Tag Archives: congress

The New York Times is in Denial

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An editorial in yesterday’s New York Times, “Republican No-Shows in the Budget Wars”, ridicules House Republican leadership for having the temerity to propose $4 billion in cuts from this year’s budgets for transportation and housing, and expecting Republican representatives to support such “draconian” cuts.  “But the House’s skittishness at the decidedly unpopular costs of some of the party’s budget strictures presented a revealing tableau of both hypocrisy and weakness: Republicans could not pass their own cramped vision of the future.”
The underlying problem is that the House Budget for discretionary spending for 2014, at $967 billion, is almost $100 billion less than the Senate’s $1058 billion budget.  The House insists on continuing the sequester cuts for the full ten years agreed upon when the sequester mechanism was set up two years ago.  The Senate is ignoring the sequester agreement because it wants to replace it by a combination of milder cuts and tax increases.  The Republicans would prefer to replace the across-the-board sequester cuts by a more rational budget cutting plan but the Democrats are unwilling to negotiate such a plan.
The Democratic Party, and its media supporters such as the New York Times, simply refuses to acknowledge that the United States has a fiscal problem.  $6 trillion in deficit spending in the last five years apparently does not make a serious impression.  The mantra is that we’ll worry about our enormous deficits, and exploding national debt, later, after the economy more fully recovers from the Great Recession.  But after four years of recovery such an argument makes no sense.  There are lots of effective ways to boost the economy but continued artificial stimulus (deficit spending) is not one of them.
Wake up, Keynesians!  We need to turn things around and the sooner the better.  Stop ridiculing the mostly Republican fiscal conservatives who are valiantly striving to accomplish this herculean task under the most trying circumstances.

The A+ Method to Reform Federal Education Policy

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The Heritage Foundation’s Lindsey Burke has recently described, in “A-Plus: A Conservative Alternative to NCLB”, a new bill, The Academic Partnerships Lead Us to Success Act, recently introduced into both houses of Congress.  A+ would allow states to completely opt out of all programs which fall under No Child Left Behind and send NCLB funding back to the states in the form of block grants to be used for the most pressing educational needs.
Under such an arrangement, states would have to describe how they plan to improve education for disadvantaged students.  Performance data for various student demographic groups would be disaggregated and states would have to demonstrate how they have narrowed achievement gaps.  Many other safeguards would also be in place.
The problems with NCLB are well known.  The Adequate Yearly Progress requirement, that all students be proficient in reading and mathematics by 2014, is unrealistic and has led to the watering-down of proficiency standards.  The Highly Qualified Teacher mandate is too rigid and should be under the purview of local education leaders.  Standards and assessments, such as the Common Core and national tests, would no longer be dictated by the U.S. Secretary of Education.
There are huge budgetary ramifications of A+.  At the present time there are over 80 individual grant programs under NCLB, which have a total annual budget of more than $25 billion.  Consolidating all of these numerous individual programs into a single K-12 block grant to each state would easily allow a 20%, or $5 billion, annual savings to the federal government as well as saving states and local school systems much expense in administering the newly streamlined federal education policy.
Here is an example of a good way of improving one particularly large and expensive federal program.  This sort of retrenchment needs to happen throughout the federal government.  Let’s get started in doing what needs to be done!

What Is the Best Way to Reform the Tax Code?

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In today’s New York Times it is reported that President Obama, “Obama Proposes Deal Over Taxes and Jobs”, proposes “a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle class jobs.”  Reducing the top corporate tax rate from 35% to 28%, for example, balanced by tightening tax deductions and loopholes, would raise additional revenue on a one time basis as companies switch from one tax system to another.  It is this new one time revenue which would be spent on the president’s priorities.
The President’s proposal has given a boost to Senator Max Baucus and Representative David Camp, the chairs of Congress’s tax writing panels, “Lonely Bipartisan Push to Overhaul Tax Code Finally Gets Noticed”, who are working together to construct a broad based, pro-growth, plan to reform the entire tax code, for both individuals and corporations.
Which is the better way to proceed?  What is the best way to boost the economy? Revamping only the corporate tax structure to raise new tax revenue for public spending projects?  Or by eliminating as many deductions and loopholes as possible over all in order to enact the lowest possible tax rates for both individuals and corporations?
To me the answer is obvious.  It is investment, risk taking and entrepreneurship which create the most jobs for the long term.  The best way to stimulate the private economy is with the lowest possible tax rates for all.  It is unfortunate that the President will not accept this basic economic truth and work with Congress in a bipartisan manner to move the economy forward and create more jobs.

