Archive for November, 2010
Demonstrating the Cheap-shot Defense
When I first started arguing that now is the time to press the case for eliminating the U.S. Department of Education, I noted that the biggest obstacle to scaling down fed ed has long been the cheap-shot smearing of would-be downsizers. Today, I want to thank Kevin Carey, Policy Director at the think tank Education Sector, for brilliantly illustrating that very unsightly strategy.
Writing on Education Sector’s blog yesterday, Carey ripped into a post I put up that morning, a post that primarily linked to a call to abolish ED from a left-leaning educator. Carey’s rejoinder: Basically, Cato hates public education, and there’s a whole lotta crazy goin’ on:
The Cato Institute is dedicated to creating ”a future where government-run schools give way to a dynamic, independent system of schools competing to meet the needs of American children,” i.e. destroying public education as we know it. As such, Cato wants to abolish the U.S. Department of Education. This fringe notion was first advanced by Ronald Reagan, until A Nation at Risk was published and the Great Communicator abruptly made an about-face and became very interested in an expanded federal role in K-12 policy as way to appeal to moderate voters in the 1984 election. The idea come up again a decade later during the brief rise of Gingrichism before fading into deserved obscurity for the next 15 years.
Then Tea Party candidates like Sharron Angle revived the kill Education platform, based on a general antipathy toward the federal government combined with not knowing anything about education….
So now reporters are calling me all the time asking me whether to take this stuff seriously. The answer is: No. Do not take it seriously. Nobody is shutting down the U.S. Department of Education. If one thing is sure in this life, one certainty that can be clung to like a rock in a storm, it’s that Congressional Republicans don’t actually want to shrink the size of the federal government, reduce the deficit, or cut federal programs in any meaningful way, particularly programs that enjoy broad public support as education programs do.
That plain fact, however, hasn’t prevented Cato’s education analysts from excitedly suggesting that the Department of Education abolition movement is on the rise. Few have joined their cause, because few people want to destroy public education as we know it. However, today Cato’s Neal McCluskey identified an ally in the reactionary anti-reform left….
[Long quote from my post]
Tea Party Not Keen on RomneyCare
The following exchange took place yesterday on the Christian Broadcasting Network between host David Brody and Tea Party Express Chairwoman Amy Kremer.
Brody: Mitt Romney…on the Massachusetts health care situation, you’re going to tell me that’s going to fly in the Tea Party movement?
Kremer: Absolutely not…I’m being honest here…You can’t get away from that. And that’s the thing is, the days of people being able to do one thing in their state in front of a microphone, and then going to Washington and doing something else. I mean, the Internet, and 24-hour news cycles changed it all, and these people don’t have short memories, they’re digging up everything from the past, and they’re not going to let go of the health care.
Hmm. I wonder why…
Video of the CBN exchange is available here. For more on RomneyCare, read “The Massachusetts Health Plan: Much Pain, Little Gain.”
Filed under: Cato Publications; General; Government and Politics; Health Care
Republican Hypocrisy Watch
Last week I urged readers to be on the lookout for Republicans seeking to exclude farm subsidies from any cuts they plan to make to federal spending. And it seems the first example of “smaller government for thee, but not for me” has been provided by incoming congresswoman Vicki Hartzler, who campaigned on a Tea Party-ish platform and defeated long-time congressman Ike Skelton (in Missouri’s 4th congressional district).
Ms. Hartzler calls Margaret Thatcher her role model because she “took principled stands.” (As, indeed, she often did.) Ms. Hartzler also says economic issues — cutting government spending, complete repeal of the health care bill — are her main concern. But read the fine-print in this article from the St. Louis Beacon:
Hartzler says cutting spending is a top personal priority; she wants to roll back non-discretionary funding levels to 2008 levels, before the economic stimulus and TARP programs. …
The congresswoman-elect would exempt some of the federal budget’s high-cost categories — including Social Security, Medicare and the Pentagon budget — from cutbacks. But she would not exempt agricultural subsidies,* another major area of federal spending popular in rural areas such as west-central Missouri’s Fourth District. Among the many farms to receive such subsidies is the 1,700-acre Hartzler farm, which — according to the Environmental Working Group’s “Farm Subsidy Database” — received about $774,000 in federal payments (mainly commodity subsidies for corn, soybeans and wheat) from 1995 through 2009.
