Tag: obama

According to Obama’s Budget, Burden of Federal Spending Will Be $2 Trillion Higher in 10 Years

President Obama’s budget proposal was unveiled today, generating all sorts of conflicting statements from both parties.

Some of the assertions wrongly focus on red ink rather than the size of government. Others rely on dishonest Washington budget math, which means spending increases magically become budget cuts simply because outlays are growing at a slower rate than previously planned.

When you strip away all the misleading and inaccurate rhetoric, here’s the one set of numbers that really matters. If we believe the President’s forecasts (which may be a best-case scenario), the burden of federal spending will grow by $2 trillion between this year and 2022.

In all likelihood, the actual numbers will be worse than this forecast.

The President’s budget, for instance, projects that the burden of federal spending will expand by less than 1 percent next year. That sounds like good news since it would satisfy Mitchell’s Golden Rule.

But don’t believe it. If we look at the budget Obama proposed last year, federal spending was supposed to fall this year. Yet the Obama Administration now projects that outlays in 2012 will be more than 5 percent higher than they were in 2011.

The most honest assessment of the budget came from the President’s Chief of Staff, who openly stated that, “the time for austerity is not today.”

With $2 trillion of additional spending (and probably more), that’s the understatement of the century.

What makes this such a debacle is that other nations have managed to impose real restraints on government budgets. The Baltic nations have made actual cuts to spending. And governments in Canada, New Zealand, Slovakia, and Ireland generated big improvements by either freezing budgets or letting them grow very slowly.

I’ve already pointed out that the budget could be balanced in about 10 years if the Congress and the President displayed a modest bit of fiscal discipline and allowed spending to grow by no more than 2 percent annually.

But the goal shouldn’t be to balance the budget. We want faster growth, more freedom, and constitutional government. All of these goals (as well as balancing the budget) are made possible by reducing the burden of federal spending.

Cochrane on ObamaCare’s Contraceptive-Coverage Mandate

My Cato colleague John Cochrane – who is way smarter than I am – has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:

Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…

The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…

The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…

Sure, churches should be exempt. We should all be exempt.

My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”

That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything – and they’re willing to pay the outrageous premiums that would accompany such coverage – why should we take issue with that?

ObamaCare’s contraceptive-coverage mandate demonstrates that government does  a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.

Waiving Goodbye to the Constitution

Today the Obama administration will announce, according to early press reports, that ten states (of eleven that applied) will be receiving waivers from key provisions of the No Child Left Behind Act. That’s right, the 2002 education law passed by Congress and signed by President Bush that absurdly insisted that all children will be proficient in mathematics and reading by 2014. Now President Obama, unilaterally, is telling states that they can forget all that as long as they adopt – or at least have “plans” to adopt – reforms to his liking, such as national curriculum standards and teacher evaluations based on student standardized testing progress.

At this point, it is almost impossible to keep track of the federal savaging of the Constitution in supposed service of education. First there was the federal expenditure of money, allowed by none of the enumerated powers, largely starting in the 1960s. Then there was the growing attachment of controls to that money – again, with no Constitutional authority – culminating in NCLB. Now there is the blatant disregard for the separation of  powers by a President who just decided he didn’t like waiting for Congress to reauthorize the law, and a Congress that exhibits no spine whatsoever when it comes to this power grab because, well, no one seems to like NCLB.

Within this fiasco is all the evidence anyone should need to see why the Feds must be extracted from education. While Washington can drop humongous sacks of taxpayer dough on states and districts, and impose lots of bureaucratic rules and regulations, it can’t actually make education much better. Indeed, the whole point of NCLB was to end decades of Washington spending billions for no return. And what happened? Exactly what state, district, and school-level bureaucrats and unions expected: “accountability” swerved off the road before the 2014 deadline. It took longer than expected – it was a slightly more nerve-wracking game of political chicken than usual – but in the end the entrenched interests won because they’re the most motivated to bring the political pain. After all, their very livelihoods are at stake.

Aside from desegregation – which it has Constitutional authority to compel – the federal government has done no meaningful good in education. Why? Because the special interest-driven reality of politics ensures it can’t do any good. Yet we not only let it continue to trample the Constitution by meddling in education, we are allowing it to shred the Constitution into ever-smaller bits in order to “fix” the destruction it has wrought. And for this, all who turn a blind eye to the Constitution in the name of “the children” are to blame.

One Year Later, Another Look at Obamanomics vs. Reaganomics

On this day last year, I posted two charts that I developed using the Minneapolis Federal Reserve Bank’s interactive website.

Those two charts showed that the current recovery was very weak compared to the boom of the early 1980s.

But perhaps that was an unfair comparison. Maybe the Reagan recovery started strong and then hit a wall. Or maybe the Obama recovery was the economic equivalent of a late bloomer.

So let’s look at the same charts, but add an extra year of data. Does it make a difference?

Meh… not so much.

Let’s start with the GDP data. The comparison is striking. Under Reagan’s policies, the economy skyrocketed.  Heck, the chart prepared by the Minneapolis Fed doesn’t even go high enough to show how well the economy performed during the 1980s.

Under Obama’s policies, by contrast, we’ve just barely gotten back to where we were when the recession began. Unlike past recessions, we haven’t enjoyed a strong bounce. And this means we haven’t recovered the output that was lost during the downturn.

This is a damning indictment of Obamanomics

Indeed, I made this point several months ago when analyzing some work by Nobel laureate Robert Lucas. And it’s been highlighted more recently by James Pethokoukis of the American Enterprise Institute and the news pages of the Wall Street Journal.

Unfortunately, the jobs chart is probably even more discouraging. As you can see, employment is still far below where it started.

