Since it’s basically a way of protecting property rights, environmental protection is a legitimate function of government.

That’s the easy part. It gets a lot harder when calculating costs and benefits.

Everyone surely agrees that a chemical company shouldn’t be able to dump toxic waste in a town’s reservoir because the costs would out-weigh the benefits. And presumably everyone also would concur that banning private automobiles would be crazy because this would be another example of costs being greater than benefits.

But there’s a lot of stuff in between those extreme examples where agreement is elusive.

And I’ll admit my bias. I don’t trust the modern environmental movement, particularly the climate alarmists. There are just too many cases where green advocates act like their real goal is statism.

Moreover, the hypocrisy of some environmental dilettantes is downright staggering.

And they also seem to be waging a regulatory war on modern life.

I’m giving all this background to create context for an article I want to discuss.

John Tierney, a columnist for the New York Times. has a piece that debunks recycling. He starts by looking back 20 years.

As you sort everything into the right bins, you probably assume that recycling is helping your community and protecting the environment. But is it? Are you in fact wasting your time? In 1996, …I presented plenty of evidence that recycling was costly and ineffectual, but its defenders said that…the modern recycling movement had really just begun just a few years earlier, they predicted it would flourish as the industry matured and the public learned how to recycle properly.

So what’s happened over the years? Has recycling become more feasible and rational?

Not exactly. From a cost-benefit perspective, it’s a scam. It simply doesn’t make sense.

…when it comes to the bottom line, both economically and environmentally, not much has changed at all. Despite decades of exhortations and mandates, it’s still typically more expensive for municipalities to recycle household waste than to send it to a landfill. …the national rate of recycling has stagnated in recent years. …The future for recycling looks even worse. As cities move beyond recycling paper and metals, and into glass, food scraps and assorted plastics, the costs rise sharply while the environmental benefits decline and sometimes vanish. …“Trying to turn garbage into gold costs a lot more than expected…”

Tierney specifically addresses the issue of greenhouse gasses.

…well-informed and educated people have no idea of the relative costs and benefits. …Here’s some perspective: To offset the greenhouse impact of one passenger’s round-trip flight between New York and London, you’d have to recycle roughly 40,000 plastic bottles, assuming you fly coach. …if you wash plastic in water that was heated by coal-derived electricity, then the net effect of your recycling could be more carbon in the atmosphere.

A traditional argument for mandated recycling is that landfill space is vanishing.

But that’s always been bunk.

One of the original goals of the recycling movement was to avert a supposed crisis because there was no room left in the nation’s landfills. But that media-inspired fear was never realistic in a country with so much open space. In reporting the 1996 article I found that all the trash generated by Americans for the next 1,000 years would fit on one-tenth of 1 percent of the land available for grazing. And that tiny amount of land wouldn’t be lost forever, because landfills are typically covered with grass and converted to parkland… Though most cities shun landfills, they have been welcomed in rural communities that reap large economic benefits (and have plenty of greenery to buffer residents from the sights and smells).

Moreover, incinerators are another practical option.

Modern incinerators, while politically unpopular in the United States, release so few pollutants that they’ve been widely accepted in the eco-conscious countries of Northern Europe and Japan for generating clean energy.

The bottom line is that recycling is an expensive feel-good gesture by guilt-ridden rich people.

In New York City, the net cost of recycling a ton of trash is now $300 more than it would cost to bury the trash instead. That adds up to millions of extra dollars per year — about half the budget of the parks department — that New Yorkers are spending for the privilege of recycling. That money could buy far more valuable benefits, including more significant reductions in greenhouse emissions. …why do so many public officials keep vowing to do more of it? Special-interest politics is one reason — pressure from green groups — but it’s also because recycling intuitively appeals to many voters: It makes people feel virtuous, especially affluent people who feel guilty about their enormous environmental footprint.

I don’t have a strong opinion on whether rich people should feel guilty about their resource consumption.

But I definitely get agitated when they try to atone for their guilt by foisting costly and ineffective policies on other people.