“Everything should be on the table,” she says. While she says some agriculture programs represent a “national defense issue” because they help guarantee that “we have a safety net to make sure we have food security in our country,” Hartzler adds: “Should we continue the CRP [Conservation Reserve] program, where you pay farmers to not plant ground and set it aside for awhile? I’m not sure. The time for that may be over.” [emphasis added]
Let’s be clear about what Ms. Hartzler is talking about here. Those “some” agricultural programs she says should be guaranteed on “national defense” grounds (see below) are what we commonly think about as “farm subsidies” — payments to farmers to produce certain commodities, whether those payments are funded by taxpayers or consumers. They encourage overproduction and thus alienate our trade partners, complicate efforts to make global trade freer, harm poor farmers abroad and damage America’s reputation in the process. They cost us billions of dollars a year.
She is, on the other hand, open to cutting farm programs that at least pretend to have environmental benefits. I’m not commenting here on the validity of those sorts of ”public goods” claims, and of course I am not conceding that the federal government should be involved in them. But I think most reasonable people would agree that they are less economically damaging than traditional farm subsidies. In other words, in the hierarchy of damage, and therefore in the hierarchy of what should be cut first, I would put farm subsidies ahead of the CRP. And I fail, in any event, to see how anyone calling themselves a fiscal conservative can promote the idea of excluding a priori that which we commonly think of as “farm subsidies.”
[Also, can we please abandon once and for all this nonsense idea that we need farm subsidies to have food security? Appeals to "national defense" are disingenuous and cynical. They are also belied (rather obviously) by the fact that we see abundant supplies of fruit, vegetables and other horticultural goods even though those products attract no subsidies directly. The best way to ensure a food security is to ensure open markets, so food can flow from where it is abundant to where it is scarce. Self-sufficiency is a misguided policy, as the experience of North Korea can attest.]
So, in summary, when Ms. Hartzler says “everything should be on the table”, she basically means “not much, and certainly nothing that might harm powerful special interests that I care about.” I lost count of the number of Republican politicians being interviewed during the campaign and on election night talking about the need for “across-the-board cuts to discretionary spending” as their fiscal plan. Most if not all of them emphasized that so-called mandatory spending (which includes some farm subsidies) would be exempt from their cuts. I’m sorry, but I cannot take seriously the “fiscal conservative” credentials of any politician who adopts such a line.
*It appears, judging from the quote below, that she would indeed exempt farm subsidies from cuts, even if other farm programs would be on the chopping block. I’m going to assume here the reporter was using the term “farm subsidies” in an imprecise manner.
Debt Commission Reform Proposals – What Are Their Chances?
It’s kudos to President Obama’s Debt Commission co-chairs for clearly outlining the gargantuan size of the fiscal problem facing the United States. The reforms will re-direct the exploding debt trajectory downward by reforming taxes and cutting spending – reminiscent of recent fiscal reforms in the United Kingdom. Unfortunately, history is likely to repeat itself: Even if they are enacted soon — which seems unlikely — chances are bleak that we’ll stick with them for long enough to achieve their stated goals.
The Debt Commission co-chairs have done a stellar job in framing the nation’s fiscal challenge and placing it squarely before the American public. The contrast between the current trajectory that increases the national debt beyond 80 percent of GDP by 2040 and one of declining debt under their reforms likely to be consistent with long-term economic growth because the Commission also proposes limiting government spending to 21 percent of GDP — is striking.
