Policy Institutes

Should cryptocurrencies be regulated like securities? Financial regulators have been pondering this question for some time. In a Briefing Paper published today by the Cato Institute’s Center for Monetary and Financial Alternatives, I suggest that securities regulation would only seem warranted in certain clearly circumscribed cases. For the most part, cryptocurrencies should be treated like commodities.

It has been nearly a decade since “Satoshi Nakamoto” laid the intellectual foundations for Bitcoin, the first cryptocurrency platform. Since then, more than 1,600 peer-to-peer networks have emerged to disrupt established intermediaries. Cryptocurrencies, even in the comparably bearish first half of 2018, have an aggregate market capitalization of nearly $300 billion.

While policymakers’ attention has gradually turned to designing an appropriate regulatory framework for this emerging technology, policy uncertainty persists. On one hand, some policymakers recognize the potential for cryptocurrencies to increase competition, reduce transaction costs and improve capital formation opportunities for firms. On the other, statements from regulators at the SEC and CFTC, the two agencies most closely monitoring the development of cryptocurrencies, have been unclear, equivocal, and sometimes outright contradictory.

In April, former CFTC chairman Gary Gensler suggested that ether, the cryptocurrency of the Ethereum network, should be treated like a security. This designation would have forced onerous new registration requirements on platforms that hold ether in custody and for trading, while making access to Ethereum by retail buyers more difficult. Furthermore, because the Ethereum platform provides the infrastructure for many other cryptocurrencies, such a move would have compromised the viability of large parts of the cryptocurrency market.

Fortunately, these risks have receded into the background since William Hinman, Director of the SEC’s Division of Corporation Finance, argued in a recent speech that ether, in its present form, wouldn’t qualify as a security because the Ethereum platform is heavily decentralized. The SEC’s classic test for a security defines it as (1) an investment of money (2) in a common enterprise (3) with the expectation of profits (4) from the efforts of others. In Hinman’s opinion, developments since the launch of Ethereum in 2014 mean that the platform presently fails to meet criteria (2) and (4).

The next step is to give Hinman’s welcome pronouncement regulatory heft. In the Briefing Paper released today, I propose that the SEC and CFTC formally establish a distinction between functional cryptocurrencies, such as Bitcoin and Ethereum, and promises of cryptocurrencies to be delivered in the future. Cryptocurrencies in the first category do not meet the criteria for a security and should be regulated as commodities. Those in the second category may be securities, depending on the individual circumstances of each issue.

The launch of cryptocurrencies is often preceded by what is, somewhat misleadingly, called an initial coin offering (ICO). An ICO involves the exchange of money today for the delivery of units of cryptocurrency in the future, where the funds are used to build a new platform. ICOs are a way for startups to raise capital, so in some circumstances they may tick the four boxes in the SEC’s security test. In particular, when buyers in an ICO are able to trade their holdings before the launch of the application, the contracts could constitute securities. In other cases, however, ICO agreements may simply be advance purchases of a good or service and not tradable before the platform goes live. Those agreements more closely resemble forward contracts and should be regulated like them.

In the paper, I propose just such a two-tier regulatory structure for ICOs, recognizing that some of them may fall under the securities laws, but that this will be determined by the circumstances of each case.

Apart from being consistent with Director Hinman’s position, the suggested approach balances consumer protection and the duties of financial regulators with an open environment for cryptocurrency innovation. It recognizes that most of the fraud about which the SEC has expressed concern happens at the ICO stage, so buyers might benefit from increased disclosures then. But it also takes account of the fact that excessive regulation of functional cryptocurrencies would stifle the market and throw a spanner in its further development, with few countervailing benefits in the form of market stability or consumer protection.

It is time for policy to catch up to the exciting development of cryptocurrency markets. But catching up shouldn’t mean smothering the technology with regulation, nor crudely applying the securities laws to all cryptocurrencies. The reality of this emerging market favors a more judicious approach.

[Cross-posted from Alt-M.org]

President Trump recently held an event with some of the relatives of people killed by illegal immigrants in the United States.  Afterward, the White House sent out a press release with some statistics to back up the President’s claims about the scale of illegal immigrant criminality.  The President’s claims are in quotes and my responses follow.

According to a 2011 government report, the arrests attached to the criminal alien population included an estimated 25,000 people for homicide.

Criminal aliens is defined as non-U.S. citizen foreigners, which includes legal immigrants who have not naturalized and illegal immigrants.  The 25,064 homicide arrests he referred to occurred from August 1955 through April 2010 – a 55-year period.  During that time, there were about 934,000 homicides in the United States.  As a side note, I had to estimate the number of homicides for 1955-1959 by working backward.  Assuming that those 25,064 arrested aliens actually were convicted of 25,064 homicides, then criminal aliens would have been responsible for 2.7 percent of all murders during that time period.  During the same time, the average non-citizen resident population of the United States was about 4.6 percent per year.  According to that simple back of the envelope calculation, non-citizen residents were underrepresented among murderers.

In Texas alone, within the last seven years, more than a quarter million criminal aliens have been arrested and charged with over 600,000 criminal offenses.  

We recently published a research brief examining the Texas data on criminal convictions and arrests by immigration status and crime.  In 2015, Texas police made 815,689 arrests of native-born Americans, 37,776 arrests of illegal immigrants, and 20,323 arrests of legal immigrants. For every 100,000 people in each subgroup, there were 3,578 arrests of natives, 2,149 arrests of illegal immigrants, and 698 arrests of legal immigrants.  The arrest rate for illegal immigrants was 40 percent below that of native-born Americans. The arrest rate for all immigrants and legal immigrants was 65 percent and 81 percent below that of native-born Americans, respectively.  The homicide arrest rate for native-born Americans was about 5.4 per 100,000 natives, about 46 percent higher than the illegal immigrant homicide arrest rate of 3.7 per 100,000.  Related to this, the United States Citizenship and Immigration Services recently released data that showed the arrest rate for DACA recipients about 46 percent below that of the resident non-DACA population.

More important than arrests are convictions.  Native-born Americans were convicted of 409,063 crimes, illegal immigrants were convicted of 13,753 crimes, and legal immigrants were convicted of 7,643 crimes in Texas in 2015. Thus, there were 1,749 criminal convictions of natives for every 100,000 natives, 782 criminal convictions of illegal immigrants for every 100,000 illegal immigrants, and 262 criminal convictions of legal immigrants for every 100,000 legal immigrants. As a percentage of their respective populations, there were 56 percent fewer criminal convictions of illegal immigrants than of native-born Americans in Texas in 2015. The criminal conviction rate for legal immigrants was about 85 percent below the native-born rate.

Criminal Conviction Rates by Immigration Status in Texas, 2015

Murder understandably garners the most attention.  There were 951 total homicide convictions in Texas in 2015. Of those, native-born Americans were convicted of 885 homicides, illegal immigrants were convicted of 51 homicides, and legal immigrants were convicted of 15 homicides. The homicide conviction rate for native-born Americans was 3.88 per 100,000, 2.9 per 100,000 for illegal immigrants, and 0.51 per 100,000 for legal immigrants.  In 2015, homicide conviction rates for illegal and legal immigrants were 25 percent and 87 percent below those of natives, respectively.

Homicide Conviction Rates by Immigration Status in Texas, 2015

Murderers should be punished severely no matter where they are from or what their immigration status is.  There are murderers and criminals in any large population, including illegal immigrants.  But we should not tolerate the peddling of misleading statistics without context.  What matters is how dangerous these subpopulations are relative to each other so the government can allocate resources to prevent the greatest number of murders possible.  Thus, enforcing immigration law more harshly is a very inefficient way to punish a population that is less likely to murder or commit crimes than native-born Americans.  Illegal immigrants, non-citizens, and legal immigrants are less likely to be incarcerated, convicted, or arrested for crimes than native-born Americans are. 

David Boaz blogged today on the Washington Post story about a lawsuit regarding DC childcare regulations. DC is set to require directors of child-care facilities to obtain a bachelor’s degree in early childhood development, and assistant teachers and home-care providers to have Child Development Associate (CDA) certificates in the same subject.

The WaPo write-up follows the usual boilerplate for these discussions: on the one hand, providers say complying with the regulations will be burdensome and increase costs; on the other hand, the government talks up the educational benefits of the new regulations. This all implies there is a trade-off between quality and cost.

