o The federal government spent about $3.6 trillion in FY2011, more money than any government has ever spent in a 12-month period in the history of the world.
o The FY2011 budget is nearly double the burden of federal spending just 10 years earlier, when federal outlays consumed “only” $1.86 trillion.
o The federal budget in FY2011 consumed about 24 percent of national output, up sharply compared to a spending burden in FY2001 of “just” 18.2 percent of GDP.
o Defense spending is too high, and has increased by about $400 billion since 2001, but the vast majority of the additional spending is for domestic spending programs.
o Federal tax revenue in FY2011 will be about $2.25 trillion, an increase of 7-8 percent over FY2010 levels.
o Economic stagnation has affected tax revenues, which are lower than the $2.6 trillion level from FY2007.
o Federal receipts amount to about 15.3 percent of GDP, below the long-run average of 18 percent of GDP.
o The Congressional Budget Office does predict that revenues will rise above the 18-percent average – without any tax increases – by the end of the decade.
o Record levels of government spending, combined with low revenues caused by a weak economy, will result in a $1.3 trillion deficit.
o This is the third consecutive deficit of more than $1 trillion.
o The publicly-held national debt (the amount borrowed from the private sector) is now more than $10 trillion.
With budget numbers like these, no wonder America has a fiscal hangover.
Fortunately, there is a solution. All we need to do is restrain the growth of federal spending, as explained in this video.
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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.
What do the Department of Justice, the National Federation of Independent Business and 26 state Attorneys General have in common?
They’ve all requested writs of certiorari from the United States Supreme Court to determine the fate of ObamaCare in the matter of United States Department of Health and Human Services v. State of Florida.
Politico thinks the DoJ request means President Barack Obama is either very smart … or very dumb:
It could be one of the smartest political moves the Obama administration has made — or a historic mistake that could kill not just the health care reform law but the president’s chances for reelection, too.
By asking the Supreme Court to rule so quickly on the constitutionality of the Affordable Care Act, the administration is taking a huge risk that the justices will rule against the law right in the middle of the 2012 race — either striking down the whole law or just slicing out the requirement for nearly all Americans to buy health coverage.
The only person seeming to be of little or no weight, worth or importance in the context of this story is our own Attorney General Dustin McDaniel. It was his office that supplied the quote above by way of explaining why he chose to forgo joining the 26 other states that now seem poised to have their day before the Justices.
So our questions to Mr. McDaniel are thus: Do you still maintain that this suit is frivolous given the Obama Administration’s cert petition? And will you stand with 26 other Attorneys General and the people of Arkansas in their effort to fight this unconstitutional law?
Or will you side with Mr. Obama?
And don’t think we don’t remember how Mr. McDaniel availed himself of the opportunity for Democratic brownie points by testifying in support of Associate Justice Sonia Sotomayor–a likely yes vote on the ObamaCare issue.
We spy Dustin!
Gotta love C-SPAN.
Anyone think there might be a television commercial running in the spring of 2014 with juxtaposed images of Mr. McDaniel and Ms. Sotomayor?
Red Arkansas Blog wrote a good piece that I wanted to pass along. What do the Department of Justice, the National Federation of Independent Business and 26 state Attorneys General have in common? They’ve all requested writs of certiorari from the United States Supreme Court to determine the fate of ObamaCare in the matter of […]
Obamacare at the Supreme Court The time is finally here for the Supreme Court to hear this case. Obamacare Has Arrived in the Supreme Court Hans von Spakovsky September 28, 2011 at 11:00 am The National Federation of Independent Business (NFIB) stole a march on the Obama Administration this morning by filing a petition with […]
The third monthly luncheon with featured speaker Ernest Istook was excellent. First, we got to hear from Dave Elswick of KARN who came up with the idea of this luncheon, and then from Teresa Crossland of Americans for Prosperity. Below is a portion of Istook’s biography from the Heritage Foundation: Ernest Istook Distinguished Fellow Government Studies Ernest […]
The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back.
The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper modestly titled “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861‑1957.” Phillips suggested that when inflation went up, unemployment went down. Keynesian economists Paul Samuelson and Robert Solow popularized Phillips’ idea as a reason to ratchet up government spending and inflate the money supply. That’s what the Kennedy and Johnson administrations did during the 1960s.
