Topic: General

The Six Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

The Congressional Budget Office has just released the 2016 version of its Long-Term Budget Outlook.

It’s filled with all sorts of interesting data if you’re a budget wonk (and a bit of sloppy analysis if you’re an economist).

If you’re a normal person and don’t want to wade through 118 pages, you’ll be happy to know I’ve taken on that task.

And I’ve grabbed the six most important images from the report.

First, and most important, we have a very important admission from CBO that the long-run issue of ever-rising red ink is completely the result of spending growing too fast. I’ve helpfully underlined that portion of Figure 1-2.

And if you want to know the underlying details, here’s Figure 1-4 from the report.

Once again, I’ve highlighted the most important portions. On the left side of Figure 1-4, you’ll see that the health entitlements are the main problem, growing so fast that they outpace even the rapid growth of income taxation. And on the right side, you’ll see confirmation that our fiscal challenge is the growing burden of federal spending, exacerbated by a rising tax burden.

And if you want more detail on health spending, Figure 3-3 confirms what every sensible person suspected, which is that Obamacare did not flatten the cost curve of health spending.

Medicare, Medicaid, Obamacare, and other government health entitlements are projected to consume ever-larger chunks of economic output.

Now let’s turn to the revenue side of the budget.

Figure 5-1 is important because it shows that the tax burden will automatically climb, even without any of the class-warfare tax hikes advocated by Hillary Clinton.

And what this also means is that more than 100 percent of our long-run fiscal challenge is caused by excessive government spending (and the Obama White House also has confessed this is true).

Let’s close with two additional charts.

We’ll start with Figure 8-1, which shows that things are getting worse rather than better. This year’s forecast shows a big jump in long-run red ink.

There are several reasons for this deterioration, including sub-par economic performance, failure to comply with spending caps, and adoption of new fiscal burdens.

The bottom line is that we’re becoming more like Greece at a faster pace.

Last but not least, here’s a chart that underscores why our healthcare system is such a mess.

Figure 3-1 shows that consumers directly finance only 11 percent of their health care, which is rather compelling evidence that we have a massive government-created third-party payer problem in that sector of our economy.

Yes, this is primarily a healthcare issue, especially if you look at the economic consequences, but it’s also a fiscal issue since nearly half of all health spending is by the government.

P.S. If these charts aren’t sufficiently depressing, just imagine what they will look like in four years.

We’ve Been over the Huge Price of “Free” College before

Hillary Clinton will be introducing a plan today that would enable students from families eventually making up to $125,000 not to have to pay tuition at in-state colleges or universities. This is a jump in college subsidization from her previously announced plan, which focused on debt-free tuition, and more in line with what Bernie Sanders has proposed. Presumably, it is going to be paid for by the federal government offering states more money for higher education in exchange for states saying they’ll increase their own spending, to a point of making tuition largely free.

We’ve been over how costly “free” college really is–massive overconsumption, credential inflation, big opportunity costs for taxpayers, etc.–which you can read about here and here. I won’t rehash it all now. But the political calculus hasn’t changed: People like getting things for free, especially when the ultimate costs are hidden. And the more people who think they’ll benefit–the estimate is 8 out of 10 for Ms. Clinton’s new proposal–the better.

Costs Skyrocket for Air and Space

Smithsonian leaders have revealed that renovating the Air and Space museum in Washington, D.C. will cost almost $1 billion. That’s the equivalent of an army of 10,000 workers earning $100,000 each for a year to fix it up. Geez, government projects are expensive!

My letter in the Washington Post today proposes that rather than hitting taxpayers, museum visitors should pay for the renovation:

Regarding the June 23 Style article “Estimate for Air and Space facelift closes in on $1 billion”:

About $250 million of the ballooning makeover costs for the National Air and Space Museum will come from private donations, leaving a $750 million bill for taxpayers.

But rather than burdening taxpayers, how about charging visitors? The Post noted that the museum gets 7 million visitors a year, so a modest $5 fee would raise $35 million a year and pay back the makeover costs over 21 years.

