Open letter to Congressman Griffin: “Milton Friedman: “If taxes are raised in order to keep down the deficit, the result is likely to be a higher norm for government spending” (Charlie Rose interview pt 4)”

 

December 17, 2012

Congressman Tim Griffin, c/o Little Rock Office, 1501 N. University, Suite 150, Little Rock, AR 72207

Dear Congressman Griffin,

This is the second time  I have written you on this subject. I have met you several times and I have always enjoyed visiting with you. I got to hear you speak at a town meeting at Shannon Hills about a year ago and I must say that you did a great job showing how our country is heading to Greece if we do not tackle entitlement reform in a serious way or we will not control our spending. The issue of runaway spending is one of the issues that I wanted to talk to you about today. 

It is obvious to me that if President Obama gets his hands on more money then he will continue to spend away our children’s future. He has already taken the national debt from 11 trillion to 16 trillion in just 4 years. Over, and over, and over, and over, and over and over I have written Speaker Boehner and written every Republican that represents Arkansans in Arkansas before (Griffin, Womack, Crawford, and only Senator Boozman got a chance to respond) concerning this. I am hoping they will stand up against this reckless spending that our federal government has done and will continue to do if given the chance.

I have written and emailed Senator Pryor over, and over again with spending cut suggestions but he has ignored all of these good ideas in favor of keeping the printing presses going as we plunge our future generations further in debt. I am convinced if he does not change his liberal voting record that he will no longer be our senator in 2014.

I have written hundreds of letters and emails to President Obama and I must say that I have been impressed that he has had the White House staff answer so many of my letters. However, his policies have not changed. He is committed to cutting nothing from the budget that I can tell.

Evidently the Republicans have proposed raising tax rates as a possible compromise to avoid going over the fiscal cliff. Let me make a few comments about that.

First, if raising the debt ceiling is part of this agreement then we are losing our leverage over President Obama. We have enough votes to block a debt ceiling increase. We want a balanced budget but if President Obama does not get a debt ceiling increase then he will have to balance the budget immediately.

Second, spending is our problem and it is not tax revenue. The problem in Washington is not lack of revenue but our lack of spending restraint. We almost had a balanced budget in 2007 and if we had frozen spending at 2007 levels then we would be close to a balanced budget now. Instead of controlling spending our spending has gone from 2.7 trillion to 3.8 trillion in just 5 short years!!!

Third, my blog has exploded the last few days with clicks on past posts I have done like the one below. Take a look at this post below and see why it is one of my most popular.

Fourth, I have included some wise words from a fellow Tea Party favorite like you below. Mo Brooks’ words are true now like they were in August of 2011 when he voted against the debt ceiling increase then.

Fifth, let me share these two videos with you that make very good points concerning this issue:

This video belows shows how silly the federal government is when they pass “spending cuts.”

The problem in Washington is not lack of revenue but our lack of spending restraint. This video below makes that point.

Please take the time to read Mo Brooks’ words and respond to me and tell me if you will vote against the debt ceiling increase. It is the only leverage we have on President Obama. Others have responded to me in the past and for that I am very grateful.

Thank you for your time.

Sincerely,

Everette Hatcher, 13900 Cottontail Lane, Alexander, AR 72002, cell ph 501-920-5733, lowcostsqueegees@yahoo.com, www.thedailyhatch.org

 

MILTON FRIEDMAN: THE MIND BEHIND THE REPUBLICAN TAX REVOLT

| Jul 22, 2011 | 0 comments

The on-going debate over raising the debt ceiling has focused on many areas of disagreement between Democrats and Republicans but none bigger than the Republican determination not to raise taxes.  Many pundits credit this to the political power of Grover Norquist and his Americans for Tax Reform who have spent years collecting “No Tax Increase” pledges from Republican candidates.  Others attribute Republican intransigence on taxes to a near religious belief in supply side economics, a school of thought founded by economist Arthur Laffer and journalist Jude Wanniski in the late 1970s.

The true seeds of this attitude toward tax increases, in my view, actually go back farther and can be traced to an even nobler pedigree.  The real inspiration for this conviction comes from the late Nobel prize-winning economist, Milton Friedman.  It is only by understanding Friedman’s reasoning and his values that one can fully understand why Republican refuse to see spending cuts and tax increases as simply two sides of the same budget-balancing coin.

This was not always the Republican, or even the conservative, position.  During the 1950s, it was Democrats who advocated tax cuts to stimulate the economy and President Eisenhower who insisted “we can never justify going further into debt to give ourselves a tax cut at the expense of our children.”

