Think tanks wrap-up 2

Sept. 25, 2002 at 10:02 PM
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WASHINGTON, Sept. 25 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks. This is the second of two wrap-ups for September 25.

The National Center for Policy Analysis

(NCPA is a nonprofit, nonpartisan public policy research organization whose goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector.)

DALLAS -- Stock options and the law of unintended consequences

Early in his administration President Bill Clinton claimed that "excessive" compensation of corporate executives was due to the fact that wages, no matter how great, were fully deductible on corporate tax returns.

As a result, the 1993 tax increase denied a corporate tax deduction for pay in excess of $1 million. With the corporate tax rate at 35 percent, the tax increase in effect cost corporations 35 percent more to pay their top executives more than $1 million per year.

However, the legislation applied only to cash wages and exempted performance-based compensation.

The unintended consequence was an explosion in the use of stock options to compensate chief executives, because they did not count against the $1 million limit.

The Clinton administration also aided the trend toward stock options by helping to torpedo a 1994 effort to require that options be deducted from corporate profits.

Another tax problem contributing to stock options abuse is that under current law, options that are indexed have less favorable tax treatment than those that are not.

Many economists believe that non-indexed options in effect reward executives for nothing when the market as a whole is rising.

A preferable approach, economists say, would be to raise the price at which options may be exercised, according to a scale based on the Standard and Poor's 500 index of stocks, or some other index. Unfortunately, current tax law effectively prohibits the use of indexed options.

As a result, companies are forced to use a method almost guaranteed to foster abuse without benefiting shareholders at all.

(Bruce Bartlett is a senior fellow at the National Center for Policy Analysis.)

The Center for Strategic and International Studies

WASHINGTON -- Schroeder won on anti-war, not anti-American sentiment: Now faces Iraq challenge Euro-Focus is a publication put out by the CSIS Europe Program, which provides background analyses on current issues of transatlantic significance. According to the most recent issue, German Chancellor Gerhard Schroeder tapped into a strong anti-war rather than anti-American sentiment among the German people to narrowly secure re-election.

Mending relations with the United States and addressing the various concerns of his European partners will require all of Schroeder's political skill, write Simon Serfaty, director of the CSIS Europe Program, and Christina Balis, fellow with the Europe Program, in Euro-Focus:

"The vision of the new Germany is essentially a denunciation of an instinctively distasteful past. Schroeder's appeal among German voters unveils not so much some disturbing anti-American sentiment as a visceral antiwar attitude within a nation that reinvented itself in opposition to war."

Beyond the immediate aftermath of the German elections, three themes hold special significance in the months ahead, they say:

1) "It's the New Germany, stupid": "Schroeder will not find it too difficult to modify his rhetoric and return to the theme of an enduring friendship with his senior partner across the Atlantic. What the chancellor and his foreign minister may find difficult, however, is to go beyond some perfunctory and rather passive support for the war in Iraq, especially if the latter erupts without a new U.N. resolution. In the context of a NATO-led postwar peacekeeping effort in Iraq, Schroeder would also find a convenient institutional cover that would help him step back from his previous cavalier rhetoric, just as he could reopen

Germany's 'checkbook' for that country's postwar reconstruction under the cloak of a common European Union position."

2) "It's Europe, stupid": "An ill-balanced political constellation in Europe, whereby Germany stands either alone or at the margin of a more cohesive European bloc that includes the three center-right leaders of the Big Five -- France, Italy, and Spain -- plus Britain, may invite greater overtures by Moscow toward Berlin, and vice versa. As the debate over Iraq heats up, a change of Putin's fortunes vis-à-vis Washington, or broader political realignments in Europe vis-à-vis Germany, could spur a cautious reorientation of policies on the part of both European leaders, with significant implications for intra-European relations."

3) "It's the economy, stupid": "Since the Rome Treaties were signed in 1957, the process of European integration has met every sort of conceivable obstacle, except one -- the combination of a failing German economy and an inefficient German state."

CSIS notes that the opinions expressed in Euro-Focus are those of the authors, not of CSIS, which does not take policy positions.

The Acton Institute

(The Acton Institute works to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. Its goal is to help build prosperity and progress on a foundation of religious liberty, economic freedom, and personal moral responsibility.)

GRAND RAPIDS, Mich. -- Educational choice? Not according to Congress

By Clint Green

$84,000. That is what parents can expect to pay, on average, for a their child to attend a private college or university in America for four years. $34,400 is what they can expect to pay at a public college.

Each year that goes by sees an increase in tuition, room, and board, at colleges and universities across America. Parents and students alike work to save money, and later, work to pay off loans in an attempt to counteract the rising costs of higher education.

Fully aware of the rising costs of higher education, the federal government implemented an education savings account plan. Formerly known as Education IRA's, the Coverdell Education Savings Account, or ESA, allowed individuals to contribute up to $500 per year to a tax-free trust that could then be used to pay for the beneficiary's college education. In 2002, as a result of the 2001 tax reform, the total amount that could be contributed annually was increased to $2,000 per year.

