Archive for July, 2013

The Myth of Senator Marco Rubio’s Immigration Problem

July 16, 2013
by Jill Lawrence, National Journal

Florida Sen. Marco Rubio is losing altitude with some conservatives because he’s the Republican face of immigration reform that includes a path to citizenship for undocumented immigrants. Yet he’ll have a lot of company in the 2016 field if he runs for the GOP presidential nomination.

In fact almost every Republican weighing a 2016 race—from Jeb Bush and Chris Christie to Paul Ryan and Bobby Jindal—favors some path to citizenship like the one in the comprehensive reform bill passed by the Senate, or is open to a variation of it.

“Any Republican with a national perspective understands the dynamics of the politics of the 21st century,” says GOP pollster Whit Ayres, a Rubio adviser. That is, the Hispanic share of the electorate is rising fast, and the GOP share of Hispanic votes keeps falling.

You wouldn’t think it given the resistance of the Republican-run House, but many polls show that most Republicans favor comprehensive reform that includes a path to citizenship, as long as it includes fines, waiting periods, and other conditions that amount to what Ayres calls “penance” for being in the United States illegally.

Most polls over the past few years find one-quarter to one-third of Republicans will never support citizenship for illegal immigrants regardless of the state of security on the border or the conditions attached, Ayres says. By contrast, just in the last few days, a poll of 1,000 Republican primary voters for a pro-reform GOP group called Americans for a Conservative Direction found 65 percent favor a path to citizenship in combination with “substantially increased border security.” A June 13-July 5 Gallup poll of 4,373 people showed that 83 percent of non-Hispanic white conservatives favor “allowing illegal immigrants to have the opportunity to become citizens.”

While one poll—a June 28-July 8 Quinnipiac poll of 2,014 people released Friday—found somewhat less GOP support, it still showed 54 percent of Republicans backed either allowing eventual citizenship or allowing people to stay in the United States legally.

The evolution of public opinion and a dire political need for the GOP to start digging out of the hole it’s in with Hispanic and Asian voters are two of the reasons many Republicans with national ambitions are not shying away from citizenship and legalization issues.

Rubio brokered the Senate bill as part of the Gang of Eight, and Rep. Paul Ryan of Wisconsin, the 2012 GOP vice presidential nominee, is trying to work out a compromise in the House. Wisconsin Gov. Scott Walker has expressed support for a path to citizenship as has Louisiana Gov. Bobby Jindal, though Jindal opposed the Senate bill for other reasons. Christie, New Jersey’ popular governor, supported a citizenship path in 2010, before it was popular in his party. Sen. Jeff Chiesa, the close associate Christie named to fill the seat when Democrat Frank Lautenberg died, voted for the Senate bill.

Florida’s former governor, Jeb Bush, has said he is open to a path to citizenship or legal status for undocumented immigrants while Texas Gov. Perry and Kentucky’s Paul also are open to what the senator calls “normalizing their status,” depending on the state of border security.

Among the most hardline of the 2016 prospects is Texas Sen. Ted Cruz, who has introduced amendments blocking a path to citizenship, calling it unfair to those who waited in line to arrive legally. Former Sen. Rick Santorum, a 2012 aspirant who says he is “very open” to a 2016 race, told radio host Andrea Tantaro last month that there will be “consequences” in the primaries for Rubio. He says the attitude among some Washington Republicans seems to be that “the rule of law isn’t that important,” that people who came to the United States illegally will be treated the same as those who came legally.

While there are indications that Rubio’s role in the immigration debate isn’t helping him among Republicans, it’s way too early for polls to be relevant and in any case the damage for now appears minimal. For instance, a Rasmussen Reports automated poll in June found that Rubio’s favorability rating among Republicans nationally had dropped 15 points since February—but it is still at 58 percent.

Opposition to immigration reform, particularly from the tea party wing of the GOP, is intense and vociferous but also misleading, given that two-thirds of Republicans support a path to citizenship if there are strict conditions that go along with it. House members, says Ayres, are “reacting to what they hear from people who take the time to write, call and email their offices. There aren’t any Republicans that are going to write their congressman demanding a path to citizenship. It’s not the kind of thing that makes you charge the ramparts.”

Sal Russo, a Sacramento-based former Ronald Reagan aide who is co-founder and chief strategist of the Tea Party Express, says those who oppose a path to citizenship are fired up now and determined that undocumented immigrants should not be rewarded for violating the law. “It’s an important principle, but of course, politics is about the realities of things,” Russo says. “It’s a difficult thing for some people to swallow, but at the end of the day people think we have to fix the immigration system.”