What Is the Best Way to Help the Middle Class?

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An article in yesterday’s New York Times, “Obama Says Income Gap Is Fraying U.S. Social Fabric”, quotes the President that “If we don’t do anything, then growth will be slower than it should be.  Unemployment will not go down as fast as it should.  Income inequality will continue to rise.  That’s not a future that we should accept.”  He says that “I will seize any opportunity I can to work with Congress to strengthen the middle class, improve their prospects, improve their security.”
A recent editorial in The Wall Street Journal, “The Inequality President”, shows with a chart that median household incomes have fallen from $54,218 in June 2009 as the recession ended to $51,500 in May 2013.  As the WSJ says, “For four and a half years, Mr. Obama has focused his policies  on reducing inequality rather than increasing growth.  The predictable result has been more inequality and less growth. … The rich have done well in the last few years, thanks to a rising stock market, but the middle class and poor have not.”
There are many things that Congress and the President could do to boost the economy if they were willing to work together and compromise.  Obamacare doesn’t need to be repealed, just modified by dropping the employer mandate which is a job killer.  Broad based tax reform, with lower tax rates, paid for by eliminating tax preferences, would be a big boost to investment, risk taking and entrepreneurship.  A reasonable compromise would be to use a part of the revenue raised from eliminating loopholes for deficit reduction.
But little progress will be made unless the President is willing to show leadership by rising above partisanship.  There are all sorts of ways he could do this.  One simple way would be to show that he understands the seriousness of the rapidly growing national debt by supporting some of the many thoughtful proposals for more government efficiency.
A large majority of people want our first African-American President to be successful.  But right now he is not on track to achieve this.

Get Out While the Getting Is Good!

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David Malpass, president of Encima Global LLC, has an op-ed in yesterday’s Wall Street Journal, “The Economy Is Showing Signs of Life”, pointing out that business loans, auto sales and hourly earnings are up.  Mr. Malpass says that “The sequester is a bad way to set spending priorities, but it reduces the risk of future tax increases, contributing to the upturn in consumer and business confidence. … The good news is that an end to the latest version of the Fed’s quantitative easing would create space for more growth in private credit and a shift back toward market, not government allocation of credit. …Because America’s private economy is the world’s biggest net creditor and capital allocator, the United States will be the biggest beneficiary of a return to market based interest rates, with vast potential in efficiency, intellectual property and the capacity to innovate.”
Federal Reserve Chairman, Ben Bernanke, is given much credit for the fact that the Great Recession did not turn into another depression.  But now, four years after the end of the recession, we have the twin problems of a slow growth economy, which keeps the unemployment rate much too high, and the potential for huge inflation caused by the vast increase in the money supply.  Mr. Malpass makes an excellent argument that the economy has recovered enough so that further quantitative easing will now retard future growth.  It clearly also increases the chance of runaway inflation.
Current artificially low interest rates also disguise the future damage now being created by huge federal deficit spending.  When interest rates go back up, as they inevitably will, interest payments on our rapidly increasing national debt will also increase dramatically, and force far greater cuts in federal spending than are currently being caused by the sequester.
In other words, to speed up economic growth, curtail the risk of future inflation and to put more pressure on Congress to control federal spending, the Federal Reserve should begin to exit from quantitative easing in the very near future!

Should the Federal Government Bail Out Detroit?