P.S. That’s why I consider myself to be pro-environment while also being a skeptic of environmentalists. Simply stated, too many of these people are nuts.

P.P.S. Some environmental policies lead to disgusting examples of government thuggery (some of which, fortunately, are not successful).

Chile is one of the world’s economic success stories.

Reforms in the 1980s and 1990s liberalized the nation’s economy and resulted in rapid increases in economic growth and big reductions in poverty.

Unfortunately, the current government is pushing policy in the wrong direction.

This drift toward statism has been unfortunate, featuring higher tax burdens, more spending, and increased intervention.

But I’ve always assumed that Chile’s private pension system would be safe from attack. After all, as noted in a new column for Investor’s Business Daily by Monica Showalter, it’s been a huge success.

Chile’s 35-year old private pension program…is working spectacularly well. …savings, ownership, control, responsibility and wealth building…are the pillars of the Chilean Model — and have as their ultimate reward a comfortable retirement, which Chileans now do.

But Monica warns that an ongoing education campaign is necessary to make sure that workers realize the benefits of the system.

And that’s been lacking.

…successive socialist governments in Chile have pretty well limited their recognition of the Chilean Model to criticism of it, many of them still unhappy that it’s not a state model that’s providing such high returns. …All the issues that had been called problems were largely the result of widespread public ignorance of economics…the people who should know better aren’t educating the public.

Given that Chile has enjoyed such strong growth in recent decades, you would think ordinary people would be happy, even if they’re not aware of the relationship between pro-market reforms and rising living standards.

And since Chile has grown far faster than other nations in Latin America, you would think that the political elite actually would understand that there is a strong relationship between economic freedom and national prosperity.

But that’s not the case, and the current left-leaning government is an obvious example. It even created a commission to review Chile’s pension system, and that decision was perceived as an effort – at least in part – to undermine support for the private system.

Fortunately, it’s very difficult to look closely at the Chilean system and conclude that personal retirement accounts have been unsuccessful.

Professor Olivia Mitchell of the Wharton School at the University of Pennsylvania served on the Commission and wrote a column based on that experience for Forbes.

She starts by acknowledging Chile’s personal retirement accounts are a gold standard for reform and then asks why there’s a desire to change something that works.

Chile’s retirement system has been hailed as “best in class” by pension experts near and far. The country’s fabled individual and privately-managed accounts include around 10 million affiliates, hold $160 billion in investments, and pay retirement benefits to over a million retirees. So why did President Michelle Bachelet establish a Pension Reform Commission that just delivered to her 58 specific reforms and three comprehensive proposals to overhaul remodel Chile’s retirement system?

A benign explanation for the Commission is that it’s a helpful way of helping people learn about the system.

Ms. Mitchell (no relation, by the way) points out that workers in Chile suffer from genuine and widespread ignorance.

…only a handful (19% of men, 11% of women) know how much they contribute to the accounts: 10% of pay. This underscores my own research showing that most Chileans had no idea how much they paid in commissions, how their money was invested, or how their benefits would be determined at retirement. Only one-fifth of the participants had the faintest idea about how much money they held in their accounts (even within plus or minus 20%!).

But if those people paid close attention, they’d learn that the private system – particularly when combined with the government’s safety net – does a very good job of protecting the less fortunate.

Chile’s retirement system actually does a rather remarkable job of protecting against old age financial destitution. …Adding the means-tested to the self-financed pension generates replacement rates of about 64%, levels even above what retirees in the US get from social security.

Nonetheless, some of the Commissioners want to weaken the current system and give government a bigger role.

Prof. Mitchell is not impressed by their thinking.

…reforms offered by others on the panel have a major flaw: these would – slowly or rapidly – eat into the money so painstakingly built up in the private accounts over time. My view, along with the majority of the Commissioners, was that wrecking Chile’s funded pension system is not the answer. Instead, this would destroy decades of national saving and economic growth, not to mention the well-being of future generations. This is an especially critical concern in view of Chile’s rapid aging: this nation is set to become the oldest country in South America within 15 years. …Chile needs a resilient retirement system that encourages continued work, incentivizes saving, and offers credible pension promises that can actually be paid when the time comes. It would be unfortunate to see Chile dismantle the system that has done so well for so many, over the past 35 years.