Russo himself takes the long view, having been around in 1978, when Reagan opposed a ban on gay teachers in California, and 1994, when Jack Kemp opposed Proposition 187 denying social services to illegal immigrants. People predicted conservatives would never support either of them again—”so silly,” he says. He predicts the citizenship controversy “won’t be a material factor” in 2016, especially if Congress takes immigration off the table by passing something, however imperfect.

Certainly hard-line candidates will hold appeal to some GOP primary voters. Mark Krikorian, executive director of the Center for Immigration Studies, a think tank that seeks to limit immigration, sees Cruz as “the obvious person” to fill that niche. “The fact that most of the other 2016 prospects are for either the Senate bill or something like it creates an opportunity for Cruz to differentiate himself,” he says.

But after two terms of President Obama, many Republicans will be looking for a general-election winner. Support of comprehensive immigration reform, including a path to citizenship, could well evolve into a proxy for inclusiveness, compassion, and the broad appeal that could finally put the party back in the White House.

GRAMM: A GOP Gameplan for Tax Reform

A GOP Gameplan for Tax Reform
by Phil Gramm

Thanks to the efforts of Democrat Sen. Max Baucus and Republican Rep. Dave Camp, Congress will take up tax reform this year. Before the debate begins, however, Republicans need to set out the principles that represent our values. In my 24 years in the House and Senate, I never wrote a bill that represented a 100% statement of my values, but I always found it important to know where the North Star was as I tried to navigate through the swamp.

First, under no circumstances should Republicans agree to make the tax system even more progressive than it already is, or to increase the number of people who do not pay income taxes. In 1980, the top 1% and 5% of income earners in America paid 19.1% and 36.9% of total federal income taxes. Today, the top 1% and 5% pay 37.4% and 59.1%. Meanwhile, 41.6% of American earners now pay no federal income taxes.

The more progressive the tax system becomes the more unstable the country’s public finances get. High-income Americans earn a large share of their income in bonuses, dividends and capital gains, all of which are highly sensitive to the business cycle. This means wide swings in tax collections that play havoc with government budgets. The removal of large numbers of people from the tax rolls makes the political system more unstable. Individuals and households that pay no income taxes have a diminished stake in limited government.

Second, government should collect the minimum revenues needed to support and protect a free society and do so in a way that is, as far as possible, neutral in its effect on individual behavior. In its purest form, this means no individual deductions, credits or tax expenditures. No matter how committed Americans may be individually to charitable giving or home ownership, the government should not promote those values through special provisions in the tax code.

Third, Republicans should require all similarly structured firms be treated the same. If sweat equity is taxed as a capital gain for a mechanic who opens a garage with a financial partner, it should be treated the same for a hedge fund or private-equity manager who shares in the gains of his investors.

Fourth, business subsidies and credits should be eliminated. Ending subsidies to fund lower tax rates improves the efficiency of capital allocation. The sine qua non of tax reform is a more efficient allocation of investment capital. If the tax breaks that create crony capitalism are allowed to survive, then tax reform failed.

Fifth, all costs of production should be equally deductible when they are actually incurred, and all income should be recognized at the time it is actually earned and taxed only once. President Obama’s repeated proposal to force large Subchapter S corporations and limited liability entities to be taxed as C corporations is a movement in the wrong direction. Revenues flowing from those changes would come almost exclusively from the double taxation of corporate income: first on corporate profits, and again when individuals pay taxes on dividends and capital gains.

Other things being equal, the efficiency of a nation’s corporate tax system can be measured by the lack of special-interest provisions in the code and how low the tax rate is. But things are never equal—and a fixation with achieving a given corporate tax rate is dangerous. That’s because you can, within limits, make the tax rate whatever you want it to be by changing the definition of what is a deductible business expense.

For example, by limiting or eliminating the deductibility of interest cost—a perfectly legitimate cost of doing business—the “savings” could be used to lower the corporate tax rate. But such changes would further distort the cost of capital relative to the cost of labor and almost certainly be detrimental.

Similarly, you could eliminate the deductibility of wages and other costs of doing business and simply tax gross receipts instead of net profit. The tax rate would be low, but would economic efficiency be increased? No.

Sixth, tax reform should move toward the elimination of taxes on the foreign earnings of American companies, whose profits are already taxed abroad. Other countries recognize that the competitiveness of their companies would be severely damaged if they had to pay higher taxes than their competitors in foreign markets and do not impose domestic taxes on foreign earnings.

