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Government Spending



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Published: Fri, 28 Apr 2017 00:00:00 -0400

Last Build Date: Fri, 28 Apr 2017 13:07:50 -0400

 



Yes, Science, But How About a March for Math?

Fri, 28 Apr 2017 00:01:00 -0400

Tens of thousands of people marched in hundreds of cities last weekend as part of something billed as the March for Science. The event, which coincided with Earth Day, was meant to rebuke the Trump administration's global-warming skepticism and its plan to cut taxpayer funding for the Environmental Protection Agency and other federal agencies that arguably deal with "science." "The job of science is to both understand the Earth, understand the things that we can get out of the Earth, how we're going to interact with it, how we're going to make the Earth a better place," said a representative of the Carnegie Institution of Science in a news report. "So seeing it fall under such hard times or negative impressions of it is just amazing to me." It's a stretch to suggest that the prominence of scientific knowledge in general is falling under "hard times" because of recent proposals to trim the budget of some massive government bureaucracies. Judging by the anti-Trump signs and demands for more funding for various programs that proliferated at the marches, it seems they were more about political science than the kind of hard science that March for Science organizers had touted. Nevertheless, the marchers are onto something, although their concept should be applied instead to a different discipline. "I think we need to have a March for Math. How you gonna be over $19 trillion in debt and still spending?" wrote commentator Julie Borowski. Indeed. Our political leaders, in California especially, are enthralled by climate science and have embraced myriad programs to deal with the issue of man-made global warming. No, most legislators aren't at war with science. They remain at war, however, with basic numbers. Congress continues to spend money even though the federal budget is trillions of dollars in debt. How does that work? We keep hearing—from members of both parties, by the way—that the key is cutting government waste. But there's no appetite for cutting entitlements, or defense spending, and there's no way to cut service on debt. After those items, the federal government already is running a deficit. That's an obvious addition problem. In California, legislators in 1999 passed a law that led to a tidal wave of retroactive 50 percent pension increases for government employees across the state. Its advocates claimed that such a huge giveaway wouldn't cost taxpayers a dime. And that one law, passed with bipartisan support and over the objections of fiscal watchdogs, has laid the groundwork for California's continuing pension problems, which have unfunded liabilities estimated as high as $1 trillion. That math deficiency ought to lead to angry protests in cities across the state, let alone marches. Former Republican Gov. Arnold Schwarzenegger's pension adviser, David Crane, said in testimony before the state Senate in 2010 that the California Public Employees' Retirement System (CalPERS) "has not been requiring adequate contributions when pension promises are made, virtually assuring deficiencies for which only the state is on the hook... Initial contributions are determined by investment return assumptions. For example, in 1999 CalPERS based pension contributions on an 8.25 percent annual investment return, which implicitly forecast that the Dow Jones industrial average would reach roughly 25,000 by 2009 and 28,000,000 by 2099." We see the Legislature and then-Gov. Gray Davis (D) not only were incapable of doing simple math problems, but they embraced fiscal models that had more to do with "magical thinking" than "mathematical reasoning," especially when it comes to multiplication tables. Don't they know that inadequate contributions and overly optimistic rate-of-return predictions multiply the size of the shortfall and have a cascading effect? Similar math problems continue. In its last fiscal year, CalPERS' investments earned a return of less than 1 percent. The agency responded by voting to reduce its expected return rate to a still-too-high 7 percent, which suggests legislators need to brush up on the concept of compound [...]



Forget Reagan: Trump’s Tax Plan Is More Like George W. Bush

Wed, 26 Apr 2017 19:24:00 -0400

In the run-up to today's big White House tax-reform announcement, the question among many analysts was: Would President Donald Trump's ideas look more like Ronald Reagan in 1981 (when he and a bipartisan congressional majority cut rates) or 1986, when they simplified the code? While Treasury Secretary Steven Mnuchin, flanked by National Economic Director Gary Cohn, bragged that the administration's plan was both "the biggest tax cut" and the "largest tax reform" in U.S. history—1981 and 1986 at the same time, only more!—the more apt and less comforting historical precedent might be the guy who Trump never tires of bashing: George W. Bush. The second President Bush pushed through tax cuts in 2001 and 2003, each of which passed with fewer than the 60 Senate votes required by an amendment to the 1974 Congressional Budget Act that demanding a supermajority for any piece of legislation seen as worsening the federal deficit 10-plus years down the road. How did the Bush cuts pass with only 58 and 51 votes, respectively? By including sunset provisions right at that 10-year mark. You can't be accused of affecting the year-11 deficit if you die at age 10! In word and deed, President Trump appears poised to follow down Bush's path of temporary tax reform through budget reconciliation; i.e., passing it on a party-line, simple-majority vote. "I hope [Democrats] don't stand in the way," Mnuchin said at the press conference. "And I hope we see many Democrats who cross the aisle and support this. Having said that, if they don't, we are prepared to look at the reconciliation process." House Speaker Paul Ryan (R-Wisc.) echoed the sentiment: "We want to look at every avenue, but we think reconciliation is the preferred process, we think that's the most logical process to bring tax reform through," Ryan told reporters Wednesday. There are exactly two ways you can sidestep the 60-vote rule. The first is to make sure the tax changes project to being deficit-neutral a decade from now. Given that Trump's campaign tax-reform framework, upon which today's announcement was largely based, had previously produced revenue estimates from conservative outfits showing a decrease of around $3.5 trillion over 10 years, it's damn near impossible to imagine the Congressional Budget Office or the Joint Committee on Taxation (Congress' go-to economic projection shops) torturing those 13-figure numbers out of existence, no matter how "dynamic" their scoring. Worsening those prospects—though arguably making the policy world a better place—the Mnuchin/Cohn duo swatted away one of the main proposed revenue-generators of 2017 tax reform: Paul Ryan's treasured and troublesome "border adjustment tax," a tariff by any other name that the speaker was counting on to offset the revenue hits by $1 trillion. Americans for Tax Reform President Grover Norquist, no fan of either taxes or tariffs, told me last week that he was in favor of the Border Adjustment Tax as the price for getting a $2.5 trillion tax cut. Without it? "There are two options to that," Norquist said. "You could have a smaller tax cut, not get rid of the death tax, not take the individual rates down or the corporate rates down as much. But you have to find a trillion dollars in less tax-cutting. Or you could have a tax that replaced it, some tax somewhere else. I'm not sure there's one that's an improvement." Well, Mnuchin and Cohn did include a big revenue generator in today's press conference, in the form of eliminating the federal tax deductions that Americans can take on their state and local taxes, a change that the Washington Post says "could save more than $1 trillion over 10 years." This idea, which makes intuitive sense, would nonetheless be heavily disruptive to those of us who live in high-tax states. And not just in those Democratic-bubble strongholds like New York, California, and Illinois—according to this WalletHub analysis, vying for worst American state/local tax burden are the deep red states of Nebraska and Iowa (ranked 50th and 43rd out of 51, resp[...]



