Joe Biden: Worse than Barack Obama, Worse than Hillary Clinton

Given their overt statism, I’ve mostly focused on the misguided policies being advocated by Bernie Sanders and Elizabeth Warren.

But that doesn’t mean Joe Biden’s platform is reasonable or moderate.

Ezra Klein of Vox unabashedly states that the former Vice President’s policies are “far to Obama’s left.”

The rhetorical clash between "leftists" and "moderates" is obscuring the deeper truth: This is the most progressive Democratic primary in history, and even if, say, Biden won the nomination, he'd be running on a platform far to Obama's left. https://t.co/x3CMj5XqAn

— Ezra Klein (@ezraklein) December 20, 2019

This is an issue where folks on both ends of the spectrum agree.

In a column for the right-leaning American Spectator, George Neumayr also says Biden is not a moderate.

Biden likes to feed the mythology that he is still a moderate. …This is, after all, a pol who giddily whispered in Barack Obama’s ear that a massive government takeover of health care “was a big f—ing deal,”…and now pronouncing Obamacare only a baby step toward a more progressive future. It can’t be repeated enough that “Climate Change” Joe doesn’t give a damn about the ruinous consequences of extreme environmentalism for Rust Belt industries. His Climate Change plans read like something Al Gore might have scribbled to him in a note. …On issue after issue, Biden is taking hardline liberal stances. …“I have the most progressive record of anybody running.” …He is far more comfortable on the Ellen show than on the streets of Scranton. He has given up Amtrak for private jets, and, like his lobbyist brother and grifter son, has cashed in on his last name.

If you want policy details, the Wall Street Journal opined on his fiscal plan.

Mr. Biden has previously promised to spend $1.7 trillion over 10 years on a Green New Deal, $750 billion on health care, and $750 billion on higher education. To pay for it all, he’s set out $3.4 trillion in tax increases. This is more aggressive, for the record, than Hillary Clinton’s proposed tax increases in 2016, which totaled $1.4 trillion, per an analysis at the time from the left-of-center Tax Policy Center. In 2008 Barack Obama pledged to raise taxes on the rich while cutting them on net by $2.9 trillion. Twice as many tax increases as the last presidential nominee: That’s now the “moderate” Democratic position. …raising the top rate for residents of all states. …a huge increase on today’s top capital-gains rate of 23.8%… This would put rates on long-term capital gains at their highest since the 1970s. …Raise the corporate tax rate to 28% from 21%. This would…vault the U.S. corporate rate back to near the top in the developed world. …the bottom line is big tax increases on people, capital and businesses. There’s nothing pro-growth in the mix.

And the ever-rigorous Peter Suderman of Reason wrote about Biden’s statist agenda.

Biden released a proposal to raise a slew of new taxes, mostly on corporations and high earners. He would increase tax rates on capital gains, increase the tax rate for households earning more than $510,000 annually, double the minimum tax rate for multinational corporations, impose a minimum tax on large companies whose tax filings don’t show them paying a certain percentage of their earnings, and undo many of the tax cuts included in the 2017 tax law. …as The New York Times reports, Biden’s proposed tax hikes are more than double what Hillary Clinton called for during the 2016 campaign. …Hillary Clinton…pushed the party gently to the left. Four years later, before the campaign is even over, the party’s supposed moderates are proposing double or even quadruple the new taxes she proposed.

The former Veep isn’t just a fan of higher taxes and more spending.

He also likes nanny-state policies.

Joe Biden says he is 100% in favor of banning plastic bags in the U.S. …let’s take a quick walk through the facts about single-use plastic bags at the retail level. …the plastic bags typically handed out by retailers make up only 0.6% of visible litter. Or put another way, for every 1,000 pieces of litter, only six are plastic bags. …They make up less than 1% of landfills by weight… 90% of the plastic bags found at sea streamed in from eight rivers in Asia and two in Africa. Only about 1% of all plastic in the ocean is from America. …Thicker plastic bags have to be used at least 11 times before they yield any environmental benefits. This is much longer than their typical lifespans. …Though it might seem almost innocuous, Biden’s support for a bag ban is symptom of a greater sickness in the Democratic Party. It craves unfettered political power.

Let’s not forget, by the way, that Biden (like most politicians in Washington) is corrupt.

Here are some excerpts from a Peter Schweizer column in the New York Post.

Political figures have long used their families to route power and benefits for their own self-enrichment. …one particular politician — Joe Biden — emerges as the king of the sweetheart deal, with no less than five family members benefiting from his largesse, favorable access and powerful position for commercial gain. …Joe Biden’s younger brother, James, has been an integral part of the family political machine… HillStone announced that James Biden would be joining the firm as an executive vice president. James appeared to have little or no background in housing construction, but…the firm was starting negotiations to win a massive contract in war-torn Iraq. Six months later, the firm announced a contract to build 100,000 homes. …A group of minority partners, including James Biden, stood to split about $735 million. …With the election of his father as vice president, Hunter Biden launched businesses fused to his father’s power that led him to lucrative deals with a rogue’s gallery of governments and oligarchs around the world. …Hunter’s involvement with an entity called Burnham Financial Group…Burnham became the center of a federal investigation involving a $60 million fraud scheme against one of the poorest Indian tribes in America, the Oglala Sioux. …the firm relied on his father’s name and political status as a means of both recruiting pension money into the scheme.

I only excerpted sections about Biden’s brother and son. You should read the entire article.

And even the left-leaning U.K.-based Guardian has the same perspective on Biden’s oleaginous behavior.

Biden has a big corruption problem and it makes him a weak candidate. …I can already hear the howls: But look at Trump! Trump is 1,000 times worse! You don’t need to convince me. …But here’s the thing: nominating a candidate like Biden will make it far more difficult to defeat Trump. It will allow Trump to muddy the water, to once again pretend he is the one “draining the swamp”, running against Washington culture. …With Biden, we are basically handing Trump a whataboutism playbook. …his record represents the transactional, grossly corrupt culture in Washington that long precedes Trump.

I’ll close by simply sharing some objective data about Biden’s voting behavior when he was a Senator.

According to the National Taxpayers Union, he finished his time on Capitol Hill with eleven-consecutive “F” scores (hey, at least he was consistent!).

And he also was the only Senator who got a lifetime rating of zero from the Club for Growth.

Though if you want to be generous, his lifetime rating was actually 0.025 percent.

Regardless, that was still worse than Barack Obama, Bernie Sanders, and Elizabeth Warren.

So if Biden become President, it’s safe to assume that America will accelerate on the already-baked-in-the-cake road to Greece.

P.S. Of course, we’ll be on that path even if Biden doesn’t become President, so perhaps the moral of the story is to buy land in Australia.

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A Practical Reason to a Support a Spending Cap Instead of a Balanced-Budget Requirement

I gave a speech this past weekend about the economy and fiscal policy, and I made my usual points about government being too big and warned that the problem would get much worse in the future because of demographic change and poorly designed entitlement programs.

Which is probably what the audience expected me to say.

But then I told the crowd that a balanced budget requirement is neither necessary nor sufficient for good fiscal policy.

Which may have been a surprise.

To bolster my argument, I pointed to states such as Illinois, California, and New Jersey. They all have provisions to limit red ink, yet there is more spending (and more debt) every year. I also explained that there are also anti-deficit rules in nations such as Greece, France, and Italy, yet those countries are not exactly paragons of fiscal discipline.

To help explain why balanced budget requirements are not effective, I shared this chart showing annual changes in revenue over the past two decades for the federal government (Table 1.1 of OMB’s Historical Tables).

It shows that receipts are very volatile, primarily because they grow rapidly when the economy is expanding and they contract – sometimes sharply – when there’s an economic downturn.

I pointed out that volatile revenue flows make it very difficult to enforce a balanced budget requirement.

Most important, it’s extremely difficult to convince politicians to reduce spending during a recession since that’s when they feel extra pressure to spend more money (whether for Keynesian reasons of public-choice reasons).

Moreover, a balanced budget requirement doesn’t impose any discipline when the economy is growing. If revenues are growing by 8%, 10%, or 12% per year, politicians use that as an excuse for big increases in the spending burden.

Needless to say, those new spending commitments then create an even bigger fiscal problem when there’s a future downturn (as I’ve noted when writing about budgetary problems in jurisdictions such as Cyprus, Alaska, Ireland, Alberta, Greece, Puerto Rico, California, etc).

So what, then, is the right way of encouraging or enforcing prudent fiscal policy?

I told the audience we need a federal spending cap, akin to what exists in Switzerland, Hong Kong, and Colorado. Allow politicians to increase spending each year, preferably at a modest rate so that there’s a gradual reduction in the fiscal burden relative to economic output.

I’ve modified the above chart to show how a 2% spending cap would work. Politicians could increase spending when revenues are falling, but they wouldn’t be allowed to embark on a spending spree when revenues are rising.

Spending caps create a predictable fiscal environment. And limiting spending growth produces good outcomes.

If you’re still not convinced, this video hopefully will make a difference.

P.S. Spending caps work so well that even left-leaning international bureaucracies such as the OECD and IMF have acknowledged that they are the only effective fiscal rule.

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Best and Worst of 2019

Time for my annual column highlighting the “Best” and “Worst” policy developments of the year, a tradition I sort of started in 2012 and definitely did in 2013, 2014, 2015, 2016, 2017, and 2018.

I’m trying to be a glass-half-full kind of guy, so we’ll start with the best policy developments for 2019.

Boris Johnson’s landslide victory – I was in London for the recent U.K. election and was pleasantly surprised when Boris Johnson won a surprising landslide. That’s not a policy development, of course, but it’s first on my list because it presumably will lead to a genuine Brexit. And when the United Kingdom escapes the sinking ship of the dirigiste European Union, I have some hopes for pro-market policies.

TABOR wins in Colorado – Without question, the best fiscal system for a jurisdiction is a spending cap that fulfills my Golden Rule. Colorado’s constitution has such a policy, known as TABOR (the Taxpayer Bill of Rights). Pro-spending lobbies put an initiative on the ballot to eviscerate the provision, but voters wisely rejected the measure this past November by a nearly 10-point margin.

Macroeconomic strength – A strong economy also isn’t a policy, but it’s partially the result of good tax reforms and much-needed regulatory easing. This has pushed up the value of stocks (though I worry we may be experiencing a bubble), but I’m much happier that it’s led to a tight labor market and increased wages for lower-skilled workers.

Now let’s look at the worst developments of 2019.

An ever-increasing burden of government spending – The federal government is far too big, and it keeps growing in size. Entitlements are the main problem, but Trump added to the mess by capitulating to another budget deal that increases the burden of discretionary spending.

Missed opportunity on China trade – Because he foolishly focused on the bilateral trade deficit, Trump missed a great opportunity to pressure China to eliminate (or at least reduce) various cronyist policies that actually do distort and undermine trade.

Repeal of the Cadillac tax – I never imagined I would be in a position of stating that it was a mistake to repeal a tax increase, but the recent repeal of the tax on high-end health plans is such bad policy in terms of health care (contributing to third-party payer) that it more than offsets my long-standing desire to deprive Washington of revenue.

I’ll close by noting my most-read and least-read columns of the year.

We’ll start with the popular items.

1. My most-read column from 2019 discussed a very impressive (and very understandable) example of tax avoidance from France.
2. In second place was my piece that lauded a columnist for the New York Times who admitted gun control is foolish policy.
3. Winning the bronze medal was my column from last week celebrating the dissolution of the Soviet Union.

By the way, my most-read article in 2019 was actually a quiz about political philosophy I shared back in 2015. Those must be popular items, because other quizzes (from 2014 and 2013) were actually the third-most and fourth-most popular columns for the year.

And here are the biggest duds.

1. The column with the least clicks (perhaps because it was only posted a couple of days ago) revolved around the technical issues of economic sanctions, extraterritoriality, and the strength of the dollar.
2. The second-worst-performing column was from late November and discussed the International Monetary Fund’s cheerleading for higher taxes in Japan.
3. Next on the list is my discussion from a few days ago about how Washington imposes policies that encourage households to make short-sighted financial choices.

P.S. About 80 percent of readers are from the United States, and that’s been relatively constant over the years. But it’s been interesting (at least to me) to observe where other readers reside. In the very beginning, Canada provided the second-biggest group of readers, but then the United Kingdom took over for several years, only to be dethroned by Australia in 2017 and 2018. For 2019, though, the United Kingdom reclaimed second place, presumably because I kept writing about Brexit. If we go by readers as a share of the population, I’m actually most popular in small tax havens.

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Trump’s Record on Spending Gets Worse Every Year

I wrote yesterday that the Trump tax plan is yielding significant benefits, but one of my caveats at the end of the column warned that Trump’s weak record on spending undermines the long-run sustainability of lower tax rates.

