Monthly Archives: September 2011

Obama has not learned that government stimulus will not work

September 6, 2011 – 6:17 pm

President Obama just does not learn from the past.

The Stimulus: The Government Job Creation Myth

by Tad DeHaven

 

Tad DeHaven is a budget analyst at the Cato Institute and co-editor of Downsizing the Federal Government.

Added to cato.org on August 2, 2010

This article appeared in the Richmond Times-Dispatch on August 1, 2010

At the beginning of 2009, the president’s economists told the public that passing an $862 billion “stimulus” package was the medicine the sick economy needed. We were told that its pas sage would keep unemployment from going above 8 percent. Instead, unemployment has remained close to 10 percent ever since.

The overall unemployment rate in Virginia has also increased but remains below the national average. However, counties that don’t border the D.C. spending epicenter have unemployment rates that often match or exceed the national average. Virginia has been awarded some $4.5 billion in stimulus funds, yet private sector employment remains flat.

Never mind all that, says the administration. The stimulus package prevented a second great depression, it says. Last month, the White House’s Council of Economic Advisors released an analysis claiming that the stimulus created or saved between 2.5 million and 3.6 million jobs.

Policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck.

Sounds good, but how did the CEA arrive at this conclusion?

Fuzzy math.

The first analysis used economic modeling to estimate the number of jobs created or saved. The model the CEA used assumed that government spending will have a positive multiplier effect on the economy. Voilà — the stimulus created jobs!

In the second analysis, the CEA estimated the stimulus bill’s effects by comparing real changes in gross domestic product and employment against a baseline forecast. However, even the CEA admits that this approach is subject to “considerable margins of error,” and that “the comparison will reflect not just the impact of fiscal policy, but all other unusual influences on the economy following passage of the Act.”

Translation: “We don’t know.”

That the stimulus did create jobs isn’t in question. The real question is whether it created any net jobs after all the negative effects of the spending and debt are taken into account. How many private-sector jobs were lost or not created in the first place because of the resources diverted to the government for its job creation?

Don’t expect the administration’s economists to attempt an answer to that question any time soon.

Here’s another question that the administration would prefer to ignore: How many jobs are being lost or not created because of increased uncertainty in the business community over future tax increases and other detrimental government policies?

The economist Robert Higgs coined the phrase “regime uncertainty” to describe Franklin Roosevelt’s anti-business climate, which prolonged the Great Depression. Unfortunately, this president is repeating the same mistake.

Health care mandates, cap-and-trade legislation, new financial regulations, union protections, and the probability of higher taxes to pay for the administration’s debt spree have caused innumerable businesses to remain on the sidelines.

As one small business owner recently told me, “I want to hire but I’m afraid the administration’s policies are going to force me to turn around and let them go.”

The president is countering these objections by traversing the country handing out government checks to pet industries. Apparently in the president’s economic Field of Dreams, “if we subsidize it, they will come.” Too bad past administrations have already poured billions of taxpayer dollars down the drain on similar failed top-down planning schemes.

Tad DeHaven is a budget analyst at the Cato Institute and co-editor of Downsizing the Federal Government.

 

More by Tad DeHaven

So what should the administration do?

Put simply, the opposite of what it has been doing. It has become gospel in some quarters that massive deficit spending is necessary to get the economy back on its feet.

History offers no support for this contention.

Most recently, the Japanese tried to spend their way out of their economic doldrums in the 1990s. The result was Japan’s “lost decade.”

Our own history offers evidence that reducing the government’s footprint on the private sector is the better way to get the economy going. Take for example, the “Not-So-Great Depression” of 1920-21. Cato Institute scholar Jim Powell notes that President Warren G. Harding inherited from his predecessor Woodrow Wilson “a post-World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit.”

Instead of resorting to deficit spending to “stimulate” the economy, taxes and government spending were cut. Hello Roaring Twenties.

Similarly, fears at the end of World War II that demobilization would result in double-digit unemployment when the troops returned home were unrealized. Instead, spending was dramatically reduced, economic controls were lifted, and the returning troops were successfully reintegrated into the economy.

Policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck. Stimulus proponents generally recognize that our fiscal path is unsustainable, but they argue that the current debt binge is nonetheless critical to an economic recovery. Nonsense.

Not only has Washington’s profligacy left us worse off, our children now face the prospect of reduced living standards and crushing debt.

