The (Spending) Nightmare Before Christmas

Yesterday’s column about “the tax nightmare before Christmas” was based on my fear that politicians will try to impose a value-added tax at some point in the not-too-distant future.

Today’s column is about the spending nightmare that is already happening. The bottom line, as expressed in this clip from a recent interview with Neil Cavuto, is that Republicans are not doing what’s right for the country.

Need some evidence?

How about  what was reported today in the Hill?

Lawmakers are under pressure to get a deal to increase the budget caps and prevent automatic across-the-board spending cuts, known as sequestration. …a deal has remained elusive, with both sides battling over how much to increase both defense and nondefense spending.

Needless to say, they should be battling over how much to cut spending, not how much to increase it.

Unfortunately, the propensity to over-spend is a long-standing pattern. In an uncharacteristic episode of fiscal sanity, Congress enacted the Budget Control Act in 2011, which then led to a much-needed sequestration early in 2013.

But ever since that point, as explained back in 2015 by the New York Times, politicians have been figuring out ways to get out from under this modest bit of fiscal discipline.

They raised the spending caps at the end of 2013.

And raised the spending caps again in 2015.

In other words, GOP fecklessness isn’t anything new.

Here’s another clip from the recent Cavuto interview. I argue for spending caps with sequester enforcement.

But I confess that enacting such caps is just part of the battle. The real challenge is making sure politicians can’t wiggle out from under such fiscal constraints.

In my fantasy world, we avoid that problem by making spending restraint part of the Constitution, an approach that has been very successful for Hong Kong and Switzerland.

That doesn’t seem likely any time soon in America.

And let’s not forget that Republicans also are poised to splurge on a new “emergency” package – and this money would be exempt from spending caps. Here’s another portion of the Hill story.

The $81 billion package provides aid for communities affected by recent hurricanes in Texas, Florida, Puerto Rico and the U.S. Virgin Islands, as well as wildfires in California. The Senate is expected to take the legislation up once they return to Washington.

And the bill is turning into a bidding war, thanks in part to some supposed fiscal conservatives.

…Cornyn and fellow Texas GOP Sen. Ted Cruz want… more funding for their state’s Hurricane Harvey recovery efforts. …Cruz said…his state, which he said had up to $180 billion in hurricane damage, would only be eligible for a small portion of the money in the House bill. But any push to help Texas would likely set off a demand from other delegations for help responding to wildfires in California, as well as additional funding for hurricane relief in Puerto Rico. Rep. Luis Gutiérrez (D-Ill.)…said that Puerto Rico needs an estimated $94 billion to rebuild.

I don’t think the federal government should be in the business of compensating people for losses following natural disasters. That simply rewards those who go without insurance while also creating perverse incentives to build in risky areas.

But if politicians actually think that it’s the federal government’s responsibility, then they should reduce other spending to finance supposed emergencies. Heck, FDR and Truman did this for World War II and the Korean War, and they weren’t exactly fiscal conservatives.

Let’s close with some additional bad news. What’s written above relates to the GOP’s failure to control “discretionary” spending. That’s the part of the budget that funds the Pentagon, as well as providing most of the outlays for departments that shouldn’t even exist (such as Transportation, Housing and Urban Development, Education, Energy, and Agriculture).

If you really want to be depressed, keep in mind that Republicans also are dropping the ball on “entitlements,” which are programs that are designed to automatically increase every year (such as Social Security, Medicare, and Medicaid) and are largely responsible for America’s very grim long-run fiscal outlook.

Read Full Post »

Looming Republican Surrender on Spending Caps?

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

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

And the fight over spending caps is a perfect example.

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

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

Seems like a slam dunk win for taxpayers, right?

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

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

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

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

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

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

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

Amen.

That’s basically the same message I shared yesterday.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And Steve shares some bad news on this issue.

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

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

That was an unambiguous victory for Obama.

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

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

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

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

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

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

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

Read Full Post »

Government Shutdown Theater: Republicans Should Not Surrender to Obama’s Blackmail

Notwithstanding the landslide rejection of Obama and his policies in the mid-term election, I don’t think this will produce big changes in policy over the next two years.

Simply stated, the GOP does not have the votes to override presidential vetoes, so there’s no plausible strategy for achieving meaningful tax reform or genuine entitlement reform.

But that doesn’t mean that there won’t be important fiscal policy battles. I’m especially worried about whether we can hold on to the modest fiscal restraint (and sequester enforcement) we achieved as part of the 2011 debt limit fight.

Part of that victory was already negotiated away as part of the Ryan-Murray budget deal, to be sure, but there are still remaining budget caps that limit how fast politicians can increase so-called discretionary spending.

According to the Congressional Research Service, budget authority for defense is allowed to rise from $552 billion in 2014 to $644 billion in 2021. And budget authority for domestic programs is allowed to climb from $506 billion to $590 billion over the same period.

I think that’s too much spending, but the interest groups, lobbyists, cronyists, politicians, bureaucrats, and other insiders in Washington would like much bigger increases. And you won’t be surprised to learn that the Obama Administration also wants to bust the spending caps.

This is why I’m very worried that some Republicans are undercutting their negotiating position by saying that there will be no government shutdowns.

Let me explain how these issues are connected. At some point next year, Republicans on Capitol Hill will be responsible for putting together spending bills for the following fiscal year. They presumably (or am I being too optimistic?) will put together budget bills that comply with the existing spending caps.

Obama will then say he will veto such legislation and demand that Republicans unilaterally surrender by enacting bigger spending increases and also gutting sequestration. The GOP will then have two options:

A) they can surrender.

B) they can continue to send the President spending bills that comply with the law.

But if they go with option B and the President uses his veto pen, then the government shuts down. And even though the shutdown only occurs because the President wants to renege on the deal he signed in 2011, Republicans are afraid they’ll get blamed.

The Washington Post reports on this fearful attitude, citing the anti-shutdown perspective of the incoming Senate Majority Leader.

A day after he won reelection and Republicans retook the Senate, Sen. Mitch McConnell (R-Ky.) left no doubt… “Let me make it clear: There will be no government shutdowns…,” McConnell said in a valedictory news conference in Louisville.

But that view irks some lawmakers who worry Obama will then have a blank check.

The first battle may revolve around immigration amnesty, but – as noted above – I’m more focused on fiscal fights.

But McConnell could be tripped up by the same conservative forces that have undercut Boehner since he became speaker in 2011. The issue this time is Obama’s expected executive action to overhaul the nation’s immigration system. …conservatives…have urged McConnell and Boehner to fight back by allowing only a short-term budget bill that would keep government agencies open until early next year. These conservatives believe that once Republicans hold both chambers of Congress next year, they can force Obama to accept a budget bill that would prohibit him from implementing his executive order on immigration.

At this point in the article, the reporter, Paul Kane, engages in some anti-factual editorializing.

…the days of brinkmanship could return with a vengeance, and the government could once again be shut down. That could provide a devastating blow to Republicans, hurting their chance to win back the White House and hold on to their relatively slim Senate majority in 2016.

Huh?!? Republicans just won a landslide, so why are we supposed to believe last year’s shutdown was “a devastating blow”?

Mr. Kane also refers to a shutdown later in the article as a “fiscal calamity” even though he shows no evidence (because there wasn’t any) that government shutdowns cause any damage.

But there is at least one person who is convinced by this narrative. And that person, Senator McConnell, is preemptively trying to convince other GOP Senators to give Obama the upper hand in any fiscal negotiations.

McConnell’s advisers are worried enough that by Friday evening they were circulating a memo showing how damaging last year’s shutdown was to the Republican Party — an effort designed to counter conservatives who point to this month’s triumphant election as proof that the shutdown did little damage. …The memo showed that in Gallup polling from late 2012 until this month, …Republicans held steady just a couple of points lower through 2012 and most of 2013 — until the 16-day shutdown of the federal government in October 2013. In just a few weeks, the McConnell chart shows, Republican favorability plummeted 10 points. It has taken a year for it to climb back to where it was before the shutdown.

But who cares about “favorability” ratings. The poll that really matters is the one that takes place on election day.

And here’s some of what I wrote in my post about lessons that could be learned from the 2014 elections.

Back in 2011, I explained that Republicans could play hard ball, largely based on what really happened during the 1995 government shutdown. And in 2013, I again defended a shutdown, pointing out that voters probably wouldn’t even notice that some government offices were closed, but they would remember that the GOP was branding itself as the anti-Obamacare party. The establishment, by contrast, thought the shutdown was a disaster for Republicans. …many…Republicans felt the same way, excoriating Senator Cruz and others who wanted a line-in-the-sand fight over government-run healthcare. The moral of the story isn’t that shutdowns necessarily are politically desirable, but rather that it’s very important for a political party to find visible ways of linking itself to popular causes (such as ending Obamacare, fighting big government, etc).

At least one person agrees with me. Jeffrey Lord, writing for the American Spectator, points out the GOP establishment was wrong about the political impact of the 2013 government shutdown.

The whole event was giving prominent Republicans in and out of office the political willies. …Republican senators, congressmen, governors, ex-office holders, potential presidential candidates, lobbyists and pundits…were spreading the word. That word? …it was some version of curtains for the GOP. The party would be toast. …they all got it wrong. Not just wrong, but Big Time Wrong. A week ago the Republican Party — barely a year away from the government shut down these folks were bewailing in various terms as bad strategy that “will lose more” for Republicans than Democrats — won a blowout election. …Will Republicans learn anything here? …Do you think Mitch McConnell makes the connection between the government shutdown of 2013 and the fact that he is about to become Senate Majority Leader?

To be fair, we don’t know what would have happened if there wasn’t a shutdown in 2013, so maybe the GOP still would have taken the Senate.

But there’s also no doubt that the GOP benefited by having a big public fight about Obamacare. Voters didn’t remember the shutdown, but they did remember that Republicans were against the President’s government-run healthcare scheme and they remembered that Democrats were for it.

I have no idea whether that made a difference in one Senate race of six Senate races, but Obamacare clearly was an albatross for Democrats.

In closing, I want to point out that there are limits to a shutdown strategy.

Picking a fight (or, more accurately, refusing to surrender to Obama) in 2015 is almost surely a winning strategy. But having the same fight in October of 2016 probably wouldn’t be very smart, particularly since the establishment press would do everything possible to spin the fight in ways that advance Hillary Clinton (or some other Democrat presidential nominee).

In other words, context matters. Pick the right fight.

But the bottom line is that Republicans – assuming they don’t intend to acquiesce on every single issue – must be prepared to let Obama veto spending bills and shut down the government.

