​The Washington Post called them President Biden’s “wins in Congress.” But Democrats shouldn’t take that victory lap yet, as the Post admits—there’s little in the so-called Inflation Reduction Act that will do anything of the sort.

Despite the Biden administration’s claims to the contrary, the U.S. is in a recession. And despite its claims that everything else is to blame for the 40-year high in inflation, the blame is on the bad policies of excessive spending, taxing, regulating, and money-printing out of Washington. And the progressive fiscal policy pursued by this administration and Democrats in Congress is only making it worse. Signing the IRA was only throwing gasoline on the raging economic fire.

In the first two quarters of 2022, the U.S. had two consecutive quarters of declining real economic output, historic declines in productivity, and rapid inflation contributing to half of companies planning to cut jobs. Every time there have been two declining quarters of real economic output since 1950, the period has been called a recession. So why should this time be different? Clearly, the economy is floundering and American families are struggling to make ends meet. No wonder, we’re all dealing with lower economic output and high inflation not seen in four decades.

The IRA will result in higher taxes, more debt, more inflation, and deeper recession at exactly the worst time for the American people. The policy solutions aren’t complicated; we must limit government and maximize liberty by reducing spending, cutting taxes, removing regulations, and tightening the money supply. The policy mistakes in Washington over the last year prove that rules-based policies that rein in the failures of government are needed now maybe more than ever.

Originally posted at TPPF.

​The shutdown recession from February to April 2020 and subsequent government failures have caused substantial harm to Americans’ livelihoods, which include high inflation and a recession. One policy mistake was Congress adding more than $6.1 trillion in deficit spending since January 2020 to reach the new high of $30.6 trillion in national debt, or nearly $244,000 owed per taxpayer. Another mistake is the Federal Reserve monetizing much of the new debt, contributing to 40-year-high inflation rates. These bad policies have resulted in an inflated boom that is busting into what will likely be a long, deep recession with elevated inflation. The failed Keynesian policies out of the Biden administration, Congress, and the Fed must be replaced with a free-market approach so that Americans have more opportunities to prosper.

Published at TPPF

A nation emerging from a significant pandemic and an economic downturn awaited President Joe Biden in early 2021. President Warren G. Harding inherited a similar situation after winning the 1920 election in a landslide. But Harding overcame it by getting government out of the way. The economy recovered quickly—whereas Biden enacted bad progressive policies that have resulted in a double-dip recession with 40-year high inflation.

Biden should learn from Harding and his successor President Calvin Coolidge to correct government failures and allow markets to heal so that we can enjoy abundant economic prosperity again.

In the aftermath of the Great War, the U.S. suffered a severe economic downturn. The late economist Milton Friedman described this as one of the most “severe on record.” The depression of 1920-1921 is often forgotten because it was short-lived, but it offers policy lessons that can be applied to our current situation.

Prior to and during the Great War, President Woodrow Wilson led a massive expansion of the federal government, which included the creation of the Federal Reserve and personal income tax system. After the war, markets corrected from those government failures throughout the economy triggering a steep economic downturn.

The business and agriculture sectors were hit particularly hard by the depression of 1920-1921, which led to bankruptcies and farm foreclosures. Unemployment was estimated to be about 12% and the nation was hit buffered from deflation. Americans were hurting.

During the presidential campaign of 1920, then-Sen. Warren G. Harding pledged a “return to normalcy” against Wilson’s progressivism. During the campaign, Harding argued that the nation needed to return to sound money, less spending, lower taxes, less debt, and limited government.

This was the fiscal policy blueprint of the “normalcy” agenda. Harding understood that to revive business confidence and lower high income tax burdens, the federal government must get its fiscal house in order.

In 1921, Congress passed the Budget and Accounting Act, which under the leadership of Bureau of the Budget Director Charles Dawes and later his successor, Herbert Lord, worked to reduce federal spending. Dawes would compare the task of cutting spending to having a “toothpick with which to tunnel Pike’s Peak.”

Harding also understood that to lower the high tax rate, spending had to be addressed first. “The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding.

Reducing spending was not easy.

As an example, Harding vetoed a popular bonus for veterans of the Great War. Overall, Harding’s commitment to economy in government resulted in an estimated 50% reduction in federal spending. Harding also relied on Secretary of the Treasury Andrew Mellon, who also shared his views regarding limiting spending.

Mellon would serve as the lead architect for Harding’s tax reform policies. The top income tax rate was over 70% and Mellon’s goal was to lower the rate. Through a series of tax reforms, the high rate would eventually be cut to 25% during the Coolidge administration.

