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Posts Tagged ‘Government Spending’

Some people say that California is the worst-governed state (I would probably choose Illinois or New Jersey, but it’s a close race).

And if you wanted to pick the worst-governed place in California, San Francisco might be at the top of the list.

The city manages to combine horrible zoning laws with insufferable red tape (there have been efforts to ban everything from Happy Meals to…umm…foreskins).

Most disturbing of all, San Francisco now has a major problem with public defecation (not that the sewer system is anything to brag about).

In an article for City Journal, Erica Sandberg explores the latest bit of upside-down governance from The City by the Bay.

San Francisco is surreptitiously placing homeless people in luxury hotels by designating them as emergency front-line workers, a term that the broader community understands to mean doctors, nurses, and similar professionals. …the city has evoked emergency-disaster law to keep the information private. Officials refuse to notify the public about what is happening in their community and are blocking the press by withholding the list of hotels and preventing reporters from entering the properties. …obfuscation is ultimately futile. Security guards standing outside hotel entrances, where they had never been before, are clear indicators that something is amiss. An uptick in crime, drug activity, and vagrancy around the hotels is another clue.

This sounds crazy, but it gets even worse.

The Department of Public Health manages the controversial free alcohol, cigarette, and cannabis program for homeless people placed in the hotels. …A public-records investigation into the matter has revealed that, as of June 16, DPH approved $3,795.98 to buy the homeless guests vodka and beer (cigarettes have been scrapped). …concerned inside sources report destroyed rooms and rampant illegal drug use. In one hotel, guests are given needle kits and are advised to call the front desk before shooting up. …The hotels were pressured into accepting the homeless guests, though they were also eager for the chance to recoup some revenue lost to the Covid-19 lockdowns. …The city-sponsored guests also receive personal grooming, sanitary, and cleaning supplies, three delivered meals, and laundry service for clothes and linens.

Free hotel room, along with free food and laundry service? And booze and pot?

Who knew being homeless was such a good racket!

Since I’m a fiscal wonk, this is the part that captured my attention.

Rooms are rented at close to $200 per night, totaling $6,000 a month—nearly double the cost of a private one-bedroom apartment in San Francisco.

Though I shouldn’t be surprised by such profligacy. The state government’s “success story” was spending “billions of dollars” to cause homelessness to “dip by 1 percent.”

And San Francisco’s government had a different program for the homeless that cost about $700 per night. So maybe the new approach described in above article is a fiscal bargain.

By the way, it appears that taxpayers across the country are contributing to this insane policy.

Hotel owners consented to the arrangements fully aware of the potential pitfalls, having been assured that FEMA dollars would cover at least some of the damages incurred.

Good ol’ FEMA. Always ready, willing, and able to foolishly spend taxpayer money.

P.S. While San Francisco is a bit of a mess, folks in other cities (such as Seattle, Chicago, New York City, Detroit, etc) can make a legitimate claim that they have the nation’s worst local government.

P.P.S. When he crunched all the numbers, Dean Stansel of Southern Methodist University found that the Riverside-San Bernardino-Ontario metropolitan statistical area in California had the worst policy in the country (San Francisco was #38 out of the 55 MSAs with at least 1 million residents).

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There are plenty of people on the left who write serious and substantive articles about fiscal policy. For instance, I strongly disagree with many of the policy prescriptions from the IMF and the OECD, but those international bureaucracies are reasonably rigorous with data.

Heck, they even use real data when they’re being dishonest.

Some people, though, churn out analysis that is utterly disconnected from reality. I’m even thinking of creating a Fiscal Fantasyland Club to commemorate their fact-deprived writings.

  1. In a column for the Washington Post, Dana Milbank blamed the “disastrous philosophy” of “anti-government conservatism” for leaving the federal government without the resources to fight the coronavirus.
  2. In an article for the Atlantic, George Packer told readers that the federal government screwed up because it has been subjected to “steady defunding” by right-wing ideologues intent on “squeezing it dry.”
  3. Another columnist for the Washington Post, Dan Balz, claims that the botched response to coronavirus was caused by “underinvestment” and “hollowing out” of the federal budget.

The reason we may need a special club (akin to my collection of “Poverty Hucksters“) is that all of these writers are wildly wrong.

Even a cursory look at budget data confirms that the federal government has been getting bigger over time.

Much bigger.

As such, only someone who is completely ignorant or totally dishonest is capable of writing an article based on the notion that there have been reductions in the burden of federal spending.

If I create this club, I know who will be fourth member.

Writing for the Bulwark, Richard North Patterson argues that President Trump’s personal shortcomings are somehow connected to Reagan-type opposition to big government.

He starts with one of my favorite quotes from The Gipper and then tells us that this type of hostility to statism is no longer appropriate or desirable.

In 1986, Ronald Reagan cheerfully gibed: “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’” Then it seemed amusing. But 34 years later, the convergence of COVID-19 and a racial conflagration makes Reagan’s quip sound myopic. …Only government can ensure the safety of our food and drugs and protect our natural environment. And government can help navigate our racial fissures, and provide the economic and public health interventions indispensable to combating a deadly pandemic.

Given that Washington’s response to the coronavirus has been spectacularly incompetent, well beyond what even libertarians would have predicted, it’s remarkable that Patterson thinks this is a moment in time when people should embrace big government.

And let’s not forget that today’s racial unrest was triggered by government misbehavior, enabled by corrupt deals between local politicians and government employee unions.