The Commission has marked wide-ranging reforms — to broaden the federal tax base, reduce income tax rates and simplify the tax system; cut discretionary expenditures that are unaffordable and antiquated in all spheres; reduce long-term health care cost growth, and restore Social Security to financial solvency through a combination of benefit cuts and revenue measures.
It’s sad but true that the political barriers stacked up against this promising approach appear to be insurmountable. Given the make-up of Congress and with Obama as President, the chance that something even remotely resembling the Commission’s proposals would be enacted is negligibly small. With the Democratic majority in the Senate, President Obama is unlikely to even have to use his veto.
But what if my conjecture is proved incorrect and a roughly similar set of reforms is enacted in 2011? Remember that our fiscal problem is of a long-term nature. It is produced by an aging population; rapid health care cost growth; slower revenues from a flagging economy as a large cohort of experienced workers retires; slowing education and skill acquisition by younger workers; and slower capital formation as more resources are consumed by an aging population. The commission’s reforms have to be enacted and maintained for at least 30 years to deliver its “target” debt-to-GDP ratio of 40 percent. History tells us that such an outcome is quite unlikely. For example, the Budget Enforcement Act of 1990 — that helped President Clinton accumulate his now much touted laurel as a fiscal conservative — was maintained for just 12 years — until Congressional Budget Office projections revealed “budget surpluses as far as the eye could see” in 2002. With those projections in hand, lawmakers raced to the exits: the BEA was abandoned and federal spending shot through the roof. Even as conservative a policy maven as Alan Greenspan shone a green light to adopt budget busting tax cuts.
To improve the chances that history does not repeat itself, the commission’s proposals need to be combined with proposals to reform the budget process. The first thing to consider on that score is to use better budget measures to assess if reforms are achieving their goals. Stating those goals in terms of the national debt and annual cash flow deficits is unlikely to work – just as those measures have not worked for the European Union in the context of their now defunct Stability and Growth Pact.
Federal debt and the current budget deficit that is reported on the government’s books is the result of past policies and outcomes. They summarize where we came from, not where we’re going. If the commission’s reforms are enacted, a better method would be to anchor judgment about their success on the size of prospective debt—the value in today’s dollars of all future deficits that the federal government would incur under the new policies; alternatively under premature abandonment of those policies – as happened in 2002 when the BEA was abandoned. It is also important to know whether the sacrifices that the commission’s policies require from today’s generations are fairly distributed and are being invested for the future rather than being dissipated. For example, will the Social Security surpluses that the reforms generate be effectively saved and invested, or would they promote additional government spending as in the past? Without a budget process that delivers real investments for the future, and without metrics to measure their operation properly, chances are that even if Congress and the President enact them into law next year, the reforms will be abandoned too soon.
Destroying Evidence = American Hero
That’s what the attorney for former CIA officer Jose Rodriguez is saying about his client. Rodriguez and other CIA personnel destroyed videotapes of detainee interrogations. The Justice Department announced that Rodriguez will not face criminal charges, but did not elaborate on the reasoning behind the decision.
Rodriguez’s decision to get rid of the tapes came after White House lawyers, responding to a court order, instructed the CIA not to destroy any evidence associated with detainee interrogations.
I know that the term “slippery slope” is overused, but it’s clearly evident here. Thwart the rule of law by declaring torture legal, thwart it again to cover up your actions.
More Net Neutrality Violations That Aren’t
I see ACLU’s Jay Stanley has penned a reply to my post from a couple weeks back on the civil liberties group’s report arguing for the urgency of net neutrality regulation. The main thrust of my post was that many of the examples advanced to show there’s an imminent threat to the open Internet, requiring regulatory action on the double, don’t really show anything of the sort. Stanley allows that some of their examples are “not violations of Internet network neutrality in the strictest sense” but that they “speak to the motives, intent, and trustworthiness of major telecommunications firms in treating the speech of their customers fairly.” But I’m not sure they really show that either. In fact, if I can be forgiven a little digression, two more egregious corporate offenses against net neutrality that turn out not to be.
