Senate Judiciary Committee Chairman Chuck Grassley recently reintroduced an E‑Verify bill that ought to concern privacy advocates. If enacted, the bill would implement the employment verification scheme nationwide, something President Trump called for during his campaign. Nationwide E‑Verify would establish the framework for a national ID system that would undoubtedly come to be used for more than the enforcement of immigration laws. E‑Verify allows employers to check a new hire’s information against government databases to confirm legal status. It is an ineffective system. One reason why E‑Verify suffers from inefficiency is because, as things stand, employers taking part in E‑Verify use information from documents such as Social Security cards provided by employees. Because the E‑Verify system matches employees’ names with a Social Security Number (SSN) it’s possible for an unauthorized worker using a fraudulent SSN to be cleared for employment. A 2009 audit commissioned by the United States Citizenship and Immigration Services estimated that 54 percent of unauthorized workers who submitted documents via E‑Verify were erroneously cleared for employment thanks to fraud. An effective E‑Verify system would have to address this glaring loophole. One way of addressing E‑Verify’s inadequacy is to include biometric information, such as a facial photograph. Such proposals are worrying. The E‑Verify system currently checks submitted data against Department of Homeland Security (DHS) and Social Security Administration databases. Section 11 of Grassley’s bill would allow the E‑Verify system to include the “passport and visa record (including photographs) maintained by the Department of State” as well as driver’s license photos. Seven states voluntarily provide DHS with driver’s license data as part of the Records and Information from DMVs for E‑Verify (RIDE) initiative. That Grassley’s bill explicitly mentions driver’s license photos is important. Allowing the DHS secretary to deem it necessary for the E‑Verify system to confirm identity via driver’s license photos introduces biometric information that proponents believe will make the system more effective. If the statute purports to require that 43 states provide DMV information that raises constitutional concerns, but as the recent debates surrounding REAL-ID show, the federal government could try to coerce states into compliance. DHS announced earlier this year that residents in nine states will need an identifying document other than a state driver’s license to fly if their licenses are not REAL-ID compliant by January 22, 2018. Even if the federal government fails to force states to submit DMV data under a nationwide E‑Verify scheme, there is still the possibility of nationwide E‑Verify leading to a de facto biometric national ID card.
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Trump’s Trade Policy: Rhetoric vs. Reality
Donald Trump’s rhetoric on trade policy has been, to say the least, over the top. The economic nationalism in his inauguration speech was particularly alarming. But there is a great deal of uncertainty about the extent to which his actual policies will reflect this rhetoric. As an example, look at what Trump said yesterday about requiring domestic materials (mainly iron and steel) in the construction of pipelines, and compare that to what he actually did.
First, here’s what he said as he signed a Presidential memorandum on “Construction of American Pipelines”:
This is construction of pipelines in this country. We are – and I am – very insistent that if we’re going to build pipelines in the United States, the pipes should be made in the United States. So, unless there’s difficulty with that because companies are gonna have to sort of gear up; much pipeline is bought from other countries. From now on, we’re gonna start making pipeline in the United States. We build it in the United States; we build the pipelines; we wanna build the pipe. Gonna put a lot of workers, a lot of steel workers, back to work. Okay. We will build our own pipeline. We will build our own pipes. That’s what it has to deal with. Like we used to, in the old days.
That sounds very strident and forceful: We will use American steel for American pipelines!
What he actually did, however, is much more nuanced. Here is an excerpt from the memorandum he signed:
MEMORANDUM FOR THE SECRETARY OF COMMERCE
SUBJECT: Construction of American Pipelines
The Secretary of Commerce, in consultation with all relevant executive departments and agencies, shall develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law. The Secretary shall submit the plan to the President within 180 days of the date of this memorandum.
So instead of there being an immediate requirement to use domestic iron and steel in pipelines, which is kind of how it sounded when Trump made the announcement, there will be an interagency consultations process to “develop a plan” within 180 days. And under this plan, domestic iron and steel is to be used “to the maximum extent possible and to the extent permitted by law.” The “to the extent permitted by law” qualification is particularly relevant, as it could be interpreted to mean that the requirement would not apply if it violated international trade obligations, such as the non-discrimination rules in the World Trade Organization (WTO). That is, the requirement which is actually applied after the plan is developed might exempt all countries who are members of the WTO. If such an exemption were used, the impact of the requirement would be negligible, since most counries are WTO members. (On a trade specialty blog I run, I explained why this kind of domestic content requirement would almost certainly violate trade obligations).