But the real problem with Patterson’s rhetoric is that he seems to assume that an argument for some government is the same as an argument for lots of government.

He’s obviously not familiar with the Rahn Curve, which is based on the insight that some government may be good for growth (assuming the outlays are for core public goods) but that lots of government (particularly when spending is for consumption and redistribution) is bad for growth.

To be fair, I understand why Patterson, who is mostly known for being a very successful novelist, isn’t familiar with the academic research on the growth-maximizing size of government.

But since he’s decided to pontificate on these issues, he should feel an obligation to know some basic data.

For instance, he’s a wealthy man and presumably has traveled the world. Hasn’t he noticed that nations with big governments don’t do a better job of providing public goods – even if we use an expansive concept of what government should be doing?

Let’s look at some more of his article.

Patterson not only rejects the notion of smaller government, he seems to embrace bigger government.

What was once a philosophical preference for limited government has degenerated into phobia. “Long before Trump,” GOP strategist Stuart Stevens observes, “the Republican Party adopted as a key article of faith that more government was bad. But somewhere along the way, it became ‘all government is bad.’ Now we are in a crisis that can be solved only by massive government intervention.” …Witnessing so much death and disturbance, one cannot but ponder how poorly Reagan’s casual nostrum has aged. Farhad Manjoo nails it: “The most comforting words I can think of now, amid so much uncertainty, chaos and confusion, are these: ‘I’m from the government, and I’m here to help.’”

There’s a lot of nonsense in those few sentences. Regarding Manjoo’s quote, I’ll simply repeat my earlier observation about how the federal government has hindered rather than helped the fight against the coronavirus.

The quote from Stuart Stevens is even stranger, at least the the latter part, because it is so completely contrary to real-world data.

While it is true that Reagan briefly reoriented Republicans and did a good job of controlling spending while he was in office, every other Republican in recent history has been a big spender.

They’ve even increased domestic spending at a faster rate than Democratic presidents.

Yet Stevens wants people to believe that’s the track record of a party that thinks “all government is bad.”

I also want to debunk the notion that there’s been a “decades-long gutting of government,” as asserted in the subtitle of Patterson’s article.

Here’s a chart that I shared back in April, which shows that federal spending has tripled since 1980 – and that’s after adjusting for inflation.

If you read Patterson’s entire article, you’ll find that he mostly focuses on President Trump’s chaotic management of the executive branch.

Since I’ve gone on TV and referred to Trump as being akin to the crazy uncle you deal with during family holidays, I’m certainly not going to argue with his criticisms of the White House’s governing style.

But surely it should be possible to criticize the president without relying on make-believe budget analysis.

P.S. I wonder if Patterson and other members of the Fiscal Fantasyland Club have been tricked into thinking that there have been budget cuts.

P.P.S. If Patterson decides to learn and use real budget data, I hope he’ll join me in criticizing Trump for being a big spender.

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Should high-tax states such as California and New York get a bailout?

I explained last month why that would be a mistake, in large part because bailouts would reward states for irresponsible fiscal policy (similar to my argument that countries like Austria and the Netherlands shouldn’t be bullied into providing bailouts for Italy and Spain).

And I’ve shared two videos (here and here) for those who want more information about how bailouts encourage “moral hazard.” And this is true for banks (think TARP) as well as governments.

Today, though, I want to focus on some numbers that show what’s really causing fiscal problems in some states.

Adam Michel and David Ditch of the Heritage Foundation have generated some startling data on state government finances.

Instead of waiting on a handout from Washington, states should clear the way for a more robust economic recovery by addressing their unsustainable finances. States and local government spending has increased over the recent past… After adjusting for inflation and increases in population, state and local spending (in constant 2019 dollars) has grown from $5,596 per person in 2000 to $7,268 per person in 2019. That amounts to a 30% increase in the real cost of state and local government over just two decades, even without the thousands of dollars per person the federal government sends to states and localities through a wide variety of programs. …not all states spend equally. As of 2017, Florida, Georgia, and Arizona spent about $5,800 per person on state and local governments, but New York spent more than $11,700 per person.

The most important number is the above excerpt is that there’s been a 30 percent increase in per-capita state spending after adjusting for inflation.

That’s a very worrisome trend.

But not all states are created equal. Or, to be more precise, they’re not all equally profligate. Here’s the chart that starkly illustrates why some states are in trouble.

At the risk of understatement, California and New York have not complied with the Golden Rule for fiscal policy.

Needless to say, there’s no justification for the notion that taxpayers in well-run states such as Texas and Florida should be coerced into providing bailouts for politicians in poorly run states.

And now we have a compelling visual that settles the argument.

P.S. Over the past several years, I’ve done multiple columns comparing Texas and California and also several columns comparing New York and Florida, all of which underscore that blue states have created their own problems by taxing too much and spending too much.

P.P.S. Thankfully, people can vote with their feet by moving from high-tax states to low-tax states. Let’s hope that Congress doesn’t enact a bailout so they’re forced to subsidize the states that drove them away.

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Margaret Thatcher was the British version of Ronald Reagan, a leader who resuscitated a nation by rolling back the size and scope of government.

She also is famous for one of the most accurate observations ever made about fiscal policy.

Her warning proved prophetic when the Soviet Bloc collapsed.

Her wise words also could be applied to what happened about a decade ago in Greece. And what’s about to happen in Italy.

But let’s not forget that the United States isn’t immune to the problem of excessive government. The Wall Street Journal has a sobering editorial on the pro-spending sentiment that dominates the nation’s capital.