But is there? Actually, this is a classic example of the government’s argument not considering the market for childcare as a whole.

Yes, requiring child-care workers to achieve higher qualification levels could result in more highly trained formal caregivers, who can help children to develop from an educational perspective. Such a regulation might also provide a “quality assurance” effect for some particularly conscientious parents.

But the effect on the quality of care faced by the whole population of children is ambiguous. By restraining the supply of formal care via regulation, the price of formal care will rise. If the price of formal childcare rises, then some parents will decide to substitute to more informal forms of care or even have to stay home to care for their own children. According to the government’s definitions of “quality” (which may be quite different from parents’ own perception) there will be substitution into lower quality settings as a result of childcare becoming more expensive.

Previous academic work suggests the price effects of these types of regulations are large. Diana Thomas and Devon Gorry estimated that even the more modest requirement for lead teachers to have a high school diploma increases childcare prices by between 25 and 46 percent. Hotz and Xiao likewise find that increasing the average required years of education of center directors by one year reduces the number of child care centers in the average market by between 3.2% and 3.8%. This effect manifests itself overwhelmingly in low income areas, with quality improvements (proxied here by accreditation for the center) occurring in high-income areas.

In other words, the real trade off is not quality vs. cost, but better quality for those rich enough to still be able to use formal care vs. less accessibility to care and higher prices for the poor. And that means lower quality and fewer options for the least well off – widening, rather than narrowing, supposed educational inequalities. Given average annual full time infant care in DC already costs $23,000 plus per year, one would think the government would be sensitive to these concerns about affordability.

The top left-hand story on the front page of the Metro section of today’s Washington Post:

Lawyers for the District argued Wednesday for the dismissal of a lawsuit that challenges city regulations requiring some child-care workers to obtain associate degrees or risk losing their jobs….

The requirements … stipulate that child-care center directors must earn bachelor’s degrees and assistant teachers and home-care providers must earn Child Development Associate (CDA) certificates.

Meanwhile, just across the page, in the top right-hand space:

About 1,000 teachers in D.C. Public Schools — a quarter of the educator workforce — lack certification the city requires to lead a classroom, according to District education leaders.

So how about this compromise: the child-care licensing requirement will go into effect, but it will be enforced by the crack management team at DC Public Schools?

The Court today reached the right result for the wrong reason. The majority extends the “reasonable expectation of privacy” to cell-site location data and thereby carves an exception to the third-party doctrine—as well as making various caveats about not reaching different technologies, security-related investigations, and other hypothetical situations. Good enough for restricting law-enforcement overreach in some cases, but just adding cautionary barnacles to a rusty and outmoded Fourth Amendment hull.

It’s Justice Neil Gorsuch who’s right that we need to go to the theory of the matter and the people’s right to be secure in their “persons, houses, papers, and effects” based not on privacy expectations but on property rights, contract law, and statutory protections (all of which can certainly be applied in the modern digital age). This very much aligns with what Cato argued in our amicus brief. Gorsuch styles his opinion as a dissent because he adjudges that Carpenter’s lawyers didn’t “preserve” such arguments, but it’s a concurrence in all but name.

If the Court doesn’t follow that philosophical line, going back to first principles rather than reinventing the Fourth Amendment with each technological revolution, its jurisprudence in this area will never escape the artificial muddle epitomized by the unsatisfying majority opinion here. 

[This may be updated and my colleagues are likely to have more analysis.]

Thirty years ago, NASA scientist James Hansen put greenhouse-effect warming on the map with his strident testimony indicating that global temperatures could then confidently be related to changes in atmospheric carbon dioxide. Two years ago, he made another prediction: several meters of sea level rise in this century. He told Scientific American:

Consequences [of climate change] include sea level rise of several meters, which we estimate would occur this century or at latest next century, if fossil fuel emissions continue at a high level. That would mean loss of all coastal cities, most of the world’s large cities and all their history.

There’s only one way to accomplish this: melt a substantial portion of Greenland’s ice. In fact, as early as 2004 he wrote Greenland could a substantial portion of its ice in 100 years with the warming of this century, causing a total sea level rise of nearly 20 feet.

Fortunately, there are ways to test the hypothesis that Greenland is about to shed like a calico cat in the summer.  It turns out Greenland has experienced multiple millennia of heat at times during the last 125,000 years.

The last two million years or so have been punctuated by (at least) four major ice ages. The reigning theory is that they are driven by slight but predictable variations in earth’s orbit around the sun, as well as the opening of the circumpolar Southern Ocean and the rise of the Himalayas. Our orbit is an ellipse in which the relation to the sun changes over time. Right now, earth is closest to the sun in Northern Hemisphere winter, and furthest away in summer.  Under some conditions, that would lead to an ice age, but the seasonal distances between earth and sun also precess with time, and our orbit is right now quite circular. That makes the winter-summer difference small, preventing another ice age.

At the end of each of the last two ice ages, earth and sun lined up in a position where they are closest in Northern Hemisphere summer, and the orbit was highly elliptical, which means excess sunshine in the high latitudes, warming Greenland, and northern Eurasia and North America—a lot.

The Arctic tundra holds many secrets, including the fact it was once forested. It’s now too cold for trees, but we also know how warm it has to be for trees to survive. Dying trees buried in highly acidic peat are preserved remarkably intact. Here, for example is a log, radiocarbon dated at 6,000 years old that looks like new wood:

We became interested in this years ago, with the 2000 publication by Glen MacDonald, of UCLA, and several colleagues, showing that from roughly 7,000 to 9,000 years ago, “mean July temperatures along the northern coastline of Russia may have been 2.5° to 7.0°C [3.6° to 12.6°F] warmer than modern.” This is consistent with the 2016 finding of Jason Briner (University of Buffalo) that the difference between warmest and coldest postglacial millennia is 5.4° +/- 1.8°F in Arctic Canada and Greenland. Last year, dating buried wood and cones, Leif Kullman found high latitude summer temperatures at least 3.6°C [6.5°F] warmer than today, between roughly 6,500 years to 11,200 (!) years ago.

What did all this mean for Greenland? According to a very recent paper by Lisbeth Nielsen of University of Copenhagen, all that warming melted enough ice to raise sea level between ~0.15-1.2m (0.5-4.0 ft) over several thousand years. That’s a far cry from Hansen’s 20 feet in a hundred years, and it’s telling that the 2016 Briner finding and Hansen’s forecast were concurrent.

It’s also noteworthy that, due to all this arctic warming, “Arctic sea ice cover was strongly reduced during most of the early Holocene and there appear to have been periods of ice free summers in the central Arctic Ocean.” And yet this creature survived:

All this recent research is consistent with a landmark 2013 paper by Dorthe Dahl-Jensen and several colleagues from the University of Copenhagen, who drilled a core through the     Greenland ice to the beginning of the previous interglacial–125,000 years ago, through the millennia known as the Eemian warmperiod.

If one thinks it was warm at the beginning of the current interglacial, the beginning of the last one was sweltering at high northern latitudes, given the Dahl-Jensen data. It used to be thought that a 6,000 year period, centering around 118,000 years ago, was around 3.6-5.4°F (2-3°C) warmer in summer than the 20th century average for Greenland. But data in their core showed it averaged 10.4-14.0° (6-8°C) warmer in summer for 6,000 years. And for all of that, they estimate that Greenland lost about 30% of its ice, which would raise sea level about about 1.38 inches per century over these six millennia. Not a Hansenian 20 feet, in a hundred years, but about 6/1000’s of that.

Quantitatively, here’s why Hansen’s hypothesis is wrong.

Assume that the six-millenia Eemian averaged around the lower level of Dahl-Jensen’s estimate, some 6°C warmer in summer. That means the melting heat-load (Greenland’s ice melts every summer) over Dahl-Jensen’s core region (northwestern Greenland) was:

6000 summers X 6°C = 36,000 degree-summers.

It’s doubtful we are going to warm our atmosphere with increased carbon dioxide for anywhere near 1,000 years, and climate models project a summer warming around Greenland in the top range of around 5°C.  But let’s assume these pessimistic parameters.

Although this is likely a huge exaggeration of the heat that humans could possibly unload on Greenland, it is

1000 summers X 5°C = 5,000 degree-summers.

Therefore, in a 1000-year worst-case scenario we will only melt a small fraction of Greenland’s ice, compared to the loss in the 6000-year Eemian.

