What REALLY Happens in the White House, Need Tax & Spending Reforms & More w Paul Winfree | Ep. 455/23/2023 Today, I'm honored to be joined by economist and trusted public policy adviser Paul Winfree, who has served in top management and policy roles in the White House, U.S. Senate, and think tanks. We discuss:
Paul Winfree is an economist and a trusted public policy advisor. He has served in top management and policy roles in the White House, the US Senate, and in think tanks.
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This Week's Economy Ep 9 | New Debt Ceiling Bill, Importance of Reducing Taxes, Gov. Spending & More5/19/2023 Don't miss the 9th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country. Today I cover: 1) National: Breaking down the latest debt ceiling bill and the importance of restraining government spending for helping the economy to bounce back; 2) States: How states are setting an example of better spending habits with responsible budgeting and taxation in states like Florida and Iowa; and 3) Recession: Why I believe next year's data will show that we are in a recession that is set to deepen due to ongoing stagflation, and more. You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!).
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter on Substack (vanceginn.substack.com/). President Calvin Coolidge regarded “a good budget as among the most noblest monuments of virtue.” Government spending is at the heart of sound public policy. President Coolidge understood the importance of economy in government in order to achieve sound public policy. President Coolidge’s fiscal conservatism is being exemplified at the state level by Iowa Gov. Kim Reynolds, who is making fiscal conservatism a priority resulting in benefits to Iowans. Gov. Reynolds, just as with Coolidge, understands that prudent budgeting is a virtue.
Despite the national economic malaise from high inflation and stagnant growth, Iowa’s fiscal foundation was strong heading into the 2023 legislative session. Last year, Gov. Reynolds and the Iowa Legislature continued to place a priority on prudent budgeting. The general funds budget for fiscal year 2023 was $8.2 billion, increasing by just 1 percent from the prior year. This session the legislature enacted an $8.5 billion budget for fiscal year 2024, which is a 3.6 percent increase from the previous year’s budget. This holds the budget well below the Conservative Iowa Budget, which set a cap on the budget of $8.8 billion based on the maximum rate of population growth plus inflation of 7.4 percent. In other words, taxpayers benefit from the budget growing well below the growth of the economy, allowing more money in the productive private sector. In January, Gov. Reynolds proposed an $8.48 billion budget, which reflected her priorities including funding the Students First Act, which created a universal Education Savings Account program. After budget negotiations between the House and Senate, the Legislature passed a budget that was a slight increase from the governor’s original proposal. The $8.5 billion budget spends only 88.25 percent of projected tax collections. Since 2018, Gov. Reynolds and the Legislature have placed an emphasis on passing tax reforms and restraining the growth of spending. This approach has left more money in taxpayers’ pockets with a substantial tax relief package headed toward a low flat tax by 2026. What too many people overlook is that significant tax cuts like Iowa’s are only made possible by years of prudent and conservative budgeting. Without spending restraint, any tax relief, regardless of the tax, becomes impossible. The evidence is clear that prudent budgeting is paying off for Iowans. Iowa’s budget continues to be in surplus. The surplus for fiscal year 2023 is projected to be $1.7 billion and the current estimated surplus for fiscal year 2024 is projected to be $2 billion. In addition, Iowa’s reserve accounts (Cash Reserve Fund and the Economic Emergency Fund) will continue to be funded at their statutory limits with a combined balance of over $961 million. The Taxpayer Relief Fund will also continue to increase. The balance in the Taxpayer Relief Fund for fiscal year 2023 is $2.7 billion and this is estimated to increase to $3.5 billion in fiscal year 2024. Both Gov. Reynolds and legislative leaders have signaled that further income tax reform will be a priority for the 2024 legislative session. The Taxpayer Relief Fund, which was originally created for the purpose of income tax relief, will be instrumental in further income tax rate reductions. Iowa Senate Republicans introduced an income tax reform proposal this past session that if enacted would have sped up the income tax rate cuts and used the Taxpayer Relief Fund to phase-out the income tax altogether. In addition to restraining spending, Gov. Reynolds also made some important reforms that will impact future state spending. One of her major priorities was to reform state government. Gov. Reynold’s state government reform measure consolidates and makes government more efficient. Currently, Iowa has 37 executive branch cabinet agencies – more than all neighboring states. The governor’s proposal will reduce the number of executive-level agencies to 16, streamlining and cutting bloated bureaucracy while saving taxpayer dollars. It is estimated that this plan will save taxpayers over $214 million over four years. This was the first major reform of Iowa’s bureaucracy in nearly 40 years. Further, Reynolds issued an executive order at the beginning of the legislative session that requires an extensive review process of Iowa’s regulatory code. Both reforming Iowa’s bureaucracy and reducing burdensome regulations are essential in the path to sustaining limited spending. In its Fiscal Policy Report Card on America’s Governors 2022, the Cato Institute ranked Gov. Reynolds as the best governor. “Governor Reynolds has been a lean budgeter and dedicated tax reformer since entering into office in 2017,” wrote Chris Edwards and Ilana Blumsack, authors of the report. This year, Gov. Reynolds and the Legislature are continuing this trend. Iowa is at the forefront of conservative budgeting that other states and the federal government should follow. Originally published at The Center Square and co-authored with John Hendrickson at Iowans for Tax Relief Foundation. The U.S. dollar will likely soon lose its status as the global reserve currency. The dollar’s global reserve dominance has declined in recent years. As a result, international trade partners are hedging new connections. This will restructure the global economic order and create challenges ahead, especially for middle-class Americans.