…in Washington the politicians are debating how to spend another few trillion dollars in the name of virus relief. …Mrs. Pelosi’s House bill promises another $3 trillion for her various constituencies on top of the $2.7 trillion or so Congress has already spent on the pandemic. The goal is income redistribution… This political strategy may work since Republicans, as usual, are divided and defensive. …Mr. Trump…seems torn about what to support and is thinking only as far as November. This is a recipe for another deal on Democratic terms… Sooner or later the pandemic will end. The question is what kind of economy will be left. A second Cares Act would leave a legacy of vastly larger government that would mean slower growth and take years to overcome.

Yes, the spending binge will mean slower growth.

But I’m even more worried about what will happen in the future. Here are three things to keep in mind.

  1. Largely because of Bush, Obama, and Trump, the federal budget has tripled since 1980 (Reagan and Clinton were comparatively frugal). Keep in mind that the increase in the accompanying chart shows the growth in spending after adjusting for inflation.
  2. The burden of federal spending is projected to skyrocket in future years because of the combination of demographic changes and poorly designed entitlement programs. In other words, our fiscal outlook is grim even if politicians don’t approve an additional penny of new spending.
  3. However, politicians are spending more money. A lot more.  As shown in the accompanying chart, this has caused a huge spike in per-capita outlays. And the crowd in Washington wants to make the red portion much bigger.

Given all this bad news, does Thatcher’s warning about running out “of other people’s money” apply to the United States?

As bad as the numbers are, my two cents is that the U.S. won’t suffer a fiscal crisis anytime soon. As I noted at the end of this interview, Washington can probably continue with business-as-usual fiscal policy for several more decades (Adam Smith observed that it usually takes a lot of bad policy over a long period of time to cause economic ruin).

But that doesn’t mean it’s a good idea to travel down that path.

Here’s an analogy. Smoking three packs of cigarettes a day presumably won’t kill someone within the first 10 years, but it’s definitely not a recipe for long-run health and vitality. Sooner or later, there will be consequences.

A mature and sensible people (like the Swiss) take steps to avoid the fiscal version of those bad consequences.

For what it’s worth, similar reforms have been proposed for the United States. Unfortunately, too many American politicians and consumed by self-interest and don’t think past the next election.

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Politicians from New York want states to get a big bailout from Uncle Sam. I explained earlier this month that this would be a bad idea.

Simply stated, the Empire State is in big trouble because it has a bloated government, not because of the coronavirus.

Probably the strongest piece of evidence is that New York is ranked #50 for fiscal policy according to Freedom in the 50 States.

If you want to understand how New York’s politicians have created a fiscal disaster, let’s compare the Empire State to Florida, which is ranked #1.

I’ve already done that three times (Round #1, Round #2, and Round #3), so this will be Round #4.

The Wall Street Journal compared the two states in an editorial two days ago.

…let’s do the math to consider which state has managed its economy and finances better over the last decade. …Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million—a $10,400 increase per new resident. New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending. …Blame New York’s cocktail of generous benefits, loose eligibility standards and waste. New York spends about twice as much per Medicaid beneficiary and six times more on nursing homes as Florida though its elderly population is 20% smaller. …The rate of private job growth in Florida has been about 60% higher than in New York from January 2010 to January 2020. Finance jobs expanded by 25% in Florida compared to 9.7% in New York. …The policy question is why taxpayers in Florida and other well-managed states should pay higher taxes to rescue an Albany political class that refuses to restrain its tax-and-spend governance. Public unions soak up an ever-larger share of tax dollars, but Albany refuses to change.

If you want further details on the difference between the two states, Chris Edwards takes a close look at the burden of government spending.

New York and Florida have similar populations of 20 million and 21 million, respectively. But governments in New York spent twice as much as governments in Florida, $348 billion compared to $177 billion. On some activities, spending in the two states is broadly similar… But in other budget areas, New York’s excess spending is striking. New York spent $69 billion on K-12 schools in 2017 compared to Florida’s $28 billion. Yet the states have about the same number of kids enrolled—2.7 million in New York and 2.8 million in Florida. New York spent $71 billion on public welfare compared to Florida’s $28 billion. Liberals say that governments provide needed resources to people truly in need. Conservatives say that generous handouts induce high demand whether people need it or not. Given that New York’s welfare costs are 2.5 times higher than Florida’s, the latter effect probably dominates. …New York governments employed 1,196,632 workers in 2017 compared to Florida’s 889,950 (measured in FTEs). …Most New York residents do not benefit from bloat in government payrolls, inefficient transit, excessive welfare, and deficit spending. To them, the high taxes are disproportionate to the government services received. That is why they are moving to better‐​managed states with lower taxes.

Here’s the accompanying chart.

And he also compares the level of bureaucracy in both states.

New York’s excess includes spending more on handouts such as welfare. Another cause of New York’s high spending is employment of more government workers and paying them more than in Florida. …New York governments employ 34 percent more workers than Florida governments. …The two states have similar K-12 school enrollments of 2.7 million in New York and 2.8 million in Florida. But New York employs 31 percent more teachers and administrators than Florida. Do the 111,000 extra staff in New York generate better school outcomes? Apparently not…study puts Florida near the top and New York in the middle on school quality. Does New York really need two times more highway workers than Florida and three times more welfare workers? …Government workers in New York make 42 percent more in wages than government workers in Florida, on average.

Here’s the accompanying chart.

The bottom line is that New York is a great place to be an over-paid bureaucrat in an over-staffed bureaucracy.

