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Archive for December 11th, 2009

I’m on the coast of Croatia, preparing for a couple of speeches later today. As you can see from the picture below, the view from my balcony is spectacular, even for a rube like me. But this blog is dedicated to public policy, so time for a lesson about the inefficiencies of communism and central planning. My hotel may have a beautiful view, but it was built by the government during the communist era (when Croatia was still part of Yugoslavia) and it remains a state-run enterprise still today. This becomes apparent in many ways, including a breakfast buffet that is far less appetizing than the one at my hotel in Brussels. But the most revealing thing (and it would disappoint Al Gore) is the grotesque inefficiency of the heating system. There are no individual controls in the rooms. Guests merely control the fan, which pumps out heat in the winter and (one assumes) air conditioning in the summer. That doesn’t sound too unreasonable, but my room stays above 80 degrees even with the fan completely off. So I have been sleeping with the sliding glass door open, even though the outside temperature at night is in the mid-30s. But this is hardly an ideal solution. When the wind blows, I am too cold. When the air is calm, I am too warm. I don’t mean to whine, and I’m still glad to be in such a nice setting, but I can’t help but think that if a government can’t design and operate a hotel efficiently, what hope is there for government health care?

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Legislation being considered on Capitol Hill would create a supposed deficit reduction commission. If politicians were bound by truth-in-advertising, this proposal would be called a tax increase commission. It creates a mechanism that will – at best – replicate the 1982 and 1990 budget summits, both of which were fiscal disasters from the perspective of those who favor limited government. The inevitable result of a “bipartisan” process is a 50/50 deal of “spending cuts” and “tax increases,” but the spending cuts are off the “baseline” (which assumes spending goes up), so even if the changes are real (and they rarely are), they are merely reductions in increases. The tax increases, meanwhile, are real and come on top of all the revenue growth built into current law. Moreover, many of the so-called spending cuts are actually increases in revenue (the “offsetting receipts” charade). Last but not least, this legislation is a stalking horse for VAT (that’s what all the talk about an “antiquated” tax system that needs to be “modernized” is all about). What’s remarkable about this proposal is how Democrats are almost transparent in their desire to lure Republicans into committing political suicide. As demonstrated by the 1982 and 1990 budget deals, everything is examined through the prism of distribution tables once a budget summit or commission commences and the GOP inevitably comes across as the bad guys who try to protect the rich at the expense of the poor. Of course, if Republicans are really stupid enough to travel down this path, they’ll deserve exactly what happens. But some people in Washington are aware that the proposed commission is a recipe for a major tax hike. The Financial Times cites Cato’s Chris Edwards in its report:

The push for a bipartisan commission to deal with the fiscal challenges facing the US gained momentum on Wednesday as 27 senators sponsored revised legislation that would create such a task force. The bill, introduced by Democrat Kent Conrad and Republican Judd Gregg, both fiscal hawks, would charge an 18-member group of serving legislators and administration officials with coming up with a plan to solve what they called “the nation’s long-term fiscal imbalance”. …In a sign that the concept of such a commission is gaining ground politically, anti-tax activists immediately attacked the proposal, saying it would lead to tax increases. Grover Norquist, head of Americans for Tax Reform, published an open letter saying the “commission is unacceptable from a taxpayer perspective” because “it would lead to a guaranteed tax increase”. …Chris Edwards, director of tax policy at the small-government Cato Institute, said a commission was likely to put too much emphasis on tax increases when “long-term projections reveal a spending catastrophe, not a revenue challenge”.

One final comment. It is utterly absurd to categorize Senator Kent Conrad as a fisal hawk. This term supposedly suggests a member who actively pursues deficit reduction. Yet according to the vote rating of the National Taxpayers Union, Conrad’s most recent rating is an F. Which is the same grade he got the previous year, and the year before that, and the year before that. Indeed, Conrad “earned” failing grades in 14 out of 17 years, and got a D in the other three years.

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