The new issue of International Economy has an article by Canada’s Liberal finance minister from the 1990s, Paul Martin, who succeeded in shrinking that country’s federal government. If a new President Mitt Romney wants to cut spending in Washington, Martin has some tips for him, such as cutting spending broadly, forecasting conservatively, and aiming to eliminate the deficit in a fixed time frame and sticking to it. (I’d also advise President Obama to follow the Canadian example, but he’s issued four budgets so far and seems to be more interested in following the Greek fiscal approach).
Paul Martin says:
I tabled the 1995 Budget in the House of Commons. No department of government escaped untouched. Transfers to the provinces for healthcare and education were reduced, public sector employment was cut by 20 percent, the Department of Transport was cut deeply, historic subsidies in the Department of Agriculture were eliminated, and spending in the Department of Industry was cut by 65 percent.
These were massive cuts, far greater than anything Canada had ever seen. Nor were the cuts simply reduction in the growth of future spending as is so often the case. These were absolute cuts in existing spending, such that by the end of the process the federal government’s expenditures as a percentage of GDP were lower than they had been at anytime in the previous fifty years.
From a libertarian perspective, Canada’s cuts weren’t actually “massive,” but for a Liberal government in a country with a population that had gotten used to government coddling, it was pretty impressive. As I noted in my recent article on Canada, Martin and his team cut the budget by 10 percent in just two years.
So my suggested goal for Romney and team if elected this Fall: at least match the Canadians and push for $380 billion of cuts out of otherwise expected spending in 2015 of $3.8 trillion. And do what the Canadians did: cut everything, including entitlements, aid to subnational governments, defense, business subsidies, farm subsidies, and much more in one big push. Many in Congress will resist of course, but presidents have their most leverage in the first year. Mitt will have nothing to lose but the country into a vortex of debt and economic despair if he doesn’t at least try.
Everyone wants to know more about the budget and here is some key information with a chart from the Heritage Foundation and a video from the Cato Institute.
In the past, wars and the Great Depression contributed to rapid but temporary increases in the national debt. Over the next few decades, runaway spending on Medicare, Medicaid, and Social Security will drive the debt to unsustainable levels.
PERCENTAGE OF GDP
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Source: Heritage Foundation calculations based on data from the U.S. Department of the Treasury, Institute for the Measurement of Worth, Congressional Budget Office, and White House Office of Management and Budget.
The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget. The charts provide data on an annual basis except… Read More
Authors
Emily GoffResearch Assistant
Thomas A. Roe Institute for Economic Policy StudiesKathryn NixPolicy Analyst
Center for Health Policy StudiesJohn FlemingSenior Data Graphics Editor
Let’s use an analogy to explain what I mean. Imagine you were playing a game of chess and your opponent openly stated that he wanted you to move your rook to a certain point on the board.
If your IQ was above room temperature, you would probably be suspicious that he wasn’t trying to help you win the game.
Well, the same thing happens in fiscal policy. I quoted the Hill newspaper last year when some Democrats admitted that their top political goal was to seduce the GOP into a tax increase.
The Democrats’ counter-strategy is a bit more subtle, but has essentially been to find ways to make it very uncomfortable for Republicans to maintain such a rigid anti-tax orthodoxy — to ultimately force Republicans to break their anti-tax pledges and badly splinter their party. That’s what the Buffett Rule is about; that why Dems insist they won’t dismantle the so-called “sequester” — big cuts to defense and even to Medicare — unless Republicans agree to tackle deficits in a balanced way, i.e. by supporting significant new tax revenues. The results have been mixed. They’ve won a small number of GOP votes here and there, and vulnerable members are nowadays more likely to trash or dismiss Grover Norquist in the press than they were last year. But at a very high level within the Democratic Party, there’s a recognition that breaking the GOP on taxes is an absolutely crucial strategic imperative for defending safety net programs over the long term.
That’s a pretty clear statement. We have folks on the left who say they want higher taxes both to prop up big government and to cause internal damage to the GOP.
Unless, of course, they’re motivated by a belief in bigger government (high likely) or a suicidal desire to harm their own electoral prospects (highly unlikely since even I don’t think GOPers are that stupid).