France Election Preview: Terrorism, Socialism, Nationalist Socialism, and the Prospects for Economic Liberalization

Fri, 21 Apr 2017 18:26:00 -0400

The attack on a police bus on the Champs-Elysee in Paris yesterday, which killed two police officers and for which ISIS claimed responsibility, came while France's presidential candidates were participating in their last televised forum, and President Trump said today that he thought the attack would help the National Front's Marine Le Pen. "She's the strongest on borders and she's the strongest on what's been going on in France," Trump told the AP. "Whoever is the toughest on radical Islamic terrorism, and whoever is the toughest at the borders, will do well in the election." After the police attack, Le Pen called for the expulsion of all foreigners on terror watch lists. The suspected gunman in yesterday's attack, Karim Cheufri, is a French national who was questioned in February for allegedly making threats to kill police officers. Meanwhile, the center-right François Fillon, once the frontrunner before a scandal over a no-show job for his wife yielded calls for him to drop out, said "Islamic totalitarianism" ought to be the next president's top priority. François Hollande declared a war on terror after multiple coordinated ISIS-linked terrorist attacks in Paris in November 2015 killed 130 people. The French government followed up with warrantless raids, house arrests, limits on freedom of speech and assembly, and other security measures. The 2015 attacks helped the National Front outperform its polling in the first round of regional elections, but by the second round, a month after the attacks, the bounce appeared to have faded. Voters go to the polls Sunday for the first round and in early May for the second round—four candidates are polling at about 20 percent; Emmanuel Macron, Le Pen, Fillon, and Jean-Luc Mélenchon. And in fact, both Le Pen and Mélenchon, a former Socialist who created his own party and has been called the "French Bernie Sanders," support French withdrawal from the European Union and euro as well as more protectionism, and even closing the border to refugees and banning the veil. "This is a very good example like Hayek used to say, where extremes actually join together," Emmanuel Martin, a French economist involved with libertarian MOOC Ecole de la Liberté, told Reason earlier this week. "Mélenchon-LePen, their program is 90 percent the same." Martin, who also describes himself as a libertarian rocker, even has a song about the tendency for such confluence in what we call the far right and the far left. "Mélenchon is the new Robespierre," Martin explained, referring to the French revolutionary leader associated with the Reign of Terror, "and to some extent he's very much like Bernie Sanders, but I think he's more evil… They both share this total illusion of democratic socialism, which to me is a complete oxymoron, and to any libertarian obviously." While terror attacks in France grab more headlines, the country has long-standing economic problems caused by too many labor regulations, too much centralization, and a lack of accountability in government. President Hollande's tough talk and concomitant actions on the war on terror failed to shore up support in the face of his failure to execute on economic reform. The former economy minister, Emmanuel Macron, who was one of the architects of Hollande's belated turn away from socialism and attempt at some labor deregulation and other economic reforms, now has the highest polling average, at 23.6 percent. "He's trying to gather so many different people, that it's very difficult to find something solid, something really, he's just a basic politician, he's trying to please everyone," Martin explained. "And his speeches are completely hollow, just hot air, really, and sometimes you even laugh when you listen to him, because it's so empty." Nevertheless, there could be a bright side there. "Maybe that's the solution," Martin suggested, "to gather a lot of voters and then do some reforms, but I don't know if he'll do the reforms." Fillon, the former frontrunner, came into the race, Martin said[...]



