Tag Archives: political economy

Two Birds

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I’ve often argued against government spending on matters unrelated to the Constitutionally mandated payment of government debt, providing for the national defense, and seeing to the general Welfare (as defined by the clauses of Article I, Section 8).  I’ve also argued for privatizing the major social welfare programs of Social Security and Medicare.

Now Oklahoma illustrates the failure to limit the one and do the other at the State level, with Medicaid standing in for Medicare.

Following the nationwide trend, Medicaid has taken a growing toll on Oklahoma’s budget. In 2017 the health-care program that is supposedly for the poor consumed nearly 25% of the state’s general fund, up from 14% in 2008, as nearly 200,000 more people enrolled. Lawmakers are left with less money for everything else, not least education.

Which also means crowding out spending on voucher and charter schools, which means crowding out school choice and competition-improved schools—including public schools.

All that spending on Medicaid, too, instead of the State privatizing that—to an extent; this program, after all, is intended to help the poor, so their contributions can’t cover all their medical costs—means Oklahoma’s citizens have less money to spend on their own needs and wants, which depresses economic activity, which reduces revenues to the State, which reduces monies available for programs like Medicaid….  And this chain doesn’t even address the addition of those 200,000 folks since 2008.  That was the year the Panic began, and it may be that most of those added to the Medicaid rolls then truly should have been—but do all of them need to be on the rolls today, or is it time to re-tighten the eligibility criteria?

State Taxation of Internet Businesses

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The Supreme Court is hearing a case, South Dakota v Wayfair Inc, that seeks to overturn an older precedent that prevents States from taxing businesses doing business in the State that don’t have a physical presence there.  South Dakota is claiming that

…the 1992 precedent harms state treasuries and disadvantages taxpaying home-grown businesses.

That argument might hold water if the States were powerless. They’re not. There’s nothing at all preventing them from lowering the tax rates they impose on the brick-and-mortar and home-grown businesses resident in those States so they can compete. There’s nothing at all preventing the States from lowering their spending rates and thereby protecting their treasuries.

There’s nothing at all preventing the States from taking advantage of the increased economic activity that would result.

Tax Cuts, Deficits, and Economic Growth

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The hype is that the tax cuts enacted at the end of last year will lead to trillion dollar Federal government deficits.

On the other hand, there’s this bit about economic growth in the CBO’s report that also carried that deficit forecast [emphasis in the original].

  • Last June, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3%—a significant upward revision. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%.
  • [T]he CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.
  • before accounting for economic growth, the tax cuts Trump signed into law late last year would cut federal revenues by $1.69 trillion from 2018-2027.
    But it goes on to say that higher rate of GDP growth will produce $1.1 trillion in new revenues. In other words, 65% of the tax cuts are paid for by extra economic growth.
  • CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.

Blame tax cuts for deficits?  No, Federal government deficits are caused by the Federal government spending more than it takes in from its various revenue sources, of which taxes are a prominent part.  And there’s still no concrete justification for the spending levels, just glittering generalities.  And every special interest has an especially sparkling generality to justify its spending.

Here’s some tax cut-created spending reduction (because of economic growth and the resulting increased prosperity of some of our poorer friends, not because of any Congressional courage in doing outright cutting):

[F]aster growth will also reduce federal entitlement spending keyed to the economy—unemployment insurance, food stamps, welfare and the like—by $150 billion, the CBO says.

But increasing prosperity isn’t a proper topic for hyping.

 

ht/ Powerline

Taxing vs Spending

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In a Wall Street Journal piece about Tennessee’s required closure of failing bridges problem, a Leake County Democrat supervisor, Joe Andy Helton, had this:

…he was frustrated by politicians being afraid to raise taxes—even to pay for basic services like roads and bridges.

“There’s only but one way to fix things on the local, state or federal level and that’s taxes,” he said.

Of course. Reallocating spending is utterly inconceivable to him.

The two bridges in Helton’s county that must be closed until repaired would cost, at most, a bit over a half-million dollars, together.  That’s not pocket money for a rural county like Leake, but it’s not that much, either.  County and State spending could be (re)directed toward the repairs.

This is a local failure of performance, but rising taxes and no spending responsibility nationally are what we can expect if Progressive-Democratic Party politicians like this one gain the majority in the House this fall.

Guaranteed Basic Income

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Italy’s 5-Star Movement, nominal winners of the latest Italian national elections, wants to provide one.  5-Star Movement (M5S) Senator Nunzia Catalfo has proposed legislation giving every Italian whose existing income falls below the nation’s defined poverty level a Guaranteed Basic Income of up to €780 ($960) per month, with the actual amount presumably varying in relation to how much the person’s existing income falls below that poverty line.

We want to grant a decent life to those millions who are unemployed or whose wages and income are below the poverty line[.]

So do we all (using “grant” very loosely), and to MS5’s credit, Catalfo’s bill does require proof of efforts to get work or better paying work, but a GBI isn’t the way to help anyone.

On the one hand, employers will lose considerable incentive, if not outright interest, in raising pay—indeed, they’ll be incentivized to reduce pay (mostly by not giving raises or bonuses)—because Government will make up the difference.  This will result in no net increase in income for those already working, except possibly to the extent the government holds off on taxing the GBI as ordinary income.

On the other hand, a GBI is unavoidably inflationary.  Prosperity increases only to the extent productivity increases faster than the labor force, which at full employment can grow only as fast as the population grows through birth rate and net immigration.  Thus, prices will increase to absorb the GBI available to pay them.  The buying power of tomorrow’s GBI recipient will be the same as today’s person without a GBI.

There will be no net increase in economic wellbeing from a GBI.

There will, however, be a net decrease in national economic wellbeing with a GBI: taxes will have to committed to paying the GBI.  Whether those taxes are obtained by increased borrowing, increased taxation, or simply diversion of existing tax revenues to the GBI (or any combination of those three), there will be fewer resources available to government to do things like support a defense establishment or maintain/improve national infrastructure, the latter which especially would lower the cost of doing business.

There also will be fewer resources left to the citizen—those taxes, that borrowing, that inflation—with which he can see to his own needs and wants: less spending (at least relative to what he might have done), and so less demand for any company’s goods or services, and so reduced production of those goods and services, and so lowered hiring—and so, on top of that net lowered economic activity, reduced opportunity for GBI recipients to succeed in their required job search, leaving them trapped in a government welfare cage.