Everyone wants to know more about the budget and here is some key information with a chart from the Heritage Foundation and a video from the Cato Institute.
The federal government is spending more per household than ever before. Since 1965, spending per household has grown by nearly 162 percent, from $11,431 in 1965 to $29,401 in 2010. From 2010 to 2021, it is projected to rise to $35,773, a 22 percent increase.
INFLATION-ADJUSTED DOLLARS (2010)
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Source: U.S. Census Bureau, White House Office of Management and Budget, and Congressional Budget Office.
The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget. The charts provide data on an annual basis except… Read More
Authors
Emily GoffResearch Assistant
Thomas A. Roe Institute for Economic Policy StudiesKathryn NixPolicy Analyst
Center for Health Policy StudiesJohn FlemingSenior Data Graphics Editor
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.
Government auditors spent the past five years examining all federal programs and found that 22 percent of them—costing taxpayers a total of $123 billion annually—fail to show any positive impact on the populations they serve.
Over half of all farm subsidiesgo to commercial farms, which report average household incomes of $200,000.
A GAO audit found that 95 Pentagon weapons systems suffered from a combined $295 billionin cost overruns.
The refusal of many federal employees to fly coach costs taxpayers $146 millionannually in flight upgrades.
Washington spent $126 millionin 2009 on projects associated with the Kennedy family legacy in Massachusetts. Additionally, Senator John Kerry (D–MA) diverted $20 million from the 2010 defense budget to subsidize a new Edward M. Kennedy Institute.
The federal government owns more than 50,000 vacant homes.
The Federal Communications Commission spent $350,000to sponsor NASCAR driver David Gilliland.
Members of Congress have spent hundreds of thousands of taxpayer dollars supplying their offices with popcorn machines, plasma televisions, DVD equipment, ionic air fresheners, camcorders, and signature machines—plus $24,730 leasing a Lexus, $1,434 on a digital camera, and $84,000on personalized calendars.
President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.
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President Obama really does stick to his view that the wealthy need to rescue the rest of us on everything, but that view does not work. There are not enough rich people out there to solve our budget woes. Actually what has happened in the past when the government wants more money it starts off going after the rich, but when that does not bring in much money then the only alternative is to go after the rest of us.
Max Brantley argues on the Arkansas Times Blog that most of us are taxed too much so we must tax the rich more but that will not come close to bringing us to a balanced budget. However, it will destroy job creation.
Like the villain in a horror movie, the many-lived millionaire tax is once again back from the dead. Senate Majority Leader Harry Reid (D–NV) dusted off this economically frightening tax hike that has repeatedly failed to pass Congress to pay for President Obama’s jobs plan (American Jobs Act of 2011, S. 1660) after Senate Democrats rejected the tax hikes the President proposed to pay for his bill.
This is the third time in the past two years that congressional Democrats have proposed a millionaire tax. The first time it was a 5.4 percent surtax to pay for health care reform. The second time was in “the People’s Budget” released by the Congressional Progressive Caucus. It failed to garner much support either time.
If the third time is the charm for the millionaire tax to become law, the economy would suffer lasting damage and reduced international competitiveness. And American workers would bear the brunt of the pain.
Permanent Tax Hike on Job Creators
The millionaire’s tax would be a 5.6 percent surtax on incomes of married filers earning over $1 million starting on January 1, 2013. The surtax would kick in at $500,000 for individual filers, so it cannot be called a true millionaire tax. It would take the place of several tax hikes President Obama proposed to pay for his jobs plan, the biggest of which was capping the deductions of high-income earners.[1] It would raise approximately $450 billion over 10 years.
The millionaire surtax is contradictory to the stated aim of the President’s jobs plan, which is to create jobs. The tax hike would fall squarely on the very job creators that the President wants to add jobs and reduce their incentive to add new workers.
Taxpayers earning more than $1 million per year are investors and businesses that are directly responsible for creating jobs. Investors provide the capital to existing businesses and startups so they can expand and add new workers. Raising their taxes would deprive them of resources they could invest in promising businesses that are looking to add employees. Raising their tax rate would deter them from taking the risk to invest.
