ. [Emphasis added.]’

CIS claims they are correct because they have a poorly worded email from Texas sent to them days after they published their original research. They should have asked about their data quality before publishing their data. Actually, they did ask whether the data could be separated in June 2022, and this was how Texas responded to CIS when they asked:

We are unable to break down the data as you described specifically in your example. We can supply the number uniquely identified by TDCJ (Prison category) and the total number of Illegals identified through PEP (this can include illegals also identified by TDCJ). Please note, if someone was uniquely identified through TDCJ, but at a later time is identified through PEP, the individual would no longer be in the Prison category and would reflect the PEP identification [emphasis added].

CIS used the dataset that Texas warned could include some double counting. That warning is why I made specific FOIA requests to avoid double counting or undercounting: Illegal immigrant criminals only identified through PEP, only identified by TDCJ, and those only identified by both. Additionally, I also asked Texas for a codebook and metadata that clearly define the variables. CIS did not. Figure 1 is what Texas sent me.

Figure 1

Variable Definitions for Cato’s Crime Data

Figure 2 is my data request. In the future, CIS should ask more specific questions.

Figure 2

Cato’s Data Request

“Leave aside all those abbreviations (explained in our original report) and focus on the emphasized text, which unambiguously refutes Nowrasteh. We do marvel at the brazenness of his claim, though. Surely he knew it could be tested by simply asking DPS, as we already did in the email quoted above.”

CIS is confused. I did ask for variable definitions, which are included in Figure 1. Those definitions were sent to me along with the data I requested. They are different from CIS’s results because the data CIS received is partly double‐​counted, just as Texas warned them in a June 2022 email. Importantly, I asked for the variable definitions before publishing my research, whereas CIS did so after they published.

CIS jumped the gun, and it’s a good lesson for junior researchers. The main purpose of having variable definitions is so researchers don’t have to rely on poorly worded emails sent after the research was published. Better to get the variable definitions directly from the people who pulled the data from their database.

Remarkably, CIS never asked me for my data. I messaged Sean Kennedy, a co‐​author of the CIS report, on February 1 to discuss the new Texas data I had received. We emailed back and forth several times. He never asked for my data. Jason Richwine, the other author of the CIS report and the blog post I’m responding to, never asked for my data. Perhaps they’ll just FOIA it directly from Texas.

When other groups present interesting findings with unique data, I always ask for the data if I’m going to write about their findings and it’s otherwise unavailable. My data are available for all who want it, they just need to ask. Those who think they already know the answer will not ask.

Eric Gomez and Benjamin Giltner

The backlog of US weapons sales owed to Taiwan did not change much in February 2024. The Biden administration only announced one new sale—upgrade equipment for a battlefield communication system valued at $75 million—and there were no weapons deliveries reported. This new sale places the overall size of the Taiwan arms backlog at approximately $19.1 billion. See Figure 1 for a breakdown of the backlog by weapon category, Figure 2 for a side‐​by‐​side comparison of the backlog from January to February, and Table 1 for a detailed list of backlogged capabilities.

However, two news items from February 2024 warrant discussion, each highlighting Taiwan’s egregiously long weapon delivery timelines.

Guided Bombs

On February 2, the Department of Defense announced a contract award to Raytheon to produce 50 AGM-154C Joint Standoff Weapons (JSOWs) for Taiwan. The JSOW is an unpowered, guided bomb that uses onboard wings to glide to its target from long distance after an aircraft releases it.

The contract fulfills an arms sale that the Defense Security Cooperation Agency (DSCA) announced in June 2017, creating a nearly seven‐​year gap between announcement of the sale and contract award. The contract announcement also specifies that delivery of the weapons is expected in March 2028. This means that Taiwan will wait almost 11 years between the arms sale announcement and delivery for 50 JSOWs.

