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Seven Things You Should Know about the IRS Rule Challenged in King v. Burwell

Michael F. Cannon and Jonathan H. Adler

This week, the Supreme Court considers King v. Burwell. At issue is whether the IRS exceeded its authority under the Patient Protection and Affordable Care Act by issuing a final IRS rule that expanded the application of the Act’s subsidies and mandates beyond the limits imposed by the statute. King v. Burwell is not a constitutional challenge. It challenges an IRS rule as being inconsistent with the Act it purports to implement. The case is a straightforward question of statutory interpretation.

Here are seven things everyone needs to know about how the IRS developed the rule at issue in King v. Burwell. But first, a little background. If you’re familiar with the case, you can skip to number one.

Background

Section 1311 of the Act directs states to establish health-insurance “Exchanges.” Section 1321 directs the Secretary of Health and Human Services to establish Exchanges in states that “fail[]” to establish Exchanges. Confounding expectations, 38 states failed to establish Exchanges, in almost every case due to opposition to the Act.

Section 1401 (creating I.R.C. § 36B) authorizes health-insurance subsidies (nominally, tax credits) “through an Exchange established by the State.” The availability of those subsidies triggers tax penalties under the law’s individual and employer mandates. In January 2014, the IRS began issuing those subsidies and imposing the resulting penalties through not only state-established Exchanges but also Exchanges established by the federal government as well (i.e., HealthCare.gov).

In King v. Burwell, the plaintiffs allege that the IRS exceeded its powers under the Act by issuing a so-called final rule that purports to authorize subsidies in states with Exchanges established by the federal government. The plaintiffs claim that the rule and the subsidies being issued in such states are unlawful, because these federal Exchanges are not “established by the State.” The plaintiffs claim they are injured because those subsidies trigger also-illegal penalties against them under the Act’s individual mandate. (In similar challenges to the same IRS rule, employer-plaintiffs claim injury because those subsidies likewise trigger penalties against them under the Act’s employer mandate.)

The government counters that the phrase “an Exchange established by the State” is “a term of art” that includes Exchanges established by the federal government. At a minimum, the government argues, the Act is ambiguous on the precise question at issue, and the IRS’s interpretation is reasonable.

In King v. Burwell, the government prevailed before both the district court and the Fourth Circuit Court of Appeals. Even though the Fourth Circuit wrote, “The court cannot ignore the common-sense appeal of the plaintiffs’ argument; a literal reading of the statute undoubtedly accords more closely with their position,” the court deferred to the IRS because it found the statute ambiguous and the IRS’s interpretation reasonable.

The government fared less well in other cases challenging the IRS rule. In Halbig v. Burwell, the district court found that the Act unambiguously supports the government’s interpretation. But a three-judge panel of the D.C. Circuit reversed in a split decision, finding that the Act “unambiguously forecloses” the IRS’s interpretation. The full D.C. Circuit agreed to reconsider the panel’s ruling, a move that technically vacated the ruling — but not the opinion. In Pruitt v. Burwell, the Eastern District of Oklahoma ruled that the IRS rule was “invalid.” The D.C. Circuit and Tenth Circuits have put Halbig and Pruitt aside pending Supreme Court consideration of King. The district court for the Southern District of Indiana has not yet issued a ruling in Indiana v. IRS, a fourth challenge to the IRS rule, and is likewise waiting to see what the Supremes do with King.

Here are seven things you should know about the embattled IRS rule.

1. The IRS’s draft rule originally included the statutory language restricting tax credits to Exchanges “established by the State,” but IRS officials deleted it and inserted broader language when political appointees approached them about it.

Treasury and IRS officials permitted investigators for two congressional committees to interview officials involved in the formulation of the IRS’s tax-credit rule, and to review some (but not all) relevant documents.

The investigators report that in early 2011, Deputy Assistant Treasury Secretary for Tax Policy Emily McMahon read a Bloomberg BNA article in which critics discussed how the Act offers tax credits only in states that establish Exchanges. McMahon raised the issue with her colleagues. According to one Treasury Department attorney, McMahon inquired whether this was “a glitch in the law we needed to worry about.” Congressional investigators reported what happened next:

An early draft of the 36B proposed rule included the language “Exchange established by the State” in the section entitled “Eligibility for the Premium Tax Credit.” Between March 10, 2011, and March 15, 2011, the explicit reference to “Exchanges established by the State” was removed and the phrase “or 1321” was inserted in its place.

The deletion suggests IRS officials knew this language posed an obstacle to offering tax credits in federal Exchanges. If it didn’t, there would have been no reason to delete it.

2. IRS officials knew the statute did not authorize them to issue tax credits in federal Exchanges, but they decided to issue them anyway for political reasons.

The investigators found additional evidence that Treasury and IRS officials knew they had no statutory authority to issue tax credits in federal Exchanges.

IRS officials recognized that what they wanted to find in the statute simply wasn’t there. In a March 25, 2011, e-mail, Treasury and IRS officials described the lack of authorization for subsidies in federal Exchanges as a “drafting oversight.”

IRS officials also recognized the “apparently plain” language limiting tax credits to state-established Exchanges. Investigators found that a draft of the final rule contained a discussion of this issue that “stated that agencies have broad discretion to reasonably interpret a [law] if the ‘apparently plain statutory language’ is inconsistent with the purpose of the law.” Agency officials dropped that discussion from the final rule shortly before issuing it.

IRS officials chose to issue tax credits in federal Exchanges “because they concluded this was required for the new health-care initiative to succeed,” the Washington Post reported. “And, the officials reasoned, Congress would not have passed a law that it wanted to fail.”

In other words, IRS officials did not do their job, which is to implement the law according to the terms spelled out by Congress. Instead, they knowingly disregarded the “apparently plain” statutory text in pursuit of the political goal of helping the law succeed.

And none of them make the IRS look very good.”

3. The IRS performed little or no analysis of the statute or legislative history, and it failed to consider important dimensions of the issue.

Investigators found that the IRS never considered that the ACA’s authors had a clear preference for state-run Exchanges; or that Congress might have conditioned tax credits on states’ establishing Exchanges as a way of motivating states to implement this part of the law; or that a leading health-law scholar proposed conditioning premium subsidies on states’ establishing Exchanges in early 2009; or that another leading Senate bill also conditioned Exchange subsidies on state cooperation; or that House Democrats complained that states that refused to establish Exchanges would prevent their residents from receiving “any benefit” from the ACA. Finally, IRS officials were not able to produce any written record showing they actually researched the ACA’s legislative history.

Agency officials did admit that, in attempting to ascertain Congress’s intent, they relied on statements House members made about the House bill. Such statements are irrelevant, of course, because they pertain to a different bill: one with different language than the ACA, one that explicitly did authorize subsidies in state-run Exchanges, and one that did not and could not have passed Congress.

4. The IRS offered almost no explanation for its decision.

The IRS announced its decision to issue subsidies in federal Exchanges when it released its proposed rule in August 2011. The proposed rule contained no explanation for this departure from the statute.