Returning to the American Spectator story, Ted Cruz may not be very popular with some of his colleagues, but I think he made an unassailable point about what happens if the GOP unilaterally disarms.

Cruz…asked them for their alternative. Cruz paused, then said that the response he got was “the sound of crickets chirping.”

P.S. One reason why Republicans are skittish about shutdowns is that they think they last the 1995 fight with Bill Clinton. But if you lived through that battle (or if you look at contemporaneous news reports), it’s clear the Republicans had the upper hand.

P.P.S. Here are the five lessons I shared immediately after the 2013 shutdown fight.

P.P.P.S. If you want to enjoy some shutdown humor, click here, here, here, and here. And if you prefer sequester cartoons, click here, here, here, here, here, and (my favorite) here.

Read Full Post »

The “Stupid Party” Strikes Again: Congressional Republicans Poised to Give Up Sequester Victory

There’s a saying in the sports world about how last-minute comebacks are examples of “snatching victory from the jaws of defeat.”

I don’t like that phrase because it reminds me of the painful way my beloved Georgia Bulldogs were defeated a couple of weeks ago by Auburn.

But I also don’t like the saying because it describes what Obama and other advocates of big government must be thinking now that Republicans apparently are about to do the opposite and “snatch defeat from the jaws of victory.”

More specifically, the GOP appears willing to give away the sequester’s real and meaningful spending restraint and replace that fiscal discipline with a package of gimmicks and new revenues.

I warned last month that something bad might happen to the sequester, but even a pessimist like me didn’t envision such a big defeat for fiscal responsibility.

You may be thinking to yourself that even the “stupid party” couldn’t be foolish enough to save Obama from his biggest defeat, but check out these excerpts from a Wall Street Journal report.

Sen. Patty Murray (D., Wash.) and Rep. Paul Ryan (R., Wis.), chief negotiators for their parties, are closing in on a deal… At issue are efforts to craft a compromise that would ease across-the-board spending cuts due to take effect in January, known as the sequester, and replace them with a mix of increased fees and cuts in mandatory spending programs.

But the supposed cuts wouldn’t include any genuine entitlement reform. And there would be back-door tax hikes.

Officials familiar with the talks say negotiators are stitching together a package of offsets to the planned sequester cuts that would include none of the major cuts in Medicare or other entitlement programs that Mr. Ryan has wanted… Instead, it would include more targeted and arcane measures, such as increased fees for airport-security and federal guarantees of private pensions.

But the package may get even worse before the ink is dry.

Democrats on Thursday stepped up their demands in advance of the closing days of negotiations between Ms. Murray and Mr. Ryan. House Democratic Leader Nancy Pelosi (D., Calif.) brought a fresh demand to the table by saying she wouldn’t support any budget deal unless in included or was accompanied by an agreement to renew expanded unemployment benefits that expire before the end of the year—which would be a major threat to any deal.

Gee, wouldn’t that be wonderful. Not only may GOPers surrender the sequester and acquiesce to some tax hikes, but they might also condemn unemployed people to further joblessness and despair.

That’s even worse than the part of the plan that would increase taxes on airline travel to further subsidize the Keystone Cops of the TSA.

But look at the bright side…at least for DC insiders. If the sequester is gutted, that will be a big victory for lobbyists. That means they’ll get larger bonuses, which means their kids will have even more presents under the Christmas tree.

As for the rest of the nation? Well, you can’t make an omelet without scrambling a few eggs.

P.S. I suppose we should consider ourselves lucky that this looming agreement isn’t as bad as some past budget deals, such as the read-my-lips fiasco of 1990.

Read Full Post »

Will Paul Ryan and GOP Budget Negotiators Snatch Defeat from the Jaws of Victory?!?

There’s a joke in Washington that Democrats are the evil party and Republicans are the stupid party.

Except this joke isn’t very funny since a lot of bad policy occurs when gullible GOPers get lured into “bipartisan” deals that expand government. Consider, for example, all the tax-hiking budget deals – such as the “read my lips” capitulation of the first President Bush – that enable more spending.

To be fair, sometimes Republicans are placed in a no-win situation. During the “fiscal cliff” discussions last year, Obama held the upper hand since he would get a huge automatic tax hike if nothing happened. So the final agreement, which resulted in a smaller tax increase, was actually better (or, to be more accurate, less worse) than I was expecting.

But in other cases, Republicans should prevail because they have the stronger hand. That’s the situation we’re in today with the automatic spending cuts known as sequestration.

The sequester, which resulted from the 2011 debt-limit fight, was an unambiguous defeat for Obama and a significant victory for advocates of smaller government. And it was a defeat for all the lobbyists, special interests, and crony capitalists that get rich when there’s more money in Washington.

Though I don’t want to exaggerate. The “cuts” merely reduce the projected growth of federal spending.

But after years of unconstrained spending by both Bush and Obama, any fiscal restraint is a welcome development. Indeed, the sequester helps to explain why we’ve seen two consecutive years of lower spending in Washington for the first time since the 1950s.

No wonder Obama is desperate to cancel sequestration, even to the point of making himself a laughingstock to cartoonists.

But maybe Obama will have the last laugh because some Republicans are negotiating with Democrats to undo some of the benefits of sequestration. Here are some excerpts from a Politico report.

…an agreement may not be so elusive after all. Hopes are growing that Ryan and Murray could reach a narrow deal to replace a portion of the automatic spending cuts known as sequestration, according to lawmakers and senior aides involved in the discussions. …On Tuesday, several key lawmakers and aides said there was about a 50-50 chance, if not better, that a small deal could be reached — a much better prognosis than many had anticipated. Murray said in an interview Tuesday that she’s in “very good conversations” with Ryan. “The goal here is to replace sequestration with responsible spending cuts and revenue,” Murray said.

I shudder to think what Senator Murray means by “responsible spending cuts.” Presumably gimmicks.

But we don’t need a vivid imagination to know what she means by “revenue.” The real question is why Republicans would be willing to “feed the beast” with more revenue, particularly when it means eviscerating the genuine spending restraint imposed by sequestration.

It even appears as if Republicans are willing to increase unemployment as part of a bad deal.

House and Senate appropriators are putting major pressure on Murray and Ryan… Revenue raisers being discussed include increased Transportation Security Administration fees… As an extra bargaining chip, Republicans would consider including an extension of extended unemployment benefits, which expire on Dec. 28. …Murray has made clear she won’t agree to any structural changes to Medicare or Social Security, particularly without significant revenue increases.

So let’s summarize this issue.

Current law is the sequester, which is a big victory.

The big spenders understandably want to eliminate or weaken the sequester, and would be especially happy to get more revenue coming to Washington.

Paul Ryan and the other Republican negotiators have the upper hand since the sequester continues if there’s no agreement.

So we have to ask ourselves why GOPers are even bothering to negotiate. There are two possible answers.

1. The “stupid party” joke actually is an accurate assessment of mental ability and Republicans are easy to trick because of their developmental challenges.

2. Republicans pretend to be fiscal conservatives when talking to voters but secretly want to enable more spending by sabotaging the sequester.

I’m actually being a bit unfair. What’s really happening is that there are divisions inside the GOP. A majority of the Republican caucus presumably understands that they hold a winning hand and they’re content to maintain current law and let the sequester continue.

But the Republicans on the Appropriations Committee tend to dislike the sequester since it reduces their ability to spend other people’s money in exchange for political support.

They correctly complain that America’s main fiscal problem is entitlement spending, so you can understand why they’re a bit irked that their programs are being restrained while boondoggles such as Obamacare are putting us deeper in a fiscal hole.

But that’s not an argument to waste money on so-called discretionary programs. Moreover, the appropriators are wildly wrong when they assert that appropriations spending already has been “cut to the bone.”

There are also some hawks who accurately complain that defense spending incurs a disproportionate share of the sequester, but they are wrong when they say this endangers national security. After all, defense spending still grows under sequestration and America will still account for nearly 50 percent of the world’s military spending.

So what’s the bottom line?

In an ideal world, policy makers would focus first on desperately needed entitlement reform. And I suspect many members of the Appropriations and Defense Committees would grumble a lot less about restraints on discretionary spending if real structural reforms to so-called mandatory programs were being implemented.

But we don’t live in that world. The sad reality of Washington is that genuine entitlement reform won’t happen with Obama in the White House. But that’s not an argument for surrendering on sequestration and allowing discretionary spending to climb at a faster rate.

Read Full Post »

The Unrecognized Shutdown Victory…and some After-the-Fact Shutdown Humor

I recently gave five reasons why the shutdown fight was worthwhile and my number one reason was that it’s better to be on offense than defense.

It seems I’m not the only one to reach this sensible conclusion. Here’s some of what Fred Barnes wrote today for the Wall Street Journal.

In the deal that ended the government shutdown, Republicans…got almost nothing they’d sought. But what has been largely overlooked is that the deal didn’t curtail, much less end, the automatic spending cuts known as the budget sequester. And undoing the sequester is what President Obama and Democrats wanted most of all. The survival of the automatic spending cuts gives Republicans the upper hand in confronting the White House and congressional Democrats on budget issues… For Republicans eager to corral federal spending—and that’s most of them—the sequester is a gift that keeps on giving. …Democrats, especially Senate Majority Leader Harry Reid, are fit to be tied as they watch cherished social programs gradually shrink.

Other than the assertion that social programs are shrinking (they’re simply not growing as fast), Barnes is right. By going on offense on Obamacare, Ted Cruz and his allies put the left on defense and prevented them from successfully organizing to undo the sequester.

Kudos to the Tea Party for being willing to do the right thing against uphill odds.

In his column, Barnes explains that the sequester has been great news.

To say the sequester has backfired for Democrats is putting it mildly. …The sequester is cuts and only cuts. As a result, Senate Minority Leader Mitch McConnell noted proudly last week when announcing the end of the shutdown that “government spending has declined for two years in a row [for] the first time in 50 years.” …Saving the sequester “has been a top priority for me and my Republican colleagues throughout the debate” about the shutdown, Mr. McConnell said. …Republicans can sit on their hands and experience the joy of trimming the size of government and, thanks to the sequester, watching Democrats gripe about it.

Spot on. The sequester was a major defeat for Obama (and also a big loss to the Washington establishment).

Moreover, Senator McConnell is correct about government spending actually declining for two consecutive years, which is a remarkable achievement and a sign that the Tea Party has made a difference (though I explained in my post on presidential spending performance that it’s not as impressive as it sounds because of the way TARP money is measured).

