Voice For Liberty

Category: United States government

  • Pompeo updates constituents on spending, debt, government interventionism

    This week provided an opportunity to catch up with U.S. Representative Mike Pompeo as he conducted a public forum in Andover Monday evening, and on Wednesday at a meeting in his east Wichita office. Pompeo, a Wichita Republican, is in his first term representing the Kansas fourth congressional district, which includes the Wichita metropolitan area and surrounding counties.

    As has been the case with his other forums or town hall meetings I’ve observed, it’s standing room only, and popular topics are federal spending and debt. At the forum in Andover, Pompeo presented charts showing the course of federal spending and debt under President Barack Obama’s plans, and under alternatives proposed by Republicans, specifically Paul Ryan, the Wisconsin representative who is chair of the House Budget Committee and architect of the budget that recently passed the House of Representatives, but not the Senate.

    Historically, the U.S. government has spent about 18 to 19 percent of the country’s gross domestic product (GDP). But the Obama budget calls for that percentage to rise, and that’s what causes the projected increase in debt, he said. Republicans have proposed a budget that gets the country back to historical levels of spending.

    On raising the federal debt limit, Pompeo said he voted against it once, and “I will vote no absent radical change in our spending behavior.” A questioner pressed him to vote no under any circumstance. Pompeo said that there is money that has been obligated but not yet been actually spent, so the only option is default if the debt limit is not raised at some time. “We have to acknowledge that the Congresses before us and the folks who voted them in have put us in this place.” To get us off our spending addiction, Pompeo said we need significant and real short-term spending cuts, real spending caps (he recommended 18 percent of GDP), and a balanced budget amendment to the Constitution.

    In telling the audience how the country got to this position, Pompeo said there has been a culture of “yes” in Washington. When someone walked into a Congressman’s office over the last 70 years and said I’ve got a good program, the answer was yes.

    On Medicare, Pompeo said that the president’s plan for fixing health care costs is to have a board of “really smart people” (the Independent Payment Advisory Board) be in charge of prices. But “price control isn’t cost control,” he said. Costs can’t be forced down by law, and if we try this, we’ll have worse access to care and lower quality care, he said.

    On Social Security, a questioner asked if Pompeo would support removing or increasing the limit on income which is subject to the FICA payroll tax. Currently that limit is $106,000, and income earned beyond that is not taxed under FICA. Pompeo would not agree to that, telling the audience that Social Security, as a program, has grown far beyond the original intent. It was originally designed as an anti-poverty insurance program, but now has grown to become a much larger portion of people’s retirement income. He said that this is because people have already been taxed too much, leaving them with less resources of their own for their retirement.

    Although the Republicans have not yet presented a plan for Social Security, Pompeo said he thought the plan would include no change to the present system for those 55 and over, a rise in the age at which benefits start for those presently under 55, and a change in the way cost of living adjustments are calculated. He said he would support such a plan.

    Pompeo told the audience that the practice of earmarking — allocating money to be spent on specific projects and the source of much “pork barrel” spending — is over. But he warned of a “clever creature” back in Washington, which he said is using the tax code to spend money: “Instead of earmarking money for someone, you give them a tax credit. Same effect, but different mechanism.” Pompeo said he has been at the forefront of pushing back on this practice. Engaging in social policy through taxes is disastrous, he said, because the people who will win are those with the best lobbyists, and that success in business should not depend on a benefit gained through government tax policy. He said that something like the FairTax (a tax on consumption spending rather than income) or lower marginal income tax rates with far fewer exceptions would boost the economy. Pompeo has introduced a resolution declaring that it is the “sense of the House” that no new energy subsidies or credits should be created, and that all existing should be repealed.

    In an interview in his office on Wednesday, he said that he twice voted against tax credits for ethanol production, even though ethanol is fairly important to his district. Also, he said he would vote against the tax credits for wind energy production. (Wichita Mayor Carl Brewer is courting wind power equipment manufacturers to locate in Wichita. Without the wind power production credit, industry representatives have said its future would be much smaller.)

    On natural gas, a product for which energy investor T. Boone Pickens is seeking to obtain federal subsidies to boost its use as a transportation fuel, Pompeo said that government should not pick that — or any other fuel — as a winner with taxpayer dollars. Consumers, he said, will be able to decide on which fuels are best.

    In his office, he said that what he found most disturbing about the scandal involving Representative Anthony Weiner is he did not tell the truth to the American public. Had Weiner admitted his behavior early on, events might have taken a different course, he said.