That’s a far, far cry from Jim Hansen’s 20 feet in 100 years. When his alarming sea-level rise hypothesis comes up (as it will) around the 30th anniversary of his 1988 testimony on June 23, rest assured that thousands of years of ice core data—real data instead of a speculative hypothesis—show the Greenland-driven disaster scenario to be simply untrue.

For years, the Justice Department’s Bureau of Alcohol, Tobacco, and Firearms has maintained that “bump stocks”—devices that allow a firearm to reciprocate slightly and assist in “bump firing”—are not “machineguns.” From 2007 to 2017, spanning multiple administrations (including the current one), the ATF issued 10 different opinion letters confirming that the devices were not “machineguns” or “machine gun conversions,” and thus did not fall under the purview of the National Firearms Act of 1934 and Gun Control Act of 1968, two federal laws which heavily regulate machine gun ownership.

Under federal law, a “machinegun” is a device “which shoots … automatically more than one shot … by a single function of the trigger.” With language so clear, the provision was never considered ambiguous by a reviewing court over 80 years of decisions—and the ATF’s interpretation remained consistent. It is for this reason that bump stocks, and crank-operated “Gatling guns,” while having a high rate of fire, have never been considered “machineguns.” (Yes, virtually anyone can own a Gatling gun under federal law.) What could change the state of such settled law, then? Political expediency.

After the October 2017 mass shooting in Las Vegas, where the shooter used a bump stock, President Trump made clear that he intended to see the devices banned “without going through Congress.” The administration then announced that it intended to “clarify” the NFA and GCA to include bump stocks within the statutory definition of “machinegun.” The issue is, of course, that no amount of “clarification” can lawfully make a statute say something it does not. That, however, did not seem to deter the ATF when it published a Notice of Proposed Rulemaking in March, threatening to stretch statutory language beyond the point of tearing, all in an attempt to use an 83-year-old law to do away with bump stocks.

Our Constitution requires that new laws be brought through Congress, not shoehorned into old ones by executive agencies. In that light, we have filed a regulatory comment, expressing our view that the ATF’s new “interpretation” is an attempt to force new restrictions as a matter of political expediency, not a good faith interpretation of existing law. The president undoubtedly has the authority to direct the actions of his principal officers, but when those directions urge the reversal of longstanding previous interpretations based on an unambiguous statute, they smell more of an attempt to improperly change the law than a valid exercise of constitutional authority.

The most fascinating phenomena of American politics is the increasingly anti-immigration opinions of politicians like Donald Trump that contrasts with an increasingly pro-immigrant public opinion.  Gallup has asked the same poll question on immigration since 1965: “In your view, should immigration be kept at its present level, increased, or decreased?”  Gallup’s question does not separate legal from illegal immigration, likely meaning that answers to this question undercount support for increasing legal immigration.  They recently released their 2018 poll results.  The support for increasing legal immigration is at 28 percent – the highest point ever (Figure 1).  Support for increasing immigration is just one point below support for decreasing immigration – well within the 3-point margin of error (95% CI). 

Figure 1

Gallup: Should Immigration Be Kept at Its Present Level, Increased, or Decreased?

Gallup

Sources: Gallup.

The Gallup trend is the clearest and best for those of us who support increasing immigration but the General Social Survey shows a similar directional trend – although not nearly so dramatic (Figure 2).

Figure 2

GSS: Should Immigration Be Kept at Its Present Level, Increased, or Decreased?

GSS

Source: General Social Survey.

If the public is increasingly pro-immigration, why is the GOP so opposed to immigration?  It can’t be radically divergent opinions across partisan lines. According to the Gallup poll, 65 percent of Republicans think immigration is good for the country compared to 85 percent of Democrats.

Another possibility is that anti-immigration voters care a lot more about the issue than pro-immigration voters and are willing to change their votes based on it.  For pro-immigration voters, immigration just isn’t their biggest issue.  The Gallup poll hints at this as 55 percent of those who are dissatisfied with the current immigration levels want to cut the numbers while only 22 percent who are dissatisfied want to increase the numbers.

Another issue is causality as anti-immigration politicians could be pushing moderate Americans into a more pro-immigration position.  The crude language used by nativists, such as President Trump’s description of illegal immigrants as an infestation, can turn off a lot of voters in the same way that the Prop 187 campaign in California in the mid-1990s convinced a lot of white voters to not support the GOP.  This is the exact worry that Reihan Salam, a moderate restrictionist, voiced. The spokesman for political issues matters and Trump is not a very good one.

Another potential explanation is the “locus of brutality,” a riff on the locus of control literature that says voters are more supportive of liberalized immigration when they perceive it to be controlled.  Under that theory, border chaos, illegal immigration, refugee surges, and the perception of immigrant-induced chaos increases support for restriction.  Thus, countries with open immigration are mostly able to maintain those policies so long as it appears orderly.  Since disorder usually arises from poor government laws, this means that more regulation can make it more chaotic and create demand for more legislation in an endless cycle.  That locus of control pattern could be countered by the brutality of immigration enforcement such that voters become more pro-immigration when they are confronted with the government’s brutal enforcement of immigration laws.  Prison camps for immigrant children thus create support for liberalization.

My final theory is that this is the last gasp of nativism.  Lots of dying political movements that are terminally ill due to shifting public opinion go all out as it is their last chance to get elected.  Think George Wallace and segregation.  During the 2016 campaign, then-Senator Jeff Sessions said that that was the “last chance for Americans to get control of their government.”  When it comes to changes in the public trends and support for cutting immigration, he is probably correct.

The public is becoming increasingly pro-immigration.  The Democratic Party is increasingly reflecting that changing public opinion while the Republican Party is getting an increasing percentage of that shrinking but sizable anti-immigration majority.  There will come a point, should public opinion continue to support increasing immigration, where both parties will adopt this position.

The House is scheduled to vote tomorrow on a bill—the Border Security and Immigration Reform Act, the supposed GOP compromise bill. The authors claim in their bill summary that “the overall number of visas issued will not change,” yet that is simply incorrect. In fact, the proposal would reduce legal immigration at least 1.4 million over 20 years.

The bill would reduce the number of legal immigrants in five ways: 1) eliminating the diversity visa lottery, 2) ending sponsorship of married adult children of U.S. citizens, 3) ending sponsorship of siblings of U.S. citizens, 4) restricting asylum claims, and 5) indirectly by restricting overall immigration, which will lead to fewer sponsorships of spouses, minor children, and parents of naturalized citizens years later. The bill partially offsets these effects by increasing employer-sponsored immigration and by granting permanent residency to some Dreamers in the United States, but the net effect is still strongly negative.

Table 1 breaks down the cuts to legal immigration by category over the 20-year period from 2020 to 2039. The net effect is a reduction in legal immigration of 1.4 million including Dreamers or 2.1 million not counting Dreamers toward the total. This is a cut of 7 percent or 10 percent in the number of legal immigrants that would have been allowed to enter under current law.

Table 1: Difference in the number of legal immigrants

Eliminating the diversity visa lottery (#1) would reduce legal immigration by about 1 million over 2 decades; ending the sponsorship of married adult children of citizens (#2) by about 465,000, ending the sponsorship of siblings of citizens (#3) by 1.4 million; restricting asylum (#4) by about 260,000; and limiting overall immigration (#5) would indirectly reduce sponsorships of spouses, minor children, and parents of U.S. citizens by almost 218,000. The bill would increase employer-sponsored immigration by almost 1.3 million and would provide permanent residence to about 700,000 Dreamers.

In an earlier post, we calculated the number of Dreamers likely to legalize and then receive permanent residence under the House bill. We explained that due to the exceptionally restrictive requirements in the bill, which are much more restrictive than the already quite limited DACA program, we estimated that only 698,620 would end up receiving permanent residence. We used our previous estimate of the effects of the restriction on asylum in this bill, requiring them to prove their claims at the border at a much higher standard. We estimated that it would cut the number of asylees in half, but it could be even more severe.

We used a statistical model to calculate how many fewer immediate relatives—spouses, minor children, and parents—of U.S. citizens would be sponsored if the other categories are cut.[i] Because immigrants can naturalize and marry a foreigner or sponsor their parents, they trigger increases in the immediate relative category after 5 years. We discounted the effect of Dreamers on increases in this category by 20 percent because the vast majority of them cannot sponsor their parents because their parents crossed the border illegally (some parents, who entered with legal visas, could be sponsored).

