Tag Archives: economics

RINO Surrender?

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Fox News reported over the weekend that Senator Bob Corker (R, TN) now is saying Republicans

should cave to President Barack Obama on [tax rate increases] in order to not only resolve the current crisis but move on and start negotiating spending cuts, which could result in more significant deficit reduction.

Never mind that excessive spending—and runaway entitlements—are part of the current crisis.  Furthermore, with Obama getting his tax increases, there’ll be no spending cuts and no entitlement reform.  Corker knows full well that Democrat promises of spending cuts tomorrow in return for tax rate increases today are worthless.  And he’s begging for surrender anyway.

Corker said this to rationalize his surrender recommendation:

The focus then shifts to entitlements, and maybe that puts us in a place where we actually can do something that really saves this nation[.]

This is…naïve.  If the Republicans surrender on the tax rate increases, why should President Obama believe they won’t surrender on the debt ceiling, on spending cuts, on entitlement reform?  Why should any of the rest of us?

Corker wants to surrender.  That’s his right.  But let him do so as a private citizen.  This RINO needs to be replaced at the next election.  Republican acquiescence with Progressives’ demands over the last 80 years are how we got into this mess in the first place.  And the magnitude of the destructiveness of their demands has been especially manifest these last four years.  Our nation can’t afford any more of those policies.

Rule of Law and Prosperity

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House Majority Leader Eric Cantor (R, VA) has issued a report that discusses, among other things, the relationship between rule of law and national prosperity and freedom.  Some excerpts follow.

From

Less noticed, but perhaps even more important—especially to the over 20 million Americans currently out of work or underemployed—is the link between a breakdown in the rule of law and reduced economic growth and individual prosperity.

Property rights and rule of law are essential for the proper and efficient functioning of society and the economy.  Unambiguous laws and procedures provide a framework by which free people agree on the scope and reach of their government’s actions, whereas unclear laws or arbitrary enforcement undermine individual liberty and the notion of popular sovereignty.  Clear, transparent, predictable rules that are applied without preference or prejudice allow individuals to invest, build businesses, and create jobs.  When there is a breakdown in the rule of law, increased uncertainty leads to reduced investment and less growth.

Numerous economic studies have documented the relationship between a strong rule of law and economic growth. In 2008, The Economist published the following chart alongside a story entitled “Order in the Jungle.”

The chart aptly illustrates the strong relationship between adherence to the rule of law and economic growth.  As economist Hernando de Soto—a leader in the field of the impact of property rights and rule of law on economic growth succinctly stated: “So the origin of the rule of law— which will allow a modern nation to grow and so bring peace, stability, and prosperity to the world—is property rights.  And the rule of law will actually generate prosperity.”

And

In the United States, the ultimate law is the Constitution, which specifically provides how laws are to be enacted and requires the President to take care that the laws that are enacted are faithfully executed.  The laws of the United States establish the process whereby individuals can enforce their property rights and private contracts and provide the framework by which executive agencies are to conduct rulemakings and the other regulatory activities.

When “laws” are created without going through Congress; when laws are selectively executed; when an administration intervenes into the normal judicial process and diminishes an individual’s property rights; and when the normal regulatory process is circumvented, the rule of law is eroded.

All of this increases uncertainty.  Individuals, families, and businesses now not only face uncertainty with respect to the policy decisions made by government, but they face uncertainty as to how those decisions will even be made.  Numerous economic studies and surveys indicate that uncertainty itself (which is certainly increased with the breakdown in the rule of law) also hinders economic growth.

While Administrations of both political parties have been known to test the bounds of the limits of their power, the breadth of the breakdown in the rule of law in recent years has reached new levels.  In the Heritage Foundation and Wall Street Journal‘s annual Index of Economic Freedom, the United States scores lower today on the rule of law than it did in 2008.  As the 2012 report notes, “Corruption is a growing concern as the cronyism and economic rent-seeking associated with the growth of government have undermined institutional integrity.”  Individuals and businesses are increasingly forced to rely on the courts to enforce their most basic substantive and procedural rights.

To

There is no excuse for this continuous disregard of legislative authority and the Constitutionally-required separation of powers.  In some instances, President Obama attempted to garner legislative authority, failed and then acted unilaterally in defiance.  In other instances, the President never even sought to find consensus and instead ignored Congress and its authority from the outset.  In speeches, the President has proudly acknowledged that he has acted without Congress, contending that he has no other alternative.

This is no way to govern.  The President has set a precedent that even his supporters should find troubling.  After all, what would now prevent a subsequent President, with opposite policy predilections, from bypassing the checks on his own authority and enacting his own policies in this same manner?  The Founding Fathers wisely gave the President many powers, but making law was not one of them.  They understood that laws should not be made by one individual acting alone, but rather through elected representatives working to achieve consensus.

House Republicans have acted to prevent and overturn the President’s harmful actions in order to return economic growth, opportunity and certainty to the American people and American job creators.  However, the majority of the bills the House has passed are sitting idly in the Democrat-led Senate, without any action on the part of Democratic Leader Harry Reid or President Obama.