So let’s hope Republicans don’t fumble away the sequester as part of some tax-hiking grand bargain that will enable bigger government.

Since we’re doing some after-the-fact analysis of the shutdown fight, this gives me an opportunity to belatedly share some great shutdown images from Buzzfeed. There are about 20 of these, all of which are worth seeing. Here are my three favorite ones.

We’ll start with some horrid anarchists disobeying the government.

Here we have some radicals, probably from the Tea Party.

Last but not least, here are WWII vets who failed to obey the statist clowns at the National Park Service.

P.S. Previous examples of government shutdown humor can be enjoyed by clicking here, here, here, here, and here.

Read Full Post »

Very Good News: The Tea Party Has Altered the Spending Trajectory in Washington

Why does the Tea Party attract such vitriolic opposition, whether from Obama’s IRS or big-government Republicans like Karl Rove?

The answer is simple. People in Washington don’t like the Tea Party because this citizen uprising is making it difficult to engage in business-as-usual shenanigans.

I shared a couple of columns (here and here) back before the 2010 elections about the potential impact of the Tea Party, but it wasn’t until earlier this year that I put together some hard numbers showing that this small-government movement has made a difference.

Simply stated, Washington’s spending trajectory is still headed in the wrong direction, but we’re becoming Greece (or Portugal, Spain, Italy, etc) at a significantly slower pace.

That’s hardly libertarian Nirvana, to be sure, but let’s remember the golden rule, which is that fiscal policy is headed in the right direction so long as the private sector grows faster than the burden of government spending.

And that’s what’s been happening. Indeed, we’ve even experienced a couple of years with no growth in the size of the public sector! Here’s some of what Steve Moore wrote for today’s Wall Street Journal.

According to the Congressional Budget Office, annual outlays peaked at $3.598 trillion in fiscal 2011. After President Obama’s first two years in office, many in Washington expected that number to hit $4 trillion by 2014. Instead, spending fell to $3.537 trillion in fiscal 2012, and is on pace to fall below $3.45 trillion by the end of this fiscal year (Sept. 30). The $150 billion budget decline of 4% is the first time federal expenditures have fallen for two consecutive years since the end of the Korean War. This reversal from the spending binge in 2009 and 2010 began with the debt-ceiling agreement between Mr. Obama and House Speaker John Boehner in 2011.

This chart shows what’s happened to federal spending over the twenty years. We’ve gone from decent policy under Clinton to profligacy last decade and now a period of fiscal responsibility.

As you can imagine, President Obama is not happy about this development, particularly since sequestration was a huge political and policy defeat for the White House.

So it’s understandable he’s trying to seduce GOPers into a budget deal that would replace sequestration with tax hikes. Steve explains this would be very misguided.

As long as Republicans don’t foolishly undo this amazing progress by agreeing to Mr. Obama’s demands for a “balanced approach” to the 2014 budget in exchange for calling off the sequester, additional expenditure cuts will continue automatically.

But even if Republicans don’t fall into Obama’s tax-hike trap, we shouldn’t overstate this victory.  After all, recent spending cuts are not overly impressive when you compare them to the spending orgy that took place during the Bush Administration and the early years of the Obama Administration.

Admittedly, this fiscal progress follows the gigantic budget blowout that began with the last year of George W. Bush’s presidency and the first two years of Mr. Obama’s. In fiscal 2009 alone, federal spending surged by $600 billion. That same year, outlays as a share of GDP reached a post-World War II high of 25.2%. But by the end of this fiscal year, outlays as a share of GDP could fall to as low as 21.5%. At least for now, the great Washington spending blitz of the Obama first term is over.

Moreover, some of the “spending cuts” are simply a back-door form of revenue, an issue I explained when comparing the fiscal record of all Presidents from LBJ to Obama.

Some $80 billion of the outlay savings have come from one-time partial repayments back to the government for the hundreds of billions spent on the bailouts of banks and of Fannie Mae and Freddie Mac.

But let’s not pick too many nits. We’re making a bit of progress, which is bad news for all the interest groups feeding at the federal trough.

The sequester is squeezing the very programs liberals care most about—including the National Endowment for the Arts, green-energy subsidies, the Environmental Protection Agency and National Public Radio. Outside Washington, the sequester is forcing a fiscal retrenchment for such liberal special-interest groups as Planned Parenthood and the National Council of La Raza, which have grown dependent on government largess.

That being said, Steve notes that the short-term progress will quickly fade away if nothing is done to deal with entitlements.

…the fiscal story isn’t all rosy. The major entitlements remain on autopilot and are roaring toward insolvency. Thanks in large part to Mr. Obama’s aversion to practical fixes, the Congressional Budget Office calculates that through July of this year Social Security, Medicare and Medicaid spending are up $73 billion from just last year. This doesn’t include ObamaCare, which is scheduled to add $1 trillion of new costs over the next decade.

Remember, though, that there’s a huge difference between genuine entitlement reform and gimmicks such as price controls and means-testing that merely translate into a year or two of illusory savings.

Let’s close on an upbeat point. As Steve explains in his conclusion, the left must be glum that Obama’s reelection wasn’t the trigger for a new expansion of the welfare state.

Liberals had hoped that re-electing Mr. Obama, the most pro-spending president since LBJ, would unleash another four years of Great Society government expansion. Instead, spending caps and the sequester are squashing these progressive dreams. Welcome to the new fiscal reality in Washington.

I’ll go even farther than Steve. It’s not just that Obama’s victory didn’t translate into bigger government. I think the 2012 election was a closing chapter in an unfortunate era of big-government Republicanism.

And as illustrated by this poll showing a hypothetical contest between Reagan and Obama, the American people would welcome the chance to support a candidate who favored small government and free markets.

Read Full Post »

Laughing at Obama’s Fumbled Attempt to Extort More Taxes with FAA Flight Delays

You don’t enjoy many victories when you fight for liberty, so I’m not averse to spiking the football on those rare occasions when we win.

That’s why I shared this very funny cartoon last week to celebrate Obama’s belly flop on gun control.

Now we have another cartoon, this one by Henry Payne, mocking the Administration’s shameful effort to force a tax increase by deliberately making air travel less convenient.

No wonder the President is behaving in such a petulant fashion. The sequester is an embarrassing defeat for Obama and other proponents of bigger government.

He thought he could bully Republicans into a class-warfare tax hike. Now he’s resorting to pathetic gimmicks.

And he lost on that issue now that Congress has made explicit that the FAA has authority to reallocate funds.

Let’s not just spike the football. Let’s do a dance in the end zone.

 

Read Full Post »

Privatization Is the Best Response to the FAA’s Deliberate Attempt to Inconvenience Air Passengers

In an interview with Neil Cavuto earlier this month, I mocked proponents of big government for their hysterical predictions of bad things happening under sequestration. And cartoonists had a field day making the same point (see here and here).

The White House obviously wasn’t happy about the sequester, in part because they like bigger government and also because sequestration was a big defeat for the President.

Well, now the Obama Administration sees a chance for revenge and redemption. The President’s appointees, by choosing to furlough air traffic controllers, are seeking to turn air travel into something akin to a visit to the Post Office or DMV. It’s clear that the White House hopes to recreate momentum for a tax hike as an alternative to sequestration.

But they’re not exactly being subtle.

The Wall Street Journal exposes the White House’s political motivated chicanery, starting with the very important point that the FAA’s budget – even after sequestration – is as large as it was in 2010. Yet the White House is manipulating the sequester to cause the maximum amount of inconvenience for taxpayers.

The sequester cuts about $637 million from the FAA, which is less than 4% of its $15.9 billion 2012 budget, and it limits the agency to what it spent in 2010. The White House decided to translate this 4% cut that it has the legal discretion to avoid into a 10% cut for air traffic controllers. Though controllers will be furloughed for one of every 10 working days, four of every 10 flights won’t arrive on time.

The Obama Administration is pretending that it’s merely following the law, but the WSJ editorial debunks that notion.

This is a political pose to make the sequester more disruptive. Legally speaking, the sequester applies at a more general level known as “accounts.” The air traffic account includes 15,000 controllers out of 31,000 employees. The White House could keep the controllers on duty simply by allocating more furlough days to these other non-essential workers. Instead, the FAA is even imposing the controller furlough on every airport equally, not prioritizing among the largest and busiest airports. …ever since Al Gore launched a training initiative to increase the productivity of air traffic controllers in 1998, productivity has continued to fall. A larger workforce is now in charge of a smaller workload as the number of flights has dropped by 23%.

I didn’t realize that controllers were doing less work over time, but I’m not surprised to learn that superfluous bureaucrats at the FAA are being protected.

But the WSJ doesn’t go far enough. My Cato colleague Chris Edwards has a column in the Daily Caller that outlines the inefficiency of the FAA.

The federal budget sequester is interfering with the air traffic control (ATC) system and snarling up air traffic. As usual, politicians are pointing fingers of blame at everybody but themselves. But politicians are the ones who have strapped the ATC system to the chaotic federal budget. And they’re the ones who have insisted on running ATC as a bureaucracy, rather than freeing it to become the high-tech private business that it should be. …Last year Bloomberg reported: “More than one-third of the 30 contracts critical to building a new U.S. air-traffic system are over budget and half are delayed, a government audit concluded.

Chris then takes the logical next step and says the system should be privatized. Which is exactly what happened in his home country of Canada.

To run smoothly and efficiently, our ATC system should be given independence from the government. We should privatize the system, as Canada has done very successfully. …Canada provides an excellent model for U.S. reforms. Canada’s ATC system is run by the nonprofit corporation Nav Canada, which is separate from the government. Like any private business, it raises revenues from its customers to cover its operational costs and capital investments. The company’s financial statements for 2012 show revenues and expenses of $1.2 billion, with $125 million allocated to capital expenditures. Unlike the U.S. system, Nav Canada is self-supporting and not subsidized.

I’ve already written on this topic, citing some good analysis from Canada’s Financial Post, and the evidence is overwhelming that the private system in Canada works much better than the inefficient bureaucracy we have in the United States.

Let’s close with a Michael Ramirez cartoon. The “politics” and “waste” markings are very appropriate.

Lost in this controversy, by the way, is any recognition that sequestration barely makes a dent in the federal budget. There are some small first-year cuts in a few programs, but the wasteful behemoth known as the federal government is barely nicked.

To be more specific, the net effect of the sequester is that the burden of government spending grows by $2.4 trillion over the next 10 years rather than $2.5 trillion.

So don’t pay any attention to the hyperbole and hysteria from the special interest groups in Washington. The sequester is a tiny – and desirable – step in the direction of fiscal responsibility.