But if you’re a taxpayer, Florida is the easy winner – which may explain why so many productive people are leaving the Empire State and permanently migrating to the Sunshine State.

P.S. The same pattern exists all across the United States. Taxpayers are escaping the poorly managed states and fleeing to low-tax states. Especially ones with no income taxes.

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When I write enough columns with the same underlying point, I sometimes create a special page to highlight the theme, such as the “Bureaucrat Hall of Fame” and “Poverty Hucksters.”

I may have to do something similar for people who assert that America’s response to the coronavirus has been hampered because the federal government is too small.

For instance, Dana Milbank wrote in the Washington Post last month that “anti-government conservatism…caused the current debacle with a deliberate strategy to sabotage government.”

Ironically, the nations he cited for their successful approach – Singapore, South Korea, and Taiwan – all have a much smaller burden of government spending than the United States.

Which actually supports my argument that bigger governments are less effective and competent.

But evidence doesn’t seem to matter to some journalists.

One of Milbank’s colleagues, Dan Balz, has just authored a long article that regurgitates the assertion that there’s been “underinvestment” in the federal government.

The government’s halting response to the coronavirus pandemic represents the culmination of chronic structural weaknesses, years of underinvestment and political rhetoric that has undermined the public trust… The nation is reaping the effects of decades of denigration of government and also from a steady squeeze on the resources needed to shore up the domestic parts of the executive branch. This hollowing out has been going on for years as a gridlocked Congress preferred continuing resolutions and budgetary caps… The question is whether the weaknesses and vulnerabilities exposed by the current crisis will generate a newfound interest among the nation’s elected officials — and the public — in repairing the infrastructure of government. …“We don’t want to invest in the capacity of government to get the job done,” Kettl said. …said David E. Lewis, a political science professor at Vanderbilt University…“We’re seeing a government that is suffering now from a long period of neglect that began well before this administration. And that neglect has accelerated during this administration.”

What’s especially remarkable is that the article cites the government’s lack of testing capacity as evidence of “underinvestment.”

Over these years, there have been a series of major government breakdowns that helped shake confidence in government’s competence. …The pandemic has forced another critical look at government’s competence. …more tests might have helped contain the spread. It is the case now as businesses look to reopen but cannot assure safety for workers or their communities without the widespread availability of tests, which so far does not exist.

Yet the bureaucracies with responsibility for testing – the FDA and CDC – have received big budget increases.

Was that money well spent?

Hardly. Not only have they failed in their mission, their red tape and inefficiency have hindered the private sector’s ability to develop and deploy tests.

Notwithstanding all this evidence, Balz wants readers to believe that people don’t have faith in government because of hostile rhetoric from politicians.

Marc Hetherington, a professor at the University of North Carolina, said the public conversation about government began to shift with the election of Ronald Reagan in 1980. …“What changed with Reagan and the decades since is that the conversation moves away from what government ought to do to government is incompetent to do things,” he said. …Democratic politicians have engaged in some of the same kind of thing. “Every candidate has campaigned on a bureaucracy-bashing theme,” Nabatchi said. “That message has gotten through to affect people’s confidence in government.”

The alternative explanation, needless to say, is that people don’t have confidence in the public sector because government has a long track record of mistakes and incompetence.

But I guess that’s merely my opinion.

So let’s instead close today’s column with some hard data.

Here’s a chart I shared last month while debunking an article by George Packer for the Atlantic (he claimed we have “a federal government crippled by years of…steady defunding”).

It shows that federal spending has tripled since 1980. And that’s after adjusting for inflation!

Which led me to observe that, “The bottom line is that I can’t figure out whether to be more dismayed that journalists are innumerate or that major publications apparently don’t have fact checkers.”

That same sentiment obviously applies to Dan Balz and the Washington Post.

P.S. While Balz and Milbank were guilty of avoiding numbers, the Washington Post doesn’t have a great track record when its journalists try to use numbers. In other words, maybe the problem is bias rather than innumeracy.

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The good news is that there will be a record reduction next year in the burden of government spending. Unfortunately, the bad news is that this reduction will only occur because of gigantic spending increases this year.

In this webinar, I explain how fiscal policy is being affected by coronavirus, and then explain why a spending cap is the way to restore fiscal sanity.

You can watch the full webinar, organized by Lebanon’s Modern University for Business and Science, by clicking here.

But if you don’t want to watch the entire event, or even my 11-minute presentation, all you really need to understand is that red ink is exploding this year. Not just in the United States, but in other nations as well.

The fiscal wreckage, as illustrated in this chart I shared for the audience, is greater than the world experienced during the financial crisis/great recession.

For what it’s worth, I wish the chart specified how much of the debt is caused by additional spending and how much is caused by declining tax revenues.

It’s also worth noting that these numbers will probably deteriorate even further over the next few months. Politicians are likely to approve more handouts and subsidies. And if there’s not a rapid economic recovery (I express doubt about that outcome in my remarks), tax revenue will continue to fall far short of baseline estimates.

The sad reality is that we don’t know the full degree of the coronavirus-caused fiscal wreckage. That being said, it’s safe to assume that – sooner or later – there will be a big debate in Washington over how to reverse the damage. And in other nations as well.

In my presentation, I explained why a Swiss-style spending cap is the right approach. In other words, simply impose a limit so that government grows slower than the private economy – i.e., fiscal policy’s Golden Rule.

I’d like to be able to specifically show how a spending cap would undo the current mess, but that’s not possible because we can only make wild guesses about the full extent of the fiscal fallout.