The latest example of Trump’s profligacy is the $1.4 trillion spending bill for the 2020 fiscal year that was just approved (this is the “discretionary” money for the parts of the budget that are annually appropriated, so keep in mind that there’s also more than $3 trillion of “mandatory” spending for entitlement programs in 2020).

This pork-filled spending bill became inevitable when Trump surrendered to the Democrats this summer and agreed to bust the spending caps (something politicians also did in 2013, 2015, and 2018).

It’s hard to capture the utterly reckless nature of the new spending bill.

Here’s how Senator Rick Scott described the legislation.

…a giant spending package — 2,313 pages long — that was…negotiated in secret, spends $1.4 trillion, and is chock full of member projects and special-interest giveaways. …more than $4,200 for every man, woman, and child in America. …This package includes $25 million for the “operation, maintenance, and security” of the Kennedy Center in Washington, D.C. It includes a $7.25 million increase in funding for the National Endowment for the Arts, the largest increase in a decade. …It includes more than $1 billion in new foreign-aid funding without any discussion about what we’re getting for this funding. …This bill spends $1.4 trillion, with no cuts or reforms. …How many more trillions of dollars do we need to spend before we wake up to the danger…? We need to reform the way Washington works, and we need to do it now.

The Wall Street Journal was similarly dismayed, opining about the bipartisan spending orgy and pointing out the real problem is that all this spending violates the Golden Rule of fiscal policy.

Congress has left town for the year but alas not before another bipartisan spending party that has typified the Trump Presidency. …The budget problem isn’t a shortage of revenue. CBO says tax receipts grew 4% last fiscal year, through September, and 3% in the first two months this year. Economic growth is feeding the Treasury. But spending is growing much faster: 8% last fiscal year, more than four times the inflation rate, and 6% in October and November this year. In addition to the latest discretionary bills, spending on Social Security (6%), Medicare (6.1%) and Medicaid (9.2%) continue to soar this year. Neither party shows any inclination to do anything about those programs, except expand them. Mr. Trump may yet join Barack Obama in the spending record books.

Regarding the final sentence in the above excerpt, I will predict now that Trump will exceed Obama’s profligacy.

And I’ll have the numbers to prove that early next year when I update my data on presidential spending.

In the meantime, I’ll close with this very depressing chart from the Committee for a Responsible Federal Budget.

The bottom line is that Republican big spenders are enablers of Democratic big taxers.

• In a couple of years, when there’s a big fight to get rid of the Trump tax cuts, every Republican who supported this awful deal (including Trump) will be responsible.
• When there’s a Democratic president and a big push for class-warfare taxes, every Republican who supported this awful deal (including Trump) will be responsible.
• When there’s a big fight after that to impose a European-style value-added tax, every Republican who supported this awful deal (including Trump) will be responsible.

Gee, isn’t bipartisanship wonderful?

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Great Moments in British Government

Technically, my coverage of U.K election week began last Monday with a look at Jeremy Corbyn’s radical statism, and ended yesterday with some analysis of Boris Johnson’s victory.

But since I’m still in England, this is an opportune time for a new edition of Great Moments in British Government.

For those who aren’t regular readers, I should add that “Great Moments” is a sarcastic term for odd stories that illustrate the incompetence and venality of government (state, local, foreign, etc).

We’ll start with a story that shows how insiders use government as a racket to enrich their lifestyles.

Local councils are spending millions on luxury cars for mayors and officials in “ceremonial” roles, an investigation has found. Over the past three years, 207 local authorities have spent more than £4.5million on vehicles including Bentleys, Jaguars and S-class Mercedes, information disclosed under the Freedom of Information Act reveals. The cars were used by mayors, lord mayors or chairmen. The TaxPayers’ Alliance, a campaign group which carried out the investigation, said the money went on officials who “often fulfil ceremonial duties within their local authority and serve as the ‘first citizen’.

Sounds like Washington’s gilded class!

For our next example, bureaucrats in the United Kingdom don’t do a very good job of teaching traditional subjects such as math and reading, so they’ve decided to try sharing their knowledge on a rather unconventional topic.

Children as young as six are being taught about touching or ‘stimulating’ their own genitals as part of classes that will become compulsory in hundreds of primary schools. Some parents believe the lessons – part of a controversial new sex and relationships teaching programme called All About Me – are ‘sexualising’ their young children. …Documents obtained by The Mail on Sunday detail how All About Me classes involve pupils aged between six and ten being told by teachers that there are ‘rules about touching yourself’. An explanation of ‘rules about self-stimulation’ appears in the scheme’s Year Two lesson plan for six and seven-year-olds. Under a section called Touching Myself, teachers are advised to tell children that ‘lots of people like to tickle or stroke themselves as it might feel nice’. …In one, pupils are told that when a girl called Autumn ‘has a bath and is alone she likes to touch herself between her legs. It feels nice’.

For what it’s worth, I wouldn’t have wanted my kids being exposed to this kind of topic, but I must admit that bureaucrats probably have some expertise on the matter.

Next, we have a story about a woman getting fined for feeding birds.

Neighbours complained about birds flocking to Maureen Francis’ garden after she began feeding them with bird seed and other food… Wiltshire Council gave Francis the protection notice after receiving complaints and told her she could only put out one ‘small caged bird feeder’. But she refused to comply with their demands, leading to the council taking her to court ‘for the sake of the neighbours’. When Francis failed to attend the hearing last week, magistrates convicted her of failing to comply with a protection notice in her absence. She was fined £250 for over feeding the animals and ordered to pay almost £1,600 in costs. Councillor Jerry Wickham, Wiltshire Council’s cabinet member for public protection, said: “Our officers made numerous attempts to engage with Mrs Francis to try and resolve this problem. “We were reluctant to take legal action but for the sake of the neighbours, prosecution was the only option.”

Gives over-criminalization a whole new meaning.

Last but not least, British officials decided it’s okay if a two-second journey is replaced by a one-hour trip.

Motorists in southwest England will need to pay special attention when driving through Dorset County next week, where officials are putting a 41-mile detour around a 65-foot stretch of construction work. …The small section of road A352 in Godmanstone, Dorset, will be closed Monday through Friday while construction crews work on a new sewage system… The detour is estimated to take an hour to complete. The closed portion of the road would take just over two seconds to travel at the 30 mph speed limit. …The council acknowledged that most residents will ignore the lengthy detour and use smaller roads to get around the construction work. Anyone caught using the closed stretch of road will be fined $1,291.

A few years ago, a clever entrepreneur in the United Kingdom dealt with a similar detour by building a private toll road.

I don’t know if such an option exists in this case, but I can state with considerable confidence that this impossibly inconvenient detour wouldn’t be an option if a private road company was making a sewage repair.

Why? Because private companies cater to customers.

Which is a good excuse to re-share this classic scene from Ghostbusters.

Amen.

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Class-Warfare Taxation, Government Spending, and Economic Growth

Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings.

In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid).

Instead, I’m going to praise Okun for his honesty. Is his book, Equality and Efficiency: The Big Trade Off, he openly acknowledged that higher taxes and bigger government – policies he often favored – hindered economic performance.

Sadly, some folks on the left today are not similarly honest.

A column in the New York Times by Jim Tankersley looks at the odd claim, put forth by Elizabeth Warren and others, that class-warfare taxes are good for growth.

Elizabeth Warren is leading a liberal rebellion against a long-held economic view that large tax increases slow economic growth… Generations of economists, across much of the ideological spectrum, have long held that higher taxes reduce investment, slowing economic growth. …Ms. Warren and other leading Democrats say the opposite. …that her plans to tax the rich and spend the revenue to lift the poor and the middle class would accelerate economic growth, not impede it. …That argument tries to reframe a classic debate…by suggesting there is no trade-off between increasing the size of the pie and dividing the slices more equitably among all Americans.

Most people, when looking at why some nations grow faster and become more prosperous, naturally recognize that there’s a trade-off.

So what’s the basis of this counter-intuitive and anti-empirical assertion from Warren, et al?

It’s partly based on their assertion that more government spending is an “investment” that will lead to more growth. In other words, politicians ostensibly will allocate new tax revenues in a productive manner.

Ms. Warren wrote on Twitter that education, child care and student loan relief programs funded by her tax on wealthy Americans would “grow the economy.” In a separate post, she said student debt relief would “supercharge” growth. …Ms. Warren is making the case that the economy could benefit if money is redistributed from the rich and corporations to uses that she and other liberals say would be more productive. …a belief that well-targeted government spending can encourage more Americans to work, invest and build skills that would make them more productive.

To be fair, this isn’t a totally absurd argument.

The Rahn Curve, for instance, is predicated on the notion that some spending on core public goods is correlated with better economic performance.

It’s only when government gets too big that the Rahn Curve begins to show that spending has a negative impact on growth.

For what it’s worth, modern research says the growth-maximizing size of government is about 20 percent of economic output, though I think historical evidence indicates that number should be much lower.

But even if the correct figure is 20 percent of GDP, there’s no support for Senator Warren’s position since overall government spending currently consumes close to 40 percent of U.S. economic output.

Warren and others also make the discredited Keynesian argument about government spending somehow kick-starting growth, ostensibly because a tax-and-spend agenda will give money to poor people who are more likely to consume (in the Keynesian model, saving and investing can be a bad thing).

Democrats cite evidence that transferring money to poor and middle-class individuals would increase consumer spending…liberal economists say taxes on high-earners could spur growth even if the government did nothing with the revenue because the concentration of income and wealth is dampening consumer spending.

This argument is dependent on the notion that consumer spending drives the economy.

But that’s not the case. As I explained two years ago, consumer spending is a reflection of a strong economy, not the driver of a strong economy.

Which helps to explain why the data show that Keynesian stimulus schemes routinely fail.

Moreover, the Keynesian model only says it is good to artificially stimulate consumer spending when trying to deal with a weak economy. There’s nothing in the theory (at least as Keynes described it) that suggests it’s good to endlessly expand the public sector.

The bottom line is that there’s no meaningful theoretical or empirical support for a tax-and-spend agenda.

Which is why I think this visual very succinctly captures what Warren, Sanders, and the rest (including international bureaucracies) are proposing.

P.S. By the way, I think Tankersley’s article was quite fair. It cited arguments from both sides and had a neutral tone.

But there’s one part that rubbed me the wrong way. He implies in this section that America’s relatively modest aggregate tax burden somehow helps the left’s argument.

Fueling their argument is the fact that the United States now has one of the lowest corporate tax burdens among developed nations — a direct result of President Trump’s 2017 tax cuts. Tax revenues at all levels of government in the United States fell to 24.3 percent of the economy last year, the Organization for Economic Cooperation and Development reported on Thursday, down from 26.8 percent in 2017. America is now has the fourth lowest tax burden in all of the O.E.C.D.

Huh? How does the fact that we have lower taxes that other nations serve as “fuel” for the left?

Since living standards in the United States are considerably higher than they are in higher-taxed Europe, it’s actually “fuel” for those of us who argue against class-warfare taxation and bigger government.

Though maybe Tankersley is suggesting that America’s comparatively modest tax burden is fueling the greed of U.S. politicians who are envious of their European counterparts?

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Fight on the Right, Part I: Are Tax Cuts Still Economically Desirable and Politically Salient?

I want lower taxes. I want to reform taxes. And I want to abolish existing taxes and block new taxes.

But I also recognize that the biggest fiscal problem, both in America and elsewhere in the world, is that there’s too much government spending.

This creates a bit of a quandary. Given the various pressures and trade-offs in the world of fiscal policy, should supporters of limited government embrace additional tax relief?

Steve Moore opines in the Washington Times that it’s time for further tax cuts.

Every single plausible Democratic candidate for president has endorsed tax increases as centerpieces of their economic agenda. …Meanwhile, Mr. Trump and the Republicans in Congress have the 2017 tax cut to trumpet… Middle class incomes have hit an all-time high as has the stock market and employment. …Mr. Trump and the Republicans need a new tax cut plan… Mr. Trump has said he wants any new tax cut to be aimed at the middle class. …Let the liberals spend the next 11 months trying to explain why higher taxes and lower take home pay is better for families than lower taxes and MORE take home pay.  That should be fascinating to watch.

Steve specifically mentions some good ideas, such as lower marginal tax rates, a lower tax burden on capital gains, protecting more savings from double taxation, and allowing workers to shift some of their payroll taxes to personal retirement accounts.

But are these ideas smart policy?

Robert Verbruggen of National Review is very skeptical.

…it’s shocking that anyone is even thinking about tax cuts as a smart policy right now. …Our deficit has grown by a quarter since the 2018 fiscal year to hit nearly a trillion dollars in 2019, Baby Boomers are retiring, and the president has consistently said he has no intention of cutting the old-age entitlements that drive our spending. …tax cuts at this point would just add to the debt and hasten the day of our fiscal reckoning. We have a bunch of bills piling up. Let’s start paying them. …We need some mix of spending cuts and tax hikes to survive this. …Politicians almost certainly don’t have the guts to get serious about all this until a true crisis forces them to. But at very least, they should stop making matters worse.