For comparison, the DSCA announced a sale of 200 JSOWs to Qatar as part of a November 2016 sale of F‑15 aircraft and munitions, only seven months prior to Taiwan’s sale. The contract award took place on October 4, 2017, and Qatar received their JSOWs in June 2020. For Qatar, it took less than a year to go from sale announcement to contract award, and less than four years between the arms sale announcement and delivery for the 200 JSOWs.

In other words, it took an authoritarian state in a region infamous for drawing the United States into strategically damaging quagmires less than four years to receive 200 JSOWs, while a country facing down Washington’s “pacing threat” will wait 11 years for only 50 units of the same weapon. Unfortunately, the JSOW case is but a small example of a bigger problem; the United States is unable to strategically prioritize and make the best use of finite military resources.

If Congress is serious about speeding up arms deliveries to Taiwan, it should seriously investigate the causes behind the 11‐​year gap between JSOW sale‐​announcement and delivery.

F‑16 Upgrade

The second item to note for February is the US Air Force’s announcement that it completed a $4.5 billion modernization of Taiwan’s F‑16 aircraft fleet. Taiwan is also acquiring newly built F‑16s under a 2019 arms sale, which is scheduled for completion in 2026. The upgrade program, also known as “Peace Phoenix Rising,” improves Taiwan’s older F‑16s with new engines, radars, and a host of other subsystems.

The DSCA announced the upgrade program in September 2011. However, it took Taiwan seven years from the announcement to receive its first upgraded aircraft (late 2018) and twelve years to receive the final upgraded aircraft (December 2023). We did not include the Peace Phoenix Rising program in the arms backlog dataset because, unlike newly built weapons, Taiwan could use some F‑16s even though other aircraft were out of service to have new equipment installed.

Despite the completion of Peace Phoenix Rising and its lack of impact on the Taiwan backlog dataset, the program’s twelve‐​year timeline is nothing to celebrate. Indeed, several members of Congress recently voiced their concerns about delays in the upgrade program and the potential for delays in delivery of the newly built F‑16s that Taiwan has yet to receive.

Several other countries are embarking on similar F‑16 upgrade programs, However, data on their progress is difficult to find. Greece received its first upgraded F‑16 in September 2022, five years after DSCA announced the program, and is scheduled to receive the last of its 84 improved aircraft in 2027. For both first and final delivery, Greece will be two years faster than Taiwan, but its program covers fewer aircraft. DSCA announced an upgrade program for 23 Moroccan F‑16s in 2019, but we could not locate an estimated first or final delivery for those aircraft.

Conclusion

The decade‐​plus gap between arms sale announcement and completed delivery for Taiwan’s JSOWs and upgraded F‑16s are particularly glaring examples of the long waits that Taiwan faces for receiving arms sales from the United States. We have previously shown that Taiwan waits longer on average for HIMARS, newly built F‑16s, and Abrams tanks than other recipients.

Correcting these delays and getting weapons into Taiwan’s hands, especially asymmetric capabilities, is essential for improving deterrence and keeping the United States out of a potentially devastating war with China.

Taiwan Arms Backlog Dataset, February 2024

Walter Olson

After some time in the making, my paper for the Nevada Policy Research Institute is now out, entitled “Efficient, Timely, and Reliable: A Framework for Election Law in Nevada.” In 47 pages, I try to lay out a combination of electoral reforms and practices that could plausibly appeal across Red/​Blue lines in a state that is politically closely divided. I emphasize speedier tabulation of results and reasonable efforts to calm public distrust, all without sacrificing the benefits of convenience and modernization while coping with the unusual voter roll maintenance challenges Nevada faces as the state with the nation’s most transient population. There are ample endnotes that I hope will be of use to those exploring the contentious recent history of election law change in the Silver State.

Ballot Access News recently covered my paper in a blog post and I thought did a skillful job of pulling out some of its main recommendations:

Nevada has recently had a poor performance regarding timely reporting of election results, and Olson points out that there are tradeoffs and tensions between competing goals of an election system.

Among his recommendations are:

#1: Nevada should complete its transition from “county‐​led voter registration to a so‐​called top‐​down system with extensive statewide direction … with a single constantly updated statewide uniform database overseen by the secretary of state.”