In 1964, the eventual Republican nominee for president, Senator Barry Goldwater, voted against the so-called Kennedy tax cuts (actually passed after Kennedy’s assassination the previous year) because he was convinced the resulting deficits would be inflationary.  Even after losing the presidential election to President Lyndon Johnson in a landslide later that year, Goldwater predicted a Republican comeback, telling U.S. News & World Report that a no-win war in Vietnam and high inflation would prompt a backlash against the Democrats two years later (he was right on both counts).

So if Eisenhower and Goldwater represented Republican orthodoxy in the 1950s and ‘60s, what happened?  In large part, it was an intellectual revolution in conservative/libertarian thought prompted by economist Milton Friedman.  While Friedman rejected the simplistic Keynesian (and later supply-side) notion that tax cuts automatically stimulate the economy, he believed that higher taxes were bad because they led to more and bigger government, which he was convinced at best led to waste and at worse to greater government control over our economy, our lives and our freedoms.

In 1967, three year’s after the Kennedy tax cuts, the Johnson Administration was already running huge deficits thanks to the a combination of Great Society social programs and the Vietnam War.  Writing in his regular Newsweek column on August 7, 1967, Friedman expresseded his concern that this would soon lead to higher taxes, using an analysis that would become familiar to his readers over the years:

“.If we adopt such programs, does not fiscal responsibility at least call for imposing taxes to pay for them?  The answer is that postwar experience has demonstrated two things. First, that Congress will spend whatever the tax system will raise—plus a little (and recently, a lot) more.  Second, that, surprising as it seems, it has proved difficult to get taxes down once they are raised.  The special interests created by government spending have proved more potent than the general interest in tax reduction.

“If taxes are raised in order to keep down the deficit, the result is likely to be a higher norm for government spending. Deficits will again mount and the process will be repeated.”

Sure enough, a year later a 10% income tax surcharge was enacted by Congress to cut the deficit and fight inflation.  His prediction having been confirmed, Friedman returned to the subject in another Newsweek column dated July 15, 1968.  He now described a familiar pattern of how Democrats used the traditional view of fiscal conservatism to convince Republicans to help pay for the Democrats’ own profligate spending:

“The standard scenario has been that the Democrats—in the name of the New Deal, the Fair Deal, or the Great Society—push through large spending programs . . . generally against the opposition of the Republican leadership.  The spending programs not only absorb the increased tax yield generated by the ‘fiscal drag,’ they go farther and produce deficits.

“The Democrats then appeal to the Republicans’ sense of fiscal responsibility to refrain from cutting tax rates or, as in this case, to raise them.  The Republicans cooperate, thereby establishing a new higher revenue base for further spending.  The Democrats get the ‘credit’ for the spending; the Republicans, the ‘blame’ for the taxes; and you and I pay the bill.”

Fast forward seven years, when Republican President Gerald Ford was proposing a tax cut to stimulate the economy during a brief recession.  As an economist who believed monetary, not fiscal, policy was the best way to keep the economy on a stable path to growth, Friedman did not believe the proposed tax cut would have its intended stimulatory effect.  He explained why in another Newseek column on July 15, 1975 but went on to say:

“Yet I must confess that I favor tax cuts—not as a cure for recession but for a very different reason.  Our basic long-term need is to stop the explosive growth in government spending.  I am persuaded that the only effective way to do so is by cutting taxes—at any time for any excuse in any way.

“The reason is that government will spend whatever the tax system raises plus a good deal more—but not an indefinite amount more.  The most effective way to force each of us to economize is to reduce our income.  The restraint is less rigid on government, but it is there and seems to be the only one we have.

“So hail the tax cut—but let’s do it for the right reason.”

Another six years went by and now it was the newly-elected president, Ronald Reagan, who was proposing a large, multi-year tax cut to get the economy moving. At the time, he was also proposing off-setting spending cuts (which we all know didn’t happen).  Friedman wrote yet another Newsweek column dated July 27, 1981, refuting objections to the plan by liberal economists while also discounting many of the claims of supply-siders in the Reagan Administration.  Friedman still supported the tax cuts, of course, and explained why liberals were suddenly worried about deficits:

“The analysis so far treats government spending and taxes as if they were two independent entities.  They clearly are not.  We know full well that Congress will spend every penny—and more—that is yielded by taxes.  A cut in taxes will mean a cut in government spending.  And there is no other way to get a cut in spending.

“That is the real reason why the big spenders and the big inflationists of the past have suddenly been converted to fiscal conservatism and to preaching the virtues of fighting inflation.  They know that a multi-year tax cut will force multi-year spending reductions.  They hope that a one-year tax cut will quiet public agitation and allow them to revert next year to their high-spending ways.”