So who is right?

The answer may depend on the goal.

If the objective is to simply get more votes in 2020, I’m not the right person to judge the effectiveness of that approach. After all, I’m a policy wonk, not a political strategist.

So let’s focus on the narrower issue of whether further tax relief would be good policy. Here are five things to consider, starting with two points about taxes and the economy.

1. Will tax cuts improve long-run economic performance? It’s impossible to answer this question without knowing what kind of tax cut. Increasing child credits may or may not be desirable, but that kind of tax relief doesn’t boost incentives for additional economic activity. Other types of tax reforms, by contrast, can have a very positive effect on incentives for work, saving, investment, and entrepreneurship.

2. Will tax cuts improve short-run economic performance? This is actually the wrong way to analyze fiscal policy. Advocates of Keynesian economics are fixated on trying to tinker with the economy’s short-run performance. That being said, some types of tax cuts – particularly reforms designed to attract global capital – may generate quicker positive effects.

Now let’s broaden our scope and consider tax cuts as part of overall fiscal policy.

3. Should policy makers focus on deficit reduction? Excessive government borrowing is undesirable, but it’s important to understand that red ink is the symptom and government spending is the underlying disease. Treat the disease and the symptoms automatically begin to go away.

4. Will tax cuts interfere with a bipartisan deal? Some people imagine that America’s fiscal problems can be addressed only if there’s a package deal of tax increases and spending cuts (dishonestly defined). Such an outcome is theoretically possible, but entirely unrealistic. Tax increases almost surely would be a recipe for additional spending.

5. Is there a starve-the-beast constraint on spending? There’s a theory, known as “starve the beast,” that suggests lower taxes can help constrain government spending. Given that Trump has simultaneously lowered the tax burden and increased the spending burden, that’s obviously not true in the short run. But the evidence suggests a firm commitment to lower taxes can inhibit long-run spending.

Based on these five points, I side with Steve Moore. It’s always a good idea to push for lower taxes.

And I definitely disagree with Robert Verbruggen’s willingness to put tax increases on the table. A huge mistake.

That being said, the Trump Administration’s reckless approach to discretionary spending and feckless approach to entitlement spending makes any discussion of further tax relief completely pointless.

So, at the risk of sounding like a politician, I also disagree with Steve. Instead of writing a column discussing additional tax cuts, he should have used the opportunity to condemn big-spending GOPers.

P.S. For what it’s worth, more than 100 percent (yes, that’s mathematically possible) of America’s long-run fiscal problem is excessive spending.

P.P.S. If you doubt my assertion that higher taxes will lead to more spending, I invite you to come up with another explanation for what’s happened in Europe.

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Buttigieg’s Greek-Style Fiscal Policy

Candidates such as Elizabeth Warren and Bernie Sanders supposedly are competing for hard-left voters, while candidates such as Joe Biden and Pete Buttigieg are going after moderate voters. But a review of Buttigieg’s fiscal policy suggests he may belong in the first category.

In the interview, I focused on Buttigieg’s plan to subsidize colleges. Hopefully, I got across my main point is that students won’t be helped.

Based on what’s happened with the “third-party payer” subsidies that already exist, colleges and universities will simply jack up tuition and fees to capture the value of any new handouts.

I’m not the only person to speculate that Buttigieg is simply a watered down version of Warren.

The Wall Street Journal opined today on Mayor Pete’s statist agenda.

Mr. Buttigieg has risen steadily in the Real Clear Politics polling average to a solid fourth place, with about 7% support. …on Friday he released what he called “An Economic Agenda for American Families.” For a candidate who wants to occupy the moderate lane, Mr. Buttigieg’s policy details veer notably left. …$700 billion—presumably over 10 years, but the plan doesn’t specifically say—for “universal, high-quality, and full-day early learning.” …$500 billion “to make college affordable.” That means free tuition at public universities… $430 billion for “affordable housing.” …$400 billion to top off the Earned Income Tax Credit… A $15 national minimum wage.

At the risk of understatement, that’s not a moderate platform.

This isn’t an economic agenda, and there isn’t a pro-growth item anywhere. It’s a social-welfare spending and union wish list. …Don’t forget the billions more he has allocated to green energy, as well as his $1.5 trillion health-care public option, “Medicare for All Who Want It.” So far Mayor Pete’s agenda totals $5.7 trillion… Mayor Pete’s policy wish list is shorter and cheaper than Elizabeth Warren’s, but it still includes gigantic tax increases to finance a huge expansion of the welfare and entitlement state. Call it Warren lite.

Methinks John Stossel needs to update this video. With $5.7 trillion of new outlays, Buttigieg is definitely trying to win the big-spender contest.

No wonder he’s now embracing class-warfare tax policy. One of his giant tax increases, which I should have mentioned in the interview, is a version of Elizabeth Warren’s “nutty idea” to force people to pay taxes on capital gains even if they haven’t sold assets and therefore don’t actually have capital gains!

And the Washington Post reports that he also wants to increase the capital gains tax rate, even though that will make America less competitive.

By the way, Buttigieg is also a hypocrite. He’s joined with other Democratic candidates in embracing a carbon tax on lower-income and middle-class voters, yet the Chicago Tribune reports that he zips around the country on private jets.

Pete Buttigieg has spent roughly $300,000 on private jet travel this year, more than any other Democrat running for the White House, according to an analysis of campaign finance data. …his reliance on charter flights contrasts sharply with his image as a Rust Belt mayor who embodies frugality and Midwestern modesty. …Buttigieg’s campaign says the distance between its South Bend headquarters and major airports sometimes makes private jet travel necessary. “We are careful with how we spend our money, and we fly commercial as often as possible,” Buttigieg spokesman Chris Meagher said Wednesday. “We only fly noncommercial when the schedule dictates.”

In other words, one set of rules for ordinary people, but exemptions for the political elite.

Though at least he hasn’t proposed to ban hamburgers. At least not yet.

P.S. If you like this cartoon by Gary Varvel, I very much recommend this Halloween cartoon. And he is among the best at exposing the spending-cut hoax in DC, as you can see from this sequester cartoon and this deficit reduction cartoon. This cartoon about Bernie Madoff and Social Security, however, is probably my favorite.

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The Most Important Ballot Initiative of 2019

Last November, voters in some states had the opportunity to accept or reject some very important initiatives, including votes on Colorado’s flat tax, Arizona’s school choice system, and a carbon tax in the state of Washington.

Since 2019 is an off-year election, there aren’t as many initiatives and referendums. But one of them is vitally important. Politicians in Colorado are hoping voters will approve Proposition CC, which would gut the Taxpayer Bill of Rights (TABOR) and thus allow more government spending.

Why is TABOR worth defending? Because it’s far and away the most effective and well-designed fiscal rule in the United States.

It’s basically a spending cap, which is the ideal fiscal policy, and here’s a description of how it works that I shared last year.

Colorado voters adopted The Taxpayer’s Bill of Rights in 1992. TABOR allows government spending to grow each year at the rate of inflation-plus-population. Government can increase faster whenever voters consent. Likewise, tax rates can be increased whenever voters consent. …The Taxpayer’s Bill of Rights requires that excess government revenues be refunded to taxpayers, unless taxpayers vote to let the government keep the revenue.

Proposition CC doesn’t fully repeal TABOR, but it allows politicians to keep – and spend – excess tax revenues.

Thomas Aiello of the National Taxpayers Union wrote last month for the Colorado Springs Gazette about TABOR. He explains why it has been successful.

By guaranteeing refunds of excessive taxes, restricting spending to sensible growth rates, and giving Coloradans the ability to vote on tax increases, TABOR has been instrumental in the state’s booming economy. …Since TABOR limits the amount of money the state is allowed to spend, surplus revenue in excess of the cap must be refunded to Colorado taxpayers. Generally, the revenue cap on the state level grows with inflation plus population increases. …TABOR is working as designed: limiting the growth of government, protecting taxpayers, and ensuring working Coloradans keep more of their hard-earned money. …since 1992 more than $3 billion has been refunded back to taxpayers in the form of lower property, sales, and income taxes.

And he warns about the adverse consequences of Proposition CC.

…in the 2019 legislative session, the Democratic-controlled legislature agreed to place Proposition CC onto the November ballot. If approved by voters, TABOR’s provision for refunds would be gutted, thereby allowing the treasury to retain all excess revenue it is required to return to taxpayers. That means taxpayers would forfeit future refunds from 2019 on. Just put that into perspective: taxpayers will send an extra $1.3 billion to the treasury than what would normally be spent. Instead of giving that money back to you as required by TABOR, lawmakers want Coloradans to forget about overpayments so they can just spend it on other things in the budget.

Writing for the Grand Junction Daily Sentinel, Jay Stooksbury also opines against Proposition CC.

They lied to us in 2005, and they are doubling down on this lie in 2019. Colorado voters were sold a bill of goods with Referendum C in 2005, and it is of the utmost importance that we aren’t fooled again with Proposition CC in 2019. Proponents of Referendum C originally claimed that their measure was “temporary.” The measure was supposed to offer a five-year reprieve from the constitutional limitations created by the Taxpayer’s Bill of Rights (TABOR)… Referendum C proved to be anything but “temporary.” The referendum allowed Colorado’s spendthrift government to permanently augment its spending cap, shortchanging taxpayers on their potential refund year after year since its passing.

He explains that Proposition CC would be far worse.

If passed, this 2019 ballot measure would permanently abolish the state government’s obligation to refund taxpayers. I repeat: permanently. At least this time around, legislators have dropped the pretense that they are bluffing with “temporary” half-measures; when it comes to keeping all of your hard-earned income, these legislators are going all-in, baby. …TABOR is, unfortunately, a shell of its former self. Its effectiveness has been chipped away by a decades-long rebranding campaign that laundered tax revenue by using terms like “fees” and “enterprises.” …Regardless, TABOR is still a vital, one-of-a-kind safeguard that empowers Coloradans against the wastefulness of government. Come November, let’s be certain to keep it that way. Fool us once with C, shame on you; fool us twice with CC, shame on all of us.

I don’t have much to add to these analyses. The real gold standard for good fiscal policy is to make sure government doesn’t grow faster than the private sector, and that’s what TABOR is designed to achieve.

It’s basically the closest thing we have in America to Switzerland’s “debt brake” and Hong Kong’s Article 107.

My only contribution to the discussion is this chart, based on data from the St. Louis Federal Reserve, showing how Coloradans now enjoy more than $4,000 of additional personal income compared to the national average – up from just $526 when TABOR was enacted.

While it’s impossible to precisely explain why income has grown faster in Colorado, I don’t think it is a coincidence that the state gets high scores for economic liberty.

P.S. To see the real-world impact of TABOR, look at what happened after pot legalization produced additional tax revenue.

P.P.S. I’m also paying close attention to Proposition 4 in Texas, which would amend the state constitution to prohibit consideration of a personal income tax.

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Senator Warren’s Looney Medicare-for-All Scheme

I’ve always considered Senator Bernie Sanders to be the most clueless and misguided of all presidential candidates.

But I also think “Crazy Bernie” is actually sincere. He really believes in socialism.

Elizabeth Warren, by contrast, seems more calculating. Her positions (on issues such as Social Security, corporate governance, federal spending, taxation, Wall Street, etc).) are radical, but it’s an open question whether she’s a true believer in statism. It’s possible that she simply sees a left-wing agenda as the best route to winning the Democratic nomination.

Regardless of motive, though, her proposals are economic lunacy. So maybe it’s time to give her “Looney Liz” as a nickname.

Consider, for instance, her new Medicare-for-All scheme. She got hammered for promising trillions of dollars of new goodies without specifying how it would be financed, so she’s put forward a plan that ostensibly fits the square peg in a round hole.

But as Chuck Blahous of the Mercatus Center explains, her plan is a farce.

…presidential candidate Sen. Elizabeth Warren released her proposal to ostensibly pay for the costs of Medicare for All (M4A) without raising taxes on the middle class. As published, the plan would not actually finance the costs of M4A. …the Warren proposal understates M4A’s costs, as quantified by multiple credible studies, by about 34.2%. Another 11.2% of the cost would be met by cutting payments to health providers such as physicians and hospitals. Approximately 20% of the financing is sought by tapping sources that are unavailable for various reasons, for example because she has already committed that funding to other priorities, or because the savings from them was already assumed in the top-line cost estimate. The remaining 34.6% would be met by an array of new and previous tax proposals, most of it consisting of new taxes affecting everyone now carrying employer-provided health insurance, including the middle class.