That being said, I’ll share two pieces of evidence to show the value of a spending cap.

First, here’s an estimate I prepared earlier this year to show how America’s fiscal situation would have been much stronger today if a spending cap had been imposed back in 2000.

Needless to say, it would have been nice if the U.S. had big surpluses when the coronavirus hit.

Our second piece of evidence is the experience of the U.S., France, and the U.K. in the decades before World War I.

All three nations had enormous debt burdens as a result of previous conflicts.

And all three countries dramatically reduced debt by using the same strategy of long-run spending restraint.

The bottom line is that spending restraint has worked in the past and it can work in the future.

Unfortunately, I doubt that either Donald Trump or Joe Biden is interested in that approach.

P.S. One thing we can say for certain is that responding with tax increases almost surely will make a bad situation even worse.

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I’ve warned that the budgetary impact of the coronavirus may trigger another fiscal crisis in Europe.

Especially Italy.

But what about the United States? Will we reach a point, as Margaret Thatcher famously warned, of running out of other people’s money?

We probably still have a couple of decades before that happens, as I speculated at the end of a recent interview, but that doesn’t mean we should continue down our current path.

The Wall Street Journal opined on this topic yesterday, citing newly released estimates from the Congressional Budget Office.

Friday’s Congressional Budget Office report on the federal fisc for April…usually a surplus month as tax payments roll in, but the Treasury postponed tax day this year until July 15. We are grateful for such small government favors. Spending more than doubled in April from the year before and revenue fell by 55%. …we are all apparently supposed to be converts to Modern Monetary Theory. This is the view that governments can spend whatever they like because the Federal Reserve can monetize it without economic harm. We may get to test this proposition. …the damage from so much spending will come in two ways. First, in resources misallocated to government rather than into private hands to invest. Second, in the tax increases that the political class will eventually impose, perhaps starting as early as 2021.

As is so often the case, the WSJ is correct in its analysis.

The fiscal crisis won’t be too much red ink. That’s merely the symptom of the real disease, which is that government is getting far too big.

As the editorial warns, this undermines prosperity because resources get diverted from the economy’s productive sector.

And as that spending burden increases, it means more and more pressure for tax increases, which further penalize growth. I’ve already noted that politicians will try to exploit the crisis by imposing a wealth tax, but I think the real prize – in the mind of statists – is a money-gobbling value-added tax.

I’ll close by sharing a chart from Brian Riedl of the Manhattan Institute, which estimates the per-capita burden of inflation-adjusted federal spending in the United States.

The red portion of the chart is coronavirus-related spending, plus future interest payments on the additional borrowing for all that spending, and the blue portion is spending in prior years plus estimates of future spending (already on an upward trajectory because of poorly designed entitlement programs).

That chart does not paint a pretty picture, but Brian’s numbers may be too optimistic. He assumes that the coronavirus-related emergency spending is just temporary and that additional interest on a bigger debt is the only long-run impact.

But if politicians make some of that spending permanent (which will be in their self-interest), then we’ll be traveling even faster in the wrong direction.

All the more reason to impose a spending cap, which is the only major fiscal reform with a track record of success.

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A couple of weeks ago, I debunked a remarkably anti-empirical column by Dana Milbank of the Washington Post.

He claimed that America’s response to the coronavirus was hampered because government is too small, yet the nations he cited as successful role models actually have much smaller public sectors than the United States.

I congratulated him for accidentally making a strong case for libertarianism and providing evidence for my Seventh Theorem of Government.

Unfortunately, other journalists share Mr. Milbank’s ignorance with regards to easily accessible data on fiscal policy.

Writing for the Atlantic, George Packer asserts that the U.S. response to the coronavirus has been a miserable failure because government is too small.

Every morning in the endless month of March, Americans woke up to find themselves citizens of a failed state. …a federal government crippled by years of right-wing ideological assault, politicization by both parties, and steady defunding. …tests for the virus were almost impossible to find… years of attacking government, squeezing it dry and draining its morale, inflict a heavy cost that the public has to pay in lives. All the programs defunded, stockpiles depleted, and plans scrapped meant that we had become a second-rate nation.

Michael Brendan Dougherty of National Review takes apart Packer’s column.

He points out that CDC funding has increased, while also noting that the bureaucracy has squandered the additional money it has received.

…the CDC’s funding has increased — not that it has made good use of the extra money. This is not a lean and mean virus-fighting machine, getting by on starvation-level resources. It maintains a Hollywood liaison to consult on films. In recent years, it has expanded beyond its core mission to promote motorcycle safety and sponsor programs dedicated to fostering “safe, stable, nurturing relationships” in schools. If you’re wondering why there was lots of political and social messaging larding up CDC documents on COVID-19, just realize that when Congress increases an agency’s funding, the result is likely to be more ideological make-work jobs rather than a more effective workforce. …as for public-sector health-care spending, ours is not notably low — it’s roughly equivalent to those of the developed nations of Western Europe.

And he also observes that nations with smaller governments have done a better job than countries with bigger governments.

…The East Asian states that have done best in fighting COVID-19 are not social-democratic but hyper-capitalist. Compared with them — and to America —Western Europe has done much worse at containing the spread of the coronavirus and the holding down the death toll.

Excellent points.

For my contribution to this debate, I’m going to investigate whether Mr. Packer is right about “steady defunding” of the federal government.

To see whether he is correct about “programs defunded,” I went to Table 1.3 of the Historical Tables of the Budget and created the following chart to see what happened to inflation-adjusted spending over the past 40 years.