The President and his allies say often that only a few businesses would pay higher taxes under their soak-the-rich policies. But a recent study from President Obama’s own Treasury Department shows that 50 percent of the income earned by businesses that pay their taxes through the individual income tax code and employ workers would pay the millionaire tax.[2]
The millionaire tax is a direct blow to the pass-through businesses that employ the most workers. Higher taxes would deprive these important job creators of resources they could use to add new workers or pay their workers higher wages, and it would reduce their incentive for adding new workers. These impediments to economic growth and job creation would plague the economy permanently, while the questionable jobs policies the millionaire tax would pay for are temporary.
More Job Destruction
The millionaire surtax would also apply to capital gains and dividends. This would be yet another surtax on investment income, as Obamacare already applied an extra 3.8 percent tax. Combined with that surtax and the President’s policy of increasing the capital gains and dividends rate to 20 percent from the current 15 percent rate, the millionaire surtax would raise the total rate to 29.4 percent—a 96 percent increase over the current rate.
Higher capital gains taxes would further impede job creation because it would increase the cost of new capital for businesses looking to grow or replace worn-out capital. This would make it more expensive for businesses to buy the equipment, tools, and other things they need to employ more workers and make their current workers more productive. The end result would be fewer jobs and lower wages for American workers.
The President frequently calls his tax hike plans “tax reform.” But one of the goals of tax reform is to lower the cost of capital to improve economic growth and enhance job creation. Higher taxes on capital are opposed to the aims of true tax reform.
Highest Tax Rates in the World
The U.S. is generally regarded as a low-tax nation compared to other industrialized countries. This is one of the main factors that has allowed the U.S. economy to grow at a faster rate than other developed countries for decades and has made it the envy of the world. If the millionaire surtax becomes law, the U.S. would no longer enjoy the advantages of being a low-tax country.
After adding state and local income tax rates, the 39.6 percent top federal income tax rate long fought for by President Obama and his congressional allies, the higher Medicare surtax from Obamacare, and the new millionaire surtax, the average top marginal income tax rate in the U.S. would be 55 percent. A rate at that level would leave the average U.S. rate as the third highest among developed nations in the 30-member Organization for Economic Cooperation and Development (OECD). It would be behind only Sweden and Denmark.
Taxpayers in states with above-average top marginal income tax rates would compare even worse. In fact, taxpayers in Oregon, Hawaii, and New York would pay the highest tax rates in the developed world. Taxpayers in California, Iowa, New Jersey, Vermont, Maine, Maryland, Minnesota, Idaho, North Carolina, Wisconsin, and Ohio would pay higher rates than every developed country except Denmark.
Taxpayers in the nine states without state income taxes—and therefore with the lowest income tax rates in the U.S.—would still be taxed at a higher rate than in all but seven other developed countries. Their rates would be higher than traditional high-tax countries such as France, Germany, Italy, and Spain.
In the global race for investment and capital, the millionaire tax would make almost every other developed country more competitive than the U.S.
Real Reform
The millionaire tax would end up costing the U.S. economy more jobs than the President’s jobs plan it is supposed to pay for would ever create. It would ruin American competitiveness among other developed countries.
The President and his congressional allies are better off spending their time pursuing true tax reform, which would repair the tax base and lower marginal tax rates. That would mean dropping their class warfare policies for the good of the economy and the country.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
The President and his team have been blaming “European headwinds” for some of the U.S. economy’s woes. But the truth is that the policies pursued by Washington and Athens are frighteningly similar—and the outcomes are not good for either country. Both countries are in need of comprehensive fiscal reforms, yet their leaders have avoided the tough decisions in favor of bailouts and political posturing.
In yesterday’s election, political parties supporting Greece’s bailout secured a narrow victory, causing Europe and world markets to breathe a temporary sigh of relief. The parties must now form a coalition government, despite continued protests from the radical party that sought to throw out the terms of the bailout assistance—which could have led Greece out of the euro currency. At 22 percent unemployment, Greek voters expressed disappointment with their limited options.