    I asked about the level of knowledge of civics among citizens today, and Pompeo said he thought that people are paying a lot of attention to what elected officials are doing, with a significant number of citizens are very well informed. Today, he said that the Internet has greatly reduced the cost of obtaining information about government, which he said is an important change in our political process.

    On the legislative process, Pompeo said that over the last 25 or 30 years Congress has been unwilling to create “substantive markers” in legislation. Instead, it creates vague laws and funds administrative agencies to implement them. These agencies are less accountable than elected officials, and Congress has handed over much authority to them.

    I asked about the deficit, which is a topic of much current interest, but also about the existing federal debt: Are we talking about paying off that debt as a goal, or is getting to a balanced budget a tough enough goal for now? Pompeo said that the debt-to-GDP ratio is the most important debt measure, and we must work to bring that down to sustainable levels.

    (According to a recent U.S. Treasury report, the debt-to-GDP ratio is now expected to rise to 1.02 this year, meaning that in order to pay off the debt, it would require all the income earned by Americans working for one year and seven days.)

    The only way to pay down the debt is to run surpluses — “and we’re not there,” Pompeo said, noting that the deficit this year is $1.5 trillion. The Ryan budget plan, which he said he voted for, still has deficits in the hundreds of billions. Growing the economy — the other part of the equation — will help get the debt-to-GDP ratio under control, and he said we need to work on both spending reduction and economic growth.

    Talking about a budget surplus brings back memories of the last time there was a budget surplus, which was the final years of the Clinton administration. Since Clinton raised income taxes during his term, liberals often argue that we should do the same now as a way to cut the deficit. But Pompeo said the foundation for the prosperity of the Clinton years — which lead to the surplus — was built during the Reagan and the first Bush presidencies. Also, Clinton faced a Republican Congress, which applied some restraint on the growth of spending. We also forget that some of the Clinton-area prosperity was due to the Internet dot-com bubble, which, like the housing bubble later on, proved to a false and unsustainable prosperity.

    On the current housing crisis, Pompeo laid its blame on many years of bad federal government policy, including the government’s goal of increased home ownership as an “article of faith,” without recognition of the economics of home ownership. He said he believes that the federal government is still propping up home prices in certain markets, so the problems with the housing market are not behind us, as markets have not been able to discover the correct prices for homes.

  • Federal debt limit seen as test of resolve

    Cato Institute video: “Will raising the debt limit signal to markets what we want? Or will it signal an unwillingness to deal with tough decisions on spending and debt in the near term? Cato Institute Senior Fellow Jagadeesh Gokhale suggests that refusing to raise the debt limit (until programs like Medicare, Medicaid and Social Security are reformed) could signal to markets a greater willingness to deal with long-term fiscal issues sooner rather than later.”

  • Social Security trust fund: a problem in disguise

    A situation that must be resolved soon first requires some understanding and an honest assessment of the facts: Social Security and its trust fund.

    Over the years, the Social Security Administration has collected more in payroll taxes than it has needed to spend on benefits. (Last year that wasn’t the case.) The surplus represents the trust fund.

    But there is disagreement as to the economic meaning of the trust fund. From a naive and uncritical accounting perspective, there seems to be no problem. SSA purchases a special series of bonds from the U.S. Treasury, and these bonds make up the investments of the trust fund. What could go wrong with holding government bonds?

    To answer that question, we have to look at what the government did with the proceeds of selling the bonds. The answer is that government spent the money. There are no bills in a vault. There are no bank deposits. There is only the promise of the U.S. Government to repay the bonds when the SSA needs them. A recent publication by Veronique de Rugy and Jason J. Fichtner of the Mercatus Center (Can We Trust the Social Security Trust Funds?) explains:

    However, the way the federal government accounts for the trust funds masks the true size of costs passing on to future generations. While bonds are real assets to the private market, future generations of taxpayers or borrowers will have to cover the future redemptions of bonds issued today because the federal government has used the money it has received from Social Security to pay for education, wars, and other items. In other words, the government has already spent the money it received in exchange for the IOUs. This is explained in the president’s 2011 federal budget: “The existence of large trust fund balances, therefore, does not, by itself, increase the government’s ability to pay benefits.” (emphasis added)

    But not everyone believes or understands the meaning of having spent the money in the trust fund. The SSA itself seems to, at least a little bit. A document titled Trust Fund FAQs produced by the SSA states: “As stated above, money flowing into the trust funds is invested in U.S. Government securities. Because the government spends this borrowed cash, some people see the current increase in the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future.” So here we have the U.S. Government admitting that the money in the trust fund has been spent.

