Tag: Barack Obama

Republicans Punt on Farm Subsidies. Again.

While I fully agree with my colleagues that President Obama “chickened out” in general in his FY2012 budget proposal, in one area he had the courage to propose some cuts that have proven controversial for ages: farm subsidies.  His plan would lower the income eligibility limits for subsidies (from $500,000 to $250,000 for off-farm AGI per farmer, and an on-farm AGI limit of $500,000, down from $750,000.) It would also lower the cap on annual direct payments that individuals can receive – from a maximum of $40,000 to $30,000.

The administration’s proposal would affect only about 2 percent of the total recipients of direct payments – subsidies that flow every year regardless of prices or farm output to owners of land that may or may not still be used for farming – and it does not by any means go far enough. But at least it is a start.

On the other side of the aisle, the Republicans followed their Republican Study Committee colleagues in failing to propose any cuts to “farm subsidies” as we typically understand them in their FY2011 budget proposal.  To be sure, 22 percent of the $60 billion in cuts they propose would come from the “agriculture function,” and they indeed get rid of entire programs, but they are mainly to the nutrition and conservation areas of the USDA’s responsibilities. Nothing, so far as I can tell, from the commodity programs.

I’m under no illusions that cutting farm subsidies are the key to our ever-growing fiscal mess. But it is telling that the Republicans can find not one dime in our bloated, distorting, regressive, corrupt farm programs to cut, even as farmers’ incomes and wealth soar. 

On the upside,  a group of  legislators is proposing amendments to limit direct payments and put an end to the disgraceful deal on cotton subsidies cooked up by the administration last year. So maybe some reform can come from there.

(This hardly needs to be said, but the farmers’ groups are, of course, maintaining their position that farm programs should be subject to cuts no greater than the cuts to other areas of federal spending.)

Fixing the Economy Demands More Than a Stroll across Lafayette Park

President Obama’s visit with the Chamber of Commerce this week has infuriated the anti-business Left.  But short of expropriation and nationalization, what doesn’t? 

Robert Reich and NPR and the scribes at the Huffington Post just don’t get it.  Their man may be in the White House, but business holds the keys to the kingdom.  Whether the president’s priority is job creation or reelection, nothing matters more than sustained economic growth. And without business having confidence that policy in the United States will become more hospitable and predictable, investment and job creation will remain tepid.

The president doesn’t have nearly the leverage assumed in the delusions of groups like Public Citizen, which wrote: “What America needs is not olive branches to giant corporations but controls over the companies that sank the economy.”  Back here in reality, businesses have options.  Many can choose to produce and operate in other countries, where the economic environment may be more favorable.  In that regard, globalization has produced a veritable Galt’s Gulch, which serves as an important check on bad economic policy.  Governments are now competing with each other to attract the financial, physical, and human capital necessary to nourish high value-added, innovation-driven, 21st century economies.  Gratuitously punitive anti-business policies will only chase away the companies that the president exhorts to invest and hire.

According to a survey of 13,000 business executives worldwide, conducted by the World Economic Forum, 52 countries have less burdensome regulations than the United States.  Add to that the fact that the United States has the highest corporate tax rate among all OECD countries and it becomes less mysterious why U.S. businesses shift more operations abroad.

As I wrote in a December 2009 Cato paper:

Governments are competing for investment and talent, which both tend to flow to jurisdictions where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where there are limited physical, political, and administrative frictions.

This global competition in policy is a positive development.  But we are kidding ourselves if we think that we don’t have to compete and earn our share with good policies.  The decisions we make now with respect to our policies on immigration, education, energy, trade, entitlements, taxes, and the role of government in managing the economy will determine the health, competitiveness, and relative significance of the U.S. economy in the decades ahead.

The president is beginning to get it – though grudgingly.  He acknowledges the burdens of excessive and superfluous regulations and bureaucracy (remember his SOTU story about the jurisdictions entangled in the salmon’s journey from salt water to fresh water to the smoker?).  The president has hinted that he would like to see the corporate tax rate lowered.  He knows that businesses have options to invest, produce, and hire abroad—and that oftentimes U.S. policy chases them there.  But, so far, rather than push policies to encourage domestic investment, production, and hiring, the president has done the opposite, while demonizing businesses that follow the incentives to go abroad.

The president’s position during his exchange at the Chamber of Commerce was that he has made concessions to business by moving toward the center on tax and trade policy, and that now it is time for business to show good faith by investing and hiring.  But Obama’s small steps toward the center come after two years of sprinting to the left on economic policy.  After ObamaCare, Dodd-Frank, taxpayer bailouts, unorthodox and legally-questionable bankruptcy procedures, subsidies for select industries, Buy American and other regulations governing how and with whom “stimulus” dollars could be spent, and the administration’s tightening embrace of industrial policy, businesses want a more quiet, less intrusive, less antagonistic, predictable policy environment before they will feel comfortable playing the role Obama wants them to play.

Until that happens, the president shouldn’t expect torrents of investment and hiring from the business community.

Rep. Hanna’s Corporate Tax Cut

Rep. Richard Hanna is one of the many new members of Congress with a no-nonsense business background. He is determined to move the GOP in the direction of major tax and spending reforms. When I chatted to the congressman, he told me that he had already read my Global Tax Revolution, so he will be well-armed in tackling business tax reform!

Hanna is off to a good start with his “American Competitiveness Act,” which would chop the federal corporate tax rate from 35 percent to 25 percent. He notes that “the average rate in the Organization for Economic Cooperation and Development countries is just over 25 percent, meaning the effective U.S. corporate tax burden, when state and local taxes are considered, can be 50 percent higher than some of our developed competitors, rendering our companies and workers less competitive.”

In his State of the Union address, President Obama said that he is willing to cut the corporate tax rate. So corporate tax reform could be the 2011 version of the Clinton-GOP welfare reforms of 1996. That is, a major pro-market success made possible by a liberal president moving to the pragmatic center.

Upcoming: On February 23, Cato will release new estimates of corporate “effective” tax rates by tax scholars Jack Mintz and Duanjie Chen. The study will shed further light on the dangerous uncompetitiveness of the U.S. corporate tax system.

On Not Leaving Iraq

The U.S. ambassador to Iraq expects to have 17,000 people on his staff after the United States “withdraws” from Iraq at the end of the year, he told the Senate this week. This is astounding. A typical American embassy in a small country might have 100 employees, in a big country such as Great Britain or Russia maybe a few hundred. A staff of 17,000 (including contractors) is not an embassy, it’s an occupation force. Or at least a viceroy’s staff. Here’s the Washington Post report:

The top U.S. diplomat in Iraq on Tuesday defended the size and cost of the State Department’s operations in that country, telling lawmakers that a significant diplomatic footprint will be necessary after the withdrawal of U.S. troops at the end of this year.

James F. Jeffrey, the U.S. ambassador in Iraq, told the Senate Foreign Relations Committee that his staff of 8,000 will grow in the coming year to about 17,000 people, the vast majority of whom will be contractors.

And while the State Department is spending about $2 billion annually on Iraq operations now, it plans to spend an additional $1 billion on the construction of facilities in each of the next several years….

We’re spending $2 billion a year now on State Department operations in Iraq alone, and we intend to spend $1 billion a year on construction for some years to come. That’s some withdrawal! I know that when Sen. Barack Obama asked to be entrusted with the presidency by repeatedly saying, “I will bring this war to an end in 2009. It is time to bring our troops home,” he only said “troops.” But I can’t believe that the voters who heard him anticipated leaving thousands of Americans and spending billions of dollars in Iraq for many years.

If members of Congress are looking for ways to cut a trillion-dollar deficit, they might look at our construction and employment and nation-building plans in Iraq.

Karl Rove’s Big-Government Myth

Karl Rove, the architect of Republican victories in 2000 and 2004 and Democratic victories in 2006 and 2008, denounces President Obama’s “spending binge” and “liberal activism” as described in the State of the Union address. The Wall Street Journal’s tagline on the column is, “On Tuesday, Republicans offered an alternative to the president’s big-government vision.” What Rove omits is that he and President Bush started the spending binge, delivered big government, and indeed came into office with a big-government vision, as Ed Crane pointed out in 1999.

Just take a look at the analysis in Rove’s Wall Street Journal column:

Most of his hour-long speech was a paean to liberal activism, as the president called for redoubling outlays on high-speed rail and “countless” green energy jobs.

Liberal boondogglery indeed. But Rove’s former colleague, White House speechwriter Michael Gerson, wrote on the same day in his Washington Post column:

 In his 2006 State of the Union address, which I helped write, President George W. Bush proposed a 22 percent increase in clean-energy research at the Energy Department, a doubling of basic research in the physical sciences and the training of 70,000 high school teachers to instruct Advanced Placement courses in math and science. I have no idea if these “investments” passed or made much difference. I doubt anyone knows.

Green nonsense is rampant in Washington.

Rove criticizes Obama for

a federal budget that’s increased 25% in two years, raising government’s share of GDP to 25% from roughly 20%.

Obama is a world-class spender. But spending increased 83 percent during Bush’s presidency, from $1.863 trillion to $3.414 trillion. He increased federal spending faster than any president since Lyndon Johnson. And yes, Obama is pushing the government’s share of GDP up; but Bush increased the federal government’s share of GDP by 2.2 percentage points, before the financial crisis, the bailouts, and TARP.

Rove writes:

The challenge is about more than budgets and debt. It is about government’s basic purposes and its role in our lives. If we don’t act soon, the nature of American society will change in deep, lasting ways.

Yes, that is the real problem. I have written critically of Obama’s “sweeping statist agenda.” But the Bush administration gave us stepped-up federal intrusions into our local schools, the biggest expansion of entitlements in 40 years, a proposed constitutional amendment to nationalize marriage law, unconstitutional restrictions on core political speech, intrusion of the federal government into Terri Schiavo’s hospital room, and, in the words of Gene Healy and Timothy Lynch,

a view of federal power that is astonishingly broad, a view that includes a federal government empowered to regulate core political speech — and restrict it greatly when it counts the most: in the days before a federal election;  a president who cannot be restrained, through validly enacted statutes, from pursuing any tactic he believes to be effective in the war on terror;  a president who has the inherent constitutional authority to designate American citizens suspected of terrorist activity as “enemy combatants,” strip them of any constitutional protection, and lock them up without charges for the duration of the war on terror — in other words, perhaps forever; and  a federal government with the power to supervise virtually every aspect of American life, from kindergarten, to marriage, to the grave.

Bush and Rove, too, changed American society in deep and lasting ways.

Rove writes that Paul Ryan, the new Republican chair of the House Budget Committee, “knows that reforming these programs, especially Medicare, is the only path to fiscal sanity and economic growth.” Too bad the Bush administration made the Medicare problem $18 trillion worse.

Rove writes that

the debate about the role and purpose of government has been joined in a way America hasn’t seen in three decades.

Let’s hope so. We at Cato have been trying to have that debate for years, including Ed Crane’s 1999 critique of the Bush-Rove big-government vision and Michael Tanner’s 2007 book, Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution. And certainly Rove’s comrade-in-arms Gerson has been vigorously arguing against the limited-government libertarian vision that opposes Bush-Obama statism.

Finally, Rove reminds us:

The total debt was $10.6 trillion before [Obama’s] inaugural and $14.2 trillion today.

True. President Obama is increasing deficits and debt even faster than President Bush, under whom the national debt rose by $4.9 trillion. But it takes a lot of chutzpah for the architect of the biggest debt increase ever to criticize the guy who comes along and tops the record.

Surely the Wall Street Journal can find more credible critics of President Obama’s big-government vision than people who ran the “big government disaster” that was the Bush administration.

Krugman (Both of Them) on Competitiveness

When it became clear that President Obama would make “competitiveness” a theme of his SOTU address, I looked forward to seeing Paul Krugman’s statement pointing out how much nonsense that is. Here he is, after all, in his excellent 1997 book, Pop Internationalism (MIT Press):

…International trade, unlike competition among businesses for a limited market, is not a zero-sum game in which one nation’s gain is another’s loss. It is [a] positive-sum game, which is why the word “competitiveness” can be dangerously misleading when applied to international trade.

Sure enough, President Obama’s speech last night was peppered with references to “the competition for jobs,” “new jobs and industries take root in this country, or somewhere else, “the competion for jobs is real,” etc. And of course there was a healthy dose of the usual mercantalist obsession with exports.

Although written before the President’s address was delivered, what would Paul Krugman 2.0 think of this sort of talk? The title of his column Sunday was certainly encouraging: “The Competition Myth.” But the substance of the column went in a … er… different direction from that which I had anticipated/hoped:

…talking about “competitiveness” as a goal is fundamentally misleading. At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America

So what does the administration’s embrace of the rhetoric of competitiveness mean for economic policy?

The favorable interpretation, as I said, is that it’s just packaging for an economic strategy centered on public investment, investment that’s actually about creating jobs now while promoting longer-term growth. The unfavorable interpretation is that Mr. Obama and his advisers really believe that the economy is ailing because they’ve been too tough on business, and that what America needs now is corporate tax cuts and across-the-board deregulation. [emphasis mine]

In other words, Krugman’s objections to the “competitiveness” rhetoric are based on his fear that it will lead to policies favorable to corporations, not that the whole concept is flawed.

[Disclaimer: the above is by no means an exhaustive analysis of the problematic parts of the column]

I yield to no-one in my admiration for Paul Krugman, trade economist. He made a real contribution to the discipline I’ve loved since I was a teenager. But Paul Krugman, columnist…not so much.