November 21, 2011 9:52AM

Supercommittee Fails; Now Let’s Talk Specific Cuts

It looks like the congressional supercommittee has failed to agree on a deficit‐​reduction plan. That’s probably a good thing because it sets up an automatic sequester to trim spending by $1.2 trillion over 10 years.

If the supercommittee had agreed to a deal, it might have paired phony spending cuts with real tax increases. For example, while Republicans had offered to raise taxes by $400 billion, there had been talk of adopting smoke‐​and‐​mirrors savings of $700 billion for the withdrawal of troops from Iraq and Afghanistan.

Also, one of the tax increases that Republicans were apparently offering was to change the indexing of income tax brackets. That would have been the worst kind of tax hike, as it would have been a hidden way of steadily increasing marginal tax rates over time.

A sequester is far from the best way to cut spending, and spendthrift members of Congress will have until January 2013 to try and weasel out of cuts. However, it does help to put the big spenders on the defensive. If defense hawks such as Senator John McCain want to reverse the roughly $55 billion a year in defense savings, then they have the burden of coming up with alternative cuts that can gain broad agreement.

CBO has analyzed the sequester mechanism. In typical congressional style, the simple sequester idea of “across‐​the‐​board cuts” has morphed into complex procedures that only Washington lawyers would love. The sequester’s main effect will be to reduce the discretionary caps on defense and nondefense spending that are in place from the Budget Control Act passed earlier this year. The sequester will make only tiny cuts to so‐​called entitlement programs. Still, any cuts are good cuts.

What’s the next step for budget control? Conservative Republicans have focused nearly all of their energy this year on trying to impose overall limits on the budget. The Budget Control Act and likely sequester have established discretionary caps for the next decade. Meanwhile, an effort to pass a Balanced Budget Amendment has failed.

Now Republicans should do what most of them have been evading all year — start pushing cuts to particular programs in order to launch a discussion about the federal government’s proper role. How about ending federal subsidies for public housing, high‐​speed rail, urban transit, farm businesses, and energy? How about raising the Social Security retirement age, increasing Medicare deductibles, and block‐​granting Medicaid?

To his credit, Rep. Pompeo is showing the way with his push to eliminate the Economic Development Administration. The EDA is a relatively small program, but Pompeo did a nice job on Fox last week making the case for termination. We need every fiscal conservative in Congress to do some research and then target a handful of specific programs for repeal.

Enough of the “noncommittal gibberish” about cuts, as Robert Samuelson says today. The nation’s “adult discussion” on the budget will begin when policymakers start talking specifics.

November 21, 2011 7:38AM

Supercommittee Tax Fight Is About Increasing Spending, not Reducing Deficits

Some people have asked why I’m so agitated about the possibility that Republicans may acquiesce to tax increases as part of the Supercommittee negotiations.

Rather than get into a lengthy discourse about the proper role of the federal government or an analysis of how the Bush‐​Obama spending binge worsened America’s fiscal situation, I think this chart from a previous post says it all.

Media Name: 201111_blog_mitchell11.jpg

Republicans are considering a surrender on taxes because they are afraid that a deadlock will lead to a sequester, which would mean automatic budget savings. And the sequester, according to these politicians, would “cut” the budget too severely.

But as the chart illustrates, that is utter nonsense.

There are only budget cuts if you use dishonest Washington budget math, which magically turns spending increases into spending cuts simply because the burden of government isn’t expanding even faster.

If we use honest math, we can see what this debate is really about. Should we raise taxes so that government spending can grow by more than $2 trillion over the next 10 years?

Or should we have a sequester so that the burden of federal spending climbs by “only” $2 trillion?

The fact that this is even an issue tells us a lot about whether the GOP has purged itself of the big‐​government virus of the Bush years.

A few Republicans say that a sellout on tax hikes is necessary to protect the defense budget from being gutted, but this post shows that defense spending will climb by about $100 billion over the next 10 years under a sequester. And that doesn’t even count all the supplemental funding bills that doubtlessly will be enacted.

In other words, anyone who says we need to raise taxes instead of taking a sequester is really saying that we need to expand the burden of government spending.

So even though Ronald Reagan and Calvin Coolidge are two of my heroes, now you know why I don’t consider myself a Republican.

November 18, 2011 3:44PM

Adios Balanced Budget Amendment

The House failed to pass a particularly bad version of the Balanced Budget Amendment this afternoon. Good. Kudos to the four Republicans who voted against it (see vote breakdown here).

House Republicans wanted a vote on a BBA for political purposes. The GOP wanted to be able to present the Democratic “no” votes to voters as proof that those particular members aren’t serious about reining in the exploding federal debt. They probably aren’t, but Republicans who voted “yes” shouldn’t cite their vote as evidence that they’re serious about cutting spending unless they’re prepared to detail what all they would cut in order to bring the budget into balance.

November 18, 2011 1:59PM

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

  • The Washington Post does a nice job describing how Solyndra is just one of many energy subsidy failures of recent decades.
  • The cheerleaders for federal redistribution schemes would have the public believe that it’s all about “helping those in need” when in fact it’s really about fostering dependency on taxpayers.
  • Chris Preble on cutting military spending and rethinking our grand strategy.
  • U.S. policymakers should be asking: What have other countries privatized that we can privatize in this country?
  • Chris Edwards on crumbling bridges and infrastructure fear‐​mongering.
  • The “minibus” spending bill is largely business as usual.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

November 18, 2011 11:47AM

GOP National Security and Foreign Policy Debate: What to Ask the Candidates

The economy is likely to dominate next year’s presidential race, so it is surprising that Republicans would choose to conduct two debates focused on foreign policy in the span of 10 days. The first, co-hosted by CBS News and National Journal, was held last Saturday evening. (CBS apparently thought most people had better things to do; they preempted the final 30 minutes with an NCIS rerun.) CNN, no doubt, hopes that the sequel, to be held Tuesday, November 22, will draw a wider audience.

