Tag Archives: state and local government.

Cato Institute:Spending is our problem Part 4

Should we spend more federal money to help the poor?

Uploaded by on Oct 3, 2011

The so-called War on Poverty has failed. Making government bigger and creating more federal redistribution programs has been bad news for taxpayers. But the welfare state also has been a disaster for the less fortunate, creating a flypaper effect that makes it difficult for people to lead independent and self-reliant lives. This Center for Freedom and Prosperity Foundation video shows how the poverty rate was falling after World War II — but then stagnated once the federal government got involved. www.freedomandprosperity.org

People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

Baseline Projections Are Optimistic

In support of building a large “fiscal buffer,” policymakers should recognize that both short-term and long-term CBO projections are optimistic in various ways. Perhaps the future will include some positive budget surprises, but the big risk factors seem to be on the negative side.

In CBO’s baseline, federal deficits fall substantially over the coming decade, partly due to changes under the recent Budget Control Act. However, spending will be higher than projected if:

  • Policymakers lift caps in the Budget Control Act.
  • Policymakers launch new spending programs or respond to unforeseen crises or wars.
  • Higher interest rates push up interest costs, which is a risk that gets magnified as federal debt grows larger.
  • A major recession causes large cost increases in programs sensitive to economic cycles, such as unemployment insurance.
  • Policymakers respond to another recession with costly new “stimulus” plans. The persistence of Keynesian policy ideas in Washington is an important risk to the outlook for federal debt.

There are likely to be negative shocks in coming years that we don’t foresee. Consider that in its January 2008 budget outlook, CBO projected that U.S. economic growth would slow in 2008 but then rebound fairly strongly in subsequent years.15 CBO discussed the risk of a recession, but didn’t foresee the calamity that was already starting. The upshot is that policymakers should take a conservative approach and build a “fiscal buffer” with large spending cuts now before another recession causes the deficit to soar again.

CBO’s long-range projections — such as the “alternative fiscal scenario” (AFS) shown in Figure 1 — are also optimistic. In its basic projections, CBO does not factor in the negative effects of rising spending, debt, or taxes on GDP after 2021, but it does do that in a separate analysis.16 If spending actually followed the course shown in Figure 1, CBO estimates that GDP in 2035 would be up to 10 percent less than shown in the AFS, and GNP would be up to 18 percent less. In turn, spending-to-GDP and debt-to-GDP ratios would be worse than usually shown in long-range budget charts.

Under the AFS, rising deficit spending could reduce American incomes. The CBO finds that real GNP per capita could stop growing in the late 2020s, and then start falling after that. In a historic reversal, future generations of Americans would become successively poorer.

The way to ensure our continued prosperity is to cut federal spending and reduce debt. In a 2010 analysis, the CBO compared the high-spending AFS with Rep. Paul Ryan’s “Roadmap” plan.17 The Ryan plan would restrain federal spending to roughly current levels for the next few decades, and then start reducing it. By the late 2020s, GNP per capita under the Ryan plan would begin rising above the flat and then falling levels under the AFS. By the late 2050s, GNP per capita would be 70 percent higher under the Ryan plan than under the AFS.18

15 Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2008 to 2018,” January 2008, Chapter 2.
16 See Chapter 2 in Congressional Budget Office, “Long-Term Budget Outlook,” June 2011.
17 Congressional Budget Office, Douglas Elmendorf letter to Paul Ryan, January 27, 2010, http://www.cbo.gov/ftpdocs/108xx/doc10851/01-27-Ryan-Roadmap-Letter.pdf.
18 Congressional Budget Office, Douglas Elmendorf letter to Paul Ryan, January 27, 2010, p. 16.

Cato Institute:Spending is our problem Part 2

But we also know that it is difficult to convince politicians to do what’s right for the nation. And if they don’t change the course of fiscal policy, and we leave the federal government on autopilot, then America is doomed to become another Greece.

The combination of poorly designed entitlement programs (mostly Medicare and Medicaid) and an aging population will lead to America’s fiscal collapse.

__________________________

People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

America Has a High-Spending and High-Debt Government

Some analysts say that America can afford to increase taxes and spending because it is a uniquely small-government country. Alas, that is no longer the case. Data from the Organization for Economic Cooperation and Development (OECD) show that federal, state, and local government spending in the United States this year is a huge 41 percent of GDP.

Figure 2 shows that government in the United States used to be about 10 percentage points of GDP smaller than the average government in the OECD. But that size advantage has fallen to just 4 percentage points. A few high-income nations — such as Australia — now have smaller governments and much lower government debt than the United States.

Historically, America’s strong growth and high living standards were built on our relatively smaller government. The ongoing surge in federal spending is undoing this competitive advantage we had enjoyed in the world economy. CBO projections show that without reforms federal spending will rise by about 10 percentage points of GDP by 2035. If that happens, spending by American governments will be more than half of GDP by that year. That would doom young people to unbearable levels of taxation and a stagnant economy with fewer opportunities.

American government debt has also soared to abnormally high levels. Figure 3 shows OECD data for gross government debt as a share of GDP.3 (The data include debt for federal, state, and local governments). In 2011, gross government debt is 101 percent of GDP in the United States, substantially above the OECD average of 78 percent.4

3 Organization for Economic Cooperation and Development, “Economic Outlook Database,” September 2011, Annex Table 32.
4 This is a simple average of OECD countries. The OECD publishes a weighted average, but that figure is, of course, heavily influenced by the United States.

Cato Institute:Spending is our problem Part 4

Cato Institute:Spending is our problem Part 4

Should we spend more federal money to help the poor?