By Everette Hatcher III | Posted in President Obama | Comments (0)

Brummett: Obama would defeat Rick Perry (Part 1)

September 6, 2011 – 8:17 am

Cato Institute Scholars Analyze the 2010 State of the Union Address

Uploaded by on Jan 28, 2010

Cato Institute scholars address several items in President Obama’s first official State of the Union Address. Scholars include Daniel J. Mitchell, Mark A. Calabria, Neal McCluskey, Michael D. Tanner, John Samples, Jim Harper and Malou Innocent. http://www.cato.org

_________________________________

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John Brummett suggests that Rick Perry could not beat President Obama in his re-election attempt in 2012. In Brummett’s article “Laboring over holiday arrows,” September 6, 2011, Arkansas News Bureau, he asserted:

President Obama— You cannot get re-elected in an economy like this unless the Republicans nominate someone more unsettling even than the economy, a possibility.

arrowdownsmallRick Perry, Mitt Romney, Michele Bachmann — The possibilities mentioned above

I will respond in 6 parts. These 6 parts all deal with fundemental economic disagreements that President Obama and Rick Perry disagree on, and I will you determine if the public agrees with Perry or Obama.

These observations come from an article I read by Bradley Gitz on Sept 4, 2011 in the Arkansas Democrat-Gazette:

Much is being made of Texas Gov. (and now GOP frontrunner) Rick Perry’s “Texas Miracle.” Conservatives favorably compare Texas’ economic performance with the rest of the nation under Barack Obama. Liberals claim the “miracle” really isn’t much of a miracle at all and that Perry shouldn’t get the credit even if it is.
   Both sides have a point. By any objective standard, Texas has done pretty well in recent years, although upon closer inspection it still has problems (like any state) and it remains unclear how much of the good stuff can be attributed to Perry’s policies.
   In clarifying all this, it might help to remember that government is necessary for economic development but, past a certain point, is a potential obstacle to it. The logical corollary is that the marketplace is generally self-correcting, unless presidents (and governors) do dumb things that prevent such corrections. Sound economic policy more often than not means government laying the right foundation for economic growth and then getting out of the way.
   So what would such a “right” foundation under present circumstances consist of?
   First, limiting the size of the welfare state and government spending in general. Much easier than figuring out the right policies is identifying the wrong ones, foremost among which is government spending more each year than it takes in. At this point we have no choice but to overhaul entitlements, drastically cut discretionary spending and hope we have learned to never go down this road again…
   
   That the Obama administration doesn’t like most of these ideas explains certain things, and also suggests a rather obvious ninth step the voters can take in November of 2012.
   —–––––
•–––––—
   Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.

By Everette Hatcher III | Posted in President Obama | Tagged , , , , | Comments (0)

“Tip Tuesday,” Advice to Gene Simmons Part 9, Fellowship Bible Church July 24th

September 6, 2011 – 7:44 am

Gene Simmons and Shannon Tweed

John McArthur

The Truth About Divorce, #2 (Mark 10:1-12)

On the show Gene Simmons has been arguing the point that he admits that he is selfish, but he still feels he has the right to be selfish. In the conclusion of the final episode of the year on July 24th he drops to his knees and proposes marriage to Shannon. However, before doing that he apologizes for the selfishness that he so long thought he deserved to have. As we have learned through the episodes this means that he has had numerous affairs through the years while on tour with his band KISS.

He may have thought these other ladies had positive things to offer him but the Bible makes it clear that we are to be committed to our one spouse.

Brandon Barnard in his message on sexual purity at Fellowship Bible Church on July 24, 2011 makes much of this issue. He points out THE PATHWAY OF IMPURITY IS PROMISING BUT DECEIVING. Then he read these scriptures below:

Proverbs 5:4

English Standard Version (ESV)

4but in the end she is bitter as wormwood,
    sharp as a two-edged sword.

Proverbs 7:18-20

English Standard Version (ESV)

18Come, let us take our fill of love till morning;
   let us delight ourselves with love.
19For my husband is not at home;
   he has gone on a long journey;
20he took a bag of money with him;
   at full moon he will come home.”

By Everette Hatcher III | Posted in Current Events | Comments (0)

In 82 and 90 tax increases happened immediately but spending cuts never came

September 6, 2011 – 6:32 am

Washington Could Learn a Lot from a Drug Addict

In 82 and 90 tax increases happened immediately but spending cuts never came. If you have ever dealt with a drug dealer then you would know that they will lie to you in order to get money out of you for drugs. Congress has lied in the past to keep their addiction to overspending going!!!

