“The debt ceiling is an important tool for addressing debt and deficit,” suggests Rep. Adrian Smith (R‑NE).

“Failing to raise the limit would lead to a catastrophic default that would rattle global financial markets and could risk throwing the U.S. into a recession, economists say” report the Washington Post’s Jeff Stein and Marianna Sotomayor.

Which is it? Is the debt limit a critical fiscal tool to rein in debt? Or is it an irresponsible bargaining chip that threatens to cause economic havoc?

It’s both. This is where a two-handed economist comes in handy.

On the one hand, reaching the debt limit provides an important wake-up call to legislators to reform spending practices. Reforms should prevent the government from taking on even more debt in the future. As Figure 1 below illustrates, the debt subject to the limit is growing at an accelerating pace. Leveraging the debt limit to reform spending practices is particularly relevant because two-thirds of the federal budget grows on autopilot. Instead of lawmakers authorizing spending annually, spending grows based on statutes that, in some cases, were adopted decades ago.

Think Medicare and Social Security. Spending on these programs is growing as the U.S. population is aging and living longer. This means there are more benefit recipients, compared to the workers paying for those benefits. And entitled beneficiaries are receiving greater benefits over their extended lifetimes. The debt limit provides a potential trigger to reform programs that are growing on autopilot before lawmakers are forced to make changes during a potential fiscal crisis. Or when the trust funds governing Medicare and Social Security become depleted and more gradual policy reform options are off-the-table.

On the other hand, raising the debt limit does not enable new spending. The debt limit law authorizes Treasury to create new debt when tax revenues are insufficient to cover existing obligations. Which is pretty much all the time given that the government is running continuous deficits. The last time the federal budget recorded a surplus was in 2001.

What purpose does the debt limit serve? A very important one. The debt limit provides legislators with political coverage and leverage to revisit current policies based on how they impact the growth in the U.S. federal debt. Approaching the debt limit confronts Congress and the Administration with the results of unsustainable budget decisions: growing amounts of debt. Rising debt is a symptom of deficit-spending. Deficits happen when Congress authorizes more spending than it collects in taxes.

Legislators rarely act to change laws unless they are heavily motivated to do so. They can be motivated by constituent demands. They can feel forced to act during a fiscal or economic crisis. And they’ll usually act when pushing up against a painful deadline such as the debt limit. Congress wants to avoid defaulting on legal obligations and experiencing the economic and political ramifications that could bring.

The debt limit is also a highly public affair. Constituents care about deficits and debt. Pairing an increase in the debt limit with measures to reduce future deficits and debt is the responsible choice. And the pressure brought on by the debt limit works to bring about changes to reduce future debt at least some of the time.

Brian Riedl examined 14 major deficit-reduction negotiations since 1980 and identified that: “The debt limit had been tied to every major deficit deal between 1985 and 2011.” In some cases, the debt limit prompted a deficit reduction deal. In others, Congress tacked a debt limit increase onto a deficit reduction deal that was already in the works.

The last major deficit reduction deal negotiated over a debt limit standoff was in 2011. It’s worth reviewing that deal now that legislators will confront the debt limit again in 2023 under divided government (just like they did in 2011). Then Republican House Speaker John Boehner Republican) and then Democratic President Barack Obama agreed to the Budget Control Act within mere days of the debt limit threatening to bind the Treasury from making further debt-financed payments.

The Budget Control Act of 2011 increased the debt limit. It also required Congress to vote on a constitutional balanced budget amendment, which failed to pass. And it imposed spending caps (annual maximum spending thresholds) for defense and non-defense discretionary appropriations—the one-third of the budget Congress votes on each year at the end of September.

The Budget Control Act also set up a bipartisan fiscal commission—the Joint Select Committee on Deficit Reduction, or the so-called Super Committee—and tasked it with identifying additional savings. Should it fail, there would be automatic spending cuts (called sequestration in budget-speak). And fail it did. Some sequestration took place. But Congress also renegotiated the Budget Control Act several times to avoid additional spending cuts.