Publicly-Funded Ballparks Are for Suckers

Mon, 17 Apr 2017 12:00:00 -0400

Talk of a new ballpark for Richmond has all but disappeared in the past few months. Former Mayor Dwight Jones' plans for one imploded, and his successor, Levar Stoney, has trained his focus on the nuts and bolts of local government that Richmond has too long ignored: public safety, sidewalk maintenance, leaf collection. This is a good thing. To see why, look north to Hartford, Conn. A recent story in The Wall Street Journal lays out the unfortunate details. Hartford looks somewhat like Richmond: One third of its 124,000 residents live in poverty, and its unemployment rate is twice the state average. The city also has been wrestling with financial difficulties. Despite that, Hartford has built a new stadium for the AA-level ball club, the Yard Goats, and issued $68.6 million in bonds to do so—even though Dunkin' Donuts paid an undisclosed, but no doubt pretty, sum for the stadium naming rights. Mayor Luke Bronin has said the park by itself cannot recoup the investment. The city hopes ancillary development nearby will do so: There had been talk of a $350 million mixed-use development—shops and apartments and so on. You've heard it all before. But the development has not materialized. Richmond's poverty and unemployment numbers look better than Hartford's. But under Jones the city maxed out its credit card; there's almost no debt capacity left. Jones' vision for a new ballpark also relied heavily on ancillary development, both in Shockoe Bottom, where the park was to have been built, and on the Boulevard, where the old ballfield was to have been torn down to make way for "a gleaming, 60-acre complex of apartments, retail stores, restaurants, entertainment and office buildings," as a Richmond Times-Dispatch news story put it. Yet The Diamond still stands, as it has ever since the Richmond Braves left town in a snit almost a decade ago because they weren't getting a new stadium. The Braves ended up in Gwinnett, Ga., which built them the citadel they wanted. "We anticipate it paying for itself from Day One," said the county manager at the time. Well. As in Hartford, the project ran into cost overruns, and the county had to move $19 million from general-fund revenue to cover the hole. The stadium has been a disaster since its first year, when parking revenue came in at a mere 15 percent of projections. "Seven years into the experiment that is the Gwinnett Braves," reported the Atlanta Journal-Constitution in 2015, "the numbers make it clear: The county built it. They have not come." Coolray Field has the second-lowest attendance in its league. Just like Hartford, Gwinnett hoped the stadium would provide the catalyst for new development nearby. It hasn't happened. "None of the planned shops or restaurants has materialized," according to the AJC. And the bond payments for the stadium are bigger than the revenue it brings in. Gwinnett has had to take money meant for other functions to subsidize its money pit. A fluke? Hardly. Last year, in a story headlined "The Braves Play Taxpayers Better Than They Play Baseball," Bloomberg Businessweek reported on the way the Braves organization has turned public investment by others into its own private profit: Over the last 15 years, the Braves have extracted nearly half a billion in public funds for four new homes, each bigger and more expensive than the last. The crown jewel, backed by $392 million in public funding, is a $722 million, 41,500-seat stadium for the major league club set to open next year in Cobb County, northwest of Atlanta. Before Cobb, the Braves built three minor league parks, working their way up the ladder from Single A to Triple A. In every case, they switched cities, pitting their new host against the old during negotiations. They showered attention on local officials unaccustomed to dealing with a big-league franchise and, in the end, left most of the cost on the public ledger. Says Joel Maxcy, a sports economist at Drexel University: 'If there's one thing the Braves know how to do,[...]



Trump's Budget Director Confirms: The Export-Import Bank Will 'Continue to Exist' (UPDATE: Trump Declares the Bank a 'Very Good Thing')

Wed, 12 Apr 2017 12:35:00 -0400

Were you hoping, against the odds, that Donald Trump would do an about-face and decide that he wants to kill the Export-Import Bank? If so, I'm afraid I'll have to be the bearer of disillusioning news: OMB chief Mick Mulvaney has now confirmed that the White House wants the bank to "continue to exist." Some background: The Ex-Im Bank uses tax money to finance and insure foreign purchases of American exports. Boeing and the bank's other beneficiaries think this is a great set-up; the foes of corporate welfare are less impressed. Some early drafts of the Trump budget suggested that the program might be among the items marked for death, but when the actual document was released the bank turned out to be very much alive. Apparently, America's most explicitly mercantilist president in years isn't about to eliminate a mercantilist institution. Go figure. After I wrote about that last month, I heard some maybe-he'll-get-to-it-later rumblings from some hopeful Trump disciples. Well, CNBC's John Harwood just asked Mulvaney about the bank; the short version of his answer is that Trump is more interested in "putting some people on there who are reformers" than in dismantling it. For the longer version, read on: HARWOOD: Have you accepted as a matter of administration policy that you're going to take money from taxpayers and give it to the Ex-Im Bank? MULVANEY: Yeah. We did talk about the Ex-Im Bank because, as you know, I was a fairly significant critic of that in my time on the House. And I'm very comfortable with where we got, which is I believe I have a commitment this from this president. He is interested in putting some people on there who are reformers, and who want to make sure the bank sticks to its knitting and doesn't experience some of the mission creep that many of our critics have seen. Secondly, he's given me and Gary Cohn permission to start talking to other export credit facilities around the world to see if we can lower the level of government interference in the marketplace from all sides. HARWOOD: But Ex-Im is going to continue to exist. MULVANEY: Yeah, it's going to continue to exist. That "mission creep" comment was a nice touch. The bank has been subsidizing corporate giants for decades. Just what original mission is Mulvaney pretending that they're going to restore? Other choice bits from the interview include Mulvaney's estimate of how much Trump will spend on infrastructure ("I'm assuming a $200 billion number") and his response when asked about Trump's pledge to eliminate the national debt ("It's fairly safe to assume that was hyperbole"). To read the whole thing, go here. Update: And now we have it straight from the horse's mouth. The Wall Street Journal has just interviewed the president, and it reports that Trump has "made a full reversal from the campaign by stating his support for the U.S. Export-Import Bank": As he courted these limited-government voters during the campaign, Mr. Trump said the agency was unnecessary, and referred to it as "featherbedding" for politicians and big companies. "Instinctively, you would say, 'Isn't that a ridiculous thing,'" Mr. Trump [now says] of the Ex-Im Bank. "But actually, it's a very good thing. And it actually makes money, it could make a lot of money."[...]