Americans should know what’s happening and how they can prepare for this possibility. But first, what does it mean to be the world’s global reserve currency, and why does it matter? The U.S. Dollar is the dominant global reserve currency. It’s widely accepted and is the preferred medium of exchange for international transactions. The dollar has enjoyed this status for the past 80 years due to its strong reputation acquired across a long history of America’s rising military prowess, fulfilling its financial obligations, and maintaining a strong economy. These institutional foundations of the dollar created high demand among foreign entities. One of the most important transactions utilizing the dollar is the purchase of oil. Oil is currently priced in dollars globally and other dollar-denominated assets. Losing or weakening the dollar’s position and value results in higher oil prices. The dollar’s elevated demand has helped keep its value high relative to other currencies. This prompted many countries to tie their currency directly to our dollar. The U.S. benefited by leveraging foreign demand for dollars into loans to the U.S. federal government. Foreign investors lend the U.S. high volumes of money because of the debt’s dollar denomination. The higher demand for U.S. Treasury securities pushes down domestic interest rates. This influences lower rates on mortgages and business loans, which help provide increased investment and economic growth. Losing or weakening the dollar’s reserve position will result in increased interest rates, decreased investment, and weak to negative economic growth. The dollar’s reserve status has also meant an increased volume of international trade. Ultimately, international trade helps keep interest rates and inflation moderately low. Losing or weakening the dollar’s reserve position will result in increased inflation. Trouble for the dollar is on the horizon. The once-givens about the dollar have come into question recently due prominently to excessive deficit spending. Foreign investors are reducing their demand for dollars as they diversify their portfolios. This combination contributed to the ballooning of the debt, depreciated the dollar, led to higher inflation and falling year-over-year real average weekly earnings for 25 straight months, and drove up interest rates, thereby slowing economic activity. Of course, this will have tradeoffs and many of them won’t be good. As mentioned, the major tradeoffs will be higher inflation and interest rates. The latter will trigger a move by the Federal Reserve to attempt to lower interest rates. But if its target rate is held below what markets dictate, the Fed will monetize the debt, increase the money supply, and drive inflation higher. The long-term result will be even higher interest rates to tame inflation. Unfortunately, the consequences of higher interest rates and inflation would be severe. People should expect higher mortgage rates than the already rising average rate of 6.4%. This is the highest in 15 years. Ultimately, higher interest rates would result in a steeper contraction in the housing market, exacerbate economic weakness, increase job losses, and worsen poverty. But maybe more importantly, it would likely crush middle-class Americans and the lifestyle that they’ve been accustomed to having for decades. The higher cost of shelter, food, gasoline, and energy as the dollar loses its reserve currency status would wreck havoc on their budgets and force major decisions about what’s best for their families. This could mean having to put off saving for college, going on vacations, and living in much smaller homes. All because our government couldn’t spend our money wisely. Therefore, the government should take serious steps to restore confidence in the dollar before a bad situation for Americans becomes worse or irreconcilable. To start, the federal government should reduce deficit spending. The long-term goal should be a balanced budget and an eventual start to paying down the debt. This will be pro-growth as the government stops redistributing taxpayer money from productive to unproductive activities. It will also strengthen the fiscal and economic situation of the U.S. The result will be an improvement in foreigners’ outlook on the dollar that would help preserve the dollar’s status. Dollar-focused policies should be tied to reducing the money in circulation. This should occur as the Federal Reserve reduces its balance sheet. Doing so tames inflationary pressures and could even result in some disinflation. This would allow the hard-earned dollars of Americans to go further than they do today. These policy improvements should be put into law with fiscal and monetary policy rules. The rules should remove the discretion of big-government spenders and printers. This would enable people’s livelihoods to get back on track and improve for generations. The potential loss of the dollar’s reserve currency status could have significant economic consequences, and there are even more than highlighted here. There is, however, reason for optimism: The U.S. economy is resilient and adapts well to challenges. But will those in D.C. allow for that to happen in the dynamic marketplace? Time will tell. But let’s hope so before it’s too late for middle-class Americans and everyone else to have the opportunity to fulfill their hopes and dreams. Originally published at The Daily Caller with Chuck Beauchamp, Ph.D. Key Point: The best way to let people prosper is free-market capitalism. Unfortunately, government has created a situation where inflation-adjusted average weekly earnings are down year-over-year for 25 straight months and economic growth is anemic. Overview: Government failures drove the “shutdown recession” and stagflationary period over the last three years that has plagued Americans, with more banking problems to come. This is fueled by the debt ceiling fight and elevated inflation that has also rocked the U.S. dollar. The answer are pro-growth policies of less spending by Congress, less regulation by the Biden administration, and less money printing by the Fed. Labor Market: The Bureau of Labor Statistic recently released its U.S. jobs report for April 2023, which was another mixed report with some strengths but many weaknesses. The establishment survey is the most reported shows there were +253,000 (+2.6%) net nonfarm jobs added in April to 155.7 million employees, which has increased by +4.0 million over the last year but just +3.3 million since February 2020. However, there were cumulative revisions in the prior two months of 149,000, so on net for that reduced the net increase to just +104,000 jobs indicating a weakening labor market. Over the last month, there were +230,000 jobs (+2.7%) added in the private sector and +23,000 jobs (+2.1%) added in the government sector. Most of the private sector jobs were added in the sectors of private education and health services (+77,000), professional and business services (+43,000), and leisure and hospitality (+31,000), which these three also led over the last 12 months. But wholesale trade lost -2,200 jobs last month while no industry had job losses over the last year. The household survey increased by +139,000 jobs to 161.0 million employed in April. There have been declines in net employment in four of the last 13 months for a total increase of +3 million since April 2022 and +2.3 million since February 2020, which both are 1 million below the jobs reported in the establishment survey. This could be because of reporting issues or the number of jobs each person has in the market. The official U3 unemployment rate ticked down to 3.4% and the broader U6 underutilization rate fell to 6.6%, which both are near or at historic lows. Since February 2020, the prime-age (25-54 years old) employment-population ratio is up by 0.3pp to 80.8%, prime-age labor force participation rate was 0.3-percentage point higher at 83.3%, and the total labor-force participation rate was 0.7-percentage-point lower at 62.6% with millions of people out of the labor force holding the U3 rate artificially low. Given some improvements, challenges remain for Americans as inflation-adjusted average weekly earnings were down (-1.1%) over the last year for the 25th straight month. Economic Growth: The U.S. Bureau of Economic Analysis’ recently released the 1st estimate for economic output for Q1:2023. Table 1 provides data over time for real total gross domestic product (GDP), measured in chained 2012 dollars, and real private GDP, which excludes government consumption expenditures and gross investment. Most of the estimates for Q4:2022 and growth in 2022 have been revised lower, providing more evidence that 2022 was a very weak economy if not a recession. Economic activity has had booms and busts since the government-imposed COVID-related restrictions in response to the pandemic and poor fiscal and monetary policies that severely hurt people’s ability to exchange and work. In 2022, the first two quarters had declines in real total (and private) GDP, providing a reason to date recessions every time since at least 1950. While the second half of 2022 looked better, those two quarters were influenced by net exports and inventories that would have made the economy much weaker. For 2022, real total GDP growth is reported +2.1% year-over-year but measured by Q4-over-Q4 the growth rate was only +0.9%, which was the slowest Q4-over-Q4 growth during a recover on record. Then the anemic growth of just +1.1% in Q1:2023 provides more reason that this is an extended recession or at least stagflation. The Atlanta Fed’s early GDPNow projection on May 8, 2023 for real total GDP growth in Q2:2023 was +2.7% based on the latest data available, but this rate has been lowered in recent quarters. Considering the last expansion from June 2009 to February 2020, there was slower real private GDP growth in the latter part of that period due to higher deficit-spending, contributing to crowding-out of