By 2013, the Budget Control Act’s debt limit increase had been exhausted and Congress began to suspend the debt limit. Suspensions represented a major change in policy. Debt limit suspensions are like waivers. A suspension renders the debt limit inactive until a certain date, when a new debt limit is automatically reinstated. Unlike a numeric debt limit (i.e. the $2.5 trillion increase adopted in December of 2021) which limits the level of debt that Treasury is authorized to borrow in credit markets, a debt limit suspension eliminates the debt limit for a set period of time.

Some legislators liked suspensions for the predictability of being able to schedule debt limit negotiations around a certain date, rather than having to guess when Treasury’s bond issuing authority might become exhausted. Others appreciated that debt limit suspensions where like temporary eliminations, putting the debt limit on a track for full repeal.

Until 2021. That year, Congress adopted a numeric debt limit once again. Republicans were motivated to put limits around further deficit increases by the Biden administration. As Senator Pat Toomey (R‑PA) stated in a press release, decrying the debt limit increase:

“As one small consolation…Democrats must now specify the amount of borrowing authority necessary to cover their reckless tax and spending spree.”

Lawmakers first raised the debt limit by $480 billion to a total of $28.9 trillion in October to buy more time for negotiations. This was followed by a $2.5 trillion increase in the debt limit in December, estimated to kick the can into the 118^th Congress (see figure 2 below). Their plan to delay the next debt limit showdown until 2023 worked.

The 118^th Congress will be confronted with the debt limit sometime in 2023. The Bipartisan Policy Center estimates that the current debt limit at $31.38 trillion will be reached sometime late summer or early fall. After a 40-year inflation high and $5 trillion in new deficits added by the Biden administration and with a potential recession on the horizon, approaching the debt limit in 2023 will present Congress with a key lever to stabilize U.S. debt and unleash economic growth with spending reforms. I’ll write about what shape such reforms should take in an upcoming post.

After former president Luiz Inácio “Lula” da Silva’s win in Brazil’s election on Sunday, the left is now in charge of Latin America’s seven largest countries (the others being Mexico, Colombia, Argentina, Peru, Venezuela, and Chile). As I write in my latest piece for Reason, da Silva, who will become the first Brazilian president to serve a third term, has come a long way since founding the São Paulo Forum alongside Fidel Castro soon after the fall of the Berlin Wall:

In 1990, da Silva and Fidel Castro founded the São Paulo Forum, a bloc of left-wing political parties that vowed to ‘wage a popular and anti-imperialist struggle’ just when ‘neoliberalism’ seemed to reign supreme. The bloc’s most ardent representative in the following decades, Hugo Chávez, counted with then-president da Silva’s outspoken support as he dismantled Venezuela’s republican institutions. In early 2023, when da Silva becomes the first Brazilian president to serve a third term, the São Paulo Forum’s member parties will be in power in all but a handful South American countries. Yesterday’s anti-imperialists are today’s new ruling class, and 77-year-old da Silva has become Castro’s successor as their leading gerontocrat.

What will it take to overturn the new statist establishment? While soft-spoken “gradualists” or Christian Democrats such as Argentina’s Mauricio Macri, Chile’s Sebastián Piñera, and Colombia’s Iván Duque clearly failed to prevent leftist onslaughts, so too did Bolsonaro’s firebrand style of politics. Might I suggest that the region needs a new generation of leaders who are fiscally conservative, laissez-faire in terms of global trade and regulations, and at the same time tolerant in terms of civil liberties and moral matters? Uruguay’s popular president, Luis La Calle Pou, might provide a good model to follow. 

Last week I posted about election-related ballot measures in next week’s vote, and in this post I’ll turn to measures on other subjects.

More states are considering cannabis-related measures this year than ever more. All five (Arkansas, Maryland, Missouri, North Dakota, and South Dakota) move in the direction of legalization, but with differences in tax and regulatory handling. Chris Edwards has lately looked at the tax implications and Jeff Miron at some of the substance (“More than a century of experience demonstrates that prohibition is a treatment far worse than the ‘disease’ it purports to cure.”). Five is also the number of states considering abortion on the ballot next week (California, Kentucky, Michigan, Montana, and Vermont); Kansas voted in August.

California voters are being asked to ban flavored tobacco products; Scott Shackford explains what might happen if they do. On a more libertarian note, Coloradans could decriminalize some psychedelic plants and make alcohol delivery lawful over the long term rather than just on an emergency basis.