No, LGBT Rights Are Not and Should Not Be Dependent on Census Questions

Fri, 31 Mar 2017 12:45:00 -0400

This week in ginned-up Donald Trump administration outrage that distracts from actual issues: The Census will continue to not ask questions that they haven't been asking about LGBT people. This in some quarters has been presented as some sort of LGBT "erasure." It's not. At least when activists within the LGBT and progressive community freaked out about the possibility of an anti-gay executive order coming from President Donald Trump's administration, there was actual documentation. It turned out that Trump was not interested in signing such an executive order and it never came to be. But at least there was smoke to be concerned about if not an actual fire. Such is not the case with this week's LGBT anti-Trump outrage, which turns out to fundamentally be less about gay and transgender rights and more about organizations who want a slice of the great federal spending pie. To explain: The U.S. Census put out a proposal earlier in the week for questions it may ask during the 2020 census. Sexual orientation and gender identity were among the potential discussion topics. This was not something the Census had asked previously, which you know if you've participated in a census, ever. Then, the Census quickly explained that it had not intended to include the questions about sexual orientation and gender identity this time and withdrew the topics. So the Census, which had never asked people if they were LGBT before, is not planning to ask in the 2020 census either. Cue the outrage. The first headline I saw came from Out Magazine, a top gay-targeted publication. The headline read "Trump Administration Omits LGBTQ People from the 2020 Census." My initial reaction was "Woo hoo! I don't have to participate in the census!" But even before reading I suspected that wasn't what the story actually meant. The Trump administration is not omitting LGBT people from the census, and a writer actually analyzing how the announcement played out notes that the Trump administration might not have even played any role in the consideration of the questions at all. Even Snopes has gotten into the act with an explainer. What actually happened is that the National LGBTQ Task Force, an activist group with an open, stated agenda of having these questions added to the census, put out a press release declaring their unhappiness in seeing the questions get deleted. I don't use "agenda" as a negative here, and I don't necessarily see an issue with the Census Bureau asking people their orientations for demographic purposes, as long as it's made very, very clear that answers are completely voluntary. But there is a deliberately misplaced outrage here that wants to trick LGBT people into thinking that their rights and equal protection under the law is dependent on whether the federal government knows that they're gay or transgender. This is a seriously unsettling proposition. Here's a quote from Meghan Maury, criminal and economic justice project director of the National LGBTQ Task Force: "Today, the Trump Administration has taken yet another step to deny LGBTQ people freedom, justice, and equity, by choosing to exclude us from the 2020 Census and American Community Survey. LGBTQ people are not counted on the Census—no data is collected on sexual orientation or gender identity. Information from these surveys helps the government to enforce federal laws like the Violence Against Women Act and the Fair Housing Act and to determine how to allocate resources like housing supports and food stamps. If the government doesn't know how many LGBTQ people live in a community, how can it do its job to ensure we're getting fair and adequate access to the rights, protections and services we need?" What does demographic inclusion in a study have to do with whether LGBT people are treated equally under the law? Nothing. The Supreme Court decision on same-sex marriage, for example, is a ruling precedent that makes it clear that rights and pr[...]



The Coming Federal Fiscal Binge

Thu, 30 Mar 2017 00:01:00 -0400

William Safire said that as a speechwriter for Richard Nixon, he would sometimes urge the president, "Take the easy way!" Nixon could then give a speech saying he had rejected advice from his aides to take the easy way, preferring to do what was right. Politicians may pretend to make hard choices, but they rarely do. Those in office now won't be inspired to heroic deeds by the failure to repeal Obamacare. Just the opposite. The lesson of this episode is that it's hard to reach agreement on taking things away from the voters. The corollary is that it's easy to reach agreement on giving things to the voters. The obvious next step is a fiscal binge that serves the selfish interests of everyone except posterity. Here's how it may play out: Congressional Republicans pass tax cuts. Democrats join them on a big infrastructure bill. President Donald Trump's proposed spending cuts come to little or nothing. The deficit balloons, and not many people in Washington care. Robert Bixby, executive director of The Concord Coalition, a nonpartisan budget watchdog, tells me, "There's a political logic to it: 'You get what you want. We get what we want. And the future will pay for it.'" Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, agrees: "The risk of irresponsibility is high." Having lost on overhauling health care, Trump indicated he is ready to move on to tax reform. This choice evoked chortles from skeptics, who say a major revision of the Internal Revenue Code will be an even harder challenge. But why assume Republicans will balk at anything short of a comprehensive overhaul? If they can't get that—and there is no reason to think they can—they will almost certainly settle for tax cuts, even if it means bigger budget deficits. That's been their default option for decades. Trump couldn't care less about the deficit. So GOP members will meet no particular resistance from him if they want to cut rates, scrap the estate tax or the alternative minimum tax, or increase the standard deduction. House Speaker Paul Ryan has in mind a border adjustment tax, which would bring in enough revenue to make up all or most of what the other changes would lose. But neither Trump nor congressional Republicans are likely to approve a measure that would raise consumer prices and be hard to explain. The path of least resistance involves dropping the proposal and not bothering to pay for the tax cuts. Paying for them holds little allure because it would mean either killing tax breaks cherished by millions of people or curtailing outlays. Trump has proposed some $54 billion in spending reductions, taken from agencies ranging from the Environmental Protection Agency to the National Endowment for the Arts, but those couldn't be used to offset tax cuts. The money saved is supposed to go for Trump's military buildup. But rest assured, it won't be saved in the first place. "Some of Trump's closest allies said his budget has virtually no chance in Congress," reported The Washington Post. "Even those fiscal conservatives who do want to cut spending don't necessarily think slashing major domestic programs is the answer." The only other place where spending could be cut much is in the biggest entitlements—Social Security, Medicare and Medicaid. But Trump the candidate promised not to go after Social Security and Medicare. Leaving Obamacare alone means Medicaid escaped the ax. The president should have more luck boosting outlays. He envisions a $1 trillion program aimed at "revitalizing our country's ruined roads, crumbling bridges and outdated airports," Press Secretary Sean Spicer explained. Trump told The New York Times he intends to "prime the pump to some extent. In other words: Spend money to make a lot more money in the future." It's a classic Keynesian formula with a long Democratic pedigree. Getting bipartisan support should not be a heavy lift. The we[...]