 

Tax Hikes a Foregone Conclusion Under Obama’s Tax-and-Spend Commission

Today, President Barack Obama signed an executive order announcing the creation of his “debt commission,” modeled after the infamous “Conrad-Gregg commission” plan the Senate voted down in January. The Administration has already announced that the panel will be headed up by former White House chief of staff under Bill Clinton Erskine Bowles and former Republican Senate Whip Alan Simpson.

While a United States Senator, Simpson voted for two “bipartisan deals” which had real tax increases and phony spending cuts. The first was the 1982 “TEFRA” bill which promised $3 in spending cuts for every $1 in tax hikes. The second was the 1990 “Read My Lips” deal struck at Andrews Air Force Base, which promised $2 in spending cuts for every $1 in tax hikes. In both cases, every penny of the tax hikes went through. Also in each case, the spending restraint never materialized.

Says ATR President Grover Norquist:

Taxpayers have every reason to be concerned. Alan Simpson has a history of walking into a room with the stated goal of reform – and in both cases he voted for higher taxes and higher spending, leaving taxpayers to foot the bill. There is no reason to believe that things would be different this time around – when you put everything on the table, including damaging tax hikes, taxpayers will more than likely be sold out.

Reform commission proposals that would not run the risk of being hijacked by tax increase proponents have been put forth in both the U.S. House and Senate. Senator Sam Brownback (R-KS) has sponsored the CARFA Act, which is modeled after the successful BRAC base closure commission, just like a similar bill, the FAPRAC Act sponsored by Rep. John Sullivan (R-OK) in the House. Both of these bills focus only on Federal spending and leave no room for tax increases. Rep. Patrick McHenry’s (R-NC) CORE Spending Act, while setting up a differently focused commission, protects taxpayers by incorporating a clear prohibition of tax increases or new taxes.

Norquist continues:

Rather than falling into the old “everything’s on the table” trap where tax increases are a foregone conclusion, Congress and the Administration should look to enact a BRAC-style spending reform-only commission or the CORE Spending Act all of which would take increases off the table. The BRAC process would not have worked if it had been tasked with either closing unnecessary bases or raising taxes to pay for unnecessary bases. It worked precisely because it had one job: to save taxpayer money by closing unnecessary bases, and along these lines, we should focus only on the real culprit of our fiscal problems – out-of-control spending.

Click here for a pdf of the press release.

 
By Everette Hatcher III | Posted in President Obama, Ronald Reagan, spending out of control | Comments (0)

The federal reserve is contributing to inflation

September 6, 2011 – 12:58 am

Take a look at the figures below and you will see that the Fed is now causing inflation and we are all going to pay more for our products:

The Fed vs. the Recovery

by Alan Reynolds

 

This article appeared in The Wall Street Journal on August 26, 2011.

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One year ago, on Aug. 27, 2010, Federal Reserve Chairman Ben Bernanke explained the rationale for a second round of quantitative easing. “A first option for providing additional monetary accommodation is to expand the Federal Reserve’s holdings of longer-term securities,” he said, thereby supposedly “bringing down term premiums and lowering the costs of borrowing.”

Yet the bond market promptly reacted by raising long-term interest rates. The yield on 10-year Treasurys, which was 2.57% at the time of his Jackson Hole, Wyo., address, climbed to 3.68% by February 2011 and did not dip below 3% until late June when QE2 was coming to an end. The price of West Texas crude oil, which was $72.91 a year ago, remained above $100 from March to mid-June and did not come down until QE2 ended and the dollar stopped falling.

When Mr. Bernanke spoke, the price of a euro was less than $1.27. By the week ending June 10, 2011, 15 days before QE2 ended, the dollar was down about 15% (a euro cost $1.46). In that same week, The Economist commodity-price index was up 50.9% from a year earlier in dollars—but only 22.8% in euros. How could paying much more than Europe did for imported oil, industrial commodities, equipment and parts make U.S. industry more competitive?

In the end, quantitative easing turned out to be an anti-stimulus which stimulated nothing but the cost of living and the cost of production.

The chart nearby subtracts the contribution of government purchases (such as hiring and construction) from real GDP growth to gauge the growth of the private economy. The generally negative contribution of government purchases (column two) does not mean government spending has slowed, as some contend. Instead it reflects the fact that federal and state spending has been increasingly dominated by transfer payments (such as Medicaid, food stamps and unemployment benefits) which do not contribute to GDP, and in some cases reduce GDP by discouraging work.

