I am honored to have written the first-ever cover story for Free Society, Cato’s new quarterly magazine. Titled “Through Progress and Peril: The Precarious State of Human Freedom,” the article addresses the subject that keeps lovers of liberty awake right now: The worrying decline of freedom, the rise of illiberalism at home and authoritarianism abroad, and what we can do to turn the tide. 

I document the disheartening trends in personal and economic freedom in the last few years and suggest several reasons that explain why this has happened, including COVID-19 and the heavy-handed state actions that accompanied it. Emergencies, as F. A. Hayek argued, “have always been the pretext on which the safeguards of individual liberty have been eroded.” 

The Human Freedom Index 2023, published by the Cato Institute and the Fraser Institute, concluded that almost 90 percent of the world’s population has seen its liberties circumscribed in recent years. In terms of economic freedom, a decade of global progress was erased in the year 2020 alone. 

But the picture is mixed. Throughout this time, individuals, entrepreneurs, and activists have adapted to difficulties and threats, and have crafted innovations and creative solutions to problems caused by increased government interference. The result is that indicators of human living standards are still improving at a rapid pace. 

This is where we find hope: Free men and women accomplish great things. Open societies fail only when we don’t believe in our ideals, defend them, and apply them. Authoritarians and statists have a more serious weakness: they fail when they manage to implement their ideas. Look around the world! Dictators, authoritarians, and populists are making such a huge mess out of things that they’re already writing the best arguments against their own policies—we hardly have to do it for them. 

I think people are willing to listen to our case. Contrary to some commentators’ suggestions, most people have not joined the dark side; they are just exhausted with our increasingly tribal and ill-tempered parties and tune out. Only four percent of Americans say they experience excitement when they think of politics. 

So, the key message is that we should not despair. These kinds of backlashes against liberty have occurred regularly throughout history, but most of the time they haven’t prevailed. And they won’t this time if friends of liberty step up to the challenge and fight back. Nothing is hopeless—unless we assume that it’s hopeless and decide to give up. I know that Cato won’t and I trust that others will join us in this crucial intellectual battle for human liberty and dignity. 

There are eight federal programs remaining in Spending Madness 2024. These are high-priority spending cuts for Congress to consider, according to our crowdsourced tournament results so far.

Please vote today in the quarterfinals, and then we’ll move to the next round on April 4.

The failures of the eight remaining programs are summarized when you click the pictures here. One common failing of government programs is stagnancy. While market economies are always adapting and improving, the bureaucratic government falls behind. Outdated programs linger for decades consuming taxpayer resources and undermining the economy.

The Corporation for Public Broadcasting was launched in the 1960s but adds little value in today’s expansive media environment where vast educational content is available on YouTube. Even more outdated are farm subsidies, which were launched in the 1930s when many farmers were poor. Today, farmers are much wealthier than other people, and farm subsidies mainly go to large corporate-style operations.

And there is public housing. What do you notice in these photos (below) of a project in Alexandria, Virginia? When you walk around it, you see that all 13 buildings are the same, and they are unchanged in the seven decades since the government opened them in 1947. It apparently never occurred to the government managers to plant any trees, bushes, or flowers.

Because people in public housing are not owners, no one has put in bay windows, added an addition, painted their homes, built a deck, or made any other normal improvement. I wonder where tenants are even allowed to plant anything.

Government programs and policies tend to be stagnant and uniform. Many programs have outlived any usefulness their original supporters envisioned. Congress should end subsidies for activities—such as housing, broadcasting, and farming—that markets can tackle with diverse and innovative approaches.

Background. The photos are the Samuel Madden Homes built in an area called The Hump. The construction was part of Big Government “slum clearing” efforts in the mid-20 century, which used eminent domain and federal dollars. As one history notes, Alexandria “began a program of ‘slum’ clearance in 1939 and two years later condemned and demolished homes in two mixed-race neighborhoods, The Berg and The Hump, sending Black residents into substandard, segregated public housing.” The Samuel Madden Homes are finally being redeveloped after 77 years, and hopefully some lessons have been learned.

