Archive for May 15th, 2010

I feel like a broken record when I write about European fiscal policy. In almost all cases, I cite OECD data showing that countries are in fiscal trouble because of excessive spending rather than inadequate tax revenue. I then show that the politicians are using the spending-caused crisis as an excuse to raise taxes even further. The higher taxes, needless to say, undermine growth, which then creates more pressure for higher redistribution and welfare spending. And so the downward spiral continues. The latest example is Portugal, which is in trouble because the burden of government spending has jumped from 43 percent of GDP to 51 percent of GDP in the past 10 years. The tax burden also has increased, from 40 percent of GDP to 43 percent of GDP, so there’s zero legitimacy for those who want to argue that there’s a revenue shortfall. But Portugal’s greedy political class respond with higher taxes – including an increase in the value-added tax (a familiar refrain all throughout Europe) and higher personal and corporate income tax rates. The Financial Times reports on Portugal’s fiscal self-destruction (including the silly assertion that seizing more money from taxpayers somehow is “tough” and a sign of “austerity” when such moves should be characterized as business-as-usual):

José Sócrates, Portugal’s prime minister, on Thursday announced tough new austerity measures, including a “crisis tax” on wages and big companies, designed to more than halve the country’s gaping budget deficit in less than two years. …Describing the measures as essential to defend Portugal’s credibility in international financial markets, Mr Sócrates announced a one percentage point increase in value-added tax to 21 per cent and increases of up to 1.5 per cent in income tax. The increases, which are being called a “crisis tax”, include a 2.5 percentage point rise in corporate tax to 27.5 per cent on annual profits above €2m.

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It’s probably just a insincere negotiating ploy, but Governor Schwarzenegger has proposed to eliminate a major welfare program in California. This article from the Sacramento Bee notes that the Governator also wants to cut bureaucrat pay and impose other reforms. Given Schwarzenegger’s failure to consistently fight against special interests in previous years, and given the overwhelmingly statist orientation of the California state legislature, I am not overly optimistic that any of these reforms will occur, but it’s nice to at least have real reforms being discussed:

Gov. Arnold Schwarzenegger asked lawmakers Friday to eliminate the state’s welfare program starting in October and dramatically scale back in-home care for the elderly and disabled as part of his May budget revision to close a $19.1 billion deficit.The Republican governor also proposed cuts to state worker compensation. Besides asking for a 5 percent pay cut, 5 percent payroll cap and 5 percent increased pension contribution, Schwarzenegger has proposed cutting one day per month of pay in exchange for leave credit….Employees would not be able to cash out any of this unused leave credit when they leave state service. …Schwarzenegger also proposed eliminating state-subsidized child care for all but preschoolers as a way to reduce the state’s education funding guarantee. …He did not respond directly when asked if his proposal to eliminate welfare was merely a negotiating position with the Democrat-dominated Legislature.Schwarzenegger also said he would not sign a budget plan unless lawmakers agree to overhaul the budget process, including creation of a “rainy-day fund” and downsizing public employee pensions for new hires.The governor did not propose any new tax hikes.

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I’m not even sure what to say about this story about new legislation being proposed that would have the federal government track the “Body Mass Index” of American children and spend lots of money and impose lots of rules to reduce childhood obesity. I certainly don’t want to be in favor of chubby kids, but I’m much more worried about fat government. There is no authority anywhere in the Constitution for this type of effort. There is no evidence that the federal government would have any success in this type of scheme (how’s that “War on Poverty” going?). And there is also a small issue of whether this is more properly an issue for parents rather than bureaucrats. To get your blood boiling, here’s an excerpt from the CNS report:

States receiving federal grants provided for in the bill would be required to annually track the Body Mass Index of all children ages 2 through 18. The grant-receiving states would be required to mandate that all health care providers in the state determine the Body Mass Index of all their patients in the 2-to-18 age bracket and then report that information to the state government. The state government, in turn, would be required to report the information to the U.S. Department of Health and Human Services for analysis. The Healthy Choices Act–introduced by Rep. Ron Kind (D-Wis.), a member of the House Ways and Means Committee–would establish and fund a wide range of programs and regulations aimed at reducing obesity rates by such means as putting nutritional labels on the front of food products, subsidizing businesses that provide fresh fruits and vegetables, and collecting BMI measurements of patients and counseling those that are overweight or obese.

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