The Greek crisis was foreshadowed in this year’s Heritage Foundation/Wall Street JournalIndex of Economic Freedom, with Greece registering the largest decline in economic freedom of any country in the world. Its economy is rated “mostly unfree,” and it has the fifth-lowest economic freedom score in Europe, beating only Russia and three former Soviet republics.
Why is it in such a state? The authors of the Index point to “decades of overspending, a lack of structural reform progress, and endemic corruption,” noting that Greece’s “lack of competitiveness and fading business confidence are serious impediments to economic revival. Adjustments in market conditions have been stifled or delayed by public unions.”
A few other points of comparison: The U.S. corporate tax rate is higher than Greece’s. The Index of Economic Freedom pegged America’s overall tax burden at 24 percent of total domestic income, while Greece’s overall tax burden was 30 percent of GDP. Government spending inAmerica—42 percent of GDP—approaches Greece’s government spending level, which exceeds 50 percent of its GDP.
Both countries have structural economic deficiencies—like tax rates and labor regulations—that are causing deeply rooted problems. And both countries have tried to solve their fiscal problems through bailouts, to no avail.
Though it goes back to the adoption of the euro in 1999, the European crisis first broke into the open some 10 years later. In April 2009, the European Union told France, Spain, Ireland, and Greece to reduce their budget deficits in the wake of the credit crisis. Since the crisis began, Europe has substantially weakened its banking system, which is propped up only by central bank cash and shaky bailouts.
Now, defaulting on loans is a real possibility for Greece and other European nations. They have too long dismissed the need for economic growth in favor of government intervention.
Going into the G20 summit today and tomorrow in Mexico, President Obama “has called on European leaders to recapitalize weak banks and to focus on economic growth and not just budget austerity,” reports Reuters. Basically, he has been urging European governments to spend more now, even as their borrowing costs and debt far exceed sustainable levels. One wonders how countries that have limited or no access to credit markets because of their dire fiscal situations are supposed to borrow the money for all this additional spending. There is only one substantive difference between Obama’s policies for Europe and his domestic policy, where he has urged expanding government jobs as a solution to U.S. unemployment: The U.S. government can still borrow to finance its deficits, because we’re only partway down the road the Greeks have already traveled.
The overspending, overtaxing, over-borrowing and over-regulating approach does not work for Europe any more than it works for America.
To deal with any European financial fallout that might affect the U.S., we have to stop embracing the same policies. Congress and the President should rein in federal spending immediately by choice rather than being eventually forced to do so, as countries across Europe have been. They should declare a regulatory cease-fire and disarm the Taxmageddon threat.
America is responsible for its own economic problems, regardless of the winds sweeping across the Atlantic.
In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t create new employment.
Video produced by Caleb Brown and Austin Bragg.
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President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
I don’t understand why people think that big government is the answer for everything when what the federal government should do is get out of the way. Cutting taxes and regulations would help us get out of the recession!!
The Minneapolis Federal Reserve Bank has a very useful interactive website that allows anybody to compare recessions and recoveries during the post-World War II era. It takes only a couple of clicks to complete the exercise, and does not reflect well on the current occupant of the White House—as you can see at this link.
This does not mean that Obama caused the economic downturn. That was the result of policies that were implemented during the Bush years (though the current president was a big supporter of the Fannie Mae and Freddie Mac subsidies that played such a big role in the financial crisis). Indeed, the recession officially began in December 2007, more than one year before Obama’s inauguration.
Taking money out of the economy’s productive sector and letting politicians engage in a spending spree is the opposite of prudent policy.
But we can hold the president at least partially responsible for an extraordinarily weak and slow recovery. It’s been nearly three years since the recession officially ended in June 2009, yet jobs are still well below their pre-recession levels. And overall economic output, or gross domestic product, has just now finally gotten back to where it was when the downturn began.
This is an anemic record. Especially since an economy normally enjoys a strong bounce when coming out of a deep recession.
Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.