The difference between the rhetoric and the possible reality here means that we still don’t have a very good idea of what U.S. trade policy under Trump is going to look like. At some moments, it seems like we are headed into uncharted protectionist territory; at others, it seems more like a continuation of existing policies, with minor modifications. All we can do at this point is wait for concrete policy proposals and evaluate them as they come out. Hopefully the reality will not match the rhetoric.
New CBO Numbers and the Simple Formula for Good Fiscal Policy, Part I
The Congressional Budget Office, as part of The Budget and Economic Outlook: 2017 to 2027, has just released fiscal projections for the next 10 years.
This happens twice every year. As part of this biannual exercise, I regularly (most recently here and here) dig through the data and highlight the most relevant numbers.
Let’s repeat that process. Here’s what you need to know from CBO’s new report.
- Under current law, tax revenues over the next 10 years are projected to grow by an average of 4.2 percent each year.
- If left on autopilot, the burden of government spending will rise by an average of 5.2 percent each year.
- If that happens, the federal budget will consume 23.4 percent of economic output in 2027 compared to 20.7 percent of GDP in 2017.
- Under that do-nothing scenario, the budget deficits jumps to $1.4 trillion by 2027.
But what happens if there is a modest bit of spending restraint? What if politicians decide to comply with my Golden Rule and limit how fast the budget grows every year?
This shouldn’t be too difficult.
![Media Name: Obama-Spending-GDP.jpg](/sites/cato.org/files/styles/pubs_2x/public/download-remote-images/freedomandprosperity.org/224519063319/Obama-Spending-GDP.jpg?itok=dRClTzbR)
After all, even with Obama in the White House, there was a de facto spending freeze between 2009–2014. In other words, all the fights over debt limits, sequesters, and shutdowns actually yielded good results.
So if the Republicans who now control Washington are serious about protecting the interests of taxpayers, it should be relatively simple for them to adopt good fiscal policy.
And if GOPers actually decide to do the right thing, the grim numbers in the CBO’s new report quickly turn positive.
- If spending is frozen at 2017 levels, there’s a budget surplus by 2021.
- If spending is allowed to grow 1 percent annually, there’s a budget surplus by 2022.
- If spending is allowed to grow 2 percent annually, there’s a budget surplus by 2025.
- If spending is allowed to grow 2.63 percent annually, the budget is balanced in 10 years.
- With 2.63 percent spending growth, the burden of government spending drops to 18.4 percent of GDP by 2027.
To put all these numbers in context, inflation is supposed to average about 2 percent annually over the next decade.
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Trump and Democrats Issue Competing Infrastructure Plans
Senate Democrats have proposed an infrastructure plan that calls for $1 trillion in federal deficit spending. In detail, the plan calls for:
- $100 billion for reconstructing roads and bridges;
- $100 billion to “revitalize Main Street,” that is, subsidies to New Urbanism and affordable housing;
- $10 billion for TIGER stimulus projects;
- $110 billion for reconstructing water and sewer;
- $50 billion for modernizing rail (Amtrak and freight railroad) infrastructure;
- $130 billion to repair and expand transit;
- $75 billion for rebuilding public schools;
- $30 billion to improve airports;
- $10 billion for ports and waterways;
- $25 billion to improve communities’ resistance to natural disasters;
- $100 billion for a next-generation electrical grid;
- $20 billion for broadband;
- $20 billion for public lands and tribal infrastructure;
- $10 billion for VA hospitals;
- $10 billion for an infrastructure bank;
- $200 billion for “vital projects” that “think big,” such as building “the world’s fastest trains.”
In response, someone has leaked what is supposedly the Trump administration’s own list of 50 infrastructure priority projects. It includes such boondoggles as a Dallas-Houston passenger rail line, the congestion-inducing Maryland Purple Line, the $14 billion Hudson River tunnels, and completion of the $2.2‑billion-per-mile Second Avenue Subway. Except for the Dallas-Houston line, most of the passenger rail projects were already pretty well decided, but they are still foolish investments that will cost a lot and return little to the economy. There are supposedly more than 250 other projects on a priority list, but it isn’t absolutely certain that this list was endorsed by Trump or merely proposed to him.