the productive private sector. Congress’ excessive spending since February 2020 led to a massive increase in the national debt by nearly +$7.6 trillion that would have led to higher market interest rates. This is yet another example of how there is always an excessive government spending problem as noted in Figure 2 with federal spending and tax receipts as a share of GDP no matter if there are higher or lower tax rates. But the Fed monetized much of the new debt to keep interest rates artificially lower thereby creating higher inflation as there has been too much money chasing too few goods and services as production has been overregulated and overtaxed and workers have been given too many handouts. The Fed’s balance sheet exploded from about $4 trillion, when it was already bloated after the Great Recession, to nearly $9 trillion and is down only about 5.2% to $8.5 trillion since the record high in April 2022 after rising nearly $400 billion in March 2023 then down $200 billion since then. The Fed will need to cut its balance sheet (total assets over time) more aggressively if it is to stop manipulating markets (see this for types of assets on its balance sheet) and persistently tame inflation, as we may need deflation which hasn’t happened since 2009 given the rampant inflation over the last two years. The current annual inflation rate of the consumer price index (CPI) has been cooling since a peak of +9.1% in June 2022 but remains elevated at +4.9% in April 2023, which remains the highest since 2008 as do other key measures of inflation. After adjusting total earnings in the private sector for CPI inflation, real total earnings are up by only +2.6% since February 2020 as the shutdown recession took a huge hit on total earnings and then higher inflation hindered increased purchasing power. Just as inflation is always and everywhere a monetary phenomenon, deficits and taxes are always and everywhere a spending problem. David Boaz at Cato Institute notes how this problem is from both Republicans and Democrats. In order to get control of this fiscal crisis which is contributing to a monetary crisis, the U.S. needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on the rate of population growth plus inflation. If Congress had followed this approach from 2003 to 2022, the figure below shows tax receipts, spending, and spending adjusted for only population growth plus chained-CPI inflation. Instead of an (updated) $19.0 trillion national debt increase, there could have been only a $500 billion debt increase for a $18.5 trillion swing in a positive direction that would have substantially reduced the cost of this debt to Americans. The Republican Study Committee recently noted the strength of this type of fiscal rule in its FY 2023 “Blueprint to Save America.” And to top this off, the Federal Reserve should follow a monetary rule so that the costly discretion stops creating booms and busts. Bottom Line: Stagflation will continue with the a deeper recession this year given the “zombie economy” and the unraveling of the banking sector which will hit main street hard. Instead of passing massive spending bills, the path forward should include pro-growth policies that shrink government rather than big-government, progressive policies. It’s time for limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty. There is some optimism with the House Republicans debt ceiling bill package, but it’s got an uphill battle to become law with Democrats in the Senate and White House so more must be done.
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This Week's Economy Ep. 8 | TRUTH On Inflation, U.S. Dollar, Debt Ceiling, Texas & Louisiana Policy5/12/2023 Thank you for checking out the 8th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country. Subscribe to receive new posts and support my work. Today I cover:
1) National: Breaking down the latest report on CPI inflation and how it relates to real average weekly earnings, what’s going on with the debt ceiling debate, and why the Fed should continue to raise its interest rate target and cut its balance sheet; 2) States: ALEC's newest "Rich States, Poor States" report findings related to where Texas stands in comparison with Utah and Florida, what the legislatures are doing late in the sessions of Texas (here), Louisiana (LA jobs report and tax relief), and elsewhere; and 3) Other: New findings on the importance of work-life balance, the value of the U.S. dollar, and more. You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!). For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, continue to check out my website (https://www.vanceginn.com/) and please subscribe to my Substack newsletter (https://vanceginn.substack.com). House Republicans have proposed a bill that would increase the debt ceiling but cut government spending. Biden has refused to negotiate the terms of the bill because of these cuts. Now U.S. Treasury Secretary Janet Yellen says the 14th Amendment could be invoked to declare the debt ceiling unconstitutional. This would enable the United States to avoid default but would lead to what Yellen calls a “constitutional crisis.” NTD spoke with Vance Ginn, senior fellow at Americans for Tax Reform, to learn more about the issue.
Watch interview with NTD News here. With weeks left in the Texas Legislature’s 88th regular session, state lawmakers are working to enact the largest tax cut in the history of the nation’s second most populous state. In addition to billions of dollars worth of property tax relief, state legislators are moving to enact a number of innovative reforms before adjourning. Texas should unite to push these measures across the finish line.
Gov. Greg Abbott and leadership in the Texas House and Senate all want to pass a massive property tax relief bill but differ over the best approach. The Senate would like to raise the homestead exemption. The House, however, would rather cut the appraisal cap in half, taking it from 10% to 5%, and put more money toward rate compression than is called for by the Senate plan. Disagreements over these key details threaten to squelch planned relief. Lawmakers should work out a deal before the session ends. “Texas has a historic opportunity to provide much-needed property tax relief with nearly $33 billion in surplus for the current biennium plus extra taxpayer money available in the upcoming biennium, which should be returned to taxpayers,” noted Texas-based economist Vance Ginn, a senior fellow at Americans for Tax Reform. In addition to reducing property tax payments in a state that is home to the nation’s sixth highest average property tax burden, Texas lawmakers are also taking action to reduce regulatory costs. The House passed House Bill 2127 by a 92-55 vote on April 19. HB 2127, introduced by Rep. Dustin Burrows, R-Lubbock, and Sen. Brandon Creighton, R-Conroe, prohibits local governments from regulating products, activities, or industries in a manner that exceeds or conflicts with state law. Proponents of HB 2127, such as the National Federation of Independent Business, which represents small businesses, say it will rectify the patchwork of regulations that currently exist in Texas, which is making it more difficult for a business to operate and create jobs. “There are dozens of reasons why Texas is the best state in the country for business, but its convoluted, unpredictable, and inconsistent patchwork regulatory system is not one of them,” said James Quintero, policy director at the Texas Public Policy Foundation. Quintero says HB 2127 “brings some much-needed common sense to the system, unifying the rules for conducting business in a predictable, reliable, and efficient way to promote compliance.” Lastly, Texas lawmakers have the opportunity to make Texas the first state to ban taxpayer-funded lobbying by enacting Senate Bill 175. SB 175, introduced by Sen. Mayes Middleton, R-Galveston, would bar local governments and other political subdivisions from using taxpayer funds to hire contract lobbyists. Supporters of SB 175 note that contract lobbyists hired with taxpayer dollars frequently work against the interests of taxpayers. In previous sessions, for example, taxpayer-funded lobbyists have worked to kill property tax relief and block reforms that would have government spending grow at a more sustainable clip. This resistance to conservative priorities continues to this day, with taxpayer dollars currently being spent to lobby against Education Savings Accounts. That is why many view SB 175 as a root reform that will beget many other pro-growth reforms. Proponents of SB 175 believe it will help facilitate the future passage of tax relief, ESAs, greater spending restraint, and other pro-taxpayer reforms. As we saw with the criminal justice reform movement that started in Texas and has since swept the nation, enactment of a given reform in Texas makes it easier to pass that same proposal in other states. That’s because lawmakers in many state capitals look to Texas as a model for sound governance. As such, while passage of the aforementioned reforms would benefit Texans, their enactment will also have a positive effect nationally. Hopefully Texas lawmakers can capitalize on these opportunities before them in the remaining weeks of session and send these groundbreaking reforms to the desk of Abbott, who has made clear he wants to sign them. Grover Norquist is president of Americans for Tax Reform. He wrote this for The Dallas Morning News. Originally published at Dallas Morning News. This Week's Economy Ep. 6: NEW GDP Report, Debt Ceiling Bill, School Choice & State Budgets4/28/2023 In today's episode of "This Week's Economy," I discuss the latest GDP report, the House Republicans passing a new debt ceiling bill, School Choice, state budgets, social media bans, and more. Thank you for listening to the 6th episode of "This Week's Economy,” where I briefly share my insights every Friday morning on key economic and policy news at the U.S. and state levels.