Read Full Post »

Early Details Show Obama Will Propose a Bait-and-Switch Budget Plan Containing Higher Taxes and More Spending

Are we about to see a new kinder-and-gentler Obama? Has the tax-and-spend President of the past four years been replaced by a fiscal moderate?

That’s certainly the spin we’re getting from the White House about the President’s new budget. Let’s look at this theme, predictably regurgitated in a Washington Post report.

President Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax hikes than in the past, a conciliatory approach…the document will incorporate the compromise offer Obama made to House Speaker John A. Boehner (R-Ohio) last December in the discussions over the “fiscal cliff” – which included $1.8 trillion in deficit reduction through spending cuts and tax increases. …unlike the Republican budget that passed the House last month, Obama’s budget does not balance within 10 years.

Since America’s fiscal challenge is the overall burden of government spending, I’m not overly worried about the fact that Obama’s budget doesn’t get to balance.

But I am curious whether Obama truly is proposing a “conciliatory” budget. Are the tax hikes smaller? Are the supposed spending cuts larger?

Actually, there are no genuine spending cuts since the President’s budget is based on dishonest baseline budgeting. At best, we’re simply talking about slowing the growth of government.

But since Mitchell’s Golden Rule is based on the very modest goal of having government grow slower than the private sector, it’s possible that Obama may be proposing something worthwhile.

But possible isn’t the same as probable. Indeed, it appears that the budget is predicated on a giant bait-and-switch since the beneficial spending restraint imposed by sequestration would be repealed!

Obama’s budget proposal, however, would eliminate sequestration.

This appears almost as an afterthought in the Washington Post article, but it should be the lead story. The White House wants to get rid of a policy that genuinely limits the growth of spending.

We won’t have the official numbers until the budget is released next Wednesday, but I’ll be very curious to see whether the supposed spending cuts elsewhere in his budget are greater than or less than the spending increases that will occur if sequestration is canceled. Particularly since the President also is proposing lots of new spending on everything from early child education to brain mapping.

Moreover, it seems as though Obama tax numbers are based on dodgy math as well. The White House is claiming that this is a “conciliatory” budget because he’s no longer proposing $1.6 trillion of tax hikes.

The budget is more conservative than Obama’s earlier proposals, which called for $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas. Those changes are in addition to the increased tobacco taxes and more limited retirement accounts for the wealthy that are meant to pay for new spending.

Let’s try to disentangle the preceding passage. The President wants $580 billion of new taxes from “deductions” and “loopholes.” But he also wants an unknown pile of revenue from new tobacco taxes and from restricting IRAs. And keep in mind that he already got $600 billion as part of the fiscal cliff.

Until we get official numbers, we can’t say anything with certainty, but I’ll be checking on Wednesday to see how much revenue the President intends to grab as a result of the tobacco and IRA provisions. Suffice to say that I won’t be surprised if the net impact of all his tax hikes is close to $1.6 trillion. Especially since he’s also proposing to manipulate CPI data, a change that would generate another $100 billion in revenues.

In other words, the revenue side of his budget likely will be a bait-and-switch scam, just like the spending side is a joke once you understand that he wants to get rid of sequestration.

I hope I’m wrong, but I fear that my concerns will be validated next Wednesday and we’ll see another budget that has no real entitlement reform and more class-warfare tax hikes.

P.S. The budget approved by the House of Representatives avoided any tax increases and restrained spending to that it will grow by an average of 3.4 percent annually. Not exactly draconian, but that approach does balance the budget in 10 years.

Read Full Post »

Sequestration’s Impact on HUD: Just 358 More Days and Mission Accomplished

As part of my “Question of the Week” series, I had to decide which department of the federal government was most deserving of abolition.

With a target-rich environment of waste, fraud, and abuse in Washington, that wasn’t an easy question to answer. But I decided to pick the Department of Housing and Urban Development, and I had some good reasons for that choice.

• HUD engages in racism and social engineering.
• Urban renewal projects destroy neighborhoods and foment corruption.
• HUD subsidies are grotesquely wasteful.
• There are epidemic levels of waste, fraud, and abuse at HUD.

Well, thanks to the sequester, we can say that we’ve achieved 1.9 percent of our goal. Here are some blurbs from a Reuters report.

The U.S. Department of Housing and Urban Development on Monday said it plans to shut its doors for a total of seven days between May and September due to budget cuts and will furlough more than 9,000 employees on those days. …The agency will determine the exact shutdown dates at a later time.

The motto of special interests

This is what I call a good start.

You won’t be surprised to learn, though, that the bureaucracy is whining that these tiny cutbacks will have horrible effects.

In cataloging the impact of sequestration to a Senate panel last month, HUD Secretary Shaun Donovan warned lawmakers that the government spending cuts would have harsh consequences for housing programs and could threaten Superstorm Sandy recovery efforts in the U.S. Northeast. “The ripple effects are enormous because of how central housing is to our economy,” Donovan told lawmakers.

Well, I hope that the “cuts” will have “harsh consequences for housing programs.” I’ve read Article I, Section VIII, of the Constitution, and nowhere does it say that housing is a function of the federal government.

And I’ve also explained that disaster relief is not Washington’s responsibility.

Most worthless department in Washington?

Last but not least, I agree that housing is important to our economy. But that’s precisely why I don’t want the federal government involved.

Didn’t we learn from the Fannie Mae/Freddie Mac debacle that bad things happen when the federal government tries to subsidize that sector.

Heck, I don’t even want tax preferences for housing.

No wonder I picked the Department of Housing and Urban Development for the background for my video on bloated and wasteful bureaucracy.

Read Full Post »

My Heart Breaks and Tears Flow When I Read about Sequestration Being a Big Defeat for Lobbyists

I believe in the First Amendment, so I would never support legislation to restrict political speech or curtail the ability of people to petition the government.

That being said, I despise the corrupt Washington game of obtaining unearned wealth thanks to the sleazy interaction of lobbyists, politicians, bureaucrats, and interest groups.

So you can imagine my unfettered joy when reading about how this odious process is being curtailed by sequestration. Here are some cheerful details from story in Roll Call.

…sequester cuts…reflect not only Washington’s political paralysis but a bitter lobbying failure for K Street interests across the board. From university professors and scientists to cancer victims, defense contractors and federal workers, hundreds of advocacy, trade and labor groups have lobbied aggressively for months to head off the cuts. They’ve run ads, testified on Capitol Hill, staged demonstrations and hounded lawmakers, all to no avail. …the path forward could be a lobbying nightmare.

Reading the story, I recalled a Charles Addams cartoon from my childhood. Thanks to the magic of Al Gore’s Internet, I found it.

Slightly modified to capture my spirit of elation, here it is for you to enjoy.

Except I like to think I’m a bit more prepossessing than the Uncle Fester character, but let’s not get hung up on details.

What matters is that sequestration was a much-needed and very welcome victory for taxpayers. Obama suffered a rare defeat, as did the cronyists who get rich by working the system.

To be sure, all that we’ve achieved is a tiny reduction in the growth of federal spending (the budget will be $2.4 trillion bigger in 10 years rather than $2.5 trillion bigger). But a journey of many trillions of dollars begins with a first step.

Read Full Post »

As Humorously Explained by Henry Payne, the World Amazingly Didn’t End When Uncle Sam Got Put on a Sequester Diet

When I last checked, Henry Payne was winning the bronze medal in the contest to identify the best political cartoonist.

You can see why by checking out this cartoon about Washington’s reaction to sequestration, which (gasp!) slightly slows the growth of the federal budget so that it is only $2.4 trillion bigger 10 years from now rather than $2.5 trillion bigger.

What makes the cartoon so effective is not just the humor, but also the fact that it makes clear that government is too big and it also debunks the Keynesian notion that bad things will happen if we have even an itsy-bitsy degree of fiscal discipline.

Read Full Post »

Challenge for Keynesian Anti-Sequester Hysterics: Why Did America’s Economy Boom When Reagan and Clinton Reduced the Burden of Spending?

Triggered by an appearance on Canadian TV, I asked yesterday why we should believe anti-sequester Keynesians. They want us to think that a very modest reduction in the growth of government spending will hurt the economy, yet Canada enjoyed rapid growth in the mid-1990s during a period of substantial budget restraint.

I make a similar point in this debate with Robert Reich, noting that  the burden of government spending was reduced as a share of economic output during the relatively prosperous Reagan years and Clinton years.

Being a magnanimous person, I even told Robert he should take credit for the Clinton years since he was in the cabinet as Labor Secretary. Amazingly, he didn’t take me up on my offer.

Anyhow, these two charts show the stark contrast between the fiscal policy of Reagan and Clinton compared to Bush..

And there’s lots of additional information comparing the fiscal performance of various presidents here, here, and here.

For more information on Reagan and Clinton, this video has the details.

Which brings us back to the original issue.

The Keynesians fear that a modest reduction in the growth of government (under the sequester, the federal government will grow $2.4 trillion over the next 10 years rather than $2.5 trillion) will somehow hurt the economy.

But government spending grew much slower under Reagan and Clinton than it has during the Bush-Obama years, yet I don’t think anybody would claim the economy in recent years has been more robust than it was in the 1980s and 1990s.

And if somebody does make that claim, just show them this remarkable chart (if they want to laugh, this Michael Ramirez cartoon makes the same point).

So perhaps the only logical conclusion to reach is that government is too big and that Keynesian economics is wrong.

I don’t think I’ll ever convince Robert Reich, but hopefully the rest of the world can be persuaded by real-world evidence.

Read Full Post »

Thomas Sowell Exposes Dishonest Budgetary Scare Tactics and Cartoonists Mock Obama’s Hysteria

Public finance experts are quite familiar with the budgetary shenanigans of cossetted government bureaucracies.

They even have terms to describe how agencies and departments try to manipulate outcomes by claiming that any requirement for fiscal restraint will necessitate cuts to the most politically popular parts of the budget.

• The “fireman first principle” – Describes how local government bodies (often coordinating with local politicians) will claim that firemen will have to be laid off and/or firehouses will have to close if there is any budgetary discipline. You can replace firefighters with cops or teachers if you want. The key point is to divert attention from the countless ways that local governments waste money by focusing on the few things that voters actually care about.
• The “Washington Monument syndrome” – Based on a real-world example during the 1970s of the National Park Service claiming it would have to shut down tourist access to popular Washington-area sites if it was subject to fiscal restraint, the modern-day equivalent is President Obama scaring people with hysterical assertions about threats to food safety and airline operations.