Congressional investigators found that “the only written analysis produced by Treasury and IRS regarding the availability of premium subsidies in federal exchanges before the proposed rule was issued” was a one-paragraph explanation for the IRS’s decision buried in a March 2011 memorandum from the IRS’s Chief Counsel’s Office that the agency never made public.

The only public explanation the IRS offered for its interpretation prior to issuing the final rule came in a November 2011 letter to members of Congress who claimed that the IRS was exceeding its authority:

The statute includes language that indicates that individuals are eligible for tax credits whether they are enrolled through a State-based Exchange or a Federally-facilitated Exchange. Additionally, neither the Congressional Budget Office score nor the Joint Committee on Taxation technical explanation of the Affordable Care Act discusses excluding those enrolled through a Federally-facilitated [E]xchange.

When the IRS issued its final rule in May 2012, it offered only this one-paragraph, non-substantive explanation:

The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.

This paragraph from the final rule, which constitutes the agency’s entire explanation for its decision in the administrative record, identifies neither the “statutory language,” nor the “language, purpose, and structure” of section 36B and the Act, nor the “relevant” legislative history, upon which the agency supposedly relied in taking this action. Indeed, the agency carefully avoids saying either that the Act plainly authorizes tax credits in federal Exchanges, or that the Act is ambiguous on this question.

5. The IRS waited five months after the final rule was issued, and after it had been challenged in court, before identifying any supposed statutory support.

The first time the IRS even cited part of the Act in support of its decision was in an October 2012 response to the chairman of the House Oversight committee. Assistant Treasury Secretary Mark Mazur claimed that the Act’s language contained “no discernible pattern that suggests Congress intended the particular language of section 36B(b)(2)(A) to limit the availability of the tax credit.”

Then again, as discussed above, the IRS made no discernible effort to check. The evidence is right there in Mazur’s own words. He mentions only section 36B(b)(2)(A) and ignores (or is unaware) that section 36B also contains a second explicit passage and seven cross-references limiting tax-credit eligibility to those who enroll in coverage “through an Exchange established by the State.”

6. The deletion of “established by the State” from the proposed rule and the insertion of “or 1321” contradict two separate arguments the government offers before the Supreme Court — and reveal those arguments to be post-hoc rationalizations.

The government now claims the phrase “Exchange established by the State” is a statutory “term of art” that poses no obstacle to issuing tax credits in federally established Exchanges. But if that were true, there would have been no reason for the IRS to delete that phrase from the proposed rule.

The government also argues before the Supreme Court that Section 1321 Exchanges are by definition Section 1311 Exchanges. But if that were true, there would have been no reason for the IRS to list the two types of Exchanges separately in the proposed rule. Alternatively, having listed both, the IRS should have explained that federal Exchanges are, technically, Section 1311 Exchanges. But it didn’t.

Indeed, it is clear that at the time, the administration saw state-established and federal Exchanges as distinct. In March 2012, between the issuance of the proposed and final IRS rules, the Department of Health and Human Services issued a regulation explaining that a “federally-facilitated Exchange” is “an Exchange established and operated within a State by the Secretary under section 1321(c)(1) of the Affordable Care Act.”

The fact that these arguments are not only absent from but also contradicted by the administrative record shows that they are post-hoc rationalizations for the IRS’s decision. And poor ones, at that.

7. IRS officials tried to hide their reasoning from the public.

This week, the Washington Post reported that as critics began to scrutinize the IRS’s departure from the apparently plain language of the statute, the agency sought to hide its reasoning and avoid drawing attention to its decision:

The Treasury and IRS team writing the regulations recognized that the environment was becoming highly charged… . Discussions intensified inside Treasury and the IRS over how to show that the government had considered the opponents’ views but not draw media attention to the debate over subsidies, former officials recalled. “The overriding concern was not generating negative news stories,” one former official said.

That concern appears to have prevailed over reasoned decision-making and accountability.

And it continues to do so: To this day, the Treasury Department and IRS are ignoring a congressional subpoena of documents related to development of the IRS’s tax-credit rule.

So where does all this leave us?

The available evidence shows that the IRS developed the challenged regulation knowing that Congress had expressly denied the agency the authority to implement the challenged taxes and subsidies and penalties. The IRS initially drafted regulations incorporating that limitation on its authority but then reversed itself after receiving input from political appointees at the Treasury Department. The purpose of that reversal was not to effectuate Congress’s “apparently plain” intent, but to subvert it. The IRS has consistently tried to shield its decision and its reasoning from public scrutiny. And the government’s defenses of the IRS rule are post-hoc rationalizations.

Keep that in mind while you’re enjoying the public debate over King v. Burwell.

Michael F. Cannon s the director of health policy studies at the libertarian Cato Institute and co-author (with Jonathan H. Adler) of Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA. 53636304399112&fb_action_types=og.shares

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U.S. Catholic League Reveals Why ISIS Must Be Destroyed

Nat Hentoff

For years, I haven’t missed a press release from this nation’s Catholic League. Late last month, Bill Donohue, the director of the civil rights organization, showed all Americans why they must confront the ever-widening horrors of ISIS.

“The Obama administration,” says Donohue, “does not understand ISIS because it does not understand the mind-set of totalitarians. It thinks it is dealing with a conventional sectarian struggle, the kind of uprising that pops up now and then. It is not” (“The Totalitarian Face of ISIS,” Bill Donohue, catholicleague.org, Feb. 27).

“It is dealing with an apocalyptic movement that is fueled by a desire to own the past, the present and the future. And like communism, it is not content to lay anchor in one country.”

Donohue explains further: “ISIS, following Hitler, Stalin, Mao and Pol Pot, wants to eradicate the collective memory of the people, which is why it goes beyond killing men, women and children: by destroying ancient works of art, and turning over graves, the totalitarians seek to erase the past, thus paving the way for the future.”

Donohue refers to a series of historical incidents that many of us may not have known:

“Beginning in 1966, at the outset of Mao Zedong’s Cultural Revolution, the Red Guards went on a rampage destroying museums and bulldozing graves. Now ISIS is doing the same thing in Iraq.

“Sledgehammers have been used to behead statues and other artifacts at the Mosul Museum — winged bulls dating to the seventh century B.C. have been smashed — a winged lion has been defaced and other antiquities have been annihilated.

“Great works of art, extending to the ancient Assyrian Empire, have been ransacked. This happened just a few days after the burning of the Mosul Public Library. In addition, tombs have been destroyed.”

So, as ISIS moves on, Donohue underlines:

“Totalitarians assault art and religion precisely because they bind people to their roots, thus creating an obstacle to the new social order. ISIS barbarians want to do more than kill Christian Assyrians, and those who are not just like them — they want to kill everything that ties the present to the past.”

Donohue concludes: “We need to hear from presidential hopefuls why they think the Obama vision is impaired, and what they plan to do about it.”