    So is this a problem? No, says the SSA as it continues: “Far from being ‘worthless IOUs,’ the investments held by the trust funds are backed by the full faith and credit of the U.S. Government.” What the SSA doesn’t tell us here — and it’s not really its job to do so — is that the way these investments will be repaid is by one of three means: more taxes, less spending, or more borrowing.

    It’s good to see the federal government at least starting to recognize the truth behind the trust fund, even if it can’t bring itself to recognize its implication. Most liberal — “progressive,” excuse me — organizations refuse to see the truth. An example is The Center for American Progress, which produced a 72-page report last December titled Building It Up, Not Tearing It Down: A Progressive Approach to Strengthening Social Security. The document mentions the trust fund many times and that the fund is invested in safe government bonds. Never does the report mention that these funds have already been spent on something other than Social Security benefits.

    I can understand how CAP doesn’t want to mention this. The funds have been spent — under both Republican and Democratic administrations — to support the government spending programs that CAP supports. The fact that the spent funds in the trust fund will have to be paid back, possibly through higher taxes? High taxes and progressive taxation don’t bother CAP — that’s its platform.

    Paul Krugman of the New York Times also doesn’t think the trust fund presents a problem: “The Social Security system won’t be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. That’s not going to happen.”

    And how does Congress honor the bonds? More taxes, less spending, or more borrowing. Or some combination.

    This is the future we face if we don’t recognize the problem and take steps to start reform now.

  • Less spending, not more taxes, is required to balance the budget

    Last week the Congressional Budget Office estimated that President Obama’s budget will cost more than first thought, leading to larger deficits than originally forecast. If we hadn’t received the news by now, we need to cut federal spending.

    In commentary made available through the Mercatus Center, Antony Davies notes that there are proposals to cut spending, but even proposals by Republicans aren’t enough: “The President initially offered to cut the budget by $6.5 billion, and Republicans responded by asking for 10 times that amount. The truth is, we need 100 times that amount before we come close to balancing the budget. On any given day, the government spends $6.5 billion before lunch.”

    The president estimates this year’s deficit at $1,645 billion. The deficit, of course, is not the total amount of federal spending. It’s the part of federal spending that isn’t being paid for by current year revenue.

    Spending needs to be cut, but the cuts don’t have to be overwhelming, as liberals contend they must. Jason J. Fichtner writes in The 1 Percent Solution that reducing real federal spending by one percent each year would balance the federal budget by 2016. This requires actual cuts in spending, not just cuts in budget requests.

    It seems inconceivable that we can’t cut spending by one percent each year. But if we could hold down the rate of spending growth to one or two percent per year, we could still balance the budget in less than ten years.

    Raising taxes won’t work

    There are many who call for raising taxes, especially on the rich, as a way to generate more revenue and balance the budget. But try as we might, raising tax rates won’t generate higher revenues (as a percentage of gross domestic product), due to Hauser’s law. W. Kurt Hauser explains in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.’”

    People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income, and make investments in unproductive tax shelters. There is less incentive to work and invest. These are some of the reasons why tax hikes usually don’t generate the promised revenue.

    The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.”

    Hauser's LawHauser’s Law illustrated. No matter what the top marginal tax rate, taxes collected remain an almost constant percentage of GDP.

  • Federal spending on autopilot

    Federal spending trends

    Many people know that a large portion of the federal budget is effectively out of lawmakers’ hands. Together Social Security, Medicare, Medicaid, and interest on the debt presently consume about 48 percent of federal spending. But if nothing changes, these programs will grow to consume 90 percent of federal spending by 2084.

    This is the conclusion of Mercatus Center Senior Research Fellow Veronique de Rugy. Her analysis is based on data from the Congressional Budget Office, which makes forecasts in its Long-Term Budget and Economic Outlook. Her report is Defense and Non-Defense Spending Programs Squeezed as Autopilot Programs and Debt Interest Explode.

    The key is this is a forecast if nothing changes. The spending on entitlement programs that drive this forecast are under federal legislators’ control. They can act to make changes over the long term, if they wish to.

    But before last year’s elections, few politicians, even Republicans, were willing to confront the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is now chair of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

    His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

    Many of the new members of Congress are eager to take on the long-term problem illustrated in de Rugy’s chart. Let’s hope they have success.

  • Kansas’ Huelskamp leads in the House

    By Russ Vought. From RedState.com.

    Yesterday, Heritage Action for America (my employer), Club for Growth, and Family Research Council released a joint statement announcing their opposition to the three-week continuing resolution on floor of the House of Representatives next week, and their decision to “key vote” the extension on their respective scorecards. In doing so, they joined Mark Levin, Erick Erickson, and others, who are calling for conservatives to step up and lead by blocking this legislation.