Table 2 compares the single year flows in 2019 to 2029, showing how, after just 10 years (and after the Dreamers all receive their green cards), the annual cut would be 11 percent relative to 2019.  Going forward to 2039, the annual cut would grow to 12 percent. Table 3 at the end of the post shows how the bill would affect each immigration category from 2019 to 2039. 

Table 2

It is important to note that almost all of the visa increases in the House bill would go to people already in the United States, whether Dreamers or employer-sponsored immigrants who are almost always already here in temporary worker visas. By contrast, all of the cuts to legal immigration are primarily of people outside of the United States, particularly in the family-sponsored categories and the diversity visa lottery. In other words, this legislation would do more reduce overall population growth than what these numbers suggest. 

In addition to reducing legal immigration, after 2019, the bill cancels the applications of people in the categories for married adult children and siblings of U.S. citizens who have waited in line for, in many cases, decades: nearly 3 million people. This adds unfairness to the economic harms associated with cutting immigration. 

Reducing legal opportunities to immigrate to the United States will only encourage more illegal immigration, going against one of the stated goals of the bill. Moreover, canceling the applications of legal immigrants would cause immigrants in the future to lose faith in the legal immigration system. This would further incentivize people to seek illegal avenues to come to the United States. 

At a time when U.S. population growth is at its lowest level since the Great Depression and the fertility rate has plunged to the lowest level on record, the United States needs more people, not fewer. Congress should increase the number of immigrant visas and create other opportunities that have proven to reduce illegal entry, such as more temporary work visas, allowing more people to enter the country lawfully. These approaches have proven to work, while cuts to legal immigration and a lack of legal work visas harm the U.S. economy and encourage more people to enter the country unlawfully.

Table3

 

 

 

 

[i] We used a vector autoregressive (VAR) model to estimate the effects of the cuts to legal immigration on the immediate relative category (spouses, minor children, and parents of U.S. citizens). A VAR models the relationship multiple variables of interest as they evolve together over time.  After estimating a VAR model, one can impose a shock to a variable of interest in one year and trace out how the shock impacts each variable over time, or an impulse response function (IRF). The impulse response function assumes that some shock occurs in a single year and traces out the shock’s impact over a forecast horizon.  This allows one to assess the impact of a shock to the non-immediate relative (IR) immigrant inflows on IR inflows over time, taking into account the dynamic, interrelated nature of these two variables. We delayed the effect of the cut until 6 years after the shock because the law requires at least five years residency prior to naturalization and sponsoring. Since these two variables are likely to be related to one another across time, one can compute orthogonalized IRF.  The orthogonalized IRF ensures that the shocks to each variable are independent of one another, i.e. so no feedback loop exists between each set of shocks.  To ensure that the shocks to the Non-IR category flows are independent of those to the IR category flows, orthogonalized IRFs are computed.  Additionally, each variable is expressed as its natural logarithm to account for non-stationarity in each time series. Credit to Andrew Forrester for his assistance with this model. 

On Wednesday members of the Senate Finance Committee questioned Secretary of Commerce Wilbur Ross about the costs to American businesses of the administration’s tariffs. Ross was unsympathetic:

When Thune warned that the drop in soybean prices (caused by China’s retaliatory tariffs) was costing South Dakota soybean farmers hundreds of millions of dollars, Ross responded by saying he heard the price drop “has been exaggerated.”…

Ross told Sen. Mike Enzi (R-Wyo.) that he’s heard the rising cost of newsprint for rural newspapers “is a very trivial thing,” and he told Sen. Benjamin L. Cardin (D-Md.) that it’s tough luck if small businesses don’t have lawyers to apply for exemptions: “It’s not our fault if people file late.”

That reminded me of then-First Lady Hillary Clinton’s response in 1993 to a small businessman about how her health care plan might raise his costs:

“I can’t go out and save every undercapitalized entrepreneur in America.”

Seems like lots of Washington operators don’t care much about the burdens that taxes, regulations, mandates, tariffs, and other policies impose on small businesses and their employees.

The Supreme Court issued a major separation-of-powers decision this morning, which may have more long-term ripple effects than the internet sales-tax case. In Lucia v. Securities and Exchange Commission, the Court rule 6.5-2.5 – I’ll explain shortly – that SEC administrative law judges are “officers of the United States” and thus must be appointed by the president or the “department head,” in this case the SEC itself (rather than being selected by commission staff). This is important because it makes ALJs, who make decisions with significant monetary and regulatory impact, more accountable to the political process – instead of being mere creatures of the bureaucratic blob.

It’s gratifying that the Supreme Court takes constitutional structure seriously, at least with respect to the president’s appointment of inferior officers. Justice Elena Kagan’s majority opinion powerfully and concisely explains what was clear all along: ALJs are powerful officers with significant discretionary powers rather than mere clerks. That power and discretion is what sets officers apart from mere employees, as the Supreme Court explained in Freytag v. Commissioner (1991). Accordingly, ALJs should indeed be part of the executive branch’s chain of command instead of a nebulous part of the “fourth branch” administrative agencies. This ruling will increase accountability for these executive officers even as they perform quasi-judicial tasks and often represent the last real chance for those caught in the SEC’s investigatory clutches to defend themselves.

I only wish, as the government argued, that the Court had addressed the removal power, which is the flip-side to appointments. Only Justice Stephen Breyer’s partial concurrence/partial dissent addressed that issue, whose resolution we’ll have to await in some future case.

This is where my half-vote allocations come in. The majority opinion was joined in full by six justices: John Roberts, Anthony Kennedy, Clarence Thomas, Samuel Alito, and Neil Gorsuch in addition to Kagan. Justice Sonia Sotomayor, joined by Justice Ruth Bader Ginsburg, dissented in full. That leaves Breyer, who agreed that SEC ALJs were improperly appointed but on statutory (Administrative Procedure Act) not constitutional grounds. Breyer was particularly concerned that combining the majority’s Lucia ruling with the holding in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010) might require ALJs to be removable at will, throwing into doubt much of the administrative state’s legitimacy. (Breyer also disagreed with the majority’s remedy – in this, Justices Ginsburg and Sotomayor joined him – to vacate the ALJ’s order and reassign the case to a different ALJ even though the one who had ruled here had subsequently been re-appointed by the SEC itself.)

Well look, even (and especially) if Breyer’s fears about overturning the legally independent bureaucracy are valid, to me that’s a feature, not a bug. In any case, Lucia will go down as a case where the Court actually reads what the Constitution says and applies, regardless of what that might mean for efficiency of government.

Today, the Supreme Court handed the states a victory in their battle to collect taxes on online sales, but, in doing so, dealt a heavy loss to the national market, small businesses, and the people at large. South Dakota v. Wayfair’s focus was on whether to overturn Quill Corp. v. North Dakota, which held that states could not impose tax collection obligations on businesses with no physical presence in the state. In a bizarrely split 5-4 decision–with Justice Kennedy writing the majority joined by Thomas, Ginsburg, Alito, and Gorsuch and Chief Justice Roberts writing the dissent joined by Breyer, Sotomayor, and Kagan–the Court held that states can charge sales taxes on completely out-of-state businesses.

As the dissent rightly points out, the majority decided Wayfair with “an inexplicable sense of urgency,” asserting that “the passage of time is only increasing the need to take the extraordinary step of overruling” longstanding precedent. While wrongly decided cases need to be dealt with, Quill was not one of those decisions. As the chief justice correctly observes in his dissent: “E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule. Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.” In fact, amicus briefs for various senators and members of Congress were submitted to the Court highlighting the ongoing efforts to fix the e-commerce sales-tax system, and three bills are currently pending. “By suddenly changing the ground rules,” the chief justice warns, “the Court may have waylaid Congress’s consideration of the issue. Armed with today’s decision, state officials can be expected to redirect their attention from working with Congress on a national solution, to securing new tax revenue from remote retailers.”

The majority in Wayfair mislabel Quill as some sort of decrepit roadblock to sensible internet jurisprudence, but the reality couldn’t be any more different. Quill was a safeguard that made states consider who they were taxing and why. Classic considerations like whether a taxpayer availed themselves of state services like fire and police were taken into consideration. Now that is thrown into disarray, as state lines mean less for the limits of state power.