The low-income housing tax credit (LIHTC) provides $13 billion a year of federal subsidies to state governments, which distribute the benefits to favored developers. The program has many faults, but perhaps the worst is the absurd complexity.

I described some of the complicated state-level LIHTC rules at National Review and at AEI. Now let’s look at the federal rules. This webpage lists documents containing the LIHTC’s federal rules, including IRS regulations, rulings, procedures, and notices. I examined the number of pages in each document as a measure of the complexity that administrators and developers have to deal with. I only included LIHTC-specific documents. I tallied the PDF page counts, as shown in the tables below.

• Statute. The LIHTC statute—Internal Revenue Code Section 42—covers 59 pages of text.
• IRS Regulations. The law is further defined by regulations. I counted 18 regulations for the LIHTC covering 181 pages.
• IRS Rulings. These documents indicate how to apply the LIHTC rules to specific facts. I counted 18 revenue rulings covering 101 pages.
• IRS Procedures. These documents indicate how to apply the LIHTC rules in certain situations. I counted 18 revenue procedures covering 78 pages.
• IRS Notices. These documents provide updates and calculation details for the LIHTC. I counted 10 notices covering 82 pages.
• HUD Guide. Other federal rules include a 794-page guide from the Department of Housing and Urban Development on occupancy requirements for LIHTC buildings. Check out the extraordinary micromanagement here.
• Audit Guide. The IRS audit guide for the LIHTC is 350 pages of mind-numbing details. A few other federal rule documents add another 474 pages.
• Total Pages. All in all, federal rules for the LIHTC span at least 2,060 pages.

This single tax credit needs 2,060 pages of federal rules to implement, plus masses of state-level rules, as discussed here. The winners? Only the lawyers. The LIHTC is not some simple investment incentive, but rather a giant central-planning scheme for the nation’s apartment buildings.

Krit Chanwong contributed to this blog post.

Federal government debt tops $26 trillion, or $200,000 for every household in the nation. Compared to the size of the economy, the rising debt will soon reach levels never seen in our history.

Next year, the government will spend $6.8 trillion, or 36 percent more than it raises in revenues, with the difference made up by vast borrowing. Despite the massive flow of red ink, politicians keep dreaming up new ways to spend money that we don’t have.

This is madness!

Congress should change course and cut spending. But which programs should it cut? Cato has proposed many specific reforms, and Romina Boccia has proposed that a congressional commission tackle the problem.

The public should weigh in, and so Cato is launching a tournament to crowdsource spending cut priorities for Congress—Spending Madness 2024!

www​.cato​.org/​2​0​2​4​-​s​p​e​n​d​i​n​g​-​m​a​dness

Spending Madness pits 32 bloated, deficit-causing programs against each other across four regions of the federal budget—Social Security and Health Care, Federalism, Subsidies, and Welfare. Which programs should Congress cut first? Help us pick the “winners” by choosing the worst programs in each head-to-head matchup over five tournament rounds.

Our computers will tally the crowdsourced choices in each matchup. After each round, the top vote-getters—the policies that voters think are the more wasteful, harmful, inefficient, and unaffordable—will advance to the next round.

We’ll announce the Spending Madness 2024 champion on April 11, 2024.

Good luck!

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

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

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

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

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

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

Policymakers across the nation are concerned about the high costs of housing for moderate-income families. One federal response to the problem is the low-income housing tax credit (LIHTC), which provides income tax credits to developers of multifamily housing. Currently, Congress is considering expanding the LIHTC and adding a new middle-income or workforce version of the credit.

I delivered these comments last Thursday to an American Enterprise Institute conference on the LIHTC. The conference included excellent presentations by Ed Pinto, Tobias Peter, Kevin Corinth, Ed Glaeser, and Howard Husock.