Uploaded by on Oct 3, 2011

The so-called War on Poverty has failed. Making government bigger and creating more federal redistribution programs has been bad news for taxpayers. But the welfare state also has been a disaster for the less fortunate, creating a flypaper effect that makes it difficult for people to lead independent and self-reliant lives. This Center for Freedom and Prosperity Foundation video shows how the poverty rate was falling after World War II — but then stagnated once the federal government got involved. www.freedomandprosperity.org

People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

Baseline Projections Are Optimistic

In support of building a large “fiscal buffer,” policymakers should recognize that both short-term and long-term CBO projections are optimistic in various ways. Perhaps the future will include some positive budget surprises, but the big risk factors seem to be on the negative side.

In CBO’s baseline, federal deficits fall substantially over the coming decade, partly due to changes under the recent Budget Control Act. However, spending will be higher than projected if:

  • Policymakers lift caps in the Budget Control Act.
  • Policymakers launch new spending programs or respond to unforeseen crises or wars.
  • Higher interest rates push up interest costs, which is a risk that gets magnified as federal debt grows larger.
  • A major recession causes large cost increases in programs sensitive to economic cycles, such as unemployment insurance.
  • Policymakers respond to another recession with costly new “stimulus” plans. The persistence of Keynesian policy ideas in Washington is an important risk to the outlook for federal debt.

There are likely to be negative shocks in coming years that we don’t foresee. Consider that in its January 2008 budget outlook, CBO projected that U.S. economic growth would slow in 2008 but then rebound fairly strongly in subsequent years.15 CBO discussed the risk of a recession, but didn’t foresee the calamity that was already starting. The upshot is that policymakers should take a conservative approach and build a “fiscal buffer” with large spending cuts now before another recession causes the deficit to soar again.

CBO’s long-range projections — such as the “alternative fiscal scenario” (AFS) shown in Figure 1 — are also optimistic. In its basic projections, CBO does not factor in the negative effects of rising spending, debt, or taxes on GDP after 2021, but it does do that in a separate analysis.16 If spending actually followed the course shown in Figure 1, CBO estimates that GDP in 2035 would be up to 10 percent less than shown in the AFS, and GNP would be up to 18 percent less. In turn, spending-to-GDP and debt-to-GDP ratios would be worse than usually shown in long-range budget charts.

Under the AFS, rising deficit spending could reduce American incomes. The CBO finds that real GNP per capita could stop growing in the late 2020s, and then start falling after that. In a historic reversal, future generations of Americans would become successively poorer.

The way to ensure our continued prosperity is to cut federal spending and reduce debt. In a 2010 analysis, the CBO compared the high-spending AFS with Rep. Paul Ryan’s “Roadmap” plan.17 The Ryan plan would restrain federal spending to roughly current levels for the next few decades, and then start reducing it. By the late 2020s, GNP per capita under the Ryan plan would begin rising above the flat and then falling levels under the AFS. By the late 2050s, GNP per capita would be 70 percent higher under the Ryan plan than under the AFS.18

15 Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2008 to 2018,” January 2008, Chapter 2.
16 See Chapter 2 in Congressional Budget Office, “Long-Term Budget Outlook,” June 2011.
17 Congressional Budget Office, Douglas Elmendorf letter to Paul Ryan, January 27, 2010, http://www.cbo.gov/ftpdocs/108xx/doc10851/01-27-Ryan-Roadmap-Letter.pdf.
18 Congressional Budget Office, Douglas Elmendorf letter to Paul Ryan, January 27, 2010, p. 16.

Cato Institute:Spending is our problem Part 2

Cato Institute:Spending is our problem Part 2

But we also know that it is difficult to convince politicians to do what’s right for the nation. And if they don’t change the course of fiscal policy, and we leave the federal government on autopilot, then America is doomed to become another Greece.

The combination of poorly designed entitlement programs (mostly Medicare and Medicaid) and an aging population will lead to America’s fiscal collapse.

__________________________

People think that we need to raise more revenue but I say we need to cut spending. Take a look at a portion of this article from the Cato Institute:

The Damaging Rise in Federal Spending and Debt

by Chris Edwards

Joint Economic Committee
United States Congress

Joint Economic CommitteeUnited States Congress

Added to cato.org on September 20, 2011

This testimony was delivered on September 20, 2011.

America Has a High-Spending and High-Debt Government

Some analysts say that America can afford to increase taxes and spending because it is a uniquely small-government country. Alas, that is no longer the case. Data from the Organization for Economic Cooperation and Development (OECD) show that federal, state, and local government spending in the United States this year is a huge 41 percent of GDP.

Figure 2 shows that government in the United States used to be about 10 percentage points of GDP smaller than the average government in the OECD. But that size advantage has fallen to just 4 percentage points. A few high-income nations — such as Australia — now have smaller governments and much lower government debt than the United States.

 

Historically, America’s strong growth and high living standards were built on our relatively smaller government. The ongoing surge in federal spending is undoing this competitive advantage we had enjoyed in the world economy. CBO projections show that without reforms federal spending will rise by about 10 percentage points of GDP by 2035. If that happens, spending by American governments will be more than half of GDP by that year. That would doom young people to unbearable levels of taxation and a stagnant economy with fewer opportunities.

American government debt has also soared to abnormally high levels. Figure 3 shows OECD data for gross government debt as a share of GDP.3 (The data include debt for federal, state, and local governments). In 2011, gross government debt is 101 percent of GDP in the United States, substantially above the OECD average of 78 percent.4

3 Organization for Economic Cooperation and Development, “Economic Outlook Database,” September 2011, Annex Table 32.
4 This is a simple average of OECD countries. The OECD publishes a weighted average, but that figure is, of course, heavily influenced by the United States.

 

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