#2: An accurate voter database should be a top priority, with investment in “multiple frequently refreshed high‐​quality data sources and proactively reaching out to households and addresses following evidence of moves and other relevant changes.”

#3: “Nevada should stay in the Electronic Registration and Information Center, and work to improve and refine its capabilities.”

#4: “To keep voters informed of the progress of their ballots, Nevada should finish the job of adopting strong ballot tracking and notification.”

#5: In addition to their signature, voters should have to write their driver’s license number or last four digits of their Social Security Number on their mail‐​in ballots.

#6: Nevada should invest in making ballot drop boxes more secure and in employee protocols for handling ballots, and

#7: End the practice of ballot harvesting.

Most of the issues I address in the new paper turn up in other states as well, so I hope the report will be of interest to readers and reformers nationwide. I’ve already cited some of its observations in posts in this space on speedy vote tabulation, ballot tracking and notification, and drop box security, with more likely to come.

Ryan Bourne

President Joe Biden will reportedly use his State of the Union (SOTU) speech to blame corporations for high grocery bills.

The public remains deeply angry at the prices they pay for food shopping. A majority of those voters concerned about inflation cite “the cost of food and groceries” as the source of their angst.

Between January 2010 and January 2021, the price index for food consumed at home increased by less than 18 percent in 11 years. Since Biden became President, it has increased by 21 percent in just three years.

This mainly reflects the impact of high inflation, of course, much of which was baked in due to monetary excess and one‐​off supply‐​shocks from 2020 through 2022. As supply conditions have improved food prices overall are no longer going up as quickly as inflation in general. But visits to the grocery store are still a reminder of the sharp, enduring food price spikes we experienced in 2022 and early 2023.

This remains a big political problem for Biden in an election year. His administration is thus doubling down on blaming high food prices on greedy companies rather than failures of macroeconomic policy. And why wouldn’t it? The media have spent two years boosting quack corporate greed theories of inflation and downplaying the role of monetary policy. This narrative risks becoming the legacy of this whole episode: much of the public thinks corporate profit‐​seeking has been in some way or a great deal responsible for the inflation we’ve experienced, with few attributing blame to the actions of the Federal Reserve.

Of course, this lends itself to a range of terrible policy ideas. Rather than monetary restraint, the supposed answer is price controls and regulations on companies’ pricing structures. It’s reported Biden may even use his SOTU platform to endorse legislation put forward by Sen. Bob Casey (D‑PA), Sen. Elizabeth Warren (D‑MA), and others. All these proposed laws are either economically incoherent or based on highly misleading data.

Shrinkflation

Before the Super Bowl, President Biden complained about shrinkflation—the practice of firms reducing product or portion sizes while keeping package prices the same, thus raising the per unit price of the food, drink, or product.

Have you noticed in the past couple of years how the amount of cereal or chips in a packet have fallen? Biden thinks this is a nefarious plot to rip off customers. Senator Casey has even advocated legislation that would empower the Federal Trade Commission (FTC) to promulgate rules treating this as an “unfair or deceptive act or practice.”

Shrinkflation did happen across a range of food products, particularly in 2022. But this itself is just a manifestation *of* inflation, which ultimately had macroeconomic roots (too much money chasing too few goods).

The Bureau of Labor Statistics, which calculates the Consumer Price Index, already tries to account for inflation that manifests as shrinkflation. Their analysis shows that about 10 percent of the increase in unit prices for snacks occurred through reduced package size, with the same phenomenon, though less significant in scale, for candy and chewing gum, coffee, and ice cream. It may be the case that the basket of goods the CPI examines doesn’t capture every case of inflation, which means it’s plausible that by under‐​accounting for shrinking packages, the official CPI still understates the inflation consumers have faced.

The point is that in an inflationary environment, firms must decide whether to raise their headline prices or trim product sizes. Remember, inflation, ultimately, is a rise in all prices across the economy, including firms’ costs. This doesn’t mean all prices will rise by the same amount (supply and demand shifts mean relative prices between goods change too). Nor will inflation affect all prices at the same time—for some firms, costs rose first, and for others their product prices.