The good news, as you can see from the column, is that most Commissioners don’t want radical changes to Chile’s private pension system.

This is a positive outcome. Assuming, of course, that the current left-wing government follows their recommendations.

What we don’t know, though, is whether other governments learn any lessons from all this analysis.

America’s Social Security system has gigantic unfunded liabilities, for instance, and many other nations also have big fiscal shortfalls in their tax-and-transfer systems operated by their governments.

The right answer is a transition to personal retirement accounts. That’s what will happen if policy makers from elsewhere in the world learn from Chile’s success.

P.S. This comparison of Chile and Cuba tells you all you need to know about markets vs statism.

P.P.S. Here’s a comparison of real savings in Australia’s system of private accounts compared to the growing debts of America’s pay-as-you-go government-run system.

P.P.P.S. If you want to see a strong case for personal retirement accounts, click here for an explanation from the man most responsible for Chile’s remarkable reforms.

Whenever I need to explain the difference between socialism and capitalism, I start by noting that socialism technically is different from Obama-style big-government redistributionism and cronyism.

Socialism involves something more pervasive, involving government ownership of the means of production (which, if you read this postscript, is why Jeremy Corbyn in the United Kingdom is far more radical than previous Labour Party leaders).

It also means eviscerating the competitive price system as a means of determining value and allocating resources, relying instead on politicians and bureaucrats to arbitrarily wield that power (some American politicians favor this latter approach in certain circumstances).

Needless to say, socialism has an unmatched track record of failure. It was such a disaster than only a few supposedly high-ranked academics (see this postscript) thought it worked.

But what about high-ranked communists who grew up under socialism. Did they think it worked?

The Houston Chronicle dug into its archives to produce a story about an incident that may have played a big role in history. It’s about a senior communist functionary who was exposed to a slice of capitalism.

Yeltsin visited mission control and a mock-up of a space station. According to Houston Chronicle reporter Stefanie Asin, it wasn’t all the screens, dials, and wonder at NASA that blew up his skirt, it was the unscheduled trip inside a nearby Randall’s location. Yeltsin, then 58, “roamed the aisles of Randall’s nodding his head in amazement,” wrote Asin. He told his fellow Russians in his entourage that if their people, who often must wait in line for most goods, saw the conditions of U.S. supermarkets, “there would be a revolution.” …In the Chronicle photos, you can see him marveling at the produce section, the fresh fish market, and the checkout counter. He looked especially excited about frozen pudding pops. “Even the Politburo doesn’t have this choice. Not even Mr. Gorbachev,” he said.

This random trip to a typical supermarket may have changed history.

About a year after the Russian leader left office, a Yeltsin biographer later wrote that on the plane ride to Yeltsin’s next destination, Miami, he was despondent. He couldn’t stop thinking about the plentiful food at the grocery store and what his countrymen had to subsist on in Russia. In Yeltsin’s own autobiography, he wrote about the experience at Randall’s, which shattered his view of communism, according to pundits. Two years later, he left the Communist Party and began making reforms to turn the economic tide in Russia. …“When I saw those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people,” Yeltsin wrote. “That such a potentially super-rich country as ours has been brought to a state of such poverty! It is terrible to think of it.”

Since the Soviet Union was mired in poverty at the time, Yeltsin presumably was speculating about the potential wealth of his country.

And the good news is that the rigid communism of the Soviet Union is gone. Heck, the Soviet Union doesn’t even exist. Reagan was right when he predicted  the triumph of freedom, with Marxism being relegated to the “ash heap of history.”

But the bad news is that Russia (the most prominent of the 15 nations to emerge after the crackup of the Soviet Union) is a laggard on economic reform. There was a shift away from close-to-pure communism in the 1990s, to be sure, but the country still has a long way to go before it can be considered capitalist.