Thomas Sowell clearly understands this racket.

Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do? The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.

Bingo. Bulls-eye. A perfect analysis of bureaucratic incentives and public-choice economics.

Sowell then describes what’s now happening in Washington.

The Obama administration is following the same pattern. The Department of Homeland Security, for example, released thousands of illegal aliens from prisons to save money — and create alarm. The Federal Aviation Administration says it is planning to cut back on the number of air traffic controllers, which would, at a minimum, create delays for airline passengers, in addition to fears for safety that can create more public alarm. …it serves Obama’s interest to maximize the damage and the public alarm, which he can direct against Republicans. President Obama has said that he would veto legislation to let him choose what to cut. That should tell us everything we need to know about the utter cynicism of this glib man.

The political cartoonists also are having a field day making fun of Obama’s silly demagoguery.

Let’s start with Michael Ramirez. You can see why he’s currently leading in the best-cartoonist poll.

Nate Beeler also has a good contribution to the debate. The President is acting like the world is going to end because spending is going to be “slashed” by 1.2 percent, which means – gasp! – that spending will “only” grow by $2.4 trillion over the next 10 years.

Yet somehow Armageddon has not occurred.

Indeed, the worst possible outcome for Obama and the other statists is that people notice zero negative impact when spending is restrained.

This Steve Kelley cartoon is very appealing to me because it shows the President going after the sequester when the real problem is an excessive burden of government spending.

Last but not least, we have a very good Scott Stantis cartoon.

The Stantis cartoon is particularly insightful because the GOP has won the battle, but the war is not over.

As I noted yesterday, Obama will have several additional opportunities to undo the sequester savings.

Thomas Jefferson was right when he warned that “eternal vigilance is the price of liberty.”

P.S. You can enjoy more sequester cartoons here, here, and here.

Read Full Post »

Challenge for Keynesian Anti-Sequester Hysterics: Why Did Canada’s Economy Boom When the Burden of Spending Was Sharply Reduced?

In this appearance on Canadian TV, I  debunk anti-sequester hysteria, pointing out that “automatic budget cuts” merely restrain government so that it grows $2.4 trillion over the next 10 years rather than $2.5 trillion.

I also point out that we shouldn’t worry about government employees getting a slight haircut since federal bureaucrats are overcompensated. Moreover, I warn that some agencies may deliberately try to inconvenience people in an attempt to extort more tax revenue.

But I think the most important point in the interview was the discussion of what happened in Canada in the 1990s.

This example is important because the Obama White House is making the Keynesian argument that a smaller burden of government spending somehow will translate into less growth and fewer jobs.

Nobody should believe them, of course, since they used this same discredited theory to justify the so-called stimulus and all their predictions were wildly wrong.

But the failed 2009 stimulus showed the bad things that happen when government spending rises. Maybe the big spenders want us to think the relationship doesn’t hold when government gets put on a diet?

Well, here’s some data from the International Monetary Fund showing that the Canadian economy enjoyed very strong growth when policymakers imposed a near-freeze on government outlays between 1992 and 1997.

For more information on this remarkable period of fiscal restraint, as well as evidence of what happened in other nations that curtailed government spending, here’s a video with lots of additional information.

By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts.

The result? Growth has recovered and these nations are doing much better than the European countries that decided that big tax hikes and/or Keynesian spending binges were the right approach.

Paul Krugman, not surprisingly, got this wrong.

Read Full Post »

Obama Suffers a Painful Loss in the First Big Fiscal Battle of His Second Term

The statist agenda of ever-growing government requires more money going to Washington, which is why I think that proponents of limited government should do everything they can to block tax increases.

This is the “starve the beast” theory, and I’ve previously explained why I think it is a necessary part of any long-run strategy to restrain the burden of government spending.

He would never admit it, but Obama seems to agree, which is why he is dogmatically fixated on doing everything he can to seduce Republicans into supporting higher taxes.

But he miscalculated in thinking that the fiscal cliff tax hike somehow meant that he had permanently neutered the GOP, and he definitely goofed when he tried to use the sequester as a weapon to bully Republicans into another tax hike.

Ignoring the President’s hyperbole about the supposed catastrophic effects of a very modest reduction in the growth of the federal budget, Republicans have held firm.

And the President has suffered a painful political and policy defeat.

Here’s some of what was reported in The Hill about the President’s attitude.

The first months of President Obama’s second term are being built around a simple premise: No caving. …Obama is in an ultra-assertive mood, practically daring Republicans to defy his wishes. …Obama’s attitude is more akin to that of a general leading his forces into battle, confident that he can decimate the enemy. …On the sequester, for instance, Obama did little more than pay lip-service to the idea of a last-minute compromise to avert the package of cuts.

Well, Republicans did “defy his wishes” and it’s the worst possible outcome for the President. The growth of spending is being slowed and taxes are not going up.

Democrats on Capitol Hill also thought that the fiscal cliff tax hike would be a precedent for lots of future tax hikes. As reported by Politico, their analysis was misguided.

Democrats toasted the New Year’s fiscal cliff deal with the belief that they had set a crucial new precedent: Tax hikes would be part of any future deficit reduction package. Two months later, the champagne buzz is wearing off. …the exuberance expressed by many Democrats at the beginning of the year was misplaced. Efforts to avert the sequester never achieved liftoff, and Democrats are realizing that new tax revenues are off the table for the immediate future. …“We’ve tried everything we can,” Senate Majority Leader Harry Reid (D-Nev.) told reporters Thursday. “They will not budge on anything dealing with revenue.”

Byron York has the best analysis, explaining in his Washington Examiner column that Obama gambled and (at least so far) lost.

Nine months ago, Barack Obama likened his Republican opposition to an illness. If he could just defeat Mitt Romney, Obama said, then the illness might subside. “I believe that if we’re successful in this election — when we’re successful in this election — that the fever may break,” Obama told a fundraiser in Minneapolis last June. After Obama won re-election, there was extensive discussion among his supporters about whether the Republican “fever” would, in fact, break.

But this strategy appears to have boomeranged. Byron thinks that the White House is now in a weak position.

There was little speculation about whether something quite different might happen: Would determined GOP opposition break Obama’s fever?  That is, could Republicans weaken the president’s resolve to defeat the GOP and further raise taxes? That appears to be what has occurred, at least for the moment. …Friday morning, Obama seemed resigned to the possibility that he cannot win the further tax increases he seeks, and that after enlisting his entire administration in a campaign to frighten Americans about sequestration, the cuts have become a reality that he has to acknowledge.

While I’m glad the President goofed, I’m not under any illusion that winning a battle is the same thing as winning a war.

It’s quite possible that the modest sequester savings will be undone as part of the “continuing resolution” legislation to fund the federal government between March 27 and the rest of the fiscal year.

There will also be a debt limit fight later in the Spring, which will give proponents of bigger government another bite at the apple (though it’s a double-edged sword since advocates of limited government also can use the debt limit as a vehicle for reform).

And the President obviously won’t give up on his campaign for higher taxes. I worry that he’ll trick gullible GOPers into a tax hike at some point, either as part of a Trojan Horse tax reform or as part of a budget summit that produces something like Bowles-Simposon, a package of real tax hikes and illusory entitlement reforms.

But we can fight those battles down the road. Today, let’s enjoy the sweet smell of victory.

Read Full Post »

Excellent Sequester Cartoons

I shared some sequester cartoons last month, but I didn’t think they hit the nail on the head.

As regular readers know, I want the message to be focused.

1. The problem is spending, not deficits.
2. Government is too big.
3. The sequester is a good thing, albeit too small.
4. Obama and the other politicians are engaging in hysterical hyperbole to protect special-interest spending.

I think that message is slowly sinking in, which is why I was much happier about the next batch of sequester cartoons.

Now we have an embarrassment of riches. Enjoy (and widely share) this set of cartoons.

We’ll start with Michael Ramirez, who uses pie charts to show how much bigger government is today and how the sequester is just crumbs.

And here’s one from Ed Gamble showing the President engaging in fear tactics, though both Ramirez and Gamble are wrong about the “cuts.” The sequester cuts $85 billion of “budget authority,” but that translates into only $44 billion of “budget outlays.”

That’s just 1.2 percent of FY2013 spending. And remember that this means spending will still go up compared to FY2012 – as I explained in my most recent interview.

Here’s a cartoon from Gary Varvel, which is quite similar to an excellent cartoon he produced last year.

Here’s one from Glenn McCoy, poking fun at Obama for taking everything in stride…except when something happens to threaten the amount of waste in Washington.

I’m especially fond of this Glenn Foden cartoon since I’m sick and tired of the absurd hyperbole from the interest groups in DC.

Makes me wish I could bop a few Chicken Little characters on the head.

Here’s one from A.F. Branco, which I also like because it simultaneously mocks Obama’s Keynesian mindset while showing that the real danger is an ever-rising burden of government spending.

Last but not least, Lisa Benson makes fun of Obama for his never-ending efforts to instill panic.

Let’s keep our fingers crossed that the sequester happens on March 1. Then, even if the Obama Administration deliberately tries to cause inconvenience for the American people, we’ll see that the world doesn’t come to an end.

Who knows, maybe that will even lead lawmakers to think they can impose some real fiscal restraint, as we’ve recently seen in countries like Estonia and in the 1990s by nations such as Canada and New Zealand.

Read Full Post »

Slaying the Make-Believe Sequester Monster

I’m normally not a fan of the media, but every so often you find examples of real journalism. Here are some powerful, well-done stories from local TV stations.

1. Exposing the plethora of benefits available to those who want government-subsidized idleness.
2. Exposing how eminent domain laws are used to screw poor people out of their property.
3. Exposing local government officials engaged in a witch hunt against an innocent man.

Newspapers also sometimes speak truth to power.

1. A Michigan newspaper exposing how motorists were getting ripped off by illegal speed limits.
2. A Pennsylvania newspaper exposing how a local bureaucrat  union tried to stop a boy scout from improving a local park.
3. A New York newspaper exposing the education establishment for giving teachers $100,000-plus salaries for doing nothing.

Now I can add another story to the list. A local TV station in Washington, DC (with a viewing audience of countless overpaid bureaucrats) had the courage to run a story debunking sequester hysteria.

I’m partial to this report for the obvious reason that it featured me.

But even if this story didn’t use any of my soundbites, it would still be worth sharing because it’s not often that you see a reporter explain Washington’s dishonest way of measuring “spending cuts.”

I’ve complained about that sleazy tactic while appearing with John Stossel and Judge Napolitano, but I didn’t think a regular journalist would ever expose the scam.

