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Posts Tagged ‘Federal Budget’

The President’s new budget has been unveiled.

There are lots of provisions that deserve detailed attention, but I always look first at the overall trends. Most specifically, I want to see what’s happening with the burden of government spending.

And you probably won’t be surprised to see that Obama isn’t imposing any fiscal restraint. He wants spending to increase more than twice as fast as needed to keep pace with inflation.

Obama 2015 Budget Growth

What makes these numbers so disappointing is that we learned last month that even a modest bit of spending discipline is all that’s needed to balance the budget.

By the way, you probably won’t be surprised to learn that the President also wants a $651 billion tax hike.

That’s in addition to the big fiscal cliff tax hike from early last and the (thankfully smaller) tax increase in the Ryan-Murray budget that was approved late last year.

P.S. Since we’re talking about government spending, I may as well add some more bad news.

I’ve shared some really outrageous examples of government waste, but here’s a new example that has me foaming at the mouth. Government bureaucrats are flying in luxury and sticking taxpayers with big costs. Here are some of the odious details from the Washington Examiner.

What can $4,367 buy? For one NASA employee, it bought a business-class flight from Frankfurt, Germany, to Vienna, Austria. Coach-class fare for the same flight was $39. The federal government spent millions of dollars on thousands of upgraded flights for employees in 2012 and 2013, paying many times more for business and first-class seats than the same flights would have cost in coach or the government-contracted rate. …Agencies report their premium travel expenses to the General Services Administration each year. These reports were obtained by the Washington Examiner through Freedom of Information Act requests. …The most common reasons across agencies for such “premium” flights in 2012 and 2013 were medical necessities and flights with more than 14 hours of travel time.

By the way, “medical necessities” is an easily exploited loophole. All too often, bureaucrats get notes from their doctors saying that they have bad backs (or something similarly dodgy) and that they require extra seating space.

Probably the same doctors who participate in the disability scam.

But I’m digressing. It’s sometimes hard to focus when there are so many examples of foolish government policy.

Let’s look at more examples of taxpayers getting reamed.

One such flight was a trip from Washington, D.C., to Brussels, Belgium, which cost $6,612 instead of $863. Similar mission-required upgrades included several flights to Kuwait for $6,911 instead of $1,471, a flight from D.C. to Tokyo for $7,234 instead of $1,081 and a trip from D.C. to Paris for $6,037 instead of $477. …NASA employees also racked up a long list of flights that cost 26, 72 and even 112 times the cost of coach fares, according to Examiner calculations. Several space agency employees flew from Oslo, Norway, to Tromso, Norway — a trip that should have cost $65. Instead, each flew business class for $4,668. Another NASA employee flew from Frankfurt, Germany, to Cologne, Germany, for $6,851 instead of $133, a flight that cost almost 52 times more than the coach fare. …One flight from D.C. to Hanoi, Vietnam, for an informational meeting cost $15,529 instead of $1,649, according to the agency’s 2012 report.

Frankfurt to Cologne for $6851?!? Did the trip include caviar and a masseuse? A domestic flight in Norway for $4668? Was the plane made of gold?

I do enough international travel to know that these prices are absurd, even if you somehow think bureaucrats should get business class travel (and they shouldn’t).

And as you might suspect, much of the travel was for wasteful boondoggles.

Department of the Interior employees, for example, flew to such exotic locations as Costa Rica, Denmark, Japan and South Africa in 2012. …The Department of Labor sent employees to places like Vietnam and the Philippines for “informational meetings,” conferences and site visits.

The one sliver of good news is that taxpayers didn’t get ripped off to the same extent last year as they did the previous year.

The agencies spent $5.7 million in 2012, almost double the $3 million they paid for premium travel in 2013.

The moral of the story is that lowering overall budgets – as happened in 2013 – is the only effective way of reducing waste.

P.P.S. Want to know why the tax reform plan introduced by Congressman Dave Camp was so uninspiring, as I noted last week?

The answer is that he preemptively acquiesced to the left’s demands that class warfare should guide tax policy. Politico has the details.