    Freshman Rep. Tim Huelskamp of Kansas just answered that call. In a bold statement late last night, Huelskamp announced his opposition to the short-term resolution:

    We were elected to make bold changes to federal spending and to reverse our unsustainable deficits. … By allowing President Obama and Senator Reid to stall a budget they should have completed 6 months ago, we are being distracted from even bigger tasks: tackling the $1.1 trillion deficit in the President’s reckless 2012 budget and negotiating real budget reform, such as a balanced budget amendment, within a debt ceiling debate.

    Additionally, this CR omits many of the priorities the American people demanded we pass in H.R. 1: stopping job-killing EPA regulations, defunding Obamacare, and denying taxpayer funding of Planned Parenthood and abortion. By allowing continued funding of these liberal priorities, we are ignoring the mandate of the American people.

    Quite frankly, this is a stunning display of leadership by any member, let alone a freshman. Declaring your opposition publicly this quickly both plants a flag and ensures that you have less of a chance of being picked off in the days ahead. It reminds me of when Pat Toomey got out early to rally his colleagues against the Medicare prescription drug bill, and when Mike Pence sent out an early release to do the same against TARP.

    This is how you lead in the House of Representatives, and Huelskamp deserves a ton of credit for showing how it’s done in his first few months. Let’s see who joins him.

  • Stossel on politicians’ promises

    Recently John Stossel produced a television show titled Politicians’ Top 10 Promises Gone Wrong. The show features segments on government programs and why they’ve gone wrong, with a focus on the unintended consequences of the programs. Particularly illuminating are the attempts by programs’ supporters to justify their worth.

    Now the program is available to view on the free hulu service by clicking on Politicians’ Top 10 Promises Gone Wrong.

    One of the segments on the show explained the harm of Cash for Clunkers, in which serviceable cars were destroyed so that new cars could be sold. The program simply stole sales from the months before and after the program. The mistaken idea that destruction can be a way to create new wealth is held by many who should know better, and Stossel reminds us of the New York Times’ Paul Krugman, who wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase business spending. It’s the seen vs. unseen problem, Stossel and David Boaz of the Cato Institute explain. It’s easy to see people buying new cars. It was reported on television. But it’s more difficult to see all the dispersed economic activity that didn’t take place because of the programs.

    “Living wage” laws, in which people would be paid enough to live on — whatever that means — is next. While increasing wages of low-paid workers is a noble goal, increasing the cost of labor results in an entirely predictable result: less labor is demanded. Fewer people will have jobs. The Grand Canyon National Park, for example, switched to automated ticket machines. Christian Dorsey of the Economic Policy Institute, said that elimination of minimum wage laws would leave employers free to drive down wages as low as possible. But Stossel noted businesses hire employees in a competitive market, and it is that market that sets wages. Only about five percent of workers earn the minimum wage. Why do the others earn more than that? Competitive markets force employers to pay more, not laws.

    A segment on “fancy stadiums” boosting the economy holds a lesson for Wichita and the Intrust Bank Arena in its downtown. The claimed benefits of these venues rarely appear, and the unseen costs are large — “at the local bar there’s one less bartender, there was one less waitress hired at a restaurant, a movie theater that had one less theaterfull. It’s handing money from your right hand to your left and declaring I’m rich.” While Wichita’s arena seems to be doing well, it’s still well within its honeymoon period. Even then, there was a month where no events took place at the arena.

    A segment on the new credit card regulations, intended to protect consumers, shows that the regulations resulted in fewer people being able to get credit cards. Now these people have to go to payday lenders or pawn shops, which are much more expensive than credit cards. Arkansas once capped credit card interest at ten percent. The result was that few people in Arkansas could get a credit card, and the state became known as the pawn shop capital of America.

    Ethanol is the topic of a segment. Promised as a way to solve our energy problem, many politicians of both parties support ethanol. But we’ve come to realize the problems with government support of ethanol: rising price of food, excessive use of fertilizer and fuel to produce corn, and an awareness that ethanol is more harmful to the environment than gasoline. “But it makes us feel good,” Stossel says. In Kansas, Governor Sam Brownback is firmly in favor of government support of ethanol, which Boaz called “pound-for-pound, the dumbest program ever.”

    On the role of government in causing the housing bubble, Howard Husock said “Government exaggerates, rather than minimizes, the age-old impulse to greed. The government made it harder for bankers who wanted to do the right thing.” Stossel explained that bankers who wanted to stay with safe home loans lost out on profits they could earn selling high risk loans to Fannie Mae and Freddie Mac, the government-sponsored agencies.