This is in stark contrast to the jobs boom during the Reagan years.

So what does this mean? How do we measure the human cost of the foregone growth and jobs that haven’t been created?

Writing in today’s Wall Street Journal, former Senator Phil Gramm and budgetary expert Mike Solon compare the current recovery to the post-war average as well as to what happened under Reagan.

If in this “recovery” our economy had grown and generated jobs at the average rate achieved following the 10 previous postwar recessions, GDP per person would be $4,528 higher and 13.7 million more Americans would be working today. …President Ronald Reagan’s policies ignited a recovery so powerful that if it were being repeated today, real per capita GDP would be $5,694 higher than it is now—an extra $22,776 for a family of four. Some 16.9 million more Americans would have jobs.

By the way, the Gramm-Solon column also addresses the argument that this recovery is anemic because the downturn was caused by a financial crisis. That’s certainly a reasonable argument, but they point out that Reagan had to deal with the damage caused by high inflation, which certainly wreaked havoc with parts of the financial system. They also compare today’s weak recovery to the boom that followed the financial crisis of 1907.

But I want to make a different point. As I’ve written before, Obama is not responsible for the current downturn. Yes, he was a Senator and he was part of the bipartisan consensus for easy money, Fannie/Freddie subsidies, bailout-fueled moral hazard, and a playing field tilted in favor of debt, but his share of the blame wouldn’t even merit an asterisk.

My problem with Obama is that he hasn’t fixed any of the problems. Instead, he has kept in place all of the bad policies - and in some cases made them worse. Indeed, I challenge anyone to identify a meaningful difference between the economic policy of Obama and the economic policy of Bush.

  • Bush increased government spending. Obama has been increasing government spending.
  • Bush adopted Keynesian “stimulus” policies. Obama adopted Keynesian “stimulus” policies.
  • Bush bailed out politically connected companies. Obama has been bailing out politically connected companies.
  • Bush supported the Fed’s easy-money policy. Obama has been supporting the Fed’s easy-money policy.
  • Bush created a new health care entitlement. Obama created a new health care entitlement.
  • Bush imposed costly new regulations on the financial sector. Obama imposed costly new regulations on the financial sector.

I could continue, but you probably get the  point. On economic issues, the only real difference is that Bush cut taxes and Obama is in favor of higher taxes. Though even that difference is somewhat overblown since Obama’s tax policies - up to this point - haven’t had a big impact on the overall tax burden (though that could change if his plans for higher tax rates ever go into effect).

This is why I always tell people not to pay attention to party labels. Bigger government doesn’t work, regardless of whether a politician is a Republican or Democrat. The problem isn’t Obamanomics, it’s Bushobamanomics. But since that’s a bit awkward, let’s just call it statism.

New Academic Study Confirms Previous IMF Analysis, Shows that Lower Tax Rates Are the Best Way to Reduce Tax Evasion

Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes.

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.

Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.

Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.

Here are some key findings from the study.

According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].

Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.

The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance - not more power for the IRS.

Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.

The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.

Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.

…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.

And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.

On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.

All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.

Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.

Obama Is Avoiding the Tough College Course

College prices truly are ridiculous. But someone needs to tell President Obama that the root problem isn’t the colleges, which he is expected to announce today will be the targets of proposed sanctions should they raise prices too fast. No, the problem, Mr. President, is a federal government that wants to play Santa Claus by giving everybody, no matter how poorly qualified or unmotivated, money for college.

As I itemized in How Much Ivory Does This Tower Need? What We Spend on, and Get from, Higher Education, total aid in the form of federal grants and loans (I didn’t even get into tax credits and deductions) ballooned from inflation-adjusted $29.6 billion in 1985 to $139.7 billion in 2010. That is mammoth, and it probably helped not just colleges to enrich themselves, but enrollment to expand from 8.9 million full-time equivalent students in 1985 to 15.5 million in 2010.

But that latter part is good, right? Doesn’t that giant enrollment increase mean we’ve been “educating ourselves to a better economy,” to steal a favorite Obama administration catch phrase?

It might, if all those people were attaining important skills and graduating. But they haven’t been. You can get more details in my paper – and yes, some of the following stats are probably somewhat low because they’re for first-time, full-time students – but the higher ed outcomes appear dismal no matter what:

  • The most recent six-year graduation rate for students in four-year programs was 57.3 percent
  • The most recent three-year graduation rate for students in two-year programs was a minute 27.5 percent
  • Roughly a third of people who manage to get bachelor’s degrees are in jobs that don’t require them, up from about 11 percent in 1967
  • According to recent research by Richard Arum and Josipa Roksa,  45 percent of students learn nothing in their first two years of college, and 36 percent nothing in four years
  • Between 1992 and 2003, the percentage of bachelor’s holders proficient in prose literacy dropped from 40 to 31 percent, and in document literacy from 37 to 25 percent, on the National Assessment of Adult Literacy

What does all this – and more that’s in the paper – tell us? That millions of the people taxpayers are sending to college are getting little if anything out of it, while the colleges rake in heavy dough. But that means the root problem isn’t the colleges – they are just taking the people government sends them – it is the federally dominated funding system that insists on giving dollars to almost any warm body that declares it wants to experience ivy-covered walls and frat parties.

In light of this depressing reality, if the president really wants to rein in costs he will call for significanlty reducing student aid, both the amount available to individual students, and the numbers of students eligible.

That, though, will probably not happen. Not only did the president talk up keeping aid cheap and casting an even wider net in his State of the Union, but taking the right course – cutting aid – means taking the politically tough course. And neither this president, nor almost anyone else in Washington, has ever signalled real willingness to do that. It’s just much easier to keep giving money away.