The problem is that Obama has tried all the wrong policies. He tried a big-spending Keynesian package that was supposed to be a “stimulus,” butthat’s the same failed approach that Bush tried in 2008, the same failed approach that Japan tried in the 1990s, and the same failed approach that Hoover and Roosevelt tried in the 1930s. Taking money out of the economy’s productive sector and letting politicians engage in a spending spree is the opposite of prudent policy.
The president also has continuously expanded subsidies for unemployment, even though academic scholars (and even left-wing economists) all agree that such policies cause more joblessness.
And now he’s demanding higher tax rates, holding a Sword of Damocles over entrepreneurs, investors, and small business owners.
The nation recently endured eight years of a big-spending interventionist in the White House. The problem with Obama is that he promised hope and change, but he’s continuing the failed statist policies of his predecessor.
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com
Sen. Marco Rubio (R-FL), born to Cuban immigrants, told us in an exclusive interview Wednesday that the pope should make time to see dissidents. Rubio was at Heritage to promote freedom in Cuba, particularly as it relates to technology and Internet access.
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We got to cut spending soon and try some austerity here at home.
Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
As Greece, and now Spain and Italy, struggle with the crushing burden of debt brought on by the modern welfare state, perhaps we should shift our gaze some 1,200 miles north to see how austerity can actually work.
Exhibit #1 is Estonia. This small Baltic nation recently had a spate of notoriety when its president, Toomas Ilves, got into a Twitter debate with Paul Krugman over the country’s austerity policies. Krugman sneered at Estonia as the “poster child for austerity defenders,” remarking of the nation’s recovery from recession, “this is what passes for economic triumph?” In return, President Ilves criticized Krugman as “smug, overbearing, and patronizing.”
Twitter-borne tit-for-tat aside, here are the facts: Estonia had been one of the showcases for free-market economic policies and had been growing steadily until the 2008 economic crisis burst a debt-fueled property bubble, shut off credit flows, and curbed export demand, plunging the country into a severe economic downturn.
However, instead of increasing government spending in hopes of stimulating the economy, as Krugman has urged, the Estonians rejected Keynesianism in favor of genuine austerity. Among other measures, the Estonian government cut public-sector wages by 10 percent, gradually raised the retirement age from 61 to 65 by 2026, reduced eligibility for health benefits, and liberalized the country’s labormarket, making it easier for businesses to hire and fire workers.
Estonia did unfortunately enact a small increase in its value-added tax, but it deliberately kept taxes low on businesses, investors, and entrepreneurs, refusing to make changes to its flat 21 percent income tax. In fact, the government has put in place plans to reduce the income tax to 20 percent by 2015.
Cutting government spending, reducing taxes, and liberalizing labor markets brings more economic growth, increased employment, less debt, and more prosperity.
Today, Estonia is actually running a budget surplus. Its national debt is 6 percent of GDP. By comparison, Greece’s is 159 percent of GDP. Ours is 102 percent.
Economic growth has been a robust 7.6 percent, the best in the EU. And, although the unemployment rate remains too high, at 11.7 percent, that is down from 19 percent during the worst of the recession. It’s hard to see how a Krugman-style stimulus would have done much better.
Next door, Latvia has also embarked on a successful austerity program. In 2008, facing a deep recession — the worst in Europe, with a 24 percent drop in GDP from 2007 to 2009 — and a run on the country’s largest bank, Latvia turned to Europe for a €7.5 billion bailout. But unlike Greece and other countries that seem to look at such assistance as a form of permanent welfare payment, Latvia used the EU loan as an opportunity to make the painful government reforms necessary to restore long-term economic health.
Latvia embarked on the toughest budget cuts in Europe. Half of all government-run agencies were eliminated, the number of public employees was reduced by a third, and public-sector wages were slashed by an average of 25 percent.
In the end, Latvia borrowed just €4.4 billion of the available €7.5 billion, and its economy is on the rebound. Unemployment, which reached 19 percent at the height of the recession, has declined to around 15 percent. Real GDP growth was 5.5 percent last yearCanada and is expected to be at least 3.5 percent this year. This year’s budget deficit will be just 1.2 percent of GDP, and the national debt is just 37 percent of GDP and declining. The credit-rating agencies recently upgraded the country’s credit-worthiness. And, while Greece mulls leaving the euro zone, Latvia has been pronounced eligible for membership.
