Tag Archives: daniel j mitchell

Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

September 25, 2011 – 2:22 pm

Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

Sometimes I wonder what are the motives of those who oppose free trade.

Eight Questions for Protectionists

Posted by Daniel J. Mitchell

When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies – big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by theInstitute for Humane Studies.

Uploaded by  on Aug 31, 2011

According to Prof. Don Boudreaux, free trade is nothing more than a system of trade that treats foreign goods and services no differently than domestic goods and services. Protectionism, on the other hand, is a system of trade that discriminates against foreign goods and services in an attempt to favor domestic goods and services. In theory, free trade outperforms protectionism by bringing lower cost goods and services to consumers. In practice, the benefits of free trade can be seen in countries like America and Hong Kong. Both countries have a relatively high degree of free trade, and, as a consequence, have experienced an explosion of wealth.

________

Free Trade v. Protectionism

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

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

The Cato Institute on the Federal Reserve

September 22, 2011 – 1:00 pm

Time to End the Fed? The Origin of Central Banking and Possible Alternatives

Uploaded by on Mar 21, 2011

The Federal Reserve has existed for almost 100 years and it has created depressions, recessions, inflation, and bubbles. This CF&P Foundation video explains the origin of central banking and mentions possible alternatives that will be discussed in subsequent mini-documentaries.

_________________

I have wondered who gave the Fed money to buy anything? There is no money in the federal budget for them. It seems to me that all they are doing is causing inflation. Here is a view from Dan Mitchell of the Cato Institute.

The Federal Reserve, the ‘Twist,’ Inflation, QE3, and Pushing on a String

Posted by Daniel J. Mitchell

In a move that some are calling QE3, the Federal Reserve announced yesterday that it will engage in a policy called “the twist” — selling short-term bonds and buying long-term bonds in hopes of artificially reducing long-term interest rates. If successful, this policy (we are told) will incentivize more borrowing and stimulate growth.

I’ve freely admitted before that it is difficult to identify the right monetary policy, but it certainly seems like this policy is — at best — an ineffective gesture. This is why the Fed’s various efforts to goose the economy with easy money have been described as “pushing on a string.”

Here are two related questions that need to be answered.

1. Is the economy’s performance being undermined by high long-term rates?

Considering that interest rates are at very low levels already, it seems rather odd to claim that the economy will suddenly rebound if they get pushed down a bit further. Japan has had very low interest rates (both short-run and long-run) for a couple of decades, yet the economy has remained stagnant.

Perhaps the problem is bad policy in other areas. After all, who wants to borrow money, expand business, create jobs, and boost output if Washington is pursuing a toxic combination of excessive spending and regulation, augmented by the threat of higher taxes.

2. Is the economy hampered by lack of credit?

Low interest rates, some argue, may not help the economy if banks don’t have any money to lend. Yet I’ve already pointed out that banks have more than $1 trillion of excess reserves deposited at the Fed.

Perhaps the problem is that banks don’t want to lend money because they don’t see profitable opportunities. After all, it’s better to sit on money than to lend it to people who won’t pay it back because of an economy weakened by too much government.

The Wall Street Journal makes all the relevant points in its editorial.

The Fed announced that through June 2012 it will buy $400 billion in Treasury bonds at the long end of the market—with six- to 30-year maturities—and sell an equal amount of securities of three years’ duration or less. The point, said the FOMC statement, is to put further “downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.” It’s hard to see how this will make much difference to economic growth. Long rates are already at historic lows, and even a move of 10 or 20 basis points isn’t likely to affect many investment decisions at the margin. The Fed isn’t acting in a vacuum, and any move in bond prices could well be swamped by other economic news. Europe’s woes are accelerating, and every CEO in America these days is worried more about what the National Labor Relations Board is doing to Boeing than he is about the 30-year bond rate. The Fed will also reinvest the principal payments it receives on its asset holdings into mortgage-backed securities, rather than in U.S. Treasurys. The goal here is to further reduce mortgage costs and thus help the housing market. But home borrowing costs are also at historic lows, and the housing market suffers far more from the foreclosure overhang and uncertainty encouraged by government policy than it does from the price of money. The Fed’s announcement thus had the feel of an attempt to show it is doing something to help the economy, even if it can’t do much. …the economy’s problems aren’t rooted in the supply and price of money. They result from the damage done to business confidence and investment by fiscal and regulatory policy, and that’s where the solutions must come. Investors on Wall Street and politicians in Washington want to believe that the Fed can make up for years of policy mistakes. The sooner they realize it can’t, the sooner they’ll have no choice but to correct the mistakes. 

