Sunday, October 29, 2017

This Week With Dan Mitchell

(Editor's Note:  Daily I get an insightful article from Dan Mitchell of International Liberty dealing with economic issues. Articles he's allowed me to publish.  The man is an amazingly prolific writer.  However, I've tried to limit what I'm doing currently so I've not been publishing them daily.  His stuff is so good I hate to deprive my readers of his insights.    So Please enjoy Dan's work for this week, and this last link is published in full as I think that is an issue that the public needs to understand.  Please enjoy!  RK)
New Jersey’s Continuing Fiscal Decay
When companies want to boost sales, they sometimes tinker with products and then advertise them as "new and improved." In the case of governments, though, I suspect "new" is not "improved."  The British territory of Jersey, for instance, has a very good tax system. It has a low-rate flat tax and it overtly brags about how its system is much better than the one imposed by London.  In the United States, by contrast, the state of New Jersey has a well-deserved reputation for bad fiscal policy. To be blunt, it's not a good place to live and it's even a bad place to die.  And it's about to get worse. A column in the Wall Street Journal warns that New Jersey is poised to take a big step in the wrong direction. The authors start by observing that the state is already in bad shape.....

Mirror, Mirror, on the Wall, Obama Definitely Was Not the Biggest Spender of All
I've learned that it's more important to pay attention to hard numbers rather than political rhetoric. Republicans, for instance, love to beat their chests about spending restraint, but I never believe them without first checking the numbers. Likewise, Democrats have a reputation as big spenders, but we occasionally get some surprising results when they're in charge.  President Obama was especially hard to categorize. Republicans automatically assume he was profligate because he started his tenure with a Keynesian spending binge and the Obamacare entitlement. But after a few years in office, some were arguing he was the most frugal president of modern times..........

Australia, Donald Trump, and Limited Government
I gave a couple of speeches about fiscal policy in Australia late last week. During the Q and A sessions (as so often happens when I speak overseas), the audiences mostly asked questions about Donald Trump. I generally give a three-part response.
So when I was asked to appear on Australian television, you won't be surprised to learn that I was asked several questions about Trump.  But the good news is that the segment lasted for more than 18 minutes so I got a chance to pontificate about taxes and spending. In particular, I had an opportunity to explain two very important principles of fiscal policy.  First, I explained the Rahn Curve and discussed why both Australia and the United States should worry that the public sector is too large. This means less growth in our respective nations because government spending (whether financed by taxes or borrowing) diverts............

Ranking Presidents on Economic Policy: The Impressive Record of Ronald Reagan
Back in 2013, I put together a visual showing the good and bad policies that were enacted during the Clinton years. The big takeaway was that the overall burden of government was substantially reduced during his years in office.  Two days ago, I did the same thing for Richard Nixon, but noted that his record was universally awful. I couldn't think of a single pro-growth policy when he was in the Oval Office.    Now let's look at the Ronald Reagan. I analyzed his record last year, but mostly looking at the aggregate results.  So let's look at the details, putting specific pro-growth policies in one column and specific anti-growth policies in another column. As you can see, there was a substantial net improvement during the Reagan years.  I gave extra credit for his tax cuts, the spending restraint, and the taming of inflation............

The International Monetary Fund’s Recipe for Continued Poverty in the Developing World
The cossetted bureaucrats at the International Monetary Fund are on a roll. In the past few months, they've published reports pushing a very misguided and statist agenda.
  • In June, I wrote about the IMF pushing a theory that higher taxes would improve growth in the developing world.
  • In July, I wrote about the IMF complaining that tax competition between nations is resulting in lower corporate tax rates.
  • In October, I wrote about the IMF asserting that lower living standards are desirable if everyone is more equally poor.
Now let's add to that awful collection. A new IMF report tries to quantify the fiscal implications of a new agenda for so-called sustainable development from the United Nations..............

The Best Argument against the State and Local Tax Deduction
I’ve written a couple of times to explain why the deduction for state and local taxes should be eliminated as part of pro-growth tax reform.  One of my main arguments, as I pointed out at the beginning of this interview, is that Republicans are generally unwilling to finance pro-growth tax changes by restraining government spending.  And since GOPers are too timid on spending, that means “revenue offsets” are needed to finance the good provisions in tax reform (assuming the goal is to make such changes permanent).............

According to Bizarre Rankings from Jeffrey Sachs, Cuba Scores above the United States for Achieving the U.N.’s “Sustainable Development Goals”
The United Nations has proposed a set of “sustainable development goals.” Most of them seem unobjectionable. After all, presumably everyone wants things such as less poverty, a cleaner environment, better education, and more growth, right?  That being said, I’m instinctively skeptical about the goal of “climate action” because of the U.N.’s past support for statist policies in that area.
And I also wonder why the bureaucrats picked “reduced inequalities” when “upward mobility for the poor” is a much better goal............

