Archive for November, 2010
Education Policy Meets Whac-a-Mole®
K-12 school choice programs based on education tax credits are receiving a lot of attention after last week’s Supreme Court oral arguments in the Winn case. SCOTUS is likely to overturn a lower court ruling in Winn that would have hobbled or killed Arizona’s education tax credit program, and that has some folks consternated.
Among the ranks of the tetchy is Kevin Carey of the Quick and the Ed. Jay Greene responds here, and concludes, in essence, that Carey is inconsistently alternating between two criticisms of tax credits whenever one is whacked with a compelling counterargument. Worth a read.
Cutting Spending to 2008 Levels
Following last week’s electoral victory, the House Republican leadership has been talking up its pre-election pledge to return federal spending to 2008 levels. As I’ve previously discussed, the Republicans are only talking about non-security, discretionary spending. This category of spending represents a relatively small portion of the overall federal budget, and would only shave about $100 billion off of what the president wants to spend.
A better idea would be to cut total spending to 2008 levels. Excluding interest, the president has proposed spending $853 billion more in fiscal 2011 than the government spent in fiscal 2008. The following table shows the increases by department.
As the chart shows, federal spending for the Pentagon alone is set to increase by $126 billion, or more than the amount that the Republican leadership says it wants to cut. Therefore, if the Republicans want to get serious about cutting spending and reining in the growing federal debt, all categories of spending must be on the table.
Apologists for government spending will complain that returning spending levels to 2008 would be draconian. But compare the percentage increases in spending over three years under the president’s proposed budget.
President Obama and the Democrats told the American people that this spending explosion was needed to fix the economy. Unfortunately, it has only succeeded in transferring a tremendous amount of resources from the private sector to the less efficient government. Republicans were elected, in part, to help put the private sector back in the economic driver’s seat. To do so, Republicans need to be much more ambitious than trimming just $100 billion off of the president’s three-year $853 billion spending increase.
VIDEO: Joe Biden’s Weak Case for Government Meddling
Vice President Joe Biden believes that human progress depends almost entirely on government vision and government incentive. Donald J. Boudreaux, Cato Institute adjunct scholar and George Mason University economics professor, details why Biden is wrong both generally and in the specific case he touts:
Produced by Caleb O. Brown. Shot and edited by Evan Banks.
President Obama Fails to Understand Trade
At the beginning of the Obama administration, I had the audacity to hope that the new president would defy conventional wisdom and become a proponent of trade and a good spokesman for its benefits. Scott Lincicome and I even wrote a 20,000-plus word Cato analysis explaining why the economic, geopolitical, and domestic political environment offered the president a unique opportunity to steer his party back to its pro-trade roots.
The thrust of our analysis was that, despite the campaign rhetoric, the president understood the economic benefits of trade and that he would see it as an escape route from recession and a path to political success; that the president’s visibility and new cache with his trade-skeptical political party—and the fact that he wasn’t George W. Bush—made him well-suited to the task of challenging and extinguishing lingering myths about the alleged ravages of trade, while explaining its many benefits; and, that the president would recognize that pro-trade policies should be part of the current Democratic Party platform, if for no other reason than the fact that restrictions governments place on trade harm lower-income Americans and the world’s poor more than they hurt anyone else. (Protectionism is regressive taxation, which is presumably anathema to Democratic Party creed.)
Alas, our study, “Audaciously Hopeful: How President Obama Can Restore the Pro-Trade Consensus,” was just a little too. It fell on deaf ears. It was ignored. In fact, it’s almost as if the past two years of trade policy were conducted to spite the recommendations in that paper.
From this administration, we’ve seen completed bilateral trade agreements sent to an off-site storage warehouse; the imposition of taxes on imported tires; “Buy American” provisions; prohibitions on Mexican trucks; demonization by the president of companies that outsource; defiance of multilateral rules governing use of the antidumping law; and, a “Boardwalk Empire”-style deal to prospectively compensate Brazilian farmers for the lower revenues they should expect on account of the lavish subsidies bestowed by U.S. taxpayers on U.S. cotton producers in lieu of reducing—or better still, halting—cotton subsidies altogether. Yes, the hallmark accomplishment of this administration’s trade policy so far is a deal that requires American taxpayers to subsidize Brazilian cotton producers for the right to continue subsidizing U.S. cotton producers.
