Alas this morning the Supreme Court declined to review Kachalsky v. Cacace the challenge to New York City’s effective ban on carrying firearms (which I’ve previously discussed). To correct some early media reports, this does not mean that the Court upheld the law or affirmed the decision of the U.S. Court of Appeals for the Second Circuit. It simply means that the scope of the Second Amendment right to keep and bear arms outside the home remains an open question, subject to divergent rulings in the lower courts.

But those lower-court rulings have indeed diverged greatly, creating what lawyers call a “circuit split.” The Second Circuit in Kachalsky applied a nominal intermediate scrutiny that ultimately became perfunctory deference to the legislature, with the burden on the plaintiffs to justify the exercise of their rights. The Seventh Circuit, meanwhile, in an opinion by Judge Richard Posner in Moore v. Madigan, struck down Chicago’s complete prohibition on carrying firearms, finding that Illinois could not justify such extreme measures. For “a severe burden on the core Second Amendment right of armed self-defense,” the same court ruled in an earlier case, the government must provide “an extremely strong public-interest justification and a close fit between the government’s means and its end.”” The D.C. and Fourth Circuits, meanwhile, have presumed the constitutionality of legislated restrictions, although D.C. Circuit Judge Brett Kavanaugh wrote an important dissent suggesting that the scope of the right to carry should be determined by analogizing historical practice and precedent.

Those who follow firearms policy now recognize that this issue that was left open by District of Columbia v. Heller — the scope of the individual right that the Second Amendment protects — is crying out for resolution. As Cato said in the brief we filed supporting the Kachalsky petition:

The Second Amendment’s scope and the means of assessing restrictions on that right thus remain largely undefined. No other constitutional right has been so left to fend for itself in the lower courts. This Court has not hesitated to seize opportunities to ensure the protection of other constitutional rights—recognizing historically based categorical rules, developing comprehensive methodologies, and announcing robust standards. The Second Amendment merits, and now needs, the same solicitude.

Whatever analytical approach the Court ultimately employs, the time has come to begin filling in the picture that the Court outlined in Heller, and to bring some harmony to the cacophony below.

We’ll now have to wait a bit longer for the Court to do that. As is always the case, the Court doesn’t give reasons for granting or denying review, but it’s possible that the Court didn’t want to take a gun case from the Second Circuit, which has jurisdiction over Connecticut, where the Newtown shootings occurred. Or it may be waiting for Moore v. Madigan, because taking a petition brought by a state government would be seen as less discretionary — and would also allow the Court to focus on a complete ban on the right to carry rather than severe restrictions. (D.C. and Illinois are the only jurisdictions that have flat bans, while 10 states, including New York, “may issue” such licenses in practice, but most rarely do in practice except to celebrities and former law enforcement officers. The vast majority of states “shall issue” carry licenses unless the applicant has a felony conviction or mental illness, while a handful don’t require a license at all.) 

In any event, the issue isn’t going away and there’s only so long that the Court will be able to bear the legal incongruity and uncertainty. As former solicitor general Paul Clement — who represented the NRA in McDonald v. Chicago – put it, “They’re eventually going to have to take it.”

Last year, the United States lost three cases at the WTO in which domestic regulations were challenged by our trading partners as disguised protectionism. In each of the three cases—a ban on clove cigarettes, dolphin-safe labels for tuna, and country-of-origin labels for meat—the WTO found that the challenged regulation impacted the competitiveness of foreign goods significantly more than domestic like products and that this discrimination did not further the goals of the regulation. The United States must amend each of these regulations in the next few months or the complaining governments will be able to pursue WTO-authorized trade sanctions against us. 

The offending regulations don’t have to be repealed to be made WTO-compliant, but the United States must do at least one of three things for each of them:

1. Diminish the negative impact on foreign products,
2. Increase the negative impact on domestic products, or
3. Better validate the different treatment.

In the first attempt at reform, the Administration chose Option 3. Existing regulations require that meat sold in grocery stores carry country-of-origin labels that differ based on the national origin of the animal before it was slaughtered in the United States. Last year, the WTO determined that tracking and recording requirements in the law made it more costly for U.S. slaughterhouses to purchase foreign-raised cattle, and that the burden was not proportional to the amount of origin-related information ultimately passed on to consumers. The Department of Agriculture proposed in early March to “comply” with the WTO ruling by increasing the amount of information the labels would carry. The reforms would require labels on meat sold in grocery stores to say specifically where the animal was born, where it was raised, and where it was slaughtered.