Even as Oregonians will vote on new gun controls, Iowa will decide whether to add a right to own and bear firearms to the state Constitution “and require strict scrutiny for any alleged violations of the right brought before a court.” Arkansas will consider Issue 3, amending the state constitution to provide that “government shall not burden a person’s freedom of religion even if the burden results from a rule of general applicability.” Kansas will decide a legislative veto measure; while the U.S. Supreme Court has ruled the device inconsistent with the structure of the federal constitution, that doesn’t prevent its adoption at the state level when state constitutions allow.

A body called the NYC Racial Justice Commission has drafted three ballot measures for consideration by New York City voters. John Ketcham writes that the package would infuse racial considerations into city governance.

Massachusetts and California will consider new taxes on higher earners, the Bay State measure being heavily backed by teachers’ unions deploying some shaky arguments. Colorado, again striking a happier note, will consider a cut in the rate of state income tax. D.C. will revisit the contentious tipped wage issue (be kind to your star server and vote NO on Initiative 82) while Nevada and Nebraska look at minimum wage hikes.

The most baleful labor-related measure by far is Amendment 1 in Illinois, pushed heavily by public-sector unions, which would not only enshrine collective bargaining as a right in the state constitution, but – the kicker — prohibit any law that “interferes with, negates, or diminishes the right of employees to organize and bargain collectively.” No one quite knows what that means, but courts may well interpret it to strike down a wide variety of state and local laws and policies that it will be argued should have been decided through bargaining rather than unilateral resolution by lawmakers or public managers. In particular, government employers would be obliged to negotiate questions in two elastic categories workers’ “economic welfare” and “safety at work.” Just such considerations have been advanced by, for example, police unions asserting an interest in the rules on violent engagement with citizens, and teachers unions asserting an interest in whether pandemic-closed schools reopen. If courts agree, it will become unlawful for elected officials to pursue voters’ wishes on such questions without first negotiating them with worker representatives. Illinois courts have already interpreted language in the state constitution to bar even modest reform in public pension systems.

Much more here and generally from the Illinois Policy Institute, which has made itself a headquarters for critical analysis of the amendment. Earlier this year, IPI’s Adam Schuster recorded a Cato Podcast on the subject with Caleb Brown. Incidentally, while Amendment 1 by its terms covers all workers, most of those in private employment fall under the pre-emptive effect of federal labor law, meaning that the measure would mostly apply to public sector unions. And while three other states have language in their constitutions about a right to collective bargaining, none of them goes remotely as far as the Illinois language. Those concerned about sound state governance should watch the Illinois result closely.

U.S. fertility has been declining for the 15 years since the Great Recession and it is now below replacement rate. While many are aware of this fact, fewer are aware of the demographic factors driving the topline numbers.

A variety of demographic groups are responsible for the post-2007 decline in U.S. fertility, and understanding which demographic groups are major contributors may provide hints about the underlying causes.

First, fertility has declined across younger demographic groups. This is partly due to a significant decline in births for teenagers (Figure 1), which peaked in the 1990s and fell 75 percent from 1991 until 2020. Teen fertility decline accelerated since 2007, just as U.S. fertility began its most recent drop.

The decline is also due to a decline in births for women in their twenties, particularly women in their early twenties, for which births have declined by nearly fifty percent since the early 1990s. Similar to teens, births declined more steeply for women in their twenties beginning during the Great Recession. As fertility for U.S. teenagers and twenty-somethings has declined, fertility for women in their thirties and forties increased, but not enough to offset the decline for younger women.

Fertility also declined across racial and ethnic groups: Hispanic, Black, and White women’s fertility fell, but Hispanic women’s fertility declined most dramatically, by over one-third since 2007 (Figure 2). In other research, Kearney, Levine, and Pardue find that Hispanic teens are the specific demographic group responsible for the largest share of the overall U.S. fertility decline.

Although U.S. Hispanic women have traditionally had higher fertility than other groups, it is not altogether surprising that Hispanic women are also experiencing fertility decline. Kearney and Levine find that the decline in fertility for Hispanic women is driven by both native and foreign-born Mexican-American women, and fertility in Mexico has fallen dramatically since the early-70s. Today, the total fertility rate in Mexico is below replacement rate, at 1.80 children per woman. Although this is above the U.S.’s fertility rate, Mexico’s fertility rate is converging with the U.S. and industrialized countries’ fertility rates.