First, one I’d missed from the ACLU report: Vague terms of service agreements. Apparently, AT&T’s terms of service had a list of grounds for suspension of service that ended with the rather nebulous provision bolded below:
AT&T may immediately terminate or suspend all or a portion of your Service, any Member ID, electronic mail address, IP address, Universal Resource Locator or domain name used by you, without notice, for conduct that AT&T believes (a) violates the Acceptable Use Policy; (b) constitutes a violation of any law, regulation or tariff (including, without limitation, copyright and intellectual property laws) or a violation of these TOS, or any applicable policies or guidelines, or (c) tends to damage the name or reputation of AT&T, or its parents, affiliates and subsidiaries.
Based on the company’s explanation, it sounds like they intended this as a sort of catch-all for behavior that wasn’t covered by their policy or the law, but was sufficiently clearly abusive to damage the reputation of a provider who allowed it. But you can certainly understand why people read it as reserving the right to disconnect people who criticize the company, and in any event, it does seem way too vague: Who wants to risk losing their service based on such ill-defined criteria? Significantly, though, I don’t see anybody claiming that AT&T or Verizon (which had similar language) ever actually did suspend a user’s account for this reason. It appears to have been one more overbroad bit of legal boilerplate drafted by a lawyer paid to shield the company from liability in as many contingencies as possible, and promptly changed when users complained. More importantly, and at the risk of stating the obvious, this isn’t really a question of network architecture. Such a broad provision could surely be enforced in a way that was contrary to the spirit of the open Internet, but it’s ultimately a provision about how AT&T treats its customers, not about how routers treat packets. Many things might be wrong with it, but violating the end-to-end principle embodied in the TCP/IP protocol isn’t one of them. Indeed, there’s nothing really Internet specific about this at all: An offline business could attempt to refuse service to people who publicly criticize the company in the newspapers. Mercifully, such behavior seems rare, but if you’re worried about the potential for a certain class of abusive contracts aimed at squelching speech isn’t that where the remedy should aim?
There Ain’t No Such Thing as a Tax Expenditure
The co-chairs of President Obama’s Fiscal Commission propose to eliminate several tax loopholes while reducing marginal rates. Hear, hear. But they describe those loopholes as “backdoor spending in the tax code.” It is incorrect and dangerous to equate tax loopholes with government spending.
The tax code’s countless credits, deductions, and exclusions let people keep a portion of their earnings, provided they use the money how the government wants them to use it. Tax loopholes therefore have a lot in common with government spending: they give power to politicians, inhibit freedom, reduce economic output, unjustly enrich special-interest groups, et cetera.
But to call them “tax expenditures” or “tax subsidies” or ”backdoor spending in the tax code” is to claim that when the government fails to take a dollar from you, it is spending that dollar. It implies that your dollar actually belongs to the government, which is graciously letting you keep it. And it implies that eliminating a tax loophole is not a tax increase, because that dollar already belonged to the government anyway. The government has simply decided to spend its money somewhere else.
When you hear a politician use the terms tax expenditure, tax subsidy, or backdoor spending in the tax code, beware. He’s about to raise your taxes.
Saving Hayek from the People Who Think They’re Saving Hayek
I’ve been noticing a game lately played in the bookish corners of the left side of American politics. We’ll call it “We Know Hayek Better Than You.” It’s a game not without some attendant dangers. But it’s nothing if not fun.
Writing at Ezra Klein’s spot in the Washington Post, Karl Smith quotes Friedrich Hayek as follows:
That the ideal of justice of most socialists would be satisfied if merely private income from property were abolished and the differences between the earned incomes of different people remained what they are now, is true. What these people forget is that in transferring all property in the means of production to the state they put the state in a position whereby its action must in effect decide all other incomes.
He glosses:
That is, as Hayek goes on to explain, there is nothing fundamentally wrong with communal ownership of the means of production. The mistake is to think that the government could facilitate such ownership because then the government is effectively a monopolist and that would give the government almost unlimited power.