The third Baltic country, Lithuania, also dramatically cut government spending — as much as 30 percent in nominal terms — including reductions in public-sector wages of 20 to 30 percent and pension cuts of as much as 11 percent. Unfortunately, Lithuania may have undermined the effects of those cuts by also raising taxes, including a significant hike in corporate taxes. Still, Lithuania is expected to see its economy grow by 2.2 percent this year.
Krugman and others do have a point in saying that the Baltic countries benefit from strong trade opportunities with neighbors such as Sweden and Finland that have growing economies. And it is true that, while their recoveries have been strong, none of the Baltic countries is expected to fully return to pre-recession levels of prosperity until 2014 at the earliest. On the other hand, when are Greece, Spain, or for that matter the United States — none of which has done much if anything to reduce government spending — likely to return to pre-recession growth?
If the Baltics are not a sufficient example of the value of cutting government, we can look a bit to the west, to Switzerland. Switzerland’s constitution includes provisions that limit the country’s ability both to run debt (the growth in government spending can be no higher than average revenue growth, calculated over a multi-year period) and to increasetaxes (taxes can be increased only by a double-majority referendum, meaning that a majority of voters in a majority of cantons would have to approve the increase).
As a result, total government spending in Switzerland at all levels of government is just 34 percent of GDP, compared to an average of 52 percent in the EU, and more than 41 percent in the United States. Switzerland’s national debt is just 41 percent of GDP and shrinking at a time when other European countries are becoming more insolvent. Switzerland’s economic growth has not yet returned to pre-recession levels, but it is better than the growth in, say, Greece or Spain. And its unemployment rate is just 3.1 percent, the lowest in Europe.
If that’s not enough evidence, we can just look to our own neighbor Canada. The Canadian federal government has been reducing spending in real terms since the 1990s. As a result, federal spending as a share of GDP has fallen from 22 percent in 1995 to just 15.9 percent today. Compare that to the United States, where the federal government spends 24 percent of GDP, roughly half again as much. And, while Canadian provincial governments spend appreciably more than do most U.S. states, total government spending at all levels in Canada has declined from 53 percent in the 1990s to just 42 percent today — still far too high, but clearly moving in the right direction.
Canada has also cut taxes. Corporate tax rates at the federal level were slashed from 29 percent in 2000 to 15 percent today, less than half the U.S. federal rate. Capital-gains taxes were also cut, as were, to a lesser degree, income taxes.
When Canada — led for so long by the ultra-liberal Pierre Trudeau — has smaller government and lower taxes than the U.S., something is seriously out of whack.
As a result of these changes, Canada’s national debt is now less than 34 percent of GDP. Its budget deficit this year will be just 3.5 percent of GDP, while ours will be 8.3 percent. Canada’s economy will grow at 2.6 percent this year — a modest rate but faster than ours — and its unemployment rate is 7.3 percent, again better than ours.
All these countries are following the successful examples set by other nations such as Chile, Ireland, and New Zealand in the 1980s and ’90s, and Slovakia from 2000 to 2003.
Of course, none of these examples is perfect, and cuts in government spending will not, by themselves, cure all ills. These countries often benefited from circumstances aside from fiscal discipline. Still, the evidence is there. Cutting government spending, reducing taxes, and liberalizing labor markets brings more economic growth, increased employment, less debt, and more prosperity. The opposite is also true: Bigger government and higher taxes result in more economic misery — see Greece, Spain, etc.
As the United States looks to its future, it is time to decide which path we will follow.
Why not pass the Balanced Budget Amendment? As you know that federal deficit is at all time high (1.6 trillion deficit with revenues of 2.2 trillion and spending at 3.8 trillion).
On my blog www.HaltingArkansasLiberalswithTruth.com I took you at your word and sent you over 100 emails with specific spending cut ideas. However, I did not see any of them in the recent debt deal that Congress adopted. Now I am trying another approach. Every week from now on I will send you an email explaining different reasons why we need the Balanced Budget Amendment. It will appear on my blog on “Thirsty Thursday” because the government is always thirsty for more money to spend.