Immigration patterns may also help to explain the recent decline in births for Hispanic women. Net migration from Mexico to the U.S. was negative during 2005–2014, and the number of foreign-born Mexican women relative native-born Mexican women fell during this period. This matters for fertility purposes because foreign-born women tend to have a higher fertility rate than native-born women.

Finally, fertility varies with education. Women without a high school degree saw the largest declines in fertility, followed by women with a graduate degree (Figure 3). The population of women without a high school degree overlaps with teenage women, and this tracks with the decline in teenage fertility.

It is interesting that fertility decline has affected those with the greatest and least education most. For women with graduate degrees, presumably opportunity costs for childbearing are higher than for any other group, and women with graduate degrees also tend to be older than other groups, yet birth rates for these women are highest. Meanwhile, the group of women without a high school degree includes teenagers that have successfully reduced unintended births perhaps as a consequence of increased access to contraception or due to the effect of targeted media programming.

What to conclude from this? Fertility is a complex issue with a variety of plausible explanations. But given the demographic groups most affected by decline, some policies seem more or less likely to increase fertility for policymakers intent on doing so.

For instance, recent evidence suggests that increasing workplace flexibility would provide more educated women with additional options for combining work and family life. Moreover, although fertility is falling for Hispanic women, it remains higher than for other groups, and liberalizing immigration laws could increase U.S. fertility in the short-term and, if sustained, offset population decline in the longer term. On the other hand, significant fertility declines among groups like teenagers don’t present great options for policymakers intent on boosting fertility rates.

The IRS has released a new estimate of the “tax gap,” which is the amount of federal taxes owed but not paid. Basically, this is the amount of cheating on federal taxes. The IRS report contains good news. Tax cheating is not a growing problem relative to the size of the economy, despite all the political rhetoric to the contrary.

The IRS found that the annual gross tax gap for 2014–2016 was $496 billion. After late payments and enforcement actions, the net tax gap was $428 billion. Of the net total, $306 billion stemmed from individual income taxes, $34 billion from corporate income taxes, $87 billion from payroll taxes, and $2 billion from estate taxes.

The new report includes gross tax gap estimates for prior years, which were $345 billion in 2001, $472 billion in 2006, $394 billion in 2008–2010, and $438 billion in 2011–2013. The IRS also projected the gap for 2017–2019 to be $540 billion. The dollar value of the tax gap has increased, but the gap has not increased when compared to the nation’s gross domestic product (GDP), as shown in the chart. (I’ve used the GDP of the middle year for the multiyear estimates).

The flip side of the gross tax gap is the “voluntary compliance rate,” which is the tax paid on time divided by the estimated full amount owed. The IRS report shows that the voluntary compliance rate rose from 83.7 percent in 2011–2013 to 85.0 percent in 2014–2016. The IRS projects the rate to be 85.1 percent in 2017–2019.

To me, the IRS report suggests that the tax gap is not a major problem. The gap is stable relative to the size of the economy, and our tax gap is smaller than the average tax gap in Europe, as I discuss here.

Given our stable and relatively small tax gap, President Biden’s expensive effort to boost IRS enforcement is misguided. There are civil liberties trade-offs to consider when trying to close the tax gap with enforcement, as I discuss here. The optimal tax gap is not zero because that would require a more powerful government and impose higher compliance costs on taxpayers. And even with more power, the IRS would not achieve fully accurate tax payments because the agency itself makes frequent errors.

That said, there is a win-win approach to reducing the tax gap. Simplifying the tax code and cutting tax rates would reduce the ability and incentive for taxpayers to cheat. It would also cut compliance costs and increase civil liberties. Tax simplification should be on the agenda of the new Congress in 2023.

The last two Halloweens looked very different amidst the COVID-19 pandemic as people wore very different types of masks. Unfortunately, this Halloween will continue to be filled with more tricks as candy prices are up 13.1 percent since September last year—Hershey and Nestle reported raising prices 14 percent and 6.5 percent, respectively.