Republicans had vowed for more than three years to slash the top individual income tax rate to 25 percent as part of a Tax Code overhaul. …last week Camp abandoned plans for a deep cut in the top marginal tax rate. He settled for 35 percent, which is just 4 percentage points lower than the current one. “It was a distribution issue,” Camp said. Getting all the way down to 25 percent “would have reduced taxes for the top 1 percent” and “I said we would be distributionally neutral.”

In other words, this is the tax code version of the Brezhnev Doctrine. Whenever the left is successful is raising the tax burden on the so-called rich (the top 20 percent already bears two-thirds of the burden), that then supposedly becomes a never-to-be-changed benchmark.

Fortunately, Reagan did not accept the left’s distorted rules and we got the Economic Recovery Tax Act in 1981, which helped trigger the 1980s boom.

And even when Reagan agreed to “distributional neutrality,” as happened as part of the 1986 Tax Reform Act, at least he got something big in exchange.

The Camp plan, by contrast, is thin gruel.

A big rate cut is what powered the last major tax overhaul, in 1986, which delivered tax cuts to every income group while slicing the top rate to 28 percent from a whopping 50 percent. …Lawmakers may look at the proposal and think: “I’m having the world coming down on me” and “all this just to get the rate down 4 points?”

That being said, the Camp plan has plenty of good features, including modest rate reductions and repeal of a few bad loopholes. But it’s accompanied by some really bad provisions, such as increased double taxation and higher taxes on business investment.

P.P.P.S. Long-time readers may remember this amusing Reagan-Obama comparison.

For understandable reasons, that’s what crossed my mind when seeing this example of Obama humor.

I should hasten to add, incidentally, that this is not to suggest I want Obama to do anything about the Ukrainian conflict (other than perhaps encourage decentralized power).

Unless one genuinely thinks that Putin has both the capacity and the desire for global imperialism, it’s hard to see how America’s national security is affected.

But I still appreciate good political humor. I like it when Obama is the target, and I like it even when it’s directed at people like me.

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The President is supposed to release his FY2014 budget tomorrow, more than two months later than required by law.

Based on what it’s rumored to contain, I’ve already explained that nobody should be tricked into thinking that Obama is moving to the center. Though he may not be as far to the left as Senate Democrats.

Not that it would be easy to get to the left of that plan, as cartoonists have ably illustrated.

Anyhow, much of Washington is buzzing about what might be in the President’s proposal.

Well, time to sate your curiosity. I have a leaked copy of the budget for your enjoyment.

Leaked Obama Budget Cartoon

We won’t see actual numbers until tomorrow, but I’m guessing that I’ll be sharing something very similar to the analysis I provided last year and the year before.

P.S. If you enjoy political humor, the Glenn McCoy cartoon in this post is a pretty good summary of what Obama will say in his budget message.

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I wrote about the Ryan budget two days ago, praising it for complying with Mitchell’s Golden Rule and reforming Medicare and Medicaid.

But I believe in being honest and nonpartisan, so I also groused that it wasn’t as good as the 2011 and 2012 versions.

Now it’s time to give the same neutral and dispassionate treatment to the budget proposed by Patty Murray, the Washington Democrat who chairs the Senate Budget Committee.

But I’m going to focus on a theme rather than numbers.

One part of her budget got me particularly excited. Her Committee’s “Foundation for Growth” blueprint makes a very strong assertion about the fiscal and economic history of the Clinton years.

The work done in the 1990s helped grow the economy, create jobs, balance the budget, and put our government on track to eliminate the national debt.

As elaborated in this passage, the 42nd President delivered very good results.

President Bill Clinton entered office in 1993 at a time when the country was facing serious deficit and debt problems. The year before, the federal government was taking in revenue equal 17.5 percent of GDP, but spending was 22.1 percent of the economy—a deficit of 4.7 percent. …The unemployment rate went from 7 percent at the beginning of 1993 to 3.9 percent at the end of 2000. Between 1993 and 2001, our economy gained more than 22 million jobs and experienced the longest economic expansion in our history.

And the Senate Democrats even identified one of the key reasons why economic and fiscal policy was so successful during the 1990s.

…federal spending dropped from 22.1 percent of GDP to 18.2 percent of GDP.

I fully agree with every word reprinted above. That’s the good news.

So what, then, is the bad news?