Let’s also take this issue to the next level. Some people are explicitly arguing in favor of more “quantitative easing” because they want some inflation. They argue that “moderate” inflation will help the economy by indirectly wiping out some existing debt.

This is a very dangerous gambit. Letting the inflation genie out of the bottle could trigger 1970s-style stagflation. Paul Volcker fires a warning shot against this risky approach in a New York Times column. Here are the key passages.

…we are beginning to hear murmurings about the possible invigorating effects of “just a little inflation.” Perhaps 4 or 5 percent a year would be just the thing to deal with the overhang of debt and encourage the “animal spirits” of business, or so the argument goes. The siren song is both alluring and predictable. …After all, if 1 or 2 percent inflation is O.K. and has not raised inflationary expectations — as the Fed and most central banks believe — why not 3 or 4 or even more? …all of our economic history says it won’t work that way. I thought we learned that lesson in the 1970s. That’s when the word stagflation was invented to describe a truly ugly combination of rising inflation and stunted growth. …What we know, or should know, from the past is that once inflation becomes anticipated and ingrained — as it eventually would — then the stimulating effects are lost. Once an independent central bank does not simply tolerate a low level of inflation as consistent with “stability,” but invokes inflation as a policy, it becomes very difficult to eliminate. …At a time when foreign countries own trillions of our dollars, when we are dependent on borrowing still more abroad, and when the whole world counts on the dollar’s maintaining its purchasing power, taking on the risks of deliberately promoting inflation would be simply irresponsible.

Last but not least, here is my video on the origin of central banking, which starts with an explanation of how currency evolved in the private sector, then describes how governments then seized that role by creating monopoly central banks, and closes with a list of options to promote good monetary policy.

And I can’t resist including a link to the famous “Ben Bernank” QE2 video that was a viral smash.

By Everette Hatcher III | Posted in Cato Institute, Current Events | Also tagged , , , | Comments (0)

President Obama and Alternative Minimum Tax

September 19, 2011 – 8:19 am

President Obama and Alternative Minimum Tax

Dan Mitchell does it again. He is always right on the mark.

CPAs Celebrate as Obama Proposes to Create a Turbo-Charged Alternative Minimum Tax

Posted by Daniel J. Mitchell

Wow, this is remarkable. The alternative minimum tax (AMT) is one of the most-hated features of the tax code. It is such a nightmare of complexity that even Democrats routinely have supported “patches” and “band-aids” to protect millions of additional households from getting trapped in this surreal parallel tax universe – one that requires taxpayers to calculate their taxes two different ways, with the IRS getting the maximum amount of money from the two returns. (Hong Kong, by contrast, give taxpayers the option of calculating their taxes two different ways, but they’re allowed to pay the smaller of the two amounts.)

Notwithstanding the AMT’s status as arguably the worst feature of the internal revenue code, President Obama apparently wants to double down on this horrific policy by creating a new version of this nightmarish provision.

Here are some excerpts from the Wall Street Journal‘s coverage, including a key observation that Obama’s scheme is just another version of the AMT.

The administration’s principle resembles the Alternative Minimum Tax, which was first adopted in 1969 and was intended to hit the superwealthy. The AMT has been hitting an increasing number of the middle class because it wasn’t indexed for inflation, and Congress has continually wrestled with how to get rid of it.

The WSJ article also notes that a glaring inconsistency in the White House’s rhetoric. the plan is supposed to be a “very significant” tax hike, but doubling the tax burden on millionaires would only raise $19 billion per year. In other words, the Administration’s class-warfare rhetoric is probably just cover for a tax hike that actually will hit a lot of people with far more modest incomes.

The proposal also could apply to a broader selection of taxpayers—all households with incomes of more than $1 million. Those earners are expected to pay an average of $845,000 this year, according to the nonpartisan Tax Policy Center. Assuming the households in the group of 22,000 pay that amount, even doubling their tax burden would raise just $19 billion a year at a time when deficit reduction is being measured in trillions of dollars. That doesn’t take into effect any change in taxpayer behavior prompted by a new tax regime. A senior administration official said that depending on where the minimum rate is set, the plan could be a “very significant” revenue raiser. The official wouldn’t provide details. …Some conservative economists say such a proposal could put a drag on capital markets and ignores the fact that many companies have already paid tax on the income before it is distributed to owners as dividends or capital gains.