Here’s a back-of-the-envelope “statism spectrum” that I created. It’s designed to show that there are no pure libertarian paradises, not even Hong Kong. And there are no pure statist dystopias, not even North Korea (though that despotic regime is as close to pure evil as exists in the world).

Russia, I’m guessing, would be somewhere between China and Mexico.

And this gives me a chance to close with an important point.

Perfect economic policy almost surely is an impossible goal. But that’s fine. We can still enjoy good growth so long as we strive to at least move in the right direction. As I explained back in 2012, the private sector is capable of producing impressive results so long as it has sufficient breathing room to operate.

P.S. If you want a simpler and more amusing explanation of different economic systems, here’s the famous “two cows” approach.

P.P.S. The United States isn’t a socialist nation, but we’re not fully immune to that destructive virus. After all, we have a government-run rail company in America, a government-run postal service, a government-run retirement system, and a government-run air traffic control system, all things that would function far more efficiently in the private sector.

Back in March, I asked why Republican presidential candidates were willing to openly violate federal anti-bribery law by supporting agriculture subsidies in exchange for campaign loot.

My question was merely rhetorical, of course, since politician supposedly aren’t violating the law because the money goes to their campaigns rather than their personal bank accounts.

But that doesn’t change the fact that there’s a sleazy quid pro quo.

If you think I’m exaggerating, you’ll change your mind after reading these excerpts from a column by the superb muckraking journalist Tim Carney.

The target of his piece in the Washington Examiner is Congressman Stephen Fincher of Tennessee.

Congressman Stephen Fincher…, once an opponent of the Export-Import Bank —a federal agency that subsidizes foreign buyers of U.S.-made goods — now is trying to undermine his party’s leadership by teaming up with Nancy Pelosi and her party in order to reauthorize Ex-Im Bank as President Obama and his big donors in the business lobby have demanded. …Fincher has pulled up his Tennessee roots and is now firmly planted in D.C. Instead of serving Western Tennessee, Fincher..now represents Wall Street and K Street.

Is this hyperbole?

Well, check out what Tim found out about his fundraising.

Fincher has raised a quarter-million for his re-election, according to his most recent campaign finance filing. Exactly two of his approximately 150 donations have come from Tennessee residents. Tennessee residents have given Fincher a combined $750, which rounds to 0 percent of his money raised.

And why are out-of-state donors lining up to give Fincher money?

Draw your own conclusions.

Fincher introduced his bill to reauthorize Ex-Im on Jan. 28. Two days later his campaign deposited a $2,000 check from General Electric, Ex-Im’s second-largest beneficiary and most ruthless defender. …Boeing (which benefits from 40 percent of Ex-Im subsidies) and United Technologies chipped in about a week and a half later. All of Ex-Im’s top beneficiaries, exporters and lenders (notably Ex-Im’s leading lender JPMorgan), have given to Fincher’s re-election.

The corrupt Ex-Im Bank is just one example of the for-sale sign in Fincher’s office.

Odious agriculture subsidies also can be purchased, even though none of the loot winds up in the pockets of Tennesseans.

Fincher has voted to protect the federal sugar program, whereby our government keeps out foreign sugar and issues taxpayer-backed loans to guarantee high prices for U.S. sugar growers. This hurts families, U.S.-based foodmakers and the economy, while benefitting a handful of privileged sugar companies. Tennessee produces no sugarcane or sugar beets… But Fincher’s donors do. Sugar Cane Growers of Florida PAC, American Crystal Sugar PAC, American Sugar Cane League PAC, Florida Sugar Cane League PAC, Southern Minnesota Beet Sugar Co-Op PAC and the U.S. Beet Sugar PAC are all Fincher donors and all beneficiaries of the corporate welfare Fincher supports.

By the way, I should hasten to add that this doesn’t mean that Fincher is especially corrupt by congressional standards.

Or that he’s completely bad. I’ve made the point before that most politicians are a combination of good and bad characteristics.