Well, Senator Murray may have reached the right conclusion, but she was wildly wrong in her analysis. For all intents and purposes, she claims that the 1993 tax hike produced most of the good results.

President Clinton’s 1993 tax deal…brought in new revenue from the wealthiest Americans and…our country created 22 million new jobs and achieved a balanced budget. President Clinton’s tax policies were not the only driver of economic growth, but our leaders’ ability to agree on a fiscally sustainable and economically sound path provided valuable certainty for American families and businesses.

First, let’s dispense with the myth that the 1993 tax hike balanced the budget. I obtained the fiscal forecasts that were produced by both the Congressional Budget Office and the Office of Management and Budget in early 1995 because I wanted to see whether a balanced budget was predicted.

As you can see in the chart, both of those forecasts showed perpetual deficits of about $200 billion. And these forecasts were made nearly 18 months after the Clinton tax hike was implemented.

So if even the White House’s own forecast from OMB didn’t foresee a balanced budget, what caused the actual fiscal situation to be much better than the estimates?

The simple answer is that spending was restrained. You can give credit to Bill Clinton. You can give credit to the GOP Congress that took power in early 1995. You can give the credit to both.

But regardless of who gets the credit, the period of spending restraint that began at that time was the change that produced a budget surplus, not the tax hike that was imposed 18 months earlier and which was associated with perpetual red ink.

But spending restraint tells only part of the story. With the exception of the 1993 tax hike, the Clinton years were a period of shrinking government and free market reform.

Clinton RecordTake a look at my homemade bar chart to compare the good policies of the 1990s with the bad policies. It’s not even close.

You may be thinking that my comparison is completely unscientific, and you’re right. I probably overlooked some good policies and some bad policies.

And my assumptions about weighting are very simplistic. Everything is equally important, with a big exception in that I made the government spending variable three times as important as everything else.

Why? Well, I think reducing the burden of government spending during the Clinton years was a major achievement.

But maybe we shouldn’t rely on my gut instincts. So let’s set aside my created-at-the-spur-of-the-moment bar chart and look at something that is scientific.

This chart is taken directly from Economic Freedom of the World, which uses dozens of variables to measure the overall burden of government.

As you can see, the United States score improved significantly during the Clinton years, showing that economic freedom was expanding and the size and scope of government was shrinking.

In other words, Patty Murray is correct. She is absolutely right to claim that Bill Clinton’s policies “helped grow the economy, create jobs, balance the budget.”

Now she needs to realize that those policies were small government and free markets.

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One of the big stories from Washington is that there may be another fight over the debt limit, which could mean…gasp, hide the women and children…gridlock, downgrades, government shutdown, default, and tooth decay.

Okay, perhaps not tooth decay, but the DC establishment nonetheless is aghast.

Last year, there were actually two big confrontations between House Republicans and President Obama.

The first fight occurred early in the year and revolved around spending levels for the remainder of the 2011 fiscal year. I explained in February of that year how advocates of smaller government could prevail in a government shutdown fight, especially since the “essential” parts of the government wouldn’t be affected.

But I wasn’t surprised when GOPers buckled under pressure and accepted a deal that – at best – could be categorized as a kiss-your-sister compromise (and, as I noted elsewhere, our sister wasn’t Claudia Schiffer).

Then we had the big debt limit fight later in the year, which led to absurd claims that failure to increase the debt limit would lead to default – even though the federal government was collecting ten times as much revenue as was needed to pay interest on the debt.

Once again, Republicans were unable to withstand the demagoguery and they basically gave Obama what he wanted after agreeing to a “supercommittee” that was designed to seduce them into a tax increase.

Now the game is about to start over. It’s deja vu all over again, as Yogi Berra might say.

Here’s some of what the L.A. Times reported.

Republicans in Congress are heading into summer much the way they did last year — instigating a showdown with the White House by demanding massive federal budget cuts in exchange for what used to be the routine task of raising the nation’s debt limit to pay the government’s bills. House Speaker John A. Boehner (R-Ohio) is doubling down on the strategy that ended in mixed results last year after the country came to the brink of a federal default before a deal was struck with President Obama. In that go-round, both sides saw their approval ratings with voters plummet and the nation’s credit was downgraded. …The risk for Republicans is not only in presenting another high-stakes showdown at a time when voters have grown weary of the gridlock in Washington.

