Regarding the debt ceiling, the hysterical headlinesabout default and an economic apocalypse are silly because the Treasury Department surely will “prioritize” if Republicans and Democrats don’t reach an agreement.
I wasn’t intending to write about this topic, but it’s getting a lot of attention now that the deadline is approaching.
If you want to understand the real issue, there is an excellent column in the Wall Street Journal by former Senator Phil Gramm and his long-time aide, Mike Solon.
They explain that the fight is between House Republicans, who want domestic discretionary spending to grow at a slower rate and Democrats in the Senate and White House who want it to grow at a faster rate.
Here’s some of what they wrote.
Of the $5 trillion of stimulus payments between 2020 and 2022, some $362 billion has yet to be spent. The House debt-limit bill proposes to claw back $30 billion—or some 8% of the unspent balance. Only in Mr. Biden’s White House and Mr. Schumer’s Senate Democratic Caucus could such a modest proposal be considered extreme. …The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. …This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024. …A clean debt-ceiling hike would give us more government spending, and the House GOP’s proposal would allow more private spending. Only in Washington is that a hard choice.
But a slower increase is better than a faster increase. And I reckon any support for fiscal restraint by Republicans is welcome after the reckless profligacy of the Trump years.
It’s not a perfect analogy since people presumably prefer cash to in-kind handouts, but the vertical bars basically represent living standards for any given level of income that is earned (on the horizontal axis).
Needless to say, there’s not much reason to earn more income when living standards don’t improve. May as well stay home and good off rather than work hard and produce.
This is why income redistribution is so destructive, not just to taxpayers, but also to the people who get trapped into dependency. Which is exactly the point made in this video.
Milton Friedman’s Free to Choose – Ep.4 (1/7) – From Cradle to Grave President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for […]
Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]
Eight Reasons Why Big Government Hurts Economic Growth We got to cut these welfare programs before everyone stops working and wants to get the free stuff. The Bible says if you don’t work then you should not eat. It also says that churches should help the poor but it doesn’t say that the government should […]
Johan Norberg – Free or Equal – Free to Choose 30 years later 2/5 Published on Jun 10, 2012 by BasicEconomics In 1980 economist and Nobel laureate Milton Friedman inspired market reform in the West and revolutions in the East with his celebrated television series “Free To Choose.” Thirty years later, in this one-hour documentary, […]
I ran across this very interesting article about Milton Friedman from 2002: Friedman: Market offers poor better learningBy Tamara Henry, USA TODAY By Doug Mills, AP President Bush honors influential economist Milton Friedman for his 90th birthday earlier this month. About an economist Name:Milton FriedmanAge: 90Background: Winner of the 1976 Nobel Prize for economic science; […]
Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]
Milton Friedman came up with the idea of eliminating all welfare programs and putting in a negative income tax that would eliminate the welfare trap. However, our federal government just doesn’t listen to reason. Obama Ends Welfare Reform as We Know It, Calls for $12.7 Trillion in New Welfare Spending Robert Rector July 17, 2012 […]
December 06, 2011 03:54 PM Milton Friedman Explains The Negative Income Tax – 1968 0 comments By Gordonskene enlarge Milton Friedman and friends.DOWNLOADS: 36 PLAYS: 35 Embed The age-old question of Taxes. In the early 1960′s Economist Milton Friedman adopted an idea hatched in England in the 1950′s regarding a Negative Income Tax, to […]
In the last few years the number of people receiving Food Stamps has skyrocketed. President Obama has not cut any federal welfare programs but has increased them, and he has used class warfare over and over the last few months and according to him equality at the finish line is the equality that we should […]
Testing Milton Friedman – Preview Uploaded by FreeToChooseNetwork on Feb 21, 2012 2012 is the 100th anniversary of Milton Friedman’s birth. His work and ideas continue to make the world a better place. As part of Milton Friedman’s Century, a revival of the ideas featured in the landmark television series Free To Choose are being […]
In a free market, you only get rich by serving the needs of others.
As I mentioned in the video, many of our friends on the left instinctively reject the idea of a growing pie. They genuinely seem to think that one person’s success means another person’s failure. And this flawed thinking seems to be a big problem with young people.
So let’s revisit the data.
We’ll start with this chart from Our World in Data at Oxford University. As you can see, mass poverty was the norm until capitalism appeared on the scene a couple of hundred years ago.
What about if we look at more recent data.
Here’s another chart from the folks at Oxford, this time looking at the past 200 years. Lo and behold, we see how living standards began to skyrocket as capitalism took hold.
As you can see, living standard rose the most in nations with more economic freedom.
I’ll close with a final chart to debunk the notion that progress has somehow ground to a halt in modern times.
And since most of my readers are in the United States, we’ll look just at what’s happened in post-war America.
Some people point out that growth rates have declined the past two decades.
But that’s not an indictment of capitalism. Every president this century has expanded the size and scope of government. So it is hardly a surprise that the economy is slowing down.
The obvious lesson is that we need a return to the recipe that generates prosperity.
P.S. There is no such thing as a laissez-faire paradise. Even Switzerland has some bad policies, as does Singapore. And the United States may be capitalist compared to the average nation, but we have many bad policies today (and we had some bad policies in the past).
And when there are bad policies such as cronyism, it is possible for people to get rich dishonorably. Those are the people who do hurt the rest of us. The right response, of course, is to get rid of the bad policies, not to condemn all rich people or to condemn the system that allows all of us to enjoy mass prosperity.
P.P.S. Just as one person’s success does not mean another person’s failure, the same is true for nations.
She deserves the lion’s share of the credit for the U.K.’s economic rebirth and renaissance, but she also had the wisdom to appoint some very principled and very capable people to her cabinet.
Such as Nigel Lawson, who served as her Chancellor of the Exchequer (akin to a combined Treasury Secretary/OMB Director in the U.S.).
Lawson died last week, leading to many tributes to his role is resuscitating the U.K. economy.
The Wall Street Journal‘s editorial summarized his achievements.
…our problems are solvable, as they were a half century ago. One of those crucial problem solvers was British politician Nigel Lawson, who died this week at age 91. …the 1970s…was even more miserable in the United Kingdom than it was in the U.S. By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.
In a column for CapX, Madsen Pirie examines Lawson’s work.
Nigel Lawson left a huge legacy. Under his stewardship Britain went from being the sick man of Europe into becoming an economic powerhouse and one of the world’s leading economies. He is regarded by many as the finest Chancellor of the 20th century… Lord Lawson held the firm conviction that lower taxes created space for enterprise and opportunity, and made it his policy that in every Budget he would lower the burden of taxation and abolish at least one tax.…During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.
In other words, the lower tax rates in the U.K. had the same positive impact as the lower tax rates in the U.S., both in terms of encouraging growth and confirming the Laffer Curve.
Indeed, it’s more accurate to say that I’m despondent since the Prime Minister is abandoning (or is being pressured to abandon) key parts of her pro-growth agenda.
For details, check out this Bloombergreport, written by Julian Harris, about the (rapidly disappearing) tax-cutting agenda of the new British Prime Minister.
Westminster’s most hard-line advocates of free markets and lower taxes are looking on in despair as their agenda crumbles… When Liz Truss became prime minister just over five weeks ago, she promised to deliver a radical set of policies rooted in laissez-faire economics — an attempt to boost the UK‘s sluggish rate of growth. Yet her chancellor of the exchequer, Kwasi Kwarteng, faced a quick reality check when his mini-budget, packed with unfunded tax cuts and unaccompanied by independent forecasts, …triggered mayhem… Truss fired Kwarteng and replaced him with Jeremy Hunt as she was forced into a dramatic u-turn over her tax plans. …Truss conceded…and dropped her plan to freeze corporation tax. …Still, some believers are sticking by “Trussonomics”…Patrick Minford,..a professor at Cardiff University, said..“Liz Truss’s policies for growth are absolutely right, and to be thrown off them by a bit of market turbulence is insane.” …Eamonn Butler, co-founder of the Adam Smith Institute, similarly insisted that Truss “is not the source of the problem — she’s trying to cure the problem.”
Eamonn is right.
The United Kingdom faces serious economic challenges. But the problems are the result of bad government policies that already exist rather than the possibility of some future tax cuts.
In a column for the Telegraph, Allister Heath says the U.K.’s central bank deserves a big chunk of the blame.
Liz Truss and Kwasi Kwarteng have been doubly unlucky. While almost everybody else in Britain remained in denial, they correctly identified this absurd game for the con-trick that it truly was, warned that it was about to implode and pledged to replace it with a more honest system. Instead of a zombie economy based on rising asset prices and fake, debt-fuelled growth, their mission was to encourage Britain to produce more real goods and services, to work harder and invest more by reforming taxes and regulation.What happened next is dispiriting in the extreme. …Truss and her Chancellor moved too quickly and, paradoxically, given their warnings about the rottenness of the system, ended up pulling out the last block from the Jenga tower, sending all of the pieces tumbling down. …they didn’t crash the economy – it was about to come tumbling down anyway – but they had the misfortune of precipitating and accelerating the day of reckoning. …Andrew Bailey, the Governor of the Bank of England…, has been deeply unimpressive in all of this, helping to keep interest rates too low… The idea, now accepted so widely, that the price of money must be kept extremely low and quantitative easing deployed at every opportunity has undermined every aspect of the economy and society. …Too few people realise how terribly the easy money, high tax, high regulation orthodoxy has failed.
Allister closes with some speculation about possible alternatives. If the Tories in the U.K. decide to reject so-called “free-market fundamentalism,” what’s their alternative?
He thinks the Labour Party will take control, and with very bad results. Jeremy Corbyn will not be in charge, but his economic policies will get enacted.
If Truss is destroyed, the alternative won’t even be social democracy: it will be Labour, the hard Left, the full gamut of punitive taxation, including of wealth and housing, and even more spending, culminating rapidly in economic oblivion.
That is an awful scenario. Basically turning the United Kingdom into Greece.
I want to take a different approach, though, and contemplate what will happen if the Conservative Party rejects the Truss approach and embraces big-government conservatism.
To be fair, they usually don’t try to claim their dirigiste policies will produce higher living standards. Instead, they blindly assert that it will be easier to win elections if Republicans abandon Reaganism.
Switching back to the United Kingdom, Margaret Thatcher repeatedly won election and her legacy was strong enough that voters then elected another Conservative.
The bottom line is that good policy can lead to good political outcomes, whereas bad policy generally leads to bad political outcomes.
P.S. To be sure, there were times when Reagan’s poll numbers were very bad. And the same is true for Thatcher. But because they pursued good policies, economic growth returned and they reaped political benefits. Sadly, it appears that Truss won’t have a chance to adopt good policy, so we will never know if she also would have benefited from a similar economic renaissance.
Ross Kaminsky of KHOW and I discussed how this is already happening.
I hate being right, but it’s always safe to predict that politicians and bureaucrats will embrace policies that give more power to government.
Especially when they are very anxious to stifle tax competition.
For decades, people in government have been upset that the tax cuts implemented by Ronald Reagan and Margaret Thatchertriggered a four-decade trend of lower tax rates and pro-growth tax reform.
That’s the reason Biden and his Treasury Secretary proposed a 15 percent minimum tax rate for businesses.
And it’s the reason they now want the rate to be even higher.
Though even I’m surprised that they’re already pushing for that outcome when the original pact hasn’t even been approved or implemented.
Treasury Secretary Janet Yellen will press G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week…the global minimum tax rate…is tied to the outcome of legislation to raise the U.S. minimum tax rate, a Treasury official said.The Biden administration has proposed doubling the U.S. minimum tax on corporations overseas intangible income to 21% along with a new companion “enforcement” tax that would deny deductions to companies for tax payments to countries that fail to adopt the new global minimum rate. The officials said several countries were pushing for a rate above 15%, along with the United States.
Other kleptocratic governments naturally want the same thing.
A G7 proposal for a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, Argentina’s finance minister said on Monday, leading a push by some developing countries… “The 15% rate is way too low,” Argentine Finance Minister Martin Guzman told an online panel hosted by the Independent Commission for the Reform of International Corporate Taxation. …”The minimum rate being proposed would not do much to countries in Africa…,” Mathew Gbonjubola, Nigeria’s tax policy director, told the same conference.
Needless to say, I’m not surprised that Argentina is on the wrong side.
And supporters of class warfare also are agitating for a higher minimum rate. Here are some excerpts from a column in the New York Times by Gabriel Zucman and Gus Wezerek.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. …it was a golden period. …President Biden should be applauded for trying to end the race to the bottom on corporate tax rates. But even if Congress approves the 15 percent global minimum corporate tax, it won’t be enough. …the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about $200 billion in additional revenue each year. …With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
I can’t resist making two observations about this ideological screed.
Even the IMF and OECD agree that the so-called race to the bottom has not led to a decline in corporate tax revenues, even when measured as a share of economic output.
Since companies legally avoid rather than illegally evade taxes, the headline of the column is utterly dishonest – but it’s what we’ve learned to expect from the New York Times.
The only good thing about the Zucman-Wezerek column is that it includes this chart showing how corporate tax rates have dramatically declined since 1980.
P.S. For those interested, the horizontal line at the bottom is for Bermuda, though other jurisdictions (such as Monaco and the Cayman Islands) also deserve credit for having no corporate income taxes.
P.P.S. If you want to know why high corporate tax rates are misguided, click here. And if you want to know why Biden’s plan to raise the U.S. corporate tax rate is misguided, click here. Or here. Or here.
P.P.P.S. And if you want more information about why Biden’s global tax cartel is bad, click here, here, and here.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTERwho believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering,“It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
Good folks on the left (and every other part of the spectrum) push for equality of opportunity. And what’s great about that approach is that more opportunity for one person does not require less opportunity for another person.
Bad folks on the left push for equality of outcomes. And that’s unfortunate because an agenda of coerced equality (based on the notion of “positive rights“) means that one person has to suffer for another person to benefit.
Or, in really crazy circumstances, the goal is simply to deny good things for some people simply because they are not available to other people.
Three major utility companies in California are looking to restructure customer billing, and part of that means customers could be charged based on how much money they make. Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric filed a joint proposal this weekfor a flat-rate charge based on income. …Under the proposal, it would cost as little as $15 a month for low-income households and up to $85 more per month for households making more than $180,000 a year. …The income-based bill proposal is part of the companies’ compliance with legislation passed by the California state government last year requiring these types of plans for utilities. …The fixed rate could start showing up on bills as soon as 2025.