You asked for ideas to cut spending, but you voted for the 800 billion dollar stimulus that did not help the economy at all. I have included an article below that makes a very good point about the Balanced Budget Amendment and the stimulus:
Lee believes there are several key components to a balanced budget amendment which he outlines in his book, including making tax increases contingent on a two-thirds vote in Congress so that the option to increase taxes is not the default maneuver to balance a budget. He believes the amendment should require Congress spends no more than it takes in, and in fact should cap the spending at a fixed percent of GDP (the proposal submitted in the Senate caps it at 18 percent of GDP, just about the historical average). There would also be a supermajority vote required to raise the debt ceiling.
And for those who argue that stimulus packages wouldn’t have been possible under the amendment, Lee sees little difficulty responding.
“That’s exibit A for why we ought to have it,” Lee said of the Obama stimulus package.
As Washington spends the summer arguing over its spending addiction, GOP Sen. Mike Lee of Utah has a solution to help prevent the same crisis for future generations: a balanced budget amendment.
The House made news last week when, in the heat of negotiations over raising the debt ceiling, they announced a vote on a balanced budget amendment this Wednesday. Though the Senate GOP introduced a one earlier this year, President Obama has stated emphatically otherwise, telling Americans last week during a press conference that the country does not need a balanced budget amendment.
“Yes, we do,” Lee told Townhall when asked to respond to the president, adding later when talking about simultaneously raising the debt ceiling and cutting spending, “We can’t bind what a future Congress will do. We can pass laws that will affect this year, but there will be a new Congress that takes power in January of 2013, and then another new one that will take power in January 2015. And they will make their own spending decisions then — we can’t bind them unless we amend the Constitution to do so.”
Lee points out that the American people support the idea of a balanced budget – 65 percent, according to a Sachs/Mason Dixon poll from this year – but politicians have been reluctant to wade into the debate.
“The fact that we’re in this debate, the fact that we’re sort of deadlocked, or we’ve reached a point of gridlock in the discussions, is indicative of the problem that we have,” Lee said.
In fact, Lee thinks a balanced budget amendment is so important to the future of the country that he’s written a book on it: The Freedom Agenda: Why a Balanced Budget Amendment Is Necessary to Restore Constitutional Government.
Lee even takes the argument a step beyond fiscal issues, saying a balanced budget amendment safeguards individual liberties.
““The more money it [Congress] has access to, whether it’s through borrowing or through taxation, either way, that’s going to fuel Congress’ expansion, and whenever government acts, it does so at the expanse of individual liberty,” Lee said. “We become less free every time government expands.”
Lee believes there are several key components to a balanced budget amendment which he outlines in his book, including making tax increases contingent on a two-thirds vote in Congress so that the option to increase taxes is not the default maneuver to balance a budget. He believes the amendment should require Congress spends no more than it takes in, and in fact should cap the spending at a fixed percent of GDP (the proposal submitted in the Senate caps it at 18 percent of GDP, just about the historical average). There would also be a supermajority vote required to raise the debt ceiling.
And for those who argue that stimulus packages wouldn’t have been possible under the amendment, Lee sees little difficulty responding.
“That’s exibit A for why we ought to have it,” Lee said of the Obama stimulus package.
Lee also pointed out that his balanced budget amendment includes an exception to the spending restriction in time of war – “not a blank check, but to the extent necessary.” Congress would also be able to supersede the amendment with a two-thirds vote.
“We wanted to make it difficult, but not impossible, for Congress to spend more than it had access to,” Lee said, citing as an example a massive or immediate crisis created by a national emergency or natural disaster. “What this is designed to do is to make it more difficult – to make it impossible – for Congress to just do this as a matter of course.”
Elisabeth Meinecke
Elisabeth Meinecke is Associate Editor with Townhall.com
Total Tax Burden Is Rising to Highest Level in History
Each American’s Share of National Debt Is Growing
Federal Spending Is Growing Faster Than Federal Revenue
The Daily Hatch 