The reporter’s assertion that the debt limit fight led to the downgrade is a bit silly, as I explain here, but that’s now part of the official narrative.

On a separate matter, I can’t help but shake my head with frustration that GOPers still haven’t learned that America’s fiscal problem is too much spending, and that deficits and debt are symptoms of that problem. Here’s another passage from the L.A. Times story.

“The issue is the debt,” Boehner said Sunday on ABC’s “This Week With George Stephanopoulos.” “Dealing with our deficit and our debt would help create more economic growth in the United States and it would lift this cloud of uncertainty that’s causing employers to wonder what’s next.”

No, Mr. Speaker. The problem is spending, spending, spending.

Returning to the main issue, the debt limit isn’t the only big fiscal fight that may happen this year. There will also be the spending bills for the 2013 fiscal year, which starts on October 1 of this year. That will mean another fight, particularly since the left has no intention of abiding by the spending limit that was part of last year’s debt limit deal.

And if Republicans hold firm, that means another “government shutdown.” Though it really should be called a “government slowdown” since it’s only the non-essential bureaucrats who get sent home.

In any event, since I’m glum about the likelihood of anything good happening, let’s at least enjoy some good cartoons from Jeff MacNelly. He passed away a number of years ago, but these cartoons from the mid-1990s are just as applicable today as they were then.

These are amusing cartoons, so long as you don’t actually think about the fact that government is bloated in part because Washington is littered with programs, departments, and agencies that are filled with non-essential bureaucrats. And don’t forget that these bureaucrats are overpaid, getting, on average, twice the compensation of workers in the productive sector of the economy.

But I don’t want to end this post on a sour note, so here are some good jokes from the late-night comics about government shutdowns.

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A few months ago, I wrote some very nice things about a budget plan put together by Senator Rand Paul of Kentucky, noting that:

Senator Paul and his colleagues are highlighting the fact that the plan generates a balanced budget in just five years. That’s a good outcome, but it should be a secondary selling point. All the good results in the plan – including the reduction in red ink and the flat tax – are made possible because the overall burden of federal spending is lowered.

Not surprising, one of the columnists at the Washington Post has a different perspective. In his hyperventilating column today, Dana Milbank says that Senator’s Paul’s proposal is “monstrous” and “nasty” for reining in the federal government.

The tea party darling’s plan would, among other things, cut the average Social Security recipient’s benefits by nearly 40 percent, reduce defense spending by nearly $100 billion below a level the Pentagon calls “devastating,” and end the current Medicare program in two years — even for current recipients, according to the Senate Budget Committee staff. It would eliminate the education, energy, housing and commerce departments, decimate homeland security, eviscerate programs for the poor, and give the wealthy a bonanza by reducing tax rates to 17 percent and eliminating taxes on capital gains and dividends. It is, all in all, quite a nasty piece of work.

Setting aside some of the inaccuracies (Social Security benefits would rise, for instance, but not as fast as they would under current law), I have two reactions to Milbank’s screed.

1. Milbank seems to think that Rand Paul’s budget is heartless and mean. Does that mean it would be nice and caring to let America descend into Greek-style fiscal chaos and economic decline? Should the United States be more like Europe, even though living standards are about 30 percent lower?

2. More amusingly, what does he think about the fact that the Senate voted against Obama’s tax-and-spend budget by a stunning margin of 99-0? That’s even worse than the 97-0 vote against the budget Obama proposed last year. The 16 votes for Rand Paul’s budget may not sound like much, but 16 is a lot more than zero.

Setting aside the snarky comments, all that Rand Paul is proposing is to limit the growth of government so that the federal budget grows by an average of about 2 percent annually.

Other nations, such as Canada and New Zealand were much more frugal when they solved their fiscal problems. But for leftists such as Milbank, any fiscal restraint apparently is “nasty” and “monsrous.”

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Many people think that my opposition to tax increases is ideological, but they’re wrong.