But education can cost at other levels as well. Many parents spend upwards of $5000 to send their children to private elementary and secondary schools. They realize the benefits that can be garnered from these schools, and are willing to pay what they must in order for their children to be given the best education. For this reason, the tax reform also revised the rules of the ESA to allow parents to use their ESA to pay for private elementary and secondary school tuition, uniforms, books, and related items.

But, as always, the devil is in the details. According to a Congressional budget rule, the tax cut of 2001 will expire at the end of 2010 unless extended by the Congress. In other words, the rule changes allowing an additional $1,500 per beneficiary, per year, to be invested, and allowing parents to use their ESA to pay for elementary and secondary private schools, will expire at the end of 2010.

Parents whose children attend private schools and who had decided to use Coverdell ESAs will no longer be able to use them to help offset tuition and other educational costs. $500 will again be the maximum allowable contribution per beneficiary, per year. Only a Congressional act could allow the new provisions to become permanent.

That act was defeated in the House of Representatives on Sept. 4. The bill lost by a vote of 213 for and 188 against, since it could not muster the two-thirds majority needed to pass the bill due to a House special procedure.

Charles B. Rangel (D-N.Y.), the ranking member House Ways and Means Committee, led the charge to defeat the bill. Rangel urged his fellow members to defeat the motion by alleging that the ESA revisions were "tax breaks equivalent to vouchers for private schools at the elementary and secondary level."

Congressman Rangel also used the argument that such tax breaks would take money away from public schools. In so doing, the Congressman managed to cover all of his bases: vouchers remain a much debated issue, and the National Education Association, the NEA, and other educational elites demand that no money ever be taken away from public schools.

An old educational adage holds that repetition is the mother of learning. Apparently Congressman Rangel agrees. The arguments he made to prevent the ESA reforms from becoming permanent are the same arguments opponents of parental choice have always made. Vouchers support religious schools and take money away from public schools, Rangel and his allies say.

The Congressman's arguments are as invalid as they ever were. In June, the Supreme Court found that vouchers do not represent a violation of the First Amendment's so-called Establishment Clause, since parents have the choice to use those vouchers at any school they wish. A voucher experiment conducted in Milwaukee demonstrated that, far from taking money away from public schools, vouchers have actually led to an increase in public school funds. According to Milwaukee Public Schools' own financial reports, since 1990 Milwaukee's per pupil spending has increased from $6064 to $9417.

While the Coverdell ESA, as constituted before the recent Congressional decision, represents a step in the right direction, it does not allow parents to use that money immediately. In order to realize the tax benefits of the ESA, parents must allow the money invested to mature, as any investment must after taxes. Thus, while parents may invest taxed income upon which any interest earned would not be subject to taxes, the ESA would do little to help parents with children already in school, and who would like to make use of the ESA as quickly as possible.

A more effective strategy for parents with school-age children would be to allow individuals to invest pre-tax money in ESAs. Parents would then be free to realize the benefits of such accounts at the very time when they most need it. Furthermore, such accounts would trump completely the arguments that the government cannot support religious schools, and that such accounts take money from public schools.

Unlike vouchers, such ESAs would be made up of the pre-tax earnings of parents, and parents would then be able to utilize these ESAs to allow for their children's attendance at the school of their choice. They would not amount to vouchers, since the federal government never received the tax income from the funds invested in ESAs.

Congressman Rangel, like the NEA and other educational elites, is using diversionary arguments against ESAs to distract from the real goal: limiting parental choice and parental control of children's education. This goal undermines parents' God-given task to be primarily responsible for the upbringing (including education) of their children.

Parents are free to delegate aspects of that responsibility, and usually do, but that delegation should be according to the parents' wishes, not in spite of them -- as is often the case with working class families stuck in mediocre school districts. This understanding of the central role of parents in education is founded on the frankly realistic appreciation of the fact that parents -- not politicians or bureaucrats, however well-meaning -- will most often be in a position to assess what is best for their own children.

ESAs, under the present rules, allow parents to begin saving money for their child's educational career from birth. ESAs allowing pre-tax income contributions would give parents even more power to plan and control their children's education and to choose the schools that will provide that education. They would give non-wealthy families the opportunity to secure a first class education for their children, even when that means they must look beyond their local public schools and fund such education themselves.

According to a 2000 poll conducted by the Heritage Foundation, 40 percent of members of the House of Representative who responded send their children to private schools. In the Senate, the number is 49 percent. Former NEA President Bob Chase stated in an October 2000 advertisement "(T)here are ... public schools that middle class parents, including me, would not want their children to attend." Finally, according to 1990 census data, 50 percent of public school teachers living in the central city of Milwaukee send their children to private schools.

The educational elite and the U.S. Congress make use of parental choice and are glad to do so. They just don't want other parents to be able to exercise their parental rights.

George Orwell wrote prophetic words in his novel "Animal Farm": "All animals are equal; but some animals are more equal than others."

When it comes to parental choice in education, it seems that may be true indeed.

(Clint Green is the programs officer at the Acton Institute.)

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