Tag: leviathan

Obama the Born-again Budget Cutter?!?

Chalk up another victory – at least on the rhetorical level – for the Tea Party.

President Obama will release his fiscal year 2012 budget tomorrow and he’s apparently become a born-again fiscal conservative. Here are some excerpts from a Washington Post story:

President Obama will respond to a Republican push for a drastic reduction in government spending by proposing sharp cuts of his own in a fiscal 2012 budget blueprint that aims to trim record federal deficits by $1.1 trillion over the next decade. …two-thirds of the savings would come from spending cuts that are draconian by Democratic standards… When it lands Monday on Capitol Hill, Obama’s plan will launch a bidding war with Republicans over how deeply and swiftly to cut, as the two parties seek a path to fiscal stability for a nation awash in red ink.

I’m skeptical of battlefield conversions, particularly when politicians utilize the dishonest Washington definition of a budget cutincreasing spending by less than previously planned. So the first thing I’ll do when the budget is released is to visit the Historical Tables of the Budget website and see what spending is projected to be in 2011 and what Obama is asking for in 2012.

Those numbers probably won’t be accurate since the Obama administration (like previous ones) will use best-case assumptions, but at least we’ll get a sense of whether:

a) spending actually is being cut (I’m not holding my breath for this miracle), or

b) spending is frozen at current levels (this approach would balance the budget by 2017, but it’s almost as unlikely at the first option), or

c) spending is being restrained (perhaps 2 percent growth, enough to keep pace with inflation), or

d) spending is growing far too fast (say 4 percent growth, pushing America quickly in the wrong direction), or

e) spending is continuing to explode (5 percent growth, 6 percent growth, or even more, meaning we’ll be Greece sooner than we think).

My guess, for what it’s worth, is that the Obama administration will claim (d) but will actually be proposing (e) if more realistic assumptions are used.

Needless to say, I hope I’m wrong. But other parts of the Washington Post story give me little reason for hope. The White House apparently is ignoring entitlements. Heck, the administration apparently isn’t even planning on meeting the President’s own deficit goal.

The blueprint ducks the harder task of tackling the biggest drivers of future deficits: Social Security, Medicare and Medicaid… Obama’s blueprint does not even hit the short-term goal he set for his commission - reducing deficits to 3 percent of the economy by 2015.

The White House also plans to play a shell game with certain parts of the budget. Supposed spending cuts in health care won’t generate taxpayer savings. Instead, they’ll be used to finance more spending on Medicare, enabling the President to cancel savings that were promised as part of Obamacare. The interest groups win and the taxpayers lose.

The Obama blueprint also seeks to eliminate two budget gimmicks that Congress has long used to mask the true depth of the red ink: His proposal would offset higher Medicare payments to doctors by cutting $62 billion from other areas of federal health spending. And it would adjust the alternative minimum tax through 2014 to prevent it from hitting middle-class taxpayers, covering the cost by limiting the value of itemized deductions such as charitable contributions and mortgage interest for wealthy households.

The same shell game takes place on the tax side of the fiscal ledger. The White House plans to cancel one future tax increase and “pay” for that change by imposing another future tax increase. Once again, taxpayers get the short end of the stick.

Unless the Washington Post story is completely inaccurate, the Obama administration is not changing course. There may not be any major initiatives to expand the burden of government, like the failed stimulus or the budget busting government-run healthcare scheme, but it certainly does not seem like there are any plans to reverse direction and shrink the burden of government.

Here’s How to Balance the Budget

Our fiscal policy goal should be smaller government, but here’s a video for folks who think that balancing the budget should be the main objective.

The main message is that restraining the growth of government is the right way to get rid of red ink, so there is no conflict between advocates of limited government and serious supporters of fiscal balance.

More specifically, the video shows that it is possible to quickly balance the budget while also making all the 2001 and 2003 tax cuts permanent and protecting taxpayers from the alternative minimum tax. All these good things can happen if politicians simply limit annual spending growth to 2 percent each year. And they’ll happen even faster if spending grows at an even slower rate.

This debunks the statist argument that there is no choice but to raise taxes.