Today, I cover: 1) National: Findings from the latest GDP report released yesterday (April 27th) and the debt ceiling bill passed by House Republicans; 2) States: Updates on Universal School Choice and budgets across states, especially Texas and Louisiana; and 3) Other: Bills circulating on restricting social media, and more. You can watch this episode on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating). For show notes, thoughtful economic insights, media interviews, speeches, blog posts, research, and more at my Substack directly in your inbox. Budgeting responsibly is key to Louisiana’s Comeback Agenda, and Pelican’s Chief Economist, Dr. Vance Ginn, has released a plan to rein-in state spending. Check out the proposed Responsible Louisiana Budget, below. This plan gives Louisiana a competitive advantage and is similar to those used in other states, like Texas and Florida, limiting the amount of funding appropriated at the beginning of each fiscal year, which has made lower taxes possible. Originally posted at Pelican Institute. Louisiana doesn’t exist in a vacuum, and neither does opportunity. When it comes to the harsh reality of attracting entrepreneurs, creating new jobs and keeping our kids and grandkids home, Louisiana must reckon with the reality that we’re competing against other states in a national — and global — race for a brighter future.
That’s why Louisiana’s economic environment matters, and why eliminating the state’s income tax is so critical — no matter how difficult it might be — before more employers and families flee our state. Naysayers try to shoot down reforms with scare tactics, as if it’s a zero-sum game in which tax cuts and a strong state can’t coexist. That’s why taking a holistic view of the state’s tax and budget policies is necessary. Eliminating the state’s income tax doesn’t have to mean massive cuts or a big tax swap. The Pelican Institute has proposed a plan to flatten personal income taxes, phase them out using extra taxpayer dollars collected above a stronger spending limit and budget responsibly to meet the needs of the state. When we’re talking about taxes, don’t forget whose money it is. Those are hard-earned dollars that belong to Louisianans, and taxes leave them with less money in their pocket for putting food on the table, gas in their tanks and capital for starting a business. Is it any wonder that so many Louisianans leave for states where they can keep more of their money? When families gather around their kitchen table or businesses look at their balance sheets, take-home pay makes a difference. That’s why Louisiana should phase out income taxes as soon as possible. This is fundamental to ensuring that Louisiana can compete with our neighbors, attract and retain talent and become an economic powerhouse. This is the comeback story we can write together. Originally published at The Advocate. The hearing is scheduled for today at 10 am ET at Longworth House Office Building: Hearing on the U.S. Tax Code Subsidizing Green Corporate Handouts and the Chinese Communist Party. Below is the video of the full hearing (my statement starts at time 27:30 with other comments throughout the 4-hour-long hearing). And below that is my written testimony based on this recent research on The Inflation Reduction Act's Costly New Tax Credits for Electric Vehicle Batteries and the policy brief. Louisiana’s budget at the beginning of fiscal year 2023 was $47 billion, which is an increase of 63 percent over the last decade. With a state population of 4.6 million, and shrinking, this is a spending burden of more than $10,000 per person. While nearly half of the money in the state budget comes from the federal government, Louisiana’s taxpayers are still on the hook for the total. This growth in state spending is unsustainable given the lack of growth in the state’s economy and a history of net outmigration. This report offers an overview and brief history of Louisiana’s operating and capital budgets and outlines how the state can begin to create a more responsible, sustainable budget over time that remains adaptable to the needs of citizens. Originally published at Pelican Institute. An Overview
A new report by Dr. Vance Ginn, senior fellow at The James Madison Institute and president of Ginn Economic Consulting recommends that the state continue to limit the burden of government spending. The Conservative Florida Budget (CFB) sets a maximum threshold in all funds appropriations for FY 2024 of $116.2 billion. This maximum threshold is based on the 5.5% rate of the 3-year average of population growth plus inflation over the last three years from 2020 to 2022, which reasonably represents the average taxpayer’s ability to pay for government spending. “Legislators should use the CFB as a guide this session. Given the economic headwinds from the poor fiscal and monetary policies out of D.C. contributing to elevated inflation and risks of a deep recession along with past state budget excesses, the Legislature should pass a budget well below the CFB, similar to the Governor’s budget. Doing so will ensure a conservative budget that will help keep more money in taxpayers’ pockets through larger tax relief, so families and entrepreneurs have the most opportunities to flourish.” — Dr. Vance Ginn, Senior Fellow, The James Madison Institute; President, Ginn Economic Consulting. Originally published by James Madison Institute. Overview
Key Point: Average weekly earnings adjusted for inflation are now down for 23 straight months year-over-year as inflation keeps roaring. But there’s hope if we give free-market capitalism a chance to let people prosper. Overview: The government failures that drove the “shutdown recession,” high inflation, and weak economic growth over the last three years continue to plague Americans. This includes excessive federal spending leading to massive cumulative deficit spending of $7.6 trillion since January 2020 to reach $31.6 trillion in national debt—about $250,000 owed per taxpayer. This has created a fight between the Biden administration and House Republicans over the debt ceiling, as raising it must come with spending restraint. And more inflation is on the horizon as the Federal Reserve recently increased its balance sheet and the government creates rampant moral hazard by insuring what appears to be all deposits at big banks. The solution to these problems are pro-growth policies of shrinking government back to its constitutional roles. Labor Market: The Bureau of Labor Statistic recently released its U.S. jobs report for February 2023. After substantial revisions in the previous report which likely indicate bias in these data for a while, there were some signs of strength while others suggest weakness. The establishment survey shows there were +311,000 (+2.9%) net nonfarm jobs added in February to 155.4 million employees, with +265,000 (+3.0%) added in the private sector and +46,000 (+1.9%) jobs added in the government sector. Most of the private sector jobs were added in the sectors of leisure and hospitality (+105,000), private education and health services (+74,000), and retail trade (+50,100), which the first two sectors also led over the last 