The Wall Street Journalopined on this policy. As you might imagine, class-warfare pricing was not celebrated.
Climate policies are driving up California electric rates… Now Democrats plan to double down on their policy distortions by charging electric customers based on income. Democrats snuck this second progressive income tax into a budget trailer bill last year… No other investor-owned utilities in the country link electricity costs to income. …Pacific Gas & Electric floated charging customers fixed fees ranging from $15 a month for those earning less than $28,000 annually, up to $92 a month for those making $180,000 or more. …California’s electric rates have surged over the last decade to an average of 26.5 cents a kWh—more than twice as much as in neighboring states… California’s electric rates are currently both regressive and progressive. Middle- and higher-income folks subsidize discounts for lower-income customers. However, lower- and middle-income households also subsidize the affluent with solar panels and electric vehicles. …Thus they want to impose this de facto graduated income tax to light up your home. This is another form of income redistribution… The very rich will cope, but the middle class will get soaked, as they always do.
I wonder if our friends on the left will expand this approach. Maybe require McDonald’s to charge rich people more for a Big Mac? Or tell gas stations that they have to lose money when poor people fill up their tanks?
She deserves the lion’s share of the credit for the U.K.’s economic rebirth and renaissance, but she also had the wisdom to appoint some very principled and very capable people to her cabinet.
Such as Nigel Lawson, who served as her Chancellor of the Exchequer (akin to a combined Treasury Secretary/OMB Director in the U.S.).
Lawson died last week, leading to many tributes to his role is resuscitating the U.K. economy.
The Wall Street Journal‘s editorial summarized his achievements.
…our problems are solvable, as they were a half century ago. One of those crucial problem solvers was British politician Nigel Lawson, who died this week at age 91. …the 1970s…was even more miserable in the United Kingdom than it was in the U.S. By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.
In a column for CapX, Madsen Pirie examines Lawson’s work.
Nigel Lawson left a huge legacy. Under his stewardship Britain went from being the sick man of Europe into becoming an economic powerhouse and one of the world’s leading economies. He is regarded by many as the finest Chancellor of the 20th century… Lord Lawson held the firm conviction that lower taxes created space for enterprise and opportunity, and made it his policy that in every Budget he would lower the burden of taxation and abolish at least one tax.…During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.
In other words, the lower tax rates in the U.K. had the same positive impact as the lower tax rates in the U.S., both in terms of encouraging growth and confirming the Laffer Curve.
Indeed, it’s more accurate to say that I’m despondent since the Prime Minister is abandoning (or is being pressured to abandon) key parts of her pro-growth agenda.
For details, check out this Bloombergreport, written by Julian Harris, about the (rapidly disappearing) tax-cutting agenda of the new British Prime Minister.
Westminster’s most hard-line advocates of free markets and lower taxes are looking on in despair as their agenda crumbles… When Liz Truss became prime minister just over five weeks ago, she promised to deliver a radical set of policies rooted in laissez-faire economics — an attempt to boost the UK‘s sluggish rate of growth. Yet her chancellor of the exchequer, Kwasi Kwarteng, faced a quick reality check when his mini-budget, packed with unfunded tax cuts and unaccompanied by independent forecasts, …triggered mayhem… Truss fired Kwarteng and replaced him with Jeremy Hunt as she was forced into a dramatic u-turn over her tax plans. …Truss conceded…and dropped her plan to freeze corporation tax. …Still, some believers are sticking by “Trussonomics”…Patrick Minford,..a professor at Cardiff University, said..“Liz Truss’s policies for growth are absolutely right, and to be thrown off them by a bit of market turbulence is insane.” …Eamonn Butler, co-founder of the Adam Smith Institute, similarly insisted that Truss “is not the source of the problem — she’s trying to cure the problem.”
Eamonn is right.
The United Kingdom faces serious economic challenges. But the problems are the result of bad government policies that already exist rather than the possibility of some future tax cuts.
In a column for the Telegraph, Allister Heath says the U.K.’s central bank deserves a big chunk of the blame.
Liz Truss and Kwasi Kwarteng have been doubly unlucky. While almost everybody else in Britain remained in denial, they correctly identified this absurd game for the con-trick that it truly was, warned that it was about to implode and pledged to replace it with a more honest system. Instead of a zombie economy based on rising asset prices and fake, debt-fuelled growth, their mission was to encourage Britain to produce more real goods and services, to work harder and invest more by reforming taxes and regulation.What happened next is dispiriting in the extreme. …Truss and her Chancellor moved too quickly and, paradoxically, given their warnings about the rottenness of the system, ended up pulling out the last block from the Jenga tower, sending all of the pieces tumbling down. …they didn’t crash the economy – it was about to come tumbling down anyway – but they had the misfortune of precipitating and accelerating the day of reckoning. …Andrew Bailey, the Governor of the Bank of England…, has been deeply unimpressive in all of this, helping to keep interest rates too low… The idea, now accepted so widely, that the price of money must be kept extremely low and quantitative easing deployed at every opportunity has undermined every aspect of the economy and society. …Too few people realise how terribly the easy money, high tax, high regulation orthodoxy has failed.
Allister closes with some speculation about possible alternatives. If the Tories in the U.K. decide to reject so-called “free-market fundamentalism,” what’s their alternative?
He thinks the Labour Party will take control, and with very bad results. Jeremy Corbyn will not be in charge, but his economic policies will get enacted.
If Truss is destroyed, the alternative won’t even be social democracy: it will be Labour, the hard Left, the full gamut of punitive taxation, including of wealth and housing, and even more spending, culminating rapidly in economic oblivion.
That is an awful scenario. Basically turning the United Kingdom into Greece.
I want to take a different approach, though, and contemplate what will happen if the Conservative Party rejects the Truss approach and embraces big-government conservatism.
To be fair, they usually don’t try to claim their dirigiste policies will produce higher living standards. Instead, they blindly assert that it will be easier to win elections if Republicans abandon Reaganism.
Switching back to the United Kingdom, Margaret Thatcher repeatedly won election and her legacy was strong enough that voters then elected another Conservative.
The bottom line is that good policy can lead to good political outcomes, whereas bad policy generally leads to bad political outcomes.
P.S. To be sure, there were times when Reagan’s poll numbers were very bad. And the same is true for Thatcher. But because they pursued good policies, economic growth returned and they reaped political benefits. Sadly, it appears that Truss won’t have a chance to adopt good policy, so we will never know if she also would have benefited from a similar economic renaissance.
Ross Kaminsky of KHOW and I discussed how this is already happening.
I hate being right, but it’s always safe to predict that politicians and bureaucrats will embrace policies that give more power to government.
Especially when they are very anxious to stifle tax competition.
For decades, people in government have been upset that the tax cuts implemented by Ronald Reagan and Margaret Thatchertriggered a four-decade trend of lower tax rates and pro-growth tax reform.
That’s the reason Biden and his Treasury Secretary proposed a 15 percent minimum tax rate for businesses.
And it’s the reason they now want the rate to be even higher.
Though even I’m surprised that they’re already pushing for that outcome when the original pact hasn’t even been approved or implemented.
Treasury Secretary Janet Yellen will press G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week…the global minimum tax rate…is tied to the outcome of legislation to raise the U.S. minimum tax rate, a Treasury official said.The Biden administration has proposed doubling the U.S. minimum tax on corporations overseas intangible income to 21% along with a new companion “enforcement” tax that would deny deductions to companies for tax payments to countries that fail to adopt the new global minimum rate. The officials said several countries were pushing for a rate above 15%, along with the United States.
Other kleptocratic governments naturally want the same thing.
A G7 proposal for a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, Argentina’s finance minister said on Monday, leading a push by some developing countries… “The 15% rate is way too low,” Argentine Finance Minister Martin Guzman told an online panel hosted by the Independent Commission for the Reform of International Corporate Taxation. …”The minimum rate being proposed would not do much to countries in Africa…,” Mathew Gbonjubola, Nigeria’s tax policy director, told the same conference.
Needless to say, I’m not surprised that Argentina is on the wrong side.
And supporters of class warfare also are agitating for a higher minimum rate. Here are some excerpts from a column in the New York Times by Gabriel Zucman and Gus Wezerek.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. …it was a golden period. …President Biden should be applauded for trying to end the race to the bottom on corporate tax rates. But even if Congress approves the 15 percent global minimum corporate tax, it won’t be enough. …the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about $200 billion in additional revenue each year. …With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
I can’t resist making two observations about this ideological screed.
Even the IMF and OECD agree that the so-called race to the bottom has not led to a decline in corporate tax revenues, even when measured as a share of economic output.
Since companies legally avoid rather than illegally evade taxes, the headline of the column is utterly dishonest – but it’s what we’ve learned to expect from the New York Times.
The only good thing about the Zucman-Wezerek column is that it includes this chart showing how corporate tax rates have dramatically declined since 1980.
P.S. For those interested, the horizontal line at the bottom is for Bermuda, though other jurisdictions (such as Monaco and the Cayman Islands) also deserve credit for having no corporate income taxes.
P.P.S. If you want to know why high corporate tax rates are misguided, click here. And if you want to know why Biden’s plan to raise the U.S. corporate tax rate is misguided, click here. Or here. Or here.
P.P.P.S. And if you want more information about why Biden’s global tax cartel is bad, click here, here, and here.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTERwho believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering,“It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
The Center for Freedom and Prosperity has a videoon spending caps that focuses on international evidence, such as Switzerland’s debt brake.
Here’s a video from the American Legislative Exchange Council that that looks at a successful domestic spending cap – Colorado’s Taxpayer Bill of Rights.
Here’s the short and simple explanation of how the Taxpayer Bill of Rights (TABOR) constrains spending.
Under the constitutional provision, state tax revenue cannot grow faster than population plus inflation. Any revenues above that amount have to be returned to taxpayers.
And since the state has a requirement for a balanced budget, that means that spending also can only grow as fast as population plus inflation.
Has TABOR been successful?
Colorado has out-performed other states, as measured by the growth of personal income, which presumably is a key variable.
Another key variable is the amount of money that TABOR has returned to taxpayers. Here are some excerpts from a new study, authored by Professor Barry Paulson and published by the American Legislative Exchange Council.
This year, the Colorado General Assembly announced a taxpayer rebate of $3.6 billion in surplus revenue. …These rebates are mandated by TABOR, a fiscal rule that limits the growth of revenue and spending at all levels of government and requires that surplus revenue be rebated to taxpayers. …It is important to understand why TABOR has been successful and resilient. TABOR is designed to limit the rate of growth in state revenue and spending to the sum of inflation plus the rate of growth in population while allowing a majority of voters to increase the revenue and spending limit when needed. This prevents many new taxes increases. If the state government collects more tax dollars than TABOR allows, the money is returned to taxpayers as a TABOR refund. …As a result, the state has not incurred deficits or accumulated debt as much as other states, like California. …tax rebates…totaling $8.2 billion since TABOR passed in 1992, has strengthened Colorado citizens confidence in the TABOR Amendment over the years.
The last sentence is key. TABOR has resulted in $8.2 billion in tax rebates. More important, it has prevented Colorado politicians from spending $8.2 billion.
Taxpayers seem to understand that TABOR is a very important protection against over-taxing and over-spending.
Here are some excerpts from a column by Ben Murrey of Colorado’s Independence Institute.
Every time voters speak on key issues related to TABOR, they send the same unambiguous message: “Leave TABOR alone and let us keep our money!” …In 2019 after voters gave Democrats unified control over state government, legislators thanked them by sending Proposition CC–which would have permanently ended TABOR refunds–to the November ballot, where Coloradans soundly rejected it. …In 2020, voters had the choice between two competing citizen-led ballot initiatives. One would have raised taxes and repealed TABOR’s requirement that Colorado maintains the same income tax rate for all taxpayers. The other, put on the ballot by my organization, Independence Institute, reduced the state’s income tax rate from 4.63 to 4.55 percent. The latter passed with a wide margin. The former failed even to gather enough signatures to appear on the ballot. …Fast forward to 2022. …Initiative 63 would have taken TABOR refunds from taxpayers and given the money back to the state to spend on public education. Like the tax increase measure from 2020, the initiative failed even to make the ballot. Conversely, Independence Institute worked to put Proposition 121 on the ballot. The measure won with more than a 30-point margin and lowered the state income tax rate from 4.55 to 4.4 percent, saving taxpayers over $400 million per year.
Colorado voters don’t always reject tax increases. At the local level, such measures often are approved.
But Murrey’s article shows that voters want to preserve TABOR and don’t want to give state politicians a blank check for more taxes and more spending.
Needless to say, a TABOR-style spending cap would be very helpful in other states. And at the national level as well.
P.S. The ALEC study looked at 30 years of evidence. There’s also a study that looked at the first 20 years of evidence.
I shared some data last month from the National Association of State Budget Officers to show that Texas lawmakers have been more fiscally responsible than California lawmakers over the past couple of years.
California politicians were more profligate in 2021 when politicians in Washington were sending lots of money to states because of the pandemic.
And California politicians also increased spending faster in 2022 when conditions (sort of) returned to normal.
What may be a surprise, however, is that (relative) frugality in Texas has only existed for a handful of years. Here are some excerpts from a report written for the Texas Public Policy Foundation by Vance Ginn and Daniel Sánchez-Piñol.
Over the last two decades, Texas’ total state biennial budget growth has had two different phases. The first phase had budget growth above the rate of population growth plus inflation for five of the six budgets from 2004–05 to 2014–15. The second phase…had budget growth below this rate… Figure 1 shows the average biennial growth rates for the six state budgets passed before 2015 and for the four since then.The average biennial budget growth rate in the former period was 12% compared with the rate of population growth plus inflation of 7.4%. In the latter period, the average biennial growth rate of the budget was cut by more than half to 5.2%, which was well below the estimated rate of population growth plus inflation of 9.4%. This improved budget picture must be maintained to correct for the excessive budget growth in the earlier period. …there could be a $27 billion GR surplus at the end of the current 2022–23 biennium. …the priority should be to effectively limit or, even better, freeze the state budget. Texas should use most, if not all, of the resulting surplus to reduce…property tax collections…these taxes could be cut substantially by restraining spending and using the surplus to reduce school district M&O property taxes to ultimately eliminate them over time.