The New York Times, to its credit, provides a fair description of the issue (including a much-needed acknowledgement that Warren Buffett may not have been honest and/or accurate), and also suggests that Obama may be proposing to replace the existing AMT with this new version (though that presumably would negate its impact as a revenue-raiser).

Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday. Mr. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments. …The administration wants such a tax to replace the alternative minimum tax, which was created decades ago to make sure the richest taxpayers with plentiful deductions and credits did not avoid income taxes, but which now hits millions of Americans who are considered upper middle class.

Actually, the AMT also hits lots of middle-class families since having kids is considered a “preference” for tax purposes.

But that’s just an insult layered on top of injury. What makes Obama’s new scheme so destructive is that it would (though the White House has not explained the details) somehow classify dividends and capital gains as “preference” items – even though everyone acknowledges that such income already is double taxed!

In other words, Obama claims to be concerned about jobs, but he is proposing a big tax hike on the saving and investment that is necessary to create jobs. Amazing.

Regular readers will recognize this video about Obama’s class-warfare tax policy. But if you haven’t seen it, five reasons are presented to explain why it will backfire.

But look at the bright side. At least accountants and tax lawyers (and don’t forget bankruptcy specialists) will get more business if Obama’s plan is implemented.

By Everette Hatcher III | Posted in President Obama, Taxes | Also tagged , , , | Comments (0)

Brantley and Brummett: Government needs to stimulate economy

August 29, 2011 – 8:51 am

John Brummett in his article, “More stimulus? Seriously?,” Arkansas News Review, August 29, 2011, observed:

The general point, though, is simple yet profound: We are in a self-perpetuating fix of serious proportion, and when you have only one tool in the box that might work, you need to figure out how best to use it.

Max Brantley on Arkansas Week in Review on August 26, 2011 said that he agreed with Paul Krugman that we don’t need to cut back on government spending now because the economy needs to be stimulated.

Brantley and Brummett will continue to say that the first stimulus did not work because it did not have enough money, but the private sector will have to get us out of this recession not inefficient government. Over and over you hear about political leaders saying that we must spend our way out of this recession, but that does not work. Below is an excellent article on this:

Is Obama Really Going to Propose Another Keynesian Stimulus?

Posted by Daniel J. Mitchell

Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.

Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank(though it is understandable that many people — including me, I’m embarrassed to admit — initially assumed it was true since he did write that the 9-11 terrorist attacks boosted growth).

 But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.

And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.

We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.

The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.

Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.

In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” – but that’sObama-speak for higher taxes, and we know that’s a damper on job creation and new investment.

As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.

This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.

Daniel J. Mitchell • August 24, 2011 @ 10:44 am
Filed under: General; Government and Politics; Tax and Budget Policy

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

2nd stimulus is a bad idea

August 24, 2011 – 9:16 pm

Over and over you hear about political leaders saying that we must spend our way out of this recession, but that does not work. Below is an excellent article on this:

Is Obama Really Going to Propose Another Keynesian Stimulus?

Posted by Daniel J. Mitchell

Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.

Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank(though it is understandable that many people — including me, I’m embarrassed to admit — initially assumed it was true since he did write that the 9-11 terrorist attacks boosted growth).

 But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.

And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.

We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.

The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.

Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.

In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” – but that’sObama-speak for higher taxes, and we know that’s a damper on job creation and new investment.

As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.

This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.

Daniel J. Mitchell • August 24, 2011 @ 10:44 am
Filed under: General; Government and Politics; Tax and Budget Policy

By Everette Hatcher III | Posted in Cato Institute, spending out of control | Also tagged , , , | Comments (0)

Congress fails to deal with spending problem as we head to Greece

August 11, 2011 – 8:29 am

Steve Brawner in his article, “Congress’ failure not just the debt ceiling,” Arkansas News Bureau, August 10, 2011 noted:

And now, an embarrassing debt ceiling debate that resulted in our country losing its sterling credit rating while China justifiably wagged its finger in our direction. It’s time for voters to get their pink slips ready.