Here’s a pie chart showing that Warren is relying on smoke and mirrors for more than 50 percent of the financing.

By the way, the supposedly real parts of her plan, such as the new taxes, are a very bad idea.

Brian Riedl of the Manhattan Institute unleashed a flurry of tweets exposing flaws in her proposal.

Since I’m a tax wonk, here’s the one that grabbed my attention.

Combination of 35% corporate rate (worldwide, no deferral), “Real corporate profits tax,” curtail depreciation, huge capital gains taxes, financial transactions tax, bank tax, and 6% wealth tax is economic fantasyland. Taxes on capital would be through the roof. 9/

— Brian Riedl 🧀 🇺🇦 (@Brian_Riedl) November 1, 2019

Wow. Higher taxes on domestic business income, higher taxes on foreign-source business income, higher taxes on business investment, more double taxation of capital gains, a tax on financial transactions, and a very punitive wealth tax (which would be a huge indirect tax on all saving and investment).

If ever enacted, the United States presumably would drop to last place in the Tax Foundation’s competitiveness ranking.

And let’s not forget that Medicare-for-All would dramatically increase the burden of government spending. In one fell swoop, we’d become Greece.

Actually, that probably overstates the damage. Based on my Lassez-Faire Index, I’m guessing we’d be more akin to Spain or Belgium (in other words, falling from #6 in the rankings to the #35-#40 range according to Economic Freedom of the World).

P.S. Don’t forget that Medicare has a massive shortfall already.

P.P.S. Looney Liz’s plan is terrible fiscal policy, but keep in mind it’s also terrible health policy since it would exacerbate the third-party payer problem.

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In One Chart, Everything You Need to Know about New Budget Numbers from D.C.

This week featured lots of angst-ridden headlines about the annual budget deficit for the 2019 fiscal year (which ended on September 30) jumping to $984 billion, an increase of more than $200 billion.

For reasons I’ve previously outlined, I don’t lose too much sleep about the level of government borrowing. What’s far more important is the burden of government spending.

Whether the budget is financed by taxes or borrowing, the level of spending is what really matters. Simply stated, that number measures the amount of money that politicians divert from the economy’s productive sector.

That being said, it’s sometimes very illuminating to look at why red ink goes up and down.

So I went to the Treasury Department’s most-recent Monthly Treasury Statement and looked at the raw numbers. What did I find?

Lo and behold, the deficit jumped to $984 billion because outlays are increasing twice as fast as revenue.

Perhaps even more discouraging, the burden of spending is rising more than four times faster than needed to keep pace with inflation.

These are very discouraging numbers, especially when you keep in mind that this is the calm before the storm. Because of poorly designed entitlement programs and an ageing population, our fiscal situation will deteriorate even faster in the future.

Unless there’s much-needed reform.

But I’m not holding out much hope. Trump is a big spender and Congress is filled with big spenders.

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Andrew Yang’s Dependency Dividend

While he’s not as outwardly radical as Elizabeth Warren, Bernie Sanders, and Kamala Harris, Andrew Yang has joined together two very bad ideas – universal handouts and a value-added tax.

Needless to say, I was not overflowing with praise when asked to comment.

At the risk of understatement, giving every adult a $12,000-per-year entitlement would be a recipe for bigger government and more dependency.

Even Joe Biden understands that this would erode societal capital.

And the ever-sensible Swiss, in a 2016 referendum, overwhelmingly rejected universal handouts.

Needless to say, it also would be a catastrophic mistake to give Washington several new sources of revenue to finance this scheme. A big value-added tax would be especially misguided.

Let’s take a closer look at Yang’s plan. As I noted in the interview, the Tax Foundation crunched the numbers.

Andrew Yang said he wants to provide each American adult $1,000 per month in a universal basic income (UBI) he calls a “Freedom Dividend.” He argued that this proposal could be paid for with…a combination of new revenue from a VAT, other taxes, spending cuts, and economic growth. …We estimate that his plan, as described, could only fund a little less than half the Freedom Dividend at $1,000 a month. A more realistic plan would require reducing the Freedom Dividend to $750 per month and raising the VAT to 22 percent.

If you’re interested, here are more details about his plan.

…individuals would need to choose between their current government benefits and the Freedom Dividend. As such, some individuals may decline the Freedom Dividend if they determine that their current government benefits are more valuable. The benefits that individuals would need to give up are Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needed Families (TANF), Supplemental Security Income (SSI), and SNAP for Women, Infants, and Child Program (WIC). To cover the additional cost of the Freedom Dividend, Yang would raise revenue in five ways: A 10 percent VAT…A tax on financial transactions…Taxing capital gains and carried interest at ordinary income rates…Remove the wage cap on the Social Security payroll tax…A $40 per metric ton carbon tax.

By the way, Yang has already waffled on some of his spending offsets, recently stating that the so-called Freedom Dividend wouldn’t replace existing programs.

In any event, the economic and budgetary effects would be bad news.

…his overall plan would reduce the long-run size of the economy and the tax base. The three major taxes in his plan (VAT, carbon tax, and payroll tax increase), while efficient sources of revenue, would tend to reduce labor force participation by reducing the after-tax returns to working. Using the Tax Foundation Model, we estimate that the weighted average marginal tax rate on labor income would increase by about 8.6 percentage points. The resulting reduction in hours worked would ultimately reduce output by 3 percent. We estimate that Yang would lose about $124 billion each year in revenue due to the lower output.

Here’s how the Tax Foundation scores the plan.

As you can see, the VAT, the financial transactions tax, the higher capital gains tax, and the increase in the payroll tax burden don’t even cover half the cost of the universal handout.

P.S. When the Tax Foundation say a tax is an “efficient source of revenue,” that means that it would result in a modest level of economic damage on a per-dollar-collected basis. This is why they show a rather modest amount of negative revenue feedback (-$124 billion).

I think they’re being too kind. Extending the Social Security payroll tax to all income would result in a huge increase in marginal tax rates on investors, entrepreneurs, and other high-income taxpayers. As explained a few days ago, those are the people who are very responsive to changes in tax rates.

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Time to Worry about U.K. Fiscal Policy?

I’m glad that Boris Johnson is Prime Minister for the simple reason that “Brexit” is far and away the most important issue for the United Kingdom.

Whether it’s called a Clean Brexit or Hard Brexit, leaving the European Union is vital. It means escaping the transfer union that inevitably will be imposed as more EU nations suffer Greek-style fiscal chaos. And a real Brexit gives the UK leeway to adopt market-friendly policies that currently are impossible under the dirigiste rules imposed by Brussels.

But just because Johnson appears to be good on Brexit, this doesn’t mean he deserves good grades in other areas. For instance, the UK-based Times reports that the Prime Minister is on a spending spree.

Boris Johnson is planning to spend as much on public services as Jeremy Corbyn promised at the last election and cannot afford the tax cuts he pledged in the Tory leadership campaign, a think tank has warned. The prime minister’s proposed spending spree would mean Sajid Javid, the chancellor, overshooting the government’s borrowing limit by £5 billion in 2020-21, according to the Institute for Fiscal Studies, which said that the government was “adrift without any fiscal anchor”.

Ugh, sounds like he may be the British version of Trump. Or Bush, or Nixon.

In a column for CapX, Ben Ramanauskas warns that more spending is bad policy.

…with Sajid Javid making a raft of spending announcements, it would seem as though the age of austerity really is over. …So it would be useful to look back over the past decade and answer a few questions. Does austerity work? …As explained in the excellent new book Austerity: When it Works and When it Doesn’t  by Alberto Alesina, Carlo Favero, and Francesco Giavazzi, it depends what you mean by austerity. …The authors analyse thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, and assess the relative effectiveness of tax increases and spending cuts at reducing debt. They show that…spending cuts are much more successful than tax increases at reducing the growth of debt, and can sometimes even result in output gains, such as in the case of expansionary austerity. …Which brings us onto our next question: did the UK actually experience austerity? …the government’s programme was a mild form of austerity. …Then there is the politics of it all. It’s important to remember that fiscal conservatism can be popular with the electorate and it worked well in 2015 and to a lesser extent in 2010. The Conservatives should not expect to win the next election by promising massive increases in public spending.

Moreover, good spending policy facilitates better tax policy.

Or, in this case, the issue is that bad spending policy makes good tax policy far more difficult.

And that isn’t good news since the U.K. needs to improve its tax system, as John Ashmore explains in another CapX article.

…the Tax Foundation…released its annual International Tax Competitiveness Index. The UK came 25th out of 36 major industrialised nations. For a country that aims to have one of the world’s most dynamic economies, that simply will not do. …Conservatives…should produce a comprehensive plan for a simpler, unashamedly pro-growth tax system. And it should be steeped in a political narrative about freedom… Rates are important, but so is overall structure and efficiency. …a more generous set of allowances for investment, coupled with a reform of business rates would be a great place to start. We know the UK has a productivity problem, so it seems perverse that we actively discourages investment. …As for simplicity, …it’s possible to drastically reduce the number of taxes paid by small businesses without having any effect on revenue. Accountants PwC estimate it takes 105 hours for the average UK business to file their taxes… Another area the UK falls down is property taxes, of which Stamp Duty Land Tax is the most egregious example. It’s hard to find anyone who thinks charging a tax on people moving house is a good idea…in the longer term there’s no substitute for good, old-fashioned economic growth – creating the world’s most competitive tax system would be a fine way to help deliver it.

To elaborate, a “more generous set of allowances for investment” is the British way of saying that the tax code should shift from depreciation to expensing, which is very good for growth.

And simplicity is also a good goal (we could use some of that on this side of the Atlantic).

The problem, of course, is that good reforms won’t be easy to achieve if there’s no plan to limit the burden of government spending.

It’s too early to know if Boris Johnson is genuinely weak on fiscal issues. Indeed, friends in the UK have tried to put my mind at ease by asserting that he’s simply throwing around money to facilitate Brexit.

Given the importance of that issue, even I’m willing to forgive a bit of profligacy if that’s the price of escaping the European Union.

But, if that’s the case, Johnson needs to get serious as soon as Brexit is delivered.

Let’s close by looking at recent fiscal history in the UK. Here’s a chart, based on numbers from the IMF, showing the burden of spending relative to economic output.

Margaret Thatcher did a good job, unsurprisingly.

And it’s not a shock to see that Tony Blair and Gordon Brown frittered away that progress.

But what is surprising is to see how David Cameron was very prudent.

Indeed, if you compared spending growth during the Blair-Brown era with spending growth in the Cameron-May era, you can see a huge difference.

Cameron may not have been very good on tax issues, but he definitely complied with fiscal policy’s golden rule for spending.

Let’s hope Boris Johnson is similarly prudent with other people’s money.

P.S. If you want some Brexit-themed humor, click here and here.

P.P.S. If you want some unintentional Brexit-themed humor, check out the IMF’s laughably biased and inaccurate analysis.

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Elizabeth Warren’s Reckless Scheme to Expand the Social Security Burden and Undermine American Competitiveness

Social Security is projected to consume an ever-larger share of America’s national income, mostly thanks to an aging population.

Indeed, demographic change is why the program is bankrupt, with an inflation-adjusted cash-flow deficit of more than $42 trillion.

Yet Senator Elizabeth Warren wants to make a bad situation even worse.

In a blatant effort to buy votes, she is proposing a radical expansion in the old-age entitlement program. Here’s how USA Today describes her proposal.

Warren’s strategy would make major changes to Social Security, boosting benefits for all and imposing new taxes on high-income earners to finance them. …Under the proposal, everyone would get a $200 increase in monthly payments from Social Security, including both retirement and disability benefits. …Certain groups would see even larger increases. …In order to cover these benefits and shore up Social Security’s future finances, Warren would impose two new taxes. First, a new payroll tax would apply to wages above $250,000, with employees paying 7.4% and employers matching with 7.4% of their own. This is above the 6.2% employee rate that applies to current wages up to $132,900 in 2019, …Second, individual filers making more than $250,000 or joint filers above $400,000 would owe a heightened net investment income tax at a rate of 14.8%. …The Warren proposal breaks new ground by largely disconnecting the benefits that Social Security pays from the wages on which the program collects taxes.

In a column for the Wall Street Journal, John Cogan of the Hoover Institution explains why the proposal is so irresponsible.

It’s a strange campaign season, loaded with fantastical promises of government handouts for health care, college and even a guaranteed national income. But Sen. Elizabeth Warren ’s Social Security plan takes the cake. With trillion-dollar federal budget deficits and Social Security heading for bankruptcy, Ms. Warren proposes to give every current and future Social Security recipient an additional $2,400 a year. She plans to finance her proposal, which would cost more than $150 billion annually, with a 14.8% tax on high-income individuals. …the majority of Ms. Warren’s proposed Social Security bonanza would go to middle- and upper-income seniors. …The plan would cost taxpayers about $70,000 for each senior citizen lifted out of poverty.