  • If someone told me that I magically had the power to flick a switch and give the country a flat tax, but that simple and fair tax system would only be possible if the rate was set high enough to give the government an extra $100 billion of revenue each year, I would take the deal in a heartbeat.
  • If I was given the opportunity to abolish the Departments of Energy, Education, Transportation, Agriculture, and Housing and Urban Development, but I had to give the politicians an extra $100 billion of revenue per year in exchange, I’d say yes right away.
  • And if I had the chance to adopt Medicare reform, Medicaid reform, and Social Security reform, and all I had to give up was $100 billion of added annual tax revenue, I wouldn’t hesitate to give my approval.

In other words, I’m willing to go along with a tax hike so long as I get an acceptable offer. And my definition of acceptable offer isn’t even that onerous. I’m willing to acquiesce to a tax hike if the net long-run effect is more freedom, liberty, and prosperity.

Heck, I’ve even said on national TV that I would go back to Bill Clinton’s tax policy if I could undo all the reckless spending and regulation of the Bush-Obama years.

So if my views on this topic are so open-minded, reasonable, and pragmatic, why am I always writing posts that are critical of tax hikes?

But before answering that question, let’s present the views of some other people. At the end of last month, I was at the Economics Bloggers Forum put on by the good folks at the Kauffman Foundation in Kansas City. Lots of interesting people from all parts of the spectrum.

My favorite panel was entitled “After the Election, How Do We Fix the Budget?” and it featured John Goodman of the National Center for Policy Analysis, Ezra Klein of the Washington Post, and Donald Marron of the Tax Policy Center.

All of the presentations were interesting, but I want to focus on Donald’s remarks. He made the case that a big budget deal with higher taxes might be desirable because that kind of  “grand bargain” would include pro-growth tax reform and much-need entitlement reform.

You can watch his presentation by clicking on the “Panel 2″ video and going to the 17:15 mark. Donald’s argument is that tax preferences are inefficient and distorting, so it would be a win-win scenario to get rid of them as part of a deal that also deals with entitlement programs. The government does collect more revenue, but he’s describing a worthwhile package. At least in theory.

Donald’s not the only person to make this argument. Here’s some of what Morgen Richmond recently wrote at the conservative Hotair.com website.

I am mystified why the GOP has adopted such a hard line when it comes to tax policy, particularly within the framework of a budget deal which would include a major re-structuring of federal entitlement programs. …given what may be a once-in-a-lifetime opportunity to finally deal with entitlements, personally, as a member of the near-1%, I would at least grudgingly accept a moderate tax increase knowing that we’ve set the nation on a sustainable path. Further, I would gladly – enthusiastically! – support the possibility of a moderate tax increase as part of the 2012 GOP budget platform, as long as it’s clear that this would only be on the table as part of a comprehensive deal which included entitlement reform, along the lines proposed by Ryan. …I’m…suggesting we…consider adding a little revenue from higher wage earners, or least a placeholder to do so. Just something to allow our nominee to credibly argue that when it comes to restoring the fiscal prosperity of our nation, everything is on the table. Because frankly, it should be.

Morgen’s premise is to the left of Donald’s because he is willing to trade class-warfare tax hikes for entitlement reform. But this also might be an acceptable swap.

And remember the GOP presidential debate, where all the Republican candidates rejected a hypothetical deal featuring $10 of spending cuts for every $1 of tax hikes? Well, here’s what Kevin Williamson of National Review said in response.

Every candidate said he would oppose a…plan that contained a 10:1 ratio of cuts to taxes. Chalk one up to the crazies. If Congress wanted to get rid of tax exemptions and exclusions amounting to $100 billion in new taxes in exchange for $1 trillion in cuts, and Republicans turned the deal down, I would personally drive down to Washington and pelt them with rotten vegetables, and possibly with rocks. $100 billion in new taxes plus $1 trillion in cuts balances the budget in 2012.

I wouldn’t mind throwing rocks at politicians, so sign me up. And I’d also take the 10-1 deal Kevin is describing.

But here’s where theory gets crushed by reality. Marron, Richmond, and Williamson are describing deals that will never happen. Sort of like me speculating on whether I’d be willing to play for the New York Yankees, but only if they guarantee me $5 million per year.