Trump’s Military Budget Is Not NATO’s Fault

Sun, 26 Mar 2017 17:30:00 -0400

President Trump's budget proposal would increase military spending $54 billion, not quite a 10 percent increase over the current level. According to Quartz, the increase alone is more than all but two countries—China and Saudi Arabia—spend on their militaries. (China spends $145 billion, Saudi Arabia $57 billion, Russia $47 billion, and Iran $16 billion, the International Institute for Strategic Studies reports.) Meanwhile, Trump implies that NATO members take advantage of America by not paying enough for own defense. When German Chancellor Angela Merkel visited Washington recently, Trump tweeted: "Germany owes … vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!" As we've come to expect, Trump gets it wrong. NATO members don't pay dues to NATO, and they don't pay the United States for defense. However, NATO requires members to budget at least 2 percent of their GDP for their own militaries. Some members haven't spent that much, but that has changed in recent years. Trump leaves the impression that Americans shoulder an unnecessarily large military burden because some NATO members underfund their military establishments. But that's nonsense because that's not how things work in Washington. Americans don't pay more because Germans Italians, Spaniards, Portuguese, and Norwegians pay less. At other times Trump seems to acknowledge this. In his campaign he never said the U.S. military budget would be smaller if NATO members paid up. Rather, he said he wanted to make America "strong again"—so strong that no one would dare "mess with us." His budget message said, "In these dangerous times, this public safety and national security Budget Blueprint is a message to the world—a message of American strength, security, and resolve." His address to a joint session of Congress also did not justify greater military spending by pointing to how little the allies spend. It was all about making America "great again." In other words, Trump's proposed increase is "signaling"—the American military is already powerful beyond imagination—and this signaling has little to do with NATO members' spending. We have no reason to think his Pentagon budget would be smaller if suddenly other NATO members hiked their military budgets. Signaling is not the only driver of military spending. The U.S. government maintains an empire, and empires are bloody expensive. They also generate their own need for greater resources. For example, the so-called war on terror, especially the repeated bombing of noncombatants, provokes a desire for vengeance against Americans, which in turn functions as a justification for greater military spending. And so it goes. Moreover, the Pentagon, as a bureaucracy, exhibits the well-known internal dynamic for expansion. Civilian and military administrators have a natural desire to enlarge their domains and enhance their prestige. Similarly, those who wish to sell products and services to the government—The Complex—have an interest in the growth of the military budget and can be counted on to lobby for it. Finally, members of Congress can advance their careers by maintaining and bringing jobs and military facilities to their states and districts. When the budget sequester was pending, a leading Democratic and progressive member of Congress, Rep. Jim Clyburn of South Carolina, opposed limits on the growth of military spending because they might reduce jobs in his district. We've all heard stories about legislators authorizing weapons that the Pentagon did not want because of the supposed economic stimulus in their states. Military Keynesian is as mistaken as other Keynesianism: if the government doesn't spend the money, private individuals will spend or invest it. Trump may think that the American military is not powerful enough because its wars [...]



Apparently Tax and Spending Cuts are Either Too Small or Too Big, but Never Just Right