The chart also shows that growth of private GDP was also much faster before QE2 than it has been since, and the increase in producer prices (i.e., U.S. business costs) was much more moderate. And that is no coincidence.

Former Obama adviser Christina Romer, writing in the New York Times in late May, said that “a weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working.”

Well, foreign goods certainly did become more expensive during the second round of quantitative easing, but it is doubtful that “more Americans are working” as a result. Industrial supplies and materials accounted for 34.5% of U.S. imported goods so far this year, according to the Census Bureau, and capital equipment and parts accounted for an additional 23%. As Fed policy pushed the dollar down, higher prices for imported inputs such as oil, metals and cotton meant higher costs (producer prices) for U.S. manufacturing and transportation.

In demand-side theorizing, monetary stimulus means the Fed buys more bonds. The Treasury has certainly been selling a lot of bonds, and the Fed has been buying (monetizing) a huge share of those bonds. That helped push the broad M2 money supply up at a 6.8% rate over the past six months. Yet the only thing we have to show for all that stimulus over the past year has been rapid inflation of producer prices and a simultaneous slowdown in the growth of the private economy. Consumer price inflation also accelerated to 5.2% in the first quarter and 4.1% in the second, from just 1.4% in the third quarter of 2010.

Imported goods did indeed become more expensive while the dollar was falling, rising at a 15.1% annual rate over the past three quarters according to the government’s report on GDP. But exported U.S. goods also became more expensive, rising at an 11.4% rate over that same period.

The fourth column in the chart shows that net exports were a subtraction from GDP in early 2010 when the private economy was growing most briskly, thus raising the demand for imported materials and components. The rise of dollar commodity costs and producer prices in the wake of QE2 reduced the growth of real imports because it reduced the growth of real GDP.

Many journalists credit QE2 with raising asset prices, which was certainly true of precious metals but not of housing. It is also true that stock prices generally rose over the past year, but it is implausible to link that to quantitative easing.

Operating earnings per share for the Standard & Poor’s 500 companies rose to an estimated $24.86 by June 30, up from $20.40 a year earlier. Fed policy cannot possibly explain that rise in earnings because domestic output slowed and producer prices rose under QE2, while more than 46% of the sales of S&P 500 companies have come from foreign countries.

Berkeley economist Brad DeLong, writing in the Economist, suggests that, “Aggressive central banks can shift expected inflation upward and thus make households fear holding risky debt and equity less because they fear dollar devaluation more.” But individual investors often react to such fears by dumping equities and speculating in gold and silver. What good does that do?

Alan Reynolds, a senior fellow at the Cato Institute, is author of Income and Wealth(Greenwood Press, 2006).

More by Alan Reynolds

In short, the Fed’s experiment with quantitative easing from November 2010 to June 2011 was accompanied by a falling dollar and inflated prices of critical industrial commodities, including oil. The net effect was to reduce the profitability of manufacturing and distributing products in the United States, and therefore to shift such activities (and jobs) to other countries which were less handicapped by the dollar’s weakness.

Every postwar recession but one (1960) has been preceded by a spike in oil prices of the sort we experienced when the dollar fell and oil prices doubled from August 2007 to July 2008 (reaching $142.52), and to a lesser extent when the dollar fell and oil prices rose to $112.30 at the end of April 2011 from $72.91 in late August 2010. Conversely, during the 1997-98 Asian currency devaluations (and soaring dollar), the U.S. experienced a booming domestic economy as the dollar price of oil dropped to $11 by the end of 1998.

Those who are now looking backwards at how poorly the U.S. economy performed under QE2 in order to “forecast” the future appear to be neglecting the potentially beneficial effects of a firmer dollar in deflating the bubble in U.S. commodity costs. In the end, quantitative easing turned out to be an anti-stimulus which stimulated nothing but the cost of living and the cost of production. Good riddance.

By Everette Hatcher III | Posted in Cato Institute | Comments (0)

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 34)

September 6, 2011 – 12:34 am

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 34)

This post today is a part of a series I am doing on the 66 Republican Tea Party favorites that resisted eating the “Sugar-coated Satan Sandwich” Debt Deal. Actually that name did not originate from a representative who agrees with the Tea Party, but from a liberal.

Rep. Emanuel Clever (D-Mo.) called the newly agreed-upon bipartisan compromise deal to raise the  debt limit “a sugar-coated satan sandwich.”

“This deal is a sugar-coated satan sandwich. If you lift the bun, you will not like what you see,” Clever tweeted on August 1, 2011.