We need to hear from many others as well. Where are the other civil rights leaders? What about civil liberties organizations? Do the leaders of any religious denominations have ideas on what must be done to end the ghastliness of ISIS?

What is also needed is for teachers to encourage class discussions and debates on “The Totalitarian Face of ISIS.” Many students surely know what may be in store for them if ISIS continues to grow — and as more young Americans and Europeans continue to want to join ISIS.

What ISIS has accomplished, for me, is to finally end my long-term, waning interest in Martin Luther King’s nonviolent direct action to restore individual liberties.

I continue to greatly admire Dr. King, but nonviolent action cannot cope with the unabated ferocity of ISIS.

But what will arouse us, We The People, to demand terminal action and international alliances for the destruction of ISIS?

Gone are the street protests I remember and sometimes participated in against the war in Vietnam and other authoritarian governmental actions — and inactions.

It’s important to return to New York Judge Learned Hand’s 1944 warning of how Americans’ “spirit of liberty” can become so empty:

“Liberty lies in the hearts of men and women; when it dies there, no constitution, no law, no court can save it.”

His words are penetratingly vital now.

I commend the Catholic League’s Bill Donohue for being the Paul Revere of our time as ISIS expands its deadly affiliations and connections, particularly among new generations in Syria, Iraq and elsewhere.

What will awaken and strengthen the spirit of liberty among Americans? In you?

The shock and fear of 9/11 did for a time, but here we are now. Are we in the land of the free and the home of the brave ready to smite ISIS?

Nat Hentoff is a nationally renowned authority on the First Amendment and the Bill of Rights. He is a member of the Reporters Committee for Freedom of the Press, and the Cato Institute, where he is a senior fellow.

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National Security State

Gene Healy

National Security and Double Government
By Michael J. Glennon
Oxford University Press, $29.95, 272 pages

It seems ages ago now, but there really was a time when some civil libertarians held out hope for Barack Obama’s presidency. If elected, this former constitutional law professor might be “our first president who is a civil libertarian,” Jeffrey Rosen enthused in The New York Times in March 2008. On inauguration night in 2009, defense lawyers at Guantanamo Bay actually formed a celebratory conga line, chanting “rule of law, baby!”

They and many other Obama optimists woke up to a hell of a hangover, one that’s lasted six years. The president has launched more than six times as many drone strikes as George W. Bush; ordered the remote-control execution of an American citizen; continued and expanded dragnet domestic surveillance programs based on a secret interpretation of the PATRIOT Act; and launched two undeclared wars.

The question Michael Glennon asks at the outset of his important new book, National Security and Double Government, is: “Why does national security policy remain constant even when one President is replaced by another, who as a candidate, repeatedly, forcefully, and eloquently promised fundamental changes in that policy?”

As power has shifted toward the permanent national security and intelligence bureaucracies, we face an ‘emergent autocracy’ in the guise of a democratic republic.”

His answer is altogether darker and more radical than you’d reasonably expect from a former Senate Foreign Relations Committee legal counsel and current international law professor at Tufts. Glennon argues, in essence, that the national security state has become a runaway train and that presidential elections are contests that determine who gets to pretend he’s driving.

Glennon takes the book’s central metaphor of “double government” from the 19th century British essayist Walter Bagehot, longtime editor of The Economist. In 1867’s The English Constitution, Bagehot described how real power in the British government had quietly shifted from one set of institutions, the monarchy and House of Lords, to another: the prime minister, the cabinet, and the House of Commons. By the late 19th century, Britain had become a “concealed republic” with only the outward trappings of a monarchy.

The United States is moving in the opposite direction, Glennon argues. As power has shifted toward the permanent national security and intelligence bureaucracies, we face an “emergent autocracy” in the guise of a democratic republic. We’ve “moved beyond a mere imperial presidency,” he writes, “to a structure of double government in which even the President exercises little substantive control over the overall direction of US national security policy.”

We’re used to the idea that Congress has ceded most of its formal powers over national security policy to an aggrandizing chief executive. But it’s counterintuitive, to say the least, to suggest that government’s chief executive isn’t really in charge. That’s likely why the two standard explanations for otherwise inexplicable policy continuity focus on the president as the main protagonist.

The first such explanation is what Glennon terms “the rational actor model,” the idea that we get the national security policies we do because these are the national security policies we need, given the threats we face.

This is the account preferred by Harvard Law School’s Jack Goldsmith, a former head of the Office of Legal Counsel during the Bush administration, who serves as something of a foil for Glennon. As Goldsmith once put it, “The presidency invariably gives its occupants a sober outlook on problems of national security.”

Sitting in the Oval Office and getting a faceful of President’s Daily Briefs tends to concentrate the mind, the story goes, so it’s no surprise that when confronted with new information about the dangerous world we live in, Obama changed his mind about the substantive correctness of his predecessor’s counterterrorism policies. Goldsmith quotes Jack Kennedy’s observation that it’s “much easier to make the speeches than it is to finally make the judgments.”

The second conventional explanation for policy continuity is what Glennon calls the “government politics model.” This emphasizes factors like the content of the president’s character and the political pressures brought to bear on the presidency.

Maybe, for example, what the Daily Brief really concentrates the president’s mind on is political self-preservation. He becomes ever more aware that he’s going to be held personally responsible if a bomb goes off anywhere in the country, particularly if he’s a liberal Democrat whose foes are eager to paint him as a soft-on-terror McGovernite.

Of course, it’s insane to hold any elected official personally responsible for providing seamless protection to a country of over 300 million people; all the surveillance and drone strikes in the world can’t begin to meet that boundless responsibility. But as Obama’s onetime national security adviser James L. Jones put it: “Who wants to be the guy that says we don’t need [these powers] anymore and then three weeks later something happens?”

Glennon offers another explanation, one that has been overshadowed by the conventional wisdom’s focus on the president as decider in chief. Policy continuity is better understood through the “organizational behavior model,” he says, which looks to a “Trumanite network” of managers in the military, intelligence bureaucracies, and law enforcement “who are responsible for protecting the nation and who have come to operate largely immune from constitutional and electoral restraints.” Glennon calls them “Trumanites” because of our 33rd president’s role in founding the CIA, the modern Defense Department, the Joint Chiefs of Staff, and the National Security Agency (NSA).

Though Glennon doesn’t describe his thesis in terms of public choice theory, it echoes that discipline’s insight that institutions are run for the benefit of the people who run the institutions. For the Trumanites, Glennon explains, “benefits take the form of enlarged budgets, personnel, missions; costs take the form of retrenchments in each.” Witness the vast archipelago of intelligence facilities-nearly three Pentagons’ worth of office space-that have been erected in greater Washington, D.C., since 9/11.

Security bureaucracies may sometimes resist new missions “seen as undercutting their culture or efficiency,” but they will reliably err on the side of overprotection and threat inflation. “The fundamental driver of Trumanite power has been emergency,” Glennon writes, and so “the network thus has little incentive to identify or eliminate the ultimate source of threats (e.g., unwanted intervention in the internal affairs of other nations).”

