Tag: subsidies

Killing Obama’s ‘Build America Bonds’ Is a Big Reason to Like the Tax Deal

There are plenty of reason to like and dislike the tax deal between President Obama and congressional leaders. On the plus side, we dodge a big tax increase for the next two years. We also replace a goofy and ineffective “make work pay” tax credit with a supply-side oriented reduction in the payroll tax rate (albeit only for one year, so there probably won’t be much economic benefit).

On the negative side, the deal extends unemployment benefits, which has the perverse effect of subsidizing unemployment. The deal is also filled with all sorts of corrupt provisions for various interest groups such as ethanol producers.

Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero.

But here’s one bit of good news that has not received much attention. The tax deal ends the “Build America Bonds” tax preference, which was one of the most destructive provisions of Obama’s so-called stimulus. Here’s an excerpt from a Bloomberg report.

Senate Democrats backing the subsidy, which has helped finance bridges, roads and other public works, fell short in a bid to get the program added to a bill extending the 2001 and 2003 income-tax cuts. That failure was the latest in efforts to keep the Build America program alive beyond its scheduled end on Dec. 31. …While Obama and Democrats have supported prolonging the program, they have run into opposition from Republicans critical of the stimulus package. Extensions have twice passed the Democratic-controlled House only to stall in the Senate, where the Republican minority has sufficient power to block legislation. The U.S. government pays 35 of the interest costs on Build America bonds. …State and local governments, the U.S. Chamber of Commerce and representatives of the construction industry are among the program’s advocates.

Build America Bonds are a back-door handout for profligate state and local governments, allowing them to borrow more money while shifting some of the resulting interest costs to the federal government.

But states already are in deep trouble because of too much spending and debt, so encouraging more spending and debt with federal tax distortions was a very bizarre policy.

Moreover, the policy also damaged the economy by creating an incentive for investors to allocate funds to state and local governments rather than private sector investments.That’s a very bad idea, unless you somehow think (notwithstanding all the evidence) that it is smart to make the public sector bigger at the expense of the private sector.

In one fell swoop, Build America Bonds increased the burden of the federal government, encouraged a bigger burden of state and local government, and drained resources from the productive sector of the economy.

That’s stupid, even by Washington standards. So whatever we think of the overall package, let’s savor the death of this destructive provision.

Happy National Entrepreneurs’ Day?

President Obama has proclaimed today to be National Entrepreneurs’ Day. The president who has brought us regime uncertainty, more regulations, more government intrusion into the economy, more debt, and is proposing to raise taxes on productive businesses and individuals wants to celebrate entrepreneurship?

I was alerted to National Entrepreneurs’ Day via an email (not online) from the Department of Commerce’s Economic Development Administration. The EDA email makes it clear that the administration wishes to celebrate political entrepreneurship, not market entrepreneurship.

In his book, The Myth of the Robber Barons, historian Burton Folsom explains the difference:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

As Obama administration achievements, the EDA touts increased Small Business Administration subsidies and a smorgasbord of industrial planning contained in last year’s stimulus package:

The American Recovery and Reinvestment Act served as the cornerstone for this new foundation by pumping $100 billion into the economy to help us tackle some of the grand challenges of the 21st century in diverse fields from healthcare IT and health research, to clean energy, to smart grids, and high speed trains. Recovery Act investments are creating a virtuous cycle of investment, innovation, and job creation that have so far led to the creation of 3 million new jobs.

Wrong. The stimulus has fueled an unvirtuous cycle of political entrepreneurship in which business interests chase federal hand-outs for endeavors sanctioned by inside-the-Beltway planners. Political entrepreneurs have less incentive to innovate and are naturally reluctant to criticize the government because they don’t want to bite the hand that’s feeding them. As Chris Edwards puts it, they become “tools of the state.”

If the administration were really interested in promoting entrepreneurship, it would repudiate the anti-market policies it has pursued thus far. That’s obviously not going to happen, so it’s going to be up to congressional Republicans to repudiate their own history of supporting federal subsidies. In other words, the GOP’s re-found fondness for limited government rhetoric is going to have to actually be matched by action.

Government Cheese

Self-anointed elites have been relentless in prodding government planners to apply their enlightened solutions for the purported benefit of the ignorant masses. As a result, the federal government has become a Super Nanny monitoring and guiding the intimate activities of the nation’s 300 million inhabitants. However, the government is not altruistic and does not have the solutions for how people should live their lives.