The LIHTC is a complex and inefficient solution to housing affordability. The tax credits crowd out market-based housing, benefit financial middlemen more than low-income tenants, generate fraud and corruption, and are less efficient than demand-side housing aid or free markets. Expanding federal housing tax credits would be the opposite of evidence-based policymaking.

Complexity

Governments impose many complex legal structures: income taxation, tax-exempt bond rules, environmental rules, building codes, zoning, financial regulations, and dozens of subsidy structures such as Opportunity Zones and community block grants. The LIHTC is complex in itself, and it interacts with all these other complex structures.

How complex is the credit? The bible is the Novogradac 2023 LIHTC Handbook which is 1,798 pages in length. A single tax credit and almost 1,800 pages of rules and guidance!

The federal government apportions housing tax credits to the states, and the states use Qualified Allocation Plans (QAPs) to divvy them out to developers. QAPs are central planning. They micromanage apartment building construction through rules and point systems.

The Virginia QAP and QAP Manual together are 266 pages in length. Some of the complexities include:

• Rules for allocating credits to areas within Virginia.
• Points for favored neighborhood locations, such as near bus stations.
• Points for whether projects have minority and women subcontractors.
• Points for developers with experience, giving an advantage to insider firms.
• Rules for the financial structure and personnel of developers.
• Rules for interactions with other subsidies such as Opportunity Zones.
• Points for micromanaging housing unit design. For example, developers receive three points “if each full bathroom’s bath fans are wired to the primary bathroom light with a delayed timer, or continuous exhaust,” three points “if each full bathroom’s bath fans are equipped with a humidistat,” three points if interior doors are solid core, five points for community rooms with certain characteristics, and one point “if each unit has at least one USB charging port in the kitchen, living room, and all bedrooms.”
• Rules and points for faucets, shower heads, windows, energy sources, and other green-related items.
• Rules and points for allowable costs, materials used, accessibility, and many other things.

The Virginia QAP lists 15 types of federal subsidy that LIHTC projects may receive. The Virginia housing agency must do a “Subsidy Layer Review” to ensure that the subsidies fit together within each project. The states must do detailed auditing of LIHTC projects because of fraud problems. There is a layer of federal LIHTC regulations on top of these state QAP rules. The IRS audit guide for the LIHTC is 350 pages in length. All this for one tax credit!

Housing developers need large bureaucracies and face delays in handling all the LIHTC rules. As a result, LIHTC projects cost substantially more to construct than market-based projects. Then, after LIHTC projects get built, bureaucracies are needed for long-term monitoring of the projects for tenant mix, income levels, and other items for 30 years.

Let me make a political point: Do the nominally conservative Republican members of Congress who support the LIHTC know that it is not a simple investment tax cut, but rather a top-down regulatory scheme that imposes massive paperwork burdens on industry and centrally plans homes down to how many USB ports they have?

Corruption

The LIHTC is a vehicle for state and local government corruption, as we have seen in places such as California. In Dallas in 2019, the chair of the housing committee on the city council plead guilty to receiving $40,000 in bribes for trying to steer housing tax credits and other subsidies to a favored developer.

When the federal government gives handouts to state and local governments, it is a fuel for corruption. You see this with many federal programs, such as HUD’s community block grants. One argument against the LIHTC is that the federal government should not be exacerbating the persistent problem of local government corruption with developers.

Tax Reforms for Affordable Housing

I am against special breaks such as the LIHTC, which complicate the tax code. But there are pro-market tax reforms that would boost multifamily housing investment.

