Bush Was a Statist, Not a Conservative
A former White House speechwriter, Mark Thiessen, has jumped to the defense of his former boss, writing for the Washington Post that George W. Bush “established a conservative record without parallel.” Even by the loose standards of Washington, that is a jaw-dropping assertion. I’ve been explaining for years that Bush was a big-government advocate, even writing a column back in 2007 for the Washington Examiner pointing out that Clinton had a much better economic record from a free-market perspective. I also groused to the Wall Street Journal the following year about Bush’s dismal performance.
“Bush doesn’t have a conservative legacy” on the economy, said Dan Mitchell, a senior fellow at the libertarian Cato Institute. “Tax-rate reductions are the only positive achievement, and those are temporary … Everything else that has happened has been permanent, and a step toward more statism.” He cited big increases in the federal budget, along with continuing subsidies in agriculture and transportation, new Medicare drug benefits, and increased federal intervention in education and housing.
Let’s review the economic claims in Mr. Thiessen’s column. He writes:
A Little Less Poetry, a Little More Economics
A good friend sent me an article on “patient-centered health care” written by Dr. Donald Berwick, President Obama’s intended nominee for administrator of the Centers of Medicare & Medicaid Services. What an improvement an administrator like this will bring compared to his predecessors! Right? The article is called What ‘Patient-Centered’ Should Mean: Confessions Of An Extremist (requires login).
I have no doubt of Berwick’s sincerity, but the essay gives me little hope for progress. It doesn’t mention, for example, parity in the tax treatment of employer-purchased and individually purchased health insurance.
Why don’t we talk about diner-centered restaurants or grocery stores? Because when consumers select restaurants and stores, choose their food, and pay for their choices, “diner-centeredness” is a given. To the extent non-diner-centered food outlets have come into existence, they’ve gone away again as a failed business model. Nobody has to discuss what it means or what artificial process they would use to deliver “diner-centeredness.”
“But health care is essential to life!” some might argue. ”Intellects and government officials must pay health care delivery special attention because without it people would die.”
Pray tell, good hearts, what is food other than an essential of life without which people would die? We regard food provision an “easy” problem because we haven’t made it hard by fettering the market for edibles the way we have health care.
Keep your eye on the ball. If you have to discuss how to get patient-centered health care, you’ve framed the problem wrongly. (The medical metaphor is talking about a symptom and not the disease.)
“Patient-centered” is implicit when the patient is actually at the center. Dr. Berwick should approach the health care delivery problem with a little less poetry and a little more economics.
The Fox Butterfield Effect and the Laffer Curve
A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of someone to put 2 + 2 together. We now have a version of the Butterfield Effect in tax policy.
Recent IRS data show that rich people earned a record amount of income in 2007 and also faced their lowest effective tax rate in almost two decades. Proponents of soak-the-rich tax policy complain about these developments, as seen in the Bloomberg excerpt below, but they seem oblivious to the Laffer Curve insight that rich people earned more income in part because tax rates were lower. So if they penalize the rich with higher tax rates, as President Obama is proposing, they will be disappointed to discover that they collect considerably less revenue than predicted for the simple reason that wealthy taxpayers will respond by earning less taxable income.
The 400 highest-earning U.S. households reported an average of $345 million in income in 2007, up 31 percent from a year earlier, IRS statistics show. The average tax rate for the households fell to the lowest in almost 20 years. …The statistics underscore “two long-term trends: that income at the very top has exploded and their taxes have been cut dramatically,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington-based research group that supports increasing taxes on high-income individuals.
As an aside, it’s also worth noting that the IRS tax-rate numbers are very misleading. The tax burden on the rich has dropped largely because of lower tax rates on dividends and capital gains. But when the IRS says upper-income taxpayers had an average tax rate of 16.6 percent, this does not include the other layers of tax that are imposed. The corporate income tax is 35 percent (just counting the federal level), for instance, so the actual average tax rate on these forms of income is far higher. Double taxation is counterproductive to growth and competitiveness, though, which is why the correct tax rate on dividends and capital gains is zero. For more on the Laffer Curve, this three-part video series addresses theory, evidence, and the biased revenue-estimating process.
State of the Union Fact Check
Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.
THE STIMULUS
Obama’s claim:
The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right — the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.
Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.
CUTTING TAXES
Obama’s claim:
Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.
Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”
Visit Cato’s Tax Policy Page for much more on this.
SPENDING FREEZE
Obama’s claim:
Starting in 2011, we are prepared to freeze government spending for three years.
Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.
“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”
Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.
JOB CREATION
Obama’s claim:
Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.
Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”
Obama’s Back-Door Tax Hike on American Workers
A column in the Washington Post makes an excellent general observation about how taxes on business are actually paid by people. The piece also cites a couple of examples, including an explanation of why the Administration’s big tax hike on American multinational firms will backfire – which is the same argument I made in this video. The moral of the story, of course, is that a bigger burden of government is good for politicians, but bad for regular people.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