The article has this chart, which is a good illustration of the shift to fiscal restraint in Texas.
For all intents and purposes, Texas in 2016 started abiding by fiscal policy’s Golden Rule.
And this means the burden of government is slowly but surely shrinking compared to the private sector.
That approach is paying big dividends. Spending restraint means there is now a big budget surplus, which is enabling a discussion of how to reduce property taxes (Texas has no income tax).
P.S. I shared data back in 2020 looking at the fiscal performance of Texas and Florida compared to New York and California.
Texas has better government policy than California, most notably in areas such as taxation and regulation.
Since people are moving from the Golden State to the Lone Star State, public policy seems to matter more than natural beauty.
Now let’s look at a bunch of evidence to support those three sentences.
We’ll start with an article by Joel Kotkin of Chapman University.
If one were to explore the most blessed places on earth, California, my home for a half century, would surely be up there. …its salubrious climate, spectacular scenery, vast natural resources… President Biden recently suggested that he wants to “make America California again”. Yet…he should consider whether the California model may be better seen as a cautionary tale than a roadmap to a better future… California now suffers the highest cost-adjusted poverty rate in the country, and the widest gap between middle and upper-middle income earners. …the state has slowly morphed into a low wage economy. Over the past decade, 80% of the state’s jobs have paid under the median wage — half of which are paid less than $40,000…minorities do better today outside of California, enjoying far higher adjusted incomes and rates of homeownership in places like Atlanta and Dallas than in San Francisco and Los Angeles. Almost one-third of Hispanics, the state’s largest ethnic group, subsist below the poverty line, compared with 21% outside the state. …progressive…policies have not brought about greater racial harmony, enhanced upward mobility and widely based economic growth.
Next we have some business news from the San Francisco Chronicle.
Business leaders fear tech giant Oracle’s recent announcement that it is leaving the Bay Area for Austin, Texas, will lead to more exits unless some fundamental political and economic changes are made to keep the region attractive and competitive. “This is something that we have been warning people about for several years. California is not business friendly, we should be honest about it,” said Kenneth Rosen, chairman of the UC Berkeley Fisher Center for Real Estate and Urban Economics.Bay Area Council President Jim Wunderman said… “From consulting companies to tax lawyers to bankers and commercial real estate firms, every person I talk with who provides services to big Bay Area corporations are telling me that their clients are strategizing about leaving…” Charles Schwab, McKesson and Hewlett Packard Enterprise have all exited the high-cost, high-tax, high-regulation Bay Area for a less-expensive, less-regulated and business-friendlier political climate. All of them rode off to Texas. …the pace of the departures appears to be increasing. …A recent online survey of 2,325 California residents, taken between Nov. 4 and Nov. 23 by the Public Policy Institute of California, found 26% of residents have seriously considered moving out of state and that 58% say that the American Dream is harder to achieve in California than elsewhere.
Not according to this column by Hank Adler in the Wall Street Journal.
California’s Legislature is considering a wealth tax on residents, part-year residents, and any person who spends more than 60 days inside the state’s borders in a single year. Even those who move out of state would continue to be subject to the tax for a decade… Assembly Bill 2088 proposes calculating the wealth tax based on current world-wide net worth each Dec. 31. For part-year and temporary residents, the tax would be proportionate based on their number of days in California. The annual tax would be on current net worth and therefore would include wealth earned, inherited or obtained through gifts or estates long before and long after leaving the state. …The authors of the bill estimate the wealth tax will provide Sacramento $7.5 billion in additional revenue every year. Another proposal—to increase the top state income-tax rate to 16.8%—would annually raise another $6.8 billion. Today, California’s wealthiest 1% pay approximately 46% of total state income taxes. …the Legislature looks to the wealthiest Californians to fill funding gaps without considering the constitutionality of the proposals and the ability of people and companies to pick up and leave the state, which news reports suggest they are doing in large numbers. …As of this moment, there are no police roadblocks on the freeways trying to keep moving trucks from leaving California. If A.B. 2088 becomes law, the state may need to consider placing some.
The late (and great) Walter Williams actually joked back in 2012that California might set up East German-style border checkpoints. Let’s hope satire doesn’t become reality.
But what isn’t satire is that people are fleeing the state (along with other poorly governed jurisdictions).
Simply state, the blue state model of high taxes and big government is not working (just as it isn’t working in countries with high taxes and big government).
Interestingly, even the New York Times recognizes that there is a problem in the state that used to be a role model for folks on the left.
Opining for that outlet at the start of the month, Brett Stephens raised concerns about the Golden State.
…today’s Democratic leaders might look to the very Democratic state of California as a model for America’s future. You remember California: People used to want to move there, start businesses, raise families, live their American dream. These days, not so much. Between July 2019 and July 2020, more people — 135,400 to be precise — left the state than moved in… No. 1 destination: Texas, followed by Arizona, Nevada and Washington. Three of those states have no state income tax.
California, by contrast, has very high taxes. Not just an onerous income tax, but high taxes across the board.
Californians also pay some of the nation’s highest sales tax rates (8.66 percent) and corporate tax rates (8.84 percent), as well as the highest taxes on gasoline (63 cents on a gallon as of January, as compared with 20 cents in Texas).
Sadly, these high taxes don’t translate into good services from government.
The state ranks 21st in the country in terms of spending per public school pupil, but 27th in its K-12 educational outcomes. It ties Oregon for third place among states in terms of its per capita homeless rate. Infrastructure? As of 2019, the state had an estimated $70 billion in deferred maintenance backlog. Debt? The state’s unfunded pension liabilities in 2019 ran north of $1.1 trillion, …or $81,300 per household.
Makes you wonder whether the rest of the nation should copy that model?
Democrats hold both U.S. Senate seats, 42 of its 53 seats in the House, have lopsided majorities in the State Assembly and Senate, run nearly every big city and have controlled the governor’s mansion for a decade. If ever there was a perfect laboratory for liberal governance, this is it. So how do you explain these results? …If California is a vision of the sort of future the Biden administration wants for Americans, expect Americans to demur.
Some might be tempted to dismiss Stephens’ column because he is considered the token conservative at the New York Times.
But Ezra Klein also acknowledges that California has a problem, and nobody will accuse him of being on the right side of the spectrum.
Here’s some of what he wrote in his column earlier this month for the New York Times.
I love California. I was born and raised in Orange County. I was educated in the state’s public schools and graduated from the University of California system… But for that very reason, our failures of governance worry me. California has the highest poverty rate in the nation,when you factor in housing costs, and vies for the top spot in income inequality, too. …but there’s a reason 130,000 more people leave than enter each year. California is dominated by Democrats, but many of the people Democrats claim to care about most can’t afford to live there. …California, as the biggest state in the nation, and one where Democrats hold total control of the government, carries a special burden. If progressivism cannot work here, why should the country believe it can work anywhere else?
Kudos to Klein for admitting problems on his side (just like I praise the few GOPers who criticized Trump’s big-government policies).
But his column definitely had some quirky parts, such as when he wrote that, “There are bright spots in recent years…a deeply progressive plan to tax the wealthy.”
That’s actually a big reason for the state’s decline, not a “bright spot.”
I’m not the only one to recognize the limitations of his column.
Who but Ezra Klein could survey the wreck left-wing Democrats have made of California and conclude that the state’s problem is its excessive conservatism? …Klein the rhetorician anticipates objections on this front and writes that he is not speaking of “the political conservatism that privatizes Medicare, but the temperamental conservatism that” — see if this formulation sounds at all familiar — “stands athwart change and yells ‘Stop!’”…California progressives have progressive policies and progressive power, and they like it that way. That is the substance of their conservatism. …Klein and others of his ilk like to present themselves as dispassionate pragmatists, enlightened empiricists who only want to do “what works.” …Klein mocks San Francisco for renaming schools (Begone, Abraham Lincoln!) while it has no plan to reopen them, but he cannot quite see that these are two aspects of a single phenomenon. …Klein…must eventually understand that the troubles he identifies in California are baked into the progressive cake. …That has real-world consequences, currently on display in California to such a spectacular degree that even Ezra Klein is able dimly to perceive them. Maybe he’ll learn something.
I especially appreciate this passage since it excoriates rich leftists for putting teacher unions ahead of disadvantaged children.
Intentions do not matter very much, and mere stated intentions matter even less. Klein is blind to that, which is why he is able to write, as though there were something unusual on display: “For all the city’s vaunted progressivism, [San Francisco] has some of the highest private school enrollment numbers in the country.” Rich progressives have always been in favor of school choice and private schools — for themselves. They only oppose choice for poor people, whose interests must for political reasons be subordinated to those of the public-sector unions from which Democrats in cities such as San Francisco derive their power.
Let’s conclude with some levity.
Here’s a meme that contemplates whether California emigrants bring bad voting habits with them.
Much of my writing is focused on the real-world impact of government policy, and this is why I repeatedly look at the relative economic performance of big government jurisdictions and small government jurisdictions.
So we’ve looked at high-tax states that are languishing, such as California and Illinois, and compared them to zero-income-tax states such as Texas.
With this in mind, you can understand that I was intrigued to see that even the establishment media is noticing that Texas is out-pacing the rest of the nation.
Here are some excerpts from a report by CNN Money on rapid population growth in Texas.
More Americans moved to Texas in recent years than any other state: A net gain of more than 387,000 in the latest Census for 2013. …Five Texas cities — Austin, Houston, San Antonio, Dallas and Fort Worth — were among the top 20 fastest growing large metro areas. Some smaller Texas metro areas grew even faster. In oil-rich Odessa, the population grew 3.3% and nearby Midland recorded a 3% gain.
But why is the population growing?
Well, CNN Money points out that low housing prices and jobs are big reasons.
And on the issue of housing, the article does acknowledge the role of “easy regulations” that enable new home construction.
But on the topic of jobs, the piece contains some good data on employment growth, but no mention of policy.
Jobs is the No. 1 reason for population moves, with affordable housing a close second. …Jobs are plentiful in Austin, where the unemployment rate is just 4.6%. Moody’s Analytics projects job growth to average 4% a year through 2015. Just as important, many jobs there are well paid: The median income of more than $75,000 is nearly 20% higher than the national median.
That’s it. Read the entire article if you don’t believe me, but the reporter was able to write a complete article about the booming economy in Texas without mentioning – not even once – that there’s no state income tax.
But that wasn’t the only omission.
The article doesn’t mention that Texas is the 4th-best state in the Tax Foundation’s ranking of state and local tax burdens.
The article doesn’t mention that Texas was the least oppressive state in the Texas Public Policy Foundation’s Soft Tyranny Index.
The article doesn’t mention that Texas was ranked #11 in the Tax Foundation’s State Business Tax Climate Index.
The article doesn’t mention that Texas is in 14th place in the Mercatus ranking of overall freedom for the 50 states (and in 10th place for fiscal freedom).
By the way, I’m not trying to argue that Texas is the best state.
Indeed, it only got the top ranking in one of the measures cited above.
My point, instead, is simply to note that it takes willful blindness to write about the strong population growth and job performance of Texas without making at least a passing reference to the fact that it is a low-tax, pro-market state.
At least compared to other states. And especially compared to the high-tax states that are stagnating.
Such as California, as illustrated by this data and this data, as well as this Lisa Benson cartoon.
Such as Illinois, as illustrated by this data and this Eric Allie cartoon.
P.S. Paul Krugman has tried to defend California, which has made him an easy target. I debunked him earlier this year, and I also linked to a superb Kevin Williamson takedown of Krugman at the bottom of this post.
P.P.S. Once again, I repeat the two-part challenge I’ve issued to the left. I’ll be happy if any statists can successfully respond to just one of the two questions I posed.
California is the Greece of the USA, but Texas is not perfect either!!! Just Because California Is Terrible, that Doesn’t Mean Texas Is Perfect January 21, 2013 by Dan Mitchell Texas is in much better shape than California. Taxes are lower, in part because Texas has no state income tax. No wonder the Lone Star State […]
We should lower federal taxes because jobs are going to states like Texas that have low taxes. (We should lower state taxes too!!) What Can We Learn by Comparing the Employment Situation in Texas vs. California? April 3, 2013 by Dan Mitchell One of the great things about federalism, above and beyond the fact that it […]
I got on the Arkansas Times Blog and noticed that a person on there was bragging about the high minimum wage law in San Francisco and how everything was going so well there. On 2-15-13 on the Arkansas Times Blog I posted: Couldn’t be better (the person using the username “Couldn’t be better) is bragging […]
Does Government Have a Revenue or Spending Problem? People say the government has a debt problem. Debt is caused by deficits, which is the difference between what the government collects in tax revenue and the amount of government spending. Every time the government runs a deficit, the government debt increases. So what’s to blame: too […]
Former California Governor Arnold Schwarzenegger with his family I posted a portion of an article by John Fund of the Wall Street Journal that pointed out that many businesses are leaving California because of all of their government red tape and moving to Texas. My username is SalineRepublican and this is […]
John Fund at Chamber Day, Part 1 Last week I got to attend the first ever “Conservative Lunch Series” presented by KARN and Americans for Prosperity Foundation at the Little Rock Hilton on University Avenue. This monthly luncheon will be held the fourth Wednesday of every month. The speaker for today’s luncheon was John Fund. John […]
___________ California and France have raised taxes so much that it has hurt economic growth!!! Mirror, Mirror, on the Wall, which Nation and State Punish Success Most of All? September 25, 2014 by Dan Mitchell I’ve shared some interested rankings on tax policy, including a map from the Tax Foundation showing which states have the earliest […]
___________ Jerry Brown raised taxes in California and a rise in the minimum wage, but it won’t work like Krugman thinks!!!! This cartoon below shows what will eventually happen to California and any other state that keeps raising taxes higher and higher. Krugman’s “Gotcha” Moment Leaves Something to Be Desired July 25, 2014 by […]
Open letter to President Obama (Part 573) (Emailed to White House on 7-29-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]
Open letter to President Obama (Part 561) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]
For today, I want to highlight what I said about monetary policy.
The above segment is less than three minutes, and I tried to make two points.
First, as I’ve previously explained, the Federal Reserve goofed by dramatically expanding its balance sheet (i.e., buying Treasury bonds and thus creating new money) in 2020 and 2021. That’s what produced the big uptick in consumer prices last year.