As a practical matter, I’m opposed to tax increases because the odds of getting a deal that moves policy in a constructive direction are somewhere between…well, I was going to write “slim and none,” but it’s more accurate to say that the odds range from are-you-smoking-crack to you-must-be-f-ing-kidding.

Here are three reasons why.

1. The supposed spending cuts in a “grand bargain” would be based on dishonest Washington math. If I’m supposed to take some sort of deal, whether it’s $10-$1, $3-$1, or $1-$1, I want the spending cuts to be genuine, not the usual game of having a program grow by 6 percent instead of 8 percent and pretending there’s been a 2 percent cut. Sadly, what I want doesn’t matter. Budget policy in Washington is governed by a fundamentally dishonest process that says that reductions in increases are actually cuts.

2. Proponents of the grand bargain always say that any new tax revenues will be generated by closing loopholes, deductions, exclusions, and other preferences. Since I’ve railed against corrupt tax-code distortions, that should be music to my ears. Unfortunately, as I explained last year, the people at the Joint Committee on Taxation use a very biased benchmark when measuring so-called tax expenditures. As a result, a “grand bargain” would be more likely to result in an increase in the (already onerous) double taxation of income that is saved and invested rather than the elimination of genuine loopholes such as the exclusion for employer-provided health insurance. And if Obama prevailed, we’d also have higher income tax rates as well.

3. Not all entitlement reform is created equal. The right kind of reform changes the structure of programs to promote market forces, federalism, and fiscal sustainability. The wrong kind of reform, by contrast, keeps the existing structure in place and tries to address the fiscal train wreck with some combination of means-testing and price controls. Now, take a wild guess at which approach was adopted by the Gang of Six and the Simpson-Bowles fiscal commission, plans that often are cited as providing a framework for a grand bargain? You won’t be surprised to learn that neither plan included the real entitlement reforms from the Ryan budget.

Simply stated, there is no practical way to get a good deal from either the Democrats in the Senate or the Obama Administration. Notwithstanding the good intentions of Marron, Richmond, and Williamson, any grand bargain would be a failure that leads to higher spending and more red ink, just as we saw after the 1982 and 1990 budget deals. The tax increases would not be relatively benign loophole closers. Instead, the economy would be hit by higher marginal tax rates on work, savings, investment, and entrepreneurship. And the entitlement reform would be unsustainable gimmicks rather than structural changes to fix the underlying programs.

This is a prediction, not a statement of fact, so I could be wrong. Indeed, I hope my prediction is wrong. But history is on my side, so I think supporters of the so-called grand bargain have an obligation to tell us why a budget deal today would produce a good result notwithstanding the  real-world concerns outlined above.

And speaking of history, the left sometimes claims that the 1993 tax hike generated budget surpluses later in the decade, but numbers from Bill Clinton’s Office of Management and Budget puncture this myth.

The bottom line is that more than 100 percent of America’s fiscal problem is because of too much spending. As such, even though higher taxes theoretically could be part of a grand bargain to address the nation’s spending crisis, I’m reminded of Samuel Johnson’s famous quote about second marriages being a triumph of hope over experience.

But some second marriages are successful, so proponents of the grand bargain are more akin to people going on safaris in search of Bigfoot, the abominable snowman, unicorns, and the Loch Ness monster. But I’ll bestow upon them a Charlie Brown Award, so at least they’ll have something to hang on the wall.

P.S. Since I don’t want to tear down the ideas of others without offering a solution of my own, here’s the simple approach that’s needed to balance the budget.

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I posted yesterday about Obama’s demagoguery against the Ryan budget and criticized the President for sloppy budget math, tedious class warfare, and a deeply flawed grasp of America’s founding principles.

This was followed by an opportunity yesterday evening to debate Jared Bernstein on the PBS NewsHour.

Here’s the interview, though I warn you that excerpts of Obama’s  speech take up the first 3:17 of the video, and you won’t get to the debate until about 4:20.

A few observations about the interview (other than that I need a haircut).

By the way, Jared Bernstein is a co-author of the infamous White House report that claimed unemployment would never rise above 8 percent if we squandered $800 billion on a faux stimulus package based on Keynesian economics. But I’m a nice guy, so I chose not to raise that issue.

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