National Center For Policy Analysis
DAILY POLICY DIGEST
Tuesday, August 24, 1999
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IN TODAY'S DIGEST
o CONGRESS BYPASSES REVIEW PROCESS AND DISHES OUT BILLIONS,
as colleges rake in research funds....NEW YORK TIMES
o THE INTERNATIONAL MONETARY FUND HAS NO IDEA WHERE ITS
MONEY GOES, as Russia soaks up billions of disappearing
dollars...WALL STREET JOURNAL
o MANY RELIGIOUS GROUPS SAY "NO THANKS" TO "CHARITABLE
CHOICE" and the rules that go along with accepting federal
money....WALL STREET JOURNAL
o FEWER CHILDREN ARE IN POVERTY and ex-welfare mothers are
working since welfare reform began....WALL STREET JOURNAL
o ONLY FIVE STATES PLAN TO SPEND A LOT ON ANTI-SMOKING
EFFORTS, while others have different spending
plans....WALL STREET JOURNAL
o MARGINAL TAX INCREASES DISCOURAGE SELF-EMPLOYMENT, say
economists, while increasing average taxes increases self-
employment....SOUTHERN ECONOMIC JOURNAL
o OFFICIALS WANT SEALED WARRANTS TO ENTER COMPUTER SYSTEMS
and disable encryption software....WASHINGTON POST
o STATES WANT TO KEEP $4.2 BILLION IN SURPLUS WELFARE FUNDS,
and some analysts suggest they use the money to promote
marriage....WASHINGTON TIMES
IN TODAY'S NEWS
CONGRESS PLAYS POLITICS WITH RESEARCH FUNDS
In recent years, members of Congress have quietly been earmarking
funds in spending bills for university research in their
districts and states -- bypassing reviews by federal institutes.
In the process, critics maintain, they are substituting political
judgment for scientific review of which projects should qualify
for research money.
o Universities have lobbied for and obtained more than $7
billion directly from Congress since 1980.
o Earmarked funds in this year's federal budget were a
record $797 million.
o Federal spending on all university-based research this
year exceeded $15 billion - - including a variety of
military and weapons-related programs beyond the purely
scientific endeavors of the National Institutes of Health
and the National Science Foundation, the two federal
institutions which have traditionally handed out grants.
o Critics point out that the funds are usually inserted in
spending bills during closed-door conferences without
public debate.
Also, what institution will get the funds is deliberately
obscured -- for example, creating a tax break for a university
"established on Aug. 6, 1872," without naming the institution.
It has taken months for the Chronicle of Higher Education, which
tracks academic earmarks, to decode the legislative language used
to disguise the appropriations.
Critics report that a disproportionate amount of money flows to
universities and colleges in states and Congressional districts
represented by lawmakers who are experienced in the
appropriations process or who are on appropriations committees.
Former congressman Robert S. Walker (R-Penn.) recalls asking one
university official during hearings what he intended to do with
the money he was requesting. "He didn't know but said he was
sure it would come in handy," Walker said.
Source: Tim Weiner, "Lobbying for Research Money, Colleges Bypass
Review Process," New York Times, August 24, 1999.
For more on Higher Education Funding
http://www.ncpa.org/pi/edu/edu13.html#b
IMF DISHES OUT THE MONEY, BUT WHERE IT GOES IS ANYONE'S GUESS
International Monetary Fund officials say their job is to make
payments to central banks, not monitor where it eventually winds
up -- claiming the agency doesn't have the resources or the
mandate to audit funds once they pass beyond a country's central
bank.
The IMF "doesn't ask a lot of probing questions," according to a
banking consultant who works with the fund. "They don't try to
embarrass anyone."
o Law enforcement authorities are currently investigating
whether Bank of New York Co. was one of a chain of banks
that was a conduit for about $200 million possibly
diverted from IMF loans to Russia.
o The IMF says because the loans were paid into the Russian
government's account at the New York Federal Reserve Bank
-- and not to other Russian institutions -- it had neither
the responsibility nor the authority to audit transactions
involving those institutions.
o Russia has received about $20 billion in IMF loans since
1992 -- but often fails to fulfill the economic promises
it makes in order to get the loans, experts report.
o Two recent audits of loans to Russia revealed that $1.2
billion in IMF money wound up at a firm in the Channel
Islands, while part of a $4.8 billion IMF payment quickly
evaporated as Russians cashed rubles for dollars.
In both cases, the fund asked for the audits only after
allegations had circulated widely in the Russian and Western
media.
Experts say that officials at private American banks customarily
demand financial statements from borrowers, and will not disburse
funds without evidence of where the loans will go.
Source: Bob Davis, "IMF Doesn't Watch Fund Disbursement," Wall
Street Journal, August 24, 1999.