But, in time, inflation raises all prices, so just eating losses as your costs go up because of inflation is not an option for companies. As economist Dean Baker told Politico, “Costs have gone up — wages are 20 percent higher than they were in 2019. We’re not going to have a world where people get to keep their 20 percent pay increases and pay what they did four years ago for food.”

The logical implication is that in the absence of shrinking the amount of product within a package, firms would have raised package prices even higher than they did. Banning “shrinkflation” is effectively a mandate to raise package prices, rather than pursuing a size‐​price bundle that some (particularly low‐​income) consumers might prefer. It would also encourage gaming, with firms no doubt launching new package sizes that they sell concurrently with existing sizes, before discontinuing the latter, leading to costly legal disputes.

Biden attacking shrinkflation is thus all about anti‐​corporate vibes—the idea that businesses are screwing you over by squeezing product sizes underhandedly. To the extent he really believes this to be true, however, Biden should probably be grateful to firms that opted to shrink their product sizes. The alternative was higher package prices, which would have made deeply unpopular food price inflation even more salient.

Greedflation

The context for this anti‐​business sentiment has been a relentless propagation of “greedflation” theories from Democratic politicians and some economists. These take many forms, but the most popular tale says that firms exploited customers’ knowledge of major business cost shocks from the pandemic and Ukraine war to raise prices by more than was justified by those rising costs. Hence, businesses caused inflation.

The evidence? Greedflation theorists typically use a basic accounting identity to suggest that:

A change in unit prices (inflation) = A change in worker compensation (unit labor cost) + A change in unit profits + A change in unit costs of other inputs.

They then look at various periods and if unit prices have gone up at the same time as unit profits for companies, they conclude that higher prices are being driven by higher profits. The Economic Policy Institute (EPI), for example, produced a report claiming that, between Q2 2020 and Q3 2021, 54 percent of price increases were driven by fatter profit margins. Using the same methodology, Groundwork revived this analysis recently by looking at what happened during Q2 and Q3 of 2023, concluding that “corporate profits drove 53 percent of inflation during the second and third quarters of 2023 and more than one‐​third since the start of the pandemic.”

Those periods are cherry‐​picked because other periods tell a different story. Chris Conlon, an economist at NYU Stern School of Business, points out that, through the year Q3 2022 to Q3 2023, under this same logic, profit accounted for minus 22 percent of price increases (markups were falling) while labor costs more than accounted for inflation (increasing it 128 percent).

Was the greedflation then because of greedy workers, rather than firms? Neither EPI nor Groundwork have suggested so. Looking at the share of price rises like this is misleading too. Between Q2 and Q3 2023, prices did not increase significantly, so Groundwork was effectively calculating that a tiny change in prices could be accounted for by a similarly tiny rise in profits over that period.

In any case, this sort of analysis by accounting identity is terrible economics. Firms cannot just increase inflation by reaching for profits. If one firm raised prices for customers on that basis, then other competitors would undercut them. Even in markets where firms had more market power, consumers would have less money left over to demand other products, pushing other prices down and having little overall effect on measured inflation.

What about if most or all firms across the economy colluded to restrain output and increase prices at the same time? Then we’d have expected to see real GDP in the economy fall significantly to explain the level of inflation we saw in 2021 through 2023. Yet real GDP grew strongly in the period EPI complained about profits driving inflation and continued growing reasonably last year when Groundwork made the same complaint. So there’s little evidence of these huge effects in the macroeconomic data.

More importantly, the reason consumers have been able to pay these higher prices was because there was a huge increase in the money supply between early 2020 and mid‐​2022. If a central bank allows the money supply to get out of control, this can increase total spending power across the economy.

That extra demand for goods and services can produce rising consumer prices and rising profits across many sectors in the short term, not least because wages (a big cost for firms) tend to be stickier. Prices and profits thus rise at the same time, as does real GDP. Yet it was monetary excess causing all this, not greedy companies’ profits causing inflation.