And it’s now why the Fed is raising interest rates. Part of the boom-bust cycle that you get with bad monetary policy.
Second, I speculate on why we got bad monetary policy.
I’ve always assumed that the Fed goofs because it wants to stimulate the economy (based on Keynesian monetary theory).
But I’m increasingly open to the idea that the Fed may be engaging in bad monetary policy in order to prop up bad fiscal policy.
To be more specific, what if the central bank is buying government bonds because of concerns that there otherwise won’t be enough buyers (which is the main reason why there’s bad monetary policy in places such as Argentina and Venezuela).
In the academic literature, this is part of the discussion about “fiscal dominance.” As shown in this visual, fiscal dominance exists when central banks decide (or are forced) to create money to finance government spending.
The visual is from a report by Eric Leeper for the Mercatus Center. Here’s some of what he wrote.
…a critical implication of fiscal dominance: it is a threat to central bank success. In each example, the central bank was free to choose not to react to the fiscal disturbance—central banks are operationally independent of fiscal policy. But that choice comes at the cost of not pursuing a central bank legislated mandate: financial stability or inflation control. Central banks are not economically independent of fiscal policy, a fact that makes fiscal dominance a recurring threat to the mission of central banks and to macroeconomic outcomes. …why does fiscal dominance strike fear in the hearts of economists and financial markets? Perhaps it does so because we can all point to extreme examples where fiscal policy runs the show and monetary policy is subjugated to fiscal needs. Outcomes are not pleasant. Germany’s hyperinflation in the early 1920s may leap to mind first. …The point of creating independent central banks tasked with controlling inflation…was to take money creation out of the hands of elected officials who may be tempted to use it for political gain instead of social wellbeing.
A working paper from the St. Louis Federal Reserve Bank, authored by Fernando Martin, also discusses fiscal dominance.
In recent decades, central banks around the world have gained independence from fiscal and political institutions. The proposition is that a disciplined monetary policy can put an effective brake on the excesses of political expediency.This is frequently achieved by endowing central banks with clear and simple goals (e.g., an inflation mandate or target), as well as sufficient control over specific policy instruments… Despite these institutional advances, the resolve of central banks is chronically put to the test. … the possibility of fiscal dominance arises only when the fiscal authority sets the debt level.
The bottom line is that budget deficits don’t necessarily lead to inflation. But if a government is untrustworthy, then it will have trouble issuing debt to private investors.
And that’s when politicians will have incentives to use the central bank as a printing press.
P.S. Pay attention to Italy. The European Central Bank has been subsidizing its debt. That bad policy supposedly is coming to an end and things could get interesting.
Neither of the techniques mentioned above is a very accurate way to measure each president’s impact on the national debtbecause the president doesn’t have much control over the national debt during their first year in office.
For example, President Donald Trump took office in January 2017. He submitted his first budget in May. It covered the 2018 fiscal year, which didn’t begin until October 1, 2017. Trump operated the first part of his term under President Barack Obama’s budget for fiscal year 2017, which ended on Sept. 30, 2017.2
fusing, Congress intentionally sets it up this way. An advantage of the federal fiscal year is that it gives the new president time to put together their budget during their first months in office.
The Best Way to Measure Debt by President
The best way to measure a president’s debt is to add up their budget deficits and compare that total to the debt level when they took office. A president’s budget reveals their administration’s priorities.
Note
Though they sound similar, deficit and debt are two different things. A deficit is a budget shortfall, whereas debt is the running total of all deficits and surpluses. Deficits add to the debt, while surpluses reduce it.
Top 5 Presidents Who Contributed to the Debt by Percentage
Franklin D. Roosevelt (1933-1945)
President Roosevelt added the largest percentage increase to the national debt. Although he only added $236 billion, this was an increase of about 1,048% from the $22.5 billion debt level left by President Herbert Hoover before him. The Great Depression and the New Deal contributed to FDR’s yearly deficits, but the biggest cost was World War II—it added $186.3 billion to the debt between 1942 and 1945.3
Woodrow Wilson (1913-1921)
President Wilson was the second-largest contributor to the debt, percentage-wise. He added about $21 billion, which was a 723% increase over the $2.9 billion debt of his predecessor. World War I contributed to the deficits that raised the national debt.3
Ronald Reagan (1981-1989)
President Reagan increased the debt by $1.86 trillion, or by 186%. Reagan’s supply-side economics didn’t grow the economy enough to offset the lost revenue from its tax cuts. Reagan also increased the defense budget by 35%.4
George W. Bush (2001-2009)
President Bush added $5.85 trillion to the national debt. That’s a 101% increase, putting him in fourth. Bush launched the War on Terror in response to the 9/11 attacks, which led to multi-trillion-dollar spending on the War in Afghanistan and the War in Iraq. Bush also dealt with the 2001 recession and the 2008 financial crisis.5
Barack Obama (2009-2017)
Under President Obama, the national debt grew the most in dollar terms ($8.6 trillion) and was fifth by percentage at 74%. Obama fought the Great Recession with an $831 billion economic stimulus package and added $858 billion through tax cuts. Even though the fiscal year 2009 budget was set by President Bush, Obama added to it with the Economic Stimulus Act in 2009.657
US Debt Increase by President Per Fiscal Year
The U.S. Treasury Department has historical tables that report the annual U.S. debt for each fiscal year (FY) since 1790. We’ve compiled this data from that source to create the figures used below.81
Joe Biden
In January 2023, the nation hit the $31.4 trillion debt limit Congress passed in 2021.9Republican lawmakers control the House of Representatives and said they won’t raise the debt limit unless Democrats, who control the Senate, agree to budget cuts.
On Oct. 1, 2021, at the end of fiscal year 2021, the national debt was $28.4 trillion. Between the end of fiscal year 2020 and the end of fiscal year 2021, the national debt grew $1.5 trillion, a 5.6% increase year over year. For fiscal year 2022, President Joe Biden’s budget included a deficit of $1.84 trillion, and by August 2022, the national debt had grown to $30.8 trillion.110
When Biden took office, the economy and household finances were still reeling from the pandemic, and Biden continued his predecessor’s policy of spending heavily to keep households afloat. In March 2021, Biden signed the American Rescue Plan, which showered taxpayers with pandemic relief cash in the form of stimulus checks and extra unemployment payments, and temporarily expanded child tax credits, plus other help. It all came with a cost to future budgets: The bill would add $1.9 trillion to the national debt by 2031, the Congressional Budget Office estimated.11
The bipartisan infrastructure bill, signed by Biden in November 2021, which provided new funding for highways, railways, broadband Internet expansion and other projects, added to the debt too, with estimates on its 10-year impact ranging from $374 billion to $400 billion, depending on how it’s calculated.1213
Some of Biden’s actions cut the other way. In August 2022, Biden signed the Inflation Reduction Act, an anti-climate change bill that spent money on new green energy programs and tax credits as well as to make drugs cheaper for patients, and paid for it by raising taxes on corporations and the ultra-wealthy. The bill should reduce the national debt by $102 billion by 2031, the CBO estimated.14
Biden followed up this bill with an executive action that forgave up to $10,000 of federal student loan debt per borrower, and $20,000 for those who received Pell Grants. He also proposed a new, cheaper income-driven student loan repayment program for future borrowers. However, he also announced that student loan interest and required payments, both of which had been frozen since the pandemic hit, would resume in January 2023.15
In August 2022, the government did not have an official estimate for how these measures would impact the national debt. One piece of it—forgiving $10,000 of debt per student loan borrower—would cost $329.7 billion over 10 years, according to an estimate by the Wharton School of Business.16
Donald Trump
At the end of fiscal year 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt between fiscal year 2017 and fiscal year 2020, a 33.1% increase, largely due to the effects of the coronavirus pandemic and 2020 recession.
In his FY 2021 budget, Trump’s budget included a $966 billion deficit.17 However, the national debt actually grew by $1.5 trillion between October 1, 2020, and October 1, 2021.
FY 2021: $1.5 trillion
FY 2020: $4.2 trillion
FY 2019: $1.2 trillion
FY 2018: $1.3 trillion
Barack Obama
President Obama added about $8.6 trillion, about a 74% increase, to the national debt at the end of President Bush’s last budget in 2009.
FY 2017: $671 billion
FY 2016: $1.42 trillion
FY 2015: $326 billion
FY 2014: $1.09 trillion
FY 2013: $672 billion
FY 2012: $1.28 trillion
FY 2011: $1.23 trillion
FY 2010: $1.65 trillion
FY 2009: $253 billion (Congress passed the Economic Stimulus Act, which spent $253 billion)18
George W. Bush
President Bush added $5.85 trillion to the national debt, a 101% increase from the $5.8 trillion debt at the end of Clinton’s last budget for fiscal year 2001.
FY 2009: $1.63 trillion (this was Bush’s deficit without the impact of the Economic Stimulus Act)
FY 2008: $1.02 trillion
FY 2007: $501 billion
FY 2006: $574 billion
FY 2005: $553 billion
FY 2004: $596 billion
FY 2003: $555 billion
FY 2002: $421 billion
Bill Clinton
President Clinton increased the national debt by almost $1.4 trillion, almost a 32% increase from the $4.4 trillion debt at the end of President H.W. Bush’s last budget.54
FY 2001: $133 billion
FY 2000: $18 billion
FY 1999: $130 billion
FY 1998: $113 billion
FY 1997: $189 billion
FY 1996: $251 billion
FY 1995: $281 billion
FY 1994: $281 billion
George H.W. Bush
President H.W. Bush added $1.55 trillion to the debt, a 54% increase from the $2.857 trillion debt at the end of Reagan’s last budget.4
FY 1993: $347 billion
FY 1992: $399 billion
FY 1991: $432 billion
FY 1990: $376 billion
Ronald Reagan
President Regan added $1.86 trillion to the national debt, a 186% increase from the $997.8 billion debt at the end of Carter’s last budget.4
FY 1989: $255 billion
FY 1988: $252 billion
FY 1987: $225 billion
FY 1986: $302 billion
FY 1985: $251 billion
FY 1984: $195 billion
FY 1983: $235 billion
FY 1982: $145 billion
Jimmy Carter
President Carter added $299 billion to the debt, a 42.7% increase from the $698.8 billion debt at the end of Ford’s last budget.4
FY 1981: $90.1 billion
FY 1980: $81.1 billion
FY 1979: $54.9 billion
FY 1978: $72.7 billion
Gerald Ford
President Ford added $223.7 billion to the debt.4
FY 1977: $78.4 billion
FY 1976: $87.2 billion
FY 1975: $58.1 billion
Richard Nixon
President Nixon added $121.1 billion to the national debt, a 34% increase from the $353.7 billion debt at the end of President Johnson’s last budget.4
FY 1974: $16.9 billion
FY 1973: $30.8 billion
FY 1972: $29.1 billion
FY 1971: $27.2 billion
FY 1970: $17.1 billion
Lyndon B. Johnson
President Johnson added $41.8 billion to the national debt, just a small 13% increase from the $312 billion debt at the end of President Kennedy’s time in office in 1964.4
FY 1969: $6.1 billion
FY 1968: $21.3 billion
FY 1967: $6.3 billion
FY 1966: $2.6 billion
FY 1965: $5.5 billion
John F. Kennedy
President Kennedy added $22.6 billion to the national debt.4
FY 1964: $5.8 billion
FY 1963: $7.6 billion
FY 1962: $9.2 billion
Dwight Eisenhower
President Eisenhower added $22.8 billion to the national debt.4
FY 1961: $2.6 billion
FY 1960: $1.6 billion
FY 1959: $8.3 billion
FY 1958: $5.8 billion
FY 1957: $2.2 billion surplus
FY 1956: $1.6 billion surplus
FY 1955: $3.1 billion
FY 1954: $5.1 billion
Harry Truman
President Truman added $7.3 billion to the national debt.43
FY 1953: $6.9 billion
FY 1952: $3.8 billion
FY 1951: $2.1 billion surplus
FY 1950: $4.5 billion
FY 1949: $478 million surplus
FY 1948: $6 billion surplus
FY 1947: $11 billion surplus
FY 1946: $10.7 billion
Franklin D. Roosevelt
President Roosevelt increased the national debt by $236 billion, a 1,048% increase from the $22.5 billion debt at the end of Hoover’s last budget.3
FY 1945: $57.7 billion
FY 1944: $64.3 billion
FY 1943: $64.2 billion
FY 1942: $23.5 billion
FY 1941: $6 billion
FY 1940: $2.5 billion
FY 1939: $3.2 billion
FY 1938: $740 million
FY 1937: $2.6 billion
FY 1936: $5 billion
FY 1935: $1.6 billion
FY 1934: $4.5 billion
Herbert Hoover
President Hoover added about $5.7 billion to the national debt.3
FY 1933: $3 billion
FY 1932: $2.8 billion
FY 1931: $616 million
FY 1930: $746 million surplus
Calvin Coolidge
President Coolidge reduced the national debt by about $5.3 billion.3
FY 1929: $673 million surplus
FY 1928: $907 million surplus
FY 1927: $1.1 billion surplus
FY 1926: $873 million surplus
FY 1925: $734.6 million surplus
FY 1924: $1 billion surplus
Warren G. Harding
President Harding reduced the national debt by about $1.6 billion thanks to budget surpluses.3
FY 1923: $614 million surplus
FY 1922: $1 billion surplus
Woodrow Wilson
President Wilson added about $21 billion to the national debt, a 723% increase from the $2.9 billion debt at the end of Taft’s last budget for fiscal year 1913.3
FY 1921: $1.9 billion surplus
FY 1920: $1.4 billion surplus
FY 1919: $12.8 billion
FY 1918: $9.8 billion
FY 1917: $2.1 billion
FY 1916: $551 million
FY 1915: $146 million
FY 1914: $0 (slight surplus)
Note
All presidents from 1790 to 1913 added a total of $2.8 billion to the national debt.8
Frequently Asked Questions (FAQ)
Which president has put the United States the most in debt?
President Joe Biden is on track to add the most to the budget deficit, largely due to the costs associated with continuing to battle the coronavirus pandemic. In late 2021, Congress voted to raise the debt ceiling.
Why does the United States owe so much debt?
Continued decreases in the amount of taxes paid by corporations and the wealthiest Americans have resulted in less money coming in. At the same time, spending on pandemic relief and the military continues to increase.