Aside from the greater fairness of charging users rather than taxpayers, fees would limit demand and thus improve the visitor experience at the overcrowded institution. User fees for Air and Space — and other Smithsonian museums — would also help level the playing field with private D.C. museums, such as the International Spy Museum.

There is one more advantage of user pays. The Post notes that the estimated cost of the renovation has already skyrocketed from earlier figures of $250 million and $600 million (a common pattern). If the museum were required to fully cover renovation costs through voluntary donations and user fees, Smithsonian executives would have a strong incentive to find design savings and control construction costs.  

House Republican Health Plan Might Provide Even Worse Coverage For The Sick Than ObamaCare

WASHINGTON, DC - JUNE 22: House Speaker Paul Ryan (R-WI) discusses the release of the House Republican plank on health care reform at The American Enterprise Institute for Public Policy Research on June 22, 2016 in Washington, DC. (Photo by Allison Shelley/Getty Images)

After six-plus years, congressional Republicans have finally offered an ObamaCare-replacement plan. They should have taken longer. Perhaps we should not be surprised that House Republican leaders* who have thrown their support behind a presidential candidate who praises single-payer and ObamaCare’s individual mandate would not even realize that the plan cobbled together is just ObamaCare-lite. Don’t get me wrong. The plan is not all bad. Where it matters most, however, House Republicans would repeal ObamaCare only to replace it with slightly modified versions of that law’s worst provisions.

Here are some of ObamaCare’s core private-health insurance provisions that the House Republicans’ plan would retain or mimic.

  1. ObamaCare offers refundable health-insurance tax credits to low- and middle-income taxpayers who don’t have access to qualified coverage from an employer, don’t qualify for Medicare or Medicaid, and who purchase health insurance through an Exchange. House Republicans would retain these tax credits. They would still only be available to people ineligible for qualified employer coverage, Medicare, or Medicaid. But Republicans would offer them to everyone, regardless of income or where they purchase coverage.
  2. These expanded tax credits would therefore preserve much of ObamaCare’s new spending. The refundable part of “refundable tax credits” means that if you’re eligible for a tax credit that exceeds your income-tax liability, the government cuts you a check. That’s spending, not tax reduction. ObamaCare’s so-called “tax credits” spend $4 for every $1 of tax cuts. House Republicans know they are creating (preserving?) entitlement spending because they say things like, “this new payment would not be allowed to pay for abortion coverage or services,” and “Robust verification methods would be put in place to protect taxpayer dollars and quickly resolve any inconsistencies that occur,” and that their subsidies don’t grow as rapidly as the Democrats’ subsidies do. Maybe not, but they do something that Democrats’ subsidies don’t: give a bipartisan imprimatur to ObamaCare’s redistribution of income.
  3. As I have tried to warn Republicans before, these and all health-insurance tax credits are indistinguishable from an individual mandate.  Under either a tax credit or a mandate, the government requires you to buy health insurance or to pay more money to the IRS. John Goodman, the dean of conservative health policy wonks, supports health-insurance tax credits and calls them “a financial mandate.” Supporters protest that a mandate is a tax increase while credits—or at least, the non-refundable portion—are a tax cut. But that’s illusory. True, the credit may reduce the recipient’s tax liability. But it does nothing to reduce the overall tax burden imposed by the federal government, which is determined by how much the government spends. And wouldn’t you know, the refundable portion of the credit increases the overall tax burden because it increases government spending, which Congress ultimately must finance with additional taxes. So refundable tax credits do increase taxes, just like a mandate.

Feds Love Higher Ed Scapegoats

For-profit colleges. Accreditors. Endowments. Loan servicers. Debit card companies. Federal policymakers have blamed just about everyone associated with higher education but themselves for the Ivory Tower’s myriad problems. The most recent target just happens to be one specific accreditor: the Accrediting Council for Independent Colleges and Schools (ACICS), which accredits lots of those icky proprietary schools.

