Tag Archives: spending

Contradictions

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Japan raised its sales tax—consumption tax/value added tax—and promptly saw a 6.3% year-on-year drop in GDP in the last quarter of 2019. Consumer spending (did I mention that the tax was a consumption tax?) fell by 11.5% that quarter.

Color me—and hosts of others much smarter than me—unsrurprised.

Now come the contradictions, from the just US Congress-revived IMF, yet.

The International Monetary Fund thinks the consumption-tax rate will have to rise to 15% over the next decade, and to 20% by 2050. But first the fund’s wizards say Tokyo must expand its Keynesian spending to make the economy “strong” enough to bear the tax hikes to pay for the spending.

Increasing government spending, which is tax increases now or later, reduces consumption by a number of paths: it takes money out of consumers’ hands directly via those taxes; by competing for the same goods and services as consumers’, it drives up the prices of those goods and services to consumers, which reduces consumers’ purchase of them; by competing for the same resources that private enterprises need to produce it drives up the price of the resources, which drives up the prices of the end-product goods and services to consumers, which….; and it crowds out many private enterprises and consumers altogether.

And so, of course, it’s necessary to raise even further the taxes on all that reducing consumption.

Business is falling off. Gotta raise prices to make up for the decreased revenue.

Make sense? It does to the IMF. And to the Japanese government.

Protections through Cuts

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That’s how President Donald Trump’s budget proposal represents support for his campaign commitment to protect programs like Medicare and Medicaid.

[The proposal] targets $2 trillion in savings from mandatory spending programs, including $130 billion from changes to Medicare prescription-drug pricing, $292 billion from safety-net cuts—such as work requirements for Medicaid and food stamps—and $70 billion from tightening eligibility access to federal disability benefits.

Medicare is threatened with bankruptcy nearly as badly as is Social Security, but that doesn’t mean Medicare would disappear—only that benefit payouts would be reduced to what payroll tax revenues could support, rather than what’s currently available from those tax revenues plus earnings and principle from its trust funds.

By tightening eligibility requirements and by requiring actual work, efforts toward being able to gain work, or doing forms of community service benefits those who actually need the benefits would be preserved.

The same situation exists for Medicaid: these State-run programs threaten the fiscal health of those States, and Federal transfers to those States, far from helping them, do nothing but reduce the States to dependencies of the Federal government.

One item in the proposed budget with which I disagree with Trump concerns the VA.

Winners in Mr Trump’s budget include the Department of Veterans Affairs, with a 13% increase next year….

This is a waste of money. The VA has repeatedly shown itself incapable of taking care of our veterans with any generality or reliability.  The VA needs to be completely disbanded and its budget (this year with that 13% increase) and putative future budgets converted to vouchers for our veterans so they can get the medical care and financial support they need at the time they need it from doctors, clinics, and hospitals that suit them.

Veteranos Administratio delende est.

A Cost of Impeachment

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It seems the Progressive-Democrats’ attempt to impeach President Donald Trump was not all that fiscally expensive as such things go.

According to an estimate from the Heritage Foundation in December, the [Progressive-]Democrat-led House of Representatives inquiry, and eventual impeachment of Trump for abuse of power and obstruction of Congress on December 18, cost taxpayers an estimated $3.06 million.

That compares with the effort against ex-President Bill Clinton (D):

According to CNN, the independent probe into Clinton cost taxpayers $80 million in 1994.

That bill includes the Senate trial, while the Heritage Foundation estimate doesn’t include the Senate’s in-progress impeachment trial, but it’s unlikely that the Senate trial will cost $77 million.

It should be no surprise, though, that the House’s seemingly slapdash effort was done on the cheap. The present effort has never been about actual impeachment and removal; it has been solely an effort to conduct a prolonged smear campaign and with that to prejudice the 2020 election.

Medicaid Block Grants

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The Trump administration is planning to set up procedures for allowing States to convert the Medicaid funding they receive from the Federal government from matching funds to block grants.

The new procedures would represent a large change.

Medicaid funding is open-ended, meaning the federal government matches state spending. If that funding is converted to a block grant, a state could get a limited, lump sum of federal money instead.

There are two key differences here. One is that the funding would go from strings-attached matches to no-strings block grants. The other is that the decision to go to block grants would be each requesting State’s, resulting in less Federal control over that State’s internal affairs.

Of course, this has vested interests twisting in their knickers.

Consumer groups and [Progressive-]Democrats say that limitation means thousands of people could lose Medicaid coverage or be unable to enroll if states’ costs rise or enrollment swells.

This is cynical and disingenuous. Whether a State’s citizens lose or can’t get access to their own State’s Medicaid is a matter strictly for, and wholly under the control of, the politicians and bureaucrats in that State’s government and the citizens who elect those politicians—who are the bureaucrats’ direct bosses.

At bottom, there is nothing at all preventing a State from reallocating its own spending to cover those costs or enrollments. Or of limiting access to ensure the truly needy can get the aid, limits that too often are blocked by those Federal strings.

Universal Basic Income

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It’s creeping ever more deeply into the Progressive-Democratic Party’s psyche and ideology. It’s an idea that was first dreamed up in the ’70s, and it remains an idea that can only fail were it to be implemented.

Giving everyone a basic income won’t improve anyone’s income; it’ll only incentivize employers to pay a wage diminished by the amount of the guaranteed government payment.  But the failure runs much deeper than that.

Such a scheme is inflationary: the outcome can only be a spike in inflation followed by price stabilization at a higher price level.

Consider an economy in which a producer has two widgets to sell, and two consumers each have a dollar. The producer can sell his widgets for a dollar each.

Now give the two consumers their basic income of $1,000 (let’s say).  The producer still has two widgets, now the consumers each have $1,001 dollars, and the producer can sell his widgets for $1,001 each.  That’s price inflation to a new level—but the consumers’ buying power remains unchanged*: they each still have only enough money to buy one widget, and no more.

Nor is there any incentive—or buying power capacity—for the producer to make more widgets to sell. The producer is getting those same dollars, devalued by the same inflation, that his consumers are getting (from his sales) and so he’s getting no added value to induce him to produce more.  Furthermore, he still can buy the same amount of widget production inputs, and no more; he cannot produce more without incurring greater cost.

 

*Actually, buying power decreases on net for producer and consumer alike, not from the weaker dollar, but from fewer of them in hands of both.  The money for that guaranteed income can only come from one or more of three (sort of) sources. The money must come from the government’s printing press—but that’s the same as the guaranteed income; the dollars just follow a more convoluted path into economy than direct disbursement.  Or the money must come from taxes, which takes money away from consumers and producers directly and leaves them with fewer dollars with which to buy goods and services or to buy inputs to production. Or the money must come from borrowing—which is future taxes or future money printing.

It’s hard to believe that all of those politicians slept through their high school economics, whether they’re today’s crop, like Progressive-Democratic Party Presidential candidate and minor town mayor Pete Buttigieg, newly graduated from high school, or Progressive-Democratic Party Presidential candidates and Senators Bernie Sanders (I, VT) and Elizabeth Warren (D, MA), who were in high school the first time this idea was floated those years ago.