Sunday, December 31, 2017

My Top Ten Blog Entries from 2017

2017 was a crazy year. The United States witnessed a first insane and unforgettable year with Donald Trump as the President of the United States and leader of the free world. It has been crazy enough where I even had some liberal friends saying how they missed President George Bush (43) because it has been that crazy. That does not even consider such international events as North Korea escalating its nuclear arms program, Catalonia seceding from Spain, or Emmanuel Macron being elected as President of France. As politics both in the United States and abroad become more polarized, I would like to take a brief moment to not only thank you, the viewer, for not only continuing to read the work that I publish, but also to take a look at some of the highlights that I published in 2017. In chronological order, here they are:

  1. Building a Wall on the U.S.-Mexican Border. This was one of President Trump's infamous campaign promises. After taking a look at the proposal, there was no public policy basis for constructing it. 
  2. Women Clergy in Orthodox Judaism. Politics are always intriguing to watch, but all the more so when adding religion into the mix. For those who are Jewish or who are even into Jewish religious politics, this topic has been one that has been transforming the Orthodox Jewish world. The long and short of my opinion? Orthodox Jewish women should be allowed to be members of the clergy. 
  3. Mandated Menstrual Leave in Italy. This one was more obscure than some of the others I have written, but it was interesting to take both the social and economic arguments in account before concluding that mandating menstrual leave would do Italy more harm than good. 
  4. The Opioid Crisis and Government Involvement. The interesting part of being a consequentialist libertarian who shows his side of pragmatism is to acknowledge when there actually a role for government to play in mitigating a crisis. Looking at what is going on with opioids in the United States, this is one of those times.
  5. Politeness versus Political Correctness. As much as proponents of political correctness would like to keep conflating politeness with political correctness, I can tell you that there is a world of difference between the two, which is why I prefer politeness over political correctness. 
  6. 15 Reasons to Dislike Obamacare. If there is any blog entry this year I would consider a magnum opus, this would be it. Critics of Obamacare, including myself, were able to point out the problems that Obamacare was going to face even before it was enacted, and it looks like the critics were right.
  7. Charlottesville Protest and White Supremacy. This blog entry took a look at hate crimes in the United States, the prevalence of the Far Right in the United States, the fighting words doctrine with regards to the First Amendment, and how to respond to hate. 
  8. Celebrating Rosh Hashanah When Life Is Anything But Ideal. On a personal level, this year was tough for me. I wrote this piece to help those who are going through a rough time navigate the Jewish High Holidays. 
  9. #MeToo and Sexual Assault. This one I found thought-provoking because I worked my way through the nuances of the sexual assault debate that go beyond tawdry stereotypes or simply ignoring the prevalence of sexual assault. 
  10. Wedding Cake Supreme Court Case. Tricky cases make for bad law. The Supreme Court case about whether a same-sex couple can be refused the service of having a wedding cake baked for them or if the baker should be coerced into baking it. As I pointed out, there are no upsides to a broad ruling from the Supreme Court. If the baker wins, it could lead to discrimination against an entire class of people. If the Colorado Rights Commission wins, it could mean forcing people to provide goods and services against their conscience. My take on it was that the Supreme Court should side with the baker, but keep the scope of the ruling as narrow as possible. 

Tuesday, December 26, 2017

Congress Lowering Alcohol Taxes: Should We Drink to That?

It looks like the Republicans finally passed the Tax Cuts and Jobs Act (TCJA) and made it into law. It has been a topic of much controversy over the past few weeks I did cover the House's initial draft of the Tax Cuts and Jobs Act last month, and I hope to cover the implications of the final version of the TCJA in a future blog entry. However, there is a provision in the TCJA that I would like to discuss right now: lowering the federal excise tax on alcohol. The current excise tax varies by type of alcoholic drink, but the taxes are going to be lowered across the board, which makes the alcohol production industry very happy with the news. The estimated annual savings for brewers is $130 million. There are those who are against the provision because of the public health ramifications behind lowering the alcohol tax. Should we celebrate this tax reduction with a drink or not?

A bit of background on the tax. An excise tax is an indirect tax charged on the sale of a particular good, in this case, alcohol. The argument against lowering the tax is that by lowering the overall price vis-à-vis the excise tax would encourage more alcohol consumption. This increased consumption would endanger the health and wellbeing of the consumer and potentially through related fatalities.  The Brookings Institution estimated that the Senate's tax could result in up to an additional 1,500 alcohol-related deaths per annum (Looney, 2017), although their is skepticism for these figures. One study estimates the social cost of excessive alcohol consumption at $250 billion per annum (Naimi et al., 2017), or $2.10 per drink. This sounds like a slam-dunk case for increasing the alcohol excise tax, but here are a few reasons to remain skeptical:
  • Price elasticity. This is the fancy economic term to describe how people respond to the change of a price of a good or service. If the price changes and there is not a huge change in consumption, that is called an inelastic good. If the reverse is the case, then it is elastic. In the case of the demand for alcohol, it is considered a relatively inelastic good. Looking at a meta-analysis from Health Economics Review, the average price elasticity is -0.5 (Nelson, 2013). Another meta-analysis confirms these findings (Gallet, 2007). The elasticity in the United States is slightly more inelastic than in other developed countries, but the point is that in comparison to other goods, peoples' consumption patterns are not as responsive to an alcohol tax than it would be on other goods.  
  • Seemingly a poorly targeted tax. Another issue is that if an alcohol tax is supposed to function like a sin tax, it is a poorly targeted tax. How so? The purpose of using the alcohol tax as a public health measure is that it is supposed to deter those with a drinking problem from purchasing more alcohol. The issue comes into play because it is impossible to differentiate between abusers of alcohol and moderate drinkers at the point of sale. Yes, making it more difficult for heavy drinkers to purchase alcohol comes with a benefit. However, making it more difficult for moderate drinkers to purchase alcohol comes at a cost. I say this because there is some evidence showing that moderate drinkers derive benefit from drinking. Moderate drinkers have an edge in emotional health, according to Gallup. Moderate drinking also has the potential to reduce the risk of stroke, diabetes, and heart attacks (e.g., Xi et al., 2017). As I will point out below, I have reason to be skeptical about this point of skepticism. 
  • Questionable effects on drunk driving rates. The Urban Institute and Brookings Institution recently released a study through their left-of-center Tax Policy Center, and found that alcohol excise taxes do not have a long-term effect on drunk-driving accidents (McClelland and Iselin, 2017). On the other hand, one study shows that since the federal government increased the alcohol tax in 1991, it lowered injury deaths by 4.7 percent, or 7,000 people (Cook and Durrance, 2012). 

Closing Thoughts: Even though I have some skepticism about the advantages of an alcohol tax, they do not necessarily withstand scrutiny. For one, the health benefits for moderate drinkers are not as conclusive as other health findings (e.g., smoking is bad for your health). One could argue that the elasticity is not so low that a higher tax could have some positive effects. Plus, it might be less of an issue since the regressivity of the alcohol tax is going to primarily affect the heaviest of drinkers. (Vandenberg and Sharma, 2016; Naimi et al., 2016; Daley et al., 2012). Another way of framing it is that if the alcohol tax increases, the heavy drinkers would feel the brunt of the tax increase, not moderate drinkers.

