Tag Archives: spending

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

Government Shortfall

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Here is another example of the failures inherent in government intrusion into the market.  The Wall Street Journal describes a solar energy project that is about to founder at great cost to at least one of the investing private enterprises.

It seems that First Solar, Inc., a solar panel manufacturer, had sold a 230-megawatt plant to Exelon Corp, an electricity generating company, with the sale contingent on Department of Energy execution of a loan it had made to finance the deal.  No money has flowed from DoE, though, because the Department cannot proceed until “all applicable permitting issues are resolved,” and there is “an issue with a construction permit that First Solar obtained from Los Angeles County.”

The items underlying the “issue” are both unclear and not relevant in this context.  What matters is that the problem exists; therefor, DoE cannot proceed with its loan; so the project, starved of these funds in particular, is in jeopardy.  Since time is short for getting everything finalized, First Solar may end up having to buy the plant back from Exelon, and the project may die on the vine.

This is not a failure of the present administration, in particular, or of the preceding one, though.  It’s not a failure of any particular administration.  This sort of failure is inherent in any government involvement in private markets because of the necessarily different imperatives inherent in government efforts vs those of private enterprise.  In particular, this failure is driven by government’s necessary concern for the use of the citizens’ tax money, its equally necessary caution in committing that money, and its equally necessary concern for not intruding into other governments’ jurisdictions (here the jurisdiction of Los Angeles County).

Even in an ideal world where these concerns could be taken as effectively and efficiently satisfied by government, these three are enough to make labyrinthine any governmental efforts to commit the money.  Private enterprises in a free market, on the other hand, are free to handle these imperatives among themselves according to their own readings of the risks involved—including ignoring them altogether, using Alexander’s bronze tangle-separating implement on the knots, or not structuring the deal in this kind of way in the first place.

Progressives and the Law

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I wrote about the Progressives’ attitude to the law last fall.  Here’s another demonstration of their view.

By now it’s well known that, in direct contravention of the law, the Democratic Party-controlled Senate has declined to produce a budget for over 1,000 days.  Now the Senate Majority Leader, harry Reid (D, UT) has openly stated that he will refuse to allow the Senate to produce anything related for FY2013.  Budget?  We ain’t got no budgets.  We don’t need no budgets!  I don’t have to show you any stinkin’ budgets!  What Reid actually said was just as fictitious.  Referring to last summer’s debt-limit deal, he claimed:

We do not need to bring a budget to the floor this year — it’s done, we don’t need to do it[.]

And his other pet, Senator Charles Schumer (D, NY) chimed in:

We have a budget. … It is a total falsity to say we haven’t passed a budget.

Despite this Progressive disdain, though, a budget resolution in the Senate is both legally necessary and highly useful.  Such a resolution serves as a blueprint for spending, and it provides a broad outline for the Senate Appropriations Committee’s spending choices.

Congressman Paul Ryan (R, WI) pointed out that the Senate Democrats

fell far, far short of solving this country’s fiscal problems.

and those Democrats

confirm they’ve given up on budgeting. What a disgrace. Reid’s refusal to budget is a recipe for crisis.

Senator Jeff Sessions (R, AL) said, as well (his complete statement is here),

Budget Control Act spending caps [that debt-limit deal], crafted behind closed doors and rushed to passage at the 11th hour under threat of panic, do not even approach the definition of the budget process that the law requires. They are not in any way or any sense a Senate Democrat budget plan.

Stand by for another year of Progressive disdain.  Remember it in November.