It’s vitally important to recognize that this new regulation will do absolutely nothing to improve market access for foreign cattle or to reduce the discriminatory nature of the regulation. What it will do is make the discrimination somewhat less obviously protectionist. It will not reduce that protectionism, settle the dispute, or in any way liberalize trade. On the contrary, the Administration took the opportunity to further privilege the special interests behind the original law.

For the second and most recent attempt at reform—this time for the dolphin-safe label requirements—the administration chose Option 2 (Increase the negative impact on domestic products). Packaged tuna sold in the United States can only be labeled dolphin-safe if it is caught according to specific guidelines mandated by law. These guidelines are different depending on where the tuna is caught and are particularly onerous for fisheries operating off the coast of Mexico. The WTO found that the U.S. regulation’s lax standards for tuna caught in the rest of ocean did not further the goal of protecting dolphins but rather demonstrated the law’s protectionist nature.

The new regulation continues to single out the Eastern Tropical Pacific for special treatment but also makes it slightly more difficult for fisheries operating elsewhere to earn a dolphin-safe label. The Mexican government has yet to respond to the reform proposal. The Mexican tuna industry, however, has unsurprisingly voiced its continued opposition. The reform is definitely not as robust as it could have been—and quite likely not enough to make the regulation sufficiently even-handed—but at least it does something to diminish the discrimination.

The third restriction the United States must reform is the ban on clove cigarettes. In 2009 Congress passed a new tobacco control law, which gave the FDA the power to regulate tobacco products and banned flavored cigarettes—except for menthols. There are basically two kinds of flavored cigarettes. One is clove cigarettes made almost exclusively in Indonesia and smoked by less than 1% of American smokers. The other is menthol cigarettes made almost exclusively in the United States and smoked by around 25% of American smokers. The ostensible purpose of the ban was to discourage youth smoking by removing flavored cigarettes from the market, but the judges at the WTO couldn’t figure out how that goal was furthered by exempting the most popular kind of flavored cigarette from the ban.

In the cigarette case, none of the compliance options seems likely. Option 1 would see the U.S. ending the ban on clove cigarettes while Option 2 would see the U.S. banning menthols. Perhaps Option 3 could be pursued if the FDA can conjure up a study showing that kids who would have taken up smoking because they liked cloves will now turn away from tobacco altogether instead of just smoking menthols or regular cigarettes. Options 1 and 2 face significant political hurdles. Option 3 faces significant reality hurdles.

In each of these regulations, the protectionist aspect frustrates the goals of the activists initialing supporting them. How did these laws come to be passed in the first place if they do such a bad job meeting their own goals? Sallie James and I try to answer that question in a brand new Cato Policy Analysis on regulatory protectionism. We also propose a number of legal and political tools that can help prevent progressive causes from unwittingly generating unnecessary trade barriers. You can come hear about these and other unfortunate examples and, if you are so inclined, critique our proposals at a forum we’re hosting at Cato this Thursday.

Perhaps President Obama has been reading about Margaret Thatcher’s policy successes. He is apparently considering selling off the federal government’s Tennessee Valley Authority. This is a great idea. As this story notes, it would allow the struggling electric utility more flexibility in dealing with the many challenges it faces.

While Democrats are often more socialistic on economic policy than Republicans, Democratic President Bill Clinton was a modest privatizer. He proposed selling off four federal electric utilities in his 1996 budget (see page 149), and he did manage to complete the sale of the Alaska Power Administration. And, as I note in this essay, he also privatized the federal helium reserve in 1996, the Elk Hills Petroleum Reserve in 1997, and the U.S. Enrichment Corporation in 1998.

This time around, Democratic President Obama may run into opposition from socialistic Republicans. Sen. Lamar Alexander has already griped that Obama’s TVA plan is “one more bad idea in a budget full of bad ideas.” But I’d suggest that the president push ahead and outflank the supposedly free-market GOP but proposing sell-offs of the Postal Service, Amtrak, Western power dams, and the Army Corps of Engineers. 

David Boaz reminds me that former Cato chairman Bill Niskanen was barred by Congress for even looking into TVA reform when he was on President Reagan’s CEA. So this is a sensitive issue, and it will be interesting to see how far Obama’s efforts get before the Lamar Alexanders in Congress block him.

Yesterday, Secretary of Defense Chuck Hagel went before the House Armed Services Committee to answer questions about President Obama’s proposed FY 2014 military budget. The request for $526.6 billion for the base DoD budget is $3.9 billion lower than the 2012 enacted level. While this reduction is a positive step, it doesn’t go far enough given the nation’s fiscal state and changing military requirements, and it exceeds the spending caps mandated by the 2011 Budget Control Act by $55 billion.

For more insight on the budget numbers and what this means politically, see my colleague Ben Friedman’s excellent post from yesterday. I want to focus on an area of the budget that cries out for reform: rising personnel costs.