With that being said, I am convinced that given what I have seen, a federal alcohol excise tax should exist. Sometimes, we have to look at public policy through the lens of "the least worst option." As the libertarian Cato Institute points out in a 2009 article on alcohol taxes, alcohol taxes are more economically efficient than directly regulating or fining drunk drivers or those who abuse alcohol. In addition to the efficiency, I would argue that an alcohol tax is preferable because an excise tax is an indirect tax, as opposed to a direct tax or a more intrusive regulation. The benefit of a federal alcohol tax (as opposed to a state-level excise tax) is that it would be more difficult for consumers to buy across national borders than state borders.

What will the health effects of the latest tax cut be? I don't think that it will be as large as opponents think. When looking at the TCJA itself and viewing the cost of alcohol taxes on a retail level, alcohol taxes would only decrease 1¢ per beer and less than $2 per fifth of liquor. I don't need a PhD in Economics to remain skeptical of the magnitude of additional health costs of an alcohol tax cut. Even so, that does not negate my assertion that an excise tax on alcohol should exist. The trickier part is determining what that amount should be in order to balance the health concerns with the economic ones. This should not be the end of the alcohol tax debate, but I don't think the tax cut is going to be cause of a major uptick in alcohol-related deaths.

Thursday, December 14, 2017

Chanukah Gelt: The Significance of Giving Money on Chanukah

To quote Adam Sandler, "Chanukah is the Festival of Lights. Instead of one day of presents, we have eight crazy nights." In American culture, there is this pervasive myth that during Chanukah, Jewish children receive an awesome present each night. Giving Chanukah presents was not a practice until the late nineteenth century when Christmas became a federal holiday in the 1870s. The trend of exchanging Chanukah gifts did not really take off until the 1950s. The idea of Chanukah gift exchange is both modern and in response to Christmas so that Jews could better assimilate and not feel left out during the holiday season.

Before this Chanukah gift-giving extravaganza, there was a precursor: Chanukah gelt (חנוכה געלט). Chanukah gelt refers to money given to children on Chanukah. Looking at the history of the practice, giving money for Chanukah dates back to the sixteenth century. The practice itself came in a couple of variants. One was the Italian and Sephardic practice of money to purchase clothes for poor students studying Torah. In eastern Europe, it was either done to do outreach for Jews in more remote areas or to fundraise to keep yeshivas afloat. Another variant is that is a time to give tzedakah (charity). This is particularly the case when reading the Kitzur Shulchan Aruch (139:1), where it states that one is to give lots of tzedakah during Chanukah because the days of Chanukah are auspicious to correcting the flaws of the soul. What is it about Chanukah that allows for tzedakah to have such power? At least when looking at the time between Rosh Hashanah and Yom Kippur, giving tzedakah is supposed to avert the Divine decree (assuming you read Unataneh Tokef literally, which I don't). So what is the connection between money and Chanukah? Perhaps looking at explanations behind the practice could help:

  1. In Hebrew, the word Chanukah (חנכה) has the same three-letter root as "education" (חינוך). After the Greeks were defeated, the Jews had to reeducate their people, especially the children. Providing education takes funding. Giving money is to remind ourselves that children are an investment in the future of the Jewish people (Sifsei Chaim). This would explain why younger individuals were the typical recipients of the original variants of Chanukah gelt
  2. One of the major motifs of Chanukah is the cultural clash between the Greek hedonism and Jewish spirituality. With this motif in mind, the Greeks treated wealth more as an ends than anything else. In Judaism, we treat it as a means. We remind ourselves that with so many other things, we have the power to do good or evil with money. We have the choice as to whether to elevate something as seemingly mundane as money to something holier. By giving money on Chanukah, we illustrate what sort of good we can do when we give [money].   
  3. The Talmud (Shabbat 22a) discusses a case where a poor person does not have enough money to buy Chanukah candles and Kiddush wine for Shabbat. The candles took precedence over Shabbat, interestingly enough. To make sure this hypothetical did not turn into reality, one is to give enough money to make sure all Jews have enough money for both (Magen Avraham). This argument falls short with regards to connecting money to Chanukah. The reason for that is that giving money to make sure there is enough to celebrate holidays is not unique to Chanukah. Plus, the practice of giving money on Chanukah started centuries after this Talmudic debate. 
  4. R. Josh Flug suggests that after the war, the winners would distribute the loot to the soldiers and the poor. Giving gelt can be seen both as a commemoration of winning the war and helping those affected by the war.
  5. After the war between the Maccabees and the Greeks, the Hasmonean dynasty minted coins in 142 BCE with an image of a menorah. This minting was meant to represent a high point of Jewish freedom in the Second Temple era.
How do we tie these ideas together to get a clear picture behind the meaning of giving money on Chanukah? In the Chanukah story, we are taught that the ancient Greeks were obsessed with aesthetics. It was a "thinking culture that appreciated beauty." The issue was not with beauty so much as it was the extent to which it was admired. Having the physical valued at that extreme resulted in hedonism.

When applied to the idea of money, that sort of thinking typically results in splurging on material items. The Lubavitcher Rebbe (Likutei Sichot) believed that when the Greeks came into the land of Israel, it was not an issue of taking the possessions so much as it was infusing their values with the possessions so the possessions could be used for egotistical and ungodly purposes.

Money is a medium of exchanging for goods and services. It is a vital part of an economy. With Judaism, it is not about amassing ridiculous amounts of wealth for its own sake. At the same time, a Jewish live does not mean living a monastic or aesthetic life. Money is a means to an end, and as these explanations show, we are to transcend ourselves by using that G-d-given free will to disperse that money.

When we interact with something such as pervasive as money, we have to ask ourselves what our potential is. We can use Chanukah money to help Torah scholars, children, or the poor. We can use the practice of giving Chanukah gelt as a means of making us more generous or more grateful people. Chanukah teaches a lot about potential and what it means to be the best version of ourselves. A ragtag team of soldiers took their potential and fought against a well-trained army against all odds. While G-d gave us potential by being "created in His Image," potential goes to waste if it is not acted upon. To paraphrase R. Jonathan Sacks, we will be remembered for how we give, not on how we spend or take. We have to be willing to put our money where our mouth is if we are to actualize our potential. The Maccabees lived their lives not just in dedication, but also in giving.

A few questions to ponder as you give Chanukah gelt this year: Do we want to live according to our values?  Does being free simply mean doing whatever you feel like or does it mean taking that free will and transcending oneself? Do we want to make an impact on the world by what we give? Ultimately, can we put our money where our mouth is so we can not just "talk the talk" but also "walk the walk?"

Monday, December 11, 2017

Do We Really Need to Drill for Oil at the Arctic National Wildlife Refuge (ANWR)?

The dichotomous argument between economy and environment has found itself in many places, but I was not exactly expecting to find it in the Senate's tax bill. The Senate's version of the tax bill has many provisions in it, including one to start drilling in the Arctic National Wildlife Refuge (ANWR). There are many reasons the Republicans could have snuck this provision, but one is presumedly to get Senator Lisa Murkowski (R-AK) to support the tax bill. The debate about ANWR is nothing new. It has been ongoing for 40 years. You can read a 1993 assessment from the Government Accountability Office (GAO) here to get a sense of how long ANWR has been a political controversy. What is new is that this is the best chance to date that drilling will take place in ANWR. So here is what I would like to ask: should Congress go ahead with approving drilling in ANWR?

