The Heritage Insider: Iran's advantage in a nuclear deal, the tax code hurts the economy, federal tax revenue at record level, and more

April 11, 2015

Latest Studies
44 new items, including the American Legislative Exchange Council’s “Rich States, Poor States,” and a Pioneer Institute report on how charter schools get great teachers

Notes on the Week
Iran’s advantage in a nuclear deal, the tax code hurts the economy, federal tax revenue at record level, and more

To Do
Celebrate Sir Antony Fisher

Latest Studies

Budget & Taxation
• Prime Cuts – Citizens Against Government Waste
• A Tax Reform Primer for the 2016 Presidential Candidates – Heritage Foundation
• Congress Should Separate Food Stamps from Agricultural Programs – Heritage Foundation
• Distributional Effects of Selected Farm and Food Policies: The Effects of Crop Insurance, SNAP, and Ethanol Promotion – Mercatus Center
• A Primer On Government Labor Relations in Missouri – Show-Me Institute
• Pension Reform in Missouri – Show-Me Institute
• State and Local Sales Tax Rates in 2015 – Tax Foundation
• Tax Freedom Day 2015 – Tax Foundation

Crime, Justice & the Law
• The High Cost of Incarceration in Florida: Recommendations for Reform – Reason Foundation

Economic and Political Thought
• What Adam Smith Knew: Moral Lessons on Capitalism from Its Greatest Champions and Fiercest Opponents – Encounter Books

Economic Growth
• Rich States, Poor States – American Legislative Exchange Council
• An Empirical Examination of Patent Hold-Up – Hoover Institution

Education
• Funding the Child: Analysis of Title 1 Portability – American Action Forum
• Expanding Personal Learning Scholarship Accounts: Why Florida Needs More of a Good Thing – James Madison Institute
• Truly Higher Education – National Affairs
• Great Teachers Are Not Born, They Are Made: Case Study Evidence from Massachusetts Charters – Pioneer Institute for Public Policy Research
• Revolution Rising? Update on Texas’ Affordable Baccalaureate Degrees – Texas Public Policy Foundation
• Transparency in Education Funding Sorely Missing – Texas Public Policy Foundation

Foreign Policy/International Affairs
• Interventions in Libya: Lessons in Leading – Heritage Foundation
• The U.S. Should Back the Falkland Islanders’ Right of Self-Determination at the Summit of the Americas – Heritage Foundation
• U.S. Should Not Stand By While Government in Burma Undermines Religious Liberty – Heritage Foundation
• The Rise and Decline of Ansar al-Sharia in Libya – Hudson Institute

Health Care
• Purported Safeguards in Physician-Assisted Suicide Are Ripe for Abuse – Heritage Foundation
• What Are We Afraid Of? Universal Healthcare in Market-Oriented Health Systems – Institute of Economic Affairs
• Health Independence for Veterans – National Affairs

Information Technology
• How to Break the Internet: The Biggest Threat to the Net Isn’t Cable Companies. It’s Government. – Reason Foundation

Labor
• On The Enactment of a “Living Wage” In Kansas City – Show-Me Institute

Monetary Policy/Financial Regulation
• Beyond Regulation: A Cooperative Approach to High-Frequency Trading and Financial Market Monitoring – Cato Institute

National Security
• 65th Islamist Terrorist Plot or Attack Since 9/11: Persistent Terrorism Requires Constant Vigilance – Heritage Foundation

Natural Resources, Energy, Environment, & Science
• Six Ways to Lead on Oil and Gas – American Action Forum
• “Beepocalypse” Not: Alarmist Honeybee Claims Collapse Under Scrutiny – Competitive Enterprise Institute
• Fracking and Earthquakes – Independent Women’s Forum
• The Exelon-Pepco Merger: A Good Opportunity for Change in Maryland – Maryland Public Policy Institute
• Energy Conservation Program for Consumer Products: Energy Conservation Standards for Health Products – Mercatus Center
• The Costs of New EPA Rules to Virginia – Thomas Jefferson Institute for Public Policy
• Fractured High Court Issues Limited Ruling in Ohio Oil and Gas Preemption Case – Washington Legal Foundation

Philanthropy
• Agenda Setting: A Wise Giver’s Guide to Influencing Public Policy – Philanthropy Roundtable

Regulation & Deregulation
• EPA’s Unprecedented Power Grab – National Affairs

The Constitution/Civil Liberties
• Our Lost Constitution: The Willful Subversion of America’s Founding Document – Penguin Press

Transportation/Infrastructure
• Metro Vancouver’s Transit Plan: Static Thinking in a Dynamic World – Fraser Institute
• Guess Who Runs the Best Paratransit System in the MBTA’s District? Hint: It’s Not the T – Pioneer Institute for Public Policy Research
• The MBTA Commuter Rail’s Cost Structure Is Off the Rails – Pioneer Institute for Public Policy Research
• The MBTA’s Problem Is Not Lack of Funding – Pioneer Institute for Public Policy Research
• Key Facts on Spokane Transit Authority – Washington Policy Center