Harding and Coolidge’s fiscal conservatism of lowering spending and tax rates and paying down the national debt resulted in a quick economic recovery. The Federal Reserve also tightened the money supply. The historian Paul Johnson wrote “Harding had done nothing except cut government expenditure, the last time a major industrial power treated a recession by classic laissez-faire methods…”

After the death of Harding in August 1923, Coolidge continued and strengthened the economic policies of Harding. President Coolidge, along with Secretary Mellon, continued to lower spending and tax rates. The federal budget was $3.14 billion in 1923. By 1928, when Coolidge left, the budget was $2.96 billion.

Altogether, spending and taxes were cut in about half during the 1920s, leading to faster real economic growth and productivity that contributed to budget surpluses throughout the decade. The decade had started in depression and by 1923 the national economy was booming with low unemployment.

And that continued throughout much of the decade. This would have continued but government expanded again. In particular, the Hoover administration ran deficits and raised taxes and the Federal Reserve had too loose and then too tight money supply. This led to the Great Depression—a phenomenon that was avoidable and was exacerbated by President Roosevelt’s large expansion of government.

It’s unlikely that President Biden will follow the pro-growth economic policies of Harding and Coolidge, nor will the Fed tighten the money supply enough to reduce inflation.

Published at Real Clear Policy with John Hendrickson

Everyone is feeling the pinch at the supermarket these days, as inflation—measured by the decline in the purchasing power of money for a basket of goods and services—recently hit a 40-year high. From eggs to milk, it is getting harder to bring home the bacon. Nowhere has that been more visible than in the prices for beef.

While inflation has contributed to the increase in the price of beef, the scary truth is there is a more nefarious reason for this: excess regulation.

The beef industry can be categorized into three sectors: cow-calf, stockyard, and slaughterhouse operations. Slaughterhouses have long been allowed to operate in what’s considered an oligopoly, as they’re heavily regulated by the United States Department of Agriculture (USDA) and Federal Drug Administration (FDA).

A century ago, the Packers and Stockyards Act aimed to fix what was considered to be a market failure. It broke up the five major slaughterhouses controlling the beef industry. Yet today, only four slaughterhouses control 80% to 85% of America’s beef.

Now, the Senate Agriculture Committee has passed two bills that aim to do that exact thing the Packers and Stockyards Act was supposed to do. That begs the obvious question: Is more regulation really the answer to this bloody mess?

The proposed legislation of the Cattle Price Discovery and Transparency Act would require slaughterhouses to buy more cattle on the cash market. And the Meat and Poultry Special Investigator Act would require the USDA to investigate and prosecute anti-competitive practices.

Cow-calf producers and stockyards are margin operators in one of the most complex markets in the world, and often fall victim to unpredictable forces like fluctuating demand, adverse weather, and disease. Of course, there are inherent risks in every market, and participants accept those risks.

The issue here is these operators can appear to be unfairly squeezed by slaughterhouses that seem to be manipulating prices. These practices include utilizing market strategies such as forward contracting and retaining ownership.

Forward contracting allows buyers and sellers to complete transactions months in advance to price in risk of the cash market. This strategy was intended to be a risk management tool for producers, giving them better control over their profit margins.

Secondly, slaughterhouses have taken advantage of the “retained ownership” principle by purchasing their own stockyard inventory. Cattle in stockyards are typically owned outright by the yard or owned by cow-calf producers that retain ownership and pay on a per-head or per-day rate.

So, in the event of unforeseen demand changes like, perhaps, a pandemic, inflation, drought, or mysterious cattle deaths, slaughterhouses can pull up their own inventory and mitigate any cost of buying cattle ready to be slaughtered at the cash market value.

Put plainly, the new legislation would limit slaughterhouse’s ability to slaughter cattle they own in hopes of forcing them to offer producers higher prices. But this can only go so far. And likewise, there’s only so much regulation that can be implemented to correct issues created by overregulation.

Threatening prosecution for market manipulation violations doesn’t break up the oligopolies because it addresses the wrong problem. Instead of trying to impose regulations to attempt to remedy the power disparity, eliminating the regulations that create barriers to entry in the first place would break up packer conglomerates naturally.

In short, the answer to eliminating unfair pricing schemes does not lie in implementing additional regulations to an already heavily regulated industry.

According to a 2022 report by the USDA, 900 slaughterhouses are federally inspected and 1,900 plants are not. The non-federally inspected plants that meet their states’ inspection standards can only sell or transport beef intrastate, barring them from being in direct competition with the Big Four. State inspections are required to meet criteria “at least equal to” federally inspected facilities.