Despite all that, I remained audacious (or gullible) enough to hold a glimmer of hope that the president would finally see the wisdom in our advice—given the new political landscape. That glimmer was snuffed out with publication of an oped in the New York Times this past Saturday, in which President Obama betrays profound misunderstanding of trade and its purpose. The president portrays trade as an enterprise that is won or lost at the negotiating table, where only the most savvy or most committed negotiators can succeed in bringing home the spoils. The president promises to fight hard to get Americans their fair shake from this dog-eat-dog process, while actual producers, consumers, workers, and investors are relegated to tertiary roles.
The central dysfunction between Americans and trade is the assumption—reinforced in the president’s op-ed—that exports are good, imports are bad, the trade account is the scoreboard, and our trade deficit means that we are losing at trade. That dysfunction resides comfortably within a zero-sum worldview, which the president touts in a purposeful cadence throughout the oped. In the penultimate sentence, the president writes:
Finally, at the Asia-Pacific Economic Cooperation meeting in Japan, I will continue seeking new markets in Asia for American exports. We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we’re not ceding markets, exports and the jobs they support to other nations.
By opining about trade without understanding that its real benefits are manifest in imports (here’s Don Boudreax’s elaboration of that process), the president is simply reinforcing myths that will continue to confuse and divide American. As long as politicians insist that our trade account is a scoreboard and that a surplus is a trade policy success metric, Americans will continue to be skeptical about trade.
ObamaCare = A Bailout for Private Insurance Companies
This Reuters headline says it all: “Cigna CEO: Don’t repeal U.S. health law.”
Tax Cuts vs. Government Checks . . . NRO Conclusion and Correction
VerBruggen signs off on the tax cut/government check debate by doubling down on the core issue; he believes that there is no meaningful difference between government spending and a tax cut. I will quote him in full: “If some libertarians want to keep insisting that there’s a meaningful difference between (A) the government spending $500 on something and (B) a person “donating” $500 to that thing and then getting a $500 break on his taxes in return, there’s nothing I can do to stop them.”
In this, he has the company of the 9th Circuit and the Progressive wing of SCOTUS.
VerBruggen has also rightly asked for a correction to one of the numerous quotes I pulled from his blog posts on tax cuts vs government spending. I thank him sincerely for reading through to the end of my interminable post. The correct quote is below, with the omitted, qualifying language in italics, a new note on charitable giving and government spending, and my otherwise unchanged commentary:
He insists that “much (most?) deducted charity spending does not offset government spending in the slightest,” yet also agrees that “voucherizing the tax subsidies for charity would remove the incentive to donate” to the range of charitable and social welfare activities the government supports. [Note: There is much evidence that government spending on "charity" crowds out charitable giving. And most, not to mention much, charitable giving in the U.S. is devoted to health, educational, social welfare and religious organizations which in turn focus on assistance to the poor, health and educational activities. Needless to say, the government is deeply involved in health, education and welfare spending. See the index of Arthur Brooks' fascinating book, Who Really Cares, for more details.]
Charity does not reduce pressure on the welfare state? The billions of dollars donated to health, education, welfare . . . these offset nothing in the public sector? In the absence of tax expenditures for employer-provided health care, how likely is it that the U.S. would have retained a relatively robust private medical market?
The charitable deduction allows the people who earned the money our governments spend on public “charity” to keep some portion of what the government would otherwise have spent on government “charity” or some other wasteful project.
If VerBruggen is concerned that the tax burden will marginally increase on some citizen as the result of another’s charitable deduction then the answer is to balance that lost revenue with a reduction in government “charity,” not to eliminate the deduction.
Perhaps most concerning is VerBruggen’s breezy assumption that all income belongs to the government. He insists that “taxpayer money is already allocated” in the form of deductions for charity, and therefore that “voucherizing the total amount of the deductions wouldn’t change that . . .”
Really? Tax credits and deductions belong to the taxpayer who earned them. They are not government funds; that is a legal and logical statement. To insist otherwise is to argue that all income is the governments, and what it does not claim is ours. The money that a taxpayer spends is HIS money, not the government’s.
And, as is noted above, voucherizing charitable deductions will convert a huge portion into direct welfare payments and eliminate the core of the charitable act; giving away one’s own money.
All of Your Money Belongs to the State . . . NRO Edition!