March 31, 2021
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.
“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!
Washington Could Learn a Lot from a Drug Addict
Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?
Making more dependent on government is not the way to go!!
Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.
Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.
Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.
Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.
It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.
______________
Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”
How sad it is that liberals just don’t get this reality.
While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
Alexander Fraser Tytler, Lord Woodhouselee(15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor.— TGW]
To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.
[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]
_______
Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.
_____________
_________
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
We got to act fast and get off this path of socialism. Morning Bell: Welfare Spending Shattering All-Time Highs Robert Rector and Amy Payne October 18, 2012 at 9:03 am It’s been a pretty big year for welfare—and a new report shows welfare is bigger than ever. The Obama Administration turned a giant spotlight […]
We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with everyone else that keeps spending our money. I am glad that at least […]
Government Must Cut Spending Uploaded by HeritageFoundation on Dec 2, 2010 The government can cut roughly $343 billion from the federal budget and they can do so immediately. __________ Liberals argue that the poor need more welfare programs, but I have always argued that these programs enslave the poor to the government. Food Stamps Growth […]
Milton Friedman – The Negative Income Tax Published on May 11, 2012 by LibertyPen In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration. http://www.LibertyPen.com Source: Firing Line with William F Buckley Jr. ________________ Milton […]
Dan Mitchell Commenting on Obama’s Failure to Propose a Fiscal Plan Published on Aug 16, 2012 by danmitchellcato No description available. ___________ After the Welfare State Posted by David Boaz Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his […]
Is President Obama gutting the welfare reform that Bill Clinton signed into law? Morning Bell: Obama Denies Gutting Welfare Reform Amy Payne August 8, 2012 at 9:15 am The Obama Administration came out swinging against its critics on welfare reform yesterday, with Press Secretary Jay Carney saying the charge that the Administration gutted the successful […]
Thomas Sowell – Welfare Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. The Continuing Good News About Welfare Reform By Robert Rector and Patrick Fagan, Ph.D. February 6, 2003 Six years ago, President Bill Clinton signed legislation overhauling part of the nation’s welfare system. […]
Uploaded by ForaTv on May 29, 2009 Complete video at: http://fora.tv/2009/05/18/James_Bartholomew_The_Welfare_State_Were_In Author James Bartholomew argues that welfare benefits actually increase government handouts by ‘ruining’ ambition. He compares welfare to a humane mousetrap. —– Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. In the controversial […]
Thomas Sowell If the welfare reform law was successful then why change it? Wasn’t Bill Clinton the president that signed into law? Obama Guts Welfare Reform Robert Rector and Kiki Bradley July 12, 2012 at 4:10 pm Today, the Obama Department of Health and Human Services (HHS) released an official policy directive rewriting the welfare […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]
It’s important to understand why House Republicans’ proposal on the debt ceiling would be an excellent step toward restoring fiscal sanity to the Washington swamp. Pictured: President Joe Biden presents a copy of his State of the Union speech Feb. 7 to House Speaker Kevin McCarthy, R-Calif., before delivering the address to a joint session of Congress. (Photo: Jacquelyn Martin/Pool/Getty Images)
House Speaker Kevin McCarthy, R-Calif., releasedtext April 19 of legislation dubbed the Limit, Save, Grow Act. The bill, a focus of internal negotiationsamong House Republicans, would provide an increase in the federal debt ceiling lasting into next spring in exchange for a package of reforms aimed at lowering future deficits and boosting economic growth.
This approach of pairing debt ceiling increases with fiscally responsible reforms has public support, but Washington has an uneven track record of doing the right thing. In recent years, Congress has tended to punt and allow huge increases to the federal debt limit without any meaningful reforms.
Kicking the can down the road is exactly what Senate Majority Leader Chuck Schumer, R-N.Y., wants.
A “clean” debt limit increase such as Democrats seek would mean ignoring the stark reality of what America’s financial trajectory looks like:
McCarthy has criticized President Joe Biden for an unwillingness to negotiate a debt limit deal, which puts Biden to the left of former Presidents Bill Clinton and Barack Obama, both fellow Democrats. Even House Democrats are concerned about Biden’s approach.
Although there is no telling how the debt standoff drama will play out, it’s important to understand why House Republicans’ proposal would be an excellent step toward restoring fiscal sanity to the Washington swamp.
In turn, deficit reduction also would go a long way toward slowing the inflation that has punished hardworking families since the start of the Biden administration.
Bringing Spending Back to Earth, Repealing Unspent COVID-19 Cash
On the spending side, the most significant proposal in House Republicans’ Limit, Save, Grow Act is a reduction in discretionary spending, which covers most federal activity outside of major benefit programs.
The bill would reduce budget authority for fiscal year 2024 to the level of fiscal year 2022, then allow increases of 1% per year moving forward.
Although this might seem like a modest change—reverting to spending levels passed less than two years ago—it would lead to big savings.
That’s because Congress passed a bloated, pork-filled spending frenzy to cover fiscal year 2023, which began Oct. 1. Merely undoing the spending increases from that one-year period would save taxpayers $131.3 billion.
Holding spending growth to 1% per year, rather than the almost 9% growth in the last bill, would lead directly to even larger savings every year thereafter, as well as significantly reduced net interest costs.
The Congressional Budget Office estimates that this approach would save $3.2 trillion over a decade, or about $25,000 per household.
If Congress enacts a long-term discretionary spending limit, it’s vital for taxpayers to hold their representatives’ feet to the fire. The Budget Control Act of 2011 led to spending caps that saved hundreds of billions of dollars, but the caps eventually were undone in a series of bipartisan deals.
Americans must remember that members of Congress will not do the right thing with public funds unless they know that there will be consequences for irresponsibility. As the tea party movement waned, Washington’s big spenders went hog wild.
Another way the Republican savings package would address reckless spending is by rescinding leftover funds passed during the COVID-19 spending spree, saving tens of billions of dollars.
Ending Biden’s Student Loan Bailouts
The next-largest amount of savings in the Limit, Save, Grow Act, worth $460 billion, would target the Biden administration’s outrageous attempt to cancel student loan debt for those who haven’t felt like repaying what they owe.
This attempted power grab is politically corrupt, so unconstitutional that even then-House Speaker Nancy Pelosi said in 2021 that it would be illegal. It’s an insult to both those who repaid their student debt and to the tens of millions of taxpayers who never took out student loans in the first place.
The House package also would end the loan repayment pause that began in March 2020 as a result of the COVID-19 pandemic. Biden repeatedly has extended the pause, which now will last through June 30 even though the administration belatedly ended the national emergency two weeks ago.
Trading ‘Green New Deal’ for Low-Cost American Energy
The Limit, Save, Grow Act includes two sections devoted to energy policy:
Repeal of a swath of hyper-expensive “green” energy and electric vehicle tax credits passed by Democrats last year.
The entirety of HR 1, the Lower Energy Costs Act, which the House passed March 30. It primarily serves to enable more domestic energy production by reforming outdated and cumbersome regulations that impose massive costs for minimal environmental effects.
Although the two sections are not explicitly linked, they flow from the same stream of thought.
Rather than using a mix of taxes, subsidies, and regulations to micromanage the nation’s energy and transportation sectors—the approach of Biden and other progressives—House Republicans would empower Americans to produce and consume energy in ways that best suit them.
This one-two punch has many benefits. It would help prevent energy dependence on China (which controls much of the supply chain for many “green” products such as batteries and rare minerals), grow the economy through increased energy production and lower energy prices, create hundreds of thousands of jobs, and reduce future deficits by hundreds of billions (or even trillions) of dollars.
These provisions would do more to combat inflation than anything Congress has done in decades.
Rescinding That Huge Funding Boost for IRS
The so-called Inflation Reduction Act of 2022 provided the Internal Revenue Service with almost $80 billion of supplemental funding through fiscal year 2031. These funds were in addition to the agency’s regular annual appropriations, which stood at $12.6 billion as of fiscal 2022.
The Limit, Save, Grow Act would rescind most of the unspent portion of the supplemental IRS funding, but would leave in place funding set aside for taxpayer services, business systems modernization (technology improvements), and agency oversight. The new House bill potentially would prevent IRS outlays of more than $45 billion on enforcement and nearly $25 billion on operations between fiscal 2024 and 2031.
The enforcement portion of the IRS funding was perhaps the most controversial element of the biggest tax-and-spend bill of 2022. Enforcement almost entirely consists of new audit examinations and collections.
Repeal of the extra IRS funding would save honest taxpayers in at least three ways, by: (1) reducing direct taxpayer funding to the IRS, (2) reducing the number of costly and time-consuming audits Americans face, and (3) lowering consumer prices by reducing company overhead, especially for small businesses that can ill afford to pay high-priced accountants and lawyers for tax and audit services.
On April 19, the IRS submitted a compendium of its strategic operating plan to the Senate Finance Committee, and that document shows that the IRS plans to amass an enormous enforcement apparatus, more than tripling its spending on enforcement from about $5.4 billion in 2022 to about $16.9 billion in 2031.
If IRS employees assigned to enforcement were to increase at the same rate as enforcement funding, that would allow the IRS to hire more than 76,000 more full-time employees in enforcement by 2031. If the IRS averaged 50 audits of households per year per new full-time employee in enforcement (less than one audit per week per new employee), that would mean 3.8 million additional audits in 2031 alone.
(Incidentally, fewer than 3.8 million American households reported adjusted gross income of greater than $400,000 as of 2020.)
The coming wave of new IRS audits would impose a huge cost on Americans, regardless of whether they themselves were selected for an audit. The $144.5 billion accounting industry would benefit, but everyday Americans would pay the price if labor and scarce resources were diverted from producing the goods and services they need and shifted to the IRS, accountants, and lawyers.
By constraining the IRS and freeing American workers and small businesses from excessive audits, the Limit, Save, Grow Act wouldn’t just save Americans money, it also would limit the expansion of government and grow the economy.
Work Requirements: Good for Welfare Recipients and Taxpayers
An aspect of the Limit, Save, Grow Act that is receiving outsize attention considering its budgetary impact is adding and strengthening work requirements for federal programs such as Medicaid and food stamps.
The estimated savings, in the neighborhood of $100 billion over a decade, are certainly helpful. However, what matters more is the beneficial effect that work requirements have in rescuing families from the trap of dependency on government.
Welfare reform made great strides in the 1990s by steering the able-bodied into the workforce, which in turn dramatically reduced poverty in single-parent households. Unfortunately, some of that progress has been lost in recent years, and millions of open jobs are available to adults who are languishing in the welfare system.
While the Left portrays work requirements as a harmful burden, keeping adults in the workforce actually has a variety of positive effects beyond improved household financials, including better mental and physical health. That means these reforms would be worth passing even if they didn’t reduce future deficits—which they do.
Protecting the Economy from Regulatory Strangulation
Although discussions about the federal budget typically focus on spending and taxes, Congress has another method to reduce long-term deficits: increasing economic growth by reducing burdensome regulations.
The Limit, Save, Grow Act contains the contents of the REINS (Regulations from the Executive in Need of Scrutiny) Act, a measure that would force presidential administrations to receive approval from Congress before implementing major regulations.
This would prevent administrations from abusing executive authority and also make it more difficult for Washington to entangle businesses in additional layers of red tape. Such protections are badly needed due to the radical bend of the Biden administration, which has pushed statutes to a breaking point in pursuit of increasing its control over the economy.
While the REINS Act is only one of many necessary actions Congress should take regarding regulation, it would help bolster economic growth, which in turn would help the nation’s bottom line.
Conclusion: This Can’t Wait
The debate over the debt limit is likely to take center stage in the coming months. Hopefully, Democrats will put aside demagoguery long enough to participate in good faith negotiations.
In the meantime, House and Senate Republicans must stand their ground and make it clear to the public that tackling Washington’s unsustainable, inflationary spending can’t wait.
Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.
March 31, 2021
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.
“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!
Washington Could Learn a Lot from a Drug Addict
Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?
Making more dependent on government is not the way to go!!
Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.
Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.
Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.
Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.
It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.
______________
Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”
How sad it is that liberals just don’t get this reality.
While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
Alexander Fraser Tytler, Lord Woodhouselee(15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor.— TGW]
To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.
[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]
_______
Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.
_____________
_________
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
We got to act fast and get off this path of socialism. Morning Bell: Welfare Spending Shattering All-Time Highs Robert Rector and Amy Payne October 18, 2012 at 9:03 am It’s been a pretty big year for welfare—and a new report shows welfare is bigger than ever. The Obama Administration turned a giant spotlight […]
We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with everyone else that keeps spending our money. I am glad that at least […]
Government Must Cut Spending Uploaded by HeritageFoundation on Dec 2, 2010 The government can cut roughly $343 billion from the federal budget and they can do so immediately. __________ Liberals argue that the poor need more welfare programs, but I have always argued that these programs enslave the poor to the government. Food Stamps Growth […]
Milton Friedman – The Negative Income Tax Published on May 11, 2012 by LibertyPen In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration. http://www.LibertyPen.com Source: Firing Line with William F Buckley Jr. ________________ Milton […]
Dan Mitchell Commenting on Obama’s Failure to Propose a Fiscal Plan Published on Aug 16, 2012 by danmitchellcato No description available. ___________ After the Welfare State Posted by David Boaz Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his […]
Is President Obama gutting the welfare reform that Bill Clinton signed into law? Morning Bell: Obama Denies Gutting Welfare Reform Amy Payne August 8, 2012 at 9:15 am The Obama Administration came out swinging against its critics on welfare reform yesterday, with Press Secretary Jay Carney saying the charge that the Administration gutted the successful […]
Thomas Sowell – Welfare Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. The Continuing Good News About Welfare Reform By Robert Rector and Patrick Fagan, Ph.D. February 6, 2003 Six years ago, President Bill Clinton signed legislation overhauling part of the nation’s welfare system. […]
Uploaded by ForaTv on May 29, 2009 Complete video at: http://fora.tv/2009/05/18/James_Bartholomew_The_Welfare_State_Were_In Author James Bartholomew argues that welfare benefits actually increase government handouts by ‘ruining’ ambition. He compares welfare to a humane mousetrap. —– Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. In the controversial […]
Thomas Sowell If the welfare reform law was successful then why change it? Wasn’t Bill Clinton the president that signed into law? Obama Guts Welfare Reform Robert Rector and Kiki Bradley July 12, 2012 at 4:10 pm Today, the Obama Department of Health and Human Services (HHS) released an official policy directive rewriting the welfare […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]
I have been very pessimistic in recent years about the United Kingdom. Now, having just finished giving speeches in Bristol and London, I’m even more pessimistic.