Wed, 22 Mar 2017 12:05:00 -0400

Donald Trump, the ultimate outsider and former liberal Democrat, and Ed Gillespie, the ultimate insider and GOP veteran, are about as different as two people in the same party could be. But when it comes to taxing and spending, opponents are giving them the same old business. Last week Trump unveiled his budget outline, which jacks up military spending—though not nearly as much as critics allege: His Pentagon proposal is only 3 percent bigger than what Barack Obama sought. To offset his defense hike, Trump has proposed cuts in other domestic programs, from the Appalachian Regional Commission to the Weatherization Assistance Program. The screams of liberal protest still echo through the hills. Some progressives have been horrified to learn the administration might eliminate agencies they had never heard of in the first place. And many have pointed out that the budgets for those and other agencies are, in relation to aggregate federal spending, minuscule. The combined budgets of the National Endowments for the Arts and Humanities, complained one critic in Slate, "total under $300 million, which is less than 0.01 percent of the total federal budget." The Washington Post took this tack as well. When White House Budget Director Mick Mulvaney said the administration did not want to ask a coal miner or a single mom to pay for programs on the chopping block, the paper's fact-checker retorted with "A Coal Miner's Plight: Paying for Public Broadcasting Is Less Than a Dollar of His Taxes." You get the point: Cuts to small agencies make no real difference—so don't cut them. So does this mean Trump's critics favor big cuts that will make a difference? Perish the thought! "Trump's Budget Is Pure Cruel Conservatism," says Rolling Stone, because it would have "devastating effects" on social programs. The left-wing website Common Dreams calls it "morally obscene" for the same reason. "Cuts to education, labor, agriculture and many other departments of double digits," says a piece in U.S. News, amount to a budget that "has no soul." Bottom line? Small budget cuts are bad—and big ones are absolutely heinous. Government must always continue to grow in every direction. The same response greeted Ed Gillespie's tax proposal. The Republican candidate for governor of Virginia has rolled out a plan that would shave Virginia's tax brackets by 10 percent each, and eliminate three punitive business taxes. (Chief among those: the BPOL tax, which applies to gross revenue rather than net profit. Even Gov. Terry McAuliffe (D) was willing to get rid of that one.) Democrats are not impressed. "The Gillespie campaign's proposal would give the top 1 percent almost $3,200 a year," the Democratic Party complained in an email blast, "while a family of four with an income of $50,000 would get just $246 and a minimum wage worker with two kids just $42." Now, it's certainly true that tax cuts often benefit people who pay lots of taxes. It's pretty hard to avoid that dynamic. And it's doubly hard in Virginia, where the top tax rate of 5.75 percent applies to anyone making more than $17,000. The state badly needs to bring its brackets in line with economic reality. Gillespie should have made his tax plan more progressive by proposing a tax rate of zero percent for anyone making less than $20,000, and progressively higher rates for everyone else. But would Democrats have been any happier? Probably not. Consider the freak-out that greeted Gov. George Allen (R) when he proposed a $2.1 billion tax cut in 1995. Democratic House Majority Leader Richard Cranwell warned that Allen wanted to "take police officers off the street." Others called his proposal "mean-spirited" because "people will fall through the cracks." Don Beyer, the lieutenant governor, suggested Allen's tax cuts were "cruel" and "reckless." Back then Virginia's biennial budget was arou[...]



Hacking Away at the Budget Is the Humane Thing To Do

Wed, 22 Mar 2017 00:01:00 -0400

"Devastating!" shouts Chuck Schumer. Even Republicans are unhappy. Big spending "conservative" congressman Hal Rogers calls President Donald Trump's proposed budget cuts "draconian, careless and counterproductive." But Trump's cuts are good! Why do politicians always assume that government spending helps people? It always has unintended consequences. Foreign aid is attached to idealistic notions like ending global poverty and making friends abroad. Politicians also thought that by rewarding countries that behave well, America could steer the whole world toward responsible practices like holding elections and allowing companies (especially U.S. companies) to operate without interference. The young nation of Israel could be propped up with money for its military defense and infrastructure projects. But today, the U.S. sends money to friends and foes alike, and it's hard to know what those countries do with it. Israel gets billions of dollars—but we give even more money to Israel's enemies. Money we give to impoverished nations seldom reaches the poor people we want to help. The funds routinely go to the kleptocrat governments that made those countries such horrible places to live in the first place. Our gifts prop up authoritarians, making it easier for them to avoid free market reforms. We're just as dumb about spending at home. The Department of Education doesn't teach any kids. It imposes standards on local schools that make it harder for them to experiment. It hires bureaucrats who do endless studies—instead of letting competition show us what teaching methods get the best results. The Department of Education also promotes government-subsidized student loans that trick students into thinking that no matter which school they pick, no matter their major, they will graduate with useful, marketable skills. Many go deeply into debt just when they should be getting a start in life. The Department of Agriculture tips American elections. Presidential candidates promise farm subsidies to try to win the early Iowa primary. Politicians say the subsidies will rescue struggling small farms, but they rarely do. Most of the money goes to big, well-connected agribusiness. They shouldn't get subsidies any more than other businesses should. The so-called "war on poverty" has now cost almost $22 trillion, about three times what we've spent on all America's wars. Yet poverty endures, even as markets and technology should have eliminated most of it. Before the war on poverty began, Americans were steadily lifting themselves out of poverty. The well-intended handouts increased dependence and stopped that natural progress. They perpetuated poverty. Obviously, some federal programs do help people. When you spend trillions of dollars, some of it will be put to good use. But that doesn't mean the Economic Development Administration, "Essential" Air Service, Community Services block grants or even Meals on Wheels deserve a penny more of your taxes. "There is no magic money tree in Washington," the Cato Institute's Chris Edwards reminds us. At DownsizingGovernment.org, he lists many more programs that ought to be cut. Even when programs do good things, he says correctly, "It is more efficient for the states to fund their own activities—school and antipoverty programs—because doing so eliminates the expensive federal middleman." Having our money back means being able to pay for things we choose as individuals—including helping out the poor more effectively than the government. Finally, even areas where Trump wants to boost spending, like the military, should be cut. We spend more on defense than the next seven nations combined—China, Saudi Arabia, Russia, the United Kingdom, India, France and Japan. Are we less likely to be attacked because of it? Less hated? No. Often, our expensive "defense" [...]



Trump Budget Cuts: Real or ‘Reality’ Show?