The latter part of the report focuses on the potential impact of sequestration on the defense budget.

I’ve previously explained that the defense budget is disproportionately impacted, but I’ve also cited Cato’s military experts when arguing that our national security will not be endangered.

Indeed, military spending will be higher at the end of the 10-year period than it is today.

Now I want to share this amazing info-graphic prepared by Zach Graves, another Cato colleague.

A thorough and compelling collection of data. It belongs in the visual-impact Hall of Fame with these gems.

• The crippling fiscal cost of the welfare state – but how little of the money trickles down to the poor.
• Exposing Obama’s miserable jobs performance.
• The importance of saving and investment if we want workers to enjoy higher wages.
• The TSA’s Orwellian (and incompetent) approach to airline security.
• Showing how the burden of government spending has exceeded the growth of the economy’s productive sector.

Read Full Post »

Earth to New York Times: Please Show Us these “Deep Spending Cuts” You Keep Writing About

Sigh. I feel like a modern-day Sisyphus. Except I’m not pushing a rock up a hill, only to then watch it roll back down.

Compared to educating journalists about fiscal policy, this is an easy task

I have a far more frustrating job. I have to read the same nonsense day after day about “deep spending cuts” even though I keep explaining to journalists that a sequester merely means that spending climbs by $2.4 trillion over the next 10 years rather than $2.5 trillion.

The latest example comes from the New York Times, which just reported about “deep automatic spending cuts that will strike hard” without bothering to provide a single concrete number about spending levels in any fiscal year.

Yes, you read correctly. A story about budget cuts did not have any numbers for spending in FY2013, FY2014, or any other fiscal year.

So, for the umpteenth time, here are the actual numbers from the Congressional Budget Office showing what will happen to spending over the next 10 years if we have a sequester.

I don’t mean to pick on the New York Times. Yes, the self-styled paper of record has been guilty in the past of turning budget increases into spending cuts, but the Washington Post is guilty of the same sin, having actually written in 2011 that reducing a $3.8 trillion budget by $6 billion would “slash spending.”

And the NYT story actually has some decent reporting on how Republicans so far have (fingers crossed) avoided the tax-increase trap that Obama thought the sequester would create.

But one would still like to think that Journalism 101 teaches reporters to include a few hard facts when writing stories. Particularly if they’re going to use dramatic adjectives to describe what supposedly will happen.

Anyhow, this is just part of a larger problem. As I explained in these John Stossel and Judge Napolitano interviews, the politicians and interest groups have given us a budget process that assumes ever-increasing spending levels, which then allows them to make hysterical claims about “savage” and “draconian” cuts whenever spending doesn’t rise as fast as some hypothetical baseline.

This is why almost nobody understands that it’s actually relatively simple to balance the budget with a modest bit of spending restraint. My goal is reducing the burden of government spending, not fiscal balance, but it’s worth noting that we’d have a balanced budget in just 10 years if spending grew by “only” 3.4 percent annually.

Read Full Post »

Debunking Sequester Hysteria from the Big Spenders in Washington

I shared a couple of amusing sequester cartoons the other day, and I’ve previously written about the absurdity of anti-sequester hysteria in Washington when all it means is that the federal budget will grow by $2.4 trillion over the next 10 years rather than $2.5 trillion.

This Nate Beeler cartoon effectively captures the mindset of Washington’s big spenders.

Let’s take a serious look at this topic.

George Will is appropriately disgusted by the antics of the political class. Here’s some of his column on the topic.

The sequester has forced liberals to clarify their conviction that whatever the government’s size is at any moment, it is the bare minimum necessary to forestall intolerable suffering. At his unintentionally hilarious hysteria session Tuesday, Obama said: The sequester’s “meat-cleaver approach” of “severe,” “arbitrary” and “brutal” cuts will “eviscerate” education, energy and medical research spending. “And already, the threat of these cuts has forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf.”

Will elaborates on the Navy’s shameful  stunt.

“Forced”? The Navy did indeed cite the sequester when delaying deployment of the USS Truman. …the Navy is saying it cannot find cuts to programs or deployments less essential than the Truman deployment. The Navy’s participation in the political campaign to pressure Congress into unraveling the sequester is crude, obvious and shameful, and it should earn the Navy’s budget especially skeptical scrutiny by Congress. The Defense Department’s civilian employment has grown 17 percent since 2002. In 2012, defense spending on civilian personnel was 21 percent higher than in 2002. And the Truman must stay in Norfolk? This is, strictly speaking, unbelievable.

Will also comments on the Keynesian economic theory being used to fight against sequestration.

Obama, who believes government spends money more constructively than do those who earn it, warns that the sequester’s budgetary nicks, amounting to one-half of 1 percent of gross domestic product, will derail the economy. A similar jeremiad was heard in 1943 when economist Paul Samuelson, whose Keynesian assumptions have trickled down to Obama, said postwar cuts in government would mean “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” Federal spending did indeed shrink an enormous 40 percent in one year. And the economy boomed.

Amen. I’ve already cited a Cato study on this topic, which shows that the Keynesians were wildly wrong in their predictions of post-war economic collapse.

And the Wall Street Journal also has opined on this topic, showing not only that lawmakers wisely rejected another round of Keynesian foolishness, but also that post-war tax cuts were one of the reasons why the economy quickly rebounded.

Let’s close with some more mockery of the clowns in Washington.

This Gary Varvel cartoon shows what’s happening, though I’ve would have drawn Chicken Little to resemble Obama.

But what about the second frame of the cartoon? If the sequester happens, will the statists be forced to admit that they were creating false fears in hopes of protecting their spots at the federal trough?

As reported in the Washington Post, one of them is very worried about this possible outcome.

“…The bad news is, the world doesn’t end March 2,” said Emily Holubowich, a Washington health-care lobbyist who leads a coalition of 3,000 nonprofit groups fighting the cuts. “The worst-case scenario for us is the sequester hits and nothing bad really happens. And Republicans say: See, that wasn’t so bad.”

Since the sequester takes effect on March 1, we’ll soon find out.

Some bureaucracies will deliberately try to make the sequester as inconvenient and painful as possible for the American people. As I said in this Larry Kudlow interview, the heads of those agencies should be fired.

Of course, Obama will probably try to reward them, but those who favor responsible fiscal policy should do everything possible to expose the shameful game being played by these political hacks.

Read Full Post »

Sequester Cartoons

I’ve previously shared some very good “government-shutdown” jokes, and also two superb cartoons on that topic from the 1990s.

So I guess it was only a matter of time before we got some cartoons about sequestration.

But I don’t like most of them because they imply sequestration is a bad thing.

But this Lisa Benson cartoon is worth sharing if for no other reason that it calls attention to the fact that people are myopically fixating on a very small sequester while ignoring a giant long-run entitlement problem.

The good news, for what it’s worth, is that the House of Representatives voted for good entitlement reform in 2011 and 2012. So it’s theoretically possible that we may deal with that meteor before it causes a Greek-style meltdown at some point in the future.

I also like this next cartoon, produced by Jerry Holbert, because it shows Uncle Sam as a big fat slob.

The obvious implication is that government is too big and needs to be put on a diet, with is the same theme we get with this cartoon about redistribution, this cartoon about the VAT., and these cartoons about Obama’s agenda.

The problem, of course, is that the sequester is too small. But at least this cartoon suggests that the problem is too much government spending and that Uncle Sam needs to lose some weight.

Enjoy, and please share widely.

Read Full Post »

Will GOP Fumble Away Guaranteed Sequester Victory?

Notwithstanding hysterical rhetoric from the White House, the bureaucracies, and the various pro-spending lobbies in Washington, the sequester does not mean “vicious” or “draconian” spending cuts.

I wish that was the case.

All it does is restrain spending so that it grows by $2.4 trillion over the next 10 years rather than $2.5 trillion. We need a much greater degree of fiscal discipline to address the long-term spending crisis – including some real entitlement reform.

But the sequester is certainly better than doing nothing.

My concern, though, is that feckless and incompetent Republicans will fumble away victory. I explain in this Larry Kudlow interview that “doing nothing” is the right approach since the sequester happens automatically, but I’m worried that this very modest step in the right direction will be eroded as part of subsequent spending bills.

On a related note, Byron York of the Washington Examiner is rather perplexed by the GOP’s sequester strategy, which is based on the inconsistent message that it should happen, but that it’s bad.

Boehner calls the cuts “deep,” when most conservatives emphasize that for the next year they amount to about $85 billion out of a $3,600 billion budget.  Which leads to another question: Why would Boehner adopt the Democratic description of the cuts as “deep” when they would touch such a relatively small part of federal spending? The effect of Boehner’s argument is to make Obama seem reasonable in comparison. After all, the president certainly agrees with Boehner that the sequester cuts threaten national security and jobs.  The difference is that Obama wants to avoid them.  At the same time, Boehner is contributing to Republican confusion on the question of whether the cuts are in fact “deep” or whether they are relatively minor. Could the GOP message on the sequester be any more self-defeating?

My two cents is that fiscal conservatives should argue that sequestration isn’t the ideal way to trim the burden of government spending, but that it’s the only option since President Obama is refusing to look at any alternatives unless they are based on class-warfare tax hikes and phony entitlement gimmicks.

What really matters, though, is in the driver’s seat in this battle. They can win…but only if they want to.

Every so often, I issue imperious edicts about things that Republicans should do to demonstrate that they genuinely support limited government.

1. No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.
2. To stop bailouts for Europe’s decrepit welfare states, no more money for the International Monetary Fund.
3. Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.
4. No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.
5. Defund the crony capitalists at the Export-Import Bank.

I’m not naive enough to think that GOPers actually care about my demands, but I certainly think the sequester is a “gut-check” moment for Republicans.

If they capitulate to Obama in the short run, or if they wipe out the sequester savings as part of subsequent spending bills, that will be a very dismal sign that the folks who came to DC thinking it was a cesspool have instead decided that it’s really a hot tub.

Read Full Post »

The Sequester Should Be Embraced, not Feared

The looters and moochers in Washington are increasingly agitated by the prospect of sequestration.

Automatic budget cuts, we are told, will indiscriminately slash vital programs and undermine economic growth by reducing government spending.

This is utter bunk. I would like to “slash vital programs,” but the chart I prepared earlier this week shows that the federal budget will expand by $2.4 trillion if a sequester occurs.

So the net effect of sequestration, as I explain in this Larry Kudlow segment on CNBC, is that the federal budget won’t expand by $2.5 trillion.

