New CBO Numbers Confirm Simple Task of Balancing the Budget with Modest Spending Restraint

It’s not a big day for normal people, but today is exciting for fiscal policy wonks because the Congressional Budget Office has released its new 10-year forecast of how much revenue Uncle Sam will collect based on current law and how much the burden of government spending will expand if policy is left on auto-pilot.

Most observers will probably focus on the fact that budget deficits are projected to grow rapidly in future years, reaching $1 trillion in 2024.

That’s not welcome news, though I think it’s far more important to focus on the disease of too much spending rather than the symptom of red ink.

But let’s temporarily set that issue aside because the really big news from the CBO report is that we have new evidence that it’s actually very simple to balance the budget without tax increases.

According to CBO’s new forecast, federal tax revenue is projected to grow by an average of 4.3 percent each year, which means receipts will jump from 3.28 trillion this year to $4.99 trillion in 2026.

And since federal spending this year is estimated to be $3.87 trillion, we can make some simple calculation about the amount of fiscal discipline needed to balance the budget.

A spending freeze would balance the budget by 2020. But for those who want to let government grow at 2 percent annually (equal to CBO’s projection for inflation), the budget is balanced by 2024.

So here’s the choice in front of the American people. Either allow spending to grow on autopilot, which would mean a return to trillion dollar-plus deficits within eight years. Or limit spending so it grows at the rate of inflation, which would balance the budget in eight years.

Seems like an obvious choice.

Scholarship Tax Credits: Still the Reigning School Choice Champion

Today, Education Next released the results of its annual survey of public opinion on education policy. The 2016 results are somewhat disappointing for advocates of school choice because support for some types of choice programs has diminished over the last decade, particularly for voucher programs targeted to the poor. However, support for scholarship tax credit (STC) programs – once again, the most popular type of school choice program – has remained high and steady.

When asked whether they favored or opposed a proposal to offer a “tax credit for individuals and corporate donations that pay for scholarships to help low-income parents send their children to private schools,” 53 percent responded favorably while only 29 percent expressed opposition. Respondents were nearly evenly divided over universal vouchers, with 45 percent in support and 44 percent opposed. However, nearly half of respondents opposed targeted vouchers while only 37 percent supported them. Charter schools fared better, but many people don’t know what they are. When the survey asked about charter schools without defining what they are, nearly half of respondents were neutral. However, when the survey defined them as “publicly funded” schools that are “not managed by the local school board” that “are expected to meet promised objectives, but are exempt from many state regulations,” the amount of respondents who expressed no opinion dropped to 21 percent while support increased from 34 percent to 51 percent and opposition increased from 17 percent to 28 percent.

2016 Education Next Survey: Support for Various Types of School Choice

2016 Education Next survey results.

Unfortunately, once again the survey failed to ask about education savings accounts.

Support for STCs was even higher among parents (60 percent), African-Americans (64 percent), and Hispanics (62 percent). This is not surprising since minorities are more likely to be low-income and therefore choice deprived. Interestingly, support for STCs was higher among self-described Democrats (57 percent) than Republicans (49 percent), although the GOP has generally been more supportive of school choice than the Democratic Party. Democrats were also more likely to support both universal and targeted vouchers (49 and 42 percent, respectively) than Republicans (41 and 31 percent, respectively). 

Previous Education Next surveys also found that STCs garnered the highest amount of support from among the various school choice policies. Since 2009, support has increased from 46 percent to 53 percent, although it is down from a high of 60 percent in 2014. However, at 29 percent, opposition to STCs is also at its highest level since EdNext began including the question in their survey. Neverthess, there is a 24 percentage point advantage for those who favor STCs. (Note: EdNext did not ask about STCs in their 2013 survey.)

Education Next Surveys: Support for STCs

Education Next survey results, 2009-2016 

With the addition of South Dakota earlier this year, there are now 17 states that have 21 STC programs. Last year, more than 230,000 students used tax-credit scholarships to attend the private school of their choice, compared to about 150,000 students who used school vouchers and about 6,000 who used education savings accounts ESAs. Their high level of public support makes them the most politically viable form of school choice and because they are privately (rather than publicly) funded, they have a perfect record of being upheld as constitutional, making them the most constitutionally viable form of school choice yet devised as well.

Although ESAs have some advantages over both vouchers and traditional STC programs because they allow for greater customization, it is possible to combine the advantages of ESAs and STCs by privately funding the education savings accounts with the assistance of tax credits. For more information, see the report I coauthored with Jonathan Butcher of the Goldwater Institute and Arizona Justice Clint Bolick (then of Goldwater): “Taking Credit for Education: How to Fund Education Savings Accounts through Tax Credits.”

The EdNext survey also covered topics such as Common Core, testing, merit pay, tenure, teachers unions, blended learning, and more. You can find the full results along with ten-year trend data here.

