Tag Archives: spending

Labor Costs and Big Spending

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Karl Rove, former senior adviser and deputy chief of staff to President Bush the Younger, wrote in last Thursday’s Wall Street Journal about President Obama’s campaign fundraising and spending.  Of particular interest to me, he had this:

The Obama campaign’s high burn rate doesn’t come from large television buys, phone banks or mail programs that could be immediately stopped.  It appears to result instead from huge fixed costs for a big staff and higher-than-expected fund-raising outlays.  These are much tougher to unwind or delay.  Left unaltered, they generally lead to even more frantic efforts to both raise money and stop other spending.

Doesn’t that sound an awful lot like public service unions and their drain on the taxpayers’ dollars?  Is there a pattern here?

Stimulus Money Works

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The stimulus money intended to help Detroit-area folks obtain jobs really did succeed in aiding folks—all 2 of them.  Although the money really wasn’t intended to help them find jobs, but only to help them get dressed.

A chunk of a 2009 stimulus grant meant to provide as many as 400 low-income Detroit residents with clothing for job interviews actually helped…2.

Read the whole thing.

Two Economic Plans

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Here is a sort-of side-by-side comparison of Senator Rick Santorum’s economic plan with Governor Mitt Romney’s plan—only sort-of because they address different things in addition to their areas of overlap.

Senator Santorum opened the discussion of his plan with this:

…Obamanomics has left one in six Americans in poverty, and one in four children on food stamps. Millions seek jobs and others have given up.

while Governor Romney had similar words to introduce his plan:

We have record-breaking unemployment and deficit spending, and a tax code that looks like it was devised by our worst enemy to tie us in knots. These three afflictions are interconnected. I have a plan to address them and achieve three goals: more jobs, less debt, and smaller government.

Economic Area

Santorum’s Plan

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Romney’s Plan

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Individual Taxes

 only two income tax rates of 10% and 28%. triple the personal deduction for children, eliminate the marriage tax penalty. Strong step in the right direction in simplifying through reducing the number of tax brackets while reducing tax rates.But why keep the distorting subsidy? 20% reduction in marginal individual income tax rates A step in the right direction, but it maintains the multiplicity of tax brackets

 

 reduces tax rates for businesses that pay at individual rates and employ the majority of private-sector American workers Through the above 20% reduction

 

 abolish the death tax.  repeal the Alternative Minimum Tax Unequivocally good moves

 

 place some curbs on personal tax deductions, exemptions and credits Such as…?

Corporate Taxes

 corporate tax rate halved to a flat rate of 17.5%. expense all business equipment and investment. Taxes on corporate earnings repatriated from overseas eliminated Again a sound move.  But see my summary below about manufacturing taxes. reduce the corporate tax rate to 25% from 35%, transition from a world-wide taxation system to a territorial one A good step in the right direction.Especially, the territorial tax system can be very beneficial, depending on its details.

 

 make the R&D tax credit permanent Lower the tax rate further, and this distortion isn’t necessary.  Nor will it be necessary y to weasel-word what constitutes R&D.

 

 maintain the 15% rate on capital gains, interest and qualified dividends, and eliminate the tax entirely for those with annual income below $200,000. Mostly maintains the status quo, but the differential treatment of groups of Americans just continues Obama’s class warfare.Also, see above concerning distortions and tax rates.

 

 broaden the corporate tax base. In what way, exactly?

Federal Spending

 spending cuts of $5 trillion over five years, including cuts for the remainder of fiscal year 2013 A sound start, but reduced spending in what areas?

 

 cut means-tested entitlement programs by 10% across the board, freeze them for four years, and block grant them to states A good start, but why not reduce the size of the grants each year until they’re eliminated?  These are supposed to be State programs: get the Federal government out of them altogether.

Federal Budget

 propose budgets that spend less money each year than prior years Reduced spending in what areas?

 

 submit to Congress a budget that will balance within four years; call on Congress to pass a balanced-budget Constitutional amendment which limits federal spending to 18% of GDP. Reduced spending in what areas?An Amendment can be good or bad depending on how it’s written.Finally, calling for a thing is easy to do….

 

Unstated in his present plan is his prior insistence on continuing to use our tax code to perpetuate the myth of the usefulness of government-centric economic engineering: he singles out manufacturing for especially low tax rates—no manufacturing corporate tax at all.