The national security state is becoming an autonomous, self-perpetuating entity, Glennon warns. It sets the table for elected officials’ choices and increasingly dictates terms to them. The permanent bureaucracy basks in the “glow” of Madisonian institutions, drawing legitimacy from the illusion that elected officials are in charge. But while the buck may stop with the president, the real power resides with the Trumanites.

This explanation is strongest in the realm of state surveillance, which serves as Glennon’s central case study. Recall the embarrassing revelation, in the summer of 2013, that the NSA was tapping German Chancellor Angela Merkel’s cellphone. What did the president know, and when did he know it? If you believe top administration officials, Obama was almost as surprised as Merkel. Glennon quotes Secretary of State John Kerry to the effect that the Merkel wiretap, like a lot of NSA programs, occurred “on autopilot.”

On one hand, that’s what you’d expect them to say. On the other hand, the claim is entirely plausible, and it is consistent with the earlier history of NSA abuses uncovered by the Church Committee in the 1970s. Under Project SHAMROCK, for example, the NSA collected the content of virtually all cable traffic entering or leaving the United States for three decades-150,000 messages a month at its height. It was, the committee’s final report concluded, “probably the largest governmental interception program affecting Americans ever undertaken.” And yet it’s not clear that any president ordered, approved, or was even aware of SHAMROCK. When the program’s existence was exposed in the mid-’70s, Louis Tordella, longtime deputy director of the NSA, admitted that he didn’t know whether any president or attorney general had ever been briefed on it.

The picture grows somewhat more complicated when we look at the modern practice of presidential war making. From the Truman administration onward, the president has accumulated enormous unchecked authority, despite James Madison’s conviction that, since the executive department was “most distinguished by its propensity to war,” it is “the practice of all states, in proportion as they are free, to disarm this propensity of its influence.”

When it comes to picking the wars we wage, it’s not clear that the Trumanites are fully in charge. Take four major war-powers decisions during the Obama administration: the Afghan surge, the escalation of drone attacks, the Libya intervention, and the current war against ISIS. I put the Trumanite win-loss record at roughly .500 here. The military and national security bureaucracy fought hard for the surge and the drone escalation, and got them. They generally opposed the Libyan action, and some prominent Trumanites-such as the chairman of the Joint Chiefs -appear to have been reluctant to endorse our latest war in the Middle East.

In the case of this most recent war, domestic politics seems a better explanation: The president yielded to the near-irresistible demand that he “do something” about the beheading of Americans and the implosion of the Iraqi state. Bombing ISIS is something, so we’re doing it.

The Obama experience suggests we get the wars the Trumanites want-and also some they don’t. But this is hardly fatal to Glennon’s thesis. He stresses that “a good theory of institutional behavior can predict, at best, only tendency over time”; his “predicts only that national security policy will change little from one administration to the next.” So far, that theory is holding up rather well.

Even so, I’ve always been partial to one version of the “government politics” explanation. A few years ago, I wrote a book arguing that “Americans’ unconfined conception of presidential responsibility is the source of much of our political woe and some of the gravest threats to our liberties.” If the political reality is such that the president will be held personally accountable for any domestic terror attack, don’t be surprised when he seeks powers nearly as vast as the expectations put upon him.

Glennon acknowledges it’s not either-or; “explanations overlap,” he writes. Dumb wars and security-state overreach are the result of political choices and the bureaucratic imperative. Policy continuity is depressingly overdetermined.

Real-time histories of key national security decisions in the Obama years tend to underscore this point. In Kill or Capture, reporter Daniel Klaidman describes the enormous political pressure the Obama administration was under after the failed “underwear bomber” attack on December 25, 2009. “For the White House,” Klaidman writes, “the psychic toll of Christmas Day was profound. Obama realized that if a failed terror attempt could suck up so much political oxygen, a successful attack would absolutely devastate his presidency. And much as he liked to talk about returning to first principles, Obama also had a powerful instinct for self-correction-as well as self-preservation.”

The psychic aftershock of Christmas 2009 helped shape a lot of what followed: from body scanners at airports to ramped-up drone strikes to the lethal targeting of an American citizen.

But to Glennon’s point, the administration was under pressure from the Trumanites well before that. In the 2012 book, The Obamians: The Struggle Inside the White House to Redefine American Power, James Mann describes a concerted effort by then-CIA director Michael Hayden and other senior intelligence officials to preserve business as usual by scaring the hell out of the incoming Obama team. Their private name for this scheme was the “Aw, Shit! Campaign.”

The scare tactics worked. Klaidman reports that both Harold Koh, legal advisor at the State Department, and Jeh Johnson, the Pentagon’s general counsel, used the same metaphor to describe the military pressure for more targeted killings: a runaway train. It was like “a massive freight train hurling down the tracks” Koh said. “You would have to throw yourself on the tracks to try to stop it,” said Johnson.

All this helps shed light on Obama’s strange and disorienting May 2013 “drone speech” at the National Defense University in Washington, D.C., in which the president seemed to be speaking not as commander in chief, but as his own loyal opposition.

In the speech, Obama said things like “Unless we discipline our thinking, our definitions, our actions, we may be drawn into more wars we don’t need to fight, or continue to grant Presidents unbound powers.” And: “The very precision of drone strikes…can also lead a president and his team to view [them] as a cure-all for terrorism.” I remember thinking: “A president”? Which one? Anyone in particular? Who’s in charge here, anyway?

National Security and Double Government suggests that the answer to that last question isn’t quite so obvious, that the “most powerful man in the world” isn’t nearly as powerful as he might appear.

It remains the case that Obama had the formal authority to say no to mass surveillance and perpetual war. But saying no would require resisting enormous bureaucratic and political pressure. And anybody willing to do what it takes to become president is unlikely to transform himself into a self-denying Cincinnatus once in office. Political survivors don’t jump in front of trains.

Still, hope is a hard habit to break. Today, Rand Paul is the leading candidate for the role of “first civil libertarian president.” Glennon’s book gives us good reason to consider just how audacious such a hope might be.

Gene Healy, a vice president at the Cato Institute, is the author of The Cult of the Presidency.

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A Litmus Test for ObamaCare and the Rule of Law

Ilya Shapiro and Josh Blackman

This spring will mark the 800th anniversary of the signing of the Magna Carta, the landmark agreement by King John of England at Runnymede ceding certain rights to rebel barons. Liberty will have another chance to shine on Wednesday when the Supreme Court hears a case with momentous implications about another sort of executive power. In this instance, though, it is the rebels who have the royal name: King v. Burwell raises questions about how President Obama has enforced the ObamaCare law—or, more precisely, modified, delayed and suspended it.

This will be the third challenge to the Affordable Care Act to reach the court. But King is different. The law’s constitutionality was challenged in NFIB v. Sebelius, 2012, and the way certain regulations burden particular types of plaintiffs was addressed by Burwell v. Hobby Lobby last year. Now comes King, challenging the administration’s implementation of the law. Even though the ACA gives wide latitude to the executive branch over implementation, its most important parts—coverage rules, mandates and subsidies—were addressed by Congress with specific dates, formulas and other directions. None of these provisions has gone into effect as Congress designed, simply because the plan conflicted with the president’s political calculus.