Now, ACICS might be as bad as its detractors say. I don’t know because, frankly, I don’t have the time or resources to launch a full and fair investigation into the group. Of course, that is itself a huge problem: Unless you have umpteen free hours on your hands, it is very hard to know whether “bad actors” are really bad, their accusers are jumping to conclusions or are political opportunists, or some combination of those things.

Here is what I do know: Washington gives out big sums of money to people to pay for college without meaningfully determining whether those people are prepared for higher education. That fuels rampant price, credential, and luxury inflation, and seriously mutes incentives for students to think critically about their higher education choices. In other words, “caring and generous” federal policy – policy that lets politicians telegraph how “concerned” they are with education, the poor, and the middle class – is very much at the self-defeating root of all of higher ed’s biggest problems.

So go after ACICS, the openly for-profit schools they accredit, and anyone else you think looks bad (while ignoring crucial context needed to see reality). But don’t expect doing so to fix higher ed. Expect it to just lead to other hunts when these scapegoats are dispatched, and the Ivory Tower getting no better.

Twenty Years after Whren: A Crisis of Police Legitimacy

Today marks the 20th anniversary of the Supreme Court decision in Whren v. United States. The case clarified the constitutionality of the practice of “pretextual” traffic stops. The Court ruled that so long as an officer can articulate that a driver violated some traffic law, the officer may stop a motorist in order to investigate potential and wholly unrelated criminal activity. The case has effectively become a blueprint for police officers to racially profile drivers without repercussion.

Last fall, I gave a talk at Case Western Reserve Law School in a symposium dedicated to Whren and its legacy. The school’s law review recently published the article that came from that talk. Instead of putting forth an argument to overturn Whren, I argue that police departments ought to curtail or end the use of pretextual stops as a proactive policing measure. The Supreme Court’s ruling that the tactic is constitutional does not make it an ethical or wise tactic to employ.

Simply put, pretextual stops undermine police legitimacy by turning public servants into antagonistic interrogators. In practice, pretextual motor vehicle stops—much like the pedestrian Terry stops used in New York’s infamous Stop-and-Frisk program—ensnare far more innocent people than criminals. And most of the people who are stopped are black or Latino, further eroding police support in those communities. Police departments must establish their legitimacy—through trust and positive interactions—to improve their effectiveness and public safety. Overly aggressive and implicitly discriminatory policing practices undermine that legitimacy.

You can read the whole article here. The rest of this issue of the Case Western Reserve Law Review can be found here.

Update: I also wrote a shorter piece over at Rare describing what happens during a pretextual stop and why it’s so resented by the people who experience them. 

Is Defending Tax Competition Akin to “Trading with the Enemy”?

When I was younger, my left-wing friends said conservatives unfairly attacked them for being unpatriotic and anti-American simply because they disagreed on how to deal with the Soviet Union.

Now the shoe is on the other foot.

Last decade, a Treasury Department official accused me of being disloyal to America because I defended the fiscal sovereignty of low-tax jurisdictions.

And just today, in a story in the Washington Post about the Center for Freedom and Prosperity (I’m Chairman of the Center’s Board of Directors), former Senator Carl Levin has accused me and others of “trading with the enemy” because of our work to protect and promote tax competition.

Here’s the relevant passage.

Former senator Carl Levin (D-Mich.)…said in a recent interview that the center’s activities run counter to America’s values and undermine the nation’s ability to raise revenue. “It’s like trading with the enemy,” said Levin, whose staff on a powerful panel investigating tax havens regularly faced public challenges from the center. “I consider tax havens the enemy. They’re the enemy of American taxpayers and the things we try to do with our revenues — infrastructure, roads, bridges, education, defense. They help to starve us of resources that we need for all the things we do. And this center is out there helping them to accomplish that.”

Before even getting into the issue of tax competition and tax havens and whether it’s disloyal to want limits on the power of governments, I can’t resist addressing the “starve us of resources” comment by Levin.