The amalgamation of programs and regulations that constitute the federal government is basically a reflection of the myriad special interests that have won a seat at Uncle Sam’s table. Government consists of fallible men and women who are naturally susceptible to pursuing policies that have less to do with the “general welfare” and more to do with rewarding the privileged birds incessantly chirping in their ears.

One result is that government programs often work at cross purposes. A perfect illustration is the confused U.S. Department of Agriculture, which spends taxpayer money subsidizing fatty foods while at the same time setting nutritional guidelines with the purported aim of getting Americans to eat healthier.

The New York Times explains:

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

Your tax dollars are being used by the USDA to help Domino’s Pizza (and Taco Bell, Pizza Hut, Wendy’s, and Burger King according to the article) sell its product. Of course, the government isn’t trying to help these fast food giants so much as it’s trying to help a particularly favored special interest: farmers.

While calls to get rid of subsidies for Dairy Management would obviously be on target, the better move would be to get rid of the entire USDA, which the New York Times comically refers to as “America’s nutrition police.” The USDA has been around for almost 150 years, and yet Americans have never been fatter. If there’s a solution to America’s obesity “problem,” it won’t be found in Washington. In a free society, the only solution is to make individuals responsible for the consequences of their own decision-making.

See these essays for more on downsizing the U.S. Department of Agriculture.

VIDEO: Joe Biden’s Weak Case for Government Meddling

Vice President Joe Biden believes that human progress depends almost entirely on government vision and government incentive. Donald J. Boudreaux, Cato Institute adjunct scholar and George Mason University economics professor, details why Biden is wrong both generally and in the specific case he touts:



Produced by Caleb O. Brown. Shot and edited by Evan Banks.

What the 2010 Election Will Mean for Trade

One of the many implications of yesterday’s election is that the new Congress will likely be more friendly toward trade-expanding agreements and less inclined to raise trade barriers.

Trade was not a deciding factor in the election, despite efforts by a number of incumbent Democrats to make it so. Many House and Senate contests were peppered with ads accusing an opponent of favoring trade agreements that gave away U.S. jobs to China. It was a stock line in President Obama’s stump speeches that Republicans favored tax breaks for U.S. companies that ship jobs overseas (a charge I dismantled in an op-ed last week). Yet on Election Day the trade-skeptical rhetoric and ads did not save Democratic seats.

Republicans Pat Toomey, Rob Portman, and Mark Kirk all won Senate seats in the industrial heartland yesterday (Pennsylvania, Ohio, and Illinois, respectively) and all three voted in favor of major trade agreements during their time in the U.S. House. None of them ran away from their records on trade.

The key change for trade policy will be the switch of the House to Republican control in January. Democratic House leaders were generally hostile to trade agreements during their four-year tenure, refusing to allow a vote on the Colombia trade agreement in 2008 even after President Bush submitted it to Congress while allowing a vote this fall on a bill to raise tariffs against imports from China.

In contrast, the incoming GOP House leaders, presumptive Speaker John Boehner of Ohio, Majority Leader Eric Cantor of Virginia, and Ways and Means Committee Chair David Camp of Michigan, have all voted more than two-thirds of the time for lower trade barriers, according to Cato’s trade vote data base. The trade-hostile influence of organized labor, so prominent the past four years, will be greatly diminished.

The new Congress will be more likely to consider and pass pending trade agreements with South Korea, Colombia, and Panama. The Obama administration has endorsed all three in the abstract, but has done little to actually push Congress to approve them. These three agreements offer an opportunity for the White House to work with the new Congress in a bipartisan way to promote exports and deepen ties with friendly nations.

The news is not all positive on the trade front. A more Republican-weighted Congress will probably not be much different when it comes to rewriting the farm bill in 2012. Republicans have shown themselves to be similar to Democrats in supporting subsidies and trade barriers to benefit certain farm sectors such as sugar, rice, cotton, and corn. And Republicans are far more inclined that Democrats to support the failed, 50-year-old trade and travel embargo against Cuba.

GOP: Cut Whaling History Subsidies, Save Nation

House Republican Whip Eric Cantor’s “YouCut” project has released a new video that attempts to visually underscore the impropriety of sticking future taxpayers with a mountain of federal debt.