While inflation is haunting many food products, candyflation could be lower if the U.S. government did not cartelize sugar. The United States Department of Agriculture (USDA) provides a sugar program to purposefully keep the price of sugar high. Figure 1 illustrates the stark difference in the U.S. the price for sugar and the world price. In August, the U.S. sugar price was 35.48 cents per pound compared to 18.06 cents per pound at the world price.

To implement the supply restrictions (and incentivize loan repayment), the USDA determines an annual limit on how much sugar can be sold domestically, reserving 85 percent of the U.S. sugar market to domestic producers (divided among sugarcane and sugar beet producers), and by buying U.S. sugar to keep it off the consumer market (most often selling it to U.S. ethanol producers at a huge loss).

The last mechanism the government uses to restrict supply is the imposition of strict tariff-rate quotas on imports of sugar—very low quantities can be imported duty-free but any excess is subject to an exorbitant tariff that reaches close to 100 percent!

These tools help sugar producers but hurt U.S. manufacturers and consumers.

In fact, the exorbitant prices of U.S. sugar contributed to the shutdown of the Necco candy factory (pictured below) in my colleague’s hometown, Thibodaux, Louisiana. (And the factory was located between two sugar refineries!)

This story is not uncommon, and while the shutdown of this factory only caused 30 job losses, the sugar program “induces… job losses (in the range of 17,000 to 20,000 jobs) in US food processing sectors that are sugar intensive because these processors import more intermediate products containing sugar to mitigate the impact of the domestic sugar program.” (Not to mention the opportunity costs associated with protecting these jobs.)

This Halloween, spending is expected to reach a new high of $10.6 billion but given the high prices, consumers will get more boo for their buck. The ubiquity of sugar means that other food products are also impacted by the expense created by the sugar program, extending harm beyond consumers’ wallets.

As producers look for cheaper alternatives to sugar—mainly high fructose corn syrup—Americans are exposed to greater health costs and the sugar industry itself has long lobbied to downplay the potential health risks associated with high sugar consumption.

The sugar program also has implications for foreign policy. Poorer neighboring countries could develop through trade liberalization in the U.S. sugar market. Countries in the Caribbean and Central American regions are better suited to produce sugar but have been shut out of the U.S. market, leading to stunted economic growth as these countries have stopped producing sugar in favor of illegal narcotics to be smuggled into the United States. This undermines U.S. foreign policy as resources are moved to tackle illegal immigration (as drug trade creates instability in the migrants’ home countries) and drug trafficking.

Sugarcane farming in Florida provides an example of harm to the environment and more health costs. Beaches were closed as a result of massive toxic algae blooms fed by a buildup of phosphorus from sugarcane farming. Further, sugarcane farmers in Florida clear their fields with (cost-effective) fire, increasing air pollution, affecting residents’ breathing.

Finally, in order to prevent liberalization of the U.S. sugar industry, domestic trade negotiators frequently make concessions on non-sugar issues in trade agreements. For example, in the U.S.-Australia free trade agreement, the United States tempered its demands for Australia to liberalize trade in pharmaceuticals, wheat, and media services in exchange for maintaining the U.S. sugar program. Permitting Australia to maintain its protectionism in these industries harms U.S. exporters (and Australian consumers).

The U.S. sugar program is yet another example of cronyism and protectionism. There is an opportunity here for Congress to take action as the sugar program falls under the farm bill, which expires in 2023. Congress should repeal the sugar program entirely. Doing so could save consumers between $2.4 and $4 billion, providing necessary relief during this period of higher inflation. However, at the very least, Congress should remove the tariff-rate quotas on imports of sugar.

The importance of Halloween candy to Americans means they will likely buy it in spite of price spikes. This trend will continue through the rest of the holidays when demand for sugar-dense products is strong. While spooky season comes to an end, this terrifying program will continue to haunt American food and confectionary.

I’ve previously written about the serious First Amendment problems with the “judicial privacy” bill which was recently added to the National Defense Authorization Act. If passed into law, every American would risk facing mandatory takedown orders for posting basic facts about federal judges online, including their birthdates, the colleges attended by their children, and the jobs of their spouses. The bill stifles access to relevant information about public officials, arbitrarily limits its restrictions to the internet but not other media, and allows speech to be suppressed even if it poses no possible security threat. For all these reasons, as I wrote late last year in the Wall Street Journal, the law would clearly violate the First Amendment.