In 1967, Milton Friedman expressed a skeptical view about what had come to be known as the Phillips Curve, launching an extended debate. Then in 1973, President Richard Nixon, who had famously declared “I am now a Keynesian,” leaned hard on Fed Chairman Arthur Burns to inflate the money supply and drive down unemployment, hopefully to improve Nixon’s prospects for re-election. Well, as those of us who were around back then recall, both inflation and unemployment went up! This was a bit of a problem for Phillips Curve aficionados.
As if the stubborn stagflation of the 1970s wasn’t bad enough, subsequent efforts by new Fed Chairman Paul Volcker and President Ronald Reagan to stop inflation cold delivered another hammer blow against the Phillips Curve: both inflation and unemployment went down!
Now fast-forward to January 2009: President Obama levitated the Phillips Curve from the dead when he repeatedly declared that it was urgent to enact his $825 billion stimulus bill so unemployment would go down. But both spending and unemployment went up! It became harder to deny that the stimulus spending flopped, though the New York Times’ Keynesian columnist Paul Krugman tried valiantly. He claimed stimulus spending flopped because Obama didn’t spend enough. Accordingly, several weeks ago, Obama proposed still more stimulus spending to fight unemployment, and he begged people to support it: “If you love me, pass this bill!”
There shouldn’t have been any surprise about Obama’s flop, since the underlying idea – the Phillips Curve – proved to be a dud long ago. This would be a good time to review experience with the Phillips Curve.
Thankfully, Cato Adjunct Scholar John H. Cochrane, the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, has done just that. He focused on the period from 1966 to the present. That year, President Lyndon Johnson was going full bore, promoting runaway spending on new entitlement programs and on the Vietnam war simultaneously, and inflation reared its ugly head.
Cochrane charted what happened year-by-year to inflation and unemployment. The result wasn’t a nice smooth curve dreamed about by Keynesians. Rather, there was a kinky curve. One year, inflation went up, and unemployment went down. Next year, inflation went up again, and unemployment went up. Then when inflation went down, unemployment went up again. On and on as if we followed a drunk stumbling around a street. Since a single chart would have become an unreadable tangle if it tried to cover the entire 45-year period, Cochrane developed two charts, 1966-1984 and 1985-2011. Clearly, what we see is a random relationship between inflation and unemployment, that makes the Phillips Curve worthless as a policy tool.
The charts appear in an insightful article Cochrane wrote, published in the Fall 2011 National Affairs. The article is important quite apart from the Phillips Curve charts. Although the prevailing view seems to be that high inflation is most likely to occur if and when the Fed increases the money supply, Cochrane warns high inflation could occur as a consequence of soaring government debt. Such inflation would amount to a default. It would be triggered by a run on dollar-denominated assets, if and when investors conclude that the government cannot pay its debts. Runs occur without warning, often after a succession of events have undermined investor confidence.
The National Federation of Independent Business (NFIB) stole a march on the Obama Administration this morning by filing a petition with the U.S. Supreme Court appealing the 11th Circuit’s Obamacare decision.
The Department of Justice (DOJ) had announced on Monday that it was not going to ask all 11 judges of the 11th Circuit Court of Appeals to review en banc the August 12 decision of a three-judge panel of the 11th Circuit that found the individual mandate unconstitutional. This opened up a path to an appeal by DOJ to the Supremes.
Dan Mitchell gives 12 reasons Obamacare will fail.
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However, with this petition, the NFIB jumped ahead of Eric Holder’s slow-moving DOJ (which until Monday had done everything it could to slow-walk this case filed by 26 states and the NFIB). The NFIB is obviously not appealing the three-judge panel’s opinion about the unconstitutionality of the individual mandate. But the NFIB is appealing the portion of the panel’s decision that held that the unconstitutional individual mandate could be severed from the Obamacare legislation.
The NFIB is asking the Court to overrule this holding, since “Congress itself deemed [the mandate] ‘essential’ to the Act’s new insurance regulations.” Given that the 11th and 6th Circuits have issued “directly conflicting final judgments about the facial constitutionality of [Obamacare’s] mandate,” the case is one that the Court should obviously take up given its interest in eliminating conflicting opinions in the courts of appeal.