Mon, 20 Mar 2017 16:00:00 -0400

Donald Trump ran for office promising to crush the Islamic State, end the influx of illegal immigration from Mexico, and stop the flight of American manufacturing jobs to China. Now that he's in office, he seems to be focusing on different set of targets: Public television's "Big Bird," poor old people who benefit from "Meals on Wheels," and history graduate students and scholars of the Founding Fathers who get grants from the National Endowment for Humanities (NEH). Some reports even had the Trump administration slashing funding for the Coast Guard. What's going on here? The Trump "budget cuts"—they deserve quotation marks, because no money has yet actually been cut—are best understood in the context of Trump's home city, New York. There, for decades, the mayor would propose draconian "cuts" to popular institutions like museums and libraries. The museums and libraries would dutifully rally their constituencies to fight against the proposed "cuts." And the City Council would intervene to restore the funding, winning the gratitude of those that had been targeted. This was widely and correctly understood as a kind of theater. No funding was genuinely in jeopardy, other than the personal funds of the taxpayers who wound up eventually footing the bill for the government spending. The mayor got to pose as fiscally prudent. The City Council got to claim credit for protecting the museums and libraries, which had never really been in danger. A 2010 New York Times article described it as "something of an annual budget ritual: Public libraries, always among the first city services to be threatened with substantial cuts in financing, are forced to face the abyss, only to be saved in the end, in whole or significant part." A 1998 article from the Queens Courier, a local newspaper in Trump's original home borough, quoted a City Council member, Archie Spigner, who said, "Cutting libraries and culture is a ritualistic maneuver between the Mayor and the Council. In my 25 years on the Council it has always been that way, whether it was a Democratic or Republican mayor. The Mayor proposes the reduction and the Council makes restitution. It's the reality of politics and I don't think the Mayor's serious." For Trump, it's a win-win maneuver. He lets small-government conservatives, many of whom never quite trusted him in the first place, believe that he made a good-faith effort to cut federal spending. And he lets the Republican Congress, which is up for re-election before he is, claim credit with centrist swing voters for sparing popular programs from Trump's budget axe. On the substance of it, there is a strong case for cutting or eliminating many of the targeted programs. The Corporation for Public Broadcasting warns about the risk to Sesame Street, but that program in 2015 made a five-season deal with HBO. HBO is a for-profit network that is part of Time Warner, whose deal to be acquired by AT&T awaits Trump administration antitrust review. The NEH trotted out, in its own defense, the president of Harvard, Drew Faust. Harvard has a $35.7 billion endowment. The NEH's total annual appropriation in 2015 was $146 million. Faust herself earned $1.2 million in compensation from Harvard in the most recently disclosed year, along with an additional $250,000 for her service on the board of Staples, an office supply retailer. She and her fellow star historians can probably survive okay without taxpayer help from NEH grants. This question—is it ritualistic theater, a kind of performance art, or is it real?—is one worth keeping in mind for all of Trump's initiatives, not just his budget. Is, say, the effort to repeal ObamaCare real? Or is it, like the budget cuts, an elaborate show? It's easy to be fooled. Some people thought Trump's entire presidential campaign was an ela[...]



Trump Preserves the Export-Import Bank

Thu, 16 Mar 2017 15:15:00 -0400

(image) When early drafts of the Trump budget started to circulate after the inauguration, the Export-Import Bank—one of Washington's most notorious corporate-welfare programs—was among the agencies destined for the chopping block. Now the actual budget is out, and the bank has been spared the ax. The Washington Examiner's Tim Carney reports that this "follows many reports from congressional fans of Ex-Im that Trump had been persuaded to love the agency, which primarily subsidizes Boeing sales." (Barack Obama underwent a similar transformation, denouncing the bank as "little more than a fund for corporate welfare" while he was running for president but fighting to preserve it once in office.)

The budget plan does have some good news for foes of corporate handouts. Carney points out that the Overseas Private Investment Corporation (which "subsidizes U.S. companies that want to set up business overseas, such as a Ritz Carlton in Turkey or a Wendy's in the Republic of Georgia") is still slated to go, as is the U.S. Trade and Development Agency. The Community Development Block Grant Program, also marked for death, has a long history of funding officials' business cronies, as my colleague Scott Shackford noted earlier today. Poke through the proposals for the departments of energy, commerce, and agriculture, and you'll find some more subsidies being cut.

But the biggest hub of crony capitalism in Washington is the military-industrial complex. And that, alas, is set to expand: Trump wants to give the Pentagon a $52.3 billion spending spike. I'm glad for any small victories against the corporate state, but in the grand scheme of things they're getting swamped.




Another Taxpayer-Funded Cleantech Company Goes Bankrupt

Wed, 15 Mar 2017 13:40:00 -0400

Named the 2016 North American Company of the Year by the San Francisco-based Global Cleantech Group just seven weeks ago, Pennsylvania battery maker Aquion Energy filed for Chapter 11 bankruptcy last week. The company makes a novel sodium-ion battery. Aquion joins the long list of failed cleantech companies that were backed by government grants and loans. Most notoriously solar-cell manufacturer Solyndra went belly up in 2011 after receiving more than $500 million in federal loan guarantees from the U.S. Department of Energy. Back in 2010, I visited the vast Ener1 lithium-ion battery factory outside of Indianapolis. As I reported, the Department of Energy had awarded a $118.5 million matching grant to Ener1 to build the plant. In addition, Ener1 was given a state incentive package of $21.3 million and a Hancock County package valued at $48.6 million. In January, 2011 then-Vice President Joe Biden visited the Ener1 plant where he declared: "It's not the government doing this. It's the free-enterprise system. We're providing seed money, one-time deposit, man, so we can spur additional investment." A year after his visit Ener1 declared bankruptcy and later emerged a privately owned company. Similaly DOE-backed Beacon Power and A123 Systems also went bankrupt. The Pittsburgh Post-Gazette reports that Aquion Energy had received a $5.2 million grant from the U.S. Department of Energy, plus $8.6 million in grants and another $8 million in loans from Pennsylvania's Department of Community and Economic Development (DCED). In return, Aquion promised the state it would create 341 new jobs on top of the 70 people it already employed. The company has evidently now laid off 80 percent of its 150 employees. The DCED is vowing to get the money it handed out to Aquion back. "Revenue recovered by DCED from companies that fail to live up to previous commitments will be reinvested to further promote economic growth in the Commonwealth," declared DCED communications director David Misner. (Here's an idea: How about just returning it to Pennsylvania's taxpayers?) Government "investment" in novel battery manufacturers has so far failed. The outcome of the biggest investment of all is now pending: Tesla's Gigafactory outside of Reno, Nevada. In order to persuade Tesla to build the factory in Nevada, the state government has given the company a package of tax breaks worth $1.3 billion including tax credits worth $195 million which Tesla could sell for cash. Naturally, Tesla CEO Elon Musk defends his company's reliance on government largesse. Perhaps the Tesla battery plant gamble will pay off, but the precedents are not promising. One other plea: All states should agree to level the competitive playing field by collectively refusing to hand out tax breaks to rent-seeking companies.[...]