For example, the executive branch delayed the “minimum essential coverage” provision for two years, suspended the requirement that millions maintain qualifying insurance, and modified the employer mandate into something very different than what the law demands. Through a series of memorandums, regulations and even blog posts, President Obama has disregarded statutory text, ignored legislative history and remade ObamaCare in his own image.

The president has ignored the law’s plain language. Now the Supreme Court decides if that’s all right.”

King focuses on the subsidies that help people pay increased premiums, one ACA pillar that the administration has toppled. Because Congress couldn’t constitutionally command states to establish exchanges, it authorized these credits for people who buy insurance “through an Exchange established by the State.” If a state didn’t establish an exchange, its residents—who would instead use the federal exchange Healthcare.gov—wouldn’t be eligible for subsidies.

But a funny thing happened on the way to utopia: Only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three quarters of the states. This result was untenable to an administration intent on pain-free implementation. And so the administration engaged in its own lawmaking process, issuing an Internal Revenue Service rule that nullified the relevant ACA provision, making subsidies available in all states.

As documented in a detailed 2014 report by the House Oversight Committee, at least one Treasury Department official recognized that there “was no direct statutory authority to interpret federal exchanges as an ‘Exchange established by the State.’ ” But the rogue rule was released anyway, as if the law meant whatever the executive chose. No matter how unmoored from statutory authority, the administration justified these actions because they “expanded coverage” and fit into the ACA’s “broader purpose.”

Executive lawmaking of this sort poses a severe threat to the separation-of-powers principles enumerated in the Constitution. The president has acted on the belief that legislative gridlock allows him to transcend his constitutional limits. A ruling that upholds this behavior would set a dangerous precedent for the nascent health-care law, which will be implemented for years to come by administrations with different views. More troubling, such a precedent could license virtually any executive action that modifies, amends or suspends any duly enacted law.

King, which the Supreme Court is expected to decide in June, is thus about much more than interpreting statutory language or evaluating the “deference” that judges owe bureaucrats. It isn’t a technical debate over the finer points of administrative law; it is an existential one about the rule of law itself.

Chief Justice John Roberts was correct in 2012 when he wrote in the NFIB v. Sebelius decision that it isn’t the court’s role to “express any opinion on the wisdom of the Affordable Care Act.”

But he also correctly noted “the Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits.” The court’s duty is to be a bulwark against arbitrary rule.

This is especially true in disputes between the political branches; the judiciary thus provides the ultimate safeguard of the separation of powers. Or, as Justice Robert Jackson put it in the famous Youngstown case of 1952 that rebuked President Truman ’s unilateral seizure of steel mills: “With all its defects, delays and inconveniences, men have discovered no technique for long preserving free government except that the Executive be under the law, and that the law be made by parliamentary deliberations. Such institutions may be destined to pass away. But it is the duty of the Court to be last, not first, to give them up.”

The president has shown deliberate indifference toward the plain text of the law. The Supreme Court must strike down the IRS rule and confirm the principle that, like King John at Runnymede, all political leaders are bound by the rule of law.

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute. Mr. Blackman is a constitutional law professor at the South Texas College of Law in Houston. They recently filed a brief on Cato’s behalf in King v. Burwell.

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Currency Wars, Again

Steve H. Hanke

The specter of currency wars rises like a phoenix once again. This time around, most of the warriors reside in Washington, D.C.. The strong dollar has inflamed the currency warriors (read: mercantilists) led by Democratic Senator Chuck Schumer from New York and Lindsey Graham, a Republican Senator from South Carolina. These mercantilists argue that “cheap” foreign currencies give the U.S.’s trading partners an “unfair” advantage, something worth doing battle over.

About the only thing the mercantilists have right is the fact that the U.S. dollar has been strengthening. As the accompanying chart shows, the currencies of all the U.S.’s top trading partners have lost value against the greenback over the past six months. These losses have ranged from 1.8% for the Chinese yuan to 21.6% for the Brazilian real. Russia, the fifteenth largest trading partner of the U.S., has seen the value of its ruble fall 39.5% over the past six months.

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So, the currency hawks want to do what they always want to do: go to war. The particular trigger is the Trans-Pacific Partnership (TPP), a trade agreement between Asian countries and the U.S.. With this agreement, which the Obama administration is pushing for, the currency warriors have spotted an opening. They want to insert enforceable rules against so-called currency manipulation into the TPP.

All this saber rattling is a broken mercantilist record, particularly with regard to the U.S.’s biggest Asian trading partners: Japan and China. Indeed, these two countries have accounted for the lion’s share of the U.S. trade deficit over the past twenty years (see the accompanying chart).

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From the early 1970s until 1995, Japan was viewed by the mercantilists as an enemy. They asserted that unfair Japanese trading practices caused the U.S. trade deficit, and that the U.S. bilateral trade deficit with Japan could be reduced if the yen appreciated against the dollar — a “weak dollar policy.” Washington even tried to convince Tokyo that an ever-appreciating yen would be good for Japan. Unfortunately, the Japanese complied and the yen strengthened, moving from 360 to the greenback in 1971 to 80 in 1995.

In April 1995, Secretary of the Treasury Robert Rubin belatedly realized that the yen’s great appreciation was causing the Japanese economy to sink into a deflationary quagmire. In consequence, the U.S. stopped arm-twisting the Japanese government about the value of the yen and Secretary Rubin began to evoke his now-famous strong-dollar mantra.

The U.S. trade deficit is the result of a U.S. savings deficiency, not exchange rates.”

But, while this policy switch was welcomed, it was too late. Even today, Japan continues to suffer from the mess created by the yen’s appreciation.

As Japan’s economy stagnated, its contribution to the increasing U.S. trade deficit declined, falling from its 1991 peak of almost 60% to 9.3% today. While Japan’s contribution declined, China’s surged from slightly more than 9% in 1990 to 47.2% today. With these trends, the Chinese yuan replaced the Japanese yen as the mercantilists’ whipping boy.

Interestingly, the combined Sino-Japanese contribution to the U.S. trade deficit has actually declined from its 1991 peak of over 70% to 56.7%. This hasn’t stopped the mercantilists from claiming that the Chinese yuan is grossly undervalued, and that this creates unfair Chinese competition and a U.S. bilateral trade deficit with China.

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This raises an obvious question: does a weak yen or yuan vis-à-vis the dollar (in nominal terms) explain the contribution of Japan and China to the U.S. trade deficit? After all, this exchange-rate argument (read: competitive advantage) is what the mercantilists use to wage war. When it comes to Japan, whose contribution to the U.S. trade deficit has been declining for the past twenty years, there is a very weak relationship between the yen’s strength and Japan’s contribution to the trade deficit (see the accompanying chart). Certainly not something worth going to war over. And as for China, the relationship between the strength of the yuan and China’s contribution to the U.S. trade deficit contradicts the mercantilist conjecture (see the accompanying chart). Indeed, the Chinese yuan has appreciated in nominal terms relative to the greenback over the past twenty years, and so has the Chinese contribution to the U.S. trade deficit.