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The former Obama administration auto czar, Steven Rattner, wrote in yesterday’s New York Times that “We Have to Step in And Save Detroit” from bankruptcy.  Detroit has $18 billion in liabilities, half of which are for municipal employee pension plans and retiree health benefits.  Mr. Rattner says that “It isn’t fair to cut pensions.  The workers didn’t cause this mess.”
Many state and local governments are indeed in terrible financial condition because of the cost of public employee pensions.  There have already been several municipal bankruptcies around the country and there will be many more.  The state of Illinois is in particularly bad financial shape, for the same reasons as Detroit, and will almost certainly have to declare bankruptcy in the near future.
The basic problem is that state and municipal governments often have so-called “defined benefit” pension plans for their employees rather than the “defined contribution”, or 401(k), retirement plans used by private business.  Defined benefit plans guarantee a certain level of pension payment, based on the employee’s salary, regardless of the investment returns of the contributions to the fund.  Defined contribution plans, on the contrary, only pay out in benefits what has actually been accumulated in investment earnings.  For a defined benefit plan the employer (i.e. the government and therefore the taxpayers) is at risk for any shortfall in funding.  For a defined contribution plan, the individual employee is at risk for underperforming investment of the fund.  The only viable solution to this massive problem is for state and local government to shift as rapidly as possible from defined benefit to defined contribution retirement plans.
For the federal government to jump in and bail out one particular struggling municipality would create a moral hazard.  Every other state and local government with the same problem, numbering in the hundreds or thousands, would want equal treatment.  The federal government can’t afford such an expense because of its own perilous financial condition.  Furthermore, federal aid would just delay the fundamental changes in fiscal policy which must be made at the state and local level.
It is a very bad idea for the federal government to bail out Detroit!

Does the Economy Need More Spending Now?

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In today’s Wall Street Journal the economist Alan Blinder writes, “The Economy Needs More Spending Now”, that the tax hikes and spending cuts agreed to in January and before are reducing GDP growth by 1.5% – 2% annually.  Mr. Blinder claims that it would be easy to design a new fiscal stimulus package that adds 2% to GDP per year as long as it lasts.  He also claims that a fundamental change like tax reform might only add a much smaller .2% to GDP per year although this much smaller annual effect would repeat indefinitely and therefore eventually amount to a large cumulative effect.  This is a sensible argument as far as it goes but is incomplete.
In the last five years there has been almost $6 trillion in (deficit) stimulus spending, coupled with a $3 trillion quantitative easing program by the Federal Reserve.  This represents an unprecedented fiscal and monetary stimulus to the economy by the federal government.  And the result has been a tepid although steady 2% annual growth in GDP, much slower than usually follows a recession.
After all of this enormous stimulus, which is having only a meager effect, what makes more sense:  to try even more stimulus or to try something different?  What else is there to try?  Immigration reform will boost the economy by drawing our 11,000,000 illegal immigrants into the main stream economy.  Note that citizenship (amnesty) is not required to accomplish this, only legal status.  Also, requiring many people receiving welfare (food stamps, disability benefits, etc.) to work would boost the economy by increasing the size of the labor force.
Broad based tax reform, greatly curtailing most, if not all, tax preferences, would be so attractive that it should not be put on a back burner, as Mr. Blinder suggests.  In fact, completely repealing the ACA’s Employer Mandate, now that it’s been postponed for a year, would give a big boost to many medium sized companies for which required health insurance is a big impediment to growth.
The point is that there are many ways to boost the economy besides even more artificial deficit stimulus, whose effect would be at most temporary anyway, as Mr. Blinder suggests.  It really is important to shrink our still very large annual deficits down to zero fairly quickly so that we stop adding to the huge burden which we have already placed on future generations.  In other words, we can likely have stronger economic growth and fiscal restraint at the same time, the best of all possible worlds!