Cogan also explains that Warren’s scheme upends FDR’s notion that Social Security should be an “earned benefit.”

The cornerstone of FDR’s Social Security program is its “earned right” principle, under which benefits are earned through payroll-tax contributions. …in a major break from one of FDR’s main Social Security principles, the plan provides no additional benefits in return for the new taxes. …Such a large revenue stream to fund unearned benefits, aptly called “gratuities” in FDR’s era, would put Social Security on a road to becoming a welfare program. …Ms. Warren’s proposal returns the country to an era when elected officials regularly used Social Security as a vote-buying scheme.

For all intents and purposes, Warren has put forth a more radical version of the plan introduced by Congressman John Larson, along with most of his colleagues in the House Democratic Caucus.

And that plan is plenty bad.

Andrew Biggs of the American Enterprise Institute wrote about the economic damage it would cause.

…the Social Security 2100 Act consists of more than 100% tax increases – because it not only raises payroll taxes to fund currently promised benefits, but increases benefits for all current and future retirees. …Social Security’s 12.4% payroll tax rate would rise to 14.8% while the $132,900 salary ceiling on which Social Security taxes apply would be phased out. Combined with federal income taxes, Medicare taxes and state income taxes, high-earning taxpayers could face marginal tax rates topping 60%. …Economists agree that tax increases reduce labor supply, the only disagreement being whether it’s by a little or a lot. Likewise, various research concludes that middle- and upper-income households factor Social Security into how much they’ll save for retirement on their own. If they expect higher Social Security benefits their personal saving will fall. Since higher labor supply and more saving are the most reliable routes to economic growth, the Social Security 2100 Act’s risk to the economy is obvious. …an economic model created by a team based at the University of Pennsylvania’s Wharton School…projects GDP in 2049 would be 2.0% lower than a hypothetical baseline in which the government borrowed to fund full promised Social Security benefits. The logic is straightforward: when taxes go up people work less; when Social Security benefits go up, people save less. If people work less and save less, the economy grows more slowly.

And the Wall Street Journal opined about the adverse impact of the proposal.

Among the many tax increases Democrats are now pushing is the Social Security 2100 Act sponsored by John Larson of House Ways and Means. The plan would raise average benefits by 2% and ties cost-of-living raises to a highly generous and experimental measure of inflation for the elderly known as CPI-E. The payroll tax rate for Social Security would rise steadily over two decades to 14.8% from 12.4% for all workers, and Democrats would also apply the tax to income above $400,000. …The proposal would also further tilt government spending to the elderly, who in general are doing well. …Democrats are also sneaky in the way they lift the income cap on Social Security taxes. The Social Security tax currently applies only on income up to $132,900, an amount that rises each year with inflation. But the new payroll tax on income above $400,000 isn’t indexed to inflation, which means the tax would ensnare ever more taxpayers over time. …The new 14.8% Social Security payroll-tax rate would come on top of the 37% federal income-tax rate, plus 2.9% for Medicare today (split between employer and employee), plus the 0.9% ObamaCare surcharge on income above $200,000 and 3.8% surcharge on investment income. …As lifespans increase, the U.S. needs more working seniors contributing to the economy. Yet higher Social Security benefits can induce earlier retirement if people think they don’t have to save as much. Higher marginal tax rates on Social Security benefits and income also discourage healthy seniors from working.

Now imagine those bad results and add in the economic damage from a 14.8 percentage point increase in the tax burden on saving and investment, which is the main wrinkle that Senator Warren has added.

Last but not least, using Social Security as an excuse to push higher taxes is not a new strategy. Back in 2008 when he was in the Senate and running for the White House, Barack Obama proposed a Warren-style increase in the payroll tax.

Here’s a video I narrated that year, which discusses the adverse economic effect of that type of class-warfare tax hike.

By the way, Hillary Clinton supported a similar tax increase in 2016.

Though it’s worth noting that neither Obama nor Clinton were as radical as Warren since they didn’t propose to exacerbate the tax code’s bias against saving and investment.

And don’t forget she also wants higher capital gains taxes and a punitive wealth tax.

Her overall tax agenda is unquestionably going to be very bad news for job creation and American competitiveness.

The “rich” are the primary targets of her tax hikes, but the rest of us will suffer the collateral damage.

P.S. Instead of huge tax increases, personal retirement accounts are a far better way of addressing Social Security’s long-run problem. I’ve written favorably about the Australian system, the Chilean system, the Hong Kong system, the Swiss system, the Dutch system, the Swedish system. Heck, I even like the system in the Faroe Islands.

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The IMF, State Capacity, and Spurious Correlation

The International Monetary Fund is infamous for its advocacy of higher taxes.

Heck, it’s not merely advocacy. The international bureaucracy uses bailout money as a tool to coerce politicians into approving higher tax burdens.

This is so reprehensible that I’ve referred to the IMF as the “Dumpster Fire of the Global Economy” and called it the “Doctor Kevorkian of Global Economic Policy.”

The bureaucrats also are quite inventive when it comes to rationalizing tax increases.

For instance, a new report from the IMF suggests that a minimum tax level is critical for achieving rapid growth and development.

Is there a minimum tax to GDP ratio associated with a significant acceleration in the process of growth and development? We give an empirical answer to this question by investigating the existence of a tipping point in tax-to-GDP levels. We use two separate databases: a novel contemporary database covering 139 countries from 1965 to 2011 and a historical database for 30 advanced economies from1800 to 1980. We find that the answer to the question is yes. Estimated tipping points are similar at about 12¾ percent of GDP. For the contemporary dataset we find that a country just above the threshold will have GDP per capita 7.5 percent larger, after10 years. The effect is tightly estimated and economically large.

Here’s a depiction of the IMF’s perspective.

At some level, there is a correlation between prosperity and taxation. For instance, some poor nations in the developing world are so corrupt and incompetent that they are incapable of collecting much tax revenue.

But that doesn’t mean higher taxes would somehow make those nations richer. After all, correlation does not imply causation (i.e., crowing roosters don’t cause the sun to rise).

Professor Bryan Caplan of George Mason University points out the methodological shortcomings is the “state capacity” theory.

In recent years, many social scientists…have fallen in love with the concept of “state capacity.” …To my mind, this is scarcely better than saying, “Good government is good; bad government is bad.” Matters would be different, admittedly, if the state capacity literature showed that good government is the crucial ingredient required for success.  But researchers rarely even try to show this.  Instead, they look at various societies and say, “Look at how well-run the governments in successful countries are – and look at how poorly-run the governments in unsuccessful countries are.”  The casual causal insinuation is palpable. …why not just ditch your premature focus on “state capacity” in favor of an open-minded exploration of social capacity?  Good government might be the crucial ingredient for success.  But maybe good government is a byproduct of wealth, trust, intelligence, freedom, or some cocktail thereof. …While good social outcomes all tend to go together, the state capacity literature fails to show that government is the crucial factor that makes all the others possible.

Two other scholars from George Mason University, Professor Peter Boettke and Rosolino Candela, address the issue in an academic study.

This paper reconceptualizes and unbundles the relationship between public predation, state capacity and economic development. …we argue that to the extent that a causal relationship exists between state capacity and economic development, the relationship is proximate rather than fundamental. State capacity emerges from an institutional context in which the state is constrained from preying on its citizenry in violation of predefined rules limiting its discretion. When political constraints are not established to limit political discretion, then state capacity will degenerate from a means of delivering economic development to a means of predation.

They cite Mancur Olson’s work on “political bandits” to understand the limited conditions that would be necessary for there to be a causal relationship between taxes and growth.

Olson’s famous distinction between a “stationary bandit” and a “roving bandit” provides an illustration of our point regarding the emphasis placed on initial conditions. Olson provides a powerful argument for understanding how the self-interest of a revenue-maximizing ruler will align with the political conditions necessary for wealth maximization, not only for himself, but also for his subjects. In a world of roving banditry, a political ruler will have little incentive to invest in fiscal technologies required for regular taxation and judicial technologies that secure property rights and enforce contracts. Only when a bandit has settled down will he or she be incentivized to invest in the provision of public goods that encourage individuals to accumulate wealth, rather than concealing it from predators. However, by Olson’s own admission, his stationary bandit argument is a necessary, though not a sufficient condition for taming public predation.

Their conclusion is that constitutional constants on government are needed to ensure taxes aren’t a tool for additional predation.

In unbundling the relationship between state capacity and economic development, we have distinguished between the protective state, the productive state and the predatory state. To the extent that expansions in state capacity are consistent with economic development, this is because a credible commitment to a set of rules that constrain political discretion have been established. …Fundamentally, economic development requires a protective state from which state capacity emerges as a byproduct. If, however, political constraints are not established to limit political discretion, then state capacity will degenerate from a means of delivering economic development to a means of predation.

Professor Mark Koyama of George Mason University also has written wisely on this topic.

I’m not an academic, so I have a much simpler way of thinking about this issue.

When the IMF (and other bureaucracies) assert that higher taxes are good for growth, I explain that it’s all based on fairy dust or magic beans.

P.S. In a perverse way, I admire the IMF. The bureaucracy’s rationale for existence (dealing with fixed exchange rates) disappeared decades ago, yet the IMF managed to reinvent itself and is now bigger and more bloated than ever.

P.P.S. You won’t be surprised to learn that IMF bureaucrats receive tax-free salaries while pushing for higher taxes on everyone else.

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There’s Very Bad News in CBO’s New Fiscal Forecast, but there Is a Solution to Excessive Government Spending

The Congressional Budget Office (CBO) just released its new 10-year forecast. Unsurprisingly, it shows that Trump’s reckless spending policy is accelerating America’s descent to Greek-style fiscal profligacy.

Most people are focusing on the estimates of additional red ink, but I point out in this interview that the real problem is spending.

Some folks also are highlighting the fact that CBO isn’t projecting a recession, but I don’t think that’s important for the simple fact that all economists are bad at making short-run economic predictions.

That being said, I think CBO’s long-run fiscal forecasts are worthy of close attention (unfortunately, I didn’t state this very clearly in the interview).

And what worries me is that the numbers show that government spending will be consuming an ever-larger share of the nation’s economic output.

However, it’s not time to give up.

Modest spending restraint (i.e., obeying the Golden Rule of fiscal policy) generates very good results in a remarkably short period of time.

What matters most is reducing the burden of spending. But when you address the problem of government spending (as the chart shows), you also solve the symptom of red ink.

The challenge, of course, is convincing politicians that spending should be frozen. Or, at the very least, that it should only grow at a modest pace.

We have enjoyed periods of spending restraint, including a five-year spending freeze under Obama, as well as some fiscal discipline under both Reagan and Clinton.

But if we want long-run spending discipline, we need a comprehensive spending cap, sort of like the very successful systems in Hong Kong and Switzerland.

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More Global Evidence for Spending Caps

Spending caps are the most effective way of fulfilling my Golden Rule for fiscal policy.

And we have good evidence for this approach, as I explain in this FreedomWorks discussion.

I also discuss tax competition in the interview, as well as other topics. You can watch the entire discussion by clicking here.

But I’m sharing the part about spending caps because it fits perfectly with some new research from Veronique de Rugy and Jack Salmon of the Mercatus Center.

They point out that America faces a grim fiscal future, but suggest that fiscal rules may be part of the solution.

…the federal budget process as it exists today has proven inadequate…it is a great way to enable politicians to do what they want to do (cater to interest groups) while avoiding what they don’t want to do (living within their means). …The negative consequence emerging from this chaos and the resulting failure to follow budget rules is an unremitting expansion of the size and scope of government… With countries around the world experiencing growing debt-to-GDP ratios, resultant stagnation in economic growth, and, in extreme cases, default on debts, academics have been paying an increasing amount of attention to the potential of rules toward restraining unsustainable deficit spending. …The good news is that the evidence suggests that these fiscal rules are broadly effective at restraining deficit spending. …The bad news is that not all fiscal rules are effective in restraining government profligacy and curtailing debt growth.

The authors are right. Some fiscal rules don’t work very well.

As I stated in the interview, balanced budget requirements tend to be ineffective.

Spending caps, by contrast, have a decent track record.

The Mercatus study looks at Hong Kong.

Hong Kong…might actually represent the gold standard of good fiscal policy. …Hong Kong’s Financial Secretary, Mr. John Tsang, explained, “Our commitment to small government demands strong fiscal discipline. . . . It is my responsibility to keep expenditure growth commensurate with growth in our GDP.” …in Hong Kong it’s actually a constitutional requirement: Article 107 requires that the government should strive to achieve a fiscal balance, avoid deficit, and more importantly, make sure government spending doesn’t grow faster than the growth of the economy. …Hong Kong’s spending-to-GDP ratio has fluctuated between 14 and 20 percent since the 1990s, its debt as a share of GDP is zero, social welfare spending remains steady at less than 3 percent of GDP.