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But, evidence fails to sway the mercantilists. They still want tough currency manipulation provisions inserted into the TPP. They don’t realize that the term “currency manipulation” is hard to define and, therefore, is not an operational concept that can be used for economic analysis. In consequence, currency manipulation rules would be almost impossible to implement. The U.S. Treasury (UST) has acknowledged this fact in reports to Congress. Indeed, in 2007, the UST attempted to have the International Monetary Fund (IMF) act as a currency cop and go after manipulators. Raghuram Rajan, who is currently governor of India’s central bank and was the IMF’s chief economist in 2007, pronounced the episode an “unmitigated disaster.”

It isn’t only the mercantilists’ pols who don’t understand that nominal exchange rates don’t have much to do with trade deficits. Some economists — most notably C. Fred Bergsten of the Peterson Institute for International Economics and supply-side guru Arthur B. Laffer — don’t seem to understand the economics behind the U.S. trade deficit, which has been with us since 1975. Those economics were fully explained by one of my occasional collaborators, the late Ronald I. McKinnon from Stanford University. Indeed, he elaborated on them in his last book, The Unloved Dollar Standard: From Bretton Woods to the Rise of China(2013). In short, the U.S. trade deficit is the result of a U.S. savings deficiency, not exchange rates. As a result, the trade deficit can be reduced by some combination of lower government consumption, lower private consumption or lower private domestic investment. You wouldn’t know this basic truth by listening to the rhetoric coming out of Washington.

Steve H. Hanke is a professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C. You can follow him on Twitter: @Steve_Hanke

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What Terrorists Are Really Angry About

John Mueller

We will not know for some time exactly why three men who were arrested on Wednesday in the United States wanted to join ISIS in Syria.

But what we do know is that it has become common, even routine, to argue that there exists a process by which potential terrorists become “radicalized.” The concept, which has become something of a buzzword, suggests that the central motivation for terrorist violence is ideological.

However, Islamist terrorists in the West have generally been set off not so much by anything theoretical but rather by intense outrage at American and Israeli actions in the Middle East and by a burning desire to seek revenge, to get back, to defend, and/or to make a violent statement expressing their hostility to what they see as a war on Islam.

Perhaps the most prominent motivating force is anger at U.S. foreign policy.”

This can be seen in the story of one of the shooters in the Charlie Hebdo attack in Paris. If he was “radicalized” by anything, it was by news about the way prisoners were being treated by the United States at Abu Ghraib in Iraq. He spent years trying to get to Iraq to fight the Americans there, finally finding a target closer to home.

The same observation arises when one looks over a collection of case studies of terrorists or would-be terrorists who have sought to do damage in the United States. The overwhelming driving force in these cases has been simmering, and more commonly boiling, outrage at American foreign policy.

It was not that the plotters in these cases were motivated solely by a coherent ideology or had a burning urge to spread Islam and Sharia law or to establish caliphates. Rather, it was the desire to protect their religion against what they perceived to be a concentrated war upon it in the Middle East by the United States government and military.

At the same time, these cases — from the shoe-bomber to the underwear bomber — show that there is remarkably little hostility to American culture or society. For example, the infamous Times Square bomber, a Pakistani-American who tried to blow up a car in New York, specifically mentioned U.S. drone strikes that killed civilians in Pakistan. The Boston Marathon bombers, similarly, explicitly cited the U.S. wars in Iraq and Afghanistan as motivating factors. Almost none of the terrorists or would be terrorists had any problem with American society itself.

This is particularly impressive because many of them (though certainly not all) were misfits, suffered from personal identity crises, were friendless, came from broken homes, were often desperate for money, had difficulty holding jobs, were on drugs, were petty criminals, experienced various forms of discrimination, and were, to use a word that pops up in quite a few of the case studies and fits even more of them, “losers.”

As terrorism specialist and former CIA officer Marc Sageman points out, “radicalization” principally happens because of perceived injustice against one’s group — a perspective the Washington Post’s David Ignatius finds ”worth a careful look,” but calls “contrarian.”

The standard “radicalization” misdirection process can be seen in a Seattle case in 2011 in which two men were picked up for planning to shoot a machine gun and lob grenades at a local military processing center. According to news reports, the perpetrators said that they were motivated by a desire to retaliate for crimes by U.S. soldiers in Afghanistan and that they wanted to kill military personnel to prevent them from going to Islamic lands to kill Muslims. The official Department of Justice press release on the case, however, merely says that the men were “driven by a violent, extreme ideology.”

Similarly a former FBI counterterrorism analyst was asked recently on PBS NewsHour about why people are drawn to violent extremism. He stressed that there are “ideological issues” as well as “local grievances” including “access to education and job opportunities” and whether one feels that one is fully accepted in society.

Outrage at American actions in the Middle East scarcely entered the discussion.

Speakers at the recent White House summit on countering violent extremism typically found some of the “root causes” of terrorism to lie in ideology, the ministrations of propagandists, the influence of the Internet, poverty, inadequate job opportunities and alienation from society. Those may well be contributing factors, but perhaps the most prominent motivating force is anger at U.S. foreign policy.

John Mueller is a political scientist at Ohio State University and a senior fellow at the Cato Institute.

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Common Core Confusion: Blame Supporters

Neal McCluskey

As students across the country head into Common Core testing, a new poll reveals that Americans are confused about what, exactly, the Core is. But don’t blame them. Blame Core advocates, whose rush to install nationwide curriculum standards has left Americans befuddled and angry.

What is the Core? Supposedly, just reading and math standards — basic guidelines about what students should be able to do — voluntarily adopted by states. But that is not how the public perceives it. According to a new Fairleigh Dickinson University poll, only 17 percent of Americans hold favorable opinions of the seemingly innocuous Core, and two-thirds think it covers specific content: at least one topic out of sex education, evolution, global warming, and the American Revolution.

Some of the public is misinformed. Unfortunately, that is in part because what Core advocates tell us is often quite misleading.

The way the Core became policy — rushed through the back door — made public understanding essentially impossible.”

Start by looking at what the pollsters — whose press release was very pro-Core — assert. While it is true the Core does not explicitly tackle the four hot-button subjects mentioned above, it touches all of them, in one case forcefully. The English portion has sections on “literacy in history/social studies, science, and technical subjects,” and more explicitly says that students in grades 11 and 12 will “analyze … U.S. documents of historical and literary significance … including the Declaration of Independence … for their themes, purposes, and rhetorical features.” Inextricably connected to the “themes” and “purposes” of the Declaration is, of course, the American Revolution. Yet the pollsters suggest it is flat wrong to think the Core includes this topic.