I wonder if the RNC hopes that it doesn’t. In fact, there are many reasons why GOP leaders would want to get the whole subject of foreign policy and national security out of the way well before next year. Let Michele Bachmann and Rick Santorum wax poetic about the wisdom of waterboarding, and let them do it after television viewers have stopped watching. Better to save the talk of joblessness and massive federal debt for the main event with President Obama, when tens of millions of Americans, including many independents and undecided voters, might actually rely on the debates to inform their choices. (Unlikely, I know, but hope springs eternal.)

Foreign policy blunders have cost the GOP votes in three of the last four elections. (It was a non-factor in 2010.) Once trusted by the electorate as the voice of prudence and reason when it came to diplomacy and the use of force, the Republican brand has been sullied by the war in Iraq and the quagmire in Afghanistan.

One might think that the party has learned its lessons, and that those aspiring to carry the GOP banner into next year’s elections would be determined to draw distinctions between themselves and the recent past.

Judging from last Saturday’s debate, they haven’t. The answers provided by the presumptive front-runner, Mitt Romney, and his leading challengers, Herman Cain and Newt Gingrich, reveal a reflexive commitment to the status quo and an unwillingness to revisit the rationales for war with Iraq or for nation-building in Afghanistan. They hinted at expanding the U.S. military’s roles and missions to include possible conflict with Iran. They continued to speak of a "war on terror." And they struggled to draw distinctions between themselves and President Obama, at times criticizing him for doing too little, other times for doing too much.

In advance of last week’s debate, several bloggers suggested some questions. Some of these made it to prime time. However, two big sets of questions---one pertaining to the lessons of Iraq and Afghanistan, the other related to the costs of our foreign policies---remain unexplored. I hope that the questioners in next week’s debate, or perhaps the other candidates, would try to get some answers. Be sure to follow me on Twitter (@capreble) for a conversation during the debate. Justin Logan will also be live-blogging the event over at RealClearWorld.

In the meantime, here are some questions I would like answered:

Read the rest of this post »
November 18, 2011 10:24AM

Engineers for Big Government

The American Society of Civil Engineers does a flashy study every year called “America’s Infrastructure Report Card.” The wrench-turners give a grade of “D” to the mainly-government infrastructure they examine. Based on the low grade, they ask for taxpayers to cough up another $2.2 trillion so the engineers can fix the supposed mess.

There are two big problems with the ASCE report. The first is that it is devoid of economic thinking. Every infrastructure asset that is old and less than perfect is apparently a disgrace to the engineers. But economists would point out that to maximize our standard of living we generally want to wear out fixed assets pretty thoroughly before we buy new stuff.

Consider America’s automobile stock, which includes everything from brand-new cars to old clunkers. The engineers would probably give the nation’s automobile infrastructure a “D” because it includes many old cars like my wife’s 11-year-old Honda. But it would be hugely wasteful---both economically and environmentally---to throw out all the old cars and give everyone brand new Acuras.

Instead, it’s efficient if car owners compare the likely stream of benefits and costs of their current used cars with the likely stream of benefits and higher costs of possible new cars, and then make an optimal choice. That’s what my wife is doing, but the ASCE would probably give her a “D” grade, castigate her frugality, and insist she immediately blow her savings on a new Rolls Royce.

The other problem with the ASCE report is its naiveté regarding the efficacy of central planning. I’ve discussed federal infrastructure failures in this op-ed and this testimony, but the ASCE seems to believe that all-knowing visionary leaders in Washington can direct us to infrastructure salvation.

Read the rest of this post »
November 18, 2011 9:05AM

Australia: Watch What You Say About Taxes On Your Business

An agency of the Australian government has news for businesses that might be inclined to undercut intended official messaging about the country’s new carbon tax: we’re looking over your shoulder [Andrew Bolt, Melbourne Herald Sun via Coyote]:

[T]he Australian Competition and Consumer Commission … this week issued warnings to businesses that they will face whopping fines of up to $1.1m if they blame the carbon tax for price rises [at least if they do so in a way the commission considers “unsubstantiated” or “misleading” — see below].

It says it has been “directed by the Australian government to undertake a compliance and enforcement role in relation to claims made about the impact of a carbon price.”

…There will be 23 carbon cops roaming the streets doing snap audits of businesses that “choose to link your price increases to a carbon price.”

Instead, the ACCC suggests you tell customers you’ve raised prices because “the overall cost of running (your) business has increased.”

It should be noted that the ACCC in its guidance disclaims any intent to suppress discussion of the tax as such, so long as it can be “substantiated” to the commission’s satisfaction and is not exaggerated or misleading to consumers. But its examples make clear that it will regard as exaggeration what many others would consider difference of opinion, and in particular that businesses that blame a price rise on the tax face the prospect of burdensome “substantiation notices” and may well lose in court unless they can prove that the tax was entirely (not just mostly) responsible for a cited rise in costs.

Columnist Bolt, incidentally, knows a thing or two about the tendency of the advancing regulatory state to trample freedom of speech. And readers with longer memories will be aware that there was a time when our own Federal Trade Commission was interested in regulating corporate “issue” advertising in a very similar way, so that ads that explained a company’s position on, say, environmental controversies would become legally hazardous unless each assertion therein could be “substantiated” to the regulators’ satisfaction.