Amen.

I’ve also praised Hong Kong’s fiscal policy.

Now let’s look at what the authors wrote about Switzerland.

Swiss politicians are not allowed to increase spending faster than average revenue growth over a multiyear period (as calculated by the Swiss Federal Department of Finance), which confines spending growth to a rate no higher than the rate of inflation plus population growth. The Swiss debt brake rule is significant in that it appeals to economists and policymakers on both sides of the aisle. Advocates for fiscal restraint support this rule because it is effectively a spending cap, while social democrats support the rule as it allows for deficit spending during recessionary periods. …There’s no arguing with the results: Annual spending growth fell from an average of 4.3 percent to 2.5 percent since the rule was implemented. Also, in 10 out of the past 14 years, Switzerland has had budget surpluses, while deficits have remained rare and small… At the same time, the Swiss debt-to-GDP ratio has fallen from almost 60 percent in 2003 to around 42 percent in 2017.

Once again, I say amen.

Switzerland’s spending cap is a big success.

Here’s Figure 1 from the study, which shows a big drop in Swiss government debt. I’ve augmented the chart with OECD data to focus on something even more important – which is that the burden of spending (which started very low by European standards) has declined since the debt brake was implemented.

Last but not least, let’s look at the Danish example.

In 2014 Denmark implemented The Budget Act to ensure more efficient management of public expenditures. The act is aimed at ensuring a balance or surplus on the general government balance sheet, as well as appropriate expenditure management at all levels of government. In practice, the rule sets a limit of 0.5 percent of GDP on the structural budget deficit. Policymakers decided that managing fiscal policy on the basis of a balanced structural budget would lead to an appropriate fiscal position in the long term. They also designed the system to take discretion out of their own hands by making the cuts automatic. In addition to structural deficit rules, the Budget Act introduces four-year rolling expenditure ceilings. These ceilings set legally binding limits for spending at all levels of government and for each program. If one program spends under its cap, any money not spent cannot be reallocated to another program.

I guess this is time for a triple-amen.

Here’s Figure 2 from the study, which I’ve also augmented to highlight the most important success of Denmark’s policy of spending restraint.

The economic case for spending caps is ironclad.

The problem is that it’s an uphill climb from a political perspective.

Politicians prefer legislative spending caps. After all (as we saw in 2013, 2015, 2018, and this year), those can be evaded with a simple majority, so long as there’s a profligate president who approves higher spending levels.

And those caps have never applied to entitlements, which are the part of the budget that eventually will bankrupt the nation.

So why would public choice-motivated lawmakers actually allow a serious and comprehensive spending cap to become part of the Constitution?

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Kamala Harris Wins the Big-Spender, Free-Stuff Primary

The invaluable John Stossel has an entertaining and informative video that estimates how many handouts are being promised by Joe Biden, Pete Buttigieg, Kamala Harris, Bernie Sanders, Donald Trump, and Elizabeth Warren.

Wow, how depressing.

When I wrote about about the “dangerous seduction of free” a month ago, I apparently underestimated the problem. We have politicians completely divorced from fiscal reality (the “Green New Deal” being a frightening example).

But the key question is whether the American people are actually getting seduced.

It’s not looking good on the Democratic side. Joe Biden is presumably part of the Democratic Party’s anti-socialist wing, which is encouraging. But all the other leading candidates are hard-core big spenders.

And it’s not looking good on the Republican side, either. Trump may not have crazy proposals for new spending, but in practice he’s been profligate. Indeed, I’m guessing he will wind up with a worse record on spending than Obama.

The bottom line is that the public sector already is too large in the United States. Yet we have politicians who want it to become an even bigger burden. In some cases, much bigger.

That has very serious economic consequences. Especially if it coincides with an erosion of societal capital.

For instance, I think some European countries have already reached a “tipping point” because of a dependency mindset.

Historically, the United States has been insulated from that problem because of a belief in personal responsibility. But ever-growing levels of dependency suggest that this advantage is dissipating.

I’ll close with a final observation about the candidates – Sanders, Warren, and Harris – who were identified in the video as advocating trillions of dollars of new spending.

How do they plan to finance this orgy?

• Sanders has a plethora of new taxes, including class-warfare tax increase and middle-class tax increases, so he definitely wants to put our money where his mouth is. In terms of fiscal policy, think of him as Sweden.
• Warren supports a bunch of new taxes, mostly on the rich, most notably a huge wealth tax, which surely would backfire but theoretically is a big source of money. In terms of fiscal policy, think of her as France.
• Harris has some class-warfare tax hikes but is mostly promising a free lunch since there’s a huge mismatch between what she wants to spend and the new taxes she has embraced. In terms of fiscal policy, think of her as Greece.

For what it’s worth, I’m waiting for the Hong Kong candidate.

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Trump’s Greek-Style Budget Deal

I point out in this interview that the 2011 Budget Control Act (BCA) was the only big victory for taxpayers this century. It imposed spending caps on discretionary spending and led to a sequester in early 2013, which was Barack Obama’s biggest defeat.

The bad news is that the BCA is merely legislation. That means politicians can conspire to bust the spending caps – which is what they did at the end of 2013, as well as in 2015, 2018, and again this year.

This most recent deal may be the worst of the worst. The Committee for a Responsible Federal Budget (CRFB) shows that it brings discretionary spending almost up to the level we reached during Obama’s pork-filled stimulus.

By the way, the chart also shows that Bush was a big spender and that we actually had a bit of spending restraint after the Tea Party-themed 2010 mid-term elections.

But let’s focus on today.

Here’s one more chart from CRFB. It shows that Trump is doing a good job of impersonating Obama with huge, across-the-board spending increases.

These charts show why I’m so depressed. And let’s not forget that they are only measures of discretionary spending. The outlook for entitlement spending is even worse!

In other words, we’re on the path to fiscal crisis. Is there a solution?

Yes, we could adopt constitutional restraints on the growth of government. I mentioned Colorado’s Taxpayer Bill of Rights in the interview, as well as the “debt brake” in Switzerland.

But there’s zero chance that today’s crop of politicians will enact this kind of sensible reform. We’ll probably have to wait until a crisis occurs. At which point it may be too late.

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Reckless and Irresponsible: Trump Is Making Big Government Even Bigger

Way back in early 2016, I asked whether Donald Trump believed in smaller government.

A few months later, I concluded that the answer was no. Trump – like Bush and Nixon – was a big-government Republican.

I wish that I was wrong.

But if you look at the budget deal he approved last year, there’s no alternative explanation. Especially since there was an approach that would have guaranteed a victory for taxpayers.

Now it appears that he is on the verge of meekly surrendering to another big expansion of the federal budget.

The Washington Post has a story on the new deal to increase spending.

…the final details of a sweeping budget and debt deal are unlikely to include many — if any — actual spending cuts… The agreement appeared likely to mark a retreat for White House officials who had demanded major spending cuts in exchange for a new budget deal. …instead of the $150 billion in new spending cuts recently demanded by White House acting budget director Russell Vought, the agreement would include a significantly lower amount of reductions. And those reductions aren’t expected to represent actual spending cuts, in part because most would take place in future years and likely be reversed by Congress at a later date. …In practical terms, the budget agreement would increase spending by tens of billions of dollars in the next two years, a stark reversal from the White House’s budget request several months ago… Agreeing on new spending levels also avoids onerous budget caps that would otherwise snap into place automatically under an Obama-era deal, and indiscriminately slash $126 billion from domestic and Pentagon budgets.

The establishment-oriented Committee for a Responsible Federal Budget (CRFB) is aghast at the grotesque profligacy of the purported agreement.

…this agreement is a total abdication of fiscal responsibility by Congress and the President. It may end up being the worst budget agreement in our nation’s history, proposed at a time when our fiscal conditions are already precarious. If this deal passes, President Trump will have increased discretionary spending by as much as 22 percent over his first term… There was a time when Republicans insisted on a dollar of spending cuts for every dollar increase in the debt limit. It’s hard to believe they are now considering the opposite – attaching $2 trillion of spending increases to a similar-sized debt limit hike.

I sometimes differ with the folks at the CRFB because they’re too fixated on debt rather than the size of government.

But in this case, we both find this rumored deal to be utterly irresponsible.

From a liberty-minded perspective, the Wall Street Journal opines about the spendthrift agreement.

House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin are negotiating another spending blowout as part of a two-year budget deal, and let’s hope the talks break down. The price could be another $2 trillion in deficit spending… The Budget Control Act of 2011 puts caps on spending that both parties have to agree to lift. In 2018 Congress passed a two-year budget deal that blew out domestic spending by more than $130 billion in exchange for a buildup in defense. The bipartisan spending party is hoping to repeat the exercise for fiscal 2020 and 2021… After the last two-year deal Mr. Trump vowed never to sign another one, but here he is again. …The GOP may…underestimate the political cost of campaigning on another spending deal that increases the size of government. It will be harder to run against the spending plans of Elizabeth Warren or Kamala Harris with Mr. Trump’s first-term spending record.

I’ll close with a chart I prepared based on the numbers for domestic discretionary spending from the Mid-Session Review, as well as Table 8.1 from the Historical Tables, both from the Office of Management and Budget.

The numbers show that we had more fiscal restraint under Obama (blue line) than Trump (orange line). And Trump’s numbers will now be even worse with the new deal.

I added the Excel-generated trendline to show what would have happened if Obama-era policies were maintained.

But since that produced an unrealistic assessment, I also showed (green line) what spending would have looked like if politicians had obeyed commitments from the 2011 Budget Control Act (BCA).

Some of these numbers are back-of-the-envelope calculations, but the bottom line is clear. Trump is worse than Obama on spending.

And that means big tax increases inevitably will be the result.

P.S. When I recently issued a report card for Trump’s economic policy, I gave him a “B-” because I decided his good tax policy outweighed his bad spending policy. If this deal gets finalized, he drops to a “C-” because of the big expansion in the burden of spending.

P.P.S. Trump also is weak on entitlement spending, which is the biggest part of the federal spending burden.

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A Great Moment in Local Government

San Francisco used to be famous for cable cars.

Now it’s getting well known for its “poop patrol” and maps that warn people about the ubiquitous presence of human excrement.

Why are people defecating on city sidewalks? Because there’s a major problem with government-created homelessness thanks to rent control and zoning restrictions.

And homelessness gives us our topic for today because we have an astounding example of government waste.

More specifically, a story from the San Francisco Chronicle nicely summarizes the efficiency and competence of the public sector.

An experiment to put a homeless shelter in a San Francisco public school gym has so far been a costly failure, …costing taxpayers about $700 for each person who spends the night. …only five families have used the facility at 23rd and Valencia streets in the Mission, with an average occupancy of less than two people per night… The facility is completely empty several nights each month, Kositsky said, although shelter workers are on-site seven nights a week and through holidays, whether anyone shows up or not.

I’ve been to San Francisco many times. Hotels are not cheap.

But I’ve never had to pay anywhere close to $700 per night.

Though maybe this San Francisco program is a bargain since it costs the state $1.3 million per year to house a homeless person.

So why did the city create this boondoggle? For the same reason that many programs are created. Politicians and bureaucrats exaggerated about a problem.

Supervisor Hillary Ronen and the school’s administrators…advocated for the shelter, saying there were dozens of families facing homelessness at Buena Vista Horace Mann who needed someplace to sleep. The principal at the time, Richard Zapien, said he had identified 60 families in unstable housing.

But here’s a passage that captures the real story.

This program was created to funnel money to a non-profit group and I wouldn’t be surprised to learn that officers of this group are supporters (campaign cash, get-out-the-vote, etc) of the politicians who created the program.

The city has been paying the nonprofit Dolores Street Community Services $40,000 per month to manage the shelter, and if it were to be successful, would spend up to $900,000 per year to serve up to 20 families at a time with all-night staffing, food and support services to help them find permanent housing.

In other words, we have another example of how government is a racket.

No matter how flawed and foolish a program may be, never forget that it’s putting unearned money in the pockets of some group of people. And that group of people know how to play the game, since they then recycle some of the loot back to the politicians.

Politicians don’t care if the money is wasted. They don’t care if there’s rampant fraud.

They’re simply buying votes. With our money.

P.S. There is a sure-fire way of reducing this kind of corrupt behavior, but don’t hold your breath expecting it to happen.

P.P.S. Though you may want to hold your breath if you visit the city.

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The Three Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

The Congressional Budget Office just released its new long-run fiscal forecast.

Most observers immediately looked at the estimates for deficits and debt. Those numbers are important, especially since America has an aging population, but they should be viewed as secondary.

What really matters are the trends for both taxes and spending.

Here are the three things that you need to know.