It’s like they have a devil on one shoulder whispering bad advice and an angel on the other shoulder trying to get them to do the right thing.

And when the devil has a lot of PAC checks and the angel is a wonky think tank economist like yours truly, the bad guys oftentimes triumph.

But not always. Fincher, for instance, has voted for budgets based on genuine entitlement reform. And in the grand scheme of things, reining in those programs is much more important to the nation’s long-run fiscal health than curtailing sleazy corporate welfare.

That’s still no excuse, though, for Fincher’s behavior. He’s using the coercive power of government to steal from one group of people in order to provide unearned and undeserved goodies for another group.

Democrats do the same thing, of course, and they’re quite promiscuous. They seemingly favor all forms of redistribution, ranging from traditional welfare to corporate welfare.

But you can make a strong argument that Republicans are being even more immoral since they generally redistribute from the poor and middle class to the rich.

P.S. Since I’m not feeling particularly charitable to the political class, let’s close with some biting humor against the crowd in Washington.

Regular readers know I’m not a big fan of Pope Francis, and I’ve shared some criticism based on the insights of Walter Williams and Thomas Sowell.

But I definitely think this clever image is worth sharing.

Reminds me of this Star Wars-themed joke about Washington.

P.P.S. If you like mocking the political class, I have lots of other material for you to enjoy. You can read about how the men and women in DC spend their time screwing us and wasting our money. We also have some examples of what people in Montana, Louisiana, Nevada, and Wyoming think about big-spending politicians.

This little girl has a succinct message for our political masters, here are a couple of good images capturing the relationship between politicians and taxpayers, and here is a somewhat off-color Little Johnny joke. Speaking of risqué humor, here’s a portrayal of a politician and lobbyist interacting.

Returning to G-rated material, you can read about the blind rabbit who finds a politician. And everyone enjoys political satire, as can be found in these excerpts from the always popular Dave Barry.

Let’s not forgot to include this joke by doctors about the crowd in Washington. And last but not least, here’s the motivational motto of the average politician.

P.P.P.S. One serious point. If we want to clean up corruption in Washington, more campaign finance laws won’t work. The only way to reduce corruption is to shrink the size of government.

What’s worse, Democrats who deliberately seek to make government bigger because of their ideological belief in statism, or Republicans who sort of realize that big government is bad yet make government bigger because of incompetence?

I’m not sure, though this is a perfect example of why I often joke that Washington is divided between the Evil Party and the Stupid Party.

And the fight over spending caps is a perfect example.

President Obama and the Democrats despise this small bit of fiscal discipline, which was created as part of the 2011 Budget Control Act (BCA). They’re aggressively seeking to eviscerate the law, particularly the sequester enforcement mechanism. And since they believe in bigger government, their actions make sense.

Republicans, by contrast, claim to believe in smaller government and fiscal responsibility. So they should be in the driver’s seat on this fight. After all, the BCA is the law of the land and the spending caps – assuming they are not changed – will automatically limit overspending in Washington. In other words, the BCA fight is like the fight over reauthorizing the corrupt Export-Import Bank. Republicans can win simply by doing nothing.

Seems like a slam dunk win for taxpayers, right?

Not exactly. With apologies for mixing my sports metaphors, the Republicans are poised to fumble the ball at the one-yard line.

Which would be a very depressing development. In this interview, I explain that preserving the spending caps should be the most important goal for advocates of limited government.

And you’ll see that I also explained that fighting for good policy today is necessary if we want to avoid huge fiscal problems in the future.

But that doesn’t seem to matter very much for a lot of Republicans.

Let’s look at what other fiscal policy experts are saying about this issue.

Writing for Reason, Veronique de Rugy of the Mercatus Center explains that the key to good fiscal policy (including tax cuts) is to have effective and enforceable long-run spending restraint.

If lawmakers want big tax cuts, there will need to be commensurately greater levels of spending restraint. The difficulty, of course, is to persuade politicians to implement such spending constraints and actually stick to them in the long run.


That’s basically the same message I shared yesterday.