Rep Fleming to Obama: STOP Insulting the American People

 
 

Washington, Jul 15 –

Congressman John Fleming, M.D. released the following statement today reacting to President Obama’s news conference on the debt ceiling negotiations with Republican and Democrat Congressional leadership throughout the week. This news conference offered little more than a photo opportunity for President Obama to merely show that he is somewhat interested in solving our nation’s financial problems. 

“Once again we see our Campaigner-in-Chief take the podium today with NO real solutions to solve this debt ceiling crisis. He would rather to vilify job creators instead of embracing them. Instead of taking responsibility for our debt surging 35% during his term, President Obama chose to blame Republicans for our nation’s financial problems and then has the nerve to cite erroneous polls that say Americans are in favor of tax increases when that could not be farther from the truth. This further proves that President Obama is a complete failure when it comes to leading on this important issue,” said Congressman Fleming. 

Congressman Fleming added, “Republicans have put forth real solutions like CUT, CAP, and BALANCE – a balanced budget amendment along with budget cuts and spending caps that will take us further towards fiscal sanity. This will ensure that future generations of Americans are not riddled with debt. Mr. President, stop insulting the American people with your misguided solutions to these problems that will have little or no effect.”

 

Dr. John Fleming is Chairman of the Natural Resources Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs and is a member of the House Armed Services Committee. He is a physician and small business owner and represents the 4th Congressional District of Louisiana.

By Everette Hatcher III | Posted in spending out of control | Comments (0)

Stimulus plans do not work but liberals like Brummett and Obama do not get it

September 5, 2011 – 11:44 pm


John Brummett in his article, “Will we stimulate with schools, not roads?,” Arkansas News Bureau, September 5, 2011, suggested that the Republicans have several reasons for opposing President Obama’s latest idea to stimulate the economy. However, the real reason is that none of these stimulus programs has ever worked in the past.  Many years ago Frederic Bastiat explained the “broken window fallacy,” but people still go believing they can ignore this fallacy

Hurricane Irene as Economic Stimulus

Posted by David Boaz

Oh, dear. Oh, dear. No matter how many times economists debunk the broken window fallacy, not a natural disaster goes by that journalists don’t try to cheer us up by saying “at least it will stimulate economic growth.” This time it’s Josh Boak (no relation!), the economics reporter (!) at Politico, who was “educated at Princeton and Columbia.” And Sunday afternoon he posted this story:

Irene: An economic blow or boost?

The power outages and shuttered airports may stop the engines of commerce for several days, but Hurricane Irene might have provided some short-term economic stimulus asbillions of dollars will likely be spent to repair the damage to the East Coast over the weekend.

Cumberland Advisors Chairman David Kotok saw the storm as likely jolting employment in construction, an industry paralyzed by the bursting of the real estate bubble in 2008.

“We are now upping our estimate of fourth-quarter GDP in the U.S. economy,” he said in an email Sunday. “Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

Kotok expects GDP growth — which limped along at less than a percentage point for the first half of the year — to exceed 2 percent in the last three months of the year and potentially reach 3 percent.

Mark Merritt, president of crisis-management consulting firm Witt Associates, said the hurricane should provide a bump in economic activity over the next few months.

“After a disaster, there’s always a definite short-term increase,” Merritt said. “There will be furniture bought, homes repaired, new carpet, new flooring, all the things affected by flooding.”

The story quotes no economist, who might have pointed out that the destruction of homes, businesses, and other property cannot actually be good for the economy. As economist Sandy Ikeda summed it up last year, the argument is that “paying $100 to replace a broken window somehow creates more prosperity than having an intact window and spending that $100 on something else.” He goes on to ask, as many economists have: If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities?

As Frederic Bastiat explained the “broken window fallacy,” a boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

In the comic strip “Pearls Before Swine,” the nefarious Rat used the destruction-as-stimulus argument to defend his client’s blowing up downtown:

But that’s a comic strip. Journalists should do better. Please, call one of these economists. They can tell you that destruction is destructive. When property is destroyed, people have less wealth. The money they had been saving for a new business or a new computer or a college education, now they have to spend it on rebuilding what they had. That is not “a bump in economic activity.”

By Everette Hatcher III | Posted in Cato Institute, President Obama | Tagged , , , , | Comments (0)

We need more school choice

September 5, 2011 – 12:48 am

Parents need more school choices and this article pushes the idea of tax credits:

 

More Benefits from Credits than Vouchers

by Adam B. Schaeffer

 

This article appeared in The Philadelphia Inquirer on September 2, 2011.