It will be easier for Iran to break a deal than for the United States to reimpose sanctions. Arms control, it has been said, is either impossible or unnecessary. Explaining why recognition of Israel wasn’t on the table in the negotiations over Iran’s nuclear program, President Obama said to NPR:

The notion that we would condition Iran not getting nuclear weapons in a verifiable deal on Iran recognizing Israel is really akin to saying that we won’t sign a deal unless the nature of the Iranian regime completely transforms. And that is, I think, a fundamental misjudgment.

We want Iran not to have nuclear weapons precisely because we can’t bank on the nature of the regime changing […] . [Interview on National Public Radio, as quoted by Gary Schmitt, AEIdeas, April 7]

But doesn’t the nature of the regime suggest there will be difficulty in verifying and enforcing any agreement? Indeed, as Henry Kissinger and George Schultz write, it is precisely in the areas of verification and enforcement that the negotiation’s new framework comes up short:

Under the new approach, Iran permanently gives up none of its equipment, facilities or fissile product to achieve the proposed constraints. It only places them under temporary restriction and safeguard—amounting in many cases to a seal at the door of a depot or periodic visits by inspectors to declared sites. […]

In a large country with multiple facilities and ample experience in nuclear concealment, violations will be inherently difficult to detect. Devising theoretical models of inspection is one thing. Enforcing compliance, week after week, despite competing international crises and domestic distractions, is another. Any report of a violation is likely to prompt debate over its significance—or even calls for new talks with Tehran to explore the issue. […]

The agreement’s primary enforcement mechanism, the threat of renewed sanctions, emphasizes a broad-based asymmetry, which provides Iran permanent relief from sanctions in exchange for temporary restraints on Iranian conduct. Undertaking the “snap-back” of sanctions is unlikely to be as clear or as automatic as the phrase implies. Iran is in a position to violate the agreement by executive decision. Restoring the most effective sanctions will require coordinated international action. In countries that had reluctantly joined in previous rounds, the demands of public and commercial opinion will militate against automatic or even prompt “snap-back.” If the follow-on process does not unambiguously define the term, an attempt to reimpose sanctions risks primarily isolating America, not Iran.

Continuing sanctions, Kissinger and Schultz go on to point out, would certainly be preferable to an agreement that fails:

The final stages of the nuclear talks have coincided with Iran’s intensified efforts to expand and entrench its power in neighboring states. Iranian or Iranian client forces are now the pre-eminent military or political element in multiple Arab countries, operating beyond the control of national authorities. With the recent addition of Yemen as a battlefield, Tehran occupies positions along all of the Middle East’s strategic waterways and encircles archrival Saudi Arabia, an American ally. Unless political restraint is linked to nuclear restraint, an agreement freeing Iran from sanctions risks empowering Iran’s hegemonic efforts. [Wall Street Journal, April 7]

Iran still has Americans locked up. “[S]ince 2007, more than 10 American citizens have been imprisoned in Iran on trumped-up charges. Four of them – a Christian pastor, a journalist, an ex-marine, and a former FBI agent – remain behind bars.” [Algemeiner, March 27]

Last week’s agreement to have an agreement about Iran’s nuclear program does not address the fates of those four Americans held by Iran, and that should be a clue in assessing the prospects for any agreement to work, explains Michael Rubin:

If Obama and Kerry give [Hassan] Rouhani and [Mohammad Javad] Zarif a pass on the hostages because, presumably, Rouhani and Zarif say that they are held by hardline circles to embarrass the United States and cannot easily be sprung, then what does that say about Rouhani and Zarif’s ability to impact the more troubling aspects of Iran’s nuclear program, for example its possible military dimensions. After all, if Rouhani and Zarif cannot overcome hardliners on such a simple matter as the hostages, how can they be expected to overcome the Iranian hardline bureaucracy which controls the nuclear program? [Commentary, April 6]

The federal tax code inhibits economic growth. Among the many reasons every presidential candidate should make tax reform a key issue is that the tax code is biased against investment—and that hurts the economy. Curtis Dubay and David Burton write:

The way the tax code treats business is the biggest inhibitor of growth in the tax code today. The U.S. has the highest corporate tax rate of any country in the Organization for Economic Co-operation and Development (OECD)—the 34 most industrialized countries in the world. The federal rate is 35 percent and states add over 4 percentage points on average for a combined rate of 39.1 percent. However, rates in some states are much higher than the average. Businesses in those states face a combined rate well in excess of 40 percent. For instance, the rate in California is 8.84 percent, so businesses there pay a total rate of almost 44 percent. High rates make it unattractive for businesses, both foreign and domestic, to locate new investment in the U.S.