Where e-commerce customers live does not change the fact that companies like Wayfair had no opportunity to vote in state elections or influence state policy. What the majority in Wayfair misses is that this is less a matter of petty tax avoidance than a question of the limits of state power. States were frustrated with the inability to collect taxes from out-of-state retailers under Quill, but governments around the world are prone to complain about the difficulties of collecting taxes. As we wrote in our amicus brief supporting Wayfair, “the Framers would not recognize the concern South Dakota poses: that interstate commerce is thriving to such an extent that collection of a particular type of tax has become difficult.”

While Quill was decided in the days when 28.8k modems beeped and hissed, the question of due process was no different. Due process requires some definite link between the state and any person, property, or transaction that a state seeks to tax or regulate. Wayfair does not own property in South Dakota, elects no representatives in South Dakota, and was afforded no protection by South Dakota’s police. The internet economy has blossomed and improved the lives of a great many, but it has not given rise to a great excuse to rewriting the Commerce Clause. Unfortunately, the Court missed the mark here by focusing far too much on whether and how states can collect revenue.

By removing the physical-presence requirement for charging state taxes on internet sales, the Supreme Court in South Dakota v. Wayfair has thrown this area of law into disarray. South Dakota’s tax kicks in at $100,000 or 200 transactions, but other states might set other thresholds or leave it unclear. Overturning bad precedent in and of itself isn’t bad – when old cases are really wrong and create unworkable legal regimes, they deserve to be overturned – but here the Court is saying that Quill is out of step with modern Commerce Clause precedents. That’s the wrong way to go: the Court should be conforming its jurisprudence to the original meaning of constitutional clauses, not conforming the Constitution to the times.

One other thing to note is that the justices’ voting alignment (Justice Kennedy writing the majority opinion, joined by Justices Thomas, Ginsburg, Alito, and Gorsuch, with the other four in dissent) was unusual, but not surprising in this particular case. This doctrinal area, what constitutional lawyers call the “dormant” Commerce Clause – that states can’t interfere with Congress’s implied non-regulation of interstate commerce – is the only one on which thus far I’ve found myself in disagreement with Justice Gorsuch’s views (and the only constitutional-structure area vis-a-vis Justice Thomas.)

My colleagues Trevor Burrus and Matt Larosiere will have more on this case later in the day.

President Donald Trump recently modified his policy of separating children from their families.  His new executive order requires the children of border crossers to be detained with their family members. Although a slight improvement over family separation, Trump’s decision raises different questions of whether detaining families together violates the 1997 Flores Settlement, whereby children have to be released after 20 days, which would necessitate family separation. The potential Flores problem could be mitigated entirely by Trump if he relied on alternatives to detention (ATD) programs instead of uniform detention of all border crossers. This would allow President Trump to claim that he ended catch and release without detaining migrant families at taxpayer cost.

Immigration and Customs Enforcement (ICE) manages ATDs to explore cost-effective means for asylum seekers and illegal immigrants to reside outside of detention facilities if they are not public safety threats. The ATDs help guarantee that the migrants show up at their hearings and ensure that they comply with court rulings. The 2017 budget allocated $114 million to ICE to run these programs and the Trump administration requested about $180 million for them for 2018.  

ATDs usually take at least one of three forms. The first is electronic monitoring devices whereby migrants have to wear a tracking device like an ankle bracelet. The second is assigning caseworkers to periodically check up on the migrants. The third is monetary incentives, such as bonds.  Many ATD programs mix these three. ICE runs the ATD program because they are responsible for apprehending, removing, and detaining immigrants inside of the United States. Detention costs about $170 per day for long stays and about $30 for short stays.  The proposed tent cities to house migrant children would have cost about $775 per person per night. As far as I can tell, about 100 percent of them comply with court orders as they are in government detention and therefore have no choice. The tradeoff for this extra effectiveness are the various costs of detention.

ATDs would have to be modified to accommodate recent border crossers, but that would not be difficult as the vast majority of them are not public safety threats. Asylum seekers, for example, have taken part in ATDs for over a decade. This post will explain the major ATDs, how they work, their costs, and effectiveness.

Intensive Supervision Appearance Program (ISAP)

This program started as a five-year pilot in 2004 and was for “immigrants in deportation proceedings who have been released from detention. The goal of the program is to avoid detention and allow immigrants to live with their families and continue working while their deportation proceedings are pending.” The second phase of ISAP began in 2010 and relied on electronic ankle monitors, telephone checkups that used biometric voice recognition software, unannounced home visits, employer verification, and in-person reporting to supervise participants. By February 2014, 95 percent of the participants in the ISAP II program were only monitored electronically. 

ISAP II data in 2012, the last year for which data is reliably available, showed that 17,524 people left the program. Of those, 4.9 percent absconded and 4 percent were arrested by other law enforcement agencies. The other 91.1 percent complied with their court orders and either left the country or earned some sort of legal status. Appearance rates at immigration courts were 99.6 percent.

Bonds

Bonds are common in many ATD programs and they function largely like bonds in the rest of the criminal justice system. They are only available to migrants who are not public safety threats. Just over 83 percent of those released on bonds showed up to their hearings in 2016. The median bond amount in immigration cases was $8000 in 2016. An appearance rate of 83 percent may not seem impressive, but this is costly for migrants who surrender their bond and a lot cheaper for the government.

Family Case Management Program 

The Family Case Management Program (FCMP) uses caseworkers to help migrants meet their legal and judicial obligations, such as reporting to ICE Enforcement and Removal Operations (ERO) check-ins, appearing at court hearings, and departing the United States when ordered by the courts. ICE began the program in 2015 and shut it down in mid-2017 despite some remarkable successes. About 99 percent of all migrants in the program made it to their ICE-ERO check-ins, 100 percent made it to their court appearances, and only 2 percent absconded into the black market after receiving removal orders.

Although this program was successful, it was also expensive.  The contract for the private prison contractor cost $17.5 million and there were only 954 participants, for a final price tag of over $18,000 per migrant. FCMP was also small and probably unsalable.  Its cost and small scale make this is an unlikely model for widespread use nationwide but it could be useful in special circumstances.

Community Management Programs

Community Management Programs are the non-profit versions of the FCMP. The Vera Institute of Justice had a contract with the old Immigration and Naturalization Service from 1997-2000 for migrants in removal proceedings through a program called the Appearance Assistance Program (AAP). During that time, 91 percent of the participants in the Vera AAP attended their required hearings and it cost 15 percent less, per capita, than detention throughout the court proceedings.  Parole and bonds cost 58 percent less but only 71 percent of them showed up to their hearings.  Over 78 percent of those in the Vera AAP program who were ordered removed complied with the program, including 100 percent of criminal aliens, 82 percent of asylum seekers, and 53 percent of illegal immigrant workers.

The Family Placement Alternatives run by the Lutheran Immigration and Refugee Services (LIRS) began accepting immigrants from ICE detention in June 2013. They achieved a 97 percent appearance rate in immigration court and only cost an average of $24 a day. The per-family cost of this is $50 per day according to a 2015 pilot program, much cheaper than the estimated detention cost of $798 per family.

The Catholic Charities of New Orleans worked with 39 asylum seekers released from detention and 64 indefinite detainees who could not be deported from 1999-2002. This was just one of the many Catholic Legal Immigration Network, Inc. clinics around the United States at the time. In the New Orleans program, the court appearance rate for participants was 97 percent and the program cost $1,430 per year per client. The cost and success of the programs vary considerably.

There are other private community management programs with similar success rates.

Conclusion

The Flores Settlement will limit the government’s ability to detain families indefinitely unless Congress changes the law—which they likely will not. To get around this problem, the Trump administration could expand the ISAP II program, increase bond issuances, and allow Community Management Programs to house and monitor migrant families with some sort of incentive/disincentive to make sure that the people they monitor show up to their hearings. Trump could also stop prosecuting every border crosser but that is too much to ask. If past experience is any guide, these ATD programs could ensure that 90 percent of immigration court orders are carried out. That is less than perfect compliance, but it is far cheaper, more humanitarian, and less of a political disaster for this administration.

Special thanks to Lourdes Bautista, Meagan Jacobs, Andrea Vacchiano, and Tim White for their research help.

