The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 1: January 4, 2017

1. California Passed a School Construction Bond, Flunked Fiscal Arithmetic
2. Utah Banks on Taxing E-Commerce Choice
3. China’s Naval Splash Not What It Seems
4. Populism: Rhetoric and Reality
5. Independent Updates

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Passed by voters on November’s election day, California’s Proposition 51 authorizes the Golden State to issue $9 billion in bonds to finance the construction and upkeep of K-12 public schools. It’s supposed to help young people, but whether or not it will actually raise educational achievement is uncertain at best. What’s certain is that the fiscal burden the new law will impose on future taxpayers, including those destined to put chewing gum under desks in classrooms the new law is supposed to benefit, is huge.

By the time interest costs are paid off, Prop. 51 will have added $17.6 billion to the public debt, according to Independent Institute Research Fellow Vicki E. Alger and Goldwater Institute Policy Fellow Jacob Richards. If that sounds like a pittance for a state as large as California, note also that the state is already more than $400 billion in the red and that taxpayers are still on the hook for $50 billion from the School Facilities Bond Act of 1988.

Moreover, raising funding for school facilities need not require costly long-term debt financing, Alger and Richards argue. Switching to “a cash-based strategy could cut current construction and maintenance expenses nearly in half by simply eliminating interest payments,” they write in the San Francisco Chronicle. Doing so, of course, would require lawmakers to save enough money to meet future needs—in other words, rudimentary fiscal discipline. “Though the current bonding is set and unlikely to change, it’s high time California takes commonsense steps to start digging itself out of the debt hole it’s created, rather than digging deeper,” Alger and Richards conclude.

Move Away from Bond Financing for Public School Construction, by Vicki E. Alger and Jacob Richards (San Francisco Chronicle, 12/19/16)

Failure: The Federal Misedukation of America’s Children, by Vicki E. Alger

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In 1992, the U.S. Supreme Court put the kibosh on the states collecting sales taxes from out-of-state sellers. The case, Quill Corp. v. North Dakota, was a windfall for fledgling e-commerce vendors—Amazon.com was still only a gleam in Jeff Bezos’s eye—but brick-and-mortar retailers never got over it. Nor did many state governments. And although some states devised a workaround—so-called “user fees” on out-of-state purchases—except for cars and trucks, collection of these fees has proven difficult to enforce.

This backstory helps explain the glee of Utah Gov. Gary Herbert regarding a new “agreement” that went into effect on New Year’s Day. The Beehive State will now begin to collect from Amazon the “user fees” generated by Utah’s customers of the internet giant, and Herbert estimates this will add nearly $200 million each year to the state’s coffers. This may or may not add to the state coffers, notes Independent Institute Senior Fellow William F. Shughart II, because it will reduce e-commerce and thereby reduce the income tax revenues collected from UPS and other couriers, and the state fuel taxes they pay. It also weakens the incentives for other states to keep down tax rates.

There’s also the matter of whether Utah’s new scheme will survive in the courts. Shughart writes: “The agreement possibly can be challenged as an unconstitutional delegation of the Utah Legislature’s tax-collecting authority to an out-of-state private business enterprise. Any takers?”

Amazon ‘Deal’ Undermines Tax Rate Competition, by William F. Shughart II (Salt Lake City Tribune, 12/17/16)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II

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China’s first and only aircraft carrier is making waves not only in the waters of the South China Sea, but also in the international media and foreign-policy community. If the 999-foot-long vessel reaches the eastern Pacific, expect to hear many Americans call for a firm U.S. response. But don’t let the noise fool you. The journey of the Liaoning—more a training ship than a modern warship—is just so much showboating.

Indeed, scrape the barnacles from its hull and you might find the Cyrillic lettering of its original manufacturer, the Soviet Union. What value the retrofitted carrier brings its adopted country is mostly symbolic. As Independent Institute Senior Fellow Ivan Eland writes, “Perfecting carrier operations takes many decades of naval institutional memory and massive amounts of money, both of which the U.S. Navy has had and the Chinese Navy has not.”

Not only that, but according to some military analysts, aircraft carriers are so twentieth century, easy prey for today’s high-tech torpedoes, cruise missiles, and aircraft. Thus, the best U.S. response to Beijing’s Potemkin-style naval saber-rattling is to ignore the pretense, especially given the vast ocean that separates America from China. Writes Eland: “The new American president should not allow the U.S. military-industrial-congressional-media complex to exaggerate the threat from China and should reduce U.S. carrier operations in the Western Pacific so that China can begin to have a sphere of influence in nearby waters.”

The Threat from China’s Lone Aircraft Carrier Has Been Overstated, by Ivan Eland (Huffington Post, 12/27/16)

Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty, by Ivan Eland

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A specter is haunting the world—the specter of populism. At least this is the interpretation of many analysts. As Independent Institute Senior Fellow Alvaro Vargas Llosa writes in The National Interest, “First it was Brexit, then Donald Trump, followed by French president François Hollande announcing he would not run for reelection (an admission of defeat), and now Italy’s Matteo Renzi resigning as prime minister in the wake of the ‘No’ victory in the constitutional referendum he had proposed. The overwhelming force behind these political outcomes is populist revolt against established parties and leaders.”

This revolt, however, may be rife with internal contradictions. Because populism is less a full-fledged ideology than a reaction against (perceived) status quo elites, it is poorly suited to prescribing genuine remedies for the ailments it seeks to cure. “And herein lies the great danger for Italy and many European countries in the wake of populism’s threat: the entrenchment of old-system politics, that is, cronyism and the tax-and-spend, entitlement-ridden welfare state as the only alternative to the antidemocratic, anti-European, protectionist right or left,” Vargas Llosa continues. “It would be a tragedy, since old-system politics is precisely what generated the conditions for the rise of populism in the first place.”

Does today’s populism contain the seeds of its own destruction? It depends. “Unless Italian and European leaders understand that decades of mediocre management and the almost total absence of meaningful reform are the real cause of populism’s rise, their attempts to cling to the old system will only accelerate their own demise,” Vargas Llosa continues. “Such an outcome, given the kinds of leaders and parties leading the populist revolt, is downright scary.”

How Italy Became Populism’s Latest Domino, by Alvaro Vargas Llosa (The National Interest, 12/19/16)

Global Crossings: Immigration, Civilization, and America, by Alvaro Vargas Llosa

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