The back and forth on the topic goes something like this. Proponents of drilling opine that we only need a small portion of the land in ANWR to drill. Since the environmental impact would be minimal and the economic benefits substantial, there isn't much reason to be concerned. Opponents opine that there would still be considerable environmental damage, and that it's not worth taking the risk to ruin a pristine place of nature. Let's ask ourselves a few questions to help frame the debate:

  • How much retrievable oil is in ANWR? In 1998, the Department of Interior estimated that there is anywhere between 5.7 billion and 16 billion barrels of oil in ANWR. In 2013, the U.S. Geological Society updated their estimates to 10.4 billion barrels. The Bureau of Ocean Management made an estimation in 2014 that it would be about 7 billion barrels. To put this figure into perspective, the U.S. imported 2.9 billion barrels of crude oil in 2016. This should give us serious reservations about the myth of how ANWR is going to solve energy dependency woes.
  • How much economic benefit would be derived? According to an economic study from two Yale economists (Kotchen and Burger, 2007), the oil was estimated at a value of $354 billion at $53 a barrel, which is not too far from today's barrel prices (see below). A December 2015 study from the Institute for Energy Research (IER) puts the economic benefit at $39 billion a year (p. 9) while ultimately adding 77,300 jobs to the economy (p. 10).
Source: NASDAQ
  • How much government revenue would leasing ANWR earn? According to a 2012 Congressional Budget Office (CBO) report, about $10 billion over a decade for the federal government. This does not count the government's gross receipts from royalties, which could vary from $2.5 billion to $25 billion. Alaska is also expected to gain up to $8 billion in annual state tax revenues (IER, p. 13).
  • How many people visit ANWR every year? I ask this because I want to know how many people appreciate the pristine nature of ANWR. According to the U.S. Fish and Wildlife Service, there are about 1,200 to 1,500 visitors each year. To put this number in perspective, over 4 million visited Yellowstone in 2016 and over 500,000 visited Redwood National Forest. 
  • What is the potential environmental impact? I'm not here to say that oil drilling is without risk. The BP oil spill acts as a reminder of that notion. There has definitely been environmental concern expressed over Congress' recent decision (also see here). Also, the U.S. Fish and Wildlife Service stated that the ecological diversity in ANWR is unparalleled, which presents additional challenges. That being said, we should always measure risk against reward. Technological developments in seismic computational capabilities make it easier to limit the impact and acreage used to drill in ANWR. 
  • How will this impact the caribou? One of the larger environmental concerns is the impact that drilling in ANWR would have on caribou. What can give us some insight is how the caribou population has been affected since drilling took place in Prudhoe Bay. In 1975, there were just 5,000 caribou. The population peaked to 70,000 in 2010, and then declined to 50,000 since 2013 primarily due to reasons unrelated to drilling. If the past is an indication of anything, it means that although the porcupine caribou are largely located in the proposed land for ANWR drilling, it should not have major effects on the caribou population. 
  • Should we still drill in ANWR? The short answer to this question is "no." This is not because I think the environmental costs outweigh the economic benefits. It is because we don't really need to drill. Ever since the United States used hydraulic fracturing (fracking), we have had such a fossil fuel supply glut that the United States went from being a net importer to a net exporter of oil (see DOE chart below). It is not just an issue of net exports, but also prices. As the Congressional Research Service (CRS) brought up in its 2015 report on ANWR (CRS, p. 11), lower oil prices make oil exploration and drilling less economically feasible. Oil prices have not increased greatly since (see NASDAQ chart above), which means there is not much economic incentive for oil companies to drill in ANWR. This is something to consider given that the average cost of drilling in Alaska is 31 times higher than it is in the other 48 continental states (CRS, p. 15).

Bottom Line: If you would have asked me a decade ago if we should drill in ANWR, I would have said "yes." Now, I don't see the urgency since we have more than plenty of oil. As we run out of retrievable reserves, I would revisit the issue. But as it stands, I don't think our response should be "Drill, baby drill!"

Thursday, December 7, 2017

About Time that the U.S. Recognizes Jerusalem as the Capital of Israel

President Trump has finally done something that past presidents were incapable of doing: recognizing Jerusalem as the capital of Israel. Under the United Nations' Partition Plan for Palestine in 1947, Jerusalem was declared corpus separatum, and placed under this special status due to the symbolism across multiple religions. The Green Line of 1949 split Jerusalem into two parts: West Jerusalem for Israel and East Jerusalem for Jordan. In 1967 during the Six-Day War, Israel annexed Eastern Jerusalem, thereby unifying Jerusalem. It was in 1980 that Israel codified in its law that Jerusalem was the unified capital of Israel. Israel presently has embassies in Tel Aviv, but not Jerusalem because the issue is that contentious. If Trump actually moves the U.S. embassy from Tel Aviv to Jerusalem, this would be the beginning of a paradigm shift within the international community, especially since many countries still view Jerusalem as disputed territory. The Palestinian Authority would consider a move as a "kiss of death" to the peace process....although, if we were going to be honest, the peace process has not gone anywhere for at least a few years. Did Trump make the right move or did he start something where we're going to look back and shake our heads in bewilderment?

Let's be real here: Jerusalem functions as the capital of Israel. Oxford defines a capital as "the city or town that functions as the seat of government and administrative centre of a country or region." And you know what? Israel fits that definition. The Knesset, Israel's legislature, resides in Jerusalem. The Cabinet of Israel and the Supreme Court are also located in Israel. Jerusalem is the only city in the world that functions like a capital and is not internationally recognized as such.

Yes, it is a remarkable double standard and unfair that Jerusalem cannot be recognized as the capital of Israel. At the same time, is moving the embassy to Jerusalem the right move from a political standpoint? The largest concern about moving the U.S. embassy to Jerusalem is that of violent backlash in the Arab world. The U.S. has not moved the embassy to Jerusalem because it has tried to maintain a status of "honest broker of peace." Such a move would come off as pre-judging the situation, which is all the more important since the status of Jerusalem has been viewed as something to be negotiated during the peace process.

Jonathan Schanzer, the Vice President of the Foundation for Defense of Democracies (and someone who I happen to know), has said that such a sudden switch would shake up the strategic partnership between Jordan and Israel, as well as cause a break in the quiet diplomacy between Saudi Arabia and Israel. Especially if these countries experience considerable rioting and protesting in their country as a result, it could diminish the "cold peace" Israel has developed with Egypt, Jordan, and Saudi Arabia. Even with the Arab world and Europe generally being hostile towards Israel, Israel has improved its diplomatic status with multiple nations. Saudi Arabia's tacit alliance with Israel is especially important with the rise of Iran, which is why Israel can ill afford to lose that.

It is certainly a plausible outcome that Israel could lose diplomatic clout with key regional players. However, predictions of how the Arab world would react range from diplomatic complaints to a third Intifada to an escalation of war. Plus, you already have a region where there are civil wars in three countries: Syria, Iraq, and Yemen, not to mention Hezbollah, Hamas, or other terrorist operatives, so it's not like the Middle East isn't violent already. This illustrates how tricky analyzing foreign policy can be. Even using past behavior as an indicator, foreign policy remains more elusive and speculative than other forms of public policy analysis. I am not going to pretend that I can pinpoint the magnitude of the Arab World's reaction because I can't. I hope that the problem stays confined to a few small protests and some diplomatic squabbling.

