Broadening the tax base and lowering the rate, the current whiz-bang solution to both the government debt problem and the recession, has the support of Sen. Dick Durbin (D-IL) from the political left and Sen. Tom Coburn (R-OK) on the political right. That in itself ought to make folks suspicious. Now that the Chicago Tribune has endorsed the idea in an editorial on August 7, 2011, it is all the more important to examine this presumed path to Nirvana.
The first question that should be asked is why are some economic activities taxed differently from others? One model is that government can easily tax politically unpopular firms and individuals in order to fund programs for favored constituencies. This is a form of the free lunch idea. If it were true, there would be no limit on the size of government. Although many of us believe the government is too big, it is not infinitely large.
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America’s answer to Soviet central planning — the Federal Reserve — yesterday announced it’s determined to hold interest rates to virtually zero for another two years. This will give savers and people who live within their means at least two more years of punishment by ensuring they receive virtually nothing for their savings.
But there was good news in the announcement, which stated in part: “Economic growth so far this year has been considerably slower than the committee had expected” and added, “The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually . . .”
I take this as the first sign in a long time that true economic recovery could be right around the corner. These clowns haven’t been right since the financial crisis occurred three years ago — indeed, they failed to see the economic train wreck coming.
I figure if they’ve been wrong all along, they’re probably wrong now.
If doing the same thing and expecting different results really does indicate insanity, then President Obama must be insane.
I listened to his talk earlier today and heard a lot of what we’ve heard from him many times before: more government spending on “infrastructure” (has he already forgotten that even he could find almost no “shovel-ready” projects?), more unemployment benefits, more class warfare, etc.
While he talked, the stock market dropped. The more he talked, the more it dropped and kept dropping after he finished. Final damage tally: Dow average down more than 630 points today. He’ll probably blame the Tea Party and corporate jets.
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The talking point of the weekend from the Obama administration and Congressional Democrats was that Standard & Poor’s reduction of the U.S. government’s credit rating from sterling AAA to less-shiny AA-plus was the fault of the Tea Party movement and the freshmen they put into the House and Senate last year. As of Sunday night, if you googled (in quotes) “Tea Party Downgrade,” you got 11,000 hits. That number is sure to skyrocket in the coming weeks , but the argument (if you want to call it one) is absurd.
Sen. John Kerry (D-MA) trotted out the line on Meet the Press Sunday morning:
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Heartland friend Alan Caruba is quick to react to the news tonight that S&P has downgraded America’s credit rating for the first time in our history. A quick excerpt of his piece over at The Freedom Pub:
When a nation’s debt equals its entire annual gross domestic product, it is bankrupt. It can still produce goods and services, but it will likely encounter fewer customers worldwide as they too are drawn deeper into their own debt crises.
When it must borrow billions daily just to meet its obligations to other nations and individuals who have purchased its treasury notes, it is has reached a point of “moral hazard” that threatens the wealth of every single citizen.
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Below are the comments Heartland Institute budget and tax experts made in the wake of yesterday’s debt ceiling vote. To say they were not generally not happy is an understatement:
“Republicans this morning were claiming victory with this debt deal because there would be no tax increases. Do they still think it’s a victory?
“Democrats say the deal allows the special Joint Committee of Congress to demand higher taxes. The president today stridently called for higher taxes on the wealthy – and spent more time talking about where the government needs to spend more, not where the government needs to cut more.
“Obama called for higher taxes on the wealthy and more spending on things ranging from unemployment benefits to the creation of an ‘infrastructure bank’ to fund more highway, bridge and other government construction projects. He also wants more tax cuts on middle-income earners even though approximately half of all households already pay no federal income tax.
“Meanwhile, The Wall Street Journal today quoted Democrat Sen. Kent Conrad of North Dakota saying on MSNBC: ‘It is really very clear that [new] revenue can be part of any solution that the special committee develops.’
“That doesn’t look to me like victory for anyone who cares about improving the economy or controlling government.”
Steve Stanek
Research Fellow, Budget and Tax Policy
The Heartland Institute
Managing Editor
Budget & Tax News
sstanek@heartland.org
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Congressional leaders and the White House on Sunday appeared to come to an agreement to raise the federal debt ceiling. The deal comes with some $2 trillion in promised budget cuts and no tax hikes — but has come under criticism from conservatives in Congress, the Tea Party caucus and liberals. The deal could come up for a vote Monday.
The following statements from fellows of The Heartland Institute may be used for attribution. For further comments, or to book any of these people on your program, contact Director of Communications Jim Lakely at jlakely@heartland.org or 312/377-4000 or 312/731-9364.
“The Boehner-Reid plan, at best, will result in a further increase in the national debt of $7 trillion. It cuts only $6 billion for next year out of a budget that will spend literally over 600 times that, so it’s no wonder it has been widely criticized by fiscal conservatives.
“These budget debates make no sense because of ‘baseline budgeting,’ which builds in trillions in automatic increases in the budget, and then calls any reduction in that runaway increase a draconian cut in spending. The first step on the road to fiscal sanity would involve repealing baseline budgeting so discussions about the federal budget would sound more like discussions about the family budget.”
Peter Ferrara
Senior Fellow for Entitlement and Budget Policy
The Heartland Institute
pferrara@heartland.org
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The debt ceiling crisis is rightly sucking almost all of the oxygen in the arena of public debate. So it’s remarkable that The Washington Post’s George Will dedicated his Friday column to the Nick Gillespie and Matt Welch book, The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong With America.
(The Heartland Institute is hosting a “happy hour” with the authors in Chicago the evening of August 16. Register for that event here.)
But, come to think of it, the book could hardly be more timely. As Will notes:
“Declaration of Independents” is suitable reading for this summer of debt-ceiling debate, which has been a proxy for a bigger debate, which is about nothing less than this: What should be the nature of the American regime? America is moving in the libertarians’ direction not because they have won an argument but because government and the sectors it dominates have made themselves ludicrous. This has, however, opened minds to the libertarians’ argument.
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(Reactions to recent events by Harrison Schmitt — Heartland Institute Board member, former U.S. Senator (R-N.M.), and the last man (and first scientist) to set foot on the moon. (Cross-posted at America’s Uncommon Sense):
The political struggles surrounding the potential breaching of the current limit on debt that can be incurred by the United States Government, and the underlying unsustainable levels of federal spending and taxation, have distinct similarities to other momentous struggles in our history. These earlier challenges all involved those who fought to establish and/or preserve human liberty against those with ideological opposition to that liberty.
In our Founders’ late 18th and early 19th Century fight for Independence and its preservation, the forces of liberty were opposed by an ideology advocating the divine right of Kings. In the 1860’s Civil War to free the slaves, the forces of liberty were opposed by the ideology that condoned slavery.
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My latest in The American Spectator about the debt ceiling debate has been getting some attention today (I’m going on KMOX in St. Louis at 1 p.m. Central Time) to talk about it.
An excerpt:
The indisputable facts show that Congressional Republicans have done their job. Months ago, the House Republican majority passed the budget proposed by House Budget Committee Chairman Paul Ryan (R-WI). Ryan’s budget provided for $6.2 trillion in spending cuts for its first 10 years alone. Over the long run, it drives federal spending to 15% of GDP, well below the postwar historical average of 20%.
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Broadening the tax base and lowering the rate, the current whiz-bang solution to both the government debt problem and the recession, has the support of Sen. Dick Durbin (D-IL) from the political left and Sen. Tom Coburn (R-OK) on the political right. That in itself ought to make folks suspicious. Now that the Chicago Tribune has endorsed the idea in an editorial on August 7, 2011, it is all the more important to examine this presumed path to Nirvana.