12 months; information (-25,000), manufacturing (-4,000), utilities (-1,100), and financial activities (-1,000) had net job declines last month and only retail trade (-2,300) declined over the last year. The household survey had another increase of +177,000 jobs to 160.3 million employed. There have been declines in net jobs in four of the last 11 months for a total increase of +2 million since March 2022, which is about half of the +3.9 million net jobs per the establishment survey. The official U3 unemployment rate rose to 3.6% and the broader U6 underutilization rate rose to 6.8%. Since February 2020 before the shutdown recession, the prime age (25-54 years old) employment-population ratio is flat at 80.5%, prime-age labor force participation rate was 0.1-percentage point higher at 83.1%, and the total labor-force participation rate was 0.8-percentage-point lower at 62.5%with millions of people out of the labor force thereby holding the U3 unemployment rate artificially low But challenges remain for Americans as inflation-adjusted average weekly earnings were down -1.9% over the last year for the 23rd straight month. Economic Growth: The U.S. Bureau of Economic Analysis’ recently released the 2nd estimate for economic output for Q4:2022. The following table provides data over time for real total gross domestic product (GDP), measured in chained 2012 dollars, and real private GDP, which excludes government consumption expenditures and gross investment. And most of the estimates for Q4:2022 and growth in 2022 were revised lower, providing more evidence that 2022 was a very weak year if not a recession. Economic activity has had booms and busts thereafter because of inappropriately imposed government COVID-related restrictions in response to the pandemic and poor fiscal policies that severely hurt people’s ability to exchange and work. Since 2021, the growth in nominal total GDP, measured in current dollars, was dominated by inflation, which distorts economic activity. The GDP implicit price deflator was +6.1% for Q4-over-Q4 2021, representing half of the +12.2% increase in nominal total GDP. This inflation measure was +9.1% in Q2:2022—the highest since Q1:1981—for a +8.5% increase in nominal total GDP that quarter. This made two consecutive declines in real total (and private) GDP, providing a criterion to date recessions every time since at least 1950. In Q3:2022, nominal total GDP was +7.6% and GDP inflation was +4.4% for the +3.2% increase in real total GDP. But if inflation had been as high as it was in the prior two quarters or had the contribution of net exports of goods and services (driven by natural gas exports to Europe) not been 2.9%, real total GDP would have either declined or been essentially flat for a third straight quarter. In Q4:2022, there was a similar story of weakness as nominal total GDP was +6.6% and GDP inflation was +3.9% for the +2.7% increase in real total GDP. But if you consider the +2.7% real total GDP growth was driven by contributions of volatile inventories (+1.5pp), government spending (+0.6pp), and next exports (+0.5pp) which total +2.6pp, the actual growth is quite tepid like it was in Q3:2022. For all of 2022, real total GDP growth is reported +2.1% year-over-year but measured by Q4-over-Q4 the growth rate was only +0.9%, which was the slowest Q4-over-Q4 growth for a year since 2009 (last part of Great Recession). The Atlanta Fed’s early GDPNow projection on March 24, 2023 for real total GDP growth in Q1:2023 was +3.2% based on the latest data available. The table above also shows the last expansion from June 2009 to February 2020. A reason for slower real private GDP growth in the latter period is due to higher deficit-spending, contributing to crowding-out of the productive private sector. Congress’ excessive spending thereafter led to a massive increase in the national debt by nearly +$7 trillion that would have led to higher market interest rates. This is yet another example of how there is always an excessive government spending problem as noted in the following figure with federal spending and tax receipts as a share of GDP no matter if there are higher or lower tax rates. But the Fed monetized much of the new debt to keep rates artificially lower thereby creating higher inflation as there has been too much money chasing too few goods and services as production has been overregulated and overtaxed and workers have been given too many handouts. The Fed’s balance sheet exploded from about $4 trillion, when it was already bloated after the Great Recession, to nearly $9 trillion and is down only about 2.6% since the record high in April 2022 after rising nearly $400 billion in March 2023. The Fed will need to cut its balance sheet (total assets over time) more aggressively if it is to stop manipulating so many markets (see figure below with types of assets on its balance sheet) and persistently tame inflation, which there’s likely a need for deflation for a while given the rampant inflation over the last two years. The resulting inflation measured by the consumer price index (CPI) has cooled some from the peak of +9.1% in June 2022 but remains hot at +6.0% in February 2023 over the last year, which remains near 40-year highs along with other key measures of inflation. After adjusting total earnings in the private sector for CPI inflation, real total earnings are up by only +2.2% since February 2020 as the shutdown recession took a huge hit on total earnings and then higher inflation hindered increased purchasing power. Just as inflation is always and everywhere a monetary phenomenon, deficits and taxes are always and everywhere a spending problem. The figure by David Boaz at Cato Institute shows how this problem is from both Republicans and Democrats. As the federal debt far exceeds U.S. GDP, America needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on population growth plus inflation. If Congress had followed this approach from 2003 to 2022, the figure below shows tax receipts, spending, and spending adjusted for only population growth plus chained-CPI inflation. Instead of an (updated) $19.0 trillion national debt increase, there could have been only a $500 billion debt increase for a $18.5 trillion swing in a positive direction that would have substantially reduced the cost of this debt to Americans. The Republican Study Committee recently noted the strength of this type of fiscal rule in its FY 2023 “Blueprint to Save America.” And to top this off, the Federal Reserve should follow a monetary rule so that the costly discretion stops creating booms and busts. Bottom Line: My expectation is that stagflation will continue along with the a deeper recession this year given the “zombie economy” and the unraveling of the banking sector which will hit main street. Instead of passing massive spending bills, the path forward should include pro-growth policies that get government out of the way rather than the progressive policies of more spending, regulating, and taxing. The time is now for limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty.
Recommendations:
With a debt ceiling fight and bank failures, Congress’ day of reckoning to spend less is now.