First, America’s tax burden is increasing. Immediately below are two charts. The first one shows that revenues will consume an addition three percentage points of GDP over the next three decades. As I’ve repeatedly pointed out, our long-run problem is not caused by inadequate revenue.

The second of the two charts shows that most of the increase is due to “real bracket creep,” which is what happens when people earn more income and wind up having to pay higher tax rates.

So even if Congress extends the “Cadillac tax” on health premiums and extends all the temporary provisions of the 2017 Tax Act, the aggregate tax burden will increase.

Second, the spending burden is growing even faster than the tax burden.

And if you look closely at the top section of Figure 1-7, you’ll see that the big problems are the entitlements for health care (i.e., Medicare, Medicaid, and Obamacare).

By the way, the lower section of Figure 1-7 shows that corporate tax revenues are projected to average about 1.3 percent of GDP, which is not that much lower than what CBO projected (about 1.7 percent of GDP) before the rate was reduced by 40 percent.

Interesting.

Third, we have our most important chart.

It shows that the United States is on a very bad trajectory because the burden of government spending is growing faster than the private economy.

In other words, Washington is violating my Golden Rule.

And this leads to all sorts of negative consequences.

• Government consumes a greater share of the economy over time.
• Politicians will want to respond by raising taxes.
• Politicians will allow red ink to increase.

The key thing to understand is that more taxes and more debt are the natural and inevitable symptoms of the underlying disease of too much spending.

We know the solution, and we have real world evidence that it works (especially when part of a nation’s constitution), but don’t hold your breath waiting for Washington to do the right thing.

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An Important Lesson on Spending Restraint from the United Kingdom

I wrote yesterday about the leadership race for the Conservative Party in the United Kingdom.

The most important goal is to find a leader who will deliver a “clean Brexit,” but I also pointed out that it would be very desirable to select a Prime Minister who will support much-needed supply-side reforms to make the U.K. more attractive for jobs and investment.

Today, let’s turn our attention to the spending side of the fiscal ledger.

The accompanying table of data (from page 65 of HM Treasury’s Statistical Analyses of Public Expenditure) shows annual spending in nominal and inflation-adjusted terms, as well as the burden of spending as a share of economic output.

If you look at trends, you’ll notice a bit of progress in the 1980s under Margaret Thatcher and then some backsliding last decade when Tony Blair and Gordon Brown were in charge.

But the most surprising results can be found this decade.

Starting in 2011, there’s been some impressive spending restraint. Nominal outlays have increased by an average of 1.7 percent annually.

And since the private sector has grown at a faster pace, that means the overall burden of government spending – measured as a share of gross domestic product – has declined.

I’ve never thought of David Cameron (Prime Minister from 2010-2016) or Theresa May (Prime Minister since 2016) as fiscal conservatives, but they deserve credit for keeping spending under control.

(Too bad we can’t say the same thing about Donald Trump!)

In any event, the new leader of the Conservative Party should maintain this approach. Or, better yet, go one step further by institutionalizing some sort of Swiss-style spending cap.

There’s also a lesson for the rest of us.

What’s happened in the United Kingdom is additional confirmation that my Golden Rule is the right approach to fiscal policy.

Nations with multi-year periods of spending restraint always get good fiscal results.

We even had such an experience in the United States (back when Republicans pretended to care about spending).

Let’s close with this chart, based on IMF data, showing what’s happened this decade in the United Kingdom.

P.S. Unsurprisingly, Paul Krugman got everything backwards when he examined U.K. fiscal policy earlier this decade.

P.P.S. While they did a surprisingly good job on spending restraint, that doesn’t change the fact that Cameron was bad on tax policy and May was a failure on Brexit.

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Can Tories Find a New Margaret Thatcher to Lead the U.K. to Post-Brexit Prosperity?

The Conservative Party in the United Kingdom is in the process of selecting a new leader to replace the disastrous Theresa May as Prime Minister.

The most important goal for the Tories is to find someone who will deliver a clean Brexit and thereby extricate the country from a decrepit and declining European Union.

But once Brexit does happen, adopting pro-growth policies will be very important – especially if the European Union petulantly tries to make the transition painful by rejecting a free trade agreement.

The good news is that the United Kingdom is ranked #9 for overall economic liberty according to the latest edition of Economic Freedom of the World, so it has a strong foundation for competitiveness.

The bad news is that the U.K. is only ranked #120 for fiscal policy.

Since that’s the weak spot, let’s see what can be done to move in the right direction.

Let’s look at the tax side of the fiscal equation. According to the Tax Foundation’s International Tax Competitiveness Index, the U.K. is in the bottom half (almost in the bottom third). And I’ve circled the country’s dismal ranking for individual taxes.

By the way, I don’t think this Index is a perfect measure. As I pointed out back in 2016, it needs to include a size-of-government variable.

Nonetheless, it’s a great place to start.

Now let’s consider the fiscal plans of various candidates for Tory leader.

The U.K.-based Mirror has a helpful summary.

Frontrunner Boris Johnson has promised a massive income tax cut for Britain’s richest people – by raising the 40p threshold from £50,000 to £80,000. …Meanwhile Home Secretary Sajid Javid has said he would partially reverse swingeing Tory cuts to the police and recruit 20,000 police officers. He also planned a tax cut for the richest 1% of taxpayers in the UK by removing the 45p rate of income tax, if it pays off overall. …Michael Gove has pledged to scrap VAT replacing it with a simpler sales tax. …Meanwhile Esther McVey has vowed to cut taxes – without saying which – and slash £7billion from the foreign aid budget and spend it on school and police. …Former Brexit Secretary Dominic Raab…promised to shrink the state and slash public spending by reducing the basic rate of income tax from 20p to 15p over time – including a 1p drop “straight away”. …Foreign Secretary Jeremy Hunt wants to cut corporation tax further to 12.5%. That would make the UK’s tax rate by far the lowest in the G20 and turn the country into a tax haven. …Rory Stewart has himself already said he would double spending on climate change and the environment as he warned the UK must do more in the face of an “environmental cataclysm”. Former Leader of the House Andrea Leadsom…is committed to “low taxes, incentives for enterprise and strong employment opportunities”.

A mixed bag.

Rory Stewart seems to have the most statist mindset (he’s also very weak on Brexit), but it’s not clear who has the best fiscal plan.

Let’s look at more data. The Wall Street Journal opined this morning on this topic.

The editorial starts with an indictment of the current system.

Britain’s Byzantine tax system still drags on investment, productivity and growth despite important recent improvements. The top corporate rate has fallen to 19% from 30% since 2007 and is due to hit 17% next year. But the top personal rate, paid on incomes above £150,000, has fallen only to 45% from 50%. Coupled with abrupt income cutoffs in eligibility for allowances and credits, British taxpayers in practice can experience a marginal rate as high as 60% for each additional pound of income between £100,000 and £124,000, and 65% for families with three children earning between £50,000 and £60,000, according to the Institute for Fiscal Studies. Add taxes on pension contributions at higher incomes and some workers pay marginal rates above 100% on parts of their income—paying more than a pound in tax for each additional pound they earn. …Social-insurance and property taxes add more burdens.

And this doesn’t even include the fact that the U.K. has above-average death taxes and higher-than average levels of double taxation.

How do Tory candidates propose to deal with these problems?

The best Conservative leadership proposals so far come from Foreign Secretary Jeremy Hunt and Home Secretary Sajid Javid.Mr. Hunt pledges to reduce the corporate rate to 12.5% to match Ireland’s low rate… Mr. Javid would cut the top individual rate to 40%. …Frontrunner Boris Johnson promises to increase the threshold at which the 40% rate kicks in, to £80,000 from £50,000. The 4.2 million people estimated to see their taxes reduced won’t complain. But tweaking brackets does nothing to fix the current tax code’s bad rate incentives for top earners—the entrepreneurs and investors post-Brexit Britain needs to attract. …Brexit hardliner Dominic Raab would cut the lower personal rate for earners between £12,500 and £50,000 to 15% from 20%. Any rate cut is welcome, but this would help many households that already receive more in benefits than they pay in tax. Environment Secretary Michael Gove would replace the 20% value-added tax with a lower-rate U.S.-style sales tax, which would be a boon to low-income households. But neither would fix broken incentives to work and invest as incomes rise.

As you can see, it’s a mix of mediocre-to-good ideas.

Much like when Republicans generated a bunch of plans when competing for the nomination in 2016.

Of course, let’s also keep in mind that Jeremy Corbyn of the Labour Party also has a tax plan, which is a poisonous collection of class-warfare provisions that would make the U.K. less attractive for jobs and investment.

Which means it is especially important, as the WSJ concludes, to have a compelling case for growth instead of redistribution.

…the only way Britain can prosper post-Brexit is by becoming a magnet for investment and human talent. If voters want the party of income redistribution, they’ll choose Labour. Tories have to be the credible party of growth, with a leader willing and able to make the reform case.

In other words, is there another Margaret Thatcher somewhere in the mix?

P.S. If you want to enjoy some Brexit-themed humor, click here and here.

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New Research from Australia on Government Spending and Economic Growth

As part of today’s sessions at the Friedman conference in Australia, I got to listen to Professor Tony Makin talk about the burden of government spending in Australia.

I want to share several of his slides since he made some very cogent points.

First, he pointed out that debt-financed government spending is bad.

But he also pointed out that tax-financed government spending is equally bad.

In other words, the fiscal burden of government is the total level of spending. How that spending is financed is a secondary concern.

I’ve made similar arguments, so perhaps this won’t be new information for regular readers.

However, Professor Makin augmented the theory with some statistical analysis.

This is how he structured his model.

And here are his results.

His numbers shouldn’t be a surprise. I narrated an entire video that listed study after study showing the same thing.

And even the OECD has, on multiple occasions, produced research showing that bigger public sectors are associated with weaker economic performance. Same thing with economists at the IMF (the political leadership at the international bureaucracies is terrible, but the economists sometimes produce solid research).

By the way, Professor Makin shared some fascinating Australia-specific data looking at spending increases (or decreases) by year. And also broke down the data by who controlled the government.

As you can see (echoing what I wrote two days ago), the supposedly left-wing Hawke and Keating governments were reasonably frugal.

John Howard, by contrast, was supposed to be a right-of-center leader. Yet he fell off the wagon after a strong start (and also set the stage for a very bad Labor government).

In recent years, the right-of-center Liberal-National coalition has done a decent job. It will interesting to see what happens when newly reelected Prime Minister Scott Morrison unveils the next budget.

My two cents (in addition to lowering the top tax rate) is that he should propose some sort of spending cap, like the ones in Switzerland and Hong Kong.

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Great Moments in Washington Waste

Every so often, I’ll see a story (or sometimes even just a photo, a court decision, or a phrase) that sums up the essence of government – a unseemly combination of venality and incompetence.

Today, we’re going to review three examples that make my point.

We’ll lead with a story that is a perfect case study of Washington.

It starts with Trump imposing tax increases on imports. That’s bad.

Then Trump says we have to subsidize sectors of the economy hurt by retaliatory tariffs. That’s one bad policy leading to another bad policy (hmmm…., there’s a name for that).

And that second bad policy leads to something else bad, at least according to the New York Daily News.

The Department of Agriculture cut a contract in January to purchase $22.3 million worth of pork from plants operated by JBS USA, a Colorado-based subsidiary of Brazil’s JBS SA, which ranks as the largest meatpacker in the world. …The bailout raised eyebrows from industry insiders at the time, as it was sourced from a $12 billion program meant for American farmers harmed by President Trump’s escalating trade war with China and other countries. …previously undisclosed purchase reports…reveal the administration has since issued at least two more bailouts to JBS, even as Trump’s own Justice Department began investigating the meatpacker, whose owners are Joesley and Wesley Batista — two wealthy brothers who have confessed to bribing hundreds of top officials in Brazil. Both brothers have spent time in jail over the sweeping corruption scandal. …Nonetheless, Trump’s Agriculture Department issued $14.5 million in bailout cash for pork products from JBS in February and another $25.6 million earlier this month, totaling more than $62.4 million, according to the purchase reports. …Including the JBS bailouts, the administration doled out $11 billion in relief payments to farmers hurt in the trade war last year.

Wow. I don’t know if this is better or worse than the Administration spending $13.6 million to hire two agents for the border patrol.

And I don’t know whether it’s better or worse than this next example of government foolishness.

A report published by Quartz estimates the amount of many Washington has wasted on abstinence programs.

Between 1982 and 2017, Congress spent over $2 billion on programs which teach teens that the best way to address their desire to have sex is to wait until they get married, according to a new study… Called abstinence only until marriage (AOUM), these programs accurately explain that the best way to avoid pregnancy and sexually transmitted diseases is to not have sex. …From 1995 to 2011–2013, the share of US adolescents who received instruction on abstinence but no instruction about birth control methods, increased from 8% to 28% of females and from 9% to 35% of males, according to the report. …Scientific evidence shows the approach doesn’t actually delay teens having sex, or engaging in risky sexual behaviors.

