Tag Archives: spending

The Ryan Budget Proposal

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House Budget Committee Chairman Paul Ryan (R, WI) has laid out the Republican budget proposal for the decade beginning FY2015.

It begins by balancing the Federal budget over those 10 years, a measure of fiscal responsibility to which the present crop of Democrats don’t even pretend—vis., the Democrat-controlled Senate’s refusal even to produce a budget their first four years of the Obama administration, and which refusal they’ve renewed in the current year, insisting that they don’t need to bring up a budget anymore.

It repeals Obamacare, with that act’s enormous deficit-increasing costs.

It increases Defense spending, contra Democrat—White House—desires.  Plussing up our military is an especially glaring need in this day of a resurgent Russia routinely invading and occupying parts of its neighbors—Georgia and Ukraine come to mind—and an equally aggressive, if more subtly so, People’s Republic of China and its territorial grabs of the East and South China Seas.

It renews the Republican proposal to give “premium subsidies” to senior citizens enrolling in Medicare beginning in 2024—folks today who are not older than 56—and letting them shop for their own insurance in a free(r) market, rather than being dragooned in to Medicare.  Even so, Medicare would be one of their choices, and guaranteed to be no more than second least expensive.  Democrats deride this as a voucher system and object to it.  Aside from the fact that Democrats object to voucher systems in any form, I have to wonder why Democrats object so vociferously to older Americans making up their own minds, without the oversight of Democrat Betters.

It walks away from past practice of projecting budget effects into the future under the assumption that today’s conditions won’t change over the period being projected, including the premise that the economy won’t respond to spending changes by the Federal government—a static analysis—and makes use, instead, of the more realistic assumption that the economy does, in fact, respond to such inputs—dynamic analysis.

This is an outline that should be pursued, and Democrats who insist on continuing their profligate spending instead de-elected.

False Premises

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Bill Gates had a thought on how to help workers, especially low-skilled workers facing automation.  However, he’s operating from a number of false premises.

I think tax structures will have to move away from taxing payroll.  …  Software substitution—whether it’s for drivers or waiters, nurses…it’s progressing.  And that’s going to force us to rethink how these tax structures work in order to maximize employment given that capitalism in general over time will create more inequality, and technology over time will reduce demand for jobs, particularly at the lower end of the skill set.  …  Twenty years from now, labor demand for lots of skill sets will be substantially lower, and I don’t think people have that in their mental model.  …  Economists would have said a progressive consumption tax is a better construct at any point in history.  But what I am saying is that it’s even more important as we go forward because…I want to distort in the favor of labor.  …  When people say we should raise the minimum wage—I know some economists disagree—but I worry about what that does to job creation.  The idea that through the Earned Income Tax Credit you would end up with a certain minimum wage that you would receive, that I understand better than intentionally dampening demand in the part of the labor spectrum that I’m most worried about.

The first, and prior, false premise is that taxes should be used to achieve social engineering goals—whether government’s or any others’.  No.  Taxes are for funding the government so it can carry out the tasks for which we’ve hired it.  Our Constitution lays out the sole purposes of spending at the Federal level: paying our nation’s debt, funding our national defense, and the general welfare—which is explicitly enumerated in the 18 Clauses of Article I, Section 8.  Nowhere in there is spending for social engineering listed.  Taxes, then, can only be used to raise funds for those three spending purposes, and not for social engineering.

Gates’ second false premise is that a free market is somehow a zero sum game.  In a free market economy, two men freely arrive at terms of an exchange (e.g., a good for an amount of labor, either of those for an amount of money, etc) and make the exchange.  After that exchange, both men are better off than they were before it, since each man now has something of value to him that he didn’t have before—and that thing did not cost him more than it was worth to him, with the possibility that each man got slightly more than he paid as evidenced by his willingness (now hypothetically) to have paid slightly more than he actually did.  Plainly, a free market economy is a positive sum game.

His third false premise is that “technology over time will reduce demand for jobs.”  Like technology reduced employment when car manufacturing replaced horse buggy manufacturing.  Like Henry Ford’s assembly line technology reduced manufacturing employment.  Like computers have reduced employment.  Again, no.  Technology over time changes the kinds of jobs that have value, but it doesn’t reduce the number of jobs available.