Then there are those national Common Core-aligned tests millions of students are facing. If they ask about global warming or sex education, those topics essentially become Core content.

The Core is not simply guidelines, but content, and that is without even mentioning the math standards, which are much more specific when it comes to dictating material than the reading standards.

Of course, the average person — with a job, family, and countless political issues vying for his or her attention — has little time to research any given topic, so some confusion is to be expected. But the way the Core became policy — rushed through the back door — made public understanding essentially impossible.

The key was the 2009 federal “stimulus,” which allocated $4.35 billion for what became the Race to the Top (RTTT) program. While all eyes were on the Great Recession, RTTT made states compete to win federal dough, and among several things, they had to promise to adopt standards common to a “majority” of states — a parameter only the Core met — to truly compete. And applications were due before the final version of the Core was even published.

After RTTT came No Child Left Behind waivers, cementing adoption by giving states only two standards options: Either adopt the Core, which most states had already promised under RTTT, or have their own standards certified by a state university system as “college- and career-ready.”

Core supporters almost certainly lobbied to include the Core in RTTT, and both RTTT and waivers were in line with what the National Governors Association and the Chief State School Officers had called for in their 2008 report “Benchmarking for Success: Ensuring U.S. Students Receive a World-Class Education.” This was not truly a voluntary adoption of common standards, but was pushed by federal “incentives,” including funding and regulatory relief.

Finally, much blame for confusion lies at the feet of advocates who, in trying to quell a revolt that erupted when the Core hit districts and the public finally became aware of it, have tried to sell the Core as both content-heavy and content-bereft. All things to all people.

A good example is E.D. Hirsch, author of the famous book Cultural Literacy: What Every American Needs to Know. In 2013 Hirsch endorsed the standards, writing that “they break the fearful silence about the critical importance of specific content.” Then what did he write? The Core actually contains no “specific historical, scientific, and other knowledge that is required for mature literacy.” It just embraces the idea of content.

Or consider former Secretary of Education William Bennett, who in 2014 wrote that he once polled hundreds of people about what all students should know, and “almost every person agreed on … the Bible, Shakespeare, America’s founding documents … ‘Huckleberry Finn’ and classical works of mythology and poetry.” He then asked, “Why … is Common Core drawing such heavy fire?” Answer: “A myth persists that [it] involves a required reading list.”

See why the public is confused?

Neal McCluskey is the associate director of the Cato Institute’s Center for Educational Freedom and author of Behind the Curtain: Assessing the Case for National Curriculum Standards.

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Hillary the Stealth Candidate

Michael D. Tanner

While much of the media has been obsessed with tracking down Republican positions on such crucial issues as evolution and President Obama’s religion, one searches in vain for hints of Hillary Clinton’s position on … pretty much anything. That is not to say that potential Republican candidates haven’t botched what should have been easy, commonsense answers, but shouldn’t there be at least a little bit of curiosity about where the all-but-inevitable Democratic nominee stands on actual issues that will affect the future of this country?

It is early, of course, and Republicans themselves have not yet laid out detailed positions on most issues. It’s no surprise, therefore, that Hillary has not yet put together a specific platform for her campaign. Still, there are enough hints out there to discern a flavor of what she will offer. 

Clinton has flirted with Elizabeth Warren–style populism, even declaring, “Don’t let anyone tell you that it’s corporations and businesses that create jobs.” But populism is not an easy fit for the crony-capitalist Clintons, so she appears to be settling into something called “inclusive capitalism.” This idea, developed by the Center for American Progress, and championed by many of Hillary’s top economic advisers, is less overtly hostile to the rich. Instead, it calls for corporations to put less emphasis on short-term profits and shareholder value and instead to invest more in employees, the environment, and communities.

Shouldn’t there be at least a little bit of curiosity about where the all-but-inevitable Democratic nominee stands on actual issues that will affect the future of this country?”

That should not be interpreted to suggest that Clinton would be business friendly. Companies would be required to provide paid parental leave, universal paid sick days, and more paid vacation days; this on top of the inevitable demand for a higher minimum wage. Businesses would also be pressured to add labor representatives to their boards. 

On other issues, Hillary has been in full stealth mode. She has given rhetorical support to the need to reduce the deficit, calling it a national-security issue. But she has offered few ideas for how to reduce spending, though she has hinted at a willingness to include entitlement reform in a “grand bargain” to reduce the debt. In 2013, she told an audience at Colgate University: “What has worked is a compromise where yes, we raise revenues for a certain period, we go and look at entitlements to see what is fair and can be done without really disadvantaging either existing beneficiaries or people who are going to rely on those programs.”

But when push comes to shove, she has opposed big changes to Medicare or Social Security. One is left with the distinct impression that her idea of compromise simply means raising taxes. For example, she opposes personal accounts for Social Security, but says she is open to lifting the cap on Social Security taxes. She has had little to say recently about Medicare, but has been a supporter of Obamacare (though she carefully allows that it may need some changes). 

That caution provides an additional clue about how Hillary will campaign. Expect few bold proposals or big ideas. Instead, she will run as a grandmother, the first woman president, and liven this appeal with middle-class pandering. As with everything Clintonian, her words will be carefully measured and poll-tested, designed to create as little controversy as possible. Her campaign won’t generate much passion among the Democratic base, but it won’t alienate independents and moderates.

This will leave the eventual Republican nominee with a difficult choice. He will have to find a way to force Hillary to become specific about her more radical positions — but do so without seeming to be too aggressive. (Remember Rick Lazio?) And he will have to find a way to energize the Republican base without alarming the broad middle of the electorate that may see Hillary as history-making. That’s a tall order, and Republicans should keep this in mind as they choose their nominee. But it would certainly help if the media decided to pay attention to actual issues. rticle/414365/hillary-stealth-candidate-michael-tanner

Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

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Terrorism Poses No Existential Threat to America. We Must Stop Pretending Otherwise

John Mueller and Mark G. Stewart

One of the most unchallenged, zany assertions during the war on terror has been that terrorists present an existential threat to the United States, the modern stateand civilization itself. This is important because the overwrought expression, if accepted as valid, could close off evaluation of security efforts. For example, no defense of civil liberties is likely to be terribly effective if people believe the threat from terrorism to be existential.

At long last, President Barack Obama and other top officials are beginning to back away from this absurd position. This much overdue development may not last, however. Extravagant alarmism about the pathological but self-destructiveIslamic State (Isis) in areas of Syria and Iraq may cause us to backslide.

The notion that international terrorism presents an existential threat was spawned by the traumatized in the immediate aftermath of 9/11. Rudy Giuliani, mayor of New York at the time, recalls that all “security experts” expected “dozens and dozens and multiyears of attacks like this” and, in her book The Dark Side, Jane Mayer observed that “the only certainty shared by virtually the entire American intelligence community” was that “a second wave of even more devastating terrorist attacks on America was imminent”. Duly terrified, US intelligence services were soon imaginatively calculating the number of trained al-Qaida operatives in the United States to be between 2,000 and 5,000.