President Obama, however, has threatened to veto the budget and shut down the government if Congress doesn’t agree to bust the current spending caps.

And plenty of Republicans, either because they also want to buy votes with other people’s money or because they’re scared of a shutdown fight, are willing to throw in the towel.

The battle isn’t lost, at least not yet, but it’s very discouraging that this fight even exists. Controlling discretionary spending should be the easy part.

After all, if politicians balk at the modest requirements of the BCA, what hope is there that they’ll properly address entitlements? As Veronique notes, those are the programs that are driving America’s long-run fiscal crisis.

…the only realistic way to limit spending growth to 2 or 3 percent per year is to reform the fastest-growing programs in our budget, or the so-called entitlements.

What makes this issue especially frustrating is that we know sustained spending restraint is possible.

Nations such have Switzerland have shown how spending caps produce very positive results.

But that requires some commitment for good policy by at least some people in Washington.

And that may be lacking. In a column for the Wall Street Journal, Steve Moore takes a closer look at how GOPers are poised to throw away their biggest fiscal victory of the Obama years.

Let’s start with an excerpt illustrating how the BCA and sequestration have worked.

…the Budget Control Act helped slam the brakes on Mr. Obama’s first-term spending spree. …In 2009 the federal government accounted for nearly a quarter of the American economy, 24.4%. That fell by 2014 to 20.3% of GDP.

He’s right. I’ve shared similar numbers showing how Obama’s spending binge was halted.

And that’s led to the biggest five-year reduction in the burden of government spending since the end of World War II.

But fiscal sobriety needs to be sustained. Deciding to have “just one drink” at the big spender’s bar is not a good way to stay on the wagon.

And Steve shares some bad news on this issue.

Congress and the White House are quietly negotiating a deal for the new fiscal year that would bust the spending caps that have brought down the deficit. Breaking the caps yet again—this would be the third violation in four years—is lousy policy. …the GOP is reportedly forging a compromise with Mr. Obama that would raise the caps by $70 billion to $100 billion. …What’s worse, the deal would likely raise the spending caps permanently, meaning…nearly $1 trillion…over the next decade.

By the way, there’s a reason why this sounds like déjà vu all over again. Republicans already agreed to bust the spending caps at the end of 2013.

That was an unambiguous victory for Obama.

And now it may happen again. Steven discusses the implications of this looming GOP surrender.

The mystery is why Republicans are so ready to throw away their best fiscal weapon… Liberals hate the sequester because it squeezes their favorite programs, from transit grants to Head Start. But it is the law of the land. President Obama can do nothing to circumvent the sequester—unless Republicans in Congress cave in. …Busting the spending caps will only reverse progress toward a balanced budget, fatten liberal social programs, and confirm what many tea-party voters have been shouting for years: that Republicans break their promises once elected.

For all intents and purposes, the battle over BCA spending caps is a huge test of GOP sincerity. Do they really believe in limited government, or is that just empty rhetoric they reserve for campaign speeches.

P.S. Some Republicans argue that they favor smaller government, but that the sequester is “unfair” and the spending caps are too “harsh” because the defense budget is disproportionately affected.

It’s true that the defense budget is being capped while most domestic spending (specifically entitlement programs) is left unconstrained. But that doesn’t mean the nation’s security is threatened.

Defense spending still grows under these laws and our military budget is still far bigger than the combined budgets of all possible adversaries.

For further information, read George Will’s sober analysis and also peruse some writings by Mark Steyn and Steve Chapman.

I’m pleasantly surprised by the tax plans proposed by Marco Rubio, Rand Paul, Jeb Bush, and Donald Trump.

In varying ways, all these candidate have put forth relatively detailed proposals that address high tax rates, punitive double taxation, and distorting tax preferences.

But saying the right thing and doing the right thing are not the same. I just did an interview focused on Donald Trump’s tax proposal, and one of my first points was that candidates may come up with good plans, but those proposals are only worthwhile if the candidates are sincere and if they intend to do the heavy lifting necessary to push reform through Congress.