For more on International Monetary Fund & World Bank
http://www.ncpa.org/pi/internat/intdex13.html
"CHARITABLE CHOICE" OFTEN SHUNNED BY RELIGIOUS GROUPS
In 1996, Congress approved a plan called "charitable choice" as
part of its welfare overhaul. Under the program, the U.S. gives
funds to religious groups to use to combat poverty and other
social ills.
Critics contend that it threatens to blur the line between church
and state. And many religious groups -- apparently reluctant to
become enmeshed in government rules and bureaucracy -- aren't
rushing to the government trough.
o Nobody knows how many groups are participating in
charitable choice -- or how much public money is being
spent -- because the funds are doled out by state and
local governments.
o While national conservative religious groups were among
the strongest proponents of charitable choice, at the
local level conservative congregations seem the least
interested among all religious groups.
o In a 1998 survey of 1,236 religious congregations, Mark
Chaves of the University of Arizona found that only 24
percent of those who described themselves as theologically
and politically conservative said they would be interested
in joining the program -- but 47 percent of self-described
liberal or middle-of-the-road groups were interested.
o Some conservative groups fear that accepting federal funds
and the government rules that go with them could lead to a
slide toward secularism.
"The natural drift of government involvement and government
funding is to become more and more like your secular government
host," explains Joseph Laconte, an expert on charitable choice at
the Heritage Foundation. "There is a deep, abiding and rational
suspicion that government can't keep its mitts off these groups,"
he adds.
Source: Robert S. Greenberger, "'Charitable Choice,' Tests Line
Between Church, State," Wall Street Journal, August 24, 1999.
For more on Charities
http://www.ncpa.org/pi/welfare/welfare4.html
INDICATORS OF WELFARE REFORM SUCCESS
With welfare caseloads down an average of 45 percent since states
started implementing welfare reforms in 1994, analysts are asking
what has happened to ex-beneficiaries. Are they working, do they
have more income, and have they escaped poverty?
They report that the law is working better than anyone dared to
hope.
o Basing its estimates on state studies, the General
Accounting Office says that about 60 percent of former
welfare mothers are employed -- and 80 percent have held a
job at some time since they left the rolls.
o Although there is no reliable national data on the income
of ex-welfare mothers, the annual income of the bottom 20
percent of all mothers -- those making about $6,500 in
1997 -- increased nearly $500 from 1993 to 1997, according
to the Census Bureau.
o But over the same period, those mothers with average
incomes of $13,500 gained nearly $3,000 in earnings and
the earned income tax credit.
o Overall poverty and child poverty declined in 1995, 1996
and 1997 -- while poverty among black children declined
more in 1997 than in any previous year.
This year the U.S. will spend at least $80 billion providing low-
income working families with cash income supplements through tax
credits and other benefits such as child care. According to the
Congressional Budget Office, some $45 billion of this amount is
directly attributable to legislation enacted since the mid-1980s.
Welfare reform advocates point out that his new work-support
system means that mothers who take minimum-wage jobs are far
better off than mothers on welfare.
Source: Rep. Nancy L. Johnson (R-Conn., chairman, Subcommittee on
Human Resources of the House Ways and Means Committee), "The
Results Are In: Welfare Reform Works," Wall Street Journal,
August 24, 1999.
For more on the Welfare Reform Law
http://www.ncpa.org/pi/congress/cong12.html
THE STATES HAVE PLANS FOR TOBACCO SETTLEMENT MONEY
Few states plan to use significant amounts of the money they will
get from last year's tobacco settlement on anti-smoking
campaigns, according to a survey to be released today by the
Campaign for Tobacco-Free Kids and the American Heart
Association. Most states are contemplating a wide variety of
spending initiatives.
Under the settlement, 46 states will divide up $206 billion.
Four states that reached earlier agreements with the industry had
already begun receiving payments.
o Michigan wants to use a sizable portion of its money to
support scholarships and research at local universities.
o Connecticut plans to cut taxes, while North Dakota wants
to pay for flood control projects.
o Of the 26 states that have taken action on initial
settlement payments, only five-- Hawaii, Maryland,
Vermont, New Jersey and Washington -- have earmarked a
significant portion for stop-smoking campaigns, according
to anti-tobacco activists.
Ten other states have dedicated smaller sums to such activities,
while the 11 remaining states have decided either to spend no
settlement money on tobacco control or will put the money into
funds for possible future use in anti-smoking efforts.
While the settlements don't place any restrictions on how states
actually use their proceeds, states allocating their funds to
projects other than anti-smoking campaigns have raised the ire of
anti-tobacco activists.
The Centers for Disease Control and Prevention says that to
implement effective anti-smoking programs, states, depending on
their size, should spend between $5 and $20 per capita annually.