The idea that in principle it would be okay to completely redistribute all capital wealth is far to the left of anything proposed in modern America.
I hate to say it, but this is quite the dog’s breakfast of confusion, misinterpretation, and strained reading. One ought to be suspicious when your author writes an entire book entitled The Mirage of Social Justice. Perhaps he’s not really too enthused about social justice, you know.
Although it’s probably true that most socialists‘ idea of justice would be satisfied if income from private property were abolished, it does not follow that this was Hayek’s idea of justice. Hayek didn’t think it was “okay” to collectivize the entire means of production, whether by the state or by private action.
The ability to accumulate capital and to believe that one held it justly was, for Hayek, a most important incentive for the formation of responsible individuals. If the means of production were collectivized, individual character would suffer, and society would suffer with it. He wrote:
A free society will not function or maintain itself unless its members regard it as right that each individual occupy the position that results from his action and accept it as due to his own action. Though it can offer to the individual only chances and though the outcome of his efforts will depend on innumerable accidents, it forcefully directs his attention to those circumstances that he can control as if they were the only ones that mattered (The Constitution of Liberty, Chicago: University of Chicago Press, 1978, p. 78).
The sense of responsibility has been weakened in modern times as much by overextending the range of an individual’s responsibilities as by exculpating him from the actual consequences of his actions… To be effective, responsibility must be both definite and limited, adapted both emotionally and intellectually to human capacities. It is quite as destructive of any sense of responsibility to be taught that one is responsible for everything as to be taught that one cannot be held responsible for anything…
Responsibility, to be effective, must be individual responsibility. In a free society there cannot be any collective responsibility of the members of a group as such, unless they have, by concerted action, all made themselves individually and severally responsible… If the same concerns are made the responsibility of many without at the same time imposing a duty of joint and agreed action, the result is usually that nobody really accepts responsibility. As everybody’s property in effect is nobody’s property, so everybody’s responsibility is nobody’s responsibility (ibid., p 83).
So no, Hayek wouldn’t have thought it was a good idea to collectivize the means of production. There are some interesting theoretical questions hereabouts regarding corporations, their appropriate size, responsibilities, and attendant knowledge problems, but I suspect that my friends on the left aren’t actually pining for one megacorporation to rule them all. (Are they? I know it can be tough to keep up, but really, this is too much. Even I don’t support that.)
Hayek tells us we have private property and private capital because it does good things to the individual character. While there will be accidents, and while life is sometimes truly unfair, the best course of action is nonetheless for everyone to work as though their efforts actually mattered. And the best way to ensure that they will do so is to allow their efforts, whenever possible, to matter.
And when individual initiative has failed, what did Hayek want then? He wanted a modest system of social insurance — with emphasis on the modesty. After that, he wanted very stern incentives for people to get back up on their feet and leave that system.
One incentive that he considered at least reasonable was to forbid welfare recipients (and government workers!) from voting — an idea far to the right of anything now being considered in America. But not a bad idea in the abstract. He wrote:
It is also possible for reasonable people to argue that the ideals of democracy would be better served if, say, all the servants of government or all recipients of public charity were excluded from the vote (ibid., 105).
I look forward to my friends on the left continuing to deepen their knowledge of Hayek, and maybe entertaining this modest proposal. Were it not for my overwhelming concerns about how our current welfare system entraps its recipients, I might even support it myself.
Obama’s Fiscal Commission and Health Care Spending
Following up on what Dan and Chris have said …
If the co-chairs of President Obama’s fiscal commission were serious about reducing federal spending and deficits, they would have proposed eliminating the federal deficit, rather than “reduc[ing] it to 2.2 percent of GDP by 2015.” Yawn. They would have proposed cutting federal spending (currently, 24 percent of GDP and rising) to match federal tax revenue (currently at 15 percent of GDP). But the co-chairs proposed only to “bring spending down to 22 percent and eventually 21 percent of GDP.” Not only does that elicit another yawn, but since the co-chairs only asked for half a loaf, they won’t even get that much.