Update: While I am now certain that the supposed Trump priority list was really “fake”—that is, not really from the administration—it appears that the reason why the Dallas-Houston line was on the list is that it is supposed to be entirely privately financed. While I am skeptical that private funders could profitably build and operate such a line, if they could, it would be appropriate (though unnecessary) to have it on such a priority list.
What most people have been calling Trump’s infrastructure plan calls for giving tax credits to private investors who spend money on these kind of infrastructure projects. This has some virtues over the Democratic proposal of direct federal spending:
- While the Democrats take a top-down approach dictating where the money will go, Trump leaves the setting of priorities to state and local governments, which have already approved most of the projects on his top-50 list;
- Where Democrats would commit the federal government to spend an arbitrary amount of money whether it needs to be spent or not, Trump lets state and local governments decide how much to spend and how they will pay for it;
- Where Democrats would add $1 trillion to the deficit, Trump relies on a tax credit program that will cost the feds no more than $167 billion per trillion in spending (less, obviously, if less than $1 trillion is spent);
- Where a lot of the Democrats’ money would go down a rat hole, at least some of federal tax credits that Trump’s plan would issue will be offset by the reduced use of tax-free municipal bonds and taxes paid by companies and workers earning the money.
Typical of central planners, the dollar figures in the Democrats’ plan are completely arbitrary.
- Why should trains and transit, which carry 1 percent as many passenger miles as roads, get roughly as much money as roads and bridges (and probably more considering much of the $200 billion “vital infrastructure” fund would go for high-speed rail)?
- Why spend $40 billion expanding transit and no money expanding highways when highway use is growing faster than transit in most places and most years?
- Why no money for upgrading the air traffic control system (which is on Trump’s top-50 list)? I don’t support the use of tax dollars for such things, but it is a huge oversight from a plan predicated on the idea that federal central planners know the best places to spend your money.
- Why $110 billion on water and sewer, and not $100 billion or $120 billion? It seems the point of these numbers is to add up to a nice round $1 trillion while divvying up the money to special-interest groups.
- For that matter, why any at all on water, sewer, and the electrical grid when these should already be adequately funded through user fees?
- Why is education even on the list when the federal government has never spent more than token amounts of money for school infrastructure?
My complaints about the Trump plan have been:
- It’s not really a plan—it’s just one funding tool;
- It doesn’t prevent state and local governments from spending the money on completely looney projects such as the aforementioned Dallas–Houston high-speed rail; and
- The private-partnership aspect has confused many people into believing that it will only fund projects that can be paid for out of user fees when in fact most projects would require state and local taxpayers to ultimately repay the private contractors out of tax dollars.
While these are valid complaints, the Trump plan is more bottom-up than top-down, as most if not all of the projects on the possibly fake priority list are supported by state and local officials. And while Trump brought a new idea to the table, the Democrats’ plan is the same old borrow-and-spend formula that they have used in the past. This is actually worse than tax-and-spend because taxing and spending doesn’t leave huge debt problems and interest payments for the future.
While we can hope that Trump’s projects will rely more on user fees more than taxes, at the moment the score has to be Trump 1/2, Democrats minus 1.
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China Shuts Down Website of Mao Yushi, Friedman Prize Winner
![Akbar Ganji](/sites/cato.org/files/styles/pubs_2x/public/images/yushi-bio.jpg?itok=jg2LR9S7)
In its ongoing crackdown on advocates of free speech, human rights and other liberties, China’s communist party has shut down the website of Milton Friedman Prize winner Mao Yushi’s think tank. Mao has spent a lifetime promoting the values and principles of a free society for which he has often paid a high price, including severe persecution. The Unirule Institute of Economics that he cofounded has educated new and old generations of Chinese on the importance of private property, the rule of law, freedom of choice, voluntary exchange, and other aspects of the market economy, and on how to transition away from central planning.
In recent years, Mao has been warning about a “leftist revival” in China and has called for a critical evaluation of Mao Zedong’s role in Chinese history—an officially taboo subject. His essay “Returning Mao Zedong to Human Form” (upon which this English summary is based) condemned the communist leader’s brutal policies and earned him retribution from the neo-Maoist movement that has been growing with the regime’s encouragement. Repression under President Xi Jinping has intensified as journalists, lawyers, human rights activists, scholars, and members of religious communities have been jailed or otherwise oppressed. The regime has warned against the danger of foreign and western ideas, increased censorship and closed numerous NGOs, accusing them of being foreign agents.