One solution is to add competition by deregulating the inspection requirements, which would result in more competitors for the slaughterhouses, helping achieve what as the two proposed bills aim to do through market forces instead of government regulation. Continued regulation of a market at this level is identical to how many experts believe India and many African countries fell into complete food dependence on their government.

Congress’s signaled sympathy for cattlemen the past three years is probably all in vain—especially considering its legislation created the problem in the first place. Most importantly, consumers are about to feel even more pain at the meat counter come this fall.

Without substantial deregulation of the beef industry, sly slaughterhouse owners and confused senators may enjoy their prime rib dinner, while the rest of us settle for chicken—or worse, “plant-based proteins.”

Published at TPPF with Livia Lavender 

While a stagnating economy with high inflation is what economists usually call stagflation, the current situation is worse, as the real economy is declining. So there’s much less to go around for everyone—making us poorer in the process.

This inflation-recession could be resolved by Washington reversing course, but President Joe Biden and Democrats in Congress are doing the opposite. Their new bill, called the “Inflation Reduction Act” (IRA), will spend more, raise taxes, increase debt, and contribute to more inflation, resulting in a deeper recession.

The IRA includes estimated hikes in taxes with a new 15% corporate minimum tax rate, 87,000 new Internal Revenue Service (IRS) agents to audit more taxpayers, and new closure of “carried interest loophole.” These are each bad policies, but especially during a recession. These add up to an estimated tax hike of about $730 billion compared with current policy over the next 10 years.

The main tax hike is the new alternative minimum tax (AMT) of 15% on book income for corporations with net income exceeding $1 billion. This proposal has a rosy revenue projection of $313 billion. But businesses don’t pay taxes; they just submit them. People pay them, through higher costs, lower wages, and fewer jobs. The dynamic effects will result in less tax revenue collected from this hike.

According to a recent study by the Tax Foundation, this tax hike alone would contribute to killing 23,000 jobs, a 0.1% cut in wages, and 0.1% less in economic output. If we consider other provisions like the tax hikes on carried interest and reinstatement of the federal Superfund program, the total number of jobs killed is 30,000 with every income group having a reduction in after-tax income.

Clearly, this wouldn’t reduce inflation or help the economy recover. But there’s more.

While the IRA is aimed at taxing the rich and corporations more, the Congressional Joint Committee on Taxation finds that every income group except those with income between $10,000 to $20,000 per year would face a higher average tax rate. This would mean President Biden’s pledge to not tax anyone earning less than $400,000 per year would be broken, with about half of the burden falling on those earning less than $200,000 per year.

And the $80 billion in additional funding for 87,000 new IRS agents to increase tax enforcement and compliance is expected to bring in a phony amount of about $200 billion over a decade. But this will just increase more bureaucracy in an already overly bureaucratic federal government that will make Americans’ lives worse as they put more costs on taxpayers. Specifically, there could be 1.2 million more individual audits per year, and you can bet when the IRS doesn’t increase tax collections from legal tax returns they will come after every tax group, not just those making more than $400,000 per year.

On the spending side, the IRA provides tax incentives and subsidies for unreliable wind and solar energy, an expansion of Obamacare subsidies until 2025, and other expenditures to the tune of about $430 billion. Using these rosy assumptions, there is a projected deficit reduction of $300 billion over 10 years.

However, more conservative estimates suggest that the IRA will have less deficit reduction and will likely increase the deficit.

The Tax Foundation, Penn Wharton Budget Model (PWBM), and Congressional Budget Office (CBO) calculate a $178 billion, $247.8 billion, and $101.5 billion in deficit reduction over the next decade, respectively. But assuming the Obamacare subsidies are extended over the full 10-year period for an apples-to-apples comparison, the PWBM estimates that would bring that deficit reduction down by $158.9 billion to just $88.9 billion over the decade, which is the same amount of the deficit in just June 2022.

But recall that these estimates are compared with current policy assumptions over the next decade, which already have massive deficits because of reckless spending, so the IRA will most likely make the deficit worse.

Spending will be permanent and is on the front end of the bill, while taxes will likely be temporary and are more on the back end—so the deficit will be higher in the first few years, which will give the Federal Reserve more debt to purchase thereby creating more inflation.

And the higher taxes, more debt, and more inflation will stifle economic growth so a deeper recession will result.

The IRA does the opposite of what the name implies. This is now too common with Democrats in Congress as they like to keep redefining things that don’t match their narrative. They should instead name this bill the “Inflation Recession Act” because we will get more of both.

This far-left agenda must be rejected. Kill the bill.

Published at TPPF with Daniel Sanchez-Pinol