It was embarrassing because THERE ARE NO MEANINGFUL CUTS IN THIS DEBT DEAL. THIS MEANS WE WILL BE WHERE GREECE IS NOW IN A FEW YEARS!!!! If nothing is done about entitlements then federal spending could consume as much as 50% of economic output by the time the Baby Boom generation is fully retired. In 2001 it was 18.2% and currently it has risen to about 25%.

Dan Mitchell of the Cato Institute rightly noted:

The hard-core conservatives are upset that the deal is mostly smoke and mirrors on the spending side and that there may be a tax-increase trap on the revenue side.

Take a look at this excellent article:m “The Next Greece” by Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute, a think-tank based in Washington.

Added to cato.org on August 4, 2011

This article appeared in National Poston August 4, 2011.

America is on a path to becoming a Greek-style welfare state. Thanks to the Bush-Obama spending binge, the burden of federal spending has climbed to about 25% of national economic output, up from only 18.2% of GDP when Bill Clinton left office.

But that’s just the tip of the iceberg. Because of a combination of demographic forces and poorly designed entitlement programs, federal spending could consume as much as 50% of economic output by the time the Baby Boom generation is fully retired.

One symptom of all this excessive spending is that Washington is awash in red ink. The United States is now in its third consecutive year of trillion-dollar deficits and the politicians just had to increase the nation’s US$14.3-trillion debt limit.

But it wasn’t easy getting there. Just as happened with the “government shutdown” debate in March, Republicans and Democrats had fierce disagreements over the right approach. They bickered until the last minute and then finally agreed to more than US$900billion of supposed spending cuts and the creation of a “super-committee” charged with proposing another US$1.5-trillion of deficit reduction.

So which side won this fight? Republicans are bragging that they got spending cuts today, a promise of spending cuts in the future, and no tax increases. Democrats, meanwhile, are chortling that they took the debt issue off the table until after the 2012 elections, protected their favourite programs and created a super-committee that will seduce the GOP into a tax increase.

Ignore that bragging. The easy answer is that politicians of both parties were the victors and taxpayers are the ones left in the cold.

In other words, the budget deal was a victory for the political establishment.

Here’s why Republicans are winners. They get to tell their Tea Party activists that they forced Obama to cut spending. It doesn’t matter that federal spending will actually be higher every year and that the cuts were based on Washington math (a spending increase becomes a spending cut if outlays don’t climb as fast as some artificial benchmark).

They also get to tell their anti-tax activists that they held the line. Perhaps most important, the super-committee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the super-committee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser.

This means that most Republican incumbents are well-positioned to win re-election.

Here’s why Democrats are winners. Thanks to the magic of government math, despite all the talk of budget cuts, discretionary spending will be more than US$100-billion higher in 2021 than it is this year. And since defence spending in Iraq and Afghanistan presumably is winding down, this means even more money will be available for domestic programs.

In addition to telling the pro-spending lobbies that the gravy train is still on the tracks, they also get to tell the classwarfare crowd that there’s an improved likelihood of higher taxes for corporate jet owners and other “rich” people. Notwithstanding GOP assertions, nothing in the agreement precludes the supercommittee from meeting its US$1.5-trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table.

This means that most Democratic incumbents are well-positioned to win re-election.

It’s worth pointing out that this doesn’t mean all Republicans and all Democrats are happy about the deal. The hard-core conservatives are upset that the deal is mostly smoke and mirrors on the spending side and that there may be a tax-increase trap on the revenue side.

The hard-core liberals, by contrast, are angry that there are any spending cuts, even ones based on Washington math. Moreover, they want higher tax rates on upper-income taxpayers today, not a super-committee that may or may not follow through on soak-the-rich policies in the future.

One group of people, however, unambiguously got the short end of the stick in this budget deal. Ordinary Americans are caught in the middle. They’re not poor enough to benefit from the federal government’s plethora of income-redistribution programs. But they’re not rich enough to have the clever lobbyists and insider connections needed to benefit from the highdollar handouts like ethanol subsidies and bank bailouts.

Instead, middle-class Americans play by the rules, pay ever-higher taxes, and struggle to make ends meet while the establishment of both parties engages in posturing as America slowly drifts toward a Greek-style fiscal meltdown.

By Everette Hatcher III | Posted in Cato Institute, spending out of control | Also tagged , , , | Comments (0)

Brummett: Across-the-board spending cuts will not work

August 8, 2011 – 1:17 pm

Political Cartoons by Michael Ramirez

 
By Michael Ramirez – July 28, 2011
_________________
John Brummett in his article, “Neither trickle-down or tax-and-spend,” Arkansas News Bureau, August, 8, 2011, asserted, “…simple and non-strategic across-the-board spending cuts could well push an economy from idle to reverse.”
 
