Veronique de Rugy
With the “fiscal cliff” behind us, it’s important to remember that in less than two months, the Congress will be dealing with another manufactured crisis: The budget cuts of the 2011 Budget Control Act known as “sequestration.” The Department of Defense will bear 41% of the prescribed cuts, eliminating an additional $492 billion over 10 years. Although entitlement spending will also be on the table, the initial fight will be over cuts to the Defense budget.
A new study by the nonpartisan RAND Corporation concludes that the defense budget cuts cannot be taken without altering our overall defense strategy, and that “the department should modify defense strategy to fit the new resource constraints and prepare its course of action sooner rather than later.”
The authors highlight three alternative strategies, which anyone interested in this topic should read and consider. An accompanying article by the authors states, “Reductions of the magnitude implied by sequestration—some $500 billion over the coming decade—cannot be accommodated without a re-examination of current defense strategy.”
Since last fall’s election, Republicans have been trying to figure out ways to reach out to young voters. President Barack Obama was successful in courting them by using certain wedge issues that appeal to millennials. To this point, Republicans are unwilling to back away from some of these stances to their own detriment.
Despite their support of President Obama, many of the economic policies he’s managed to push through Congress, including ObamaCare, leave them on the short end of the stick. And his inaction on entitlements — and yes, they are entitlements — leaves them at risk of substantial economic problems down the road.
For example, Veronique de Rugy recently highlighted the long-term funding shortfalls and eventual insolvency of the Social Security system. Here’s the chart she posted that shows the significant fiscal issues that will eventually have to be addressed (click to enlarge):
“In 2010, the deficit was $46 billion, and in 2012 the deficits amounted to $49 billion,” de Rudy notes. “To fill the gap, the program is drawing from the trust-fund balances (first using interest, then the principal) to keep payments to retirees going (light red section).”
In 2012, the Department of Agriculture (USDA) spent $22 billion on subsidy programs for farmers. Introduced in the 1930s to help struggling small family farms, the subsidies now routinely draw condemnation from both left and right as wasteful corporate welfare. While the number of farms is down 70 percent since the 1930s—only 2 percent of Americans are directly engaged in farming—farmers aren’t necessarily struggling anymore. In 2010, the average farm household earned $84,400, up 9.4 percent from 2009 and about 25 percent more than the average household income nationwide.
What’s more, a handful of farmers reap most of the benefits from the subsidies: Wheat, corn, soybeans, rice, and cotton have always taken the lion’s share of the feds’ largesse. The Environmental Working Group (EWG) reports that “since 1995, just 10 percent of subsidized farms—the largest and wealthiest operations—have raked in 74 percent of all subsidy payments. 62 percent of farms in the United States did not collect subsidy payments.”
That is completely wasteful spending right there, something we could drop immediately and wouldn’t be hurt for it. In fact, repealing agricultural subsidies would have a very beneficial effect on the poorest of Americans:
During his State of the Union address, President Barack Obama called on Congress to raise the minimum wage to $9 an hour. Not to be out done, however, leftists in Washington have introduced legislation to raise the minimum wage to $10.10:
Sen. Tom Harkin (D-Iowa) argues President Obama “missed the mark” in calling to raise the minimum wage to $9 in his State of the Union address, and his staff met with White House staff last week to argue for a higher number.
The veteran senator, who will retire at the end of this Congress, is working with Rep. George Miller (D-Calif.) on legislation that would raise the minimum wage to $10.10 over three years and then index future increases to inflation.
“Well, we’re going to introduce our own bill on it,” Harkin told The Hill on Tuesday. “I’m going to be in discussions with them because I think they missed the mark, but people make mistakes.”
While this proposal may make some people feel warm and fuzzy, it comes with real world consequences for those who it’s intended to help, including teens, entry-level, and unskilled workers. Veronique de Rugy recently pointed to a couple of different studies showing that the minimum wage the various effects the policy has on these workers. According to a study by three economists — David Neumark, William Wascher, and Mark Schweitzer — the minimum wage actually has the adverse effect of increasing poverty.
This chart is a bit old, but in it, Veronique de Rugy shows the difference in spending with and without the sequester. While President Obama and even House Republicans are saying that these spending cuts will hurt the economy, military readiness, and emergency responders, you can see that the sequester ultimately does nothing to cut spending because rates of spending, including defense and domestic spending are still going to rise over the next several years:
The blame game in Washington over the sequester, which only cuts the rate of future spending increases, may be going strong as we approach March 1st, but we’re still going to have deficits and added debt that will be put on the backs of taxpayers.
Congrats, ObamaCare, you had the worst week in Washington. It’s no secret that President Barack Obama’s signature domestic policy achievement has come at a high cost to taxpayers. Earlier this week, the Congressional Budget Office (CBO) noted that the estimated cost tag for ObamaCare was $1.165 trillion over the next 10 years, more than the original estimate of $945 billion.