During his testimony, Hagel reiterated the need to rein in such costs, echoing themes from his speech last week at the National Defense University. The president’s budget aims to reduce these costs by cutting end strength, limiting the size of pay increases (to 1 percent), and making “benefit adjustments” to TRICARE. Such adjustments are critical to the department in the long term.

A political battle over these types of reductions is all but certain; however, some members of Congress—perhaps most—will resist. This is unfortunate, especially for fiscal conservatives who understand the need to reform entitlements like Medicare, Medicaid, and Social Security, yet fail to see the need to contain skyrocketing costs in personnel and benefits at DoD. The arguments are the same: the current path is unsustainable; reforms are needed or the costs will consume the rest of the budget; and if you implement the reforms sooner, they can be more incremental and less disruptive to the troops. But then again, farsightedness isn’t Congress’s strong suit.

Personnel costs, which account for approximately 32 percent of the budget request (over 45 percent when civilian pay and benefits are included), need to be addressed. The administration has proposed cutting conventional forces—mainly from within the Army and Marine Corps—by 100,000. Hagel has mentioned reducing the civilian workforce, but he hasn’t outlined specifically how he would downsize the “world’s largest back office.”

As Ben Friedman points out, it is also important to keep in mind that the $526.6 billion base budget request does not accurately represent the total cost of national defense. For instance, Overseas Contingency Operations (OCOs)—war funding—is a separate request. Many believe that as we draw down in Afghanistan, OCO funding will come down. But Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, explained in yesterday’s hearing that those costs are likely to remain fairly steady for the next few years. Despite the fact that many budget projections count the drawdown in Afghanistan as “savings,” the United States will remain in Afghanistan for years to come.

When you factor in the budgets of other the defense-related items—nuclear weapons management under the Department of Energy, the intelligence community, the Department of Homeland Security, and Veteran Affairs—total spending on national defense soars to over $900 billion.

There is plenty of room for further cuts in this massive total, especially if we rethink what we ask our military to do. Shedding security commitments and unnecessary missions would allow for a budget that reflects our level of security. But the administration can start by addressing the costs relating to personnel. Otherwise, the future does not look bright for Pentagon budgets. 

I could only use 428 words, but I highlighted the main arguments for tax havens and tax competition in a “Room for Debate” piece for the New York Times.

I hope that my contribution is a good addition to the powerful analysis of experts such as Allister Heath and Pierre Bessard.

I started with the economic argument.

[T]ax havens are very valuable because they discourage anti-growth tax policy. Simply stated, it is very difficult for governments to impose and enforce confiscatory tax rates when investors and entrepreneurs can shift their economic activity to jurisdictions with better tax policy. Particularly if those nations have strong policies on financial privacy, thus making it difficult for uncompetitive high-tax nations to track and tax flight capital. Thanks to this process of tax competition, with havens playing a key role, top personal income tax rates have dropped from an average of more than 67 percent in 1980 to about 42 percent today. Corporate tax rates also have plummeted, falling from an average of 48 percent to 24 percent.

…Lawmakers also were pressured to lower or eliminate death taxes and wealth taxes, as well as to reduce the double taxation of interest, dividends and capital gains. Once again, tax havens deserve much of the credit because politicians presumably would not have implemented these pro-growth reforms if they didn’t have to worry that the geese with the golden eggs might fly away to a confidential account in a well-run nation like Luxembourg or Singapore.

Since I didn’t have much space, I couldn’t go into much greater detail. Below the jump is a video that elaborates on the economic benefits of tax havens, including an explanation of why fiscal sovereignty is a big part of the debate.

My favorite part of the video is when I quote Organization for Economic Cooperation and Development economists admitting the beneficial impact of tax havens.

Back to my NYT column, I also explain that there’s a critical ethical reason to defend low-tax jurisdictions:

Tax havens also play a very valuable moral role by providing high-quality rule of law in an uncertain world, offering a financial refuge for people who live in nations where governments are incompetent and corrupt. …There are also billions of people living in nations with venal and oppressive governments. To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran and farmers in Zimbabwe.

To elaborate, here’s my video making the moral case for tax havens:

By the way, many of the issues in this video may not resonate with those of us in “first world” nations, but please remember that the majority of people in the world live in countries where basic human rights are at risk or simply don’t exist.

That doesn’t mean we shouldn’t worry about the stability of our nations. I close my NYT column by warning that the welfare state may collapse:

With more and more nations careening toward fiscal collapse, raising the risk of social chaos and economic calamity, it is more important than ever that there are places where people can protect themselves from bad government. Tax havens should be celebrated, not persecuted.