New Orwellian Tax Scheme in England Would Require All Paychecks Go Directly to the Tax Authority

Our tax system in America is an absurd nightmare, but at least we have some ability to monitor what is happening. We can’t get too aggressive (nobody wants the ogres at the IRS breathing down their necks), but at least we can adjust our withholding levels and control what gets put on our annual tax returns. The serfs in the United Kingdom are in much worse shape. To a large degree, the tax authority (Inland Revenue) decides everyone’s tax liability, and taxpayers have no role other than to meekly acquiesce. But now the statists over in London have decided to go one step farther and have proposed to require employers to send all paychecks directly to the government. The politicians and bureaucrats that comprise the ruling class then would decide how much to pass along to the people actually earning the money. Here’s a CNBC report on the issue.

The UK’s tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer. The proposal by Her Majesty’s Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid. …George Bull, head of Tax at Baker Tilly, told CNBC.com. “If HMRC has direct access to employees’ bank accounts and makes a mistake, people are going to feel very exposed and vulnerable,” Bull said. And the chance of widespread mistakes could be high, according to Bull. HMRC does not have a good track record of handling large computer systems and has suffered high-profile errors with data, he said. …the cost of implementing the new system would be “phenomenal,” Bull pointed out.  …The Institute of Directors (IoD), a UK organization created to promote the business agenda of directors and entreprenuers, said in a press release it had major concerns about the proposal to allow employees’ pay to be paid directly to HMRC.

This is withholding on steroids. Politicians love pay-as-you-earn (as it’s called on the other side of the ocean), largely because it disguises the burden of government. Many workers never realize how much of their paychecks are confiscated by politicians. Indeed, they probably think greedy companies are to blame when higher tax burdens result in less take-home pay. This new system could have an even more corrosive effect. It presumably would become more difficult for taxpayers to know how much government is costing them, and some people might even begin to think that their pay is the result of political kindness. After all, zoo animals often feel gratitude to the keepers that feed (and enslave) them.

Will ‘Hauser’s Law’ Protect Us from Revenue-Hungry Politicians?

David Ranson had a good column earlier this week in the Wall Street Journal explaining that federal tax revenues historically have hovered around 19 percent of gross domestic product, regardless whether tax rates are high or low. One reason for this relationship, as he explains, is that the Laffer Curve is a real-world constraint on class warfare tax policy. When politicians boost tax rates, that motivates taxpayers to earn and/or report less income to the IRS:

The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth. …tax revenue has grown over the past eight decades along with the size of the economy. It illustrates the empirical relationship first introduced on this page 20 years ago by the Hoover Institution’s W. Kurt Hauser—a close proportionality between revenue and GDP since World War II, despite big changes in marginal tax rates in both directions. “Hauser’s Law,” as I call this formula, reveals a kind of capacity ceiling for federal tax receipts at about 19% of GDP. …he tax base is not something that the government can kick around at will. It represents a living economic system that makes its own collective choices. In a tax code of 70,000 pages there are innumerable ways for high-income earners to seek out and use ambiguities and loopholes. The more they are incentivized to make an effort to game the system, the less the federal government will get to collect.

Several people have asked my opinion about the piece. I like the column, of course, but I’m not nearly so optimistic that 19 percent of GDP represents some sort of limit on the federal government’s taxing power. There are many nations in Europe with tax burdens closer to 50 percent, for instance, so governments obviously have figured how to extract much higher shares of national output. Part of the difference is because America has a federal system, and state and local governments collect taxes of about 10 percent of GDP. That still leaves a significant gap in total tax collections, though, so the real question is why American politicians are not as proficient as their European cousins at confiscating money from the private sector?

One reason is that European countries have value-added taxes, which are a disturbingly efficient way of generating more revenue. So does this mean that “Hauser’s Law” will protect us if politicians are too scared to impose a nationwide sales tax? That’s certainly a necessary condition for restraining government, but probably not a sufficient condition. If you look at the table, which is excerpted from the OECD’s annual Revenue Statistics publication, you can see that nations such as New Zealand and Denmark have figured out how to extract huge amounts of money using the personal and corporate income tax.

In some cases, tax rates are higher in other nations, but the main factor seems to be that the top tax rates in other nations are imposed at much lower levels of income. Americans don’t get hit with the maximum tax rate until our incomes are nine times the national average. In other nations, by contrast, the top tax rates take effect much faster, in some cases when taxpayers have just average incomes. In other words, European nations collect a lot more money because they impose much higher tax rates on ordinary people. Here’s a chart I put together a few years ago for a paper I wrote for Heritage (you can find updated numbers in Table 1.7 of this OECD website, but the chart will still look the same).