By attempting to tax foreign earnings when they are repatriated, the United States has incentivized companies not to repatriate earnings. As a result, U.S. companies hold huge hoards of cash abroad while domestic investment lags.

Since America is now the worst place in the world to earn corporate profits, we might be better off ending all business subsidies and using the savings to eliminate the dual taxation of corporate income and the taxation on foreign earnings—and to lower the corporate tax rate as much as is consistent with revenue neutrality, using static scoring. We could then write a provision into the law that if the improved code collects more taxes than the static revenue estimates, the rate would automatically be lowered over time by the amount of over-performance, down to 25%.

Some final advice: Compromise is fine if it moves you in the right direction. But don’t compromise on things that will only make rational reform harder in the future. If you can improve the tax code and help the economy now, do it. But remember, the Obama administration too shall pass, and a poor deal now will make a good one harder to achieve in the future.

Mr. Gramm, a former Republican senator from Texas, is an economist by education, a senior partner of U.S. Policy Metrics, and a visiting scholar at the American Enterprise Institute.

Employer Mandate? Never Mind

Wall Street Journal editorial on Obamacare implementation…

Obama decides not to enforce the heart of his health-care law.

These columns fought the Affordable Care Act from start to passage, and we’d now like to apologize to our readers. It turns out we weren’t nearly critical enough. The law’s implementation is turning into a fiasco for the ages, and this week’s version is the lawless White House decision to delay the law’s insurance mandate for businesses, though not for individuals.

The employer mandate is central to ObamaCare’s claim of providing universal coverage. Companies with 50 or more “employee equivalents” must pay a $2,000 penalty per full-time employee if they don’t provide government-approved health insurance. The provision was supposed to start in January, and delaying it is like Ford saying its electric car is ready to go, except the electric battery doesn’t work.

But all of a sudden on Tuesday evening Mark Mazur—you know him as the deputy assistant Treasury secretary for tax policy—published a blog post canceling the insurance reporting rules and tax enforcement until 2015 as Washington began to evacuate for the long Independence Day weekend. Enjoy the holiday, mate.

White House fixer Valerie Jarrett tried to contain the fallout with a separate blog post promising that ObamaCare is otherwise “staying the course.” That’s true only if she’s referring to the carelessness and improvisation that have defined the law so far.

Mr. Mazur cited the “complexity of the requirements” as the reason for the delay. He isn’t talking about business confusion and uncertainty, as damaging as those are. This is probably an admission that Treasury’s information technology isn’t ready to process and cross-check paperwork across the 5.7 million businesses in America, especially the pass-through S-corps and partnerships that file under the individual tax code.

This is more than a typical government snafu. It relates directly to the design of the law, which was thoughtlessly written and rammed through Congress with instructions for the bureaucracy to figure it all out.

And, lo, over eight interim final rules, three final rules, 20 requests for comment, 21 proposed rules, one information collection request, two amendments to the interim final rules, six requests for information and one frequently-asked-questions document, the Administration has created an employer-mandate system that, for example, requires business to track and report every full-time employee’s hours of service on a monthly basis.

Meanwhile, the law stipulates that a full-time workweek for the purposes of the mandate is 30 hours, when general business practice is at least 35. The result is that businesses have been scrambling to insulate themselves from higher labor costs by hiring part-time workers, or splitting shifts, or in some industries like fast food even sharing workers. Small firms trying to expand while avoiding the 50-worker trigger have come to be known as 49ers.

The delay will help these and other employers avoid immediately higher costs, which is why the main business lobbies endorsed it. But the decision will continue to dampen overall job creation because businesses know they’ll still be whacked in a year. Businesses don’t hire workers with the intention of sacking them later.

The Administration’s media cheerleaders are nonetheless portraying this as a stroke of political genius to push all the pain past the 2014 elections. But if that’s the goal, it is too clever by half. If Republicans have any sense, they will move immediately to delay the rest of the bill for at least a year too. They should start with the individual mandate to buy insurance or pay a tax.

Individuals are only supposed to be eligible for ObamaCare’s subsidies if their employer doesn’t offer the right benefits. But how will the Treasury know who qualifies in 2014 if they lack the information that businesses are supposed to provide? Citizens must also pay the individual mandate-tax if they decline coverage from their employer. How will the Treasury verify these offers?