In addition, Santorum had this to say about jobs: he’d approve the Keystone XL pipeline, and he’d repeal all “Obama administration regulations that have an economic burden over $100 million.”  I don’t understand, though, why he exempts similar regulations from earlier administrations.  He also insists that Federal agencies must use “sound science and cost benefit analysis;” although here, too, he’s short on specifics, like what analyses fit this bill, or what constitutes “sound” science and cost benefit analysis.

Santorum also says he’ll work to replace Obamacare with “competitive insurance choices,” but without saying what constitutes “competitive” in his view—and he claims to be able to achieve this while maintaining a mandate that somebody must “protect those with uninsurable health conditions.”

Finally, he promises to present to Congress five free trade agreements his first year—but with whom?

Romney, on the other hand, expects his lower taxes to stimulate job growth.  He’s not far wrong here, but more specifics about jobs would have been nice in addition to those tax system generalities.

Both plans are vague on spending cuts, and both continue market distorting subsidies/tax credits of one sort or another—never minding that these simply continue government-generated distortions in our economy, driving up the prices of things that are subsidized and forcing all of us to pay for those price increases, whether we buy the subsidized item or not.  The two plans also emphasize different sides of the revenue coin: Romney focuses on the tax system while Santorum dwells more on spending and budgeting.

In the end, both plans, shortfalls and all, are enormous improvements over the Progressives’ plan of increased spending, higher taxes, exploding debt, and starker class warfare.

Debt, Spending, and Taxes Revisited

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PowerLine has a couple of graphs that tell the story in President Obama’s own words.  Of course, he wants to raise corporate taxes in part to cover this shortfall, even though raising taxes, beyond a level long since surpassed, reduces tax revenue collected as businesses (and individuals, in response to parallel attempts to raise taxes on them) do what comes naturally for all of us: look for ways to hang onto what’s ours, rather than give it up to a ravenous government.

The graphs are clear in their own right; I’ll say no more here.

Remember this in November.

A Look at our National Debt

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The Congressional Budget Office pipes up.  Here’re some highlights from its January 31 annual Budget and Economic Outlook.

The current-law baseline which the CBO uses is a set of budget projections based on existing law as enacted, including sunsets and expirations.  These assumptions thus accept, for instance, that all temporary tax provisions, including those originally enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003—the Bush tax cuts—will expire as scheduled and that the alternative minimum tax (AMT) will not be indexed for inflation past 2011.  Further, under these baseline assumptions, about $1 trillion of spending cuts that mandated under the Budget Control Act of 2011 following the failure of Congress’ supercommittee will begin as scheduled in January 2013.

What flows from this baseline?  The budget deficit falls from the current year’s nearly $1.1 trillion, or 7.0 percent of GDP, to 1.5 percent of GDP in fiscal 2015—primarily due to an optimistic 25 percent increase in total federal revenues during that period.  The CBO cautions, though, that the deficit will resume its expansion post-2015 due to mandatory spending on programs such as Social Security, Medicare, and Medicaid and increasing interest payments on the still expanding federal debt.

The CBO also offered estimates based on an alternate scenario and its assumptions.  In its “alternative fiscal scenario,” the CBO assumes that the expiring Bush tax cuts are extended (excluding the current 2% payroll tax holiday); the AMT is indexed for inflation post-2011; Medicare physician payments are held constant at current levels (rather than falling nearly 30 percent in March 2012); and the spending cuts required under the Budget Control Act do occur.

Using these assumptions, the CBO concludes that annual budget deficits will remain elevated at about 5.4% of GDP over the next 10 years, and the ratio of publicly held debt to GDP will rise from its current elevated level of nearly 72% in fiscal 2012 to over 94% in fiscal 2022.

There are other aspects to this.  The CBO estimates that with the Bush tax cut expiry, economic growth—GDP growth—will be a meager 1.1% until recovery can begin in the out-years.  On the other hand, were these alternate assumptions enacted, GDP growth would be 0.3 to 2.9 per centage points greater than under current law.  Later in the decade, though, higher levels of government borrowing would crowd out private investment, drive up interest rates, and hold back economic growth.

Notice what’s not being assumed in the alternative scenario: real cuts in spending.  The assumptions don’t even include the effects of the fictional cuts of “reduced increases” in future spending.  What is it that drives that “higher level of government borrowing?”  It’s not not enough revenue for the government.  It’s too much spending by the government.

When, and only when, government spending is reduced to sane levels can we begin to pay down our burgeoning national debt.  Only by leaving our money in our hands and not having it taken away from us by ever-increasing taxes and by ever-increasing debt payments can our private investments increase, our job creation increase, our prosperity begin to recover.

h/t: Deloitte