Just like the money spent to encourage marriage is a waste.

By the way, I’m also sure that the money spent on regular sex education and birth control education hasn’t worked, either.

Indeed, I wonder if such spending actually makes things worse (such as the Indiana driver education program that turned kids into worse drivers).

For our third example, here’s some of what the New York Times wrote about refrigerators on Air Force One.

…two of the refrigerators on the president’s plane need to be upgraded, and these specially designed “chillers” aren’t cheap. The Boeing Company was awarded a nearly $24 million contract in December to engineer the refrigerators for Air Force One, the Defense Department said. …Perhaps in anticipation of taxpayer sticker shock, the Air Force also said “the engineering required to design, manufacture, conduct environmental testing and obtain Federal Aviation Administration certification” were all included in the cost. …Air Force One must be able to feed passengers and crew for weeks without resupplying, according to the news website Defense One. …Two galleys can provide up to 100 meals at one sitting, according to the Air Force.

This story presumably involves two common features of government contracting.

First, pay too much for what is ordered (and this doesn’t even count the seemingly inevitable cost overruns).

Second, ask for something excessive in the first place. What’s the point, for instance, of storing several weeks of food when the longest-possible trips are maybe 20 hours? Yes, I watched Independence Day and I realize that Air Force One may become the mobile White House in an emergency, but wouldn’t MREs be acceptable for our pampered politicians and senior staff if there was a real crisis?

I’ll conclude by observing that these three stories reminded me of this satirical version of The Candyman.

P.S. There’s also an Obamaman version of Candyman.

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The (Seemingly) Inexorable Increase in the Burden of Federal Spending

Earlier this year, I reviewed new fiscal projections from the Congressional Budget Office (CBO) and showed that balancing the budget would be relatively easy if politicians simply limited spending so that it didn’t grow faster than inflation.

Though I made sure to point out that the primary goal should be to limit the burden of spending. That’s because government spending, regardless of whether it’s financed by taxes or financed by borrowing, undermines prosperity by diverting resources from the productive sector of the economy.

We now have some new numbers from CBO. The number-crunching bureaucrats have put together their estimates of the latest Trump budget and that’s generated some predictable squabbling between Republicans and Democrats.

Most of the finger-pointing has focused on the (relatively trivial) fiscal impact of the Trump tax cuts.

The Wall Street Journal wisely put the focus instead on the growth of government.

You wouldn’t know it from the press coverage, but there’s some modest good news about the federal budget. The deficit is rising, but not as much as feared because tax revenues are increasing due to faster economic growth. …So why has the federal deficit increased by $145 billion this fiscal year to $531 billion? Because federal spending continued to rise rapidly—7% in the first seven months to $2.571 trillion. That’s $178 billion more than in the same period a year ago. …The media blame deficits on tax reform, but the facts show the main culprit is spending. No one in the political class wants to talk about entitlements but that’s where the money is.

The WSJ’s editorial focused on short-run data.

I want to augment that analysis by looking at medium-run and long-run numbers.

We’ll start with this chart looking at what will happen over the next 10 years. As you can see, Washington is violating my Golden Rule by allowing spending to grow faster than the private economy.

As a result, the burden of federal spending, measured as a share of gross domestic product, is projected to climb over the next decade.

That’s not good news.

(For what it’s worth, since tax revenues will be growing at the same pace as spending, there won’t be any meaningful change in the deficit as a share of GDP.)

Now let’s look at the most-recent long-run data from CBO. These numbers are even more depressing because the spending burden continues to grow faster than the private sector. A lot faster.

Which is why the burden of federal spending is projected to increase from less than 21 percent of GDP today to nearly 29 percent of GDP by 2049.

That’s terrible news.

And if you include spending by state and local governments (which currently consumes more than 11 percent of economic output and also is projected to increase), the terrible news gets even worse.

Moreover, the tax burden is projected to climb as well, and that doesn’t even include any estimate of what will happen if politicians manage to impose a value-added tax, an energy tax, a wealth tax, a financial transactions tax, or any of the other revenue-raising schemes under consideration in Washington.

In other words, the U.S. is on track to become just like Greece, France, and Italy.

P.S. There is an alternative to this dismal future. But can we convince politicians to adopt a spending cap and then make it work with genuine entitlement reform? I’m not holding my breath for any of that to happen.

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Trump Endorses Obama-Style Budget Blowout for Infrastructure

Back in April, I observed that, “If you would have loudly condemned a policy under Obama but support a similar policy under Trump, you’re the problem.”

We now have a good test case.

The President already has demonstrated – repeatedly – that he likes to spend other people’s money.

But now he’s unleashing his inner Obama, having reached a tentative deal with Chuck Schumer and Nancy Pelosi for a $2 trillion infrastructure blowout.

Notwithstanding the GOP’s supposed belief in the Constitution and limits on the role of the federal government, there are plenty of Republicans on Capitol Hill (especially on the committees that will get to direct this money to various campaign contributors) who will gladly join this spending orgy.

The relevant question, though, is whether there are some good GOPers to stop this boondoggle.

The Washington Post reports that there are some holdouts.

A $2 trillion infrastructure deal outlined this week by President Trump and top Democrats is already losing momentum, as the president’s own chief of staff is telling people inside and outside the administration that the effort is too expensive… Democratic leaders in Congress…said they were pleasantly surprised by the president’s willingness to back a large-scale spending effort. …But the initiative has run into immediate opposition from Republicans who balk at the hefty price tag and from conservative allies who are pushing lawmakers to block it. …Earlier in the administration, Trump praised Sen. Elizabeth Warren (D-Mass.) — a potential 2020 foe — for her ideas because, in his view, she was determined to spend more than Republicans. He would tell aides to get a list of projects and “let’s just spend it,” in the words of one former administration official. …Trump always wanted to spend more. …raising fuel tax rates by 35 cents and pegging them to rise with inflation would generate only about a quarter of the necessary revenue over 10 years. …Getting the remaining $1.5 trillion would involve much more significant tax increases… But even fully reversing the corporate income tax cut, which dropped the rate from 35 percent to 21 percent, would not close the gap

One obvious takeaway from this article is that taxes eventually will increase if Republicans don’t get serious about spending restraint.

Indeed, I’ve already warned that Trump’s profligacy is making tax increases more likely.

And another takeaway is that a blank-check approach would violate my rules for sensible infrastructure policy.

The editors at National Review share my concern about the plan for a bipartisan budget-busting package.

Some time ago, President Trump’s team produced a $1.5 trillion infrastructure plan, which was really a $200 billion infrastructure plan with some wishful thinking attached. …now the president has joined forced with Nancy Pelosi and Chuck Schumer on something new: a $2 trillion infrastructure plan, which also is composed mainly of wishful thinking. …What could possibly go wrong? You can tell this is backward by the fact that the triumvirate has settled on a price tag — an incomprehensibly large one — but is remarkably fuzzy on what’s to be bought with that $2 trillion. …We have been here before, with Barack Obama and his “shovel-ready” projects. The lesson of Obama’s failed stimulus bill — which was in considerable part an infrastructure program — is that doing things backwards does not work. …figuring out how to pay for this is at the bottom of the current agenda. …This is not a sane way to proceed. …The infrastructure scheme deserves to die an early and unlamented legislative death.

It should just “die an early an unlamented legislative death.” It never should have been born in the first place.

I’m not surprised that Trump is supporting a pork-filled budget plan for infrastructure. As I warned back before the 2016 election, he’s a big-government Republican.

What’s not clear, though, is how many GOP lawmakers will support his Greek-style approach to the transportation budget.

Suffice to say that I’m worried. It seems that many Republicans are Bushies rather than Reaganites.

I’ve updated a previous set of images to highlight the problem.

P.S. The correct infrastructure policy for Washington is to have no infrastructure policy. That’s because transportation should be handled by state and local government. Or, even better, the private sector. In my fantasy world, we’d shut down the Department of Transportation and repeal the federal gas tax.

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Denmark, Socialism, and Free Markets, Part II

I explained yesterday that Denmark is not a good role model for American leftists.

Simply stated, Otto Brøns-Petersen’s video shows that the admirable outcomes in that country are the result of laissez-faire markets and the bad outcomes are the result of the welfare state imposed beginning in the 1960s.

In any event, Denmark is not a socialist country. As I wrote, “There’s plenty of bad policy, but no government ownership, no central planning, and no price controls.”

But to make matters clear, here’s a comparison of Denmark and the United States from Economic Freedom of the World.

The bottom line is that if folks on the left want to claim Denmark is socialist, then America also is socialist. Alternatively, if Denmark is an example of Democratic Socialism, then so is the United States.

And if that’s the case, we’ve already reached Collectivist Nirvana and my leftist friends can shelve some of their crazy ideas such as 70 percent tax rates and the Green New Deal.

Needless to say, I won’t hold my breath.

Today, I want to focus on another aspect of Danish public policy that warms my heart. Back in 2015, I applauded the government for imposing some spending restraint and I expressed hope that plans for future fiscal discipline would be fulfilled.

Well, based on IMF and OECD data, policy makers in Denmark deserve a gold star. They followed my Golden Rule and limited the growth of government spending. As a result, there’s been a meaningful decline in the burden of spending (measured as a share of economic output).

Too bad American politicians weren’t similarly prudent. If federal spending in the U.S. grew at the same rate since 2012, the burden of spending today would be more than $700 billion lower.

And since spending is the problem and red ink is the symptom, it naturally follows that the United States would have a deficit this year of about $370 billion instead of nearly $1.1 trillion.

It’s a shame we can’t go back in time and trade profligate Obama and profligate Trump for Denmark’s leaders.

P.S. Here’s a list of other nations with successful periods of spending restraint, and here’s a video highlighting four of those episodes.

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Busting the Spending Caps…Again

There are two things everyone should understand about the federal budget.

• First, America faces a grim future because Washington spending will consume an ever-larger share of economic output because of demographic changes and poorly designed entitlement programs.
• Second, the problem could be easily fixed with policies – especially genuine entitlement reform – designed to limit overall spending so that the budget grows slower than the productive sector of the economy.

Sadly, the politicians in Washington generally aren’t interested in sensible fiscal policy. They have a “public choice” incentive to spend more money in hopes of buying more votes.

Congressman Chip Roy, a freshman from Texas, is one of the few lawmakers who objects to the spend-like-there’s-no-tomorrow mentality in Washington.

Here’s some of what he wrote for the Hill.

…both parties appear to have reached a consensus on one major issue: busting spending caps is their solution to disagreements over spending. …Members of my party would be happy to agree with Democrats’ demands to spend outside our means, so long as they get all the money they want for defense. …The truth is Washington is all about power rather than solving the problem. It’s politically easier for Republicans to press for defense spending and Democrats to push for non-defense spending… Years of out-of-control spending and poor decision making is catching up with us.

He specifically wants to maintain the spending caps that apply to annually appropriated outlays.

Instead of wringing our hands and finding political convenient reasons to spend outside our means, Congress should stick to the caps. Doing so will force us – Republicans and Democrats – to sit at the table and negotiate—a lost art in Washington… allowing an across-the-board sequester to kick-in is more responsible than what Congress appears on track to do. …we must act now to do our job. We must stick to the budget caps.

He’s right about the desirability of a sequester.

Indeed, the sequester that took place in 2013 was the biggest victory for fiscal discipline during Obama’s presidency.

Sadly, politicians since then have been jumping through all sorts of hoops to avoid a second sequester. And the Democrats in the House of Representatives are proposing to bust the spending caps once again.

Here’s a chart prepared by Republicans on the House Budget Committee.

By the way, I’m not citing material from Republicans because they deserve praise.

• I augmented their infographic by noting that GOPers supported a “bad” 2013 deal to bust the spending caps.
• They then busted the spending caps a second time in 2015 and that deal was even “worse” on spending.
• Then the deal Republicans did with Trump in 2018 to bust the spending caps was “awful” for taxpayers.

So even though House Democrats are now proposing something that’s “absurdly terrible,” Republicans don’t have much credibility on the issue.

I’ll close with an observation about Greece’s fiscal tragedy.

There was no single decision that caused that country’s economic crisis. Instead, it was hundreds of short-sighted choices to spend more on Program A, Initiative B, Plan C, and Project D, along with every kind of tax increase under the sun.

And when some people warned that the fiscal orgy eventually would produce bad consequences, they were dismissed or ignored.

Sadly, American is heading down the same path. We know the solution, but politicians are more interested in buying votes than doing what’s right for America.

That includes the President. Trump has the power to force a sequester. All he has to do is veto any spending bill that busts the caps. But don’t hold your breath waiting for that to happen.

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