What I can say is that we no longer have to deny a basic geopolitical reality, and that delegitimizing Israel became more difficult now that Israel has a more symbolic backing of the most powerful democracy on the planet. Moving forward with such recognition could help Palestine recognize Israel's right to exist, which would, quite frankly, help with the peace process in the long-run. Such a move would not be without challenge (read Washington Institute policy brief here). If you want to minimize outrage, put the embassy in the western part of Jerusalem. Not only has West Jerusalem been part of Israel since 1949, but odds are that it would be part of Israel in final negotiating of any possible two-state solution. If it is made clear that such a move would not prejudice the final status of Jerusalem, if it does not jeopardize Palestine's claim to statehood, and if Muslim leaders' concerns are expressed and taken into consideration, I think the damage would be mitigated. Even with the concerns about diplomatic backlash that I still harbor, I nevertheless see this move as a welcomed step in the right direction.

Monday, December 4, 2017

Masterpiece Cakeshop Supreme Court Case: Protecting Both Gay Rights and Religious Freedom

In one form or another, cakes have been a sweet dessert that have been used to celebrate birthdays, anniversaries, and weddings. You can tell when times are contentious and polarized when cake becomes a theme fought over in a Supreme Court case. This brings us to the oral arguments that the Supreme Court are to hear today for the case of Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission. The premise behind the case is that a same-sex couple, Charlie Craig and David Mullins, went to Masterpiece Cakeshop in 2012 to buy a custom wedding cake. The owner, Jack Phillips, refused to create wedding cake for same-sex couples due to his religious beliefs. Although another baker offered to bake Craig and Mullins a wedding cake, the couple decided to file an anti-discrimination complaint under the Colorado Anti-Discrimination Act. The complaint escalated to the point where the Supreme Court is answering the question of whether the baker had his freedom of speech or religion violated per the First Amendment. There is more information and analysis from the SCOTUS Blog, but what I would like to explore is which side has more merit and what implications this has going forward.

The concern of those in support of the defendant is that allowing for this sort of discrimination will open the floodgates to remove anti-discrimination laws and allow for a "constitutional right to discriminate." Let's look at the discrimination more specific to the case and then let's go more broadly. A wedding cake is not a key component of a wedding. Even if you argue that a cake were that vital to a wedding, Craig and Mullins could have found a different baker. With nearly two out of three Americans support same-sex marriage (see below), it is conceivable that they could have found another baker. As a matter of fact, another baker offered to provide the couple a wedding cake at no charge.

This brings up another question: should Phillips be coerced to bake a cake for a same-sex wedding, even though his religious view is that marriage is between a man and a woman? If the answer is "yes" and anti-discrimination laws end up being interpreted in such a fashion, then the government would also be able to compel a Jewish baker to bake a non-kosher cake with a swastika for a neo-Nazi wedding or a neo-Nazi event. An African-American woodcutter could be compelled to create a wooden cross for a KKK rally, or a staunch Democrat caterer cater for a Trump rally. It would mean that Facebook could not ban white supremacists from posting racist dribble. Whether or not the Supreme Court rules that baking a cake is an artistic expression protected under the First Amendment (see arguments for and against), what worries me is whether the government has the right to compel an individual to produce something that violates their conscience.

I made this point three years ago when discussing price discrimination: producers have a right to produce their good or service for whomever they like. If a proprietor refuses to serve a certain clientele, then that is their poor business decision to make. In 2017 America, there are plenty of bakers that will take the business of same-sex weddings because profit motive. If a Christian baker refuses to serve a same-sex couple, that is their right. The reverse is also true. Take a look at what happened earlier this year. A gay coffeehouse owner in Seattle kicked out Christian anti-abortion activists from his place of business. Regardless of how you feel about abortion or Christianity, it was the gay proprietor's choice to not serve the Christian activists.

The ultimate question is how we find the balance. This is a tricky Court case because the Supreme Court needs to balance two major components of a free society. On the one hand, we need to have freedom of religion, conscience, and association. After all, it was the pursuit of that freedom that was the basis of founding the United States. At the same time, civic equality is a necessity for a free, democratic society. Yes, it is true that more and more people are supporting LGBT rights. Situations like the one that precipitated this Supreme Court case will thusly become less prevalent. Conversely, individuals within the LGBT community have gone through more than plenty of discrimination. Although there has been general progress towards civic equality, there are legitimate concerns that we, as a society, take steps backwards. That is the quandary: I don't want a society where the government coerces people to act against their own conscience, and I don't want a society with discrimination against an entire group of people.

I pondered this very question of how to strike this balance between religious freedom and civil liberties five years ago. The summarized version is that "your religious rights end where another's rights begin." What this means in this case is that Phillips does not have to bake cakes for same-sex weddings. Although I strongly disagree with Phillips' views on same-sex marriage, it is his right to hold those views. At the same time, Phillips does not have the right to force the government to stop same-sex marriages of two consenting adults simply because those are his religious beliefs. This is where we draw the line in a civilized, pluralistic society. Phillips has the right to bake cakes for whichever clientele or whichever occasions he so chooses. If he wants to lose out on making money, that's his own decision. Craig and Mullins, as two homosexual adults, have a right to enter a consensual contract of marriage. This is how we respect both the civil liberties of LGBT people and religious freedom: protecting individual rights. I also believe getting to know people who are different from you goes a long way in understanding where others are coming from, even if you don't agree with them.

How should the Supreme Court strike this balance? The gay rights movement already won the intellectual argument and is winning the moral high ground. This country does not need anti-gay backlash from this case, which is another reason why coerced nondiscrimination [from the Supreme Court] is not the best course of action in the long-run. I think that both sides have valid arguments, but that the Court should rule in favor of Phillips. If the Supreme Court rules in favor of Phillips, it should narrow the scope of the ruling and the exemption (e.g., wedding-related businesses, commercial institutions in competitive marketplaces) as much as possible so that it doesn't infringe on the rights of LGBT individuals. That way, we can protect everybody's rights instead of throwing people and their right to life, liberty, and pursuit of happiness under the bus.

Thursday, November 30, 2017

Repealing Title II Classification: Scaling Back Net Neutrality As a Right Step Towards Internet Freedom