Viral Video Highlights the Need for Private Refugee Sponsorship

Last week, a video of five-year-old Omran Daqneesh—a victim of a bombing by pro-government forces in Syria—went viral. In response, there was a fourfold increase in the number of Google searches for “Syrian refugee” overnight. Yet despite this outpouring of interest, there is nothing that individuals who want to save refugees by bringing them to the United States can do. This is why the United States needs private refugee sponsorship to harness Americans’ interest when it surges.

The old model of refugee resettlement relies entirely on the government. The president proposes a target sometime in the middle of the year for the next fiscal year and submits a budget to Congress requesting funds to implement the plan. Congress then holds hearings and passes appropriations bills to fund it. Finally, sometime in September, the president releases the final target. It is a top-down, inflexible process, unsuited for our age, where factors can change in seconds based on news 10,000 miles away.

Private refugee sponsorship can fill the defects in the current refugee program. Private sponsorship as it is used in Canada allows groups of individuals or philanthropic organizations to “sponsor” refugees for resettlement in the country, using private funds and private housing to cover the costs. The system is dynamic and provides an outlet for surges in public interest during humanitarian crises.

More than 10,000 Syrian refugees were resettled in three months earlier this year as a result of the sponsorship program in Canada. For context, that’s more than the United States promised to bring in throughout the whole year, and Canada is a tenth of America’s population. The catalyst for the Canadian surge was the tragic image of another Syrian child, Aylan Kurdi, a three year old boy whose body washed up on the shores of Greece in September after his vessel capsized.

Canadian businessman Jim Estill was one of those who responded to the Syrian crisis. He said that he “wasn’t finding that other organizations or government were doing things fast enough,” so he launched a sponsorship initiative to resettle 50 Syrian refugee families.

The government-controlled refugee system needs competition. The United States used to have a limited private sponsorship program from 1987 to 1993. It resettled 16,000 refugees from communism—8,000 Cubans and 8,000 Jews from the Soviet Union. The State Department called the initiative “highly successful.” The program was discontinued by the Clinton administration, citing a lack of need, but now is the perfect time for a relaunch.

The rest of the world is moving toward more privatized models of refugee resettlement. Following the United Nations’ call in 2014 for countries to create “privately sponsored admission schemes,” eight countries—Canada, Germany, Argentina, Australia, New Zealand, Ireland, Italy, and the United Kingdom—created various versions of private refugee sponsorship in 2016.

Private sponsorship would also improve the quality of resettlement. In 2007, the Canadian government compared the Canadian private program to its government-controlled counterpart and found that privately sponsored refugees outperformed those that were publicly sponsored. They had higher annual earnings, used far less welfare, and reported greater levels of satisfaction with their new lives in Canada.

Sponsors have personal and financial incentives to help refugees succeed whereas government bureaucrats do not. If refugees become self-sufficient, philanthropists can actually save money by getting refugees on their feet faster. There are no similar incentives for the government-run program.

The president can implement a privately funded refugee program with his existing authority under the Refugee Act of 1980, which requires him to consider available private funds before setting the refugee target. He can create a category of immigrants who are admitted only when private funds are available, and he can crowdfund resettlement by opening up an online platform for charitable giving.

The president has no reason to wait. Each day that passes there will be another Omran whose home is hit by a bomb and who is forced to flee or, even worse, more Aylans who die during their dangerous escape. Unleashing the private sector will help save lives before more are lost.

The Fiscal Theory of the Price Level: True and False

There are two versions of the fiscal theory of the price level (FTPL); one true, the other false.  The true version holds that if the fiscal authority dominates the policy space, then fiscal deficits could be monetized by the central bank. This version is consistent with the quantity theory of money, because inflation is ultimately determined by excess growth in the money supply.  If money growth were constant, inflation could not occur—that is, there could not be a sustained rise in the average level of money prices. In this sense, Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon” cannot be refuted (Friedman 1970: 11).

The second version of the FTPL, the so-called strong version, holds that even if the money supply is held constant, inflation can occur if the fiscal authority is passive.[1] All that is needed is for the public to expect prices to rise. People will then spend their given money balances at a faster rate — increasing the velocity of money — and prices will rise until expectations change. If the fiscal authority is passive, velocity can explode, producing hyperinflation (see McCallum and Nelson 2005). This feature of the strong version is referred to as “speculative inflation” and is independent of monetary policy (Tutino and Zarazaga 2014: 3). The strong version also implies that fiscal action—not monetary reform—is the primary tool for ending a hyperinflation. This version of the FTPL is false: it ignores historical evidence that shows the determining factor in generating hyperinflations is explosive growth in the money supply (or the expectation that such growth will occur); and it fails to recognize that stabilization  results from credible monetary reform.[2]

Expectations about future inflation don’t appear like manna from heaven — businesses and households know that excess money growth causes inflation. They also know that large unfunded government liabilities and budget deficits risk having the central bank monetize debt. Although the strong version of the FTPL assumes away that possibility, history does not.