Further inhibiting investment is the fact that the U.S. is effectively the only developed nation that taxes its businesses on the income they earn in foreign countries. This taxation creates another disincentive for U.S. businesses to invest, which further suppresses wage growth and job creation for American workers. The worldwide system also makes it attractive for foreign firms to buy U.S. firms, or for U.S. firms to merge with foreign corporations and move the new company’s headquarters abroad—as was the case in the spate of inversions in 2014. In either case, the new business moves its headquarters and legal domicile abroad to avoid the impact of U.S. worldwide taxation.

The U.S. also has one of the worst systems in the industrialized world for businesses to deduct the cost of investments. The U.S. tax code denies businesses the ability to deduct the full cost of investments at the time businesses make them. Instead, the code applies a cumbersome depreciation system that forces businesses to deduct the cost of investment over many years—sometimes as many as 39. This raises the cost of investing because of the time value of money. Less investment due to those higher costs hurts productivity gains, wage growth, and job creation.

Small businesses face enhanced bias under the current system. After the 2013 tax increases, small business owners now pay a top federal income tax rate of 39.6 percent, and an additional 3.8 percent investment surtax that became law as part of Obamacare. It pushes the top federal tax rate on small business income to 43.4 percent. Large corporations pay a federal tax rate of 35 percent. This disparity is unfair to small businesses and puts them at a disadvantage against their larger competitors. [Internal citations omitted.]

To read more about the problems with the federal tax code and the basic principles that should guide reforming it, see Dubay and Burton’s new paper, “A Tax Reform Primer for the 2016 Presidential Candidates.” [The Heritage Foundation, April 7]

The federal government will collect a record amount of tax revenue this year.

thf 2015-04-11 insider FederalTaxRevenue.jpg

That graph is based on the latest OMB numbers. It comes from Dan Mitchell, who notes that tax revenue as a share of the economy is relatively high, too:

Federal taxes are projected to consume 17.7 percent of GDP this year. That’s higher than the post-WWII average of 17.2 percent of GDP, but there have been several years in which the federal tax burden has been higher than 17.7 percent, most recently in 2007, when it reached 17.9 percent of economic output. [International Liberty, April 8]

Tax Freedom Day is April 24. This year, it takes the average American taxpayer 114 days to earn enough money to pay his tax bill. That makes April 24 Tax Freedom Day for 2015, says the Tax Foundation.

The Tax Foundation calculates Tax Freedom Day every year, and this year the date is one day later than last year, which reflects a slightly improving economy generating higher tax revenues. The latest ever Tax Freedom Day occurred in 1945 when it fell on May 25. The Tax Foundation includes federal, state, and local incomes taxes, payroll taxes, sales and excise taxes, corporate taxes, property taxes, and estate and inheritance taxes in its calculation. Taxpayers in Louisiana have the earliest Tax Freedom Day, April 2. Taxpayers in Connecticut and New Jersey have the latest Tax Freedom Day, May 13. [Tax Foundation, March 30]

California’s water shortages are environmentalist-made. Forest fires and water shortages lie ahead for California this summer, says Gov. Jerry Brown (D), who blames global warming for a drought that he calls “unprecedented in recorded history.” [USA Today, April 10]

There do seem to be two man-made sources of this particular climate problem. First, as Victor Davis Hanson points out, California stopped investing in its water infrastructure:

Just as California’s freeways were designed to grow to meet increased traffic, the state’s vast water projects were engineered to expand with the population. Many assumed that the state would finish planned additions to the California State Water Project and its ancillaries. But in the 1960s and early 1970s, no one anticipated that the then-nascent environmental movement would one day go to court to stop most new dam construction, including the 14,000-acre Sites Reservoir on the Sacramento River near Maxwell; the Los Banos Grandes facility, along a section of the California Aqueduct in Merced County; and the Temperance Flat Reservoir, above Millerton Lake north of Fresno. Had the gigantic Klamath River diversion project not likewise been canceled in the 1970s, the resulting Aw Paw reservoir would have been the state’s largest man-made reservoir. At two-thirds the size of Lake Mead, it might have stored 15 million acre-feet of water, enough to supply San Francisco for 30 years. California’s water-storage capacity would be nearly double what it is today had these plans come to fruition. It was just as difficult to imagine that environmentalists would try to divert contracted irrigation and municipal water from already-established reservoirs. Yet they did just that, and subsequently moved to freeze California’s water-storage resources at 1970s capacities. [City Journal, Winter 2015]

Second, as Alex Tabarrok explains, in California the price of water is near zero. That means the rationing of water is done by politics rather than markets—in other words, the rationing is done badly:

California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty. […]

As The Economist points out:

Agriculture accounts for 80% of water consumption in California, for example, but only 2% of economic activity.