Inflation is sky-high, purchasing power is sinking, 60% of Americans live paycheck to paycheck, and credit card debt is soaring to nearly $1 trillion. To make matters worse, between the fourth quarter of 2021 to the fourth quarter of 2022, U.S. real GDP grew by just 0.9%, the slowest growth in a “recovery” since at least 2009 amid the Great Recession. The more the federal budget deficit grows because of excessive government spending, the more the budget is crowded out from funding legislative priorities. In turn, Congress is forced to find ways to pay for interest on the debt, which will soon exceed $1 trillion. It’s not just the budget that’s getting crowded out; productive activity in the private sector fueled by entrepreneurs is stifled due to too much money chasing too few goods and services at the hands of tyranny imposed by big government. The underlying culprits to these economic catastrophes are reckless, weaponized government spending, often funding tyranny against Americans, and the Federal Reserve holding a bloated balance sheet. This excess national debt and money printing contributed to the latest closure of Silicon Valley Bank and will have further consequences. These government failures should be addressed by Congress spending less. This should include reducing federal funds sent to states. Not only do federal funds diminish federalism by making states dependent on the federal government but it also comes with massive red tape. The U.S. system of federalism provides a unique laboratory of competition to see what works across the states. This is best observed and encouraged by letting states be as independent as possible. Considering that federal deficits are expected to increase by an average of $2 trillion annually over the next decade, states would be wise to prepare for fewer federal funds as Congress’ purse strings will tighten. According to Congressman Chip Roy (R-TX) in a recent interview, another major way the government drives up spending is by hiding behind so-called mandatory expenditures such as Medicare and Social Security, and discretionary spending, which is funding tyranny through the weaponization of bureaucrats. “We have to commit to not funding tyranny such as the IRS going after minorities and poor people,” said Congressman Roy. “Why should we fund the FBI labeling Scott Smith, a man who stood up for his daughter being sexually assaulted to her school board, a domestic terrorist? Likewise, military funding should go toward making us a strong defense, not to ensuring that recruits ‘stay woke’ and never say ‘sir’ or ‘ma’am.’” While it’s politically popular for the government to honor its commitments like Social Security and Medicare for current retirees, mandatory spending is excessive and needs reforms to remain solvent over time. Cutting non-defense discretionary spending–including abolishing Departments of Education and Energy–to pre-Covid levels, would mean saving $3 trillion over the next decade. But both Republicans and Democrats have to work at this as they’re equally culpable of driving up spending under many administrations. And these expenditure savings need to be closer to $8 trillion to stabilize the debt to output level per the Committee for a Responsible Federal Budget. In addition to tightening up federal funds sent to states and mandatory expenses, the government should consider adopting a Responsible American Budget, similar to what’s been practiced in Texas, Florida, and Tennessee, that’s helping their economies thrive. This would require adopting some sort of fiscal rule like a spending cap, but as Congressman Roy emphasized, without passing exceptions that would render the rule irrelevant. If such a rule based on the maximum growth rate of population growth plus inflation, which represents what the average taxpayer can afford, had been in place, then we would have accrued $500 billion in new debt rather than $19 trillion over the last 20 years. Returning the federal government to its constitutional role of preserving liberty is key to economic growth. The surest way to suffocate the productive private sector from innovating and Americans from prospering is to let spending increases continue. This is the biggest threat to the American dream today, which younger generations are already counting dead as they’ve seen such poor economic growth in their lifetimes. If the future of the nation and opportunities for upcoming generations is important, the government must earn Americans’ trust by spending less, reforming mandatory programs, cutting federal bureaucracy, and promoting other pro-growth policies. As Congressman Roy shared, “I didn’t inherit a free country to pass down an unfree one. We have to fight.” Originally posted at The Daily Caller. Louisiana’s official poverty rate of 19.6% in 2021 was the highest in the country, according to the U.S. Census Bureau. The map below by American Progress shows that higher poverty rates tend to be in the south. There has been $25 trillion (inflation-adjusted) spent on the “War on Poverty” since it was declared in 1964 and about $1 trillion spent nationally every year, including billions of dollars in Louisiana. In fact, state and local spending per capita on public welfare in Louisiana of $2,924 ranked the 12th highest in the country in 2020.
Given so much taxpayer money has been spent on safety nets, shouldn’t there be fewer than one of every five people in poverty in the Pelican State? We believe so! This is a reason that the Pelican Institute recently released “Louisiana’s Comeback Agenda” to help struggling Louisianans find long-term self-sufficiency through a career instead of safety nets. The failures of the current government safety net system are expensive and costly. These programs should be easy for people to navigate, produce better outcomes, and empower individuals to return to the workforce. To better understand the extent to which programs are achieving these goals, lawmakers should call for routine performance audits. Performance audits dive deeper into the programs than typical financial audits by looking at not only expenditures of taxpayer money on these programs but also examining their outcomes. They provide recommendations for improving outcomes and lowering costs by identifying waste, duplication of efforts, and opportunities for consolidation or outsourcing. Routine, independent performance audits will determine whether programs effectively serve their intended purpose and hopefully make improvements if not. Fortunately, Louisiana’s Legislative Auditor’s office already does some of this. On its website, they note: “Performance Audit Services may audit any state agency, office, department, board, commission, institution, division, committee, program, or legal entity created within the legislative or executive branch of state government. The division conducts at least one performance audit of each executive branch department over a seven year period but performance audits may also result from topics of interest to the public, or requests from legislators, agencies, and other parties. Performance audits improve the transparency of state government.” And there have been some fruit from previous audits. In 2021, the Louisiana Legislative Auditor conducted a performance audit of the Louisiana Department of Children and Family Services’ administration of the Temporary Assistance for Needy Families (TANF) program in response to a request from the Louisiana Senate. The audit report revealed that “DCFS does not collect sufficient outcome information to determine the overall effectiveness of TANF-funded programs and initiatives. The current performance measures that DCFS uses to monitor and evaluate TANF programs are mostly output and process measures which are not useful in determining whether programs are effective at meeting TANF goals.” Auditors also found that “Louisiana has the lowest Work Participation Rate (WPR) in the nation at 3.5% for the federal fiscal year 2020. Under the WPR, states must engage a certain percentage of families receiving cash assistance in specific work activities, such as employment, job searches, or vocational training.” This valuable information was provided because a one-time performance audit of the TANF program was requested. Policymakers and the public would benefit from independent reviews like this on a recurring basis to identify program strengths and weaknesses and take swift action when necessary. By doing so, we can get taxpayer-provided resources to those who need them so they can find career paths out of poverty instead of being trapped living in poverty. Originally published at Pelican Institute. Louisiana is one of the most federally dependent states in the country, ranking 10th in a recent analysis.