Ranking Presidents on Economic Policy: The Dismal Record of George W. Bush
Back in 2013, I did an assessment of economic policy changes that occurred during the Clinton Administration. The bottom line was that the overall burden of government declined by a semi-significant amount. Which presumably helps to explain why the economy enjoyed good growth and job creation in the 1990s, especially in the last half of the decade when most of the pro-growth reforms were enacted.  The chart I prepared has been very helpful when speaking to audiences about what actually happened during the Clinton years, so I decided to do the same thing for other presidents.  A week ago, I put together my summary of economic policy changes during the Nixon years. At the risk of understatement, it was a very grim era for free markets.  A few days ago, I followed up with a look at overall economic policy during the Reagan years. That was a much better era, at least for those of us who favor economic liberty over statism............

Ranking Presidents on Economic Policy: The Predictably Bad Record of Barack Obama
When I gave speeches during Obama’s time in office, especially to audiences with a lot of Republicans, I sometimes asked a rhetorical question about whether they approved of presidents who increased spending, bailed out big companies, expanded the power of the Washington bureaucracy, imposed more red tape, and supported Keynesian stimulus schemes.  They understandably assumed I was talking about Obama, so they would always expressed disapproval.  I then would startle the audience (and sometimes make myself unpopular) by stating that I was describing economic policy during the Bush years.............

Are Tax Cuts Dangerous?
October 28, 2017 by Dan Mitchell
I’ve responded to all sorts of arguments against lower taxes.
  • Tax cuts are “unfair” because rich people will benefit.
  • Tax cuts are wrong because revenue should be going up, not down.
  • Tax cuts are pointless because the economy won’t grow faster.
  • Tax cuts are misguided because there will be more red ink.
  • Tax cuts are risky because vital services would be unfunded.
But I’ve never had to deal with the argument that lower taxes are “dangerous.”Yet that’s what Ruth Marcus of the Washington Post would like readers to believe. Here’s some of what she wrote today.
…tax cuts — not to mention tax cuts of the magnitude Trump and fellow Republicans contemplate — are worse than unwarranted. They are dangerous.
Dangerous?!?

Before clicking on the headline, my mind raced to imagine what she had in mind. Was she going to argue that lower taxes somehow might cause the nutjob in North Korea to launch a nuke? Was her argument that a tax cut would unleash the Ebola virus in the United States?

Well, you can put your mind at ease. The world isn’t coming to an end. It turns out that Ms. Marcus is simply making a rather hysterical version of the argument that tax cuts are bad because they result in more red ink.
They would add trillions to the national debt at a point when it is already dangerously large as a share of the economy. …the national debt is 77 percent of the economy, the highest since the end of World War II. It is on track to exceed the entire gross domestic product by 2033. That is even without a $1.5 trillion tax cut, the amount envisioned in the just-passed budget resolutions. …the nonpartisan Tax Policy Center found that increased growth would be counteracted within a few years by the drag of higher deficits; overall, the plan would increase deficits by $2.4 trillion during the first decade. …As an economic matter, they are simply reckless.
I’m actually semi-sympathetic to her argument. It isn’t prudent in the long run to reduce revenues and allow a continuing expansion in the burden of government spending. She would be right to hit Republicans for wanting to do the fun part of cutting taxes while ducking the politically difficult task of restraining spending.
 

That is a recipe for becoming another Greece. Not today. Not next year. Or even 10 years from now. The United States probably has the ability to stumble along for decades without doing anything to reform entitlements (the programs that are causing our long-term fiscal problems).

But I can’t resist making two points.

First, where was Ms. Marcus when Bush was pushing the TARP bailout through Congress? Where was she when Obama was advocating for his faux stimulus? Or the Obamacare boondoggle?
 
These pieces of legislation were hardly examples of fiscal rectitude, yet a search of her writings does not produce examples of her warning about the “dangerous” implications of more red ink.
 
Her selective concern about deficits makes me think that what she really wants is bigger government. So if the deficit is increasing because of new spending, that’s fine. But if red ink is increasing because of tax cuts, that’s “dangerous.”
 
If nothing else, Marcus may deserve membership in the left-wing hypocrisy club.

Second, if Ms. Marcus genuinely cares about deficits, then I’ll forgive her for her past hypocrisy and instead simply ask her to look at the Congressional Budget Office’s most recent long-run fiscal forecast.
 
She will see that more than 100 percent of America’s future fiscal crisis is due to expected increases in the burden of entitlement spending.
 
You may be wondering how something can cause more than 100 percent of a problem. Well, if you look closely at that long-run forecast (or previous forecasts), you will discover that tax revenues automatically are expected to increase. Not just in nominal terms. Not just after adjusting for inflation. Tax revenues will climb as a share of overall economic output. By about two percentage points over the next 30 years.
 
By the way, that built-in tax increase is bigger than the Trump/GOP tax cut, which will only reduce taxes over the next 10 years by $1.5 trillion out of an expected haul of $43 trillion.
 
Oh, by the way, I’ll add a third point. Advocates of higher taxes should be required to explain why more revenue for Washington will somehow lead to better results than what happened when such policies were adopted in Europe.

In other words, some of us don’t want to “feed the beast.”



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