It is in the context of that widening crackdown and disregard for due process or the rule of law that the communist party has closed Mao Yushi’s website. We hope that it does not signal further repression against Mao, his think tank or his colleagues, but we cannot be confident that the law will protect them. Indeed, the head of China’s Supreme Court recently asserted that the Party is above the law and warned against western concepts such as judicial independence.
A Tax on Remittances Won’t Pay for a Border Wall
President Donald Trump has not yet signed an executive order about his proposed border wall. An executive order would only do so much as Congress would have to appropriate funds to actually construct the wall. A wall built to the dimensions and specifications promised by Trump would cost about $25 billion to $31.2 billion and run 1000 miles along the border with Mexico.
Since the Mexican government won’t pay for the wall and holding up all remittances in order to get the Mexican government to pay for it runs into constitutional problems, some like Mark Krikorian of the Center for Immigration Studies have proposed a nation-wide refundable fee (a tax with another name) on wire remittances to fund the wall. Taxing remittances of illegal immigrants will not raise enough funds for a huge new border wall.
A remittances tax would have to be very high to raise enough revenue to pay for a wall, even assuming there is no fall off in revenue at higher rates. The state of Oklahoma has a wire transmitter fee equal to about one percent of the funds transmitted. In 2016, the tax raised $12,696,879.25 or $133.65 per illegal immigrant in the state. Back of the envelope, a nationwide version of the wire transmitter fee would only raise about $1.6 billion annually. If the nationwide wire transmitter fee tax was 5 times as high as in Oklahoma then it would raise enough money to pay for the wall in three to four years assuming there is no fall off in revenue at such a high rate or other disruptions don’t occur.
Oklahoma labels this tax a fee because it’s a fully refunded tax credit. A full 96 percent of those who pay the fees don’t claim the credit. David North of the Center for Immigration Studies argues that illegal immigrants pay virtually the entire tax because most of the credits aren’t claimed. That’s probably right but North overstates his case. The IRS estimates that about one in five folks eligible for the EITC do not claim it although there are many improper payments made too. Furthermore, between 55 percent and 75 percent of illegal immigrants file tax returns, have money withheld from their paychecks, or both. That being said, most of the people paying the tax are likely illegal immigrants but many Americans also pay directly.
Keystone XL Approved at Last, Now Let’s Move On
Nearly eight-and-a-half years after its initial application, the Keystone XL pipeline project has been given the green light (“subject to a renegotiation of terms by us”) by an executive order signed by President Trump today. Finally.
Whether the impetus and economics is still there to build it (with oil prices in the mid-$50 barrel range) remains to be seen. But I’d imagine so, if nothing more than as an infrastructural investment in the future.
But from the federal government standpoint, this shouldn’t matter. If private monies want to take the risk, the federal government should not stand in the way. After all, the Keystone XL pipeline passed each and every environmental impact/safety assessment along the way. Even the climate impact, much touted and hyped by the previous Administration and its supporters, was shown, dispassionately, to be inconsequential—a mere 1/100th of a degree of warming by century’s end (and that’s being generous).
President Obama rejected the pipeline for no other reason than for appearances—to make it seem to the rest of the world that the U.S. was serious about climate change. Apparently, he didn’t see the irony.
His successor is resurrecting the pipeline for the same reason—appearances. In this case, the appearance of creating jobs. But as I exasperatingly explained in these pages some two years ago (“Keystone XL Pipeline: Enough Already!”):
This project is so small in the grand scheme of anything it boggles the mind anyone outside of those directly involved in building and operating it gives it a second thought…
At this point, the Keystone XL is just another construction project. In fact, that is all it ever was. If it didn’t require crossing the border with Canada (which required a “presidential permit”), we never would have heard a peep about it.
With the pipeline’s apparent revival, now at least, all the government resources spent examining and re-examining and fretting and re-fretting, etc. over the project will have amounted to something—even though that something should have been decided (and approved) some four or five years ago.
What executive powers taketh away, executive powers giveth. I’m sure this won’t be the last of Obama’s symbolic actions on climate change that President Trump overturns. Each will better clear the way for us to move on to more important matters.
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Update: With the release of the actual text of the Executive Order (made available several hours after Trump signed it), it’s not so much an “approval” of the Keystone XL pipeline as it is an invitation for TransCanada to resubmit its application with the promise that it will be decided upon within 60 days with, wink, wink, a more favorable outcome. So, it seems though this won’t be the last we’ve heard of it, this battle is moving closer to its completion.