Last week, the Federal Communications Commission (FCC) took a swing at the net neutrality laws by releasing its draft order entitled Restoring Internet Freedom. If the FCC successfully votes on this next month, this Order will roll back the net neutrality laws that were enacted in 2015 under President Obama. Net neutrality proponents are bemoaning the possible end of the Internet, whereas opponents are cheering for Internet freedom. Since we live in a world prone to polarization and hyperbole, it's nice to revisit and refine arguments, so here are some points to consider as we approach the FCC's vote:
  1. Title II is not the same as net neutrality. Although defining net neutrality is seemingly elusive, the best definition I found was "the government and Internet service providers providing equal treatment of all data contents, and Internet sites." You can read the piece I wrote on net neutrality three years ago here for further details and analysis. What was done during the Obama administration went beyond this definition of net neutrality. In 2015, the FCC decided to classify Internet under Title II classification. Title II is a classification per the Communications Act of 1934 that categorizes a service as a public utility. The current FCC is looking to repeal this Title II classification and return it to pre-2015 laws. I wrote on Title II classification in early 2015. I thought back then that is was a bad idea to treat the Internet like a public utility, least of all because the Internet is not a public utility nor does it function in a monopolistic market. In its policy brief on Title II (Mayo et al., 2017), the McDonough School of Business at Georgetown University illustrates how Title II makes the Internet less competitive. As the American Enterprise Institute explains in its article on net neutrality versus Title II, repealing Title II does not mean the end of net neutrality, let alone the Internet. The Internet was evolving well before the Title II classification came along in mid-2015. 
  2. Net neutrality is basically a solution in search of a problem. The Internet "as we know it" was built without the Title II regulations, and did well without Title II. This is not to say that there has never been anticompetitive behavior. However, the instances of blocking or slowing down service are few and far in between. When attempting to justify net neutrality back in 2010, the FCC was only able cite four examples of anticompetitive behavior, all relatively minor (FCC, 2010, p. 17925). As the Heritage Foundation illustrates in detail, many of these cases involved challengers introducing practices that could have lowered prices for consumers. 
  3. The government still has ample oversight. Net neutrality proponents provide a scary hypothetical in which ISPs block content from its competitors. Think of it as a "Wild West of the Internet" scenario. As elucidated upon in the previous point, net neutrality violations are rare. Even if the FCC stepped aside completely from regulating the Internet, the Federal Trade Commission has both the authority and knowhow to stop unfair practices (see 15 U.S. Code §45). State-level Attorney Generals also can enact their own antitrust and other consumer protection laws. 
  4. Influence on telecom infrastructure investment. Research suggests that in anticipation of classifying the Internet under Title II, telecommunications companies did not invest as much capital expenditure (Ford, 2017). George Washington University economist Hal Singer estimated that ISP capital expenditures declined by $3.5B since Title II became law. Assuming that Title II had an adverse impact, removing should incentivize telecommunications companies to invest more. 
  5. Price Discrimination versus Price Differentiation: Increasing Competitiveness. California Representative Ro Kahanna tweeted an infographic to illustrate the importance of net neutrality. Ironically enough, he showed how repealing net neutrality would help. Why? Because it undermines the pro-net neutrality argument. The proponents complain because charging separately will drive up prices. Let's say that I don't want to have to pay for gaming services. Instead of paying for all services, I can opt not to pay for gaming services, thereby decreasing my Internet bill. By allowing for separate charges, broadband providers can provide customers with more personalized offerings and packages. We have already seen this price differentiation play out in the mobile phone market (Greenstein and Mazzeo, 2006). 

Postscript: The FCC is more than justified in repealing Title II classification. This repeal does not mean the end of net neutrality. Even if it did, there is more than ample reason to believe that net neutrality makes for unsound economics (also see here, here, and here) that does not help the consumer (Gans and Katz, 2016; Melugin and Radia, 2017). Based on the lack of anticompetitive behavior from ISPs and broadband companies, there is a lack of ex ante justification for net neutrality (Struble and Kane, 2017).

What will help out many of the issues brought up by net neutrality proponents is more broadband competition. Instead of supporting local broadband monopolies, the government should get out of the way and allow for more broadband deployment. When compared to the European market, the light-touch approach to broadband regulation has worked well in the United States (see Harvard Business Review article here). The Title II regulations are a major barrier to Internet competitiveness and freedom, and I hope the FCC repeals Title II classification for the Internet next month.

Monday, November 27, 2017

Is There a Such Thing as a Right to Health Care? If Not, Should We Still Treat It As Such?

Health care is one of those important facets of life. It is a vital determinant for physical and mental wellbeing. It is important enough where it is a debate in the United States as to whether it is a right. In other developed countries, the government de jure provides some form of universal health, whether in the form of single-payer, two-tier, or a health insurance mandate. For those who advocate for greater government involvement, the argument is that it is a right, and that the United States should catch up with the rest of the developed world. That sentiment is growing within the United States. According to Pew Research, a majority of Americans believe that the government should be involved in providing health care for all. The question I hope to answer today is whether or not health care is a right.

This is a question that gets us into the realm of political theory and political philosophy, which means that data or studies cannot inform us in a more empirical fashion per se. One way to distinguish rights is to look at the difference between natural and legal rights. Natural rights state that rights do not come from the law, but rather are derived from human nature or a deity. Under the framework of natural rights, they are universal and innate. Under natural-rights libertarianism, for example, the idea is that the individual possesses certain natural rights, mainly that of individual sovereignty. That means that fraud or coercion are a violation of said rights. Natural-rights libertarianism comes with two major flaws. One, these rights are guaranteed according to whom? To G-d? Not everyone believes in G-d. There is no objective authority or arbitrator to determine that rights are natural. There are enough political philosophies out there that could not care less about individual sovereignty, which leads to my second point: throughout history, government has been involved in the individual's decision-making process, for better or worse (usually worse). It is for those reasons I consider myself a consequentialist libertarian, as opposed to a deontological libertarian.

That would lead us to the idea of legal rights, which means that it is the societal, economic, and political contexts that determine whether or not an individual or group of individuals has access to a certain good or service. If rights only exist in a certain socio-political context, then that means that the government can take away rights just as quickly as it granted them. Under the idea of legal rights, it would mean that the right to health care is neither an absolute nor a guarantee. That being the case, this brings up a follow-up question: should the government treat health care as if it were a natural right? Another way to ask it: should the right to health care be a legal right?

Let's start with the assumption that under the law, we should treat health care as a right. To answer the question about treating health care as a right, let's start with a practical series of questions:

  1. How do we define the scope of a right to health care? Does it only entail treatment or does it include preventative health care? If it is the latter, then a lot more will have to be covered than if that right solely entails curing people of already-existing ailments. Do we include experimental or unproven tests and procedures? Should this include such procedures as cosmetic surgery or infertility treatment? The ambiguity presented in this bullet point alone brings up a point: a minimum requirement of a right should be the ability to unequivocally define it. The fact that these questions cannot be answered with certainty tells us a lot about whether health care is really a right. This is also the reason why a positive right cannot be exercised in absolute or can be scalable like a negative right can, but let's continue a bit longer with the assumption that health care is a right....
  2. Who is going to pay for the right to health care? Freedom of speech does not require that someone else pays for that right, nor does it infringe upon someone else's freedom of speech. With freedom of press, journalists don't force someone else to pay for producing their publications and media. Freedom of religion can be exercised in a pluralistic way and others practice their religions without infringing upon others' right to religion. With health care, someone would have to be forced to pay for that right. When looking at it through the lens of individual rights, a right should not be conditioned on an ability to pay. The extent of how distributive the tax system would be to pay for this would be contingent upon the scope of goods services rendered [per Point #1 above]. 
  3. Who is responsible for providing this right? A right to possess something implies that someone has the corollary duty to provide health care to all individuals. With the right to a fair trial, that right is provided by the judicial system and a jury of twelve peers. Who delivers under a framework of health care being a right? Do we force private-sector doctors to perform all procedures? Do we socialize government and have every medical professional be an employee of the government? This also gets messy because if health care were a positive right, then it is an imperative that resources are channeled for that purpose. Those resources include doctors, nurses, physicians, and other health care professionals being conscripted to providing those services. It is unclear as to who holds the right to provide these services, which thereby creates more doubt as to whether health care is actually a right. 
  4. What sort of incentives would a right to health care create? First, let's think of this in terms of consumption. For one, how much incentive would a consumer have to take care of their own health if health care were treated as a right? They could simply get treated if/when things got bad enough instead of taking personal responsibility for their own health. Also, if a consumer has full access to all treatments at little to no cost, what incentive is there for restraint in consumption? Single-payer systems in practice show that overconsumption is a concern. If overconsumption is a concern, then that also means that medical care professionals are overextended. This is not simply a matter of doctors not being where they are most needed. What sort of disincentive would this create for people to enter the medical profession? 