Confirming rumors that had been circulating for weeks, the Trump administration announced that the United States will withdraw from the UN Human Rights Council. That body consists of 47 member states with rotating, staggered 3-year terms. It is tasked with protecting human rights as well as highlighting and condemning regimes that violate those rights. The Council has been controversial since its inception, especially among American conservatives. George W. Bush’s administration declined to make the United States a member when the UN General Assembly established the Council in 2006. President Obama reversed that decision in 2009.    

In announcing the U.S. withdrawal, Ambassador Nikki Haley blasted the organization as a “cesspool of political bias.” Vice President Mike Pence was equally caustic, stating that the United States was taking a stand “against some of the world’s worst human rights violators by withdrawing from the United Nations Human Rights Council. By elevating and protecting human rights violators and engaging in smear campaigns against democratic nations, the UNHRC makes a mockery of itself, its members, and the mission it was founded on. For years, the UNHRC has engaged in ever more virulent anti-American and anti-Israel invective and the days of U.S. participation are over.”

The decision has far more symbolic than substantive importance. For all of the publicity surrounding the UNHRC’s periodic condemnations of specific regimes, the body has no enforcement powers. Critics of Washington’s decision, though, see repudiating the UNHRC as another in a series of Trump administration moves to relinquish America’s “global leadership role” and retreat into an “America alone” foreign policy. They cite earlier examples such as Washington’s rejection of the Trans-Pacific Partnership (TPP), the withdrawal from the Paris agreement on climate change, and efforts to undermine the Iran nuclear agreement.

There are understandable reasons for the latest U.S. action, however. Haley correctly noted the offensive absurdity of having nations with horrific human-rights records as members of the UNHRC. But even her citation of such regimes opened the U.S. up to charges of hypocrisy. Her list of inappropriate members was heavily weighted with left-wing regimes hostile to Washington, including China, Cuba, the Democratic Republic of the Congo, and Venezuela. Notably missing from her indictment were such autocratic U.S. allies and notorious rights abusers as Saudi Arabia, Egypt, the Philippines, and Pakistan.

Such selectivity contributes to global cynicism about Washington’s ethics. So does the extreme emphasis on the UNHRC’s unfair treatment of Israel. The organization certainly is biased against that country, issuing numerous condemnations of its conduct in recent years and in 2017 describing Israel as the world’s worst human-rights violator. Given the records of such countries as North Korea, Cuba, and Saudi Arabia, that allegation is an groteque exaggeration.

However, the United States has shown a disturbing unwillingness to criticize any aspect of Israel’s policy, even its ongoing harsh treatment of Palestinians. Washington has refused to support, and often vetoes, UN resolutions criticizing Israeli conduct, even when most of America’s democratic allies are on board. That is an unhealthy, hypocritical stance, and using the UNHRC’s treatment of Israel as the primary reason for the decision to quit that body adds to a growing U.S. reputation for hypocrisy.

It also didn’t help matters that the announcement of Washington’s decision came just days after the Office of the UN’s High Commissioner for Human Rights condemned the Trump administration’s policy of separating the families of immigrants accused of illegal entry. The timing appeared to reflect a petty reaction to criticism.

Thus, while U.S. officials made a defensible policy change regarding a toothless, pretentious, and hypocritical UN agency, they could scarcely have done a worse job of managing the optics. The incident is yet another example of the Trump administration’s unduly clumsy handling of foreign affairs.

House Republicans will vote on their “compromise” immigration bill this week. Moderate Republican supporters of the bill may argue that its many restrictionist features—including draconian asylum provisions, cancelling the applications of 3 million people waiting to immigrate legally, and permanent reductions in legal immigration—are a small price to pay to help the entire Dreamer population gain a “pathway to citizenship.” However, an analysis of the Border Security and Immigration Reform Act (BSIF) shows that even under the most generous assumptions, the bill would likely initially legalize only 821,906 people, provide permanent residence (i.e. a pathway to citizenship) to 628,758, and result in citizenship for 421,268.

As provided in Table 1, only a third of the Dreamer population would likely receive status under the House plan (H.R. 6136), and just 18 percent would likely make it onto the pathway to citizenship. Only 12 percent would likely apply for and receive citizenship. Moreover, even the pathway to citizenship is tenuous, since—for all Dreamers in DACA or without legal status today—it is contingent on a future Congress appropriating money for a quite expensive (at least $25 billion) wall and security system along the Southwest border of the United States. 

Table 1: Dreamer Populations and Eligibility Under Border Security and Immigration Reform Act

Sources: Authors’ calculations (see below) based on population estimates from Migration Policy Institute (DACA eligible and total Dreamer Population based on American Hope Act); Border Security and Immigration Reform Act (H.R. 6136)
*As of December 31, 2016

If Congress wants to help a larger number of Dreamers, then it would need to establish clear legalization criteria with lower costs and fewer risks, while providing greater legal certainty for the parents of Dreamers to mitigate fears of coming forward. Members of Congress should not exaggerate the extent of the legalization of Dreamers as a way to justify politically questionable policy choices, including reducing the annual level of legal immigration and eliminating several current immigration categories.

Restrictive Criteria in the House Bill

Back in January, President Trump promised a pathway to citizenship for Dreamers—up to 1.8 million of them. That’s still just half of the 3.6 million Dreamers—unauthorized immigrants who entered the country as minors—estimated by the Migration Policy Institute (MPI) to be in the United States as of January 1, 2017, but it’s still far more than the estimated number of Dreamers who will likely receive permanent residence under the House compromise legislation that will receive a vote this week.

The BSIF Act creates a four-part framework for potentially receiving permanent residence—a “path to citizenship”—and later citizenship (see Table 2 at the end). First, Dreamers would need to meet a set of basic criteria to receive conditional nonimmigrant status, a temporary renewable legal status. Second, after six years, most would need to apply for a renewal of this status. Third, they could apply for permanent residence over a 15-year period if they met a final set of requirements. Fourth, they could apply for citizenship five years after receiving permanent residence. Each stage will reduce the population that ultimately will become U.S. citizens.

The House immigration bill would use the same restrictive basic criteria as the Deferred Action for Childhood Arrivals (DACA) program. Its authors argue that if the requirements were good enough for President Obama who created DACA in 2012, they should be good enough for Democrats today. But as an act of prosecutorial discretion, DACA was never meant to be permanent immigration law, and in any case, President Obama tried to update its eligibility requirements in 2015, only to be stopped by the courts. The bill wouldn’t stop there. The House plan imposes additional eligibility requirements that would exclude even more Dreamers from receiving permanent protection.

The House bill will exclude Dreamers who entered after June 15, 2007, who entered at any age over 15, or who were over the age of 31 on June 15, 2017 (or 37 today). By the time the bill is implemented, people who had been residing in the United States for 10 or 11 years would be excluded from receiving status under the bill. The bill also requires a high school degree or equivalent or high school enrollment if the applicant is younger than 18. These restrictions were also in DACA, but the new bill would go even further to restrict eligibility. An applicant would be disqualified for having more than a single non-traffic-related misdemeanor, including immigration-related offenses; ever having missed an immigration court appearance; or having ignored an order to leave the country.

The biggest new restriction would be the requirement that Dreamers who are not students, disabled, or primary caregivers demonstrate that they can maintain an income of at least 125 percent of the poverty line. Not only do many Dreamers have incomes beneath this threshold, but also, if they have already lost DACA or never applied, it will be impossible for them to receive a legal job offer or demonstrate legal employment for the purposes of their application. This creates a catch-22 for applicants: prove you can support yourself in order to get work authorization in order to support yourself. (This provision should also concern employers which could see their records become the focus of government attention.)

In addition, receiving status under this bill will be far more expensive than receiving status under DACA. The bill would impose a fine—what the bill refers to as a border security fee—of $1,000. In addition, applicants would need to pay a fee to cover the cost of their application. DACA also had an application fee of $495, but the fee under this new bill would likely be more than double that because it requires an in-person interview and a medical examination. This will make the legalization more like applying for permanent residence, which costs $1,225. All told, applicants would need to pay about $2,225—4.5 times as much as DACA. This comes on top of any attorney fees. Many DACA applicants cite the cost as a primary challenge. MPI’s analysis also points to income as “strongly affecting” Dreamers’ ability to apply.

Finally, the bill would impose a 1-year filing deadline. This means that applicants would have just one year to gather their information, find an attorney, and save $2,225 to apply. For comparison, only 64 percent of DACA applicants submitted applications in the first 13 months of the program. This time limit will needlessly suppress applications.