Today, though, I want to focus on another point, which I raised starting about the 0:55 mark of the interview.

For the plans to be credible, candidates also need to have concomitant proposals to restrain the growth of federal spending.

I don’t necessarily care whether they balance the budget, but I do think proposals to reform and lower taxes won’t have any chance of success unless there are also reasonable plans to gradually shrink government spending as a share of economic output.

As part of recent speeches in New Hampshire and Nevada, I shared my simple plan to impose enough spending restraint to balance the budget in less than 10 years.

But those speeches were based on politicians collecting all the revenue projected under current law.

By contrast, the GOP candidates are proposing to reduce tax burdens. On a static basis, the cuts are significant. According to the Tax Foundation, the 10-year savings for taxpayers would be $2.97 trillion with Rand Paul’s plan, $3.67 trillion under Jeb Bush’s plan, $4.14 trillion with Marco Rubio’s plan, all the way up to $11.98 trillion for Donald Trump’s plan.

Those sound like very large tax cuts (and Trump’s plan actually is a very large tax cut), but keep in mind that those are 10-year savings. And since the Congressional Budget Office is projecting that the federal government will collect $41.58 trillion over the next decade, the bottom line, as seen in this chart, is that all of the plans (other than Trump’s) would still allow the IRS to collect more than 90 percent of projected revenues.

Now let’s make the analysis more realistic by considering that tax cuts and tax reforms will generate faster growth, which will lead to more taxable income.

And the experts at the Tax Foundation made precisely those calculations based on their sophisticated model.

Here’s an updated chart showing 10-year revenue estimates based on “dynamic scoring.”

The Trump plan is an obvious outlier, but the proposals from Jeb Bush, Rand Paul, and Marco Rubio all would generate at least 96 percent of the revenues that are projected under current law.

Returning to the original point of this exercise, all we have to do is figure out what level of spending restraint is necessary to put the budget on a glide path to balance (remembering, of course, that the real goal should be to shrink the burden of spending relative to GDP).

But before answering this question, it’s important to understand that the aforementioned 10-year numbers are a bit misleading since we can’t see yearly changes. In the real world, pro-growth tax cuts presumably lose a lot of revenue when first enacted. But as the economy begins to respond (because of improved incentives for work, saving, investment, and entrepreneurship), taxable income starts climbing.

Here’s an example from the Tax Foundation’s analysis of the Rubio plan. As you can see, the proposal leads to a lot more red ink when it’s first implemented. But as the economy starts growing faster and generating more income, there’s a growing amount of “revenue feedback.” And by the end of the 10-year period, the plan is actually projected to increase revenue compared to current law.

So does this mean some tax cuts are a “free lunch” and pay for themselves? Sound like a controversial proposition, but that’s exactly what happened with some of the tax rate reductions of the Reagan years.

To be sure, that doesn’t guarantee what will happen if any of the aforementioned tax plans are enacted. Moreover, one can quibble with the structure and specifications of the Tax Foundation’s model. Economists, after all, aren’t exactly famous for their forecasting prowess.

But none of this matters because the Tax Foundation isn’t in charge of making official revenue estimates. That’s the job of the Joint Committee on Taxation, and that bureaucracy largely relies on static scoring.

Which brings me back to today’s topic. The good tax reform plans of certain candidates need to be matched by credible plans to restrain the growth of federal spending.

Fortunately, that shouldn’t be that difficult. I explained last month that big tax cuts were possible with modest spending restraint. If spending grows by 2 percent instead of 3 percent, for instance, the 10-year savings would be about $1.4 trillion.

And since it’s good to reduce tax burdens and also good to restrain spending, it’s a win-win situation to combine those two policies. Sort of the fiscal equivalent of mixing peanut butter and chocolate in the famous commercial for Reese’s Peanut Butter Cups.

P.S. Returning to my interview embedded above, I suppose it’s worthwhile to emphasize a couple of other points.

P.P.S. Writing about the prospect of tax reform back in April, I warned that “…regardless of what happens with elections, I’m not overly optimistic about making progress.”