The truth is that health care is not a privilege or a de facto right: it is a commodity. Not only that, health care is a finite commodity, which makes it all the more impractical to define it as a right. Food, clothing, and shelter are vital as health care is, but you don't see universal "food care." As the Cato Institute points out, there are only so many hospitals, doctors, and health care-related goods that exist. Whether it is by bureaucratic fiat (e.g., United Kingdom), waiting lines (e.g., Canada), or by higher prices (e.g., the United States), there is going to be some sort of rationing mechanism, much like there is in other markets. We have the right to use our hard-earned money to seek medical treatment. We should use our rights to help our less fortunate neighbors seek treatment. However, whether we look at it through the lens of natural or legal rights, there is no guaranteed right to health care.

Even if there were a guaranteed right, do we really want government to guarantee that right? We see what happens when health care is treated as a right under a single-payer system: overconsumption of health care, fewer choices, a limit in supply, and most importantly, an inability to contain health care costs. As a side note, these countries with single-payer have as much innovation as they have in the first place because of the spillover effects from the United States' health care innovation.

It might be a more heavily regulated market, but health care is a market with goods, services, supply, and demand.  Having a mature and rational discussion about how to ration and allocate health care is a must, but advocating for health care as a right is nothing more than political grandstanding at a time when we need to find actual ways to make health care more accessible and affordable.

Thursday, November 23, 2017

Parsha Vayetze: Two Wrongs Don't Make a Right, Especially in Business Transactions

When looking at the Torah, Jacob had a very interesting life story. He starts out as fighting with his brother, Esau, in the womb (Genesis 25:26). When he grows up, he tricks Esau into giving Jacob his birthright for lentil soup (25:34). Jacob then tricks his father, Isaac, the blessing of the first-born (27:34-40). Jacob eventually has to flee his homeland because he screwed over his brother twice. He then works for his future father-in-law, Laban. Laban promises Jacob to have Rachel's hand in marriage if Jacob works for Laban for seven years. Laban pulls off a bait-and-switch by having Jacob marry his other daughter, Leah. Laban then convinces Jacob to work for Laban for another seven years. Amazingly enough, Jacob works for Laban for an extra six years (31:41). During this twenty-year period, Jacob did not receive a raise. He had his wages lowered a hundred times (31:42)! As I pointed out in a blog entry seven years ago, Jacob had every right to be angry for Laban's mistreatment of Jacob. He could have harmed Laban because Laban exploited Jacob for two decades of his life. Jacob's response is interesting. He didn't kill Laban or steal from him. Jacob rebuked Laban. What is interesting about the rebuke is not simply the fact that Jacob did not become blind with rage, but also the content of the rebuke:

Jacob spoke and said to Laban, "What is my transgression? What is my sin that you have hotly pursued me?.... These twenty years I have been with you, your ewes and she-goats never miscarried, nor did I ear rams of your flock. That which was mangled I never brought you. I myself would bear the loss, from me you would exact it, whether it was stolen by day or stolen by night. This is how I was: By day scorching heat consumed me, and frost by night; my sleep drifted from my eyes. 

Laban had accused Jacob of stealing a few verses earlier, but his accusation was ultimately unjustified (Haamek Davar). Jacob unsurprisingly felt a sense of moral indignation. He recalled his hardship under Laban's service while pointing out something important: Jacob never slighted Laban in his business dealings. For one, Laban would have figured out that Jacob was being dishonest because it would not have been possible to have done so over a twenty-year period (Or HaChaim). It was not simply a matter that Jacob did not slight Laban during this period. It is also that he performed at his best for Laban. Jacob made sure the sheep had enough water and pasture so that miscarriages did not happen (Rashbam on Genesis 31:38). Jacob was so exemplary that he made sure the flocks were never attacked (R' Bachya on Genesis 31:38) and Jacob provided restitution even when he was not at fault (Sforno on Genesis 31:39). 

In the Talmud (Shabbat 31a), it states that when people die and are brought before the Heavenly Court, the first question that G-d will ask of us is whether we were honest in our business dealings. This is how important business ethics are to G-d, and fortunately for us, Jacob provides us a good example of how we should behave on the job. If there are legitimate grievances, they need to be addressed. I think that Jacob addressed them a too late, but that's why I said Jacob is a good example and not a perfect one. On the other hand, we still make sure we do our best when we are responsible for others' belongings and business. Jacob's example is great because it is two-fold. One, he did not steal or defraud his employer. Two, he made sure that the business ran to the best of Jacob's ability, even when it was at Jacob's expense. And given that Near Easter law custom absolved Jacob from taking responsibility in the case of a force majeure (JPS Commentary), Jacob's behavior is all the more exemplary. May we strive to be as honest and upright as Jacob was in his business dealings!     

Monday, November 20, 2017

The U.S. Doesn't Need More Patrol Agents on the Border

Since he was on the presidential campaign trail, President Trump has had an obsession with immigration, specifically with regards to border security. Trump already tried building his infamous wall on the border, a wall that will do next to nothing to benefit the United States. But for Trump, building a huge wall on the border is not enough. He wants to make sure there are more border patrol agents making sure that the border stays safe. In January, Trump signed two executive orders to hire 5,000 more border patrol agents and 10,000 more agents for Immigration and Customs Enforcement (ICE).

Trump might put on this show about how we need more border patrol agents, but the truth is that we don't need more. That's not just my opinion. Earlier this month, the Department of Homeland Security (DHS) released a policy memo saying that very thing:

Neither CBP [Custom Border Protection] nor ICE could provide complete data to support the operational need or deployment strategies for the 15,000 additional agents and officers they were directed to hire (DHS, p. 4).

If that were not enough, let us consider the amount of work that border patrol agents actually do. Back in 1986, the average border patrol agent was making 42 apprehensions a month. By 2016, that figure fell to two apprehensions a month.

Source: Custom and Border Protection (see here and here)

The fact that less apprehensions are being made per agent is not a surprise. Since 2006, there has been a net decrease in Mexican immigrants coming to the United States. Having less to do compounds the personnel issues that exist within the CBP. In its recent policy analysis, the Cato Institute outlines how CBP border patrol agents are more likely to get fired than other federal law enforcement agents. In addition to the retention challenges, CBP also has considerable hiring challenges, as are illustrated in the Brookings Institution June 2017 policy paper on the topic.

We can get into more indirectly related topics, such as how illegal immigrants/undocumented workers are nowhere near as bad as Trump makes them out to be, cutting immigration hurts the economy, or the issues behind the CBP's ability to bypass the Fourth Amendment by using the 100-mile border zone. What I will end with, though, is the following. There is no justification to increase the number of border patrol agents on the border. Even if there were, there would need to be considerable reform to address systematic operating issues before having a mass hiring of such agents. In short, the U.S. doesn't need more patrol agents on the border.

