• Gene Healy on the “Al-Qaeda Seven”: Republicans who assail President Obama for his allegedly “soft-on-terror policies” are running a campaign that is based on phony charges, and is a dangerous distraction from the fight for limited government.

• Doug Bandow on the costs of war.

• This week, Sen. Chris Dodd (D‑Conn) discussed imposing massive new regulations on the financial sector. Mark Calabria explains the potential impact.

• If the House enacts the Senate health care bill without voting on it, are we under obligation to obey it? The answer may be no.

• Podcast: “Reagan and the Tyranny of the Status Quo” featuring John Samples, author of the forthcoming book, The Struggle to Limit Government.

It is “Sunshine Week,” a time for attending to government transparency issues. And the president issued a statement today commemorating the occassion. Norm Eisen, the president’s special counsel for ethics and government reform, put a more detailed “Happy Sunshine Week” post on the White​house​.gov blog today as well.

The administration has done some good things, and there is no doubt that it means to do well. My pet transparency issue is one on which the news is not so good, however: the “Sunlight Before Signing” promise to post bills received from Congress for five days before they are made law.

When I last reported, the president was seven for 142 on fulfilling this promise. Of 142 bills subject to Sunlight Before Signing, only seven have been posted for five days. Since then another law has passed—H.R. 1299/P.L. 111–145, which was presented to the president on March 2nd, posted on White​house​.gov on March 4th, and signed into law the same day.

No emergency excuses the “United States Capitol Police Administrative Technical Corrections Act of 2009” from the sunlight treatment. Had it been posted, Americans may have had the opportunity to ask why a bill of that name establishes a “Corporation for Travel Promotion” to encourage international travel to the United States.

(Answer: S. 1023 was rolled into it, obscuring what Congress was doing in a common but insidious way. Cost of S. 1023 per U.S. family: about $24.)

The White House’s fulfillment of the Sunlight Before Signing promise now stands at seven for 143, or .049.

In his post, Norm Eisen said, “We are proud of our successes, but we of course recognize that much remains to be done, and we intend to redouble our efforts to make government as transparent, collaborative and participatory as possible.” And in his statement, the president said, “We are proud of these accomplishments, but our work is not done. We will continue to work toward an unmatched level of transparency, participation and accountability across the entire Administration.”

The successes touted by Eisen and the president are real. We’re looking forward to more!

Senators Ron Wyden and Judd Gregg recently introduced the “Bipartisan Tax Fairness and Simplification Act.” There is a lot of interest in this plan, so I’ve put together some “pros” and “cons” from my small-government, flat-tax perspective.

INDIVIDUAL TAX CHANGES — PRO

• Scraps the alternative minimum tax.
• Cuts the number of rates from six to three.
• Reduces the tax subsidy for municipal bonds.
• Creates Lifetime Savings Accounts (LSAs)–like Roths IRAs except better because all withdrawals are tax-free. This is a very important reform, and by the way, one that Canada has enacted already. See here.

INDIVIDUAL TAX CHANGES — CON

• Keeps the top tax rate at 35 percent, which is quite a bit higher than the 28 percent acheived by the Tax Reform Act of 1986.
• Increases the top capital gains and dividend tax rate from 15 percent to 23 percent.
• Triples the standard deduction, which would likely take more people at the bottom end off the income tax rolls. That would simplify the code, but at the expense of increasing the demand for big government.
• Repeals the exclusion on income earned abroad by U.S. citizens, which would likely damage the operations of U.S. multinational companies.
• Retains all the most distortionary tax breaks under the individual code, including the mortgage interest deduction.

CORPORATE TAX CHANGES — PRO

• Cuts the top corporate tax rate to 24 percent. This is a crucial reform.
• Cuts corporate welfare spending, which Wyden-Gregg notes is about $90 billion a year, based on a Cato Institute analysis.

CORPORATE TAX CHANGES — CON

• Subjects the foreign income of U.S. multinational companies to immediate taxation. That tax approach is not followed by any major advanced economy, and it would put U.S. firms at a disadvantage in global markets.
• Broadens the business tax base in other ways that move in the wrong direction, such as repealing the expensing of energy exploration and development costs. Note that some of the plan’s corporate base broadening ideas make sense–such as reducing the value of interest deductions–but only if the revenue raised is used to reduce the statutory rate (which it does seem to be here).

Overall, I would take the Wyden-Gregg plan over the current code. But Wyden-Gregg is a very limited reform compared to the Paul Ryan two-rate individual tax or the recent National Academy of Sciences tax plan, which features individual rates of 10 and 25 percent and a corporate rate of 25 percent.

Wyden-Gregg is a start, but it hardly simplifies the tax code at all and it doesn’t reduce individual rates. However, it does cut the corporate rate and it includes LSAs, which would revolutionize personal savings. So we can take heart that supply side tax policies still garner some support on Capitol Hill.

For more on tax reform, see here.

A battle over higher education loans is coming to a head as Democrats consider including the ill-titled Student Aid and Fiscal Responsibility Act in reconciliation legislation. In one corner, we have private education loan lenders who enjoy the generous subsidies and loan guarantees provided by Uncle Sam. In the other, we have policymakers who want to cut out the middleman by having the Department of Education provide direct loans.

Critics of SAFRA correctly point out that the alleged savings of nationalizing student loan subsidies are a sham. The Congressional Budget Office has scored the nationalizing portion of the bill as saving $67 billion over ten years. However, in a letter to Sen. Judd Gregg (R‑NH), the CBO acknowledged that when the cost of default risk is factored in, the alleged savings drop by $33 billion. Yet, taxpayers won’t realize any savings because the legislation adds $80 billion in additional spending for Pell grants and other programs.