Today, I still think it’s an uphill battle. But if candidates begin to put forth good plans to restrain spending, the odds will improve.

Perhaps the least recognized and least appreciated triumph of the GOP Congress is the de facto spending freeze between 2009 and 2014.

Fights over debt limits, sequestration, spending caps, and government shutdowns were messy and chaotic, but it’s hard to argue with the results. The burden of federal spending fell from 24.4 pct of GDP to 20.3 pct of economic output in just five years.

So I was pleased to see this morning that the Wall Street Journal opined this morning on this success.

…amid all the conservative denunciations of the John Boehner era, a key political fact is typically ignored. To wit, the GOP takeover of the House in 2010 has led to a marked decline in federal spending. …The stimulus boosted spending to a modern record of 24.4% of GDP in 2009… Then Republicans won the election in 2010 on a mandate to cut spending. …Total federal outlays fell two years in a row—from $3.6 trillion in 2011 to $3.45 trillion in 2013… The spending decline was even more marked as a share of the economy, falling for three straight years—from 23.4% in 2011 to 20.3% in 2014. This kind of spending restraint almost never happens in Washington…domestic spending fell by about 2.8% of GDP during the same period.

The editorial specifically praises the spending caps that were part of the Budget Control Act, which are enforced by sequestration.

…the discretionary spending caps and sequester included as part of the 2011 agreement…forced discipline that has kept a lid on spending-as-usual.


The lobbyists, special interests, bureaucrats, cronyists, politicians, and contractors in Washington hate budget caps and sequestration, but it’s been a big success.

Writing for the Washington Examiner, Michael Barone makes a similar argument.

The hold-down of federal spending was accomplished by the sequester procedure which has stayed in place now for four years. It’s not the optimal way to form a budget. But if your goal is holding down spending — and reducing spending from 25 percent of GDP to 20 percent — then the sequester has been very effective.

Now let’s consider some very good news.

The Budget Control Act, along with the genuine enforcement mechanism of sequestration, is the law of the land. The growth of discretionary spending is capped not only this year, but also next year. And the rest of the decade. And even into the 2020s.

But now let’s contemplate some very bad news.

The pro-spending crowd in Washington has been working hard to weaken the spending caps and they may be on the verge of success.

Here are some excerpts from a report in The Hill.

Congressional Republican leaders are launching budget talks with the White House. …News of the budget talks is already unnerving…House conservatives… GOP leaders are seeking to strike a deal that would set top-line budget numbers for the next two years. …A White House official said McConnell and Boehner reached out to Obama on Sept. 17. …A source close to McConnell said he hopes to secure a deal to increase discretionary spending for defense and nondefense programs in exchange for reductions to mandatory spending.


Why are GOP leaders negotiating a new deal when there’s already a good deal in place for many more years?

In part, it’s because many Republicans are big spenders, particularly for the defense budget. But part of the answer is that President Obama has threatened to veto any budget that doesn’t bust the caps. The President has even threatened to shut down the government to get more spending.

And GOPers think they’ll get blamed, even though Obama is the one who would be reneging on the deal he agreed to back in 2011.

So where does this lead?

Well, if Republicans don’t try (or don’t care) to make an argument for fiscal restraint, Obama will prevail. And the net effect will be a repeat of the so-called Ryan-Murray budget deal that weakened the spending caps back in 2013.

That means more discretionary spending, accompanied by budget gimmicks and thinly disguised tax hikes.

P.S. Some advocates of bigger government say sequestration would hurt the economy, but I challenge any of them to justify their Keynesian argument after looking at evidence from the U.S. and Canada in the 1990s.

P.P.S. And if sequestration is bad, then why didn’t any of the President’s hysterical predictions become reality after the 2013 sequester?

P.P.P.S. You can enjoy some good sequester cartoons here, here, and here.

P.P.P.P.S. Here’s my contribution to sequestration humor.


Get every new post delivered to your Inbox.

Join 2,890 other followers

%d bloggers like this: