Tag: budget

And the King of the Fiscal Squeeze Is…Bill Clinton?

When Congressman Paul Ryan takes the stage at CPAC Friday morning, he will, of course, tout his new budget as a solution to America’s spending problem. The 2014 Ryan plan does aim to balance the budget in 10 years. That said, it would leave government spending, as a percent of GDP, at a hefty 19% – as my colleague, Daniel J. Mitchell, points out in his recent blog.  

Proposals like the Ryan budget are all well and good, but they are ultimately just that – proposals. If Congressman Ryan really wants to get serious about cutting spending, he should look to the one U.S. President who has squeezed the federal budget, and squeezed hard.

So, who can Congressman Ryan look to for inspiration on how to actually cut spending? None other than President Bill Clinton.

How can this be? To even say such a thing verges on CPAC blasphemy. Well, as usual, the data don’t lie. Let’s see how Clinton stacks up against Presidents Barack Obama and George W. Bush. As the accompanying chart shows, Clinton was the king of the fiscal squeeze.

Yes, Bill Clinton cut government’s share of GDP by a whopping 3.9 percentage points over his eight years in office. But, what about President Ronald Reagan? Surely the great champion of small government took a bite out of spending during his two terms, right? Well, yes, he did. But let’s put Reagan and Clinton head to head – a little fiscal discipline show-down, if you will (see the accompanying chart).

And the winner is….Bill Clinton. While Reagan did lop off four-tenths of a percentage point of government spending, as a percent of GDP, it simply does not match up to the Clinton fiscal squeeze. When President Clinton took office in 1993, government expenditures accounted for 22.1% of GDP. At the end of his second term, President Clinton’s big squeeze left the size of government, as a percent of GDP, at 18.2%. Since 1952, no other president has even come close.

Some might argue that Clinton was the beneficiary of the so-called “peace dividend,” whereby the post-Cold-War military drawdown led to a reduction in defense expenditures. The problem with this explanation is that the majority of Clinton’s cuts came from non-defense expenditures (see the accompanying table).

Admittedly, Clinton did benefit from the peace dividend, but the defense drawdown simply doesn’t match up to the cuts in non-defense expenditures that we saw under Clinton. Of course, it should be noted that the driving force behind many of these non-defense cuts came from the other side of the aisle, under the leadership of Speaker Gingrich.

The jury is still out on whether Ryan (or Boehner) will prove to be a Gingrich – or Obama, a Clinton. But, at the end of the day, the presidential scoreboard is clear – Clinton is the king of the fiscal squeeze.

So, when Congressman Ryan rallies the troops at CPAC with a call for cutting government spending, perhaps the crowd ought to accompany a standing ovation for the Congressman with a chant of “Bring Back Bill!”

You can follow Prof. Hanke on Twitter at: @Steve_Hanke

Federal Withholding: One Budget or Two?

“Federal withholding” may take on new meaning if the Senate passes H.R. 325, the “No Budget, No Pay Act.”

Along with increasing the debt ceiling to whatever level it reaches by May 18th, the bill would withhold the pay of members of Congress and senators if their respective bodies don’t pass a budget by the April 15th deadline found in the Congressional Budget Act of 1974.

But does “pass a budget” mean that each house of Congress can pass its own budget? Or does it mean that the two have to agree on a budget? In a WashingtonWatch.com blog post running down the prospects for a normal budget year, I said “both houses of Congress are supposed to agree to a final budget plan by April 15th.” But most people believe that No Budget, No Pay simply requires each house of Congress to pass its own budget in order to stave off “federal withholding” of their paychecks.

I’m a simple country lawyer, and I looked at the language of No Budget, No Pay, which says:

If by April 15, 2013, a House of Congress has not agreed to a concurrent resolution on the budget for fiscal year 2014 pursuant to section 301 of the Congressional Budget Act of 1974, … the payroll administrator of that House of Congress shall deposit in an escrow account all payments… [blah blah blah].

And I looked at section 301 of the Congressional Budget Act of 1974, which says:

On or before April 15 of each year, the Congress shall complete action on a concurrent resolution on the budget for the fiscal year beginning on October 1 of such year. The concurrent resolution shall set forth [various things]…

And I thought to myself, “A concurrent resolution on the budget agreed to pursuant to section 301 of the Congressional Budget Act is one that is passed by Congress.”

Existing law calls for one budget resolution to be passed by Congress—i.e., both houses—by April 15th, so a budget resolution passed pursuant to the Congressional Budget Act is one that has been passed by both houses. What does “pursuant to” mean if not “in conformance to or agreement with”? A budget resolution not agreed to by both houses of Congress is not agreed to pursuant to the law.

Much of section 301 of the Congressional Budget Act refers to the budget resolution using the definite article, “the,” as opposed to indefinite articles, such as “a” or “any.” This, too, suggests that the law contemplates a single budget resolution passing both houses.

The bulk of conventional opinion is that the No Budget, No Pay Act would only require each of the two houses of Congress to pass their own budgets in order to prevent federal withholding of their paychecks. Perhaps the phrase “pursuant to” only modifies “concurrent resolution,” not “agreed to.” But that is an odd use of language to say that a “concurrent resolution” matching the one described in the Congressional Budget Act is “pursuant to” it. Why not say “as described in”? No, I think “pursuant to” modifies “agreed to,” meaning that a budget resolution has to be agreed to by both houses.

The Act does use the indefinite article—”a concurrent resolution.” One could argue that the current Congress is superceding the Congressional Budget Act’s call for a budget resolution passed by both houses. But that doesn’t jibe with the use of “pursuant to,” which I think binds the phrase “concurrent resolution” to its meaning in section 301 of the Congressional Budget Act.

The upshot is that I don’t think either house of Congress should be paid until they come to agreement on a budget. I like the use of federal withholding when Congress doesn’t do its job. It’s odd that they have to institute an incentive system like this to get them to follow the law. So, the more federal withholding the better, and I think I have the better reading of the law, too. My hope is that we don’t have to find out because Congress passes a budget on time, starts in with appropriations on time, and has set federal spending for 2014 before the beginning of the 2014 fiscal year on October 1st.

Meet the Press, Check the Facts

This Sunday (2 December 2012), David Gregory hosted a lively session of NBC’s Meet the Press. The focus of Sunday’s program was the so-called Fiscal Cliff. Gregory rounded up many of the usual Washington suspects, including Treasury Secretary Timothy Geithner, and drilled them on their talking points.

Several times, in the course of Gregory’s questioning, he referred to President Bill Clinton’s tough 1993 budget deal. Throughout the broadcast, Gregory kept stressing the fact that the 1993 deal included defense cuts. For Gregory, those cuts were the flavor of the day.

This isn’t surprising. Indeed, most members of Washington’s chattering classes parrot the line that the economy boomed during the Clinton years because Clinton was the beneficiary of the so-called peace dividend, which allowed him to cut defense expenditures.

In fact, if we look carefully at the federal budget numbers, while Clinton did cut defense expenditures, as a percent of GDP, the majority of the Clinton squeeze came from non-defense expenditures. Indeed, as can be seen in the accompanying table, the non-defense squeeze accounted for 2.2 percentage points of President Clinton’s 3.9 total percentage point reduction in the relative size of the federal government.

Clinton squeezed the budget and squeezed hard, from all major angles. This was a case in which a president’s actions actually matched his rhetoric. Recall that, in his 1996 State of the Union address, he declared that “the era of big government is over.”

Clinton’s 1993 deal marked the beginning of the most dramatic decline in the federal government’s share of the U.S. economy since Harry Truman left office. The Clinton administration reduced government expenditures, as a percent of GDP, by 3.9 percentage points. Since 1952, no other president has even come close. At the end of his second term, President Clinton’s big squeeze left the size of government, as a percent of GDP, at 18.2 percent—the lowest level since 1966.

The table contains the facts. President Clinton knew how to squeeze both defense and non-defense federal expenditures. Indeed, he squeezed non-defense a bit harder than defense. Since 1952, the only other president who has been able to reduce the relative share of non-defense expenditures was Ronald Reagan. Forget the “peace dividend”—it’s all about the Clinton “squeeze dividend.”

ObamaCare Implementation News

Here’s some ObamaCare implementation news from around the interwebs:

  • Minnesota Facing Bigger Bill For State’s Health Insurance Exchange”: Kaiser Health News reports Minnesota has increased its spending projections for operating the state’s ObamaCare Exchange by somewhere between 35-80 percent for 2015. Spending on the Exchange will rise by another 19 percent in the following year.
  • The Wall Street Journal  defends the 25-30 states that aren’t gullible enough to create an Exchange and therefore take the blame for ObamaCare’s higher-than-projected costs.
  • Arizona Gov. Jan Brewer (R) has announced she will not implement an Exchange. That creates another potential state-plaintiff, millions of potential employer-plaintiffs, and (by my count) 430,000 potential individual plaintiffs who could join Oklahoma attorney general Scott Pruitt in challenging the IRS’s illegal ObamaCare taxes. It also means that Arizona can start luring jobs away from tax-happy California. There are four Hostess bakeries in California that might be looking to relocate.
  • I’m enjoying a friendly debate with The New Republic’s Jonathan Cohn and University of Michigan law professor Samuel Bagenstos over whether the those taxes really do violate federal law and congressional intent (spoiler alert: they do). I owe Bagenstos a response.
  • PolitiFact Georgia rated false my claim that operating an ObamaCare Exchange would violate Georgia law. I explain here why it is indeed illegal for Georgia (and 13 other states) to implement an Exchange.
  • ThinkProgress.org reports, “Romney’s Transition Chief Is Encouraging States To Implement Obamacare.” A better headline would have been, “Government Contractor Encourages More Government Contracts.”
  • The Washington Examiner editorializes, “In California…state regulators have warned…insurance premiums will rise by as much as 25 percent once the exchange comes online…That’s the best-case scenario.” And, “In 2014, seven Democratic Senate seats will be up for grabs in states Mitt Romney carried (Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia). Unless Obama’s HHS bureaucrats pull off an unprecedented miracle of central planning, Obamacare could well sink Democrats again in 2014, the same way it did in 2010.”

Why ‘Obamacare’s Critics Refuse to Give Up’

Jonathan Adler and I have a paper titled, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Our central claims are:

  1. The Patient Protection and Affordable Care Act explicitly restricts its “premium-assistance tax credits” (and thus the “cost-sharing subsidies” and employer- and individual-mandate penalties those tax credits trigger) to health insurance “exchanges” established by states;
  2. The IRS has no authority to offer those entitlements or impose those taxes in states that opt not to create Exchanges; and
  3. The IRS’s ongoing attempt to impose those taxes and issue those entitlements through Exchanges established by the federal government is contrary to congressional intent and the clear language of the Act.

Over at The New Republic’s blog The Plank, my friend Jonathan Cohn says this is “preposterous”:

No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.

It appears my friend does not know the statute, the legislative history, or what Congress’ intent was.

Cohn writes that the statute is “a little fuzzy” on this issue. Quite the contrary: the statute is crystal clear. It explicitly and laboriously restricts tax credits to those who buy health insurance in Exchanges “established by the State under section 1311.” There is no parallel language – none whatsoever – granting eligibility through Exchanges established by the federal government (section 1321). The tax-credit eligibility rules are so tightly worded, they seem designed to prevent precisely what the IRS is trying to do.

ObamaCare supporters just know that can’t be right. It must have been an oversight. Congress could not have written the law that way. It doesn’t make any sense. Those provisions must take effect in federal Exchanges for the law to work. Why would Congress give states the power to blow the whole thing up??

The answer is that Congress didn’t have any choice. Congress intended for ObamaCare to work this way because this was the only way that ObamaCare could become law.

  • The Senate bill had to have state-run Exchanges in order to win the essential votes of moderate Democrats. Without state-run Exchanges, it would not have passed.
  • In order to have state-run Exchanges, the bill needed some way to encourage states to create them without “commandeering” the states. In early 2009, well before House and Senate Democrats introduced their bills, an influential law professor named Timothy Jost advised congressional Democrats of one way to get around the commandeering problem: “Congress could invite state participation…by offering tax subsidies for insurance only in states that complied with federal requirements…”. Both the Finance bill and the HELP bill made premium assistance conditional on state compliance. Senate Democrats settled on the Finance language, which passed without a vote to spare. (Emphasis added.)
  • The Finance Committee had even more reason to condition tax credits on state compliance: it doesn’t have direct jurisdiction over health insurance. Conditioning the tax credits on state compliance was the only way the Committee could even consider legislation directing states to establish Exchanges. Committee chairman Max Baucus admitted this during mark-up.
  • Then something funny happened. Massachusetts voters sent Republican Scott Brown to the Senate, partly due to his pledge to prevent any compromise between the House and Senate bills from passing the Senate. With no other options, House Democrats swallowed hard and passed Senate bill. (They made limited amendments through the reconciliation process. These amendments did not touch the tax-credit eligibility rules, and indeed strengthen the case against the IRS.)