    At the end, Stossel said: “And that’s the number one promise gone wrong. These guys say they’ll be fiscally responsible. And then we elect them, and they spend more. They’re spending us into bankruptcy. There must be 10,000 harmful programs, and yet they keep creating more. Why can’t we cut them?” Boaz explained: “Every one of those 10,000 programs has a lobbyist in Washington. … They always know when the bill is up before Congress, and they send political contributions, they send people to Washington to lobby. The rest of us don’t do that. … People should be more engaged, people should be better citizens. But the fact is we have lives, and there’s no way that any normal person can know about the 10,000 programs that make up the $3.5 trillion federal budget.”

    And so the programs keep growing, Stossel said, and we must pay their costs and unintended consequences forever — “Unless, there’s a new wind blowing in America. A new attitude, a new expectation that maybe Washington should do less. I hear there is. I sure hope so.”

  • Debt ceiling poses challenge and opportunity

    As the U.S. government’s borrowing approaches its statutory limit, the House of Representatives has a decision to make: does it support raising that limit so that the government can continue borrowing? Some warn of disastrous consequences if the limit is not raised, such as government shutting down or suffering a drop in its credit rating. Below, Americans for Limited Government’s Bill Wilson says this is a moment of decision for three players: Speaker John Boehner, Majority Leader Harry Reid, and President Barack Obama. Either we go along as we have, or we use this moment to make serious change.

    Use Debt Ceiling Increase to Cut Spending by $800 Billion

    by Bill Wilson, Americans for Limited Government

    This is where we are. With the national debt topping $14 trillion, it stands at 95 percent of the Gross Domestic Product, which is almost a full year of all goods and services the entire economy can produce. As it approaches the $14.294 trillion debt ceiling, incoming House Speaker John Boehner has a decision to make. Attaching $100 billion of spending cuts to that vote may sound nice, but it isn’t one-tenth enough of what needs to be done.

    Instead, House Republicans should use that leverage to extract at least $800 billion of across the board cuts, bringing the budget to 2007 spending levels of $2.7 trillion. Then if lawmakers wished to keep entitlement and defense spending where they currently are, they would have to find about another $200 billion of cuts or so to make from the discretionary budget. And then after that, keep cutting until the budget is balanced, no more debt needs to be contracted, and the debt can finally begin to be paid off.

    The way to begin to do that is to attach the $800 billion of spending cuts to the debt ceiling increase legislation. That includes ending the bailouts, “stimulus”, and selling government ownership of Fannie Mae and Freddie Mac. The House will have done its job and increased the debt ceiling to help refinance current debts. Then Harry Reid and Barack Obama will have the choice to make: Accept the spending cuts or block the debt ceiling increase and default. The burden will be on them, and the blame will be on them should they fail to raise the debt limit. Those are the terms of the American people.

    The alternative is to just kick the can and raise the ceiling without any cuts or too little cuts attached, and watch as the debt becomes larger than the entire economy this year or next. As the Federal Reserve becomes the government’s top lender, printing hundreds of billions of dollars just to refinance the debt. And, as the national credit rating is eventually downgraded. The dollar will continue to sink, interest rates will have nowhere to go but up, and the ultimate collapse that occurs will be on the heads of every politician who refused to cut spending when they had the chance.

  • Earmark requests for Kansas

    The federal omnibus spending bill introduced earlier this week has now been abandoned. That’s good, because even with all the talk about earmark reform, this bill was loaded. Based on a database compiled by Taxpayers for Common Sense, I’ve compiled a list of earmarks requested for Kansas. These are requested, not passed, and their future status is unknown.

    The list is presented below. It’s illuminating to experience the breadth of earmark requests made and their justifications.

    Here’s an example of just how out of control these requests can become. A request by Senator Sam Brownback, who is soon to become Governor of Kansas, is titled “75th Street Utility Undergrounding.” It asks for $4,500,000 to convert overhead utility wires to underground on a 2.9 mile section of a major arterial street in Prairie Village, in Johnson County.

    I suppose that most cities have streets where it would be desirable to replace overhead utilities with underground. There are many advantages, not to mention aesthetic appeal. But why should one suburban Kansas City town be singled out from all others for this special treatment?

    According to an analysis by Taxpayers for Common Sense, Brownback has requested, either by himself or with another member of Congress, 61 earmarks with a cost of $125,552,000. That ranked 29th among senators.

    Kansas Requested Earmarks, Fiscal Year 2011