Federal Infrastructure Spending Is a Bad Deal

Thu, 09 Feb 2017 06:00:00 -0500

In his first address as president-elect, Donald Trump repeated his campaign promise to invest in America's infrastructure. "We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," he said. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it." His plan is for the federal government to entice private investors with $137 billion in tax credits. The idea is that this will unleash up to $1 trillion worth of infrastructure investment over 10 years, spur economic growth, and create countless American jobs. Politicians' love affair with infrastructure spending isn't new. Hillary Clinton, Bernie Sanders, Barack Obama, George W. Bush, and many before them have paid their respects to the idea. Economists have long recognized that roads, bridges, airports, and canals are the conduits through which goods are exchanged, and as such, infrastructure can play a productive role in economic growth. But not all infrastructure spending is equal. Ample literature shows, in fact, that it's a particularly bad vehicle for stimulus and does not, in practice, boost short-term jobs or economic growth. To work that way, government spending would have to be used quickly to put the unemployed to work on shovel-ready projects. But as Obama discovered in 2009 when he tried to spend $47 billion from the American Recovery and Reinvestment Act on infrastructure, there aren't that many shovel-ready projects lying around. And since job seekers rarely have the skills needed to start building a bridge or highway right away, employers are forced to poach workers from their existing jobs. Publicly funded infrastructure projects often aren't good investments in the long term, either. Most spending orchestrated by the federal government suffers from terrible incentives that lead to malinvestment—resources wasted in inefficient ways and on low-priority efforts. Projects get approved for political reasons and are either totally unnecessary or harmed by cost overruns and corruption. For example, we know that infrastructure investment produces the highest returns when it supports already-expanding cities and regions. Yet politicians' tendency is to spend in declining areas, where dollars can't help as many people, such as Detroit and Cleveland. Government statistics show that our infrastructure isn't actually crumbling. While conditions vary from state to state, the most recent data on highway quality (from 2012) classify 80 percent of urban highways as either good or acceptable. For rural highways, the figure is almost 97 percent. Meanwhile, the quality of bridges has improved as well. In 2004, 5.7 percent of bridges were classed as structurally deficient, meaning that the bridge isn't unsafe but that it could suffer from a reduction in its load-carrying activities. By 2014 that number had declined to 4.2 percent. Still, our infrastructure could use some work. Recently, in a debate at the Aspen Ideas Festival with former National Economic Council Director Lawrence Summers, the economist Robert Barro noted that he was "glad that Larry and I can agree that fixing potholes is the most productive activity in government." Unfortunately, the political process is biased against dull but valuable projects, such as basic road maintenance, and biased in favor of flashy or grandiose projects, such as high-speed rail, the Big Dig, and the Bridge to Nowhere. The process also systematically overestimates the benefits and underestimates the price of infrastructure projects. On the bright side, Trump wants to address the "mountain of red tape" that slows down construction proj[...]



Trump’s Sanctuary City Funding Threat Protects Police Money

Wed, 25 Jan 2017 16:50:00 -0500

(image) Today President Donald Trump made good on his threat to go after "sanctuary cities" (cities that decline to investigate the immigration statuses of people within their jurisdiction) by going after their federal funds. He signed an executive order today attempting to implement a policy denying federal grants for any of these 200 estimated sanctuary cities if they refuse to assist the federal government in investigating immigration statuses.

One problem that was brought up in November after Trump's election: Law enforcement agencies and unions didn't support this mechanism of intimidating cities. It wasn't that they cared so much about the civil liberties. They were not going to support anything that prevented any sort of gravy train from rolling into their police stations. Law enforcement agencies are prime recipients of federal grants.

Trump, having run on a hard core law-and-order, stop-and-frisk, civil-rights-are-for-wusses campaign, was not interested in angering these guys. So his executive order today explicitly exempts grants "deemed necessary for law enforcement purposes."

Trump is also calling for the administration to publicize, on a weekly basis, a list of crimes committed by aliens "and any jurisdiction that ignored or otherwise failed to honor any detainers with respect to such aliens." One assumes these must be aliens the federal government detain or arrest after sanctuary city interactions. Otherwise there's a bit of a logic flaw in trying to highlight criminals who are illegal immigrants operating in cities that refuse to check their immigration status and report that information to the feds.

In any event, this executive action seems designed to maintain the loyalty of law enforcement agencies to Trump. Read the sanctuary cities section of the order below, check the full executive orders being signed today here, and check out this defense of sanctuary cities as a tool to encourage immigrants to cooperate with law enforcement to solve crime and keep communities safer:

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