What that means is that if agriculture used 12.5% less water we could increase the amount available for every residential and industrial use by 50%–grow those lawns, fill those swimming pools, manufacture those chips!–and the cost would be minimal even if we simply shut down 12.5% of all farms.

Moreover, we don’t have to shut down that many farms, we just have to shut down the least valuable farms and use water more efficiently. If you think water is cheap for San Diego residents it’s much cheaper for farmers. Again from The Economist:

Farmers flood the land to grow rice, alfalfa and other thirsty crops….If water were priced properly, it is a safe bet that they would waste far less of it, and the effects of California’s drought—its worst in recorded history—would not be so severe.

Even today a lot of CA agriculture uses the least efficient flood irrigation system.

According to data from the state Department of Water Resources, 43 percent of California farmland in 2010 used some form of gravity irrigation, an imprecise method that uses relatively large amounts of fresh water and represents a big opportunity for water conservation. [Marginal Revolution, March 19]

If environmentalists think putting a price on a fake commodity like carbon emissions—i.e., a cap-and-trade system—will produce an efficient distribution of emission rights, why would they think using real prices can’t work for a real commodity like water?

There’s a story or two behind your rights. Sen. Mike Lee (R-Utah) talks about his new book, Out Lost Constitution: The Willful Subversion of America’s Founding Document:

ObamaCare provides more evidence that coverage does not equal care. So far, writes John Goodman, people don’t seem to be getting more health care under ObamaCare than they were before ObamaCare. Goodman notes, for example, that last year “5.7 percent reported that they failed to obtain needed medical care due to cost last year, the same as it was in 2003-2004,” according to the Centers for Disease Control and Prevention. AthenaHealth, meanwhile, reports that “new patient visits to primary care doctors increased from 22.6 percent in 2013 to 22.9 percent in 2014”—i.e., not by much. Goodman also notes a new study published by BMJ finds that Massachusetts’s health care reform—which was similar in some ways to ObamaCare—did not reduce the incidence of “12 medical conditions that wouldn’t normally require hospitalization if a patient has good access to primary care.” [Forbes, April 2]

To Do: Celebrate Sir Antony Fisher

• Discover how Antony Fisher’s vision of think tanks influencing public policy is inspiring the battle for liberty throughout the world today. The Atlas Network will host a conference featuring prominent think tank leaders who will talk about the work of promoting freedom in the former Soviet Union, Latin America, Africa, Asia, and the United States. The conference will begin at noon on April 16, and will be held at the One Washington Circle Hotel in Washington, D.C.

• Learn how modern psychology undermines morality. The Heritage Foundation will host Theodore Dalrymple, who will talk about the source of modern psychology’s appeal: That it appears to absolve us of responsibility for our misdeeds. Dalrymple will speak at 6 p.m. on April 14.

• Find out if big business is a threat to economic liberty. The Acton Institute and the Mackinac Center will host a talk by Tim Carney, author of The Big Ripoff and Obamanomics. Carney’s talk will begin at noon on April 14 at the Acton Institute in Grand Rapids, Mich.

• See Ferguson, the play. Phelim McAleer has written a new play about the shooting of Michael Brown that draws entirely from grand jury testimony. The play will premiere in Los Angeles on April 26; a preview of the play will be performed in Washington, D.C., on April 15. The performance will take place at the Atlas Performing Arts Center Lab II (1333 H Street, NE) at 7 p.m. To request free tickets, email FergusonThePlay@gmail.com.

• Take your filmmaking craft to the next level. Taliesin Nexus will give liberty-minded filmmakers a chance to learn from seasoned professionals in the Liberty Lab for Film program. You could get $10,000 to make a film. Apply by May 15.

• Examine the future of religious freedom in the United States. Ryan Anderson of The Heritage Foundation and Ed Whelan of the Ethics and Public Policy Center will give a talk at the Catholic Information Center at 6 p.m. on April 13.

• Hear Sen. Ted Cruz’s compelling defense of liberty. The John Locke Foundation will host a talk by Sen. Cruz (R-Texas). The senator will speak at noon on April 13 at the North Raleigh Hilton.

Have a tip for InsiderOnline? Send us an e-mail at insider@heritage.org with "For Insider" in the subject line.

Follow us on Twitter: http://twitter.com/InsiderOnline.

Looking for an expert? Visit PolicyExperts.org.

The Heritage Foundation | 214 Massachusetts Ave NE, Washington, DC 20002 | 202.546.4400

You are subscribed to Heritage Foundation e-mails as johnmhames@comcast.net. If you want to change your e-mail preferences, please click here to update your subscription.

Search This Blog

Diogenes-Light