A law limiting tax credits to state-created Exchanges, therefore, is exactly what Congress intended, because Congress had no other choice. On the day Scott Brown took office, any and all other approaches to Exchanges ceased to embody congressional intent. If Congress had intended for some other approach to become law, there would be no law. What made it all palatable was that it never occurred to ObamaCare supporters that states would refuse to comply. The New York Times reports, “Mr. Obama and lawmakers assumed that every state would set up its own exchange.”

Oops.

The only preposterous parts of this debate are the legal theories that the IRS and its defenders have offered to support the Obama administration’s unlawful attempt to create entitlements and impose taxes that Congress clearly and intentionally did not authorize. (But don’t take my word for it. Read the statute. Read our paper. Read this, and this. Watch this video and our debate with Jost. Click on our links to all the stuff the IRS and Treasury and Jost have written.) I wonder if Cohn would tolerate such lawlessness from a Republican administration.

Cohn further claims the many states that are refusing to create Exchanges are “totally sticking it to their own citizens” and people who encourage them “are essentially calling upon states to block their citizens from receiving federal tax breaks, worth as much as several thousand dollars per person. Aren’t conservatives and libertarians supposed to be the party that likes giving tax money back to the people?” Seriously?

  • Fourteen states have enacted statutes or constitutional amendments – often by referendum, often by huge margins – that prohibit state employees from directly or indirectly participating in an essential Exchange function: implementing employer or individual mandates. In those instances, the voters have spoken.
  • Only 22 percent of the budgetary impact of these credits and subsidies is actual tax reduction, and the employer- and individual-mandate penalties triggered by those tax “credits” wipe out most of that. The other 78 percent is new deficit spending. So what we’re really talking about here is $700 billion of new deficit spending.
  • When states refuse to establish Exchanges, they block that new spending, which reduces the deficit and the overall burden of government.
  • In addition, those states exempt their employers from the employer mandate (a tax of $2,000 per worker) and exempt millions of taxpayers from the individual mandate (a tax of $2,085 on families of four earning as little as $24,000).

Who’s for tax cuts now?

Here’s what I think is really bothering Cohn and other ObamaCare supporters. The purpose of those credits and subsidies is to shift the cost of ObamaCare’s community-rating price controls and individual mandate to taxpayers, so that consumers don’t notice them. When states prevent such cost-shifting, they’re not increasing the cost of ObamaCare – they’re revealing it.

And that’s what worries Cohn. If the full cost of ObamaCare appears in people’s health insurance premiums, people will rise up and demand that Congress get rid of it. Cohn isn’t worried about states “sticking it to their citizens.” He’s worried about states sticking it to ObamaCare.

The title of Cohn’s blog post is, “Obamacare’s Critics Refuse to Give Up.” At least we can agree on that much.

I Agree with Stuart Butler

ObamaCare is far from settled law. Here’s an excerpt from Butler’s blog post for the Journal of the American Medical Association:

President Obama’s narrow victory has left proponents of the Affordable Care Act (ACA) breathing a collective sigh of relief, believing that the legislation is safe. It’s true, of course, that the election’s outcome has ended the prospect of a new administration using Republican majorities in both chambers and the budget reconciliation process to force outright repeal. But the reality of the economic and political situation means the core elements of the ACA remain very much in play.

The primary reasons for this are the continuing problems with the federal budget deficit and the national debt and the worrying long-term weakness of the economy. Add to that the increasing skepticism that the ACA’s blunt tools will slow costs.

Let’s remember that the most important provisions of the ACA, such as penalties for Americans lacking insurance and firms not offering it, the expansion of Medicaid, and the heavily subsidized exchange-based coverage, do not go into effect until 2014. Meanwhile, new taxes on self-employment and limits on flexible spending accounts are scheduled to go into effect next year, just as Congress will be trying to boost employment growth. Additionally, lawmakers will be desperately searching for ways to delay or cut spending to deal with the deficit. That adds up to 2013 being a year for buyer’s remorse in Congress and around the country.

Read the whole thing.