If the co-chairs were serious about reducing federal spending and deficits, they would have proposed a balanced-budget amendment. They would have proposed block-granting Medicaid. They would have proposed implementing Medicare vouchers immediately. (Vouchers are the only way to reduce Medicare spending while protecting seniors from government rationing. They would also change the political dynamics that repeatedly stymie efforts to reduce Medicare spending.) Instead, the co-chairs propose the same ol’ failed strategy of trying to limit Medicare and Medicaid spending using government price-and-exchange controls, which they euphemistically describe as “rebates” and ”payment reforms.” Along the same lines, they propose strengthening IPAB, ObamaCare‘s rationing board. IPAB’s mandate is — you guessed it — to ration care by fiddling with Medicare and Medicaid’s price and exchange controls. It will therefore inevitably fall prey to the same political buzzsaw. To appease Republicans, the co-chairs propose unwise and unconstitutional federal rules that would prevent patients injured by negligent physicians from recovering the full amount they are due (euphemism: medical malpractice liability “reform”). Finally, the co-chairs propose that if federal health spending continues to grow faster than GDP growth plus 1 percent, Congress should consider “a premium support system for Medicare” (which could mean vouchers) and “a robust public option and/or all-payer system” for people under age 65 — a debate that wouldn’t even begin until 2020.
Fiscal Commission members, congresscritters, and citizens who are serious about reducing federal spending and deficits — and who are looking for specific ways to cut government spending — should instead consult Cato’s excellent web site DownsizingGovernment.org.
Obama’s Fiscal Commission: The Good and Bad
The co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform released a draft report yesterday on how to reduce federal budget deficits.
Despite the liberal savaging the report is taking as some sort of conservative plot, its proposals are really center-left in orientation. That said, there is some good stuff in the report, which will be useful for incoming Republicans looking to tackle the budget mess.
Good Ideas and Positive Directions
The report provides a menu of possible spending cuts for incoming Republican members of Congress to consider, particularly Tea Party members, who proposed to cut the budget during their campaigns.
The report proposes to reduce spending from 25 percent of GDP currently to 21 percent over the long run. That’s a good start, but we need to pursue deeper cuts, as discussed on www.downsizinggovernment.org. After all, federal spending was just 18 percent of GDP in President Clinton’s last two years in office.
I like that the report suggests a broad array of budget cuts, including defense, nondefense, and entitlement programs. Everything needs to be cut, including programs traditionally defended by both liberals and conservatives.
The report proposes to cut $200 billion from discretionary spending by 2015 from Obama’s proposed spending that year of $1,309 billion. That’s a 15 percent cut. However, the word “cut” needs to be qualified because discretionary outlays were $1,041 billion in the pre-stimulus year of 2007, and they were just $615 billion in the pre-Bush year of 2000.
The report recommends an array of Medicare and Social Security cuts. That’s great, but the report doesn’t include the fundamental structural reforms—such as Social Security individual accounts and Medicare vouchers—that are needed to reduce costs and provide benefits to the broader economy, such as boosting savings and improving health care quality.
The direction of the proposed tax reforms is positive. The co-chairs propose to reduce or repeal narrow deductions and other special tax benefits, while reducing marginal tax rates. The idea to treat capital gains and dividends as ordinary income, however, reveals a faulty understanding of the proper tax treatment of capital.
The report proposes to cut the corporate tax rate from 35 percent to 26 percent, while moving to territorial treatment for foreign investment. It suggests making “America the best place to start and run a business and create jobs.” That’s a laudable goal, but to fulfill it we need to bring the rate down to, say, 15 percent.
The report’s goal of reducing the damaging buildup of federal debt is laudable. Government overspending is the nation’s primary fiscal problem, but spending financed by debt creates an array of problems that are additionally troubling.