What is one of the driving factors of the increased costs? John Berline dove further into the CBO’s recent report and found that the costs of the insurance exchanges have jumped significantly since the law was passed:
The CBO’s new baseline estimate shows that ObamaCare subsidies offered through the insurance exchanges — which are supposed to be up and running by next January — will total more than $1 trillion through 2022, up from $814 billion over those same years in its budget forecast made a year ago. That’s an increase of nearly 29%.
The CBO upped the 10-year subsidy cost by $32 billion since just last August.
During a September interview with David Letterman, President Barack Obama addressed the national debt, telling The Late Show host that Americans shouldn’t worry about it in the short-term. Obama did explain, however, that there were issues that faced the country. He noted that the national debt “is a problem long-term and even medium-term and so we’re going to have to take care of this debt and deficit, but we’ve got to do it in a balanced way.”
Actually, the budget deficits that have been run up on Obama’s watch in the last four years have been a problem. If you’ll recall the debt ceiling fight we had last year and the warnings from credit rating agencies that the United States had to do something about its fiscal obligations — in fact, we’ve downgraded by two credit rating agencies. That spurred Congress to work with Obama on sequestration cuts that are supposed to take place at the beginning of the year. Oddly enough, those cuts are now part of the “fiscal cliff,” a combination of tax hikes and spending cuts that every politician in Washington is trying to avoid at this present moment.
Even though he underestimated the short-term problems with the deficit, which isn’t something that raising taxes with help because it doesn’t promote growth, Obama is right about the long-term issues that pose a very real threat to the economy.
Written by Tad DeHaven, a budget analyst at the Cato Institute. Posted with permission from Cato @ Liberty.
Back in August, Cato adjunct scholar Veronique de Rugy expressed concern about Republican campaign rhetoric on Medicare. As Republicans tell it, they want to “protect” and “strengthen” Medicare, whereas President Obama wants to “cut” and “weaken” it. Veronique thinks that the GOP’s “Mediscare” campaign could end up backfiring by making it harder to reform Medicare if Republicans succeed in taking control of Washington.
What I find irritating is that for all the standard platitudes from Republicans about getting federal spending under control, they’re simultaneously attacking Democrats for allegedly wanting to cut the budget’s big-ticket items like Medicare and military spending. Democrats might deserve it for decades of trying to scare the pants off of seniors, but the GOP’s adoption of their tactics is evidence in support of the view that the parties merely represent two sides of the same coin. (Don’t forget the last big expansion of entitlements came from the Republican-engineered addition of a prescription drug benefit to Medicare in 2004.)
That brings me to the Pennsylvania race for U.S. Senate , where Republican challenger Tom Smith is trying to unseat Democrat Bob Casey. Smith is apparently in striking distance after months of running television ads attacking Casey. However, one particular ad being run by the Smith campaign is a good example of how low Republicans have sunk when it comes to Mediscaring:
Written by Tad DeHaven, a budget analyst at the Cato Institute. It was originally posted on Wednesday, August 22nd, and is cross-posted with permission from Cato @ Liberty.
Speaking outside a helicopter museum in eastern Pennsylvania yesterday, Republican VP candidate Paul Ryan bemoaned the “irresponsible defense cuts” and subsequent job losses that would occur under the Budget Control Act’s sequestration spending cuts. That would be the same Budget Control Act that Paul Ryan voted for, and, at least initially, defended.
“What conservatives like me have been fighting for, for years, are statutory caps on spending, legal caps in law that says government agencies cannot spend over a set amount of money,” Ryan told FOX News’s Sean Hannity shortly after the agreement was reached last August. “And if they breach that amount across the board, sequester comes in to cut that spending, and you can’t turn that off without a super-majority vote. We got that in law.”
It’s not just Ryan’s backing away from the BCA’s spending cuts that’s irritating; it’s the fact that he’s basing his opposition to the cuts on the same flawed Keynesian rationale that the president used to justify his failed stimulus package. As Chris Edwards has noted, shifting resources from the government sector to the private sector is good for the economy:
The stagnant economy is sure to be on the minds of voters as we get closer to the fall election. President Obama’s campaign is doing everything it can to distract voters from the dismal unemployment rate, depressing budget deficits, and looming tax hikes.
Recently, Veronique de Rugy, an economist at the Mercatus Center, noted the job creation numbers under presidents dating back to 1945. While Obama claims that the economy has created some four million jobs since taking office, the truth is that Americans have seen the worst job creation numbers under the current administration than any of his predecessors dating back to Truman.
And while his fixes haven’t worked as sold haven’t worked as promised — and there was no question that they would fail before they were even passed, President Obama is trying to sell more snake oil to Americans by pushing crippling taxes hikes. Nevermind that the share of income taxes paid by higher-income earners has gone up since the passage of the 2001 and 2003 tax cuts and nevermind that even Keynesian economists will tell you that raising taxes in an economy is a bad idea.