A Pro-Growth Reform

Wall Street Journal editorial on immigration reform…

The GOP House should improve the Senate immigration bill, not kill it…

***

Any legislation that runs 1,200 pages is almost by definition flawed, and the immigration reform that passed the Senate late last week is no exception. The bill would nonetheless improve America’s ability to legally attract more of the world’s human talent, and the Republican-run House now has a chance to make it better.

This is not our preferred reform, which would focus entirely on easing the way for more people to come legally. Immigrants flock to the U.S. mainly for economic opportunity, and that incentive can’t be stopped by a border fence or more harassment of businesses. The Senate’s enforcement provisions are an example of wretched excess, a case of the Republican Party letting its blood-and-soil wing trump its supposedly free-market principles.

Even if the border is militarized to the point that no Mexican can get through, immigrants will find other ways to enter. An estimated 40% of current illegals are here because they overstayed their legal visas, and that share is bound to rise as the Border Patrol doubles to 38,400 under the Senate bill.

The Senate’s answer is to mandate an E-Verify program for all employers to vet new workers, and to further criminalize employers who hire illegals. Employers are willing to go along with this because the status quo of ICE raids and worker shortages is often worse.

But it’s certainly a spectacle to see Republicans who claim to be champions of business insisting that the act of hiring a willing worker who turns out to be illegal ought to be punished like a felony. Like every government program, E-Verify has also had a flawed rollout with many false IDs. The bill would be better without all of this enforcement overkill.

***

The good news is that this waste is offset by the new and expanded avenues the bill creates for legal entry into the U.S. These include an uncapped number of green cards for graduates of U.S. schools in science, engineering and technology who have a job offer. So if you are a Stanford biologist with an offer from Genentech, you don’t have to return to Bangalore or London and start your own company there. This will help keep the U.S. at the leading edge of technology and world competitiveness.

The Senate bill also moves the U.S. somewhat toward a more skills-based immigration system than the current focus on family reunification. Siblings of U.S. citizens will no longer get legal preference and neither will married children above age 30. Country quotas that failed to account for population or education are also lifted.

Instead the bill creates more guest-worker visas to fill shortages in the U.S. economy. The new farm-worker program is a particular improvement over the current mess, allowing a largely bureaucratic-free process up to 112,333 visas a year with a cap for the first five years of 337,000. That annual quota is still far too low given the extensive needs of U.S. growers, but this is where the House could make the bill better.

The status quo without reform will mean more labor shortages that force American farmers to stop growing some crops or move even more production overseas. The same Republicans and union Democrats who cry “sovereignty” to oppose immigration don’t seem to mind if their policies result in more imported food.

The annual visa quota for skilled H-1B workers increases to 120,000 at first (and as much as 180,000) from 65,000, though here again the limit is still too low and too encumbered by Department of Labor discretion. The same goes for the new guest-worker program for unskilled, nonfarm workers, which starts at a ridiculous 20,000 visas, rising to 75,000 after four years to a cap of 200,000. The nationwide quota for construction is 15,000 and can’t grow.

Raising these visa quotas, and stripping away the Labor Department’s increased power to set wages and complicate business hiring are areas where the House GOP could improve reform. This would also be the best immigration enforcement policy because more legal ways to enter the U.S. and work means less incentive to come illegally. It’s a lot cheaper for taxpayers than spending $40 billion to militarize the border.

Which brings us to the “path to citizenship” for the estimated 11 million illegal residents already living in the U.S. Conservatives are again calling this “amnesty,” though the bill requires that illegal residents pay fines of $2,000 and wait at least 13 years before they can become citizens, and bars them from welfare or ObamaCare as they wait.

The question restrictionists don’t like to answer is what is their alternative? As Florida Republican Marco Rubio says, current law is itself a form of amnesty because no one thinks those already here will leave or be deported.

Some on the right continue to indulge the Mitt Romney fantasy that if the government raids enough businesses, illegals will “self-deport” for lack of opportunity. But if those workers haven’t gone home during the last five years of recession and slow growth, they aren’t likely to in the future. Meanwhile, legalization would make it easier for those workers to change jobs and thus help the economy by better matching skills with opportunities.

***

The House GOP plans to take up the elements of the Senate effort as separate bills, which is fair enough. Pessimists say it won’t pass, and we’ll take up the political objections another day. But the reason to support immigration reform is less about political advantage than because it is good for the country. It is by far the most pro-growth policy of the Obama era, and especially in this Presidency a growth opportunity is a terrible thing to waste.