11-29-2017 Addendum: This little gem from the Government Accountability Office (GAO) shows how the resources poured into border patrol agents are not justified from an enforcement standpoint.

Monday, November 13, 2017

Humanitarian Crisis in Myanmar and a Brief Look at Economic Sanctions as a Possible Remedy

There is so much craziness that is going on in the world as of late: North Korea, Catalonian independence, mass shootings, hurricanes. It feels like a marathon keeping up with global affairs. The scale of these events have been so large that it has sadly overshadowed what is going on in Myanmar (Burma). Until recently, I was completely unaware that the Burmese army was oppressing the Rohingya, a predominantly Muslim, stateless Indo-Aryan people that primarily resided in Myanmar. The accusations of human rights infringements range from arson to gang rape to extrajudicial killings.

Prior to this humanitarian crisis, about a million Rohingya resided in Myanmar. Since then, 600,000 Rohingya have fled Myanmar to escape the oppression. The United Nations Secretary General said last Friday that it is an essential priority to stop the violence against the Rohingya, allow the Rohingya to return home, and be granted legal status. Freedom House, which is a non-governmental organization [NGO] focused on the research and advocacy of political freedom, democracy, and human rights, had something to say on the issue. Last week, Freedom House co-signed a letter with 58 NGOs to urge the U.S. government to impose targeted sanctions on Myanmar. This letter brought up an interesting question for me: how well do economic sanctions work?

A short primer on economic sanctions: Economic sanctions are commercial and financial penalties enacted by one or more country to target a certain country, group, or individual. An economic sanction can take multiple forms, including steep tariffs, quotas, restrictions on financial transactions, asset freezes or seizures, or other non-tariff barriers. Depending on the scenario, the purpose of an economic sanction can be to prevent a national security threat (e.g., North Korea), to bring about regime change, or to punish for human rights violations, as we see with Myanmar. Economic sanctions are used as an alternative to war in order to engender certain foreign policy goals. The appeal to economic sanctions is that they do not spill blood and they do not cost a lot of money to implement. Even so, there is the debate as to whether they work.

Countries that are subject to economic sanctions tend to have smaller economies. Knowing that these economics are more prone to vulnerabilities could help target these regimes. On the other hand, these same countries tend to be more corrupt, which means the target government will pillage its citizens and continue oppressing its people, even with the economic sanctions. Even then, I think the success of economic sanctions comes down to "it depends." There are multiple factors in play, including the balance of power dynamics, the decision-making process of those in charge of the target country, as well as the economic composition and levels of corruption of the target country. As the Council on Foreign Relations [CFR] brings up in its primer on economic sanctions, we can only determine correlation (as opposed to causation) since so many domestic and international factors are in play.

Based on the Peterson Institute's ranking, economic sanctions were much more successful in the 1960s, and the success waned since then. A lot of research on economic sanctions is more dated (e.g., Harvard report), such as this 1992 report from the Government Accountability Office that states that economic sanctions are not effective at the primary directive (e.g., regime change). With the example of Iran, the sanctions boosted military spending more than it hurt the Iranian economy (McDonald and Reitano, 2016). One recent report from the University of Chicago goes as far as saying that economic sanctions do not have the desired effects on the target economy (Shin et al., 2016). Calling the success of economic sanctions as mixed seems to be an understatement, but over the years, a few suggestions (primarily from the CFR) on best practices for economic sanctions have come about:
  • Make sure the goals of the sanctions are targeted. Economic sanctions cannot simply be a knee-jerk reaction of the United States flexing its soft power. If the embargo on Cuba has taught us anything, the less ambitious and more targeted the sanctions are, the better. 
  • Have a more comprehensive and well-rounded plan. Take Libya as an example. Not only were there economic sanctions and threats of military action, but there was also the positive inducement of financial aid in the event that Libya behaved accordingly. Many countries can weather the storm in more ways in one, so it is helpful to have multiple incentives pointing the target country in the desired direction. 
    • There is also research to suggest that comprehensive sanctions have more of an impact on bilateral trade between the sanctioning and target countries than selective sanctions do (Yang et al., 2004).
  • Have multilateral economic sanctions. If the United States unilaterally imposes economic sanctions, they are less likely to succeed than if multiple countries team up with the United States. Unless the United States has a monopoly in a certain market, the effect that economic sanctions will have will be less in comparison to multilateral sanctions. A 1998 report from the International Trade Commission admits that unilateral sanctions lack the transparency and discipline to be effective.
How would the sanctions work specifically for Myanmar? Sanctions on Myanmar date back to 1997, but were removed in 2016. Past sanctions on Myanmar seem to have been more targeted at select individuals. Former Burmese Deputy Minister of Commerce Pwint San admitted the success of the economic sanctions on Myanmar, and was happy to see them removed so that it could boost the economy. The counterargument against the sanctions' success is that it did not even take a year for the Burmese government to start systematically oppressing an ethnic minority. Whether another round of economic sanctions on Myanmar would be successful remains unclear. Depending on how they are targeted and who sanctions them, as well as intended goals, will affect the outcome, as will other international factors. What I do know is that if there is indeed another round of sanctions, it should be carefully crafted so it is more than a case of good intentions.

Wednesday, November 8, 2017

The GOP Tax Plan: The Good and Bad News of the Tax Cuts and Jobs Act

During his presidential campaign, President Trump made tax reform one of the pillars of his platform. Cutting income taxes, reducing corporate taxes, improving the child tax credit, eliminate the estate tax: these were a few of Trump's proposed ideas. The much awaited Tax Cuts and Jobs Act (TCJA) was released last Thursday. If this Act passes, it will be the largest overhaul of the U.S. tax system since the Tax Reform Act of 1986. When legislation or public policy this complex and overarching is in the process of being enacted, there are multiple facets of the bill that hardly make it a "black and white"/"either-or" statement. Nevertheless, one can make a general conclusion after looking at the individual parts. This was similar when I looked at the Trans-Pacific Partnership about a year ago, a multilateral trade agreement that Trump nixed on his first day in office. While I did not like everything in the TPP, I generally thought that the TPP was a step in the right direction for freer trade. I would like to take a look at the major provisions of the TCJA in the same spirit to analyze the components, as well as determine whether or not this would be a net benefit.