I disagree because our problem is overspending. We need to dramatically cut back on our spending. 100 years ago the federal government spent less than 3% every year unless it was during war time. In fact, it had been that way since the founding of our nation. Then why do we think it would crush our nation to reverse our spending trend?
 
If we do not start balancing our budget soon then we will be where Greece is in a few years. Take a look at this video and article below.

What Are the Consequences of the Downgrade?

Posted by Daniel J. Mitchell

Even though I predicted it had to happen at some point because of the Bush-Obama spending binge and America’s giant long-run entitlement crisis, I confess that I’m somewhat surprised that the United States has suffered a debt downgrade for the first time.

That being said, I don’t think the downgrade will matter. Everyone knew the U.S. was heading in the wrong direction before the announcement by Standard & Poor. Moreover, big investors have very few attractive options for where to place their money – thanks to a weak global economy. As such, I suspect the federal government will still be able to borrow money at very low rates.

What does matter, however, is that the American economy is burdened with a bloated public sector that is sapping the nation’s economic vitality. And this problem will get worse every year because of a toxic combination of poorly designed entitlement programs and demographic change.

As the government gets bigger, this hinders growth by diverting resources from the productive sector of the economy. The damage is then compounded by the fact that the two main ways of financing the public sector – taxes and borrowing – both have additional adverse economic consequences.

In other words, the United States has fiscal cancer. Yet rather than try to cure the disease, politicians are – at best – kicking the can down the road.

The only glimmer of hope, as I wrote yesterday, is that House Republicans have made serious efforts to restrain the burden of federal spending.

By Everette Hatcher III | Posted in Cato Institute, spending out of control | Also tagged , , , | Comments (0)

Dan Mitchell on Debt Deal: drifting to Greek-style fiscal meltdown

August 2, 2011 – 4:44 pm

It is sad that they passed this debt deal. They just kicked the can down the road.

Debt Deal: Politicians Win, Middle Class Loses

by Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute, a libertarian think tank based in Washington.

Added to cato.org on August 2, 2011

This article appeared on CNN.com on August 2, 2011.

America is on a path to becoming a Greek-style welfare state. Thanks to the Bush-Obama spending binge, the burden of federal spending has climbed to about 25% of national economic output, up from only 18.2% of GDP when Bill Clinton left office.

But that’s just the tip of the iceberg. Because of a combination of demographic forces and poorly designed entitlement programs, federal spending could consume as much as 50% of economic output by the time the baby boom generation is fully retired.

One symptom of all this excessive spending is that Washington is awash in red ink. We’re now in our third consecutive year of trillion-dollar deficits and the politicians just had to increase the nation’s $14.3 trillion debt limit.

Daniel J. Mitchell is a senior fellow at the Cato Institute, a libertarian think tank based in Washington.

 

More by Daniel J. Mitchell

But it wasn’t easy getting there. Just as happened with the “government shutdown” debate in March, Republicans and Democrats had fierce disagreements over the right approach. They bickered until the last minute and then finally agreed to more than $900 billion of supposed spending cuts and the creation of a “supercommittee” charged with proposing another $1.5 trillion of deficit reduction.

So which side won this fight? Republicans are bragging that they got spending cuts today, a promise of spending cuts in the future, and no tax increases. Democrats, meanwhile, are chortling that they took the debt issue off the table until after the 2012 elections, protected their favorite programs and created a supercommittee that will seduce the GOP into a tax increase.

Ignore that bragging. The easy answer is that politicians of both parties were the victors and taxpayers are the ones left in the cold.

In other words, the budget deal was a victory for the political establishment.

Here’s why Republicans are winners. They get to tell their tea party activists that they forced Obama to cut spending. It doesn’t matter that federal spending will actually be higher every year and that the cuts were based on Washington math (a spending increase becomes a spending cut if outlays don’t climb as fast as some artificial benchmark).

They also get to tell their anti-tax activists that they held the line. Perhaps most important, the supercommittee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the supercommittee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser.

This means that most Republican incumbents are well-positioned to win re-election.