The personal finance website WalletHub released a report Wednesday that ranked states’ dependency on the federal government based on three metrics: return on taxes paid to the federal government, share of federal jobs, and federal funding as a share of state revenue. The study ranked Louisiana in 10th overall with a score of 57.46, though the state government’s dependency ranked third. Residents’ dependency was ranked 22nd. Vance Ginn, chief economist at the Pelican Institute, told The Center Square much of Louisiana’s dependency derives from the state’s high poverty rate — 19.6% in 2022 — and the federal funds from various programs that flow into the state as a result. Forty-four percent of all state funding in Louisiana comes from Congress, and the Pelican Institute is working on “finding ways for Louisiana to have a comeback” that boosts businesses and employment, which in turn reduces poverty. “Louisiana is overly dependent on the federal government and the way to reduce that depends on getting more Louisianans back to work,” he said. “The way to get people back to work is removing barriers in the private sector, restraining government spending, providing tax relief, and reducing regulations.” The WalletHub analysis shows only state governments in Alaska and Wyoming receive more funding as a share of state revenues than Louisiana. Neighboring Mississippi ranked third overall in the study, while Arkansas was ranked 28th and Texas 29th. Other states in the top 10 most dependent on federal funding include Alaska in first, followed by West Virginia, Mississippi, Kentucky, New Mexico, Wyoming, South Carolina, Arizona, and Montana. New Jersey was ranked as the least dependent state, followed by Washington, Utah, Kansas, Illinois, California, Massachusetts, Iowa, Delaware, Nevada, and Colorado. The analysis also derived an average ranking for red and blue states, based on how residents voted in the 2020 presidential election. Democratic states produced an average ranking of 30.68, compared to the average ranking of 20.32 in Republican states, suggesting Republican states are generally more dependent than Democratic states. The study also examined how tax rates factor into the equation. Louisiana fell into the “high dependency, low tax” category, with a tax rate that’s ranked 25th in the country. Other analysis compared gross domestic product per capita compared to dependency on the federal government, and WalletHub placed Louisiana in the “high dependency, low GDP” category with a GDP per capita ranking of 40th. Originally published at The Center Square. On today's episode of the "Let People Prosper" show, which was recorded on March 6, 2023, I'm honored to be joined by Dr. Arthur Laffer, legendary economist and 2019 recipient of the Presidential Medal of Freedom. We discuss:
Dr. Arthur Laffer’s bio and other info (here):
It was a pleasure to help write this report with the Pelican Institute for Public Policy! Check it out. Today, the Pelican Institute for Public Policy released “Louisiana’s Comeback Agenda,” a bold vision for policy change in Louisiana and a statewide campaign to support the effort. The agenda is intended to serve as a guide for lawmakers, candidates, and community leaders to spark discussion and debate toward proven policies to bring jobs and opportunity to Louisiana. “Poor public policy decisions have caused Louisiana families to suffer for too long, and yet our southern neighbors like Texas, Florida, Tennessee, and North Carolina are thriving,” said Daniel Erspamer, CEO of the Pelican Institute. “Given our unmatched natural resources and cultural assets, Louisiana should be an economic powerhouse, and with the right policy decisions moving forward, it can be.” Louisiana’s Comeback Agenda focuses on six priority policy areas, outlining specific problems and offering specific solutions:
The plan was released just before the gubernatorial forum at the Pelican Institute’s annual Solutions Summit, where candidates were asked questions that dealt with the policy issues outlined in the plan. “We’ve spent months focused on finding real solutions to correct Louisiana’s poor decisions of the past and create increased opportunity for Louisiana’s people going forward,” said Erin Bendily, Vice President for Policy and Strategy at the Pelican Institute. “We’ve reviewed research, examined what other states are doing, and identified where our state can be more competitive. This agenda is the result of that work. We hope that this will help shape the policy discussions in Louisiana in the upcoming legislative session and as voters make important decisions about our state’s leadership and future this fall.” The agenda is the policy centerpiece of a major campaign that aims to bring transformational policy change to the Pelican State. The policy recommendations will be supported by a statewide speaking tour, an ambitious advertising campaign, grassroots activation and education, and legislative engagement and advocacy. “Ultimately, we want Louisiana to flourish, and the policy solutions in the Comeback Agenda are how we will get there,” said Erspamer. “The courage to make these crucial changes will require leadership, bold action, and a groundswell of support from every corner of Louisiana. Working together, we can write the next chapter of Louisiana’s story.” You can read the full paper here. Originally published here.
David is joined by former Trump-era OMB economist, Dr. Vance Ginn, to discuss the history of economic thought; the strengths and weaknesses of the classical, Chicago, and Austrian schools of thought; whether or not we need a Fed; and what to do about excess debt and economic growth. Yes, it is a busy hour, but one you will not want to miss!
Iowa’s fiscal foundation remains strong despite national economic uncertainty because of the state’s fiscal conservatism and prudent budgeting.