Lo and behold, it turns out that Mr. Packer is completely wrong. There hasn’t been any defunding. Not even close.

Instead, the inflation-adjusted burden of government is almost three times greater today than it was the year Reagan was elected (and it will be more than three times greater once all the emergency spending is included).

The bottom line is that I can’t figure out whether to be more dismayed that journalists are innumerate or that major publications apparently don’t have fact checkers.

P.S. There were periods when spending grew faster than at other times. There were also times when the private sector grew faster than the government (fulfilling the Golden Rule). And we also can see the how government exploded because of TARP and Obama’s faux stimulus and then was briefly constrained during the Tea Party era (and is now climbing rapidly under Trump).

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As explained in this short video, a spending cap limits how fast a government’s budget can grow each year.

That’s a very sensible approach, sort of like having a speed limit in a school zone, and even left-leaning international bureaucracies have concluded it’s the best fiscal rule.

That being said, not all spending caps are created equal. A fiscal rule that allows continuous increases in the burden of government spending is akin to an excessive speed limit on the road in front of an elementary school.

At a minimum, a spending cap should keep the spending burden constant (relative to the economy’s productive sector). Even better, a spending cap should fulfill the Golden Rule of fiscal policy by slowly but surely reducing the size of government.

Let’s learn from a real-world example.

Ben Wilterdink, a Visiting Fellow with the Alaska Policy Forum, explains for readers of the Peninsula Clarion that the state has a spending cap, but one that is set too high.

Alaska is in the midst of a perfect fiscal storm. …Even before the present crisis, our state faced large budget deficits and tough decisions about how to make ends meet. …That’s why adopting a functional limit on the growth in state spending is essential for long-term economic success. …a functional limit in the growth of state spending decreases the temptation to dramatically increase spending when economic times are good, creating new budget expectations that are difficult to maintain during inevitable economic downturns… Technically, Alaska already has a constitutional spending cap in place, but the formula used renders it basically meaningless. …While Alaskans can’t retroactively adopt a meaningful spending limit, we can ensure that those economic benefits are captured going forward.

So why is a spending cap now an important issue?

Because the state relies overwhelmingly on energy taxes, which are very cyclical, and the drop in oil prices is putting pressure on state finances.

This isn’t an overnight phenomenon. Here’s some of what Henry Olsen wrote last year for the Washington Post.

Alaskans have long financed their state government without paying for it themselves. Alaska has no personal income tax and no statewide sales or property tax. Instead, the state uses taxes and royalties on oil and gas producers to fund the overwhelming share of its government. …Alaska Gov. Mike Dunleavy (R) told his constituents that the gravy train is over. Oil prices and production have been down for many years… Dunleavy showed the leadership that many conservatives contend is lacking in Washington and proposed slashing state spending by nearly 25 percent. Those cuts are real, not some phony accounting scheme against “projected” spending. …Dunleavy’s budget is forcing Alaskans to decide how much government they want and how much they are willing to pay for it.

The bad news is that Alaskans may decide they want more government. Indeed, Olsen suggests in his column that this may be the outcome.

That might even lead politicians in the state to do something really unfortunate, such as adopting a state income tax.

The key thing to understand, however, is that the state would not be in this position if it had the kind of meaningful spending cap that Ben Wilterdink discussed in his column.

I wrote about Alaska’s fiscal policy back in 2015 and shared a very depressing chart showing that the burden of state spending tripled in the eight-year period between 2005 and 2013.

Just imagine, though, if spending during that period only grew at the rate of population plus inflation. The state would be in a very strong fiscal position today instead of dealing with a big mess (that’s also the case for the federal government, which also deals with revenue fluctuations).

So what’s the bottom line? Here’s another excerpt from Wilterdink’s column, noting that Colorado’s spending cap is a good role model.

…the most effective is Colorado’s Taxpayer Bill of Rights (TABOR), which constitutionally limits spending growth to the rate of inflation plus estimated population growth. The stable budget and tax climate created by TABOR has served Coloradans remarkably well. Over the past decade, Colorado’s gross state product (GSP) has grown by 45.5%, personal income has grown by 59.5%, and non-farm payroll employment has grown by 15.8%.

Amen. Colorado’s TABOR policy is a common-sense policy with a strong track record. And Colorado voters, most recently last November, routinely reject proposals to bust the state’s spending cap. So it’s an economic success and a political success.

P.S. If Alaska (or any other jurisdiction) wants global examples of successful spending caps, Switzerland and Hong Kong are good role models.

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Back in 2012, when America had a budget deficit above $1 trillion, Investor’s Business Daily opined that America’s fiscal mess could have been avoided if politicians had simply adopted a TABOR-style spending cap starting in 1998.

As illustrated by the accompanying chart, IBD showed how a giant deficit would have become very manageable if politicians simply limited spending so it grew no faster than population plus inflation.

What makes this alternative history so bittersweet is that there are places – such as Switzerland and Hong Kong – that already have successful spending caps that deliver positive results.

Indeed, spending caps have such a good track record that even left-leaning international bureaucracies like the International Monetary Fund and the Organization for Economic Cooperation and Development have acknowledged that they are the most effective fiscal rule.

To understand the benefits of spending caps, especially since we’re now back in an environment of $1 trillion-plus deficits, let’s replicate the IBD exercise.

Here’s a chart showing actual spending (orange line) and revenue (blue line) over the past 20 years, along with what would have happened to spending with a 3-percent cap on annual spending increases (grey line).