Why Relatively Few Dreamers Would Even Receive Temporary Relief

In January 2018, the Migration Policy Institute used the Census Bureau’s American Community Survey to estimate that there were 1.3 million Dreamers eligible for DACA. Another 120,000 were too young to apply for DACA, but would be eligible under this legislation so long as they were enrolled in school. However, this eligible population must be reduced based on the new requirements. We estimate conservatively that the income threshold would exclude about 15 percent of the DACA eligible population. This figure is based on the share of Central American immigrants who entered between 1982 and 2007 who are below 125 percent of the poverty line, are not in school, and are not unable to work due to disability or being the primary caregiver, as recorded in the 2017 Current Population Survey.

The misdemeanor requirement is more difficult to place a precise number to, but the government says that 17,079 DACA recipients have at least two arrests, assuming that 75 percent of those arrests ended in conviction. That would reduce 12,809, or 2 percent of the DACA recipient population. Assuming that this rate would apply to the DACA eligible population as a whole (even though it is more likely that that population has more convictions that the DACA population itself), this would reduce the eligible population by another 26,000. Thus, the maximum number of Dreamers initially eligible for status under the House bill is 1.17 million. Even this is likely an overestimate because we cannot estimate how much the noncriminal restrictions (e.g. prior removal orders, false claims of U.S. citizenship, etc.) could further reduce the eligible population.

Even fewer will actually apply. Even after six years of DACA, only 61.4 percent of the eligible population applied for and received DACA. While the promise of a pathway to citizenship could result in a higher participation rate, other elements in this bill will suppress application rates, neutralizing the greater incentives to apply. Furthermore, the initial status is temporary, and the pathway to citizenship is not guaranteed. In fact, unless Congress funds the border wall repeatedly in future years, the path to citizenship would never materialize at all. Moreover, the fact that the cost will be about 450 percent higher will prevent many Dreamers from applying (as noted above).

Many Dreamers failed to apply for DACA because they didn’t realize that they were eligible, believing that they had to have finished high school or that those who had been ordered to leave the country could not sign up. This bill’s new and more complex eligibility requirements will only introduce more confusion. The risk of a denial may keep some from taking the risk to apply. Nearly 8 percent of applicants for DACA were rejected.

The uncertainty and distrust associated with the Trump administration’s enforcement actions would only add to the concern about handing over information. As we’ve noted before, many Dreamers expressed concern that their application could be used to target their families. The House bill attempts to address this fear by limiting how their application information can be used, but it amplifies the fear in other areas by providing enforcement resources and new legal authorities to the administration to speed up deportations. A future Congress could change this privacy protection at any time, and at this point, few immigrants may trust the administration to follow this type of technical “firewall.”

According to the Congressional Budget Office (CBO), the last major legalization—the 1986 amnesty—had only a two-thirds participation rate, despite the less strict criteria than the ones contained in BSIF. Ultimately, we conservatively chose to use the CBO’s higher rate of 67 percent, rounding it up to 70 percent—10 percentage points higher than DACA’s initial enrollment rate. Based on this analysis, we can conclude that at most 820,000 Dreamers would receive initial legal status under the House GOP proposal.

Why Relatively Few Dreamers Would Receive Permanent Residence & Citizenship

Under DACA, which had no additional requirements at all to extend status other than maintaining residence in the United States for another two years, just 85 percent of initial enrollees maintained status through the end of the program. Some of this drop-off can be explained by people failing to graduate high school for a variety of reasons, but the additional cost is important as well. Under the House bill, applicants for extension of their temporary status would be required to pay a fee of another $1,225 fee (2.5 times more than DACA) and have stayed in the United States for another 6 years. Assuming this rate remains roughly the same, only 698,620 would likely end up receiving an extension under the House bill.

After receiving the extension, Dreamers—as well as some legal immigrant Dreamers*—would be able to apply for a pathway to permanent residence. The bill creates a complex points system that will prioritize applications from those with more education, longer work histories, or better language skills. But the minimum threshold for points is low enough that anyone who qualified for the initial status would be eligible to apply. Of course, there is not a strong incentive even to apply for this status, and the cost of applying for permanent residence is another $1,225. They would have to apply over the course of a 15-year period, starting five years after the initially received status. We assume that about 90 percent would apply for permanent residence. Thus, only 628,758 Dreamers would likely receive permanent residence—a path to citizenship—under the House proposal.

Finally, only about two thirds of those who receive permanent residence are likely to apply for citizenship. While Dreamers are probably more likely to apply for citizenship than other immigrants, immigrants from Mexico and Central America are much less likely to apply for citizenship than immigrants from other countries—all have naturalization rates below 50 percent—and 89 percent of DACA recipients are from Central America or Mexico. These two facts work in opposite directions, leading us to assume that Dreamers will naturalize at the average rate for all immigrants—67 percent. Based on this assumption, just 421,268 immigrants are likely to become U.S. citizens under the House compromise bill.

Conclusion

In the best case scenario, the House GOP plan would likely provide a pathway to citizenship to fewer than 630,000 Dreamers—barely a third of the president’s promise in January and just 18 percent of the entire Dreamer population. Moreover, only an estimated 421,000 immigrants are likely to become citizens.

If Congress wants to fulfill the president’s promise of a pathway to citizenship for 1.8 million Dreamers, it would need to institute a broader legalization program for Dreamers with as few risks and costs, and as little confusion, as possible. Congress would also need to provide legal certainty in some form for their parents to mitigate fear of coming forward. Members of Congress should also not exaggerate the extent of the legalization of Dreamers as part of a strategy to justify questionable policy choices, including reducing legal immigration and eliminating several immigration categories.

Table 2 compares the eligibility criteria and requirements under the BSIF Act to those under DACA and the Securing America’s Future (SAF) Act, which is the other bill under consideration this week.

Table 2: Comparison of Pathways to Status & Citizenship Under House Bills and DACA

*The legal immigrant Dreamers would slightly increase the eligible population, but there are so few who would meet the requirements (10 years of continuous residency before the bill passes plus 5 or 6 more after it is implemented) that it would not substantially alter these numbers. In any case, the estimates of the Dreamer population from MPI could include people in temporary statuses that have characteristics similar to those without status (inability to access welfare or receive certifications for legal employment).

As I noted yesterday, the Supreme Court has decided the Wisconsin gerrymandering case of Gill v. Whitford on standing grounds, without reaching the main constitutional issues: the case returns to lower courts for a chance to repair the standing issue with most or all of its central contentions intact. Much the same can be said of the Maryland claims in Benisek v. Lamone, where timing as opposed to standing was the issue.

Along the way, however, Chief Justice Roberts in his opinion for a unanimous Court in Gill paused to linger over one argument that had been raised along the way. This is the argument that the Court must act because political branches have failed to address some serious problem which as a result can be fixed by no institution other than the Court. The Gill Court takes sharp issue with this argument:  

At argument on appeal in this case, counsel for the plaintiffs argued that this Court can address the problem of partisan gerrymandering because it must: The Court should exercise its power here because it is the “only institution in the United States” capable of “solv[ing] this problem.”   Such invitations must be answered with care. “Failure of political will does not justify unconstitutional remedies.”   Our power as judges to “say what the law is” rests not on the default of politically accountable officers, but is instead grounded in and limited by the necessity of resolving, according to legal principles, a plaintiff’s particular claim of legal right.

In short, the Constitution empowers the Court to vindicate the sound legal claims of particular plaintiffs, not to step into the role of other branches that are not doing their jobs well. Note that the decision was unanimous: not a single Justice backs the notion that other branches’ irresponsible failure to act on some problem can, by itself and without more, make it legitimate for courts to step in. 

Since there remains some uncertainty on this point in some quarters of the commentariat, it’s good to hear unanimously voiced guidance from the Justices themselves.  

 

The Trump administration has released its final rule expanding so-called association health plans. The rule would allow many consumers to avoid some of ObamaCare’s unwanted regulatory costs. But the rule also highlights both the destructive power of ObamaCare and Republicans’ utter lack of imagination when it comes to health care.

Association health plans allow small businesses to claim the same federal exemption from insurance regulation that large businesses have traditionally (if unwisely) enjoyed. Small businesses have long wanted that exemption so they could escape oppressive state regulation. Now, they want it so they can escape oppressive federal regulation—i.e., ObamaCare. The consulting firm Avalere estimates the ability to avoid some of ObamaCare’s unwanted regulatory costs would induce 3.2 million people to enroll in association health plans and reduce their premiums:

Premiums in the new AHPs are projected to be approximately $2,900 a year lower compared to the small group market and $9,700 a year less compared to the individual market.