Immigration Reform is Pro-Growth

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The lead editorial in today’s Wall Street Journal, “A Pro-Growth Reform”, is right on the money.  It challenges the GOP House to improve the Senate immigration bill, not kill it.  The emphasis in the Senate bill is to provide an eventual path to citizenship for the approximately 11,000,000 illegal immigrants currently in the US.  To offset the charge that this is amnesty, the Senate bill greatly increases enforcement by doubling the size of the border patrol, at a cost of $4 billion per year, and increasing the criminal penalties for employers who mistakenly hire an illegal.  The Senate bill also increases the quota for skilled workers from the current 65,000 per year limit to 120,000 per year but it only barely increases the annual quotas for construction and agricultural guest workers, which doesn’t nearly meet current needs.
What is needed is less emphasis on eventual citizenship (coupled with stronger enforcement) but rather more emphasis on simply having an adequate supply of both skilled and unskilled legal guest workers.  This presents an opportunity for the House of Representatives to produce a better bill.
First of all, raising the quotas for both skilled and unskilled guest workers should be the first priority for the House.  An adequate supply of legal guest workers means there will be much less demand for illegals, which, in turn, means less need for the increased enforcement measures of the Senate bill.
Secondly, what immigrant workers need most is legal status rather than a guaranteed path to citizenship.  It is the constant risk of deportation and separation from their families which adversely affects their quality of life, rather than the lack of US citizenship.
More immigrants, both skilled and unskilled, will help our economy grow faster and recover more quickly from the Great Recession.  We should provide immigrants with the legal status they need to come to our country and succeed and prosper!

Who is Conducting War on the Unemployed?

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In his ever provocative fashion, columnist Paul Krugman claims in today’s New York Times that fiscal conservatives, i.e. Republicans, are conducting “War On the Unemployed” because extended unemployment benefits are being allowed to expire both nationally and in various states around the country.  According to Mr. Krugman it is “meanspiritedness converging with bad economic analysis” because more government spending will boost the economy and, moreover, the federal deficit is nothing to be concerned about.
The problem is that we have now had enormous fiscal stimulus, i.e. huge federal deficits, for five years, as well as a highly expansive monetary policy, and the economy is still barely limping along at a 2% growth rate.  It is unfortunate that so many liberals are ideologically opposed to broad-based tax reform whereby tax rates would be lowered in a revenue neutral way by either eliminating entirely, or else cutting back substantially, the many tax preferences, deductions and loopholes which pervade the tax code.  By emphasizing profit potential over tax avoidance strategies, this would give a big boost to business risk takers and thereby lead to economic growth and lower unemployment.
At the same time that our economy is suffering from low growth and high unemployment, our national debt is exploding to a large extent because the federal government is spending too much money.  Efforts to rein in government spending across the board are highly desirable and should be supported as simple common sense.
By advocating tax reform to boost the private economy and, at the same time, restraining federal spending wherever possible, fiscal conservatives are helping the long-term unemployed far more than their supposed champions who are doing just the opposite!

Why it’s So Hard to Get the Long-term Unemployed Back to Work

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Earlier this month the economist Edward Lazear had an op-ed column in the Wall Street Journal “The Hidden Jobless Disaster”, pointing out that, even though the unemployment rate has been dropping for the past four years, the employment-to-population ratio has stayed stuck at 58.5%.  This low labor participation rate means that many workers have dropped out of the labor force and stopped looking for work.  In fact the disability rolls have grown by 13% since 2009 and the number of people receiving food stamps has grown by 39%.  These disincentives help to explain why the proportion of long-term unemployed is still so very high at 37%.
The WSJ reported in April, “Workers Stuck in Disability Stunt Economic Recovery”, that the federal disability rolls have jumped from 7.1 million in December 2007, when the recession started, to 8.9 million today, which is 5.4% of the civilian workforce.  This exodus to disability costs 0.6% of GDP, a sizable chunk when GDP is only growing at an annual rate of about 2%.  Furthermore only 0.5% of federal disability recipients return to work in a given year compared to 20% for private, employer sponsored, disability recipients.
Two conclusions can be drawn from this data.  First of all, the federal government should be much stricter in establishing and enforcing work requirements for all public welfare recipients, including those on disability.  This should be noncontroversial but it won’t happen unless Congress and the President take the initiative and make it happen.
But even more important, our national leaders need to get far more serious about boosting the economy to get many more millions of the unemployed and underemployed back to work.  Fundamental tax reform would help the most but targeted deregulation and expanded foreign trade would also help a lot.  The Republicans have the strongest, free market, argument on this basic and high priority issue and they should hammer away at any Democrats, including the President, who are dragging their heels on it!