Throughout our nation’s history, presidents have sought common ground and achieved legislative success with opposing party leaders.  Many of the laws circumvented in this report were achieved in that manner.  Congressional authority must not be disregarded to suit political interests, create unpopular regulations and to avoid the hard work of bipartisan negotiation that has been a hallmark of our Republic since its inception.

Note that such measures as are required by the erosion/breakdown of the rule of law as bringing legal cases to court only adds to business’ and individual’s current costs and increases their uncertainty, since court outcomes are largely unpredictable.

RTWT.  It’s a long-ish read, but it also includes a list of current examples.

 

h/t Grim’s Hall

Taxes and Fairness

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There’s this example from a recent Wall Street Journal op-ed.

[I]t is worth noting that from 1958 to 2010, the taxes paid by the top 3% of earners, as a percentage of total personal income (which can’t be reduced by shelters), increased to 3.96% from 2.72%, while the percentage paid by the bottom two-thirds of filers fell to 0.51% in 2010 from 2.7%.

We went from everyone paying roughly the same rates on personal income to some Americans being forced to pay 8 times the rate as other Americans.

And those earlier, higher tax rates that are supposed to be so much more fair?  They were coupled with things like this:

The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today.  Tax shelters were widespread, and not just for the superrich….

For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership.  Huge numbers of professionals signed up for all kinds of money-losing schemes.  Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.

Now, it’s true enough that the Clinton-era tax rate tables, so beloved of the Progressives today, didn’t allow for such uneconomic activities as write-offs.  But the Clinton-era spending rates also didn’t allow for the spending rates so beloved of the Progressives today.

Welfare and Economic Mobility

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I’ve written elsewhere of the trap for Americans that is welfare in  the form of handouts. The CBO’s Nov 2012 report, Effective Marginal Tax Rates for Low- and Moderate-Income Workers, makes this explicit.  Here are two examples from the report:

[T]he single parent who moved from not working to working part-time would face a marginal tax rate of 36 percent because even a modest level of earnings would result in the reduction or loss of several transfer benefits [the tax].  Earnings from part-time work would result in a loss of eligibility for assistance through the Temporary Assistance for Needy Families program, some reduction in the housing voucher, and a decrease in benefits available through the Supplemental Nutrition Assistance Program.

And

The marginal tax rate associated with moving from part-time to full-time employment…would be higher—47 percent.  Earnings from full-time work would place the single parent in the EITC’s plateau range and would allow him or her to claim the maximum EITC [Earned Income Tax Credit] amount ($3,169 in 2012).  However, because moving from part-time work to full-time work does not increase the EITC as much as does moving from not working to working part-time, marginal tax rates in this scenario would be higher than in the first scenario.

The disincentive to get work is large, but by remaining in her current situation, the single mother (yes, I’m assuming) is foregoing opportunity to improve her economic situation: there is potential for advancement, pay raises, and so on with a paying job.  Remaining on the government’s dole leaves this woman dependent on her government for her livelihood.  And doing so makes it even harder for her child(ren) to move up the economic ladder in his own time.  Upward mobility is severely handicapped, if not foreclosed altogether.

Welfare and Work Incentives

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Casey Mulligan has a book out that looks hard at the Panic of 2008 and explores its causes.  The book is called The Redistribution Recession, and I strongly recommend it.  Here are some highlights.

In this way, the simple supply and demand model…explains 81 percent of the labor market contraction from 2007-Q4 and 2009-Q4, as long as it incorporates the labor supply effects of the expanding social safety net.  The remaining 19 percent of the contraction is “explained” by unmeasured market distortions—that is, still unexplained by the measured factors present in the model.

And

The (theoretical) effects of the reward to working can also be seen from the perspective of wages.  The more that the safety net pays for not working, the less reason people in low-wage jobs have to keep their job and the less reason unemployed people have to accept a low-wage job.  In this way, the safety net raises wages, to which employers respond by hiring less.”

And

When food stamp or unemployment programs pay more, the sacrifices that jobs require do not disappear.  The commuting hassle is still there, the possibility for injury on the job is still there, and jobs still take time away from family, hobbies, sleep, etc.  But the reward to working declines, because some of the money earned on the job is now available even when not working.

Note that, as long as the government involves itself in the economy through its penchant for social engineering/safety nets, this creates a feedback loop.  The safety net (the parts of which Mulligan enumerates, but which I use here expansively to include the entire suite of components) reduces the incentive to work by replacing monies lost from not working, thus driving up costs to employers of attracting workers he otherwise would be interesting in hiring, reducing employers’ hire rates, leading the government to try to further expand the safety net, further reducing work-seeking incentive, driving up labor costs,….

And

…studies: Hoynes and Schanzenbach (2012) show how potential participants stopped working or reduced their work hours when the food stamp program was introduced.  Studies of unemployment insurance find that program rules have a statistically significant effect on how many people are employed, and how long unemployment lasts.  Yelowitz’s research (2000) shows how a number of young single mothers found employment exactly when, and where, state-level Medicaid reforms increased their reward from working.

And so on.  Note that none of this is to disparage people who make use of the safety net; they’re behaving entirely rationally in an economic sense.  Mulligan’s purpose is only to show how incentives of safety nets work.