I have to say, I never thought I’d read a blogger on NRO endorse the notion that all of the money you earn belongs to the state. I certainly never thought that read it twice in a year. But here we are, again . . . and I feel compelled to engage in an excruciating debate with Robert VerBruggen of Phi Beta Con.
Question: Is there any substantive difference between the government cutting you a check or cutting your taxes?
VerBruggen agrees with the Progressives on the Supreme Court: Nope, all your money is the goverment’s!
But his odd insistence that government checks and tax cuts are the same began months ago, when he expounded more extensively if not coherently on this same subject.
I attempted to illustrate where he had gone wrong in his thinking by taking his positions to an extreme. To my surprise, VerBruggen agreed with my modest proposal to eliminate all charitable tax deductions and credits and capitulate comprehensively to the welfare state
WaPo’s Fiscal Truths
A Washington Post editorial today discusses the National Academy of Sciences “Fiscal Future” study. The NAS report modeled four possible tax and spending paths for the nation over the next 70 years. I was one of the NAS report’s co-authors.
The Post focuses on the “low spending and revenue” path, which would keep federal revenues below about 19 percent GDP and keep spending below about 21 percent of GDP. The Post argues that both tax hikes and spending cuts will be needed to fix the government’s budget problem because the “pain and sacrifice” would be too large if we just cut spending, as under this “low” path. But the Post’s conclusion is based on faulty one-sided accounting, only considering the recipients of government largesse.
The reality is that every dollar the government spends imposes ”pain and sacrifice” on current or future taxpayers. Thus, spending cuts may impose temporary pain on people whose benefits are withdrawn, but they create equal or greater pain on the taxpayers who foot the bill. Indeed, standard economic theory suggests that the economy gets a “free lunch” when spending and taxes are reduced in tandem because the deadweight losses caused by government coercive actions are reduced.
Note that I say “temporary” pain because to a substantial degree, benefit recipients will adjust their lives as subsidies are withdrawn, and most people will prosper without government help, as we saw following welfare reform in 1996. Misguided government spending programs–like welfare–cause damage to society and the economy, so that reducing spending doesn’t increase pain, it ultimately reduces it. Consider how government housing subsidies ended up causing widespread damage, including for many people who initially benefited. For a guide to damaging federal programs, see www.downsizinggovernment.org.
The Post is right that the NAS study’s “low spending” path would require “broad areas” of federal spending to be cut, such as K-12 school subsidies and other state aid programs. But that would be a good thing for citizens, the economy, and for responsible government. Federal spending on properly state and local activities has been a giant failure, and it should be ended whether or not there is a budget deficit.
The Post is on sounder footing with its observation that many Republicans do not seem to grasp the magnitude of spending reforms that are needed in the years ahead. The GOP does need to “get specific” and push for particular cuts. Let’s have national debates on federal involvement in K-12 schools, raising the Social Security retirement age, and cutting the corporate welfare programs mentioned by the Post. Let’s start that “adult conversation” right now, because as the NAS report warns, the longer we wait, the more the federal debt monster grows.
For the record, the NAS report did not endorse tax hikes or any other particular fiscal solution. It simply provided four possible combos of future tax and spending levels as starting points for discussion. It also usefully described how to overhaul the income tax and replace it with a much simpler and flatter tax system, as I’ve described here.
Sunlight Before Signing Updated—With a Graph!
As a campaigner, President Obama promised that bills sent him by Congress would be posted online for five days before he would sign them. It’s a simple, measurable transparency promise that we have followed on this blog.
With attention beginning to turn to the 2012 presidential election (believe it or not!), President Obama’s fealty to campaign promises will become a focus. So here’s an update on his Sunlight Before Signing promise.
First, a brief summary table. Congress has presented President Obama 283 bills, 124 in 2009 and 159 in 2010. He posted six online for the requisite number of days in 2009, and 103 in 2010. (One emergency bill did not require posting. It’s non-posting is consistent with the president’s promise so we treat it as “compliant” in summary materials.)
| Number of Bills | Emergency Bills | Bills Posted Five Days | |
|---|---|---|---|
| 2009 | 124 | 0 | 6 |
| 2010 | 159 | 1 | 103 |
| Overall | 283 | 1 | 109 |
The graph below illustrates well that the administration has improved on the, frankly, lousy start it got with Sunlight Before Signing. In the month of May, every bill was posted on Whitehouse.gov for five days before the president signed it.