I did this interview from London, by the way, where is was past midnight, so I hope you’ll forgive me for looking a bit groggy at the very beginning.

But I think I did a decent job once the juices started flowing, though it’s hard to have an argument with someone who still believes in the snake-oil of Keynesian economics.

It’s sort of like having a debate about sailing with someone who thinks the earth if flat. Just like Krugman, Bernstein seems to reflexively think that it’s always a good idea to have a higher burden of government spending. So a sequester is a bad idea if you have this mindset, just like it would be a bad idea to sail off the edge of the earth.

The Wall Street Journal recently opined on this issue and was appropriately dismissive of the hysterical anti-sequester rhetoric coming from Washington.

Washington is in a fit of collective terror over the “sequester,” aka the impending across-the-board spending cuts. …Mr. Obama warned about “the threat of massive automatic cuts that have already started to affect business decisions.” He proposed tax increases and “smaller” spending cuts to replace the sequester… listening to his cries of “massive” cuts is like watching “Scary Movie” for the 10th time. You know it’s a joke.

Indeed, I suspect that many Democrats realize it is a joke. But they see the federal budget as a mechanism for buying votes with other people’s money.

Many GOPers see the budget from the same perspective, but fortunately they are constrained by their no-tax-hike pledges, so they Republicans at least are pretending to be on the right side of this fight.

Republicans have rightly concluded after two years of being sucker-punched that the sequester is the main negotiating leverage they have and may be the only way to restrain spending. So now Democrats and a gaggle of interest groups are denouncing Mr. Obama’s fiscal brainchild because the programs they cherish—from job training to education, to the EPA and energy subsidies, to money for Planned Parenthood—are about to get chopped too. Fear not. As always in Washington when there is talk of cutting spending, most of the hysteria is baseless. The nearby table from the House Budget Committee shows that programs are hardly starved for money. In Mr. Obama’s first two years, while private businesses and households were spending less and deleveraging, federal domestic discretionary spending soared by 84% with some agencies doubling and tripling their budgets.

The WSJ shares my disdain for the Keynesian argument, and they explain that the last period of strong growth took place during the late 1990s, when Bill Clinton and the GOP Congress substantially reduced the burden of federal spending.

The most disingenuous White House claim is that the sequester will hurt the economy. Reality check: The cuts amount to about 0.5% of GDP. The theory that any and all government spending is “stimulus” has been put to the test over the last five years, and the result has been the weakest recovery in 75 years and trillion-dollar annual deficits. The sequester will help the economy by leaving more capital for private investment. From 1992-2000 Democrat Bill Clinton and (after 1994) a Republican Congress oversaw budgets that cut federal outlays to 18.2% from 22.1% of GDP. These were years of rapid growth in production and incomes. The sequester will surely require worker furloughs and cutbacks in certain nonpriority services. But most of those layoffs will happen in the Washington, D.C. area, the recession-free region that has boomed during the Obama era.

I can’t resist augmenting the final point is this excerpt. It’s not just that Washington, DC, has become a “recession-free region.”

The federal metropolis now has the biggest concentration of America’s richest counties. The lobbyists, politicians, interest groups, and overpaid bureaucrats are living very nice lives at our expense.

So let’s not just have a sequester. Let’s joyfully embrace it.

P.S. In the Kudlow debate, Jared was right about CBO’s position. This, of course, is one of the reasons why the GOP should de-fund this ideologically biased bureaucracy.

P.P.S. Just as the U.S. enjoyed strong growth when spending was restrained in the 1990s, other nations had very positive results when they capped or froze government spending.

P.P.P.S. By contrast, here are the nations that enjoyed good results with Keynesian policy.

Read Full Post »

Exposing the Absurdity of Washington’s Anti-Sequester Hysteria

To save America from the supposedly “savage” and “draconian” budget cuts caused by sequestration, President Obama has instead asked Congress to approve an alternative fiscal package containing additional tax increases.

So why is the sequester so bad? Does it slash the budget by 50 percent? Does it shut down departments, programs, and agencies?

Sounds good to me. We need to reduce the burden of government spending, so some genuine budget cuts would be very desirable.

The pro-spending lobbies in Washington certainly are acting as if spending would be “cut to the bone.” As documented by my colleague Tad DeHaven, they’re claiming horrible things will happen.

So what’s the real story? Well, the Congressional Budget Office today released its annual Budget and Economic Outlook, and Tables 1-1 and 1-5 allow us to see the “brutal” impact of the sequester.

As you can see from this chart, the sequester will “cut” spending so much that the budget will grow by “only” $2.4 trillion over the next 10 years.

Rather anticlimactic, I admit. No widows dying in snowbanks. No blood flowing in the streets.

So you can let the women and children back in the room. It turns out that all the hyperbole and hysteria about the sequester is based on the dishonest Washington definition of a budget cut – i.e., when spending doesn’t rise as fast as projected in some artificial baseline.

Yes, some parts of the budget are disproportionately impacted, such as defense. But even the defense budget climbs over the 10-year period and the United States will still account for close to 50 percent of global military outlays when the dust settles.

The bottom line is that there’s no reason to worry about the sequester and there’s certainly no reason to go along with Obama’s plan to replace the sequester with a tax-heavy budget deal.

Read Full Post »

The Sequester May Not Be “Fair,” but It’s Real and It Would Slow the Growth of Government

Much to the horror of various interest groups, it appears that there will be a “sequester” on March 1.

This means an automatic reduction in spending authority for selected programs (interest payments are exempt, as are most entitlement outlays).

Just about everybody in Washington is frantic about the sequester, which supposedly will mean “savage” and “draconian” budget cuts.

If only. That would be like porn for libertarians.

In reality, the sequester merely means a reduction in the growth of federal spending. Even if we have the sequester, the burden of government spending will still be about $2 trillion higher in 10 years.

The other common argument against the sequester is that it represents an unthinking “meat-ax” approach to the federal budget.

But a former congressional staffer and White House appointee says this is much better than doing nothing.

Here’s some of what Professor Jeff Bergner wrote for today’s Wall Street Journal.

You know the cliché: America’s fiscal condition might be grim, but lawmakers should avoid the “meat ax” of across-the-board spending cuts and instead use the “scalpel” of targeted reductions. …Targeted reductions would be welcome, but the current federal budget didn’t drop from the sky. Every program in the budget—from defense to food stamps, agriculture, Medicare and beyond—is in place for a reason: It has advocates in Congress and a constituency in the country. These advocates won’t sit idly by while their programs are targeted, whether by a scalpel or any other instrument. That is why targeted spending cuts have historically been both rare and small.

Bergner explains that small across-the-board cuts are very reasonable.

The most likely way to achieve significant reductions in spending is by across-the-board cuts. Each reduction of 1% in the $3.6 trillion federal budget would yield roughly $36 billion the first year and would reduce the budget baseline in future years. Even with modest reductions, this is real money. …let’s give up the politically pointless effort to pick and choose among programs, accept the political reality of current allocations, and reduce everything proportionately. No one program would be very much disadvantaged. In many cases, a 1% or 3% reduction would scarcely be noticed. Are we really to believe that a government that spent $2.7 trillion five years ago couldn’t survive a 3% cut that would bring spending to “only” $3.5 trillion today? Every household, company and nonprofit organization across America can do this, as can state and local governments. So could Washington.

And he turns the fairness argument back on critics, explaining that it is a virtue to treat all programs similarly.

Across-the-board federal cuts would have to include all programs—no last-minute reprieves for alternative-energy programs, filmmakers or any other cause. All parties would know that they are being treated equally. Defense programs, food-stamp recipients, retired federal employees, the judiciary, Social-Security recipients, veterans and members of Congress—each would join to make a minor sacrifice. It would be a narrative of civic virtue.

It’s worth noting, however, that the sequester would not treat all programs equally. Defense spending is only about 20 percent of the budget, for instance, yet the Pentagon will absorb 50 percent of the savings (though defense spending still increases over the next 10 years).

At the risk of oversimplifying, the sequester basically applies to so-called discretionary spending. So-called mandatory spending accounts for a majority of federal spending, but it is largely exempt, so entitlement reform will still be necessary if we want to address the nation’s long-run fiscal challenges.

To close, Bergner notes that “meat-ax” isn’t the right term to describe very small across-the-board cuts.

Talk of axes versus scalpels is designed to deflect reform. Whatever carefully targeted budget cuts might animate our dreams, the actual world of divided government suggests only one realistic way to achieve real spending reductions. It is not a meat ax. A scalpel that shaves a bit off all programs equally would work just fine.

In other words, the sequester is simply a very modest step in the right direction.

And while we should be radically downsizing the federal government, it’s worth reiterating that modest steps are capable of yielding big results.

Simply restraining the budget so that it grows 2.5 percent annually, for instance, is all that would be needed to balance the budget in 10 years. Not big budget cuts. Not small budget cuts. Just a bit of measly fiscal restraint.

Yet President Obama thinks that’s asking too much and instead wants ever-higher taxes to support an ever-growing government.

Read Full Post »

In a Debate for U.S. News & World Report, I Argue Obama’s Plan Is Worse than the Fiscal Cliff

I took part today in a nine-person debate on the fiscal cliff for U.S. News & World Report. We were all asked, “Is Going Over the ‘Fiscal Cliff’ Necessarily the Worst Outcome?”

I said “no” because there are worse options, and I specifically explained that Obama’s class warfare agenda is even more destructive.

Readers are allowed to vote up or down on each presentation, so I’ll be curious about the outcome.

Here are some of the key excerpts from my contribution to the debate, including a defense of the sequester and a very important point at the end about the Laffer Curve.

America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. …anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing. The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains. …that fiscal cliff would be bad news, it’s not the worst possible outcome. President Barack Obama has proposed a class-warfare plan that would repeal the sequester and maintain—and exacerbate—the tax hikes on the so-called rich. …But it gets worse. Obama wants to double the size of the soak-the-rich tax hikes, thus maximizing the potential harm to job creation. In other words, not just the automatic tax increases, but then additional tax hikes on top of that—all designed to penalize success and innovation. If Obama prevails, he’ll be rewarded for dogmatism, but he won’t find a pot of gold at the end of the class-war rainbow. Successful taxpayers will adjust their behavior in ways that reduce taxable income, which means the government won’t get much money even though it will impose a lot of damage.

Since I had only limited space for my essay, let me briefly elaborate by stating that the fiscal cliff is not the right outcome. As I explained in a column for the New York Daily News, the best option would be to keep the sequester and make all the tax cuts permanent.

Will GOP sheep accept Obama’s bad fiscal-cliff proposal?