What also differentiates this particular case from the many other lawsuits that have been filed against Obamacare is the “all star” lineup of Supreme Court litigators that the NFIB and the 26 states have lined up to argue their case before the Supreme Court. It includes Michael Carvin, a former DOJ official who has argued (and won) numerous cases before the Court; Gregory Katsas, a former DOJ official who was a clerk to Justice Clarence Thomas; Kevin Marshal, another former DOJ official and Thomas clerk; Hashim Mooppan, a former Justice Antonin Scalia clerk; and Randy Barnett, a nationally recognized constitutional scholar and professor at Georgetown.
The lawyers for the states include Paul Clement, former Bush Administration Solicitor General; Lee Casey, another former DOJ official who clerked for Alex Kozinski, who is now the Chief Judge of the Ninth Circuit; and David Rivkin, another Supreme Court litigator with wide experience in the government, including in the White House and the DOJ.
The government lawyers in the DOJ’s Office of the Solicitor General who will be arguing the constitutionality of Obamacare will have their work cut out for them.
A couple of weeks ago I suggested that the person responsible for Ford’s anti-bailout ads was deserving of a raise. Today, I wonder how that extra income will be spent…in Siberia. According to media accounts seemingly originating with the Detroit News, Ford has pulled that ad after learning the Putin Obama White House was none too pleased.
It is unclear from the Detroit News article whether overt threats, implied repercussions, or mild expressions of regret best characterize the communications from the White House to Ford. Regardless, something spooked Ford enough to prompt it to pull the popular ad (no longer available on YouTube), which sought to differentiate the Ford brand over the “bailout” characteristic, which is not insignificant to auto purchasing decisions.
Hopefully, some probing journalists will discover the true nature of what transpired. In the meantime, it’s important to reflect on the fact that—contrary to the views of E.J. Dionne and others who cannot contemplate what is not seen—the auto bailout was not a discreet event, which happened and now resides in our memories. It is an ongoing tipping of the scales of competition—intentionally and inadvertently. Ford’s mere perception that the administration might stir up trouble if it didn’t fall into line is a vestige of the bailout.
To the extent that the administration wants to tout the bailout as evidence of its “successful” economic stewardship, it should know that there are plenty of us willing and able to do the auditing on that claim.
Unfortunately, logically this argument fails because although we all benefit from roads, police, fire departments and education, it is not clear that the rich benefit from all the social welfare programs that Warren wants to keep running. Also how does the rich benefit from Social Security?
Elizabeth Warren’s recent remarks on class warfare, made during a campaign stop in her quest for a Massachusetts U.S. Senate seat, provide a nice microcosm of the broader philosophical views behind much contemporary political debate.
The relevant bit that has her supporters so fired up goes like this:
I hear all this, oh this is class warfare, no! There is nobody in this country who got rich on his own. Nobody. You built a factory out there–good for you.
But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory.
Now look. You built a factory and it turned into something terrific or a great idea–God Bless! Keep a Big Hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
Fully exploring the thinking behind Warren’s remarks would demand a book at least. We might point out that most of the rich got that way by creating value for others, meaning they gave back in the process of getting rich. Or we might wonder if her thinking implies that, because the state is responsible in part for the environment in which all of us earned what we have, the state is the actual owner of what we have.
To spare you having to read that book, however, I’m going to instead address just two points I find particularly interesting. First, we can tease out the theory of political obligation Warren advances and see if it holds up to scrutiny. Second, we can ask whether her argument, even if we accept it on its own terms, supports a tax increase on high income earners.
In a 1955 essay, H. L. A. Hart articulated what’s come to be known as the “fair play” principle of political obligation.
When a number of persons conduct any joint enterprise according to rules and thus restrict their liberty, those who have submitted to those restrictions when required have a right to a similar submission from those who have benefited by their submission.
Framed in Warren’s language, “the rest of us” restricted our liberty by paying taxes for the creation of roads, the formation of police forces, the funding of fire departments, and so on. And the rich benefited from our submission to taxes by getting rich (in part) because of the existence of roads, police, and fire departments. Therefore, we have a right to a similar submission from the rich in the form of them paying an increased amount in taxes to fund roads, police, and fire departments, too.