His fourth false premise is that government subsidy (minimum wage or EITC or anything else) somehow makes labor less costly—at least to the employers.  Again, no.  Whether those labor subsidies are paid for by taxes or by borrowing, they’re paid for by taxes: all government borrowing does is shift the taxes onto later generations (and without their being in a position impudently to protest the matter).  Those taxes come out of the citizenry’s pockets, and (under present tax structures) out of the revenues earned by businesses.  Costs to the citizens and to the businesses thus are increased, and they’re increased by an excess amount derived from the difference between the actual value of the man’s labor and the subsidized price paid him for that labor.  Ultimately, too, that excess amount works through the economy in the form of higher prices—inflation—and the man is no better off in the end than he was at the pre-subsidy start.

Finally, there’s the matter of wealth/income inequality about which Gates worries.  Bill Gates, however, is the modern poster boy for that sort of inequality.  That inequality, though, is neither good, nor bad; it just is, like money generally.  It’s a tool, and like any tool, it can be used for good or ill, or it can be left on the shelf to rust.

Gates, in fact, has been enormously generous with his wealth, far more so than any of the rest of us could be, and to a degree that is utterly impossible without the enormous (unequal) wealth that Gates has and the enormously unequal income he earns with which to accumulate that wealth.  As have been the Carnegies, the Rockefellers, et al., of our capitalist nation.

I’ll leave off the mechanics of a “progressive consumption tax” and the inevitably byzantine nature of the sales tax code developed to implement this.  I’d be curious to see how Gates would implement such a thing: a customer in WalMart, at the cash register imputing (in some verifiable manner) his income, and the cash register calculating his sales tax accordingly (oh, wait—there’s that technology putting a cashier out of a job…)?

We all get sales tax refunds on 16 April according to our incomes and the amount of sales taxes we paid through the year?  How will the man living in the region of the Federal Poverty Guideline live on his sales tax-reduced income before he gets his refund?

 

h/t AEIdeas

The State of Our Nation’s Economy

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Senator Jeff Sessions (R, AL), Ranking Member of the Senate Budget Committee, had some in his opening remarks at last Wednesday’s Committee hearing on the President Barack Obama’s FY2015 budget proposal (Treasury Secretary Jack Lew was the opening witness here).

Thank you, Secretary Lew, for appearing before us today.

In 2009, the Administration wagered America’s financial future on the idea that a record increase in government spending and debt would revive the economy.

Since then, government debt has increased 64% and is on track to double by the end of the President’s second term.  What are the results?

  • America is in the midst of slowest recovery since the end of World War II.
  • Workforce participation has shrunk to a nearly 40-year low.
  • The Labor Department reports that most occupations pay less today than they did when the President took office.
  • Government debt has leaped from roughly $10 trillion to $17 trillion, yet median income has dropped $2,268 per household over that same time, and the decline has actually accelerated.

This is a huge disaster.

The justification for this unprecedented accumulation of debt was the claim that it would lead to prosperity.  And yet now, we have none of the prosperity and all of the debt.  This plan has proven to be one of the most costly failed gambits in American history.  The White House’s average 2013 growth projection in their 2009 through 2012 budgets was 3.9%.  Economic growth is critical for America’s workers-translating into higher wages and better jobs with benefits.

But actual growth last year came in at half what was projected, 1.9%—a huge difference with real impact on millions of Americans.  For example, CBO has repeatedly said that the Administration’s $870 billion stimulus bill would be a long-term drag on the economy.

So what does the President propose in his new budget?

The plan increases spending growth by almost $1 trillion, bursting through the Ryan-Murray spending caps he signed into law only two months ago.

So, while the military gets hammered, other agency budgets soar.  The White House proposes the following increases next year:

  • A 45% increase for the Department of Housing and Urban Development
  • An 18% increase for the Legal Services Corporation
  • A 15% increase for the Department of Energy
  • A 30% increase for the Commodity Futures Trading Commission, and
  • A 7% increase for the Bureau of Consumer Financial Protection.

The plan also raises taxes more than $1 trillion—in addition to the $1.7 trillion in taxes he’s already enacted.  New proposed taxes include:

  • Limit the value of itemized deductions to raise taxes by almost $600 billion.
  • Raise the death tax and reduce the exclusion to increase taxes by over $100 billion.
  • Increase taxes on unemployment insurance by $78 billion.
  • Increase taxes on energy production by $49 billion.