There remains a residuum of bills that don’t seem to get Sunlight Before Signing, and those may be the ones where political expedience takes precedence over the president’s campaign promise to his voters. But the White House is clearly positioned to fulfill this promise completely in the second half of the president’s term.
The chart below (that is, after the break) exhibits the same data—Sunlight Before Signing compliance by month—with percentages of non-compliance and compliance. After that, you’ll find a table of every bill the president has signed and its treatment in terms of sunlight.
There will be a short spate of bills during the lame duck session. The next report in late December will capture the entire first half of the president’s term, setting the stage for reporting on the White House’s 100% success rate in 2011 and 2012.
Full compliance will give the press and public a way to know exactly what hits the president’s desk, and an opportunity to make a habit of reviewing Congress’ work before bills become laws.
This Month at Cato Unbound
This month at Cato Unbound we’re debating campaign finance regulation, with a panel of notable contributors and a big, new idea.
That idea is semi-disclosure, in which information about campaign funding is collected and disseminated, but, much like the census, personal names and addresses aren’t attached. Political scientist Bruce Cain suggests semi-disclosure might break the impasse between privacy and the right to know. Others? Well… you’ll just have to wait and see. Joining us will be Nikki Willoughby of Common Cause, election law scholar Richard Hasen of Loyola Law School, and the Cato Institute’s own John Samples. Discussion will run through the rest of the month on this vital issue to our nation’s democracy.
Debunking White House Pro-Tax Increase Propaganda
The White House recently released a video, narrated by Austan Goolsbee of the Council of Economic Advisers, asserting that higher tax rates on the so-called rich would be a good idea.
Since Goolsbee’s video made so many unsubstantiated assertions and was guilty of so many sins of omission, here’s a rebuttal video, narrated by yours truly.
This new Center for Freedom and Prosperity video includes the full footage of the White House production, so viewers can decide for themselves which side is correct.
Should Legislatures, Commissions, and Such Figure Out Privacy Problems?
The recent European Commission proposal to create a radical and likely near impossible-to-implement “right to be forgotten” provides an opportunity to do some thinking about how privacy norms should be established.
In 1961, Italian liberal philosopher and lawyer Bruno Leoni published Freedom and the Law, an excellent, if dense, rumination on law and legislation, which, as he emphasized, are quite different things.
Legislation appears today to be a quick, rational, and far-reaching remedy against every kind of evil or inconvenience, as compared with, say, judicial decisions, the settlement of disputes by private arbiters, conventions, customs, and similar kinds of spontaneous adjustments on the part of individuals. A fact that almost always goes unnoticed is that a remedy by way of legislation may be too quick to be efficacious, too unpredictably far-reaching to be wholly beneficial, and too directly connected with the contingent views and interests of a handful of people (the legislators), whoever they may be, to be, in fact, a remedy for all concerned. Even when all this is noticed, the criticism is usually directed against particular statutes rather than against legislation as such, and a new remedy is always looked for in “better” statutes instead of in something altogether different from legislation. (page 7, 1991 Liberty Fund edition)
The new Commission proposal is an example. Apparently the EU’s 1995 Data Protection Directive didn’t do it.
Rather than some central authority, it is in vernacular practice that we should discover the appropriate “common” law, emphasizes Leoni.
“[A] legal system centered on legislation resembles . . . a centralized economy in which all the relevant decisions are made by a handful of directors, whose knowledge of the whole situation is fatally limited and whose respect, if any, for the people’s wishes is subject to that limitation. No solemn titles, no pompous ceremonies, no enthusiasm on the part of the applauding masses can conceal the crude fact that both the legislators and the directors of a centralized economy are only particular individuals like you and me, ignorant of 99 percent of what is going on around them as far as the real transactions, agreements, attitudes, feelings, and convictions of people are concerned. (page 22-23, emphasis removed)
The proposed “right to be forgotten” is a soaring flight of fancy, produced by detached intellects who lack the knowledge to devise appropriate privacy norms. If it were to move forward as is, it would cripple Europe’s information economy while hamstringing international data flows. More importantly, it would deny European consumers the benefits of a modernizing economy by giving them more privacy than they probably want.
I say “probably” because I don’t know what European consumers want. I only know how to learn what they want—and that is not by observing the dictates of the people who occupy Europe’s many government bureaucracies.
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