So by her account, this can’t be class warfare because it’s a simple matter of obligation. But is that true? Does the so-called “fair play” account of political obligation work?
Not really. Robert Nozick famously knocked it down in Anarchy, State, and Utopia with a thought experiment about a neighborhood public address system. And A. John Simmons went even further—and did so more persuasively—in his 1979 classic, Moral Principles and Political Obligations.
But the basic response to “fair play” is pretty simple: It seems awfully weird to demand that we repay benefits we never had a choice about accepting in the first place.
Nobody approached the rich before they were rich and said, “Hey, we’re all pitching in to pay for roads and police, which we all think are pretty valuable. If you’d like to benefit from those things like we would, we ask that you pay for them. Are you up for that?” A (pre-)rich person might very well say, “Yes, I’m game.” In that case the principle of fair play would apply. But it would only apply if he had a meaningful choice about the matter. On the other hand, he might say, “Yes, I think we do need roads and police, but I also think they’d be better provided by an alternative cooperative scheme (the market, a different government, a different voluntary group, etc.) to the one you’re offering.”
Simmons calls this the distinction between “receiving” benefits and “accepting” them. The fair play principle creates obligations when benefits are accepted, but not when merely received.
With that in mind, Warren would have a difficult time arguing that any of us genuinely accepted the particular roads and police provided by the particular scheme she supports. We’ve received them, yes, and may rather like what we received—but we were never presented with an actual choice.
There may, of course, be plenty of other good reasons to feel obligated to pay our taxes—or to even pay more taxes than our neighbors—but fair play, at least in the form Warren presents it, doesn’t quite get us there.
Still, let’s set such concerns aside and grant to Warren that, if the rich did benefit from the particular services paid for by the rest of us, they have a duty to pay (more) for them. Would that allow us to justify asking the rich to pay more taxes today?
Again, probably not. Just look at the beneficial services Warren draws our attention to.
Roads
Police
Fire departments
Education
She tacks an “and so on” to the list, but there’s something striking about the concrete examples she does give. Namely, they’re all the kinds of things you’d expect even from a much smaller state than the one we have today.
In other words, the need to raise taxes at the present moment (if such a need exists) is precisely not to pay for roads, police, fire departments, and education. We had those—and they were functioning quite nicely—for a good while before the explosion of federal spending under the last two administrations.
If Warren’s claim is that the rich got rich because of certain benefits they received from government and so should pay more to provide those benefits to others, then the overwhelming bulk of government spending is completely outside the scope of her argument.
It’s not obvious that many rich people got to be rich because of Medicare, Medicaid, Social Security, or military expenses. (Those who got rich because of subsidies are another matter, but she doesn’t draw that distinction, nor is she calling for an end to government handouts to the wealthy and politically connected.) But those are where we’ve seen so much of the spending increases that now demand, according to Warren and her peers, that all of us pony up more cash to the federal government.
This means that an easy response to Warren is to grant her general philosophical point but then add that what it leads to is not increased taxes but cutting government back to those programs that do make people rich and only then worry about how much of what remains the rich should pay for.
Of course we might also point out that, even with the bloated leviathan we have in Washington—one that does far more than provide roads, police, fire departments, and schools (which are, after all, chiefly state and local matters)—the rich still pay for most of it. Certainly more than “the rest of us” pay. As the Wall Street Journal pointed out back in May, “the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes.” The top 20% of American income earners pay over half the federal taxes. Which means that “the next kid who comes along” already is getting his federal benefits from the rich. To Warren and her supporters, I ask, “How much is enough?”
If Warren’s moral case for increasing the tax burden of the rich doesn’t hold up, can she still maintain her claim that this isn’t class warfare? Probably not. By her arguments, the rich are not obligated to pay more than they already are. Nor will their paying more do much of anything to ameliorate America’s fiscal woes. That means it’s rather difficult to see her speech as anything but a ploy to fire up her base by attacking a disfavored minority.
If that’s not class warfare, I don’t know what is.
Update: I just finished a podcast on the subject of this post with Caleb Brown.