By Grabthar’s hammer, what a savings!

Even so, association health plans have always been a terrible idea that violates Republicans’ federalist principles, because they move health-insurance regulation from the state level to the federal level. But in an ironic twist, while many Republicans obsessed over health care ideas that run counter to their principles, ObamaCare just went ahead and federalized regulation of small-business health plans. So now that the federal government is (over-)regulating small-business health plans, extending that exemption to association health plans…no longer violates federalism. Credit ObamaCare with making this bad idea seem good.

The emphasis is on “seem.” Association health plans still aren’t a good an idea. Rather than offer an agenda to make health care better, more affordable, and more secure, Trump’s association health plans rule builds on the broken model of employer-sponsored health insurance. Employer-sponsored coverage is lousy coverage. It deprives workers of control of their health-insurance dollars and decisions. It sticks millions of workers with health plans they would never choose themselves. It leaves millions of workers with uninsurable preexisting conditions, because it disappears for no good reason after workers get sick. It increases prices for health care and health insurance. The failures of our government-created system of employer-sponsored coverage are what created the demand for ObamaCare in the first place. Trump’s association health plans rule works entirely within that framework. It does nothing to move Americans toward a better system of providing health insurance.

But it would allow some people to avoid some unwanted regulatory costs. So there’s that.

And that part gives rise to the only other good part of this rule, which is also the part that ObamaCare supporters hate the most: the association health plans rule will make ObamaCare’s costs more transparent. The rule will free an estimated 1 million disproportionately healthy people to escape the unwanted regulatory costs ObamaCare imposes on them in the individual market for health insurance (i.e., the Exchanges). ObamaCare imposes its highest hidden taxes, in the form of higher premiums, on the healthy. When those folks drop out of the Exchanges, the average risk in ObamaCare’s risk pools will rise. Correspondingly, ObamaCare premiums will rise, perhaps even faster than they have been

ObamaCare supporters decry this as “sabotage,” but that is a subterfuge. When ObamaCare premiums rise to reflect the cost of ObamaCare’s regulations, it is what the world calls transparency. ObamaCare supporters fear such transparency because, as ObamaCare architect Jonathan Gruber admitted, the public would have rejected the law (and still might!) if they could actually see what it does. “[If] you made explicit that healthy people pay in and sick people get money,” Gruber gloated, “it would not have passed.” And if you reach the point where you decry transparency as sabotage, it may be time to reevaluate your life. 

On page 5 of my Wall Street Journal this morning, and page 7 of my Washington Post, a full-page ad for Wells Fargo banners

Wells Fargo and NextEra Energy join together to fuel low-carbon economy throughout the U.S. 

Meanwhile, the front page of my Journal announces

Green-Power King Thrives on Government Subsidies

The article explains that NextEra Energy

has grown into a green Goliath, almost entirely under the radar, not through taking on heavy debt to expand or by touting its greenness, but by relentlessly capitalizing on government support for renewable energy, in particular the tax subsidies that help finance wind and solar projects around the country. It then sells the output to utilities, many of which must procure power from green sources to meet state mandates.

And also:

While environmentalists applaud NextEra’s commitment to building wind and solar farms outside Florida, they have criticized what they see as its attempts to slow the deployment of rooftop solar inside Florida where it would directly compete with its utility business.

As Wells Fargo tries to rescue its reputation after its account scandals, maybe it should forgo bragging about helping a company get heavy subsidies in order to sell its products to compelled buyers. Maybe as part of its apology and restitution, it should swear off participating in taxpayer-subsidized projects, as BB&T in 2006 vowed not to lend to projects that relied on eminent domain.

Would NextEra even be profitable without all these subsidies and mandates? At least it’s not Solyndra, the Obama-connected solar power company that left the taxpayers holding the bag for $500 million when it collapsed. (“Obama’s green-technology program was infused with politics at every level, The Washington Post found in an analysis of thousands of memos, company records and internal ­e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials.”)

Maybe we should drop all these subsidies, restrictions, mandates, and trade barriers and let the free market deliver the right mix of energy at the lowest cost.

President Trump set off another round of Twitter hyperventilation and financial market selling these past 18 hours with his latest threat to assess duties on another $200 billion of Chinese imports. What to make of this?

I see two (and only two) ways of looking at this. You can conclude that Trump is irrational, engaging in rhetoric and taking actions that are inconsistent with his goals, or you can see him as rational. You may not like his goals, but that doesn’t make him irrational.  And he may be rational, but that doesn’t mean he’s not misguided.  It seems to me, though, that if you think Trump’s irrational, then there’s not much use in trying to make heads or tails of the daily gyrations. There’s no basis, really, for offering much in the way of useful analysis of U.S. trade policy for the next couple of years.

I see Trump as rational, but deeply misguided. His unpredictability is risky and frustrating, but it’s also a staple of his governance. Unpredictability is the most predictable feature of this administration. But Trump’s goal is consistent and predictable.  Trump’s goal is to cut deals that make him look Herculaean. The deals he most covets are those that cast him as fixing the trade problem with China and fixing the “worst trade deal ever negotiated,” NAFTA.

From the outset, Trump set his sights on “fixing” the U.S. bilateral trade deficit with China.  Is that a worthwhile priority of trade policy?  Absolutely not. But Trump is convinced that reducing the deficit is priority number one.  He sees his high stakes engagement as worthwhile because he miscalculates the potential benefits and costs of his approach. I see the upside of Trump’s approach as offering potentially smallish benefits (getting China to do something that may benefit U.S. exporters), but the downside (a deleterious trade war that leaves the world in far worse shape) as severe and significant. My own approach would be far more risk-averse.

Trump wants the Chinese to buy more American goods and services.  On its face, this is a reasonable desire for a U.S. president to have.  But Trump wants the Chinese government to commit to purchasing more U.S. goods and services, somewhere in the neighborhood of $100 billion to $200 billion per year (which, of course, reinforces the fact that China’s economy is centrally directed, which is the basis for the legitimate problems in the economic relationship in the first place.) Threatened tariffs of 25 percent on $50 billion of imports from China, announced as result of a U.S. investigation into Chinese technology and IP practices, are Trump’s initial leverage in getting the Chinese to commit to more purchases. Beijing’s announced retaliation slightly negates that leverage, but then the administration cracked down on ZTE, the Chinese information and communications technology company that admittedly violated U.S. export control laws by selling certain products to Iran and North Korea, and was cut off from U.S. suppliers of semiconductors and other critical components.

The on-again-off-again-on-again sanctions seem to be conditioned on whether and to what extent Beijing commits to purchasing U.S. exports, and that decision now seems to be conditioned upon Trump granting a reprieve to ZTE. Trump has already given ZTE a reprieve on paper (with certain conditions and requirements), but Congress seems to have strenuous objections, and is considering an amendment to the defense authorization bill to prevent Trump’s reprieve from taking effect.

Trump’s latest threat to hit another $200 billion of Chinese products with tariffs is just as much a threat to Congress as it is to China.  Either the Chinese will relent and agree to purchase U.S. stuff (without need of reinstating ZTE) and the tariffs will be called off or Congress, fearing (more than Beijing does) a trade war that will take down U.S. manufacturing and agricultural interests and their representative in Washington, will relent on its legislative push to block ZTE.  Of course, relenting on ZTE while continuing to treat Canada, Mexico, the EU and other allies as national security threats (especially since that designation has resulted in those countries applying tariffs to U.S. agricultural and manfuacturing exports, too) isn’t going to sit well with Congress either. 

So, in order to fix these asymmetries and make Congress and U.S. allies whole (wholer, whole-ish): Congress abandons its legislation to block ZTE, which gets back in business (with conditions); the U.S.-China tariff war is called off; China signs purchasing orders for $100 billion to $200 billion of U.S. exports; the steel and aluminum tariffs on Canada, Mexico, and the EU are removed; and the NAFTA negotiations are restarted and concluded before the midterms. This gives Trump two major pyrrhic victories that will reinforce his greatness to his base.

Seems to me these are the only outcomes that could remotely explain (if not justify) the ride Trump is taking us on. I see it as misguided, but not irrational.

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