Bad Ideas and Shortcomings
The report proposes to raise taxes by $1 trillion over the next decade. But the federal budget crisis is caused by overspending not undertaxing. The election results showed that most Americans understand that, but the message hasn’t penetrated the beltway yet.
The report’s discretionary spending cuts are timid. For example, farm subsidies are cut by just $3 billion, just a fraction of their annual cost of about $20 billion. Farm prices and farm incomes are at high levels these days, so now would be a good time to repeal farm subsidies completely.
The report characterizes tax deductions and exemptions as “spending in the tax code.” That is becoming common parlance in Washington, but it is incorrect. Yes, the mortgage interest deduction and other narrow benefits distort the economy and ought to be abolished, but they also reduce the flow of revenues to Washington, which is a good thing.
The report makes faulty and naïve arguments often heard from centrists about government “investments.” While we need to cut spending, we also need to “invest in education, infrastructure, and high-value R&D” the report says. But why does the federal government need to be involved in education? Why can’t we privatize infrastructure investment? If certain R&D is so “high-value,” wouldn’t the private sector do it?
Along the same lines, the report calls for the creation of a “Cut-and-Invest Committee” to move spending from “outdated” programs to “high-priority long-term investments.” That’s just naïve. The government will never be an efficient allocator of resources, and that’s why we need to shrink it, not just make it run better.
Finally, the commission should have placed more emphasis on fundamental restructuring of government, and not just spending trims. This is true with the entitlement proposals. But also with areas such as infrastructure spending—we don’t need higher gas taxes and government spending for infrastructure, we need privatization.
Gary Johnson and Drug Policy
As governor of New Mexico, Gary Johnson succeeded in eliminating New Mexico’s budget deficit, cutting the rate of growth in state government in half, and privatizing half of the state prisons. During Johnson’s term, New Mexico experienced the longest period without a tax increase in the state’s history. He vetoed 750 bills in eight years, more than all other governors combined. The Economist dubbed him “America’s boldest governor” — and that was before he took on drug prohibition. He discussed drug policy and other issues at the Cato Institute November 1, 2010 at a Cato on Campus forum.
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Co-Chairmen of Obama’s Fiscal Commission Unveil Real Tax Increases and Fake Spending Cuts
I have many pet peeves, but one that causes me endless frustration is the Washington “spending cut” scam. This happens when politicians increase spending, but claim that they’re cutting spending because they previously had planned to make government even bigger.
The proposal unveiled yesterday by the Co-Chairman of President Obama’s Fiscal Commission is a good example. If you read through their report, it sounds like there are lots of spending cuts. But they never explain that these supposed cuts are really just reductions in previously-planned increases.
Here’s the bottom line. As shown in the graph, it is quite simple to balance the budget (and permanently extend all of the 2001 and 2003 tax cuts) if politicians simply limit spending growth. You can balance the budget within a few years with an overall cap on spending at current-year levels. But if you prefer a more moderate approach, you can let spending increase 2 percent each year and balance the budget by the end of the decade.
The proposal from the Fiscal Commission, incidentally, does not balance the budget – even though they have a big tax increase (which they assume will have zero negative impact on economic performance).
So what does this mean? Well, we know that the budget can be balanced (with the 2001 and 2003 tax cuts) if spending grows two percent each year. And we also know that the Fiscal Commission increases the tax burden, yet still doesn’t achieve fiscal balance. So this means that they must be letting spending grow much faster than 2 percent each year. I’m guessing 4-5 percent annual spending growth.
In other words, the Fiscal Commission is asking us to pay higher taxes so that government spending can grow at twice the rate of inflation. That’s not a good deal.
Moreover, that’s almost certainly a ridiculously naive best-case scenario. If past behavior is any indication (and it is), politicians will spend any additional tax revenue. Whenever there’s a budget summit, the folks who want higher taxes make all sorts of empty promises about spending discipline. And when the other side caves in on taxes, they grab the money and have a party.
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