Pennsylvania endured a bruising battle over education vouchers in the last legislative session, and the next round seems to be in the offing. But a recent court injunction halting a Colorado program should give pause to voucher promoters in the Keystone State.

Part of the reason Colorado’s voucher program was stopped in its tracks is a state constitutional provision that reads:

“No appropriation shall be made for charitable, industrial, educational, or benevolent purposes to any person, corporation, or community not under the absolute control of the state, nor to any denominational or sectarian institution or association.”

Pennsylvanians shouldn’t roll the dice on vouchers, and they don’t need to.

Pennsylvania’s constitution has a nearly identical provision, though it makes an explicit exception for higher education, stating that:

“No appropriation shall be made for charitable, educational, or benevolent purposes to any person or community nor to any denominational and sectarian institution, corporation, or association: Provided, that appropriations may be made for … loans for higher educational purposes….”

This exception, of course, would not apply to K-12 vouchers. As a result, any voucher program enacted in the commonwealth will face the same daunting legal hurdles that are likely to kill the Colorado program.

A court in Indiana recently denied an injunction against that state’s new voucher law, but the Hoosier State lacks the restrictive constitutional language found in Colorado and Pennsylvania. Unless the Pennsylvania legislature intends to enact a voucher program in Indiana, what happens there is irrelevant.

Fortunately, the existing Education Investment Tax Credit Program (EITC), which opens access to good private schools by allowing businesses to claim a tax credit for donations to scholarship funds for low-income children, has the potential to offer even freer educational choice than a voucher program. The EITC has gone unchallenged for more than a decade, is popular, uncontroversial, and ripe for a huge expansion.

Unlike vouchers, education tax-credit programs have withstood every state and federal challenge advanced against them over the last two decades. Major credit programs in Indiana, Florida, Georgia, and Pennsylvania — to name a few — have yet to be challenged. And for good reason; they are on solid constitutional ground at both the state and federal level.

Why? Vouchers are grants of government funds, while tax credits are private funds. The recent U.S. Supreme Court ruling in Arizona Christian School Tuition Organization v. Winn highlights the vital importance of this distinction.

The court held that money spent and claimed as a credit against one’s taxes is private money, not government spending like education vouchers. Other taxpayers aren’t harmed by the choice of those claiming credits because the government isn’t spending collective tax revenue.

As Justice Anthony M. Kennedy explained: “A dissenter whose tax dollars are ‘extracted and spent’ knows that he has in some small measure been made to contribute to an establishment in violation of conscience…. [By contrast] awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own consciences.”

Adam Schaeffer is an education policy analyst at the Cato Institute’s Center for Educational Freedom and author of “They Spend WHAT? The Real Cost of Public Schools.”

More by Adam B. Schaeffer

The challenge to this education tax-credit program failed because only private funds are involved. A taxpayer challenging a voucher program would have standing under this decision. The composition of the U.S. Supreme Court and its precedent on school choice make it unlikely that a voucher program would be overturned on federal constitutional grounds, but at the state level, there are many constitutional threats to voucher programs. Colorado’s court ruling, for instance, identified five separate legal problems with the Douglas County voucher program.

However, the most recent and bracing conclusion comes, again, from Arizona. In 2009, the Arizona Supreme Court ruled in Caine v. Horne that voucher programs for disabled and foster children violated a state constitutional ban on aid to private schools because it was an expenditure of government funds. That same court previously upheld a state tax-credit program on the grounds that the credits did not constitute an expenditure of government funds. The status of vouchers as government funds was key to the decisions overturning Colorado’s earlier voucher program in 2004 and Florida’s in 2006.

Pennsylvanians shouldn’t roll the dice on vouchers, and they don’t need to. Expanding the Education Investment Tax Credit program is the most pragmatic, principled, and certain means of expanding school choice and educational freedom.

By Everette Hatcher III | Posted in Vouchers | Comments (0)

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 33)

September 5, 2011 – 12:27 am

Sixty Six who resisted “Sugar-coated Satan Sandwich” Debt Deal (Part 33)

This post today is a part of a series I am doing on the 66 Republican Tea Party favorites that resisted eating the “Sugar-coated Satan Sandwich” Debt Deal. Actually that name did not originate from a representative who agrees with the Tea Party, but from a liberal.

Rep. Emanuel Clever (D-Mo.) called the newly agreed-upon bipartisan compromise deal to raise the  debt limit “a sugar-coated satan sandwich.”

