Tag: State of the Union

OMB Director Lew on the New Budget

President Obama will release his budget blueprint for fiscal 2012 next week. If an op-ed penned by his budget director, Jacob Lew, in Sunday’s New York Times is any indication, the administration intends to continue fiddling while the government’s finances burn.

The title of the piece, “The Easy Cuts Are Behind Us,” is a real head-scratcher. Lew’s “easy cuts” are an apparent reference to the $20 billion in savings the president proposed in his previous budgets. Considering that the president proposed total spending of $3.8 trillion last year, $20 billion in gross cuts was an insignificant gesture to say the least. In reality, the Bush administration passed the spending baton to the Obama administration two years ago and it promptly sprinted off like Usain Bolt.

Lew says:

In a little over a week, President Obama will send Congress his budget for the 2012 fiscal year. The budget is not just a collection of numbers, but an expression of our values and aspirations.

Perhaps the current budgetary state of affairs is an expression of the administration’s values and aspirations. But while an unhealthy number of Americans have become accustomed to living at the expense of their neighbor via the government, which the budget does reflect, there is growing popular recognition that saddling future generations with back-breaking debt is morally bankrupt.

Lew says:

As the president said in his State of the Union address, now that the country is back from the brink of a potential economic collapse, our goal is to win the future by out-educating, out-building and out-innovating our rivals so that we can return to robust economic and job growth. But to make room for the investments we need to foster growth, we have to cut what we cannot afford. We have to reduce the burden placed on our economy by years of deficits and debt.

This zero-sum take on the global economy is ignorant. Economic growth in “rival” countries creates opportunities for economic growth in the United States and vice-versa. My trade colleagues can better cover this ground, but the idea that our government needs to export more debt in order to out-anything is preposterous. The U.S. already out-spends its “rivals” on education and what do we have to show for it?

If the administration is concerned with our economic competitiveness, it should be looking to restrain the federal government’s heavy-hand in the economy. The federal government alone now sucks up a quarter of the country’s economic output. More government “investments” for building fancy trains might provide Joe Biden with lots of ribbon-cutting photo-ops, but such gross misallocations of taxpayer resources are not a recipe for “robust economic and job growth.”

Lew says:

We cannot win the future, expand the economy and spur job creation if we are saddled with increasingly growing deficits. That is why the president’s budget is a comprehensive and responsible plan that will put us on a path toward fiscal sustainability in the next few years — a down payment toward tackling our challenges in the long term.

According to Lew, the administration plans to do this by freezing non-security discretionary spending for five years. But several paragraphs later he acknowledges that “Discretionary spending not related to security represents just a little more than one-tenth of the entire federal budget, so cutting solely in this area will never be enough to address our long-term fiscal challenges.”

Does Lew give even a hint as to how the administration plans to “address our long-term fiscal challenges”? Nope.

In the intervening paragraphs Lew does give us a taste of the “deeper cuts” that the president will propose next week. One cut would be $300 million, or 7.5 percent, in the Community Development Block Grant program, which funds critical federal concerns like funding facade renovations for a wine bar in Connecticut and expanding a brewery in Michigan.

The Community Service Block Grant program (change one word and, voilà, a new program) would be cut in half to save a whopping $350 million. Lew says this cut was not easy for the president because “These are the kinds of programs that President Obama worked with when he was a community organizer.”

The Great Lakes Restoration Initiative would get chopped by 25 percent, or $125 million, which Lew calls “another difficult cut.” If that’s a “difficult” cut, one can only wonder what Lew would call the cuts needed to actually “address our long-term fiscal challenges.”

After punting on the long-term fiscal challenges and pretending that the relatively insignificant cuts the administration will propose represent “tough choices,” Lew begins his wrap up by warning against cutting spending:

We must take care to avoid indiscriminate cuts in areas critical to long-term growth like education, innovation and infrastructure — cuts that would stifle the economy just as it begins to recover.

The country cannot afford business as usual. And it certainly can’t afford business as has been conducted by this administration. Unfortunately, while the exact details of the president’s latest budget proposal remain to be seen, Lew’s op-ed indicates that this tiger isn’t about to change his stripes.