The video begins with a voice saying “You wouldn’t do this to your child’s piggy bank” followed by visuals of a child’s piggy bank being smashed with a hammer. The voice then says:

But Democrat controlled Washington is leaving a $13 trillion debt for your children and future generations. It’s time Washington got its fiscal house in order. Start changing the culture of spending in Washington by voting on YouCut today.

That’s a wee bit disingenuous considering that Republicans and Democrats alike are responsible for the massive federal debt.

More frustrating is the fact that the GOP leadership rhetoric of grave concern is completely at odds with the party’s tiny proposed reforms. In Cantor’s YouCut commentary he says “America is at a critical crossroads, and the choices we make today will determine the kind of country we leave to our children and grandchildren.”

Now let’s look at this week’s proposed GOP spending cuts. A website banner says “CLICK HERE TO VOTE FOR THIS WEEK’S FIVE CUTS,” but takes the viewer to the YouCut page where they’re offered three spending cut options:

1. Terminate Taxpayer Funding of National Public Radio. The site says this would achieve “Savings of Tens of Millions of Dollars (potentially in excess of a hundred million dollars).” NPR shouldn’t receive taxpayer funding – and not just because it canned Juan Williams. But couldn’t the House GOP leadership have at least offered up the $500 million Corporation for Public Broadcasting that subsidizes NPR for cutting?

2. Terminate Exchanges with Historic Whaling and Trading Partners Program. The site says this would save $87.5 million over ten years.

3. Terminate the Presidential Election Fund. This would achieve a whopping projected savings of $520 million over ten years.

America is at a “critical crossroads” and the GOP leadership is offering to cut whaling history subsidies? Congress is bankrupting the nation and the possible next Speaker of the House – “never a details man” – can’t even specify what he would cut in the budget.

It’s pathetic.

Enough Community College PDA

Yesterday, President Obama hosted the White House Summit on Community Colleges, and in-your-face love was in the air. President Obama and Second Lady Jill Biden, a community college professor, couldn’t keep their hands off their signficant other, lavishing all sorts of praise on their favorite little schools.

Swooned Dr. Biden about the dreamy things community colleges do for their students:

They are students like the mother who shared her experience with us on the White House website of working towards a degree while raising three children and straddling financial challenges.  Now employed and the holder of a Bachelor’s and a Master’s degree, she wrote, “Community colleges didn’t just change my life, they gave me my life.”

Community colleges do that every day. 

Ick!

The President, too, couldn’t hide his affection:

So I think it’s clear why I asked Jill to travel the country visiting community colleges -– because, as she knows personally, these colleges are the unsung heroes of America’s education system.  They may not get the credit they deserve.  They may not get the same resources as other schools.  But they provide a gateway to millions of Americans to good jobs and a better life.

Like the guy with the locker next to Mr. and Mrs. Lovebird, all I can say is “oh, come on!”

Community colleges might be a good option for some people, but they are hardly paragons of educational success. Quite the opposite: According to the U.S. Department of Education, they have the worst graduation rates of any two-year sector of higher education. Only around 22 percent of public, two-year college students graduate within three years, versus roughly 49 percent of private, not-for-profit attendees and about 59 percent of private, for-profit students.

Wait! What’s that? Private, for-profit institutions outperform super-cute community colleges…by a lot? But they’re the ugliest, meanest, least popular kids in school!  Nobody likes them!

Oh, I know what’s going on here! For-profit schools cost a lot more than community colleges, right? That’s why they’re so disliked.

That’s true if you look at tuition prices. But community colleges get big subsidies from government, especially state and local taxpayers. So they might actually cost a lot, it’s just that they sneak the money out of your back pocket and then congratulate themselves for charging students so little.  

When you look at government expenditures per-pupil, including aid to schools and students, it becomes clear that community colleges are, in fact, just as mean and greedy as for-profits. Indeed, former Clinton administration economist Robert Shapiro has calculated that they are actually more costly to taxpayers than for-profit schools (see table 24). According to his calculations, two-year public schools cost taxpayers $6,919 per student, while private, for-profits cost just $3,628. 

No wonder the summit turned my stomach! At the same time the administration and its allies in Congress are bashing for-profit schools, the President has a love fest with community colleges that are generally much worse. Unfortunately, it leaves you concluding that for-profits could walk on water and it wouldn’t matter: As long as they’re honest about trying to make a buck, they’ll be beaten up in the parking lot and never invited to any of the cool summits.