Ironically, because of the serious constitutional problems with the bill as currently written, its provisions restricting speech would likely be struck down by the courts and thus fail to accomplish their stated goal. Members of Congress who want to protect judges in those rare cases where public information does pose a real threat should support a different approach, one that would evaluate takedown requests on a case-by-case basis and thus comply with Supreme Court precedent.

In Florida Star v. B.J.F. (1989), the Supreme Court struck down a Florida law forbidding the publication of the names of rape victims in mass media. The Court clarified that punishments for publishing lawfully obtained truthful information may be imposed “only when narrowly tailored to a state interest of the highest order.” The Florida law did not meet this “narrowly tailored” standard for several reasons, including that Florida imposed liability “regardless of whether the identity of the victim is already known throughout the community” and that Florida did not ban other means of communicating the names of victims outside mass media, such as person‐​to‐​person gossip.

As the Court further emphasized, “categorical prohibitions upon media access” are impermissible “where important First Amendment interests are at stake.” The Florida law did not allow for “case‐​by‐​case findings” as to the harm of a particular disclosure, which must take into account whether the information is already public. As the Court noted, punishing the “dissemination of information which is already publicly available is relatively unlikely to advance the [government’s] interests.”

The proposed federal bill does not allow for the type of “individualized adjudication” that the Florida Star Court explained is “indispensable” when the government aims to ban truthful speech. So how might a federal privacy bill comply with the requirements of the First Amendment, as spelled out by the Court in Florida Star? First and most important, the ability to send a takedown notice should be adjudicated on a case-by-case basis. Rather than defining broad categories of information that can be censored, a more narrowly tailored bill would create a legal procedure in which evidence could be presented to a judge that a particular piece of information poses a specific and concrete threat, so that there is “a state interest of the highest order” in suppressing that particular piece of information for the sake of safety.

Courts are already equipped to weigh evidence and act quickly when litigants request temporary restraining orders and preliminary injunctions, and a request for a court order to take down certain information could follow similar procedures. Crucially, unlike in the currently pending bill, the right to send a takedown order should only be granted after a court has signed off, and publishers of information should not be on the hook for potential court costs if they defend their right to publish.

What type of evidence would a judge weigh in such an individualized hearing? Whoever is requesting that particular information be censored should have to show a compelling safety need for doing so—for example, some evidence that a threatening person is attempting to stalk them. In addition, there would have to be a strong likelihood that censorship would actually work. If an individual’s home address has already been printed in thousands of copies of the white pages, for example, removing that address from a single website won’t put that genie back in the bottle. On the other hand, if a person has recently moved to a new address and that address is not yet publicly known, then it might be plausible that this new address could in fact be kept secret.

Finally, any suppression of information by court order would have to be thorough. Selectively censoring one source of information while allowing others to disseminate the same fact would not just be arbitrary and unequal treatment, it would also show a lack of commitment to the government’s goal. As the Court put it in Florida Star, when the government “attempts the extraordinary measure of punishing truthful publication in the name of privacy, it must demonstrate its commitment to advancing this interest by applying its prohibition evenhandedly, to the smalltime disseminator as well as the media giant.” The pending bill fails in this respect because it can reach only information on the internet, not in print or other media. When it comes to censoring for the sake of safety, the right approach for any particular piece of information is all or nothing.

Finally, if such a court procedure for evaluating takedown orders were created, there is no principled reason why its protections should be limited to just federal judges, or even to just federal officials of all kinds. In the rare cases where personal safety does outweigh speech interests, it shouldn’t matter what title, if any, the threatened person holds. Of course, it may be pragmatically easier to start by creating a procedure whose protections are limited to a narrower class, since any such law would be experimental. But once the right balance is struck, its protections should be available to anyone.

On at least three occasions, states have passed laws like the pending federal bill that allowed public officials to send takedown orders for their personal information without case-by-case adjudication. And in all three cases, federal courts have held the laws to be likely in violation of the First Amendment. To enact privacy protections that can survive court scrutiny and actually achieve their intended goal, Congress should go back to the drawing board and craft a bill that carefully balances personal security with freedom of speech.