Here Is The Good News...
  • No changes for 401(k) payments. There had been rumors circulating that the Republicans were going to lower or eliminate the current deduction for the 401(k). Fortunately, this did not take place because a lower deduction would have made it more difficult for people to save. 
  • Lower cap on the mortgage interest deduction (MID). Starting next year, the cap on the MID would decrease from $1M to $500K. Reducing the cap is important because it reduces the percent of eligible households from 21 percent to less than 4 percent. Considering that a) the MID does not increase household ownership rates, and b) it causes other unintended consequences, I'm happy to see this make it into the bill. It doesn't downright eliminate the MID, but it is a step in the right direction. 
  • Estate tax phasing out and repeal. If this TJCA passes, then the estate tax will have the exemption doubled immediately, followed by a repeal six years later. Considering how I feel about the estate tax (a.k.a. the death tax), I would consider this a win. 
  • Simplified tax codeOne of the things that makes the tax code burdensome is the complexity. A simpler tax code with a broadened tax base would mean less compliance costs for taxpayers and less administrative costs for the government. Not only does the TJCA reduce the number of income tax brackets from seven to four, but it also eliminates a number of tax breaks (e.g., sports stadiumsmedical expense deductionadoption tax credit).
  • Elimination of the alternative minimum tax (AMT). The AMT is a supplemental, flat income tax that was created in 1969 to target millionaires in order prevent the wealthy from reducing their tax base through the use of tax preference items. However, it targets those making between $250K and $1M, as well as those in high-cost states and those with children. Since the AMT affects 30 million people, it affects more of the middle class than upper class. Additionally, the AMT is quite a complex tax, which increases compliance and administrative costs. As such, it is a good thing that AMT is being repealed. 
  • Creation of a territorial tax system for business taxes. To make a long story short, I am in favor of this change in tax policy. 
  • Elimination of state and local tax deduction. The state and local tax (SALT) deduction allows for taxpayers who itemize on federal income tax to deduct state and local real estate, property, and income taxes. The SALT deduction acts as an indirect federal subsidy to state and local governments in the sense that decreases the net cost of nonfederal taxes. 
    • Proponents argue that repeal could end up being more regressive and allow for double taxation (although there is a counterargument on the "double taxation" argument). On the other hand, the SALT deduction acts as an indirect subsidy towards high-income, high-tax states, as well as towards higher-income individuals. Plus, the existence of SALT incentivizes states to increase taxes and government spending, thereby increasing state-level government debt.
    •  Not only does the Center for Freedom and Prosperity estimate that 99.7 percent of taxpayers would benefit from this repeal, but the Heritage Foundation estimates that it would generate $1.6T of revenue over the next decade. 
    • The SALT deduction for income and sales tax will be repealed, but the SALT deductions for property and business remain. 
Here is The Bad News...
  • Huge deficits. The bill contains $5.8T in tax cuts and $4.3T in revenue raisers. According to the Joint Committee on Taxation, this tax plan is going to add a net $1.487T deficit over the next decade (see a policy-by-policy breakdown here). The CFRB calculates that this would increase the estimated 2027 debt-to-GDP ratio from 91 percent to 99 percent (see below). Another way of phrasing that is "debt will increase by about 9 percent with the passage of this bill." This assumes that the true cost of the TJCA is not being hidden with accounting gimmicks
    • Because it causes a deficit, it might not get enough votes to pass. Senator Bob Corker (R-TN) already said he would not support a bill that adds to the deficit. If one more Senator feels the same way and votes accordingly, then the TJCA will not pass. 
    • Senate budget rules, especially the Byrd rule, state that the budget cannot add deficits outside the next decade, which means that the TJCA will need to undergo modifications before enactment.
    • The deficits are simply not an issue of a higher debt-to-GDP ratio. As the Brookings Institution points out, this is bad fiscal policy. Right now, we are near full employment, which means we should be running a surplus. This is the time for contractionary fiscal policy, not expansionary. 

  • Corporate tax rate reform will not be enough. Under this plan, the corporate tax rate is to decrease from 35 to 20 percent. Needless to say, I'm all for lowering the corporate tax (see here and here). Even so, there is still a question of how assets overseas are treated in order to get a sense of the overall corporate tax plan. But that is not the only concern. Per the previous point, the deficit is causing procedural issues with the TJCA passing. For this Act to pass, there will need to be deficit reduction. The best way to achieve less deficit is weakening the corporate tax reform, which means that this reduction will only be temporary and have minimal effect
  • Employer-sponsored health insurance. The employer-sponsored health insurance tax break is the largest in the tax code, and yet it remains untouched. Employer-sponsored health insurance has multiple adverse effects, including driving up health costs, causing excess consumption in health care goods and services, incentivizing employers to offer more expensive plans instead of offering higher wages, and exacerbating income inequality. If you want a good reason as to why health care costs are higher in the United States versus other countries, this tax break is a major reason. 
  • Some lower- and middle-class households will have higher taxes while the rich benefit. There is a lot in play in the TJCA: child tax credit reform, the doubling of the standard deduction, the elimination of personal deductions, and raising the lowest marginal tax rate to 12 percent. Some will experience tax increases, others tax deductions, and for some, it will not change. It really depends on multiple factors, including income bracket, geographic location, size of household, and composition of household. The Tax Policy Center found that 28 percent of households will have their taxes raised, whereas the JCT puts the figure at 18 percent
    • 11-10-2017 Addendum: The Tax Policy Center had to retract and reissue its report on the TCJA. It found that only 7 percent of households will experience tax increases in 2018. However, that number will increase to 25.5 percent by 2027 (See below). 

Source of Graph: Slate
  • Increase the child tax credit. I have commented on the Child Tax Credit (CTC) before, and I am not a fan (see here and here). The modifications of the CTC not only make the current flaws of the CTC more pronounced, but it will add an extra $640B to the debt over the next decade (JCT). 
  • Modified education savings plan. The Coverdell Education Savings Account is a tax-deferred trust account that encourages parents to save for future education costs. This Savings Account is to be rolled into the 529 savings plan (see here for difference between Coverdell and 529). The people over at Heritage Foundation were thrilled about rolling the Coverdell into the 529 because it supposedly encourages education choice. I do not share this enthusiasm. As the Brookings Institution illustrates, the 529 savings plan drives up the very college costs that it was meant to help meet. This is no surprise since federal loan subsidies for college do the very same thing (see here and here). Needless to say, this does not leave me inspirited about higher education costs. 
  • Graduate Students: Tax Exemption. If you are a graduate student, you might end up paying more under the TCJA. The TCJA is expected to roll back or eliminate tax breaks used by graduate students who are research or teacher assistants. About 177,000 students use the Qualified 117(d) Reduction. If repealed, it could cost these students an average of $2,000 a year, which adds up for those in years-long PhD programs. 
There are quite a few features of the TCJA that I like, and I am happy to see a bill address some major issues with the tax code. At the same, I think still comes with major issues, the foremost being that of increasing the deficit. Don't get me wrong. High tax rates have an adverse effect on the economy (e.g., here), but at the same time, tax cuts are only part of the solution. Without reduced spending, tax cuts become tax-shifting, which means that we would pay with higher tax rates in the future. Even the libertarian Cato Institute and Mercatus Center acknowledge that real tax reform is not about lowering or eliminating tax deductions, but rather about raising revenue in the least distorting way possible with the longer-term goal of paying off debt so we don't get pummeled by it in the future. Plus, lowering taxes while raising spending is one of the worst ways to go about fiscal policy since it exacerbates the debt-to-GDP ratio.

If I had to grade the TCJA as a whole, I would give it a B/B-. Yes, it takes a serious attempt at tax reform. At the same time, it increases debt. Additionally, it does not even address the largest tax exemption, the very one that needlessly drives up our healthcare costs. I would feel much better if the TCJA were more revenue-neutral and eliminated the deduction for employer-sponsored insurance. Even so, there is an argument to be made that the TCJA allows for revenue to be collected in a more efficient and less destructive manner.

Furthermore, the Tax Foundation is estimating that on net, it will create more jobs and create bigger tax cuts on average. Like any major bill, there are going to be winners and losers. We also know that this is not the final version (especially since it creates a deficit, not to mention that the Senate version needs to line up with the House version). At the same time, we have a sense of where Republicans are going with tax reform. I definitely think some modifications are in order, but I am happy to see that Congress making a concerted effort to make taxation a simpler, more efficient process.