The core problem is that the burden of government spending has expanded dramatically in recent years,in part because of the pandemic.
But there’s been no move to undo the damage. Instead, the (supposedly) conservative governments of Boris Johnson and Rishi Sunak have kept the spigots open.
And this does not even include all the additional spending that almost surely will get added because of demographic change.
Sadly, none of the experts I met with on my trip expressed much hope of reversing the nation’s fiscal decline.
Indeed, most of them have a a glum outlook. Including the ones I didn’t talk to. For instance, Fiona Bulmer authored some depressing analysis for CapXabout the U.K.’s faux conservatives.
Now a Tory government boasts that it is spending “£407 billion on support for families, jobs and businesses”, borrowing is at its highest level since the war – and that’s only the start. …Ministers, commentators, the Bank of England…seem to believe that we have now finally created a climate in which the magic money tree can flourish. …spending discipline has been completely abandoned over the past year. …We used to believe that individuals and businesses would always be better at spending their own money than government, instead we must now celebrate that the Department of Transport is giving people £50 vouchers to get their bikes mended. The problem is that once public spending becomes celebrated as a virtue then the culture of cost constraint disappears and every part of government will adopt the Oliver Twist approach and constantly come back for more.
As you might expect, governments that spend too much also have bad tax systems.
That certainly is true in the United Kingdom. But, as reported by the Economist, the U.K. seemingly tries to make taxes as punitive as possible.
People in England, Wales and Northern Ireland pay a basic rate of income tax of 20% on annual earnings over £12,570 ($15,612)… Britons must also pay national-insurance contributions (NICs) of 12% of weekly earnings over £242… Recent university graduates with student debt must pay an additional 9% on anything they earn over £27,295. A 40% income-tax rate kicks in at slightly over £50,000, which is when parents also begin to be taxed on a welfare payment known as child benefit.The result can be a 60% marginal tax rate for those with two children and a 70% rate for those with three. For every £1 earned above £100,000, you lose 50p of the £12,570 tax-free allowance; the allowance falls to zero if your income is £125,140 or more. That means at least a 60% marginal tax rate for high-earning taxpayers—rising to over 100% for parents who start losing tax-free child-care benefits as well. …Value-added tax…is levied at a 20% rate on most final purchases by consumers. …Britain has some of the highest taxes on property of any country in the OECD.
Is there any hope of fixing this mess?
That is unlikely, given the profligacy of today’s Tory politicians.
But there is a solution if any of them eventually decide to be on the side of taxpayers. Writing for CapX, Gavin Rice opines that it is time to reform the welfare state and limit spending growth.
Despite Thatcher’s revolutionary attempt to shift responsibility back onto individuals and families, …the welfare state has grown and grown. Since 1948, welfare spending has risen from £11bn to well over £200bn, in today’s money – that’s 18 times more spent on social security than under Clement Attlee’s supposedly socialist Labour government.…spending…has also risen as a proportion of national income from around 4% in 1947 to over 10% by 2019, and is projected to rise to over 12% by 2065. …to sustain even pre-Covid spending habits over the medium term, the Office for Budget Responsibility has estimated that taxes would need to rise by one third in order to stabilise debt… Britain has an ‘inverse pyramid’ society with a minority of working adults sustaining a majority of economically inactive citizens. …when public spending requirements outstrip that growth, there’s a problem.
Since it reflects my Golden Rule, I particularly appreciate the last sentence in the above excerpt.
But I don’t appreciate how recent British Prime Ministers have violated that rule.
Makes me wonder whether Boris Johnson and Rishi Sunak are doing more damage to good fiscal policy in the U.K. than George Bush and Donald Trump did to good fiscal policy in the U.S.?
Ross Kaminsky of KHOW and I discussed how this is already happening.
I hate being right, but it’s always safe to predict that politicians and bureaucrats will embrace policies that give more power to government.
Especially when they are very anxious to stifle tax competition.
For decades, people in government have been upset that the tax cuts implemented by Ronald Reagan and Margaret Thatchertriggered a four-decade trend of lower tax rates and pro-growth tax reform.
That’s the reason Biden and his Treasury Secretary proposed a 15 percent minimum tax rate for businesses.
And it’s the reason they now want the rate to be even higher.
Though even I’m surprised that they’re already pushing for that outcome when the original pact hasn’t even been approved or implemented.
Treasury Secretary Janet Yellen will press G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week…the global minimum tax rate…is tied to the outcome of legislation to raise the U.S. minimum tax rate, a Treasury official said.The Biden administration has proposed doubling the U.S. minimum tax on corporations overseas intangible income to 21% along with a new companion “enforcement” tax that would deny deductions to companies for tax payments to countries that fail to adopt the new global minimum rate. The officials said several countries were pushing for a rate above 15%, along with the United States.
Other kleptocratic governments naturally want the same thing.
A G7 proposal for a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, Argentina’s finance minister said on Monday, leading a push by some developing countries… “The 15% rate is way too low,” Argentine Finance Minister Martin Guzman told an online panel hosted by the Independent Commission for the Reform of International Corporate Taxation. …”The minimum rate being proposed would not do much to countries in Africa…,” Mathew Gbonjubola, Nigeria’s tax policy director, told the same conference.
Needless to say, I’m not surprised that Argentina is on the wrong side.
And supporters of class warfare also are agitating for a higher minimum rate. Here are some excerpts from a column in the New York Times by Gabriel Zucman and Gus Wezerek.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. …it was a golden period. …President Biden should be applauded for trying to end the race to the bottom on corporate tax rates. But even if Congress approves the 15 percent global minimum corporate tax, it won’t be enough. …the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about $200 billion in additional revenue each year. …With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
I can’t resist making two observations about this ideological screed.
Even the IMF and OECD agree that the so-called race to the bottom has not led to a decline in corporate tax revenues, even when measured as a share of economic output.
Since companies legally avoid rather than illegally evade taxes, the headline of the column is utterly dishonest – but it’s what we’ve learned to expect from the New York Times.
The only good thing about the Zucman-Wezerek column is that it includes this chart showing how corporate tax rates have dramatically declined since 1980.
P.S. For those interested, the horizontal line at the bottom is for Bermuda, though other jurisdictions (such as Monaco and the Cayman Islands) also deserve credit for having no corporate income taxes.
P.P.S. If you want to know why high corporate tax rates are misguided, click here. And if you want to know why Biden’s plan to raise the U.S. corporate tax rate is misguided, click here. Or here. Or here.
P.P.P.S. And if you want more information about why Biden’s global tax cartel is bad, click here, here, and here.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTERwho believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering,“It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
She deserves the lion’s share of the credit for the U.K.’s economic rebirth and renaissance, but she also had the wisdom to appoint some very principled and very capable people to her cabinet.
Such as Nigel Lawson, who served as her Chancellor of the Exchequer (akin to a combined Treasury Secretary/OMB Director in the U.S.).
Lawson died last week, leading to many tributes to his role is resuscitating the U.K. economy.
The Wall Street Journal‘s editorial summarized his achievements.
…our problems are solvable, as they were a half century ago. One of those crucial problem solvers was British politician Nigel Lawson, who died this week at age 91. …the 1970s…was even more miserable in the United Kingdom than it was in the U.S. By the time Margaret Thatcher led the Tories into office in May 1979, inflation was raging and the country had been wracked by strikes in its “winter of discontent”… Lawson entered Thatcher’s administration… He made his historic mark as Chancellor of the Exchequer starting in 1983. He’s best known for his tax reforms, which reduced the top personal income-tax rate to 40% from 60% and brought the top corporate rate to 35% from a 1970s high of 52%. He also was a steward of the Thatcher administration’s privatizations of large state-owned firms and the “Big Bang” financial reforms that would transform London into a global financial center.
In a column for CapX, Madsen Pirie examines Lawson’s work.
Nigel Lawson left a huge legacy. Under his stewardship Britain went from being the sick man of Europe into becoming an economic powerhouse and one of the world’s leading economies. He is regarded by many as the finest Chancellor of the 20th century… Lord Lawson held the firm conviction that lower taxes created space for enterprise and opportunity, and made it his policy that in every Budget he would lower the burden of taxation and abolish at least one tax.…During his tenure, Britain was transformed from being an economy in which most major businesses and services were owned and run by the state, into one in which they became private businesses, paying taxes instead of receiving taxpayer subsidies. Failing and outdated state enterprises became modern, successful private ones. …His 1988 Budget…announced that all taxes above 40% would be abolished, and that the basic rate would be cut to 25%, its lowest for 50 years… Within a very short time, more money was coming into the Treasury from the lower rates than it had been taking in from the higher ones. It was a vindication of the Laffer Curve. …The top 10% of earners had been paying 35% of the total income tax take. Under Lawson’s lower rate that went up to 48%. In rough terms this meant that the top 10% went from paying just over a third to just under a half of total income taxes.
In other words, the lower tax rates in the U.K. had the same positive impact as the lower tax rates in the U.S., both in terms of encouraging growth and confirming the Laffer Curve.
Indeed, it’s more accurate to say that I’m despondent since the Prime Minister is abandoning (or is being pressured to abandon) key parts of her pro-growth agenda.
For details, check out this Bloombergreport, written by Julian Harris, about the (rapidly disappearing) tax-cutting agenda of the new British Prime Minister.
Westminster’s most hard-line advocates of free markets and lower taxes are looking on in despair as their agenda crumbles… When Liz Truss became prime minister just over five weeks ago, she promised to deliver a radical set of policies rooted in laissez-faire economics — an attempt to boost the UK‘s sluggish rate of growth. Yet her chancellor of the exchequer, Kwasi Kwarteng, faced a quick reality check when his mini-budget, packed with unfunded tax cuts and unaccompanied by independent forecasts, …triggered mayhem… Truss fired Kwarteng and replaced him with Jeremy Hunt as she was forced into a dramatic u-turn over her tax plans. …Truss conceded…and dropped her plan to freeze corporation tax. …Still, some believers are sticking by “Trussonomics”…Patrick Minford,..a professor at Cardiff University, said..“Liz Truss’s policies for growth are absolutely right, and to be thrown off them by a bit of market turbulence is insane.” …Eamonn Butler, co-founder of the Adam Smith Institute, similarly insisted that Truss “is not the source of the problem — she’s trying to cure the problem.”
Eamonn is right.
The United Kingdom faces serious economic challenges. But the problems are the result of bad government policies that already exist rather than the possibility of some future tax cuts.
In a column for the Telegraph, Allister Heath says the U.K.’s central bank deserves a big chunk of the blame.
Liz Truss and Kwasi Kwarteng have been doubly unlucky. While almost everybody else in Britain remained in denial, they correctly identified this absurd game for the con-trick that it truly was, warned that it was about to implode and pledged to replace it with a more honest system. Instead of a zombie economy based on rising asset prices and fake, debt-fuelled growth, their mission was to encourage Britain to produce more real goods and services, to work harder and invest more by reforming taxes and regulation.What happened next is dispiriting in the extreme. …Truss and her Chancellor moved too quickly and, paradoxically, given their warnings about the rottenness of the system, ended up pulling out the last block from the Jenga tower, sending all of the pieces tumbling down. …they didn’t crash the economy – it was about to come tumbling down anyway – but they had the misfortune of precipitating and accelerating the day of reckoning. …Andrew Bailey, the Governor of the Bank of England…, has been deeply unimpressive in all of this, helping to keep interest rates too low… The idea, now accepted so widely, that the price of money must be kept extremely low and quantitative easing deployed at every opportunity has undermined every aspect of the economy and society. …Too few people realise how terribly the easy money, high tax, high regulation orthodoxy has failed.
Allister closes with some speculation about possible alternatives. If the Tories in the U.K. decide to reject so-called “free-market fundamentalism,” what’s their alternative?
He thinks the Labour Party will take control, and with very bad results. Jeremy Corbyn will not be in charge, but his economic policies will get enacted.
If Truss is destroyed, the alternative won’t even be social democracy: it will be Labour, the hard Left, the full gamut of punitive taxation, including of wealth and housing, and even more spending, culminating rapidly in economic oblivion.
That is an awful scenario. Basically turning the United Kingdom into Greece.
I want to take a different approach, though, and contemplate what will happen if the Conservative Party rejects the Truss approach and embraces big-government conservatism.
To be fair, they usually don’t try to claim their dirigiste policies will produce higher living standards. Instead, they blindly assert that it will be easier to win elections if Republicans abandon Reaganism.
Switching back to the United Kingdom, Margaret Thatcher repeatedly won election and her legacy was strong enough that voters then elected another Conservative.
The bottom line is that good policy can lead to good political outcomes, whereas bad policy generally leads to bad political outcomes.
P.S. To be sure, there were times when Reagan’s poll numbers were very bad. And the same is true for Thatcher. But because they pursued good policies, economic growth returned and they reaped political benefits. Sadly, it appears that Truss won’t have a chance to adopt good policy, so we will never know if she also would have benefited from a similar economic renaissance.
Ross Kaminsky of KHOW and I discussed how this is already happening.
I hate being right, but it’s always safe to predict that politicians and bureaucrats will embrace policies that give more power to government.
Especially when they are very anxious to stifle tax competition.
For decades, people in government have been upset that the tax cuts implemented by Ronald Reagan and Margaret Thatchertriggered a four-decade trend of lower tax rates and pro-growth tax reform.
That’s the reason Biden and his Treasury Secretary proposed a 15 percent minimum tax rate for businesses.
And it’s the reason they now want the rate to be even higher.
Though even I’m surprised that they’re already pushing for that outcome when the original pact hasn’t even been approved or implemented.
Treasury Secretary Janet Yellen will press G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week…the global minimum tax rate…is tied to the outcome of legislation to raise the U.S. minimum tax rate, a Treasury official said.The Biden administration has proposed doubling the U.S. minimum tax on corporations overseas intangible income to 21% along with a new companion “enforcement” tax that would deny deductions to companies for tax payments to countries that fail to adopt the new global minimum rate. The officials said several countries were pushing for a rate above 15%, along with the United States.