Taken as a whole, these excerpts from columns written for a popular magazine by a Nobel laureate economist between 1967 and 1981—44 to 30 years ago—spell out precisely the philosophy that today motivates many Republicans in and out of Congress to firmly oppose any tax increase as part of a deficit reduction or budget-balancing plan proposed by Democrats.

Like Milton Friedman, they are firmly convinced that any taxes they raise will ultimately result in increased government spending.  They believe government spending necessarily translates into more and bigger government.  They believe the federal government is already too big, threatening not just the health of the economy but their freedom and way of life as well.

One can argue with Friedman’s assumptions as well as the conclusions he draws from them.  But until those on the other side—including the President, Democratic congressional leaders and the media—understand the reasoning and motivations behind the anti-tax sentiments of Republicans from Capitol Hill to the Tea Party activists, it’s hard to imagine anything more than a temporary truce in the battle being waged over the budget.

____________

Here is another Tea Party hero you need to listen to:
Rep. Brooks on Fox Business: BBA and the Debt Ceiling Vote

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Rep. Mo Brooks To Vote No On Obama-Reid-Boehner Debt Ceiling Bill

08/01/11

Washington, D.C. – Today Congressman Mo Brooks (R-AL) made the following statement concerning his vote on the Budget Control Act of 2011:

Summary

The Obama-Reid-Boehner Debt Ceiling Bill is bad for America, bad political process, bad for national defense, does not prevent unsustainable budget deficits, kicks the debt ceiling crises down the road to 2013 (when America will have more debt and less financial strength with which to fix the problem), and fails to satisfactorily decrease the risk of an American credit rating downgrade.

Overview

America must, and will, raise the debt ceiling.  The question is not whether Congress will raise the debt ceiling; the question is when and how.  Regardless of when the debt ceiling is raised, every bill and obligation of America to its citizens and creditors will be paid in full (albeit, with the exception of creditors, some payments may be delayed).

I have voted to raise the debt ceiling provided the debt ceiling bill makes America’s financial condition better, not worse.

I voted to raise the debt ceiling on July 22, 2011, when I voted for the Cut, Cap and Balance Plan (cutting FY 2012 expenditures by a modest $111 billion in the context of a $1.5 trillion deficit; capping federal government expenditures within historically justifiable 18-20% ranges; and passing a Balanced Budget Constitutional Amendment that protect future generations of Americans from revisiting the financial mess we face).

I voted to raise the debt ceiling on July 29, 2011, when I voted for the Boehner Plan (which included a Balanced Budget Constitutional Amendment requirement).

I will not vote for the Obama-Reid-Boehner Debt Bill (herein the “Debt Bill”) because it is not up to the financial challenges America faces. 

Background:  The Problem

Years of spending binges by the federal government have come home to roost.  America’s debt exceeds $14 trillion.  America has suffered three consecutive years of trillion dollar deficits (and faces trillion dollar deficits into the foreseeable future).

Annual deficits and accumulated debt force America to confront two major financial threats, both with one common cause: unsustainable budget deficits.

In the short term, America faces a debt ceiling crisis.  Over the longer term, America faces a debt crisis. 

If trillion dollar deficits continue indefinitely, America’s insolvency and bankruptcy is certain, thereby risking America’s national defense, Social Security, Medicare, Medicaid, NASA, and everything else the federal government does.

Debt Bill Deficiencies That Compel a “No” Vote

The accumulative deficiencies in the Debt Bill compel me to vote “No.”  The deficiencies are:

1. Minimal Time for Consideration and Deliberation.

The Debt Bill is 74 pages of interwoven, complicated legal and budgetary terms.  I have read and studied the Debt Bill in the limited time available.  The Debt Bill forces onto our children and grandchildren another $2.4 trillion in debt burden, yet we are expected to vote on it with less than 24 hours notice.

This is insufficient time to thoroughly understand the Debt Bill’s nuances, for budget experts to digest the Debt Bill and offer their insights, for the public to analyze the legislation and share their insight, and for Congress to make a wise and deliberative decision.

While some argue the Debt Bill must pass by the White House’s August 2 deadline; I believe it is better to act wisely than in haste.  The economy will be much worse if Congress, in haste, makes a $2.4 trillion error. 

2. Significant Defense Cuts in FY 2012 & 2013.

In FY 2012, the Debt Bill cuts national defense by $2 to $17 billion (the variance is due to different Debt Bill interpretations by the House Armed Services Committee).