President Obama and other top officials are backing away from this absurd assertion. But others are resisting reality.”

Also compelling was the extrapolation that, because the 9/11 terrorists were successful with box-cutters, they might well be able to turn out nuclear weapons. Soon it was being authoritatively proclaimed that atomic terrorists could “destroy civilization as we know it” and that it was likely that a nuclear terrorist attack on the United States would transpire by 2014.

No atomic terrorists have yet appeared (al-Qaida’s entire budget in 2001 for research on all weapons of mass destruction totaled less than $4,000), and intelligence has been far better at counting al-Qaida operatives in the country than at finding them.

But the notion that terrorism presents an existential threat has played on. By 2008, Homeland Security Secretary Michael Chertoff declared it to be a “significant existential” one – carefully differentiating it, apparently, from all those insignificant existential threats Americans have faced in the past. The bizarre formulation survived into the Obama years. In October 2009, Bruce Riedel, an advisor to the new administration, publicly maintained the al-Qaida threat to the country to be existential.

In 2014, however, things began to change.

In a speech at Harvard in October, Vice President Joseph Biden offered the thought that “we face no existential threat — none — to our way of life or our ultimate security.” After a decent interval of three months, President Barack Obama reiterated this point at a press conference, and then expanded in aninterview a few weeks later, adding that the US should not “provide a victory to these terrorist networks by over-inflating their importance and suggesting in some fashion that they are an existential threat to the United States or the world order.” Later, his national security advisor, Susan Rice, echoed the point in a formal speech.

It is astounding that these utterances — “blindingly obvious” as security specialist Bruce Schneier puts it — appear to mark the first time any officials in the United States have had the notion and the courage to say so in public.

Whether that development, at once remarkable and absurdly belated, will have some consequence, or even continue, remains to be seen. Senators John McCain and Lindsay Graham have insisted for months that Isis presents an existential threat to the United States. An alarmed David Brooks reported that financial analysts have convinced themselves that the group has the potential to generate a worldwide “economic cataclysm.”

And General Michael Flynn, recently retired as head of the Defense Intelligence Agency, has been insisting that the terrorist enemy is “committed to the destruction of freedom and the American way of life” while seeking “world domination, achieved through violence and bloodshed.” It was reported that his remarks provoked nods of approval, cheers and “ultimately a standing ovation” from the audience.

Thus even the most modest imaginable effort to rein in the war on terror hyperbole may fail to gel.

John Mueller s a political scientist at Ohio State University and a senior fellow at the Cato Institute. He is the editor of the webbook, Terrorism Since 9/11: The American Cases, and, with Mark Stewart, the author of the forthcoming Chasing Ghosts: The Costly Quest to Counter Terrorists in the United States.

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India’s Next Budget Needs a Vision for Leading Asia

Swaminathan S. Anklesaria Aiyar

Does Indian Finance Minister Arun Jaitley have a fiscal vision that can inspire and stir the blood? He will present his second budget on February 28. His first effort was a patchwork affair in the middle of the last fiscal year after winning the general election. Jaitley then lacked time for a major fiscal overhaul; this time he must deliver.

He should frame his budget as the first step in India becoming the leading Asian tiger. Toward this end, he should pledge to reform India’s direct tax rates and practices to compete with the best in the Asian neighborhood.

Back in 1997, Finance Minister Chidambaram presented a vision of competing with ASEAN in import duties as a first step to becoming an economic tiger. This meant reducing India ’s standard import tariff from 50 percent to 8-10 percent in stages. This vision was adopted by succeeding finance ministers of other parties, and the target of ASEAN equivalence was met in 2004. This helped accelerate GDP growth to over 8 percent over the next five years.

India’s 2015 budget will need to address several key areas.”

Jaitley should follow the same path with regards to direct taxes. India’s maximum income tax rate of 33.9 percent is well above that of Singapore, but competitive with most other Asian states. But its corporate tax rate of 34 percent is much higher than in China (25 percent), Thailand (20 percent), Malaysia (25 percent), and Indonesia (25 percent). India should cut its rate to 25 percent, and simultaneously trim its multitude of tax exemptions, to be more in line with competing countries.

Prime Minister Narendra Modi recently promised an end to “tax terrorism.” Unable to meet revenue targets in recent years, Indian taxmen have cracked down in irrational ways on supposed tax evasion by multinationals like Vodafone and Shell. Jaitley should aim to grow revenue by attracting additional investment rather than through tax terrorism. He should align India’s transfer pricing rules, advance tax rulings, and other tax practices with those of Asian competitors.

Jaitley aims for a constitutional amendment to create a unified Goods and Services Tax (GST) in place of the current complicated system that divides powers of indirect taxation between the central and state governments. The existing system leads to tax cascades and huge opportunities for corruption and evasion. Experts estimate that a unified GST could raise GDP by 2-2.5 percent. But many states want to retain tax-raising powers, denting the ideal of a uniform national tax. GST will be a process, not a single event, but Jaitley needs to start that process.

He has set a fiscal deficit target of 4.1 percent of GDP in the current fiscal year, to be reduced to 3.6 percent and 3.0 percent in the next two years. Some influential economists want to go slow on deficit reduction to finance urgently needed infrastructure. The public-private partnership model for infrastructure has ended in tears, with over-leveraged private companies unable to service debts and dragging down the banks with them. New financing has to come mainly from the government.

Still, Jaitley should stick to his fiscal reduction schedule to build global confidence and a reputation for reliability. Increased infrastructure spending should be financed by aggressive sales of government assets — shares of corporations, land, spectrum and mineral rights. Fortunately the boom in stock markets has made sales feasible at good prices.

Modi seeks foreign investment in India’s railways and ports. He must first convert the Railway Board and all port trusts into corporations. Only then can their equity be subscribed to by private investors.

The fall in oil prices has enabled Jaitley to end the diesel subsidy. Up to 40 percent of subsidized kerosene is used not for lighting in non-electric areas but for adulterating diesel. He should shift to cash transfers in lieu of subsidized kerosene, ending price distortions and adulteration. Indeed, he needs to experiment with cash transfers in place of current very leaky subsidies on cooking gas, fertilizer, and food. This will lower subsidies while getting to the needy. Modi’s financial inclusion drive has provided 115 million new bank accounts, making possible cash transfers to maybe 90 percent of people.

Current fiscal strains are best eased by a good business climate that accelerates GDP and tax revenues. Modi is devising reforms to move India from 142nd position in the World Bank’s ease-of-doing-business index to 50th position. Jaitley’s budget should spell out the key new ideas for slashing red tape.

Finally, some low-hanging fruit are just waiting to be picked. Betting is illegal in India, yet massive bets are placed on cricket matches and elections. Jaitley should legalize betting, starting with cricket, and levy taxes on this. The cricket World Cup competition has begun, and punters are already betting humungous sums. They will happily pay a tax for legal cover. Jaitley must go for it.

Swaminathan S. Anklesaria Aiyar is a Research Fellow at the Cato Institute.