Other kleptocratic governments naturally want the same thing.
A G7 proposal for a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, Argentina’s finance minister said on Monday, leading a push by some developing countries… “The 15% rate is way too low,” Argentine Finance Minister Martin Guzman told an online panel hosted by the Independent Commission for the Reform of International Corporate Taxation. …”The minimum rate being proposed would not do much to countries in Africa…,” Mathew Gbonjubola, Nigeria’s tax policy director, told the same conference.
Needless to say, I’m not surprised that Argentina is on the wrong side.
And supporters of class warfare also are agitating for a higher minimum rate. Here are some excerpts from a column in the New York Times by Gabriel Zucman and Gus Wezerek.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. …it was a golden period. …President Biden should be applauded for trying to end the race to the bottom on corporate tax rates. But even if Congress approves the 15 percent global minimum corporate tax, it won’t be enough. …the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about $200 billion in additional revenue each year. …With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
I can’t resist making two observations about this ideological screed.
Even the IMF and OECD agree that the so-called race to the bottom has not led to a decline in corporate tax revenues, even when measured as a share of economic output.
Since companies legally avoid rather than illegally evade taxes, the headline of the column is utterly dishonest – but it’s what we’ve learned to expect from the New York Times.
The only good thing about the Zucman-Wezerek column is that it includes this chart showing how corporate tax rates have dramatically declined since 1980.
P.S. For those interested, the horizontal line at the bottom is for Bermuda, though other jurisdictions (such as Monaco and the Cayman Islands) also deserve credit for having no corporate income taxes.
P.P.S. If you want to know why high corporate tax rates are misguided, click here. And if you want to know why Biden’s plan to raise the U.S. corporate tax rate is misguided, click here. Or here. Or here.
P.P.P.S. And if you want more information about why Biden’s global tax cartel is bad, click here, here, and here.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTERwho believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering,“It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
Last week, I wrote about Biden’s proposed budget, focusing on the aggregate increase in the fiscal burden.
Today, let’s take a closer look at his class-warfare tax proposals. Consider this Part VI in a series (Parts I-V can be found here, here, here, here, and here), and we’ll use data from the folks at the Tax Foundation.
We’ll start with this map, which shows each state’s top marginal tax rate on household income if Biden’s budget is enacted.
The main takeaway is that five state would have combined top tax rates of greater than 50 percent if Biden is successful in pushing the top federal rate from 37 percent to 39.6 percent.
While it is a very bad idea to have high marginal tax rates, it’s also important to look at whether the government is taxing some types of income more than one time.
That’s already a pervasive problem.
Yet the Tax Foundation shows that Biden wants to make the problem worse. Much worse.
His proposed increase in the corporate tax rate is awful, but his proposal to nearly double the tax burden on capital gains is incomprehensiblyfoolish.
I guess we should be happy that Biden didn’t propose to also increase the 40 percent rate imposed by the death tax.
But that’s not much solace considering what Biden would do to American competitiveness. Here’s our final visual for today.
I’ll close by observing that some of my leftist friends defend these taxes since they target the “evil rich.”
I have a moral disagreement with their view that people should be punished simply because they are successful investors, entrepreneurs, or business owners.
President Biden c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President,
Please explain to me if you ever do plan to balance the budget while you are President? I have written these things below about you and I really do think that you don’t want to cut spending in order to balance the budget. It seems you ever are daring the Congress to stop you from spending more.
“The credit of the United States ‘is not a bargaining chip,’ Obama said on 1-14-13. However, President Obama keeps getting our country’s credit rating downgraded as he raises the debt ceiling higher and higher!!!!
Washington Could Learn a Lot from a Drug Addict
Just spend more, don’t know how to cut!!! Really!!! That is not living in the real world is it?
Making more dependent on government is not the way to go!!
Why is our government in over 16 trillion dollars in debt? There are many reasons for this but the biggest reason is people say “Let’s spend someone else’s money to solve our problems.” Liberals like Max Brantley have talked this way for years. Brantley will say that conservatives are being harsh when they don’t want the government out encouraging people to be dependent on the government. The Obama adminstration has even promoted a plan for young people to follow like Julia the Moocher.
Imagine standing a baby carrot up next to the 25-story Stephens building in Little Rock. That gives you a picture of the impact on the national debt that federal spending in Arkansas on Medicaid expansion would have, while here at home expansion would give coverage to more than 200,000 of our neediest citizens, create jobs, and save money for the state.
Here’s the thing: while more than a billion dollars a year in federal spending would represent a big-time stimulus for Arkansas, it’s not even a drop in the bucket when it comes to the national debt.
Currently, the national debt is around $16.4 trillion. In fiscal year 2015, the federal government would spend somewhere in the neighborhood of $1.2 billion to fund Medicaid expansion in Arkansas if we say yes. That’s about 1/13,700th of the debt.
It’s hard to get a handle on numbers that big, so to put that in perspective, let’s get back to the baby carrot. Imagine that the height of the Stephens building (365 feet) is the $16 trillion national debt. That $1.2 billion would be the length of a ladybug. Of course, we’re not just talking about one year if we expand. Between now and 2021, the federal government projects to contribute around $10 billion. The federal debt is projected to be around $25 trillion by then, so we’re talking about 1/2,500th of the debt. Compared to the Stephens building? That’s a baby carrot.
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Here is how it will all end if everyone feels they should be allowed to have their “baby carrot.”
How sad it is that liberals just don’t get this reality.
While living in Europe in the 1760s, Franklin observed: “in different countries … the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
Alexander Fraser Tytler, Lord Woodhouselee(15 October 1747 – 5 January 1813) was a Scottish lawyer, writer, and professor. Tytler was also a historian, and he noted, “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[Jefferson affirms that the main purpose of society is to enable human beings to keep the fruits of their labor.— TGW]
To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.
[From Writings of Thomas Jefferson, ed. Albert E. Bergh (Washington: Thomas Jefferson Memorial Association, 1904), 14:466.]
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Jefferson pointed out that to take from the rich and give to the poor through government is just wrong. Franklin knew the poor would have a better path upward without government welfare coming their way. Milton Friedman’s negative income tax is the best method for doing that and by taking away all welfare programs and letting them go to the churches for charity.
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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
We got to act fast and get off this path of socialism. Morning Bell: Welfare Spending Shattering All-Time Highs Robert Rector and Amy Payne October 18, 2012 at 9:03 am It’s been a pretty big year for welfare—and a new report shows welfare is bigger than ever. The Obama Administration turned a giant spotlight […]
We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with everyone else that keeps spending our money. I am glad that at least […]
Government Must Cut Spending Uploaded by HeritageFoundation on Dec 2, 2010 The government can cut roughly $343 billion from the federal budget and they can do so immediately. __________ Liberals argue that the poor need more welfare programs, but I have always argued that these programs enslave the poor to the government. Food Stamps Growth […]
Milton Friedman – The Negative Income Tax Published on May 11, 2012 by LibertyPen In this 1968 interview, Milton Friedman explained the negative income tax, a proposal that at minimum would save taxpayers the 72 percent of our current welfare budget spent on administration. http://www.LibertyPen.com Source: Firing Line with William F Buckley Jr. ________________ Milton […]
Dan Mitchell Commenting on Obama’s Failure to Propose a Fiscal Plan Published on Aug 16, 2012 by danmitchellcato No description available. ___________ After the Welfare State Posted by David Boaz Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his […]
Is President Obama gutting the welfare reform that Bill Clinton signed into law? Morning Bell: Obama Denies Gutting Welfare Reform Amy Payne August 8, 2012 at 9:15 am The Obama Administration came out swinging against its critics on welfare reform yesterday, with Press Secretary Jay Carney saying the charge that the Administration gutted the successful […]
Thomas Sowell – Welfare Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. The Continuing Good News About Welfare Reform By Robert Rector and Patrick Fagan, Ph.D. February 6, 2003 Six years ago, President Bill Clinton signed legislation overhauling part of the nation’s welfare system. […]
Uploaded by ForaTv on May 29, 2009 Complete video at: http://fora.tv/2009/05/18/James_Bartholomew_The_Welfare_State_Were_In Author James Bartholomew argues that welfare benefits actually increase government handouts by ‘ruining’ ambition. He compares welfare to a humane mousetrap. —– Welfare reform was working so good. Why did we have to abandon it? Look at this article from 2003. In the controversial […]
Thomas Sowell If the welfare reform law was successful then why change it? Wasn’t Bill Clinton the president that signed into law? Obama Guts Welfare Reform Robert Rector and Kiki Bradley July 12, 2012 at 4:10 pm Today, the Obama Department of Health and Human Services (HHS) released an official policy directive rewriting the welfare […]
I have been writing President Obama letters and have not received a personal response yet. (He reads 10 letters a day personally and responds to each of them.) However, I did receive a form letter in the form of an email on July 10, 2012. I don’t know which letter of mine generated this response so I have […]
Census data shows, on average, state and local government spending as a percentage of personal income rose sharply between 1962 and 1977, but then flattened out in the years leading up to 2020. However, there is substantial variation across jurisdictions: while some states have seen little overall change in the percentage of income devoted to government spending since 1962, others experienced dramatic growth.
The animation below shows how state and local government spending have evolved in all fifty states and DC since 1962. Spending data comes from the Census Bureau’s Annual Survey of State and Local Government Finances, and includes expenditures of federal funds as well as own‐source revenue. State personal income data comes from the Bureau of Economic Analysis. We used personal income for the second quarter of each year, since June 30 is the most common fiscal year end date for U.S. state and local governments.
In nominal terms, government spending has skyrocketed over the last sixty years. Evaluating spending as a proportion of a national income measure (like personal income or GDP) over time corrects for inflation and economic growth.
But the notion that government spending should remain a constant proportion of personal income is open to debate. Some essential industries decline as a percentage of income as our society grows richer. For example, an analysis of USDA data shows that food expenditures (both at home and away from home) fell from 16 percent of personal income in 1962 to 10 percent in 2021. Over the same period, expenditures on “clothing, footwear, and related services” fell from 7 percent to 2 percent of personal income.
State and local government spending (including their expenditures of federal funds) in the median state rose from 15.92 percent in 1962 to 20.50 percent in 1977. For 2020, the most recent year Census data is available, the median ratio was little changed from 43 years earlier at 20.67 percent.
The runup in state and local spending during the 1960s and 1970s is linked to the inception and rollout of Great Society programs under President Lyndon Johnson. During this period, Congress established Medicaid, a state‐administered program that provides health coverage to individuals on low incomes. It also expanded Aid to Families with Dependent Children and the food stamp program (now known as the Supplemental Nutrition Assistance Program).
Once Medicaid was fully implemented and some level of cost control was put in place, the program stabilized as a percentage of personal income in many states. But in the District of Columbia, Medicaid spending has continued to grow rapidly, reaching $3.4 billion in 2022, which is over $5,000 per resident. One cost driver is high enrollment: as of late 2022, 43 percent of DC residents were enrolled in the program (or its sibling, the Children’s Health Insurance Program), a proportion higher than any of the fifty states.
DC also has relatively high educational costs. In 2020, DC’s per pupil cost of public education (excluding capital expenditures) was higher than every state except New York and 69 percent above the national average.
New York is among the states that saw the most rapid growth of spending relative to revenue. Aside from high educational costs per pupil, it also has a high level of Medicaid dependency with over 37 percent of Empire State residents on either that program or CHIP. Another challenge for New York, relative to other large states, is slow personal income growth. This, in turn, is related to the state’s relatively slow population growth. In the 1960 Census, New York was still the nation’s most populous state; it has now fallen to fourth.
Alaska also has relatively high Medicaid enrollment and costs. But the main cause of its surge in state spending after 1977 was exploitation of the Prudhoe Bay Oil Field. A gusher of energy revenue inspiredlegislators to implement a costly industrial policy, increase transfer payments to individuals, and raise public employee compensation. A drop in oil prices in the 1980s constrained personal income growth, contributing to a further rise in the spending to income ratio. Since peaking at over 55 percent in 1987, the ratio has been trending downward.
Two other states that have seen relatively rapid spending growth relative to personal income growth are New Mexico and Delaware. New Mexico’s Medicaid dependence is second only to DC’s with about 42 percent of the state’s population currently enrolled. Medicaid spending of $8.4 billion is roughly 8 percent of personal income. Delaware’s Medicaid costs are less of an issue, and it does not appear that any one factor is driving cost growth in the First State. In the 1960s and 1970s Delaware experimented with big government, raising marginal income tax rates to over 18 percent (a level unmatched anywhere back then or ever since). But these confiscatory taxes were rolled back under Governor Pete Dupont in the late 1970s.
With some notable exceptions discussed here, it appears that interstate competition for residents and the need to balance budgets are keeping a lid on state and local spending, at least as it relates to state personal income. But whether state and local governments need to grow proportionately to their economies remains a debatable proposition.
I shared some data last month from the National Association of State Budget Officers to show that Texas lawmakers have been more fiscally responsible than California lawmakers over the past couple of years.
California politicians were more profligate in 2021 when politicians in Washington were sending lots of money to states because of the pandemic.
And California politicians also increased spending faster in 2022 when conditions (sort of) returned to normal.
What may be a surprise, however, is that (relative) frugality in Texas has only existed for a handful of years. Here are some excerpts from a report written for the Texas Public Policy Foundation by Vance Ginn and Daniel Sánchez-Piñol.
Over the last two decades, Texas’ total state biennial budget growth has had two different phases. The first phase had budget growth above the rate of population growth plus inflation for five of the six budgets from 2004–05 to 2014–15. The second phase…had budget growth below this rate… Figure 1 shows the average biennial growth rates for the six state budgets passed before 2015 and for the four since then.The average biennial budget growth rate in the former period was 12% compared with the rate of population growth plus inflation of 7.4%. In the latter period, the average biennial growth rate of the budget was cut by more than half to 5.2%, which was well below the estimated rate of population growth plus inflation of 9.4%. This improved budget picture must be maintained to correct for the excessive budget growth in the earlier period. …there could be a $27 billion GR surplus at the end of the current 2022–23 biennium. …the priority should be to effectively limit or, even better, freeze the state budget. Texas should use most, if not all, of the resulting surplus to reduce…property tax collections…these taxes could be cut substantially by restraining spending and using the surplus to reduce school district M&O property taxes to ultimately eliminate them over time.