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.

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.

Nondefense Discretionary Spending Freezes

When it comes to reining in federal spending, House Republicans and the president have one idea in common: freezing nondefense discretionary spending. That category accounts for about 18 percent of total spending, so let’s see how such a freeze would affect the overall budget.

Today the Congressional Budget Office released updated budget figures and baseline projections of federal spending through fiscal 2021. Projecting the budgetary future is obviously an inexact science, and the CBO’s baseline reflects unrealistic assumptions. However, it does allow us to get an idea of the impact of a nondefense discretionary freeze on total federal spending.

Three proposals have been put forward:

  • In his State of the Union address, President Obama proposed freezing nondefense discretionary spending for five years, beginning in fiscal 2012, at fiscal 2010 levels.
  • The conservative House Republican Study Committee and Sen. Jim DeMint (R-SC) recently proposed freezing nondefense discretionary spending for ten years, beginning in fiscal 2012, at fiscal 2006 levels.
  • Ever since the release of its “Pledge to America,” the House Republican leadership has been talking about returning spending to fiscal 2008 levels. They apparently have non-security discretionary spending in mind, which is an even smaller category than nondefense discretionary. It’s not clear if they intend to freeze it at the new lower level.

Using the CBO’s latest figures, I calculated baseline spending from fiscal 2012-2021 under ten year freezes in nondefense discretionary spending at fiscal 2006, 2008, and 2010 levels:

Note:   To make an apples-to-apples comparison, I extended the proposed Obama freeze at fiscal 2010 levels from five years to ten years, and I assumed a ten year freeze at fiscal 2008 levels for the House Republicans. Also, projected annual interest payments on the debt are excluded. Therefore, the chart refers to “baseline program spending,” which is the sum of nondefense discretionary, defense, and entitlement spending.

The chart makes it excruciatingly clear that freezing nondefense discretionary spending at the levels specified or implied by Republicans and Democrats is only a start toward needed reforms in the federal budget. Congress also needs to cut defense spending, and spending on Social Security, Medicare, Medicaid, and other entitlement programs.

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.

White House Backs Off of Obama Earmarks Pledge

In the state of the union speech last night, President Obama said with great force:

[I]f a bill comes to my desk with earmarks inside, I will veto it.

This appeared to settle the earmark question once and for all. The Republican House and Republicans in the Senate had already sworn off earmarks. Senate Democrats, who may have been holding out hope for preserving this prerogative, will not get to do earmarks. So says the president of the United States, veto pen in hand.

But late last night the White House may have begun to modify the president’s pledge. A “government reform factsheet” circulated by White House staff says, “The President intends to veto bills with special interest earmarks.” (emphasis added) This appears to create a class of earmarks that will bring the president’s veto, special interest earmarks, and a class that will not—national interest earmarks, one supposes.

Defining what is an “earmark” is difficult, though not impossible, as the groups that have worked on the earmarking problem can tell you. But the distinction between “special interest earmarks” and “national interest earmarks” appears to be something the president would make for himself. This withdraws a great deal of force from the “no earmarks” pledge.

It’s certainly possible that the “special interest” language in the fact sheet is surplussage simply meant to illustrate that earmarks are a “special interest” problem. But we will have to watch and see whether the president walks away from his statements about controlling earmarks, as he has done before.

Cato Live Blog of President Obama’s 2011 State of the Union Address and GOP Response

Please join us at 9:00pm Eastern on Tuesday, January 25, 2011 for live commentary during President Obama’s State of the Union address and the response given by House Budget Chairman Paul Ryan (R-Wisc.). Here is our panel of expert bloggers (click each name for their respective Cato@Liberty archives):

Other Cato scholars may also be contributing.

Come back to this page at 9:00pm Eastern on Tuesday, January 25, 2011 to join us–we look forward to having you, and to sharing our insights with you.

Also, don’t forget to tune into our Facebook page immediately following this live blogging event for live video reaction to the speeches from Vice President Gene Healy and Research Fellow Julian Sanchez.