• Reform Tax Depreciation Rules. Apartment buildings have lengthy 27.5‑year depreciation write-off periods, which raises effective tax rates on investment. Some apartment building machinery and equipment has shorter depreciation lives that benefited from the 2017 tax bill’s expensing rules, which are now phasing out. Congress should bring back full expensing for machinery and equipment and slash depreciation lives for apartment buildings.
• Reduce High Property Taxes. Property taxes on apartment buildings are higher than on owner-occupied homes. The Lincoln Land Institute surveys 50 US cities each year, and finds that effective tax rates on apartment buildings are 44 percent higher than on owner-occupied homes. That is unfair and undermines multifamily investment. Cities should cut property taxes on apartment buildings.

Regulations Raise Costs and Reduce Innovation

Rather than micromanage multifamily development with the LIHTC, we need innovation in low-cost housing production such as modular construction, tiny houses, and new materials. Regulations are the enemy of such innovations.

In a 2022 study, the trade associations NAHB and NMHC found that regulations raise costs of apartment building construction by 41 percent. Higher costs stem from constant changes to building codes, affordability mandates, land set-asides, government delays, labor regulations, complex zoning approvals, unique development mandates, and developer fees. On top of that 41 percent regulatory cost, the study found that NIMBY battles add another 6 percent to development costs.

The study was based on a survey of multifamily developers. Half the developers said they would not build in places with inclusionary zoning mandates and 88 percent said they would not build in places with rent controls. The report concludes that “regulatory mandates discourage developers from building in the very marketplaces that have the greatest need for more housing.” Government solutions often backfire.

The Terner Center for Housing Innovation at Berkeley studies the costs of LIHTC projects. The center found that in 2019 prevailing wage laws in California increased the average cost of building LIHTC projects from about $400,000 per unit to about $500,000. LIHTC projects are high-cost construction.

Here is a final point on regulation. Economic studies, such as a 2022 NBER study by Goolsbee and Syverson, note that construction industry productivity has been stagnant for decades. While total factor productivity has trended upward in the overall economy, productivity in construction has dipped since the 1970s. Economists do not know exactly why, but overregulation that stifles innovation is one likely cause. We are building homes roughly the same way we did 50 years ago. Manufactured products are far cheaper today than in the past, but home construction is more expensive. The low-income housing tax credit compounds this regulatory cost problem.

To conclude, the way ahead should be deregulation, innovation, and lower costs, not more subsidies, higher costs, and central planning with tax-credit programs.

The LIHTC is explored by Chris Edwards and Vanessa Calder in this study.

The Washington Post reports:

[Maryland Gov. Wes] Moore is not close to accomplishing his moonshot goals — among them, eliminating child poverty and reducing the overincarceration of young Black men — but has faced little criticism for it. He heads into a second year with less-favorable financial headwinds and even more aspirations. Among them: growing the state’s economy, helping women who want to rejoin the workforce and fixing a yawning affordable housing crisis — complex problems that take time and deep resources to address.

Sigh. So many assumptions built into that last phrase, “complex problems that take time and deep resources to address.” Time, maybe. Change takes time. But more resources than the state of Maryland has? Not really.

Take a look at the problems:

• eliminating child poverty. The best way to eliminate poverty is to eliminate the regulations that block investment, entrepreneurship, and economic growth. Growth means more and better jobs.
• reducing the overincarceration of young Black men. Repeal laws against the use and sale of drugs, and other victimless crimes, and then you won’t be arresting and incarcerating so many young Black men. Save jail for violent or dangerous criminals. No new resources needed. Indeed, resources are freed up for other purposes. Also, Baltimore in particular has terrible schools. Give families, including poor families, a chance to choose better schools.
• growing the state’s economy. Deregulation and lower taxes would help. Take a look at the policies of the states that score highest on economic freedom, New Hampshire, Florida, and South Dakota, or even number 18, Virginia.
• helping women who want to rejoin the workforce. The deregulations noted above will mean more jobs for everyone. 
• fixing a yawning affordable housing crisis. Let. People. Build. More. Housing.

So many problems, and so many people whose immediate instinct is, “What new government program or agency can solve this problem that government programs have not solved in years?” Try asking, “Are there government programs that are preventing people from improving this situation?”