Price Gouging

Unfortunately, many Democrat politicians seem to think it illegitimate for firms (including grocery stores) to raise prices when demand for their product rises (as opposed to their costs going up). That way of thinking also seems to have infected their macroeconomic worldview: if rising prices across the economy at any period can’t be explained by firms’ rising costs, then it must be greed or excessive profit‐​seeking, rather than the first‐​order effects of too much macroeconomic stimulus.

If all this were just idle musings from populist politicians, that would be one thing. But Senator Warren and others have introduced federal legislation that would make it “unlawful for a person to sell or offer for sale a good or service at a grossly excessive price” during an “exceptional market shock.”

That is, they want to ban companies from “excessive” price increases following “a natural disaster, failure or shortage of electric power or other source of energy, concerted labor action, lockout, civil disorder, war, military action, national or local emergency, public health emergency, or any other cause of an atypical disruption in such market,” regardless of what has happened to demand.

This anti‐​price‐​gouging legislation would enshrine in law that firms couldn’t raise prices by more than the FTC considered justifiable, with the legislation suggesting this be capped at the level of prices charged pre‐​emergency or what the accused business’s competitors are charging. If this legislation had been in place during the pandemic, it would thus have acted as an effective price control across much of the economy suffering from excess demand. That would have been a recipe for prolonged shortages for many goods and services.

The legislation grants an affirmative defense to businesses accused of gouging only if they have revenues less than $100 million and can prove that price hikes arose due to additional business costs. For larger companies with US revenues above $1 billion or who discriminate between buyers from a dominant position, charging more than normal would be a presumed violation with potentially massive fines of “5 percent of the revenues earned by the person’s ultimate parent entity.”

Conclusion

Democratic politicians, including President Biden, are keen to suggest that companies are to blame for the high cost of groceries and shrinking package sizes. Both, however, are symptoms of higher inflation between 2021 and 2023, caused by too much macroeconomic stimulus relative to the economy’s propensity to produce goods and services.

In propagating this false narrative, the federal government isn’t just mis‐​educating voters about the ultimate causes of inflation. It is also fueling legislative attempts to control firms’ prices or pricing structures. Giving the FTC powers to judge shrinkflation an “unfair or deceptive act or practice” risks costly legal disputes and companies feeling forced to raise package prices, even when consumers might prefer fewer units of the product within a package. A federal anti‐​price‐​gouging law risks prolonging shortages of goods in high demand during emergencies.

David J. Bier

This updates an earlier post.

Border Patrol Chief Jason Owens confirmed last week that the number of known successful evasions of Border Patrol (“gotaways”) have fallen to just 800 per day in fiscal year 2024—down 70 percent from 2,671 the week before the Title 42 expulsion authority ended on May 11. A decline in gotaways this large and fast is unprecedented in Border Patrol’s history, and even as the administration faces unrelenting criticism, this stands as a major immigration win.

I have previously written about this phenomenon, using numbers leaked by Border Patrol to friendly journalists who report them without the context of the broader trend. But this update confirms that the low numbers continued into January and February. Figure 1 shows the monthly data using the chief’s update and media reporting for more recent numbers and a Freedom of Information Act for the older numbers. Gotaways fell from a high of 73,463 in April 2023 just before Title 42 ended to about 21,758 in February 2024. Ending Title 42 appears to have been the biggest single benefit to border security in its history.

Interestingly, the decline in gotaways has persisted even when the number of arrests has increased. Getting rid of Title 42 without letting people come legally was never going to change every aspect of the situation, but it has not made the situation worse. From the standpoint of border security, the situation has improved dramatically because fewer people are escaping screening by the Border Patrol. This means Border Patrol can more effectively screen out criminals. Moreover, contrary to the apocalyptic claims about ending Title 42, the average number of Border Patrol arrests has not increased.