So the President raises taxes to increase spending.  It is a tax-and-spend budget that will never pass. Altogether, the White House budget plan would add another $8 trillion to our $17 trillion debt.

The seriousness of the situation is demonstrated by this fact: last year, we paid our creditors $221 billion in interest on our federal debt.  Under the President’s plan, according to his own numbers, annual interest payments will nearly quadruple to $812 billion.

Rising interest payments represent arguably the gravest threat to our nation’s financial security.

Should interest rates increase even slightly above projections, the costs of financing our debt would quickly surge to emergency levels.  As the Director of the Congressional Budget Office warned, we face “the risk of a fiscal crisis.”

Clearly, we must pursue a new course that creates jobs and that does not add to our debt.  Here’s how:

  • Produce more American energy to create jobs right here in the US
  • Streamline the tax code and lower rates to make America more globally competitive
  • Eliminate every unnecessary regulation that destroys jobs
  • Adopt a trade policy that defends the legitimate interests of US workers
  • Enforce an immigration policy that serves American workers
  • Turn the welfare office into a job a training center
  • Make government leaner, doing more with less
  • Balance the budget to restore confidence and growth

A couple of idle thoughts: That addition of $8 trillion to our debt by the Obama budget is an optimistic figure, depending on interest rates not rising, despite the Fed’s OEx programs and easy money position.

For perspective on how the Obama budget debt payment growth fits in with the other growths projected from his budget, see here.  [Note: the article is behind Ricochet‘s pay wall.  I strongly recommend you subscribe; it’s well worth the $29.95 per year.]

Other than that, what Senator Sessions said.

Federal Transfer Payments to States

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Federal transfer payments to state and local governments totaled some $444 billion in 2013; these included payments of $282 billion for Medicaid, $3.4 billion for LIHEAP, $80 billion for SNAP, and some $78 billion for other transfers to the states.

The payments often are synergistic, not at all fixed, too.  For instance, LIHEAP payments are used by the states to magnify SNAP payments, since SNAP contains an energy allowance, a “standard utility allowance.”

Governor Dannel Malloy [D] last week announced that Connecticut would “expend $1.4 million in available federal energy assistance funding” to raise minimum LIHEAP payments for 50,000 beneficiaries, or about a quarter of its food-stamp rolls.  The increase…will “preserve approximately $66.6 million” a year in food-stamp benefits.  So Connecticut will leverage $1 in additional federal LIHEAP funds to reap $48 more from Washington for food stamps.

Mr Malloy’s neighbor Andrew Cuomo jumped for the free lunch the next day by declaring that New York would “dedicate approximately $6 million in additional federal” heating assistance to maintain $457 million in food-stamp payments.

Of course, this is done with taxpayer money, so the money transferred to, say Connecticut, comes in part from nearly bankrupt California, in part from bankrupt Illinois, in part from nearly bankrupt New York, etc.

It would help if the synergies were done away with.  It would help even more, and more permanently if the transfers were done away with, and the States required to see to their own responsibilities without freeloading off other States’ citizens.

Defense Cut “Drivers”

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Here are a couple of types of spending increases that will appear in upcoming Federal budgets:

[A] CBO report finds that mandatory spending, which includes Social Security, Medicare, and Medicaid, is projected to rise $85 billion, or 4%….

And

Interest on the debt is worse.  It is projected to increase 14% per year, almost quadrupling in dollar terms between 2014 and 2024.

DoD Secretary Chuck Hagel’s proposed budget cuts Defense spending by $75 billion over the next two years.

The “mandatory” spending problem could be cured over those same two years, with a proper reform package.

From $416 billion in interest payments in 2013, that 14% increase for 2014 comes to $58 billion; for 2015, the first year of President Barack Obama’s budget proposal (which includes that “mandatory” spending and Hagel’s cuts in the Defense budget), that interest payment increase comes to $65 billion.

Our debt debacle, with its required interest payments, will take considerably longer than two years to redress, and that puts a premium on getting started now on the necessary spending cuts.  This is made even more difficult, though, by the enormous size of our debt coupled with the national survival need to preserve our military capacity.

But the Democrats won’t allow entitlement reform in any direction except expansion—and more spending.  And they refuse to take our debt seriously, demanding ever more (non-defense) spending, and not just for the “mandatory” stuff.  Go figure.