The article has this chart, which is a good illustration of the shift to fiscal restraint in Texas.
For all intents and purposes, Texas in 2016 started abiding by fiscal policy’s Golden Rule.
And this means the burden of government is slowly but surely shrinking compared to the private sector.
That approach is paying big dividends. Spending restraint means there is now a big budget surplus, which is enabling a discussion of how to reduce property taxes (Texas has no income tax).
P.S. I shared data back in 2020 looking at the fiscal performance of Texas and Florida compared to New York and California.
Texas has better government policy than California, most notably in areas such as taxation and regulation.
Since people are moving from the Golden State to the Lone Star State, public policy seems to matter more than natural beauty.
Now let’s look at a bunch of evidence to support those three sentences.
We’ll start with an article by Joel Kotkin of Chapman University.
If one were to explore the most blessed places on earth, California, my home for a half century, would surely be up there. …its salubrious climate, spectacular scenery, vast natural resources… President Biden recently suggested that he wants to “make America California again”. Yet…he should consider whether the California model may be better seen as a cautionary tale than a roadmap to a better future… California now suffers the highest cost-adjusted poverty rate in the country, and the widest gap between middle and upper-middle income earners. …the state has slowly morphed into a low wage economy. Over the past decade, 80% of the state’s jobs have paid under the median wage — half of which are paid less than $40,000…minorities do better today outside of California, enjoying far higher adjusted incomes and rates of homeownership in places like Atlanta and Dallas than in San Francisco and Los Angeles. Almost one-third of Hispanics, the state’s largest ethnic group, subsist below the poverty line, compared with 21% outside the state. …progressive…policies have not brought about greater racial harmony, enhanced upward mobility and widely based economic growth.
Next we have some business news from the San Francisco Chronicle.
Business leaders fear tech giant Oracle’s recent announcement that it is leaving the Bay Area for Austin, Texas, will lead to more exits unless some fundamental political and economic changes are made to keep the region attractive and competitive. “This is something that we have been warning people about for several years. California is not business friendly, we should be honest about it,” said Kenneth Rosen, chairman of the UC Berkeley Fisher Center for Real Estate and Urban Economics.Bay Area Council President Jim Wunderman said… “From consulting companies to tax lawyers to bankers and commercial real estate firms, every person I talk with who provides services to big Bay Area corporations are telling me that their clients are strategizing about leaving…” Charles Schwab, McKesson and Hewlett Packard Enterprise have all exited the high-cost, high-tax, high-regulation Bay Area for a less-expensive, less-regulated and business-friendlier political climate. All of them rode off to Texas. …the pace of the departures appears to be increasing. …A recent online survey of 2,325 California residents, taken between Nov. 4 and Nov. 23 by the Public Policy Institute of California, found 26% of residents have seriously considered moving out of state and that 58% say that the American Dream is harder to achieve in California than elsewhere.
Not according to this column by Hank Adler in the Wall Street Journal.
California’s Legislature is considering a wealth tax on residents, part-year residents, and any person who spends more than 60 days inside the state’s borders in a single year. Even those who move out of state would continue to be subject to the tax for a decade… Assembly Bill 2088 proposes calculating the wealth tax based on current world-wide net worth each Dec. 31. For part-year and temporary residents, the tax would be proportionate based on their number of days in California. The annual tax would be on current net worth and therefore would include wealth earned, inherited or obtained through gifts or estates long before and long after leaving the state. …The authors of the bill estimate the wealth tax will provide Sacramento $7.5 billion in additional revenue every year. Another proposal—to increase the top state income-tax rate to 16.8%—would annually raise another $6.8 billion. Today, California’s wealthiest 1% pay approximately 46% of total state income taxes. …the Legislature looks to the wealthiest Californians to fill funding gaps without considering the constitutionality of the proposals and the ability of people and companies to pick up and leave the state, which news reports suggest they are doing in large numbers. …As of this moment, there are no police roadblocks on the freeways trying to keep moving trucks from leaving California. If A.B. 2088 becomes law, the state may need to consider placing some.
The late (and great) Walter Williams actually joked back in 2012that California might set up East German-style border checkpoints. Let’s hope satire doesn’t become reality.
But what isn’t satire is that people are fleeing the state (along with other poorly governed jurisdictions).
Simply state, the blue state model of high taxes and big government is not working (just as it isn’t working in countries with high taxes and big government).
Interestingly, even the New York Times recognizes that there is a problem in the state that used to be a role model for folks on the left.
Opining for that outlet at the start of the month, Brett Stephens raised concerns about the Golden State.
…today’s Democratic leaders might look to the very Democratic state of California as a model for America’s future. You remember California: People used to want to move there, start businesses, raise families, live their American dream. These days, not so much. Between July 2019 and July 2020, more people — 135,400 to be precise — left the state than moved in… No. 1 destination: Texas, followed by Arizona, Nevada and Washington. Three of those states have no state income tax.
California, by contrast, has very high taxes. Not just an onerous income tax, but high taxes across the board.
Californians also pay some of the nation’s highest sales tax rates (8.66 percent) and corporate tax rates (8.84 percent), as well as the highest taxes on gasoline (63 cents on a gallon as of January, as compared with 20 cents in Texas).
Sadly, these high taxes don’t translate into good services from government.
The state ranks 21st in the country in terms of spending per public school pupil, but 27th in its K-12 educational outcomes. It ties Oregon for third place among states in terms of its per capita homeless rate. Infrastructure? As of 2019, the state had an estimated $70 billion in deferred maintenance backlog. Debt? The state’s unfunded pension liabilities in 2019 ran north of $1.1 trillion, …or $81,300 per household.
Makes you wonder whether the rest of the nation should copy that model?
Democrats hold both U.S. Senate seats, 42 of its 53 seats in the House, have lopsided majorities in the State Assembly and Senate, run nearly every big city and have controlled the governor’s mansion for a decade. If ever there was a perfect laboratory for liberal governance, this is it. So how do you explain these results? …If California is a vision of the sort of future the Biden administration wants for Americans, expect Americans to demur.
Some might be tempted to dismiss Stephens’ column because he is considered the token conservative at the New York Times.
But Ezra Klein also acknowledges that California has a problem, and nobody will accuse him of being on the right side of the spectrum.
Here’s some of what he wrote in his column earlier this month for the New York Times.
I love California. I was born and raised in Orange County. I was educated in the state’s public schools and graduated from the University of California system… But for that very reason, our failures of governance worry me. California has the highest poverty rate in the nation,when you factor in housing costs, and vies for the top spot in income inequality, too. …but there’s a reason 130,000 more people leave than enter each year. California is dominated by Democrats, but many of the people Democrats claim to care about most can’t afford to live there. …California, as the biggest state in the nation, and one where Democrats hold total control of the government, carries a special burden. If progressivism cannot work here, why should the country believe it can work anywhere else?
Kudos to Klein for admitting problems on his side (just like I praise the few GOPers who criticized Trump’s big-government policies).
But his column definitely had some quirky parts, such as when he wrote that, “There are bright spots in recent years…a deeply progressive plan to tax the wealthy.”
That’s actually a big reason for the state’s decline, not a “bright spot.”
I’m not the only one to recognize the limitations of his column.
Who but Ezra Klein could survey the wreck left-wing Democrats have made of California and conclude that the state’s problem is its excessive conservatism? …Klein the rhetorician anticipates objections on this front and writes that he is not speaking of “the political conservatism that privatizes Medicare, but the temperamental conservatism that” — see if this formulation sounds at all familiar — “stands athwart change and yells ‘Stop!’”…California progressives have progressive policies and progressive power, and they like it that way. That is the substance of their conservatism. …Klein and others of his ilk like to present themselves as dispassionate pragmatists, enlightened empiricists who only want to do “what works.” …Klein mocks San Francisco for renaming schools (Begone, Abraham Lincoln!) while it has no plan to reopen them, but he cannot quite see that these are two aspects of a single phenomenon. …Klein…must eventually understand that the troubles he identifies in California are baked into the progressive cake. …That has real-world consequences, currently on display in California to such a spectacular degree that even Ezra Klein is able dimly to perceive them. Maybe he’ll learn something.
I especially appreciate this passage since it excoriates rich leftists for putting teacher unions ahead of disadvantaged children.
Intentions do not matter very much, and mere stated intentions matter even less. Klein is blind to that, which is why he is able to write, as though there were something unusual on display: “For all the city’s vaunted progressivism, [San Francisco] has some of the highest private school enrollment numbers in the country.” Rich progressives have always been in favor of school choice and private schools — for themselves. They only oppose choice for poor people, whose interests must for political reasons be subordinated to those of the public-sector unions from which Democrats in cities such as San Francisco derive their power.
Let’s conclude with some levity.
Here’s a meme that contemplates whether California emigrants bring bad voting habits with them.
Much of my writing is focused on the real-world impact of government policy, and this is why I repeatedly look at the relative economic performance of big government jurisdictions and small government jurisdictions.
So we’ve looked at high-tax states that are languishing, such as California and Illinois, and compared them to zero-income-tax states such as Texas.
With this in mind, you can understand that I was intrigued to see that even the establishment media is noticing that Texas is out-pacing the rest of the nation.
Here are some excerpts from a report by CNN Money on rapid population growth in Texas.
More Americans moved to Texas in recent years than any other state: A net gain of more than 387,000 in the latest Census for 2013. …Five Texas cities — Austin, Houston, San Antonio, Dallas and Fort Worth — were among the top 20 fastest growing large metro areas. Some smaller Texas metro areas grew even faster. In oil-rich Odessa, the population grew 3.3% and nearby Midland recorded a 3% gain.
But why is the population growing?
Well, CNN Money points out that low housing prices and jobs are big reasons.
And on the issue of housing, the article does acknowledge the role of “easy regulations” that enable new home construction.
But on the topic of jobs, the piece contains some good data on employment growth, but no mention of policy.
Jobs is the No. 1 reason for population moves, with affordable housing a close second. …Jobs are plentiful in Austin, where the unemployment rate is just 4.6%. Moody’s Analytics projects job growth to average 4% a year through 2015. Just as important, many jobs there are well paid: The median income of more than $75,000 is nearly 20% higher than the national median.
That’s it. Read the entire article if you don’t believe me, but the reporter was able to write a complete article about the booming economy in Texas without mentioning – not even once – that there’s no state income tax.
But that wasn’t the only omission.
The article doesn’t mention that Texas is the 4th-best state in the Tax Foundation’s ranking of state and local tax burdens.
The article doesn’t mention that Texas was the least oppressive state in the Texas Public Policy Foundation’s Soft Tyranny Index.
The article doesn’t mention that Texas was ranked #11 in the Tax Foundation’s State Business Tax Climate Index.
The article doesn’t mention that Texas is in 14th place in the Mercatus ranking of overall freedom for the 50 states (and in 10th place for fiscal freedom).
By the way, I’m not trying to argue that Texas is the best state.
Indeed, it only got the top ranking in one of the measures cited above.
My point, instead, is simply to note that it takes willful blindness to write about the strong population growth and job performance of Texas without making at least a passing reference to the fact that it is a low-tax, pro-market state.
At least compared to other states. And especially compared to the high-tax states that are stagnating.
Such as California, as illustrated by this data and this data, as well as this Lisa Benson cartoon.
Such as Illinois, as illustrated by this data and this Eric Allie cartoon.
P.S. Paul Krugman has tried to defend California, which has made him an easy target. I debunked him earlier this year, and I also linked to a superb Kevin Williamson takedown of Krugman at the bottom of this post.
P.P.S. Once again, I repeat the two-part challenge I’ve issued to the left. I’ll be happy if any statists can successfully respond to just one of the two questions I posed.
California is the Greece of the USA, but Texas is not perfect either!!! Just Because California Is Terrible, that Doesn’t Mean Texas Is Perfect January 21, 2013 by Dan Mitchell Texas is in much better shape than California. Taxes are lower, in part because Texas has no state income tax. No wonder the Lone Star State […]
We should lower federal taxes because jobs are going to states like Texas that have low taxes. (We should lower state taxes too!!) What Can We Learn by Comparing the Employment Situation in Texas vs. California? April 3, 2013 by Dan Mitchell One of the great things about federalism, above and beyond the fact that it […]
I got on the Arkansas Times Blog and noticed that a person on there was bragging about the high minimum wage law in San Francisco and how everything was going so well there. On 2-15-13 on the Arkansas Times Blog I posted: Couldn’t be better (the person using the username “Couldn’t be better) is bragging […]
Does Government Have a Revenue or Spending Problem? People say the government has a debt problem. Debt is caused by deficits, which is the difference between what the government collects in tax revenue and the amount of government spending. Every time the government runs a deficit, the government debt increases. So what’s to blame: too […]
Former California Governor Arnold Schwarzenegger with his family I posted a portion of an article by John Fund of the Wall Street Journal that pointed out that many businesses are leaving California because of all of their government red tape and moving to Texas. My username is SalineRepublican and this is […]
John Fund at Chamber Day, Part 1 Last week I got to attend the first ever “Conservative Lunch Series” presented by KARN and Americans for Prosperity Foundation at the Little Rock Hilton on University Avenue. This monthly luncheon will be held the fourth Wednesday of every month. The speaker for today’s luncheon was John Fund. John […]
___________ California and France have raised taxes so much that it has hurt economic growth!!! Mirror, Mirror, on the Wall, which Nation and State Punish Success Most of All? September 25, 2014 by Dan Mitchell I’ve shared some interested rankings on tax policy, including a map from the Tax Foundation showing which states have the earliest […]
___________ Jerry Brown raised taxes in California and a rise in the minimum wage, but it won’t work like Krugman thinks!!!! This cartoon below shows what will eventually happen to California and any other state that keeps raising taxes higher and higher. Krugman’s “Gotcha” Moment Leaves Something to Be Desired July 25, 2014 by […]
Open letter to President Obama (Part 573) (Emailed to White House on 7-29-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]
Open letter to President Obama (Part 561) (Emailed to White House on 6-25-13.) President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get […]
but it’s getting a lot of attention now that the deadline is approaching.…The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. …This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024. …A clean debt-ceiling hike would give us more government spending, and the House GOP’s proposal would allow more private spending. Only in Washington is that a hard choice.
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The Daily Hatch 