But if I have to choose between the maximum destructiveness of Obama’s approach and the routine nastiness of the fiscal cliff, then I’ll take the latter.

By the way, if my subtle hint from above wasn’t sufficiently blunt, I’ll close by emphasizing that your support would be most welcome and highly appreciated. So don’t be bashful about going to this link and voting your conscience (unless, of course, you’re a statist, in which case you should keep reading this blog until you’ve cast out that demon).

I’ve prevailed in previous debates on makers-v-takers, double taxation, European fiscal policy, flat tax, Internet taxation, and Obamanomics. With your support, I can keep that good streak alive.

P.S. The only good cartoons I’ve seen about the fiscal cliff can be seen here and here.

Read Full Post »

The Simple Solution to the Fiscal Cliff

Augmented by some amusing cartoons, I’ve already warned that the hysteria about the fiscal cliff is basically a ploy by the politicians to extract more revenue to finance bigger government.

Obama Fiscal Manual

Elaborating on this concern, I wrote a column for today’s New York Daily News. I started with a description of the three issues that are getting lumped together.

…we face the threat of higher tax rates for some or all taxpayers on Jan. 1. …there’s also a possibility of a “sequester” — automatic budget cuts that also are scheduled to take place on Jan. 1. And politicians have been spending so much money that we’re about to bump up against the nation’s debt limit. So it’s likely that all these issues will get joined as President Obama and congressional leaders attempt to negotiate a deal.

I then outlined what might happen if the 2001 and 2003 tax cuts expire.

The higher tax rate portion of the fiscal cliff exists because 2001 and 2003 tax cuts are scheduled to expire at the end of the year. All taxpayers would see more of their earnings confiscated by the IRS beginning in January if Washington fails to act. All tax brackets would increase, taxes on dividends and capital gains would rise… The total yearly hike would be in the range of $400 billion. This could have profound implications, both because of immediate reductions in take-home pay and the negative long-run impact of economic stagnation.

And I explained how the problem should be solved, but warned that the biggest stumbling block is President Obama’s fixation on class-warfare tax policy.

Many are worried about these potential changes, with Congressional Budget Director Doug Elmendorf warning that Americans should expect a “significant recession” and the loss of some 2 million jobs. From my point of view, all the tax cuts should be made permanent. The bad news, to me, is that Obama wants to raise rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. The sequester should be replaced by a more targeted set of fiscal reforms to restrain the growth of the entitlement state. Finally, the debt limit should be raised in exchange for a workable and enforceable cap on government spending.

I originally included an explanation of why the CBO estimate is flawed because of Keynesian methodology, but those sentences fell victim to space constraints. Nonetheless, it’s worth noting that even folks on the left think big tax hikes aren’t a good idea (though they’re perfectly happy to have a series of small tax hikes that get you to the same Greek destination).

But set that aside. Is there any chance of seeing my solution adopted? Well, there’s no chance of a spending cap. The sequester will be stopped, but it won’t be replaced by better reforms.

The great unknown is what will happen on the tax side. I fear GOPers will surrender, even though they won the very same battle back in 2010 when they didn’t even control the House and had fewer seats in the Senate.

Read Full Post »

Will House Republicans, Squeamish about the Defense Budget, Get Bullied into a Tax Hike by President Obama and Senator Reid?

Last year, as part of the fight over the debt limit, Congress created a “super-committee” that was designed to produce at least $1.2 trillion of “deficit reduction.”

The statists saw this super-committee as a vehicle to seduce Republicans into a tax hike. They knew that some GOPers are perpetually gullible and would be susceptible to the siren song of a “balanced approach” – even though that inevitably means higher taxes and never-fulfilled promises of future spending restraint.

But they also had a back-up plan. They got Republicans to agree that there would be automatic spending cuts – known as sequestration – if the super-committee failed to produce an agreement. And they convinced GOPers that half of these automatic cuts would come from the defense budget, even though military spending is only about one-fourth of total federal spending.

The left figured that the threat of a military sequester would scare some pro-defense GOPers into supporting a tax hike. Maybe not as part of the super-committee deliberations, but perhaps as we got closer to January 1, 2013, which is when the sequester was scheduled to take effect.

Well, the super-committee thankfully didn’t reach an agreement because not enough Republicans were foolish enough to support a tax hike. But now the left’s back-up plan is being implemented. Senator Harry Reid, supported by the White House, is saying that the sequester will go into effect unless GOPers surrender to a tax hike. Here’s some of what the Associated Press reported.

President Barack Obama’s top Democratic ally in the Senate said Wednesday that he won’t block much-feared automatic spending cuts to the Pentagon and Medicare providers from taking effect unless Republicans show more flexibility on cutting the budget deficit. Majority Leader Harry Reid, D-Nev., said that $110 billion in automatic cuts coming due in January were designed to force both Republicans and Democrats to bargain over a “balanced approach” — including tax increases… The automatic cuts, known as a sequester, are the result of the failure of a deficit “supercommittee” to reach agreement last year. “Republicans refused to be reasonable. They refused to raise even a penny of new revenue, or ask millionaires to contribute their fair share to help reduce our deficit and our debt,” Reid said. “It is their intransigence — their refusal to compromise — that leaves us facing the threat of the sequester, and its difficult but balanced cuts.” Republicans controlling the House are seeking to undo the automatic cuts by substituting cuts to domestic programs like food aid, Obama’s health care law and social services like Meals on Wheels. …The White House proposed lifting the automatic cuts in its February budget, which called for tax increases on wealthier people and closing numerous tax breaks enjoyed by corporations. Even as Defense Secretary Leon Panetta has warned the sequester would lead to a “hollowed out” military, White House officials have taken a hard line against incremental efforts to switch off the cuts.

So we are facing a big game of chicken. Democrats are holding the defense budget hostage and telling Republicans they have to raise taxes.

GOPers should tell them to go jump in a lake. A defense sequester would not be the end of the world. Far from it.

• The defense budget will still climb by about $100 billion over the next 10 years if there is a sequester. The “cuts” are mostly just reductions in previously scheduled increases.
• The United States currently accounts for about 45 percent of global military spending, and various allies add up to about half of all remaining military spending, so there is no danger to national security.
  

  Click for larger image

• There is plenty of waste in the military budget.
• George Will has explained that the defense budget could be pruned, “In 2017, defense spending would still be more than that of the next 10 countries combined. Do Republicans think it is premature to withdraw as many as 7,000 troops from Europe two decades after the Soviet Union’s death? About 73,000 will remain, most of them in prosperous, pacific, largely unarmed and utterly unthreatened Germany. Why do so many remain?”

All that being said, I’m very sympathetic to Republicans who are seeking to replace some of the defense savings by trimming the growth of domestic programs.

After all, national defense is one of the few legitimate functions of the federal government. So even if the defense budget is bloated and the U.S. is wasting money on nation building, why not focus first on reducing and eliminating domestic programs that shouldn’t exist?

But even if you don’t care about the Constitution and enumerated powers, it certainly doesn’t seem right to make one-fourth of the budget swallow one-half of the savings. Why not make the sequester apply equally to all parts of the budget?

Those are good questions, but they’re not relevant in the hard-ball world of Washington politics. The real issue is what Republicans will do if (and when) Democrats don’t go along with the GOP plan. Will they then surrender to a tax hike?

That would be an unmitigated disaster. If the left knows that Republicans can be bullied into tax hikes by holding the defense budget hostage, then a tax hike today would simply be a down payment. Every time the statists want more money to feed a bloated welfare state, they’ll simply tell GOPers that the only alternative is “deep defense cuts.”

Republicans have a reputation for being the “stupid party.” I guess we’ll find out for sure if they allow themselves to get maneuvered into a tax hike. The first of many, by the way.

Read Full Post »

Sequestration Does Not Endanger America’s National Security

The left wanted to get one thing from the Supercommittee, and that was to seduce gullible Republicans into a 1990-style tax increase deal in order to enable bigger government.

But I was pleasantly surprised when GOPers failed to surrender, which means that taxpayers didn’t get raped and pillaged. But winning a battle is not the same as winning a war.

The real fight is now whether the sequester is allowed to happen. In other words, will politicians preserve the provision that will automatically slow the growth of the federal budget so that spending over the next 10 years  grows by about $2.0 trillion rather than $2.1 trillion.

This may not seem like much of an achievement, but it is a very important indicator of what will happen in the future. If we want to protect against higher taxes in the long run, we need to figure out how to restrain government spending.

At the very least, this means following Mitchell’s Golden Rule so that the private sector grows faster than government. This would slowly but surely shrink the burden of federal spending as a share of economic output, though actual spending cuts would be preferable and they would more quickly get us where we need to be.

The main obstacle to the sequester, at least on the right, is that it would slow the growth of the defense budget. According to recent calculations, the Pentagon budget would increase by only about $100 billion over the next 10 years if the sequester is implemented.

That might not be enough to keep pace with inflation, and some are wondering whether this puts America’s national security at risk. But  this chart, which was developed by Cato Institute colleagues, shows that the United States dominates global defense spending.

Not only does the United States account for 48 percent of total defense spending, our allies in Europe and the Pacific Rim account for another 24 percent of military outlays.

And even if we use an absurdly expansive definition of possible enemies (Russia, China, all of Central/South Asia, and the entire Middle East and Africa), the military expenditures by those nations and regions don’t even amount to one-fourth of the world total.

More important, the combined spending by all potential adversaries is only about one-half of what the United States is spending, and only one-third of the combined spending of the United States and our allies.

This isn’t an argument for blindly slashing the defense budget. Nor is it an argument that says a sequester is the best way to prune military spending. But it certainly suggests that some modest restraint won’t put America in danger.

Moreover, perhaps the sequester will trigger some much-needed analysis of how best to protect America’s national security.

Maybe Mark Steyn and Steve Chapman are correct and it is time to revisit our spending on NATO, an alliance that was put together to fight the Warsaw Pact, an adversary that no longer exists.

Perhaps it means we shouldn’t spend huge sums of money to defend South Korea, which is far richer and stronger than its crazy northern neighbor.

Or maybe it means that the United States shouldn’t be engaged in nation-building exercises that exacerbate anti-American sentiment in other nations.

I’m not a defense/national security expert, so I don’t pretend to know the right approach to all of these issues.

But I have some familiarity with the way things get done in Washington. Politicians, lobbyists, interest groups, and bureaucracies will all act like the world is coming to an end if budgets are not endlessly expanded. That’s just as true for the Pentagon as it is for all other parts of the federal government.

Read Full Post »