Here’s why Democrats are winners. Thanks to the magic of government math, despite all the talk of budget cuts, discretionary spending will be more than $100 billion higher in 2021 than it is this year. And since defense spending in Iraq and Afghanistan presumably is winding down, this means even more money will be available for domestic programs.

In addition to telling the pro-spending lobbies that the gravy train is still on the tracks, they also get to tell the class-warfare crowd that there’s an improved likelihood of higher taxes for corporate jet owners and other “rich” people. Notwithstanding GOP assertions, nothing in the agreement precludes the supercommittee from meeting its $1.5 trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table.

This means that most Democratic incumbents are well-positioned to win re-election.

It’s worth pointing out that this doesn’t mean all Republicans and all Democrats are happy about the deal. The hard-core conservatives are upset that the deal is mostly smoke and mirrors on the spending side and that there may be a tax-increase trap on the revenue side.

The hard-core liberals, by contrast, are angry that there are any spending cuts, even ones based on Washington math. Moreover, they want higher tax rates on upper-income taxpayers today, not a supercommittee that may or may not follow through on soak-the-rich policies in the future.

One group of people, however, unambiguously got the short end of the stick in this budget deal. Ordinary Americans are caught in the middle. They’re not poor enough to benefit from the federal government’s plethora of income-redistribution programs. But they’re not rich enough to have the clever lobbyists and insider connections needed to benefit from the high-dollar handouts like ethanol subsidies and bank bailouts.

Instead, middle-class Americans play by the rules, pay ever-higher taxes, and struggle to make ends meet while the establishment of both parties engages in posturing as America slowly drifts toward a Greek-style fiscal meltdown.

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

Dan Mitchell tells why this deal may develop into more taxes

August 1, 2011 – 2:43 pm

President Obama’s balanced approach means he wants more money from you. In the article, “Deconstructing the Revenue Side of the Debt-Ceiling Deal: Yes, There’s a Real Threat of Higher Taxes,”  Daniel J. Mitchell tells us what may happen in the next few months concerning taxes because of this new deal:

Politicians last night announced the framework of a deal to increase the debt limit. In addition to authorizing about $900 billion more red ink right away, it would require immediate budget cuts of more than $900 billion, though “immediate” means over 10 years and “budget cuts” means spending still goes up (but not as fast as previously planned).

But that’s the relatively uncontroversial part. The fighting we’re seeing today revolves around a “super-committee” that’s been created to find $1.5 trillion of additional “deficit reduction” over the next 10 years (based on Washington math, of course).

And much of the squabbling deals with whether the super-committee is a vehicle for higher taxes. As with all kiss-your-sister budget deals, both sides can point to something they like.

Here’s what Republicans like:

The super-committee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the super-committee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser.

Here’s what Democrats like:

There appears to be nothing in the agreement to preclude the super-committee from meeting its $1.5 trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table (notwithstanding GOP claims that it is “impossible for Joint Committee to increase taxes”).

In other words, there is a risk of tax hikes, just as I warned last week. Indeed, the five-step scenario I outlined last week needs to be modified because now a tax-hike deal would be “vital” to not only “protect” the nation from alleged default, but also to forestall the “brutal” sequester that might take place in the absence of an agreement.

But you don’t have to believe me. Just read the fact sheet distributed by the White House, which is filled with class warfare rhetoric about “shared sacrifice.”

This doesn’t mean there will be tax increases, of course, and this doesn’t mean Boehner and McConnell gave up more than Obama, Reid and Pelosi.

But as someone who assumes politicians will do the wrong thing whenever possible, it’s always good to identify the worst-case scenario and then prepare to explain why it’s not a good idea.

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

5 reasons class warfare is stupid, response to “Sound Policy” blogger

July 22, 2011 – 1:00 pm

President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.

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Today I read this below from the Arkansas Times Blog:

Since the top 20% of Americans have roughly 91% of the total wealth, any solution to the budget deficit should call on those 20% to be responsible for AT LEAST 91% (I would argue 100%) of what it costs to balance the budget. To do otherwise would be a reverse Robin Hood, taking from the poor and middle class to give to the rich.

Posted from my Chamber of Commerce work computer on C of C time.

Posted by Sound Policy on July 22, 2011 at 11:21 AM | Report this comment

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The video clip above gives 5 reasons why class warfare is stupid. The article below also addresses some of the same reasons.

The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage

Posted by Daniel J. Mitchell

The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs — such as slower economic growth — are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.

Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.

When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us — and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.

Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”

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