Archive for November 9th, 2010

 I’ve already written about the terrible work of the Congressional Budget Office. The CBO did an awful job on the stimulus, for instance, repeatedly asserting that diverting money from the private sector to government somehow would create jobs. CBO also was a disaster on Obamacare, claiming that a giant new entitlement program would reduce budget deficits. And the legislative bureaucracy even has argued that higher tax rates boost growth.

That sounds absurd (and it is), but CBO is not the only taxpayer-funded bureaucracy on Capitol Hill producing this kind of nonsensical analysis. The Congressional Reserach Service just published a new report asserting that higher tax rates will boost economic performance. Here’s an excerpt from that CRS publication.

…it is ambiguous whether tax cuts lead to more or less work, saving, and investment. The expiration of the tax cuts would nevertheless reduce the budget deficit, absent other policy changes, which economic theory predicts would have a positive effect on the economy in the long run.

To be fair, CRS doesn’t actually claim higher taxes are good for growth. And neither does CBO. But CRS and CBO both assert that there is no clear evidence that higher taxes hurt growth. Budget deficits, however, supposedly have a very negative impact on economic performance according to these Capitol Hill bureaucrats. More specifically, CRS and CBO believe that government borrowing leads to higher interest rates, and they think that higher interest rates reduce investment. And since investment is a key to long-run growth, this leads them to endorse any policy – including higher taxes – that reduces red ink.

Taking the CRS and CBO analysis to its logical extreme (and neither bureaucracy has stated that there are limits to their methodology), tax rates of 100 percent would be the most effective way of maximizing prosperity.

This video explains that the real problem is spending, and that deficits are just a symptom of a government that is too big. This is not to say that CRS and CBO are completely wrong. We have record budget deficits and very low interest rates today, but it’s possible that interest rates might be even lower without all the red ink. And it’s certainly true that interest rates are one of the many factors that determine investment choices, so there’s nothing wrong with including them in the equation.

But magnitudes matter. For all intents and purposes, CRS and CBO want us to believe that more government borrowing will have a very significant impact on interest rates and that those higher interest rates will have a very negative impact on investment. Yet neither bureaucracy offers any evidence for these linkages, in large part because the academic research shows that the relationships between deficits, interest rates, and investment are weak.

By contrast, CRS and CBO have no problem supporting higher tax rates – including more double taxation of income that is saved and invested. Yet there is considerable evidence that punitive tax rates have a significant impact not only on decisions to earn income and be productive, but also on decisions whether to consume today or to save and invest (and thus consume in the future). CRS and CBO also assume, rather naively, that politicians would use any additional revenue for deficit reduction instead of new spending.

Let’s call this the triumph of left-wing theory over real-world evidence. To add insult to injury, the sloppy analysis at CRS and CBO is financed by our tax dollars. So we pay bureaucrats so they can tell politicians to seize more money from us. Gee, what’s not to love about a scam like that?

P.S. If Republicans are actually serious about restraining government spending, CRS and CBO are target-rich environments. Just saying.

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I saw a story linked on Instapundit, but it really belonged on The Onion.

Apparently, our tax dollars are being used to fund grief counseling for congressional staffers who will lose their jobs in January because of the elections. Can you think of a better example than this of how Washington is screwed up?

This isn’t just a symbol of fiscal excess (though it definitely belongs in that category). It’s also a sign of the wuss-ification (not a technical term, but you know what I mean) of American society. Are we really so pathetically fragile that we need professional hand-holders for something like this? It’s not like people who work on Capitol Hill don’t know ahead of time about elections.

Besides, there’s a what-goes-around-comes-around element to this story. I’m not trying to be callous. Unemployment can be a terrible thing, particularly for people who have kids. But these congressional staffers spent their days figuring out ways to impose costs on the rest of us. They schemed to reduce our freedoms and take our money. These are people who pushed policies that resulted in job losses for millions of people in the productive sector of the economy.

Asking me to feel sorry for these people is like asking me to have pity on burglars who dislike door locks, alarm systems, and armed homeowners.

Here’s an excerpt from the Politico story.

A staffer for a congressional Democrat who came up short on Tuesday reports that a team of about five people stopped by their offices this morning to talk about payroll, benefits, writing a résumé, and so forth, with staffers who are now job hunting. But one of the staffers was described as a “counselor” to help with the emotional aspect of the loss — and a section in the packet each staffer was given dealt with the stages of grief (for instance, Stage One being anger, and so on). “It was like it was about death,” the staffer said. “It was bizarre.”

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