Sen. Mike Lee (R-UT) came to Washington as the a tea-party conservative with the goal of fixing the economy, addressing the debt crisis and curbing the growth of the federal government. It’s an uphill battle for the youngest member of the U.S. Senate, but one he’s prepared to fight.
In the days following Obama’s speech to Congress, Lee sharply criticized the president’s ideas for raising taxes and hiking spending to spur economic growth. As he explained to us, “We need to not be doing more of the same things that made the problem worse. We need to refocus on getting the federal government out of the way rather than making the federal government part of the problem.”
President Obama says the rich should pay higher tax rates, citing billionaire Warren Buffett, who says he pays a lower tax rate than his secretary. Various analysts have pointed out that Buffett takes very little salary and gets most of his income in the form of dividends and capital gains, which reflect income that was already taxed once at the corporate level. But what about the broader argument, that the rich don’t pay enough in taxes, that maybe they even pay less than the middle class?
Upper-income taxpayers have paid a growing share of the federal tax burden over the last 25 years.
A 2008 study by the Organization for Economic Cooperation and Development, for example, found that the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes. “Taxation is most progressively distributed in the United States,” the OECD study concluded.
Meanwhile, the percentage of U.S. households paying no federal income tax has been climbing, and reached 51% for 2009, according to a new analysis by the Joint Committee on Taxation.
An accompanying graphic shows the growing share of income taxes paid by the wealthy (in green) and how the U.S. ratio of taxes on the wealthy in relation to their income compares to that in other rich countries:
When I think of all our hard earned money that has been wasted on stimulus programs it makes me sad. It has never worked and will not in the future too. Take a look at a few thoughts from Cato Institute:
On Thursday night, the president laid out his plan for job creation, a $447 billion stimulus proposal, most of which we have seen before. After all, if Congress passes this new round of government spending, it would be the seventh such stimulus program since the recession began. George W. Bush pushed through two of them, totaling some $200 billion, and Obama already has enacted four more, with a total price tag of roughly $1.3 trillion.
The result: Three years and $1.5 trillion of spending later, we are back to the same gallimaufry of failed ideas. Among the worst:
3. Bailing Out the Teachers Unions. The president’s plan calls for spending $35 billion in grants to states to hire or retain some 280,000 teachers. The president wants to spend another $30 billion to repair and modernize school buildings, with the catch that school districts that accept the funds are prohibited from laying off any teachers. Spending on school building and repair has already increased by 150% over the last two decades, without either improving education or generating many jobs. And the greatest threat to teacher retention is not a lack of federal aid, but burdensome labor contracts.
4. More Infrastructure Spending. Like all the stimulus bills before it, the president’s latest proposal calls for still more pork barrel spending for “infrastructure.” One begins to wonder why we haven’t paved over the entire country by now. No doubt there are roads and bridges in need of repair, but the ability of the federal government to sort out good projects from bad is debatable at best. And the president is once again planning to plow money into such dubious projects as high-speed rail.
5. More Tax Hikes. Worst of all, the president plans to pay for all this new spending by — you guessed it — raising taxes on businesses and high-income Americans. The president, once again, referred to “millionaires and billionaires” in his speech, but his actual proposal calls for raising taxes on families earning as little as $250,000 per year. In places like New York, that’s not the “super rich.” In addition, many of these tax hikes would fall on small businesses. The president’s jobs plan, then, is to tax exactly those people and businesses that create jobs. And all this is on top of the new taxes and regulations that the Obama administration has already pushed through.
It’s not just the details of the president’s proposal that are wrongheaded, it’s the basic concept. The real drags on our economy have nothing to do with the failure of government to spend enough. The federal government is now spending roughly 24% of GDP. State and local governments are spending another 10% to 15%, meaning government at all levels is spending roughly 40 cents out of every dollar produced in this country. If government spending brought about prosperity, we should be experiencing a golden age.
The president’s plan is a bit like having someone break your leg then give you a crutch and call it a stimulus. Might it not be better to avoid breaking your leg in the first place? It’s time to stop spending, cut taxes, reduce our debt, and rollback burdensome regulation. That will generate far more jobs than any government jobs program.
When it comes to stimulus, the seventh time is not the charm.
The Daily Hatch 