The net result is that today’s $1 trillion surplus would be a budget surplus of nearly $500 billion.

More important, the burden of spending today would be much lower, which means more resources being allocated by the productive sector of the economy. And that would mean more jobs and more prosperity.

P.S. While a spending cap is simple and effective, that doesn’t mean it’s easy. Abiding by a cap would force politicians to set priorities, which is a constraint they don’t like. In the long run, complying with a cap also would require some much-need entitlement reform, which also won’t be popular with the interest groups that control Washington.

P.P.S. We would need a spending cap of 1.7 percent to balance the budget over the next 10 years.

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Trump’s new budget was released yesterday and almost every media outlet wrote about supposed multi-trillion dollar spending cuts when, in reality, the President’s budget actually calls for nearly $2 trillion of additional spending over the next 10 years.

The bottom line is that Trump is more akin to a big-government Republican rather than a Reagan-style conservative.

Today, let’s take a look at Table 3.2 of the Historical Tables of the Budget to assess how Trump’s record on spending compares to other modern presidents.

I’ve done this exercise in the past, starting in 2012 and most recently in 2017, but this is the first year we have enough data to include Trump’s performance.

And if we simply look at overall spending numbers (adjusted for inflation, of course), we get the shocking result that Obama increased spending at the slowest rate.

This surprising outcome is due in part to factors such as falling interest rates, a slowdown in military expenditures, and the fiscal impact of the 2010 elections (in other words, gridlock can be beneficial).

Trump, meanwhile, is near the bottom of the list (though not as bad as George W. Bush and LBJ).

What happens, though, if we remove interest payments from the data? After all, those outlays truly are uncontrollable (barring a default) and they mostly reflect spending decisions of prior administrations.

So if we want to judge a president’s fiscal policy, we should look at “primary spending,” which is the term used by budget geeks when looking at non-interest spending.

This measure doesn’t radically alter the results, but some presidents wind up looking better and others fall.

Another way of looking at the numbers is to remove the fiscal impact of bailouts, such as TARP (and also the savings & loan bailouts of the late 1980s).

The reason for this alteration is that the bailouts cause a big spike in spending when they occur, and then cause a drop afterwards because repayments actually are considered “negative spending,” as are the premiums that banks pay each year (I’m not kidding).

So presidents who are in office when the bailouts occur wind up looking worse, even though their policies may not have contributed to the problem. And the presidents who are in office when the repayments occur (remember, those count as negative spending) wind up looking better than they really are.

Here are the adjusted rankings (calculated by subtracting rows 46, 50, and 51 of Table 3.2). As you can see, Obama takes a bit of a tumble and Reagan is now the most fiscally prudent president.

Last but not least, now let’s also remove defense spending so we can see which presidents did the best (and the worst) when it comes to social welfare spending.

This is the most important category for those of us who believe the federal government should get out of the business of income redistribution and social insurance.

Reagan easily tops the list, limiting outlays to 0.5 percent annual growth. The other thing that’s remarkable is that every other Republican was worse than Bill Clinton, Jimmy Carter, and Barack Obama.

For what it’s worth, Trump is the best of the non-Reagan Republicans, though that is damning with very faint praise.

The first President Bush was awful on spending, and Nixon was catastrophically terrible.

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I would prefer not to write about President Trump’s new budget, largely because I know it’s not a serious proposal.

Even before he was elected, I pointed out that Trump was a big-government Republican who had no intention of dealing with serious fiscal issues such as the rising burden of entitlement spending.

So I wasn’t surprised that he capitulated to swamp-friendly budget deals in 2017, 2018, and 2019. And I’m depressingly confident that the same thing will happen this year.

That being said, I want to comment on how the media is covering his latest budget.

Take a look at some of the headlines that are dominating the news this morning.

From Reuters.

From New York magazine.

From the Washington Times.

From NBC.

From the Associated Press.

From Bloomberg.

From International Business Times.

From Fox.

From the Wall Street Journal.

All of these headlines make is seem like Trump is proposing a Reagan-style budget with lots of cuts, especially with regards to domestic programs.

All of that would be great news…if it was true.

In reality, here’s what Trump is projecting for total spending over the next 10 years.

Can you find the spending cuts?

And here’s what’s happening with domestic spending (mandatory outlays plus domestic discretionary) according to Trump’s budget.

Can you find the spending cuts?

Last but not least, here’s Trump’s plan for domestic discretionary spending.

Can you find the spending cuts?

So why is there such a big disconnect in the media? Why are there headlines about cutting and slashing when government is growing by every possible measure?

For the simple reason that the budget process in Washington is pervasively dishonest, as I’ve explained in interviews with John Stossel and Judge Napolitano. Here are the three things you need to know.

  1. The politicians created a system that automatically assumes big increases in annual spending, called a baseline.
  2. When there’s a proposal to have spending grow slower than the baseline, the gap between the proposal and the baseline is called a cut.
  3. It’s like being on a diet and claiming progress because you’re gaining two pounds each month rather than five pounds.

Defenders of this system argue that programs should get built-in increases because of things such as inflation, or because of more old people, which leads to more spending for programs such as Social Security and Medicare.

It’s certainly reasonable for them to argue that budgets should increase for these reasons.

But they should be honest. Be forthright and assert that “Spending should climb X percent because…”

Needless to say, that won’t happen. The pro-spending politicians and interest groups like the current approach because it allows them to scare voters by warning about “savage” and “draconian” spending cuts.