“This deal is a sugar-coated satan sandwich. If you lift the bun, you will not like what you see,” Clever tweeted on August 1, 2011.

Congressman Davis Votes Against Debt Ceiling Increase

Washington, Aug 1 -Congressman Geoff Davis made the following statement after voting against S. 365, the Budget Control Act of 2011.  The bill passed the House of Representatives by a vote of 269 to 161.

“I commend our Leadership for their tireless efforts throughout this process.  This bill makes a number of positive steps toward beginning to address our fiscal problems and also averts default, but I chose to vote against it for two main reasons.  

“First, unlike the original House version of the Budget Control Act, this bill decouples the passage of a Balanced Budget Amendment with the second portion of the debt limit increase.  This was an important component of the original bill and making the second debt limit increase contingent on its passage would have a lasting impact on getting spending in check.

“Second, while there is certainly room for cuts and efficiency improvements in every federal agency and program, I have concerns about the method by which cuts would take place if the Joint Select Committee did not work as intended.  For the sake of our country, I hope the Committee is successful and reports to Congress a deficit reduction package that addresses the true cost drivers.  However, in the event that does not happen, the sequester mechanism could be devastating to defense during a time of war and to Medicare when health care providers are already facing cuts thanks to President Obama’s health care law.

“The fight to ensure our country is on sound fiscal footing in the future for our children and grandchildren does not end with this vote.  Over the course of the past year, House Republicans have been successful in changing the debate in Washington from whether to cut spending to how much to cut.  The magnitude of our fiscal woes cannot be resolved overnight and I look forward to continuing to work for a better and more sustainable path forward.”

By Everette Hatcher III | Posted in spending out of control | Comments (0)

Senator Pryor asks for Spending Cut Suggestions! Here are a few!(Part 111)

September 5, 2011 – 12:00 am

Senator Mark Pryor wants our ideas on how to cut federal spending. Take a look at this video clip below:

Senator Pryor has asked us to send our ideas to him at cutspending@pryor.senate.gov and I have done so in the past and will continue to do so in the future.

On May 11, 2011,  I emailed to this above address and I got this email back from Senator Pryor’s office:

Please note, this is not a monitored email account. Due to the sheer volume of correspondence I receive, I ask that constituents please contact me via my website with any responses or additional concerns. If you would like a specific reply to your message, please visit http://pryor.senate.gov/contact. This system ensures that I will continue to keep Arkansas First by allowing me to better organize the thousands of emails I get from Arkansans each week and ensuring that I have all the information I need to respond to your particular communication in timely manner.  I appreciate you writing. I always welcome your input and suggestions. Please do not hesitate to contact me on any issue of concern to you in the future.

I just did. I went to the Senator’s website and sent this below:

Department of Health and Human Services

Proposed Spending Cuts

by Chris Edwards

September 2010

The Department of Health and Human Services encompasses a giant and sprawling collection of agencies and programs. Its 2010 budget of $869 billion represents almost one-quarter of total federal spending. The department operates more than 400 different subsidy programs, including the massive and fast-growing Medicare and Medicaid programs.

The projected growth in Medicare and Medicaid will create a national fiscal disaster in coming decades unless the programs are restructured and cut. Unfortunately, the 2010 health care law expanded federal health spending and will likely make America’s looming fiscal crisis worse.1

Eventually, policymakers will have to control rising federal debt, and that means they will have to downsize HHS programs. Medicare should be converted to a system based on individual vouchers and competitive coverage options. Medicaid should be turned into a state block grant with a fixed level of federal funding. The 2010 health care law should be repealed and other HHS programs should be terminated, as listed below.

Medicare and Medicaid

Rep. Paul Ryan (R-WI) has proposed a detailed plan to convert Medicare and Medicaid into consumer-directed health systems by replacing current programs with tax credits and vouchers.2 Rather than the government reimbursing doctors and hospitals, the government would provide payments directly to individuals, who would purchase health insurance in private markets. The Ryan plan incorporates refundable tax credits for all Americans under age 65 and vouchers for the elderly and low-income populations. The budget effects of the proposal were examined by the Congressional Budget Office, and so the plan provides a useful illustration of the cost savings possible from market-oriented health reforms.3

The Ryan plan would repeal the current tax exclusion for employer-provided health insurance and replace it with a refundable tax credit of $2,300 per adult, $1,700 per child, and a maximum of $5,700 per family. The tax credit would be used to cover the costs of either individual or employer-based health insurance for people under age 65.