Europeans also sometimes impose high tax rates on rich people, but this is not the reason that tax receipts consume nearly 50 percent of GDP in some nations. Rich people in Europe, like their counterparts in America, have much greater ability to control the amount of taxable income that is earned and/or reported. These “Laffer Curve” responses limit the degree to which politicians can finance big government on the backs of a small minority.

But class-warfare tax rates on the rich do serve a very important political goal. Politicians understand that ordinary people will be less likely to resist oppressive tax rates if they think that those with larger incomes are being treated even worse. Simply stated, higher tax rates on the rich are a necessary precondition for higher tax rates on average taxpayers.

For “Hauser’s Law” to be effective, this means proponents of limited government need to fight two battles. First, they need to stop a VAT. Second, they need to block higher tax rates on the so-called rich in order to prevent higher tax rates on the middle class.

Come Hear Uncle Sam’s Band, Playing to the Rising Tide of Debt

A $600,000 federal grant is chump change compared to overall government spending, and I recognize that picking on individual awards generally isn’t worth the effort because there are bigger fish to fry.  But every once in a while I think it’s alright to highlight a particularly ridiculous grant award for the purpose of illustrating that the federal government’s ability to spend money on virtually anything it wants has broader negative implications.  So when I read this morning that the Institute of Museum and Library Services (an independent federal agency) gave UC Santa Cruz’s library $615,175 to archive Grateful Dead memorabilia online, I just couldn’t help myself.

The title of my post refers to a lyric from the Dead song “Uncle John’s Band.”  According to the lyrics, Uncle John’s Band’s motto is “don’t tread on me.”  “Don’t tread on me” was a motto of the American patriots during the Revolutionary War and was prominently featured below a coiled rattlesnake on the famous Gadsden flag.

The Gadsden flag, which I proudly own and used to hang in my Senate office, has regained popularity and can now be seen at TEA Party protests around the country.  While some would like to dismiss the TEA partiers as racists, the resurgence of the Gadsden flag indicates to me that a healthy number of folks simply recognize the American tradition of being leery of an all-powerful centralized authority.  It’s safe to say that those patriots of yesterday could have never imagined that the small, limited federal government they created would turn into the overbearing $3.7 trillion Leviathan it is today.  What a long, strange trip it’s been indeed.

Why Fear Leviathan U.?

The Harriet Tubman Agenda – ordinarily a pretty rational blog – takes issue with my recent post expressing unease about a proposal to have Uncle Sam create and furnish free college courses. Accurately noting that American institutions of higher education, including private and for-profit schools, are addicted to government subsidies, the blogger asks what the problem is “if a free curriculum (defined by designated text books and tests), coupled with a competitive market in examination services, reduces the burden on taxpayers”?

Here’s the problem: From the perspectives of both freedom and effectiveness, why would we ever want the federal government creating free college curricula and, potentially, a giant federal university that, thanks to the internet, would not even be bound by the need to have a physical campus? Do we really want both state-run and private institutions, which despite huge subsidies still have to charge tuition and compete with one another, to have to go up against a free, Leviathan University? And why would it matter if the examinations accompanying Leviathan U’s curriculum were created by private companies? If you have to master The Little Red Book – to use an extreme example – does it matter if the testing contract is competitively bid?

The Harriet Tubman Agenda is absolutely right that, engorged with government subsidies, American higher education is grossly wasteful. But replacing it with utterly unconstitutional federal courses that could someday yield a mammoth, federal university? For reasons even more basic than saving taxpayer money, that would be a terrible move.

He Has a Point

Stung by accusations that he is a “socialist,” President Obama pointed out to two New York Times reporters that, “it wasn’t under me that we started buying a bunch of shares of banks. It wasn’t on my watch. And it wasn’t on my watch that we passed a massive new entitlement -– the prescription drug plan – without a source of funding.”

Not to defend Obama’s unprecedented increase on government spending or plans to involve the government in almost every area of our lives…but he does have a point. As I pointed out in Leviathan on the Right, the Bush administration’s brand of big-government conservatism was, at the very least, the greatest expansion of government from Lyndon Johnson to, well, Barack Obama.