Figure 3 shows the “gotaway” rate—that is, the share of gotaways out of all arrests and gotaways. This is a rough approximation of Border Patrol effectiveness, controlling for the total inflow. As it shows, since Title 42 ended, the gotaway rate has fallen dramatically to below 14 percent, the lowest level outside of a couple months in 2019. This is a return to the trend under the Obama administration in reducing the rate of successful crossings. Every month since August 2023 has been below 15 percent—the longest such period on record. According to the Rio Grande Valley sector chief, this trend of low gotaway rates continued in that sector into March, and Fox News is reporting a low rate nationwide in March as well.

None of this should be a surprise. In our amicus brief outlining reasons to be skeptical of claims that Title 42 would cause a surge in illegal crossings, we explained that Border Patrol’s practice of placing people back on the other side of the border incentivized illegal crossings by giving individuals repeated chances to enter illegally. It also motivated people who would otherwise turn themselves in for asylum to slip in covertly.

Gotaway data have become more reliable over the past decade because border surveillance has increased dramatically from 2005 to 2023. Now, nearly the entire border has some form of electronic surveillance at all times. Moreover, the Obama administration made efforts to systematize the criteria for recording a gotaway to make the measure more consistent and reliable in 2014. Additionally, communication between stations was improved to remove double counting.

CBP also estimates the successful crossing rate using surveys of deportees. It first estimates the total flow of deportees returning to the US border based on surveys conducted by Colegio de la Frontera Norte International Border Survey. It then subtracts the number of deportees that it arrested and assumes the remainder escaped detection. Of course, some do attempt to reenter when they initially indicated no intention to do so, and some do not attempt to reenter when they said they did. CBP has made additional efforts to account for individual characteristics of crossers to resolve some of this problem.

While the model‐​based estimates are certainly not perfect, these data show that CBP’s observational data (gotaways) are improving compared to the models. Figure 4 compares the observational apprehension rates to the model‐​based rates. It shows that the observational data converged with the model‐​based data around 2014. From that point on, the observational gotaway data accounted for between 75 percent and 100 percent of modeled gotaways.

Although the gap between observational and modeled estimates was the largest in 2020 since 2014, observational gotaways still accounted for about 75 percent of modeled gotaways. 2020’s decline in modeled effectiveness likely reflects that people’s intentions changed in response to the pandemic and fewer people tried to enter illegally than the model predicted. There was no observed increase in gotaways during fiscal year 2020, which ended in October (though there was a dramatic increase by December 2020).

The United States has a legitimate interest in regulating the entry of serious criminals and other threats to Americans, and border security is a significant component of that effort. Ending Title 42 improved border security and reduced successful illegal entries. This should force the many members of Congress and the administration who opposed ending Title 42 to rethink their position.

Jeffrey A. Singer

Almost exactly one year after Colorado became the sixth state to allow mental health patients access to doctorate‐​level prescribing psychologists (RxPs), Utah lawmakers passed SB 26, which grants that freedom to Utahns. The bill has gone to Governor Spencer Cox’s desk for his expected signature.

As I explained in a 2022 Cato briefing paper, RxPs have been providing medication‐​assisted psychotherapy in the US Military Health System, US Public Health Service Commission Corps, and US Indian Health Service for more than 30 years. In 1999, the territory of Guam granted its residents access to competent doctorate‐​level clinical psychologists trained to prescribe mental health meds to their patients. New Mexico became the first state to grant its patients access to RxPs in 2002, followed by Louisiana in 2005, and, subsequently, Iowa, Idaho, Illinois, and Colorado.

While prescriptive authority laws vary by state, they generally follow the guidelines the military health service developed in the 1990s: clinical psychologists with PhD or PsyD degrees must obtain a two‐​year Master’s Degree in Clinical Psychopharmacology (MSCP), which includes supervised clinical experience, and pass a standardized Psychopharmacology for Psychotherapists Exam (PEP). Next, they get a provisional license that allows them to practice under the supervision of a licensed prescribing health care practitioner for two years. When they complete those two years, they receive an unrestricted license. Utah lawmakers have adopted similar requirements.