Source: Gordon Fairclough, "States Are Planning Assorted Uses for
Tobacco-Settlement Funds," Wall Street Journal, August 24, 1999.
For more on Tobacco Company Suits
http://www.ncpa.org/pd/law/mcc/index4c.html
IN OTHER NEWS
SELF EMPLOYMENT AND TAX RATES
How does tax policy affect self employment versus wage-and-salary
employment? It depends on how tax changes affect after-tax
returns between the two types of employment.
A higher marginal tax rate, all else equal, tends to reduce self
employment because it cuts the after-tax reward to effort, more
so than in paid employment where the link between effort and
reward is much looser.
On the other hand, an increase in the average (overall) tax rate
makes self employment more attractive because the tax bite can be
reduced through illegal evasion with better chances of success
than in wage jobs where the employer withholds taxes. Marginal
tax refers to the additional tax owed on another dollar of
earnings while the average tax rate means taxes paid as a share
of income.
o Using economy-wide data from 15 OECD countries for 1978-
1992, two British economists find that both marginal and
average tax rates have big, opposite effects on self
employment.
o They found that a one point increase in the marginal tax
rate reduces self employment about 0.8 points from its 8.5
percent average while the same increase in the average tax
rate increases self employment by 0.8 points.
o During the 1980s there were major cuts in marginal tax
rates (reduced tax progressivity) in countries like
Sweden, Italy and the United Kingdom with little reduction
in the average tax burden, and they experienced a strong
rise in self employment.
If both marginal and average tax rates rise or fall together,
they tend to offset each other in terms of the attraction of self
employment versus wage employment.
Source: Martin T. Robson and Colin Wren, "Marginal and Average
Tax Rates and the Incentive for Self-Employment," Southern
Economic Journal, April 1999.
For more on Behavioral Effects of Taxes
http://www.ncpa.org/pi/taxes/tax22.html#1
For more on Self-Employment
http://www.ncpa.org/pd/economy/econ5.html
GOVERNMENT SEEKS TO ENTER HOMES AND ALTER COMPUTERS
The Justice Department is about to ask Congress to grant it
authority to secretly enter homes and offices in order to disable
encryption software on computers. Department officials say such
authority is needed to fight criminal activity -- "such as drug
trafficking, terrorism, white-collar crime, and the distribution
of child pornography," according to an administration memo.
o Draft legislation, called the Cyberspace Electronic
Security Act, would enable investigators to get a sealed
warrant signed by a judge, permitting them to enter
private property, search through computers for passwords
and install devices that override encryption programs.
o Although Justice officials claim their proposals is
"consistent with Constitutional principles," the idea has
alarmed civil libertarians and members of Congress.
o Privacy advocates warn that the number of police break-ins
would soar if the proposal is adopted because personal
computers offer tantalizing sources of evidence for
investigators -- including memos, diaries, e-mail, bank
records and a wealth of other data.
o In a snub to the administration, more than 250 members of
Congress have cosponsored legislation that would prohibit
the government from mandating that computer systems must
have "back doors" that would enable investigators to
sidestep encryption.
Source Robert O'Harrow Jr., "Encryption Battle Enters Home,
Office," Washington Post, August 20, 1999.
For more on Technology And Crime
http://www.ncpa.org/pi/crime/crime8.html
For more on Internet regulation
http://www.ncpa.org/pd/regulat/reg-9.html
STATES COUNTING UP WELFARE BUDGET SURPLUSES
As welfare reform enters its fourth year, states hold surpluses
of $4.2 billion in unspent welfare funds. Caseloads are down by
an average of 40 percent nationwide and most former welfare
recipients are working -- confounding reform critics who
predicted in 1996 that countless families would be thrown into
poverty, with nowhere to turn.
o So far, thirteen states have cut their welfare rolls in
half -- led by Idaho, Wyoming and Wisconsin, which have
all seen caseloads sliced by over 80 percent.
o Mississippi, Florida and South Carolina have all seen
declines of between 69 to 63 percent.
o Rhode Island leads the laggards with reductions of only 5
percent -- bettered at the low end of the scale by
Nebraska, Minnesota, New Mexico and Alaska.
o The nation's governors, meanwhile, are imploring Congress
not to tamper with their $16.5 billion a year in welfare
grants.
Robert Rector of the Heritage Foundation is urging states to use
unspent welfare funds to combat illegitimacy and promote marriage
-- since single parenthood is the primary reason families turn to
welfare.
Source: Cheryl Wetzstein, "States Beg Congress Not to Cut Funds
to Get Jobless to Work," Washington Times, August 22, 1999.
For more on State Welfare Reforms
http://www.ncpa.org/pi/welfare/welfare7.html
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