I didn’t have space to cite the Bank for International Settlements and OECD data showing that most of the world’s big nations—including Germany, the United States, and the United Kingdom—face fiscal problems more significant that Greece is dealing with today. Assuming these nations don’t implement desperately needed entitlement reform, the you-know-what is going to hit the fan at some point. Folks with funds in a tax haven will be in much better shape if, or when, that happens.

For more background information on tax competition, here’s a video explaining the ABCs of the issue.

It’s galling, by the way, that the bureaucrats at the OECD pushing for a global tax cartel get tax-free salaries.

And here’s my video debunking some of the common myths about tax havens:

My favorite part of this video is the revelation that a former John Kerry staffer fabricated a number that is still being used by anti–tax haven demagogues.

And speaking of demagogues misusing numbers, you’ll notice the current resident of 1600 Pennsylvania Avenue has a starring role in this video:

I’ve probably exhausted your interest in videos, but if you’re game for one more, click here to learn more about the Paris-based OECD, a statist international bureaucracy that is active in trying to undermine tax havens as part of its efforts to create a global tax cartel to prop up Europe’s welfare states.

The hard-working Cato interns pointed me to this article discussing a constitutional challenge to restrictions on the online provision of veterinary services:

divMore details here, here and here.

I’ll leave the U.S. constitutional issues to the smart folks at the Institute for Justice. I just wanted to say a few words about international trade in veterinary and other medical services. (Note that the vet in question offered services to clients abroad, so international trade is already happening.)

The restrictions faced by the vet in this case make clear that there are plenty of domestic impediments to this trade. Hopefully this lawsuit can help get rid of those. 

But if that happens, we may still have to deal with restrictions on international trade in these services. What will governments think of their citizens getting online medical advice from foreign doctors/​nurses? What will they think of their doctors/​nurses giving online advice to foreign patients?

I know what I think: this has great potential for increased competition and benefits to consumers.

But I worry that some governments will impose restrictions and undermine these developments. I don’t mean to imply that no oversight or regulation of international trade in these services is required. But any such regulation should be reasonable, and should not prevent this trade from occurring.

Right now, the United States and other countries are engaged in efforts to liberalize trade in services in a number of multilateral and regional trade negotiations. It would be of great value if they addressed online trade in medical services as part of these talks, with the goal of ensuring that international trade in these services is as free as possible.

The Government Accountability Office has released its third annual report on fragmented, overlapping, or duplicative federal programs and activities. Proponents of making the government more efficient view the findings as an opportunity to achieve cost savings. While there’s obviously nothing wrong with the government spending less money than it has to, the goal should be to permanently shut the trains down – not just try to get them to run on time. 

Some examples: 

• The GAO says “Enhanced collaboration between the Small Business Administration and two other agencies could help to limit overlapping export-related services for small businesses.” The federal government shouldn’t be subsidizing export promotion for commercial interests, period. (See here and here.) 

• The GAO says “Federal agencies providing assistance for higher education should better coordinate to improve program administration and help reduce fragmentation.” The federal government should not be subsidizing higher education, period. (See here.) 

• The GAO says, “To achieve up to $1.2 billion per year in cost savings in the Federal Crop Insurance program, Congress could consider limiting the subsidy for premiums that an individual farmer can receive each year, reducing the subsidy for all or high-income farmers participating in the program, or some combination of limiting and reducing these subsidies.” Federal crop insurance subsidies and all farm subsidies should be abolished, period. (See here and here.) 

• The GAO says, “Federal support for wind and solar energy, biofuels, and other renewable energy sources, which has been estimated at several billion dollars per year, is fragmented because 23 agencies implemented hundreds of renewable energy initiatives in fiscal year 2010—the latest year for which GAO developed these original data.” The federal government shouldn’t subsidize renewable energy (or traditional sources of energy), period. (See here.)

There have been numerous attempts to “reinvent government,” “streamline the bureaucracy,” etc, over the decades as the government has expanded in size and scope. Perhaps the GAO report will spur another. But while the initiatives change, the result is always the same: we still end up stuck with a bloated Leviathan that continues to have its snotty nose in every facet of our lives. 

As I often point out, waste always comes with government the same way a Happy Meal always comes with a toy and drink. There is duplication and waste in the federal government because it has become massive and there are virtually no limits on what politicians can spend money on. 

I’m not suggesting that government waste should be ignored. Indeed, examples of waste should be held up as reasons to terminate entire government agencies and programs. But I believe that a myopic fixation on “eliminating duplication and waste” is itself a waste. That’s because duplication and waste are merely symptoms of the real problem of big government.