For taxpayers, the unpalatable choice is nationalization or crony capitalism—subsidizing private businesses. The real answer is for the federal government to get out of the higher education subsidy business altogether, as a Cato essay argues.

The following are some key points from the essay:

• The effect of subsidy programs, in part, is to impose taxes on blue collar workers—who have not attended college—to pay for the tuition of future white-collar professionals. Why should the government subsidize future high earners at the expense of average working people?

• Federal student aid programs transfer wealth from taxpayers to academic institutions. That’s because the rise in student subsidies over the decades appears to have fueled inflation in education costs. Tuition and other college costs have soared as subsidies have risen. College cost inflation induced by federal aid probably hurts low-income families—the people that federal aid was supposed to target—more than others.

• Federal aid has probably helped increase student enrollment, but many of those additional students may not have been ready, or suited, for college. This is evidenced by the rising shares of college students who require remedial work, and the fact that institutions have lowered their standards to adapt to the rise in second-rate students.

• Increasing top-down control and subsidization of higher education from Washington is creating a threat to the strength of the American system. As we have seen in K‑12 education, the growth in federal subsidies is usually accompanied by calls for more oversight, micromanagement, and rising levels of red tape imposed by Washington.

• Federal student loan and grant programs have been subject to waste and fraud for decades. The Pell grant program (which SAFRA would enlarge) costs taxpayers hundreds of millions of dollars per year in fraud. Another ongoing problem is the high default rate on student loan programs.

Following are some thoughts from a broader analysis of mine on the state of U.S.-China relations, which will be published in the near future.

Between July 2005 and July 2008, the Chinese RMB appreciated by 21 percent against the dollar. But over that 3‑year period, the U.S. trade deficit with China increased from $202 to $268 billion. Why, then, do policymakers think revaluation is the key to reducing the trade deficit? Why do they even care about the bilateral trade deficit, which is meaningless in the context of our globalized economy. Only one-third to one-half of U.S. imports from China is Chinese value added. The rest is Japanese, Taiwanese, Korean, Australian, American and other countries’ value added. The bilateral figures tell us nothing important.

During the aforementioned period of RMB appreciation, U.S. exports to China increased by $28 billion. But U.S. imports from China increased by $94 billion. Americans continued to purchase Chinese imports–despite the currency-induced price increase–for two primary reasons. First, there aren’t many substitutes for the Chinese products U.S. consumers tend to purchase. Second, Chinese exporters, by virtue of a stronger RMB, were able to reduce their costs of production because many of those costs are for imported inputs (made cheaper because of the stronger RMB), which subsequently enabled them to lower their prices for export to the United States.

There is no compelling reason to think things will be different this time. Thus, all of the hollering, name-calling, and finger-pointing can only worsen the state of bilateral relations.

There are less provocative alternatives.

If it is desirable that China recycle some of its estimated $2.4 trillion in accumulated foreign reserves, U.S. policy (and the policy of other governments) should be more welcoming of Chinese investment in the private sector. Indeed, some of China’s past efforts to take equity positions or purchase U.S. companies or buy assets or land to build new production facilities have been viewed skeptically by U.S. policymakers, and scuttled, ostensibly over ill-defined security concerns.

As of the close of 2008, Chinese direct investment in the United States stood at just $1.2 billion—a mere rounding error at about 0.05 percent of the $2.3 trillion in total foreign direct investment in the United States. That figure does not come anywhere near the amount of U.S. direct investment held by foreigners in most of the world’s medium-sized economies, nevermind the large ones. U.S. direct investment in 2008 held in the United Kingdom was $454 billion; it was $260 billion in Japan; $259 billion in the Netherlands; $221 billion in Canada; $211 billion in Germany; $64 in Australia; $16 billion in South Korea; and even $1.7 billion in Russia.

In light of China’s large reserves, its need and desire to diversify, America’s need for investment in the real economy, and the objective of creating jobs and achieving sustained economic growth, U.S. policy should be clarified so that the benchmarks and hurdles facing Chinese investors are better understood. Lowering those hurdles would encourage greater Chinese investment in the U.S. economy and a deepening of our mutual economic interests.

…are we under any obligation to obey it? The answer may be no.

Democrats are considering a scheme that would “deem” the Senate health care bill to have passed the House if a separate event occurs (specifically: House passage of a budget reconciliation bill). That strategy has been named after its contriver, House Rules Committee chair Louise Slaughter (D‑NY). House Speaker Nancy Pelosi (D‑CA) says of this scheme: “I like it because people don’t have to vote on the Senate bill” (emphasis added).

Not so fast, says former federal circuit court judge Michael McConnell in The Wall Street Journal:

Under Article I, Section 7, passage of one bill cannot be deemed to be enactment of another.

The Slaughter solution attempts to allow the House to pass the Senate bill, plus a bill amending it, with a single vote. The senators would then vote only on the amendatory bill. But this means that no single bill will have passed both houses in the same form. As the Supreme Court wrote in Clinton v. City of New York (1998), a bill containing the “exact text” must be approved by one house; the other house must approve “precisely the same text.”

Democrats have already hidden 60 percent of the cost of the Senate bill, effected an obscenely partisan change in Massachusetts law to keep the bill moving, pledged more than a billion taxpayer dollars to buy votes for the bill, and packed the bill with an unconstitutional individual mandate and provisions that violate the First Amendment. It’s almost as if, to paraphrase comedian Lewis Black, Democrats spent a whole year, umm, desecrating the Constitution and at the last minute went, “Oh! Missed a spot!”

And these people want us to put our trust in government.