Governor Kim Reynolds has made Iowa a leader in conservative fiscal policy. This approach has already left more money in taxpayers’ pockets, and set the state on course to implement a low, flat income tax by 2026. In its Fiscal Policy Report Card on America’s Governors for 2022, the Cato Institute “grades governors on their fiscal policies from a limited-government perspective.” On this basis, Cato ranked Governor Reynolds as the best in the nation, writing that she “has been a lean budgeter and dedicated tax reformer since entering into office in 2017.” Last year, Governor Reynolds and the Iowa legislature continued to place a priority on prudent budgeting. The $8.2 billion budget for fiscal year 2023 represented a mere 1 percent increase from the prior year. And for FY 2024, Reynolds has proposed an $8.5 billion budget, with the extra funds meant to cover the universal school-choice plan that the legislature recently passed. Iowa’s anticipated $1.6 billion budget surplus for FY 2023 is nearly as much as the $1.9 billion surplus recorded in FY22, with another $2.2 billion surplus expected in FY 2024. The state should have $895.2 million in reserve funds in FY 2023 and $962.5 million in FY 2024 — the statutory maximum for those years. The state’s Taxpayer Relief Fund — the fund into which excess tax revenue is placed so that it can be returned to taxpayers by the legislature — was worth $1.1 billion in FY 2022, and is on track to grow to $2.7 billion in FY 2023 and then to $3.4 billion in FY 2024. In 2022, Iowa also enacted the most comprehensive income-tax-reform package in the nation. Over four years, the nine-bracket income tax will transform into a flat income tax with a 3.9 percent rate. The corporate tax has also already been reduced from 9.8 percent to 8.4 percent, and is set to gradually shrink until it reaches a flat 5.5 percent rate. These measures constitute a sound, pro-growth tax policy that will create incentives to work, save, and invest, and will make Iowa’s economy more competitive on the national stage. Prudent budgeting is essential for ensuring that these income-tax cuts can be responsibly implemented. And on Governor Reynolds’ watch, Iowa’s tax revenues continue to grow, reducing the degree to which the tax cuts must be “paid for” through spending cuts. The most recent numbers, released in February, showed that revenues are at $35.9 million, or 5.7 percent higher than they were at the same time last fiscal year. That said, in addition to proposing a fiscally prudent FY 2024 budget, Governor Reynolds is also proposing to rein in Iowa’s administrative state. It has been 40 years since Iowa made any major reforms to state government, and in that time the size and scope of government have increased. Reynolds is proposing to streamline the executive branch and reverse some of that growth. Currently, Iowa has 37 cabinet agencies. The governor’s proposal calls for a 16-agency cabinet. She argues that government is both too big and too expensive, and streamlining it will result in more efficiency and better services for taxpayers. She estimates that if enacted, this consolidation plan would save taxpayers over $214 million in the next four years. Although Governor Reynolds and the legislature have placed a priority on prudent budgeting, there is more that could be done. Iowa statute currently allows legislators to spend up to 99 percent of projected tax revenues. This rule should be replaced with one that would limit most spending to the rate of population growth plus inflation, which could have saved Iowans as much as $2.9 billion — or $3,700 for the average family of four — in taxes had it been in place since 2013. Meanwhile, Governor Reynolds has already signaled that she does not want to stop at a flat income-tax rate of 3.9 percent. She has said she aims to lower the rate to a flat 2 percent, and to eventually eliminate the tax altogether while continuing to cut state-government spending. Governor Reynolds should be applauded for putting Iowa on the path to a robust economy, and providing a model of sound fiscal policy for the federal government and other states to emulate. Now, she just has to keep at it, because there is more work still to be done. Originally published at National Review Online. The debt ceiling standoff between President Biden and the Republican-controlled US House of Representatives indicates Republicans care about government spending and deficits again, allegedly.
But history tells a different story. Since 1980, the national debt has risen substantially each year, regardless of whether the presidency, House, or Senate was red or blue. In my recent interview with financial expert David Bahnsen, he said, “[Conservatives] are losing their moral credibility…we can’t only be fiscal conservatives when there’s a Democrat in the White House.” Proving Bahnsen’s point, two-thirds of the national debt was added just since 2009: $9.3 trillion during President Obama’s eight years, $7.8 trillion over President Trump’s four years (more than half of which was added during the COVID-19 pandemic and related shutdowns), and already $3.7 trillion in President Biden’s two years, with much more to come. During the Obama and Trump terms, both Republicans or Democrats controlled Congress. Neither put the breaks on borrowing. Spending restraint is necessary. Spending less would help avoid default on the debt, and help reduce expected massive deficits. If deficits continue to accelerate, as the Congressional Budget Office projects with a current policy baseline, the Federal Reserve will, at some point, be forced to monetize this new debt at such a scale that the post-pandemic inflation will seem mild by comparison. Moreover, higher deficits and interest rates will result in higher net interest payments, which will soon surpass $1 trillion per year, thereby crowding out Congressional budgets and likely necessitate more spending, taxes, and inflation. In early 2021, inflation escalated quickly after President Biden and Democrats passed the $2 trillion American Rescue Plan Act, handing out additional, unnecessary, blanket tax rebates and ratcheting up payouts to state and local governments and wasteful programs. And then there were the other costly legislative offerings of the “infrastructure” bill: the CHIPS Act, and the (inappropriately named) Inflation Reduction Act. Then, much of this substantial new debt generated by more than $7 trillion in excessive spending since early 2020 was purchased by the Fed, more than doubling the monetary base. Burdensome regulations imposed by the Biden administration, particularly on oil and gas production, along with tax hikes, resulted in a 40-year-high inflation rate and the slowest year of economic growth during a recovery in decades. The monetary base has finally started declining – down 6.5 percent since its peak of nearly $9 trillion in April 2022–and inflation has come down slightly but remains persistently high at 6.4 percent. Despite President Biden’s claims in his recent State of the Union address, deficits under his administration have remained near historic highs. While it’s true that the deficit has declined, it remains well above $1 trillion, and the decline was from expiring pandemic relief measures. The Congressional Budget Office finds the deficit will remain elevated well above $1 trillion and “averages $2 trillion per year from 2024 to 2033.” That’s far from balancing the budget or, better yet, achieving a surplus that could reduce the national debt, a feat achieved in only 6 years since 1940 (1947, 1948, 1951, 1956, 1957, and 1969). And it hasn’t been sustained in a century, since Presidents William Harding then Calvin Coolidge effectively restrained government spending. Cutting total spending is necessary. But trimming discretionary spending alone is not enough, as that will only temporarily address America’s fiscal crisis. To get out of this national crisis, we need perpetual spending restraint, like that championed by President Coolidge, which will require key reforms to “mandatory” programs like Social Security and Medicare. While a balanced budget amendment sounds good (and would be much better than our lack of a fiscal rule at the federal level today) it would likely result in rising taxes, which would be detrimental to growth and deficit-reduction efforts. A federal spending limit tackles the ultimate burden of government: spending. This principle works at the state level in places like Texas, where the Legislature has held the budget in check over the last decade, contributing to a $32.7 billion surplus that could provide historic tax relief. Other state think tanks are weighing this responsible-budgeting approach, limiting spending to a maximum rate of population growth plus inflation. This rate is too high now, but typically provides a stable metric that reasonably accounts for the average taxpayer’s ability to pay for government spending while growing less than the economy. Instituting a federal spending limit would encourage Congress to narrow its scope to constitutional duties. This could be done with the Responsible American Budget, which has been supported by economists, politicians, and thought leaders, by limiting federal budget growth to correspond with population growth plus inflation. This approach would help remove failed programs from our lives, while allowing for more free-market capitalism to support human flourishing. Had this limit been followed over the past 20 years, the US could have added just $500 billion to the national debt on a static basis, instead of the $19 trillion we got. The more likely result would have been paying down the debt, given the dynamic effects of such a pro-growth policy. While House Republicans are trying to restrain spending for the moment, both sides of the political aisle need to encourage a bigger shift that embraces spending limits and pro-growth policies. We must cut government spending. The negotiations around raising the debt ceiling should be that opportunity to provide fiscal sanity. If not, we will have more costly consequences that Americans can’t afford. Originally published at American Institute for Economic Research. |
Vance Ginn, Ph.D.
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