The Debt Bill creates a 12-member Joint Select Committee (six Senators and six Congressmen; six Republicans and six Democrats).  By November 23, the Committee must recommend $1.2 trillion in deficit reduction measures (spending cuts and/or tax increases).  If the Committee makes a recommendation, Congress must vote on the recommendation on or before January 15

If the Committee splits 6-6 and makes no recommendation, or if either House of Congress rejects the Committee’s recommendation, then the Debt Bill mandates that the Defense budget be cut $60 Billion in FY 2013 (i.e. – in the fiscal year beginning 14 months from now, on October 1, 2013).

National defense is the top priority of the federal government.  If the Debt Bill passes, there is an unnecessary and substantial risk that it will trigger risky defense cuts in just 14 months that undermine the defense capabilities of America.

3. The Bill Does Not Fix the Underlying Problem.

The Bill makes America’s financial challenges worse by inadequately addressing unsustainable deficits that threaten America with insolvency and bankruptcy and force debt ceiling increases.

The Debt Bill’s “cuts” bind no future Congresses.  Hence, the only “cuts” that count are those for Fiscal Years 2012 and 2013.

In FY 2012, the Debt Bill cuts discretionary federal government spending by only $7 billion (versus FY 2011 levels), while overall federal government spending actually increases (“discretionary spending” is less than 30% of total federal government spending). 

In FY 2013, the Debt Bill increases discretionary federal government spending by $4 billion (over FY 2012 levels).  Overall federal government spending again increases significantly.

Hence, in both FY 2012 and 2013, the federal government deficit is estimated to exceed $1 trillion/year if the Debt Bill passes and, under the best of scenarios, the Debt Bill’s “solution” increases America’s debt by $2.4 trillion in less than two years, which makes America’s debt problem much worse, not better.

4. Balanced Budget Constitutional Amendment. 

The Debt Bill requires a vote of Congress on a Balanced Budget Constitutional Amendment but does not require that Congress pass a Balanced Budget Amendment. 

The July 29 Boehner Bill required passage of a Balanced Budget Amendment before the Phase II debt ceiling increase would occur.  The Debt Bill eliminates the requirement for a Balanced Budget Amendment, thereby eliminating the only long-term fix to America’s unsustainable deficits. 

5. Punting the Debt Ceiling Crisis to 2013. 

Because of 2012 election considerations, the Debt Bill “kicks the can down the road” to 2013, when a financially weaker America will be less capable of facing yet another debt ceiling crisis. 

America will be weaker because debt service burdens will be $2.4 trillion more and the total debt of $16.7 trillion will likely be subject to higher interest rates and more onerous payment obligations.

America must face its unsustainable deficit issue while it is stronger, not weaker.  The longer America waits, the worse the economic outcome will be.

6. Credit Rating Cuts.

In my judgment, the Debt Bill substantially increases the long-term risk of a cut in America’s credit rating. 

Standard & Poor stated on July 14, 2011, that America’s credit rating is at risk if Washington has “not achieved a credible solution to the rising U.S. government debt burden and [is] not likely to achieve one in the foreseeable future.”  Standard & Poor president Deven Sharma reiterated this concern on July 27, 2011 when he testified before the House Financial Services Committee that, “The more important issue is really the long-term growth rate of the debt… that is the more important issue at hand.”

Similarly, Moody’s stated on July 13, 2011 that, if the debt ceiling is raised, America’s credit rating outlook “would very likely be changed to negative… unless [there is a] substantial and credible agreement [on] long-term deficit reduction.”

The Debt Bill does not cut America’s short or long-term deficits enough to minimize the risk of downgrade in America’s credit rating… a downgrade that will, in turn, drive up America’s debt service cost and reduce funding for all other federal government programs.  To make matters worse, if America’s interest rates go up; state, local and private interest rates are likely to also go up… thereby hurting all Americans at every level.

The Solution

The best solution that protects America from the short term debt ceiling and long term insolvency threats is a debt ceiling increase coupled with a Balanced Budget Constitutional Amendment that is phased in over a 5 year period.

Inasmuch as constitutional amendments often take years to pass, time that America may not have, the debt ceiling should be raised in a two-step process.  The first step partially raises the debt ceiling when Congress passes a substantive and effective Balanced Budget Amendment.  If the Senate and House concur, this can be done in as little as a week.

The second step raises the rest of the debt ceiling requirement when the states ratify the proposed Balanced Budget Amendment.  This process gives the states an incentive to ratify the Balanced Budget Amendment in less than one year (or trigger the effects of not raising the debt ceiling).

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