Gary Johnson, Bill Weld Make Gains in Center, Not So Much on Right

I wrote a piece last week for Reason on how the Gary Johnson and Bill Weld campaign seems to be staking out a position I called libertarian centrism – offering classical liberalism as a calm middle path between the spite and faction of left and right. Several polls find Johnson and Weld drawing support about evenly from Hillary Clinton and Donald Trump, in contrast to the expectation in some quarters that as former Republican governors they’d tap more into a GOP voter base. An Economist/YouGov poll (see p. 16) found that Johnson was drawing better numbers from self-identified moderate voters (at 11 percent) than from self-identified conservatives (at 7 percent). In recent weeks, even as the Libertarian Party candidates have met with a mostly frosty reception among big-name conservative politicos, they’ve been spoken of favorably by a number of moderate or pragmatist Republicans, including Mitt Romney, Jeb Bush, and most recently Maine Senator Susan Collins. 

For more on why centrists might like the Libertarian ticket, go read that piece. Brian Doherty, also at Reason, has been looking at a related issue: why have conservatives thus far proved so cool toward Johnson and Weld? Is it the ticket’s scattered, undeniable lapses from ideological correctness? Or its utter refusal to engage in the expected team signaling?

Ask strong conservatives what rankles most about the Johnson/Weld ticket, and you’ll almost certainly hear about how they’re no better than Hillary Clinton on the cake-baking issue – should anti-discrimination law explicitly include exemptions for religious conscience? – and probably also the gun issue, where Weld (though not Johnson) still sometimes shows his Massachusetts roots. 

On both of these issues, I’m in much the same position as Brian Doherty. I wish Johnson could outline a critique of private anti-discrimination laws and was better disposed toward religious-conscience exemptions to them, and I wish Bill Weld were more up to speed about gun issues and more appreciative of how firearms regulation tends to backfire. Still, their positions would not leave them wildly out of step even among median Republican voters, let alone independents. Johnson’s position that the law can properly make a merchant sell you a cake from a display shelf, but not decorate it for you, looks like a fairly standard Republican-governor position at this point in American history. Weld’s melange of views on guns – in his opinion, the Supreme Court was right to recognize an individual right to bear arms in Heller, but he hasn’t abandoned his interest in so-called reasonable regulation consistent with that – is not so far from that expressed by Justice Antonin Scalia, except that while Scalia is remembered for saying “A, but also B,” Weld comes off more as “B, but also A.”

The atmospherics, however, are unmistakable. However strong and principled they may be on spending, taxes, regulation, school choice, subsidies, or a hundred other issues where conservatives and libertarians often see eye to eye, Johnson and Weld keep going out of their way to flip off the organized conservative movement and send it the message: We’re not on your team. And this year, above others, should teach us that team loyalty, group touchiness, and friend-foe identification are powerful forces in politics. 

Someone is responding to the message, or else the numbers for Johnson and Weld would not be creeping upward in many polls, past 8 and 9 to 10 and 11 percent, toward the magic 15 percent mark. That someone doesn’t yet include organized conservatives. But there’s still time for them to take a second look.

Hillary Clinton’s “Exit Tax” Is an Unseemly Example of Banana Republic Economics

If you get into the weeds of tax policy and had a contest for parts of the internal revenue code that are “boring but important,” depreciation would be at the top of the list. After all, how many people want to learn about America’s Byzantine system that imposes a discriminatory tax penalty on new investment? Yes, it’s a self-destructive policy that imposes a lot of economic damage, but even I’ll admit it’s not a riveting topic (though I tried to link it to popular culture by using ABBA as an example).

In second place would be a policy called “deferral,” which deals with a part of the law that allows companies to delay an extra layer of tax that the IRS imposes on income that is earned - and already subject to tax - in other countries. It is “boring but important” because it has major implications on the ability of American-domiciled firms to compete for market share overseas.

Here’s a video that explains the issue, though feel free to skip it and continue reading if you already are familiar with how the law works.

The simple way to think of this eye-glazing topic is that “deferral” is a good policy that partially mitigates the impact of a bad policy known as “worldwide taxation.”

Washington’s First Obligation Is to Defend America, Not the World

The last NATO Secretary General, Anders Fogh Rasmussen, hailed from Denmark, which has 17,200 citizens under arms. That position did not allow him to deploy the American military, but it did give him unusual influence over U.S. policy.

Even as the American people tire of trying to solve other nations’ problems, Rasmussen wants the United States to continue its interventionist course. Politico recently interviewed Rasmussen, who promoted an “American-led world order”—at American expense, of course. Rasmussen’s greatest fear is the end of Washington’s unique global role: “What is at stake here is the American role as the global superpower.”

He agreed that Europeans should do more on behalf of their own defense, but offered no strategy to make serious and permanent increases a reality. Rasmussen was critical of Trump’s desire for better relations with Russia, even though in a conflict the Danes would do little to help defeat Moscow.

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