As explained in the briefing paper, the US has a worsening shortage of mental health care practitioners. Clinical psychologists significantly outnumber psychiatrists. Roughly half of psychiatrists don’t accept health insurance. One recent study shows less than 11 percent of psychiatrists engage in talk therapy these days—most practice pharmacotherapy.

In most states, if clinical psychologists engaging in talk therapy determine their patients need adjunctive medication to facilitate treatment, e.g., antidepressants, governments require them to refer their patients to a licensed prescribing health care practitioner for the prescription. This makes it more costly and inconvenient for many patients and fragments their care.

Psychiatrists are often unavailable and, if they are, may not accept insurance. In such cases, psychologists may refer their patients to any other licensed prescriber. Among licensed prescribers that state governments authorize to prescribe psych meds are general surgeons like me, orthopedists, OB‐​GYNs, and ENT doctors.

States also permit family physicians, nurse practitioners (NPs), and physician assistants (PAs) to prescribe mental health meds. In most cases, clinical psychologists who have taken the additional training that RxPs must undergo know more about clinical psychopharmacology than doctors, NPs, or PAs.

A study published last summer found a statistically significant drop in suicide rates in New Mexico and Louisiana (the two states with the oldest RxP laws) after they granted competent clinical psychologists prescriptive authority.

The American Medical Association and the American Psychiatric Association have long opposed expanding appropriately trained clinical psychologists’ scope of practice to include prescribing mental health meds. The AMA boasts to members about its ongoing battle against what it calls “scope creep.”

The American Psychiatric Association voices concern that the additional didactic and clinical training RxPs undertake is not enough for them to safely prescribe. It’s curious, therefore, that the American Psychiatric Association doesn’t lobby state lawmakers to restrict physicians who are in other medical specialties, such as the surgical specialties, Ob‐​Gyn, cardiology, and family medicine, from prescribing mental health meds. Doctors in these fields rarely receive didactic or clinical training in clinical psychopharmacology that begins to approach what RxPs must complete.

In October 2022, I moderated an online event with prescribing psychologists and the American Psychiatric Association President, discussing this and other issues in greater detail. You can watch it here.

For decades, organized medicine’s entrenched incumbents have successfully dissuaded state lawmakers from granting prescriptive authority to competent psychologists. But, as the country’s mental crisis worsens, government walls blocking access to mental health care are starting to crumble.

Now Utah joins the list of states making it easier for people to get access to medication‐​assisted mental health services.

Jeffrey Miron

Non‐​libertarians tend to believe that if X is good (bad), then policies encouraging (discouraging) X are beneficial. (X might be drugs, guns, sex‐​education, savings, and numerous other examples.)

Libertarians believe these issues (whether X is good/​bad, versus where policy should promote/​discourage X) are separate. Policies have their own costs; they may not move X in the desired direction; and they sometimes generate backlash that pushes X in the wrong direction or generate other, undesired consequences.

A recent paper supports the libertarian perspective when X is COVID-19 vaccines:

During the COVID-19 pandemic, some US states mandated vaccination for certain citizens. We used state‐​level data from the CDC to test whether vaccine mandates predicted changes in COVID-19 vaccine uptake, as well as related voluntary behaviors involving COVID-19 boosters and seasonal influenza vaccines. Results showed that COVID-19 vaccine adoption did not significantly change in the weeks before and after states implemented vaccine mandates, suggesting that mandates did not directly impact COVID-19 vaccination. Compared to states that banned vaccine restrictions, however, states with mandates had lower levels of COVID-19 booster adoption as well as adult and child flu vaccination, especially when residents initially were less likely to vaccinate for COVID-19. This research supports the notion that governmental restrictions in the form of vaccination mandates can have unintended negative consequences, not necessarily by reducing uptake of the mandated vaccine, but by reducing adoption of other voluntary vaccines.

Freedom wins again.

This article appeared on Substack on March 4, 2024.