Remember how Obama said the sequester would wreak havoc because of massive cuts? Except there weren’t any cuts, massive or otherwise. As Thomas Sowell pointed out, Obama was trying to deceive voters.

P.S. The British also use dishonest budgeting.

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In an amazing display of incompetence, we still don’t know whether Bernie Sanders or Pete Buttigieg won the Iowa caucus.

This has created some opportunities for satire, with people asking how a political party that can’t properly count 200,000 votes somehow can effectively run a healthcare system for 340 million people.

That’s a very good point, but today let’s focus on a contest that does have a clear winner.

As explained in this video, John Stossel and his team crunched the numbers and they have concluded that “Crazy Bernie” wins the free-stuff primary.

Senator Sanders doubtlessly will be very happy with this victory, especially since he trailed Kamala Harris when Stossel did the same calculations last summer.

America’s taxpayers, however, might not be pleased with this outcome. Especially if Bernie Sanders somehow gets to the White House.

Last week, I shared new numbers from the Congressional Budget Office, which showed that the federal budget is now consuming $4.6 trillion.

Bernie Sanders is proposing a staggering $4.9 trillion of new spending – more than doubling the burden of government spending!

And the 10-year cost of his promises could be as high as $97 trillion.

To make matters worse, all this new spending is in addition to already-legislated spending increases for everything from boondoggle discretionary programs to behemoth entitlement programs.

Hello Greece.

Heck, it may be hello Venezuela if Bernie gets unleashed.

P.S. Trump’s record on spending is bad, though his mistakes are measured in billions rather than trillions.

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When the Congressional Budget Office released its Budget and Economic Outlook yesterday, almost everyone in Washington foolishly fixated on the estimate of $1 trillion-plus annual deficits.

What’s far more important – and much more worrisome – is that the burden of government spending is projected to relentlessly increase, violating the Golden Rule of fiscal policy.

More specifically, the federal budget currently is consuming 21 percent of gross domestic product, but will consume 23.4 percent of economic output in 2030 if fiscal policy is left on autopilot.

Here is a chart, based on CBO’s new data, that shows why we should be very concerned.

By the way, last year’s long-run forecast from CBO shows the problem will get even worse in the following decades, especially if there isn’t genuine entitlement reform.

We’re in trouble today because government has been growing too fast, and we’ll be in bigger trouble in the future for the same reason.

But the situation is not hopeless. The problem can be fixed with some long-overdue and much-needed spending restraint.

We don’t even need to cut spending, though that would be very desirable.

As this next chart illustrates, our budgetary problems can be solved if there’s some sort of spending cap.

The grey line shows the current projection for federal spending and the orange line shows how much tax revenue Washington expects to collect (assuming the Trump tax cut is made permanent). There’s a big gap between those two lines (the $1 trillion-plus deficits everyone else is worried about).

My contribution to the discussion is to show we can have a budget surplus by 2028 if spending only grows by 1 percent annually and we can balance the budget by 2030 if spending grows by 1.7 percent per year.

Needless to say, I’m not fixated on balancing the budget and eliminating red ink.

The real goal is to change budgetary trend lines with a spending cap so that the fiscal burden of government begins to shrink as a share of the nation’s economy.

The bottom line is that modest spending restraint (government growing at 1.7 percent annually, nearly as fast as projected inflation) would slowly but surely achieve that goal by gradually reversing the big-government policies of Bush, Obama, and Trump.

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About 10 years ago, the Center for Freedom and Prosperity released this video to explain that America’s real fiscal problem is too much spending and that red ink is best viewed as a symptom of that problem.

I wrote a primer on this issue two years ago, but I want to revisit the topic because I’m increasingly irked when I see people – over and over again – mistakenly assume that “deficit neutrality” or “budget neutrality” is the same thing as good fiscal policy.

  • For instance, advocates of a carbon tax want to use the new revenues to finance bigger government. Their approach (at least in theory) would not increase the deficit. Regardless, that’s a plan to increase to overall burden of government, which is not sound fiscal policy.
  • Just two days ago, I noted that Mayor Buttigieg wants the federal government to spend more money on health programs and is proposing an even-greater amount of new taxes. That’s a plan to increase the overall burden of government, which is not sound fiscal policy.
  • Back in 2016, a columnist for the Washington Post argued Hillary Clinton was a fiscal conservative because her proposals for new taxes were larger than her proposals for new spending. That was a plan to increase the overall burden of government, which is not sound fiscal policy.
  • And in 2011, Bruce Bartlett argued that Obama was a “moderate conservative” because his didn’t raises taxes and spending as much as some on the left wanted him to. Regardless, he still increased the overall burden of government, which is not sound fiscal policy.

To help make this point clear, I’ve created a simple 2×2 matrix and inserted some examples for purposes of illustration.

At the risk of stating the obvious, good fiscal policy is in the top-left quadrant and bad fiscal policy is in the bottom-two quadrants.

Because of “public choice,” there are no real-world examples in the top-right quadrant. Why would politicians collect extra taxes, after all, if they weren’t planning to use the money to buy votes?

P.S. In 2012, I created a table showing the differences on fiscal policy between supply-siders, Keynesians, the IMF, and libertarians.

P.P.S. I also recommend Milton Friedman’s 2×2 matrix on spending and incentives.

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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.”

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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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 IllinoisCalifornia, 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 GreeceFrance, 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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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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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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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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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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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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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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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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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 Securitycorporate governancefederal spendingtaxationWall 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.

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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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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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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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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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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