Individuals age 65 and over would purchase private health insurance with the aid of a federal voucher. Individuals with lower incomes would purchase private health insurance with the aid of the federal tax credit and a voucher. The reforms would essentially convert Medicare and Medicaid from defined benefit to defined contribution plans. That would allow policymakers to directly restrain program costs without having the government ration health care services.

If individuals receiving tax credits and vouchers purchased health insurance costing less than the federal payment, they would put the excess in a tax-free medical savings account. If individuals purchased an insurance plan costing more than the federal payment, they would chip in the extra. Either way, individuals would be encouraged to make efficient purchasing decisions.

To restructure Medicare, the Ryan plan would provide retirees with a voucher averaging $11,000, which is the current average Medicare spending per beneficiary. The reform would only affect people who are age 55 and younger today. When those individuals start reaching age 65 after 2020, they would receive the Medicare voucher instead of benefits under the current program structure.

The Medicare voucher would grow in value after 2010 based on the average growth rate of general inflation and medical inflation. The dollar values of the vouchers would be adjusted to reflect the age of a beneficiary, income level, and health status. Poorer and sicker persons would receive higher subsidies. The low-income elderly under the Ryan plan would receive an additional payment to their medical savings accounts to cover out-of-pocket health expenses.4

To restructure Medicaid, the Ryan plan would provide low-income individuals with both a refundable tax credit and a voucher to purchase private health insurance. People below the poverty line would receive a $5,000 voucher, while those with incomes between the poverty line and twice the poverty line would receive a smaller voucher amount. State taxpayers—who currently pay a portion of the costs of Medicaid—would pay a portion of the costs of the new Medicaid vouchers.

An alternative approach to reforming Medicaid would be to convert it to a block grant for the states. The states would receive a fixed grant from the federal government with few strings attached, allowing them to experiment with more efficient ways of delivering health subsidies to low-income families. This approach is probably preferable to the Ryan voucher approach because it would likely result in less federal micromanagement of state health care markets and more state innovation.

However, both the voucher and block-grant approaches to reforming Medicaid would create strong incentives to improve efficiency in health care markets, and both reform approaches would allow federal policymakers to directly clamp down on explosive Medicaid spending growth.

Other HHS Spending

Aside from Medicare and Medicaid, HHS operates a huge array of health and nonhealth programs. Essays on this website describe the problems with some of these programs and the advantages of terminating them. As Medicare and Medicaid spending expand, taxpayers will be less able to afford funding all the other HHS subsidy programs.

Table 1 lists HHS programs aside from Medicare and Medicaid that could be terminated. These programs have one thing in common: they are all state grant programs. The federal government raises the money from taxpayers who live in the 50 states and then dispenses it back to the states to administer these programs. That roundabout way of financing government programs makes no sense. Why don’t the states just fund their own programs and cut out the inefficient middleman in Washington?

Elsewhere I have examined why federal grants to state governments are an ineffective and bureaucratic way to try and solve society’s problems.5 For example, an authoritative HHS report on Head Start in 2010 conceded that the program produced few if any long-term benefits to participating children.6 The HHS activities listed in Table 1 that are worthwhile would be better handled by state and local governments or the private sector.

The proposed terminations in Table 1 would save taxpayers $81 billion annually. Even with these cuts, HHS would still spend about $61 billion annually aside from Medicare and Medicaid. Remaining HHS activities would include the Centers for Disease Control, the National Institutes of Health, and the Food and Drug Administration. These agencies could probably use reforms as well, and thus the cuts in Table 1 are not the only possible reforms to the HHS budget.

Table 1. Proposed Spending Cuts
to HHS Programs Other Than Medicare and Medicaid
Program
  
Spending in 2010
   
($ million)
Temporary Assistance for Needy Families   $17,754
Children’s Health Insurance Program   $8,903
Foster care grants   $7,403
Head Start   $7,235
Low income energy assistance   $4,993
Child support grants   $4,710
Child care development grant   $3,394
Substance abuse   $3,349
Child care entitlement   $2,925
Social services grant   $2,118
Administration on Aging   $1,600
Other state grant programs   $16,961
Total proposed cuts   $81,345
HHS outlays (excluding Medicare/Medicaid) $142,379
Source: Author, based on estimated fiscal year outlays from the Budget of the U.S. Government, FY2011.
By Everette Hatcher III | Posted in spending out of control | Comments (0)