Tag Archives: deficit

CEI Podcast for April 14, 2011: Avoiding a Government Shutdown

Have a listen here.

Warren Brookes Journalism Fellow Kathryn Ciano analyzes the Continuing Resolution passed by the House today that will keep the federal government open for another 6 months. She also looks at proposals from President Obama and Rep. Paul Ryan to reduce the budget deficit over the next decade.

How Much Would a Congressional Pay Cut Save?

Rep. Ann Kirkpatrick is proposing a 5 percent pay cut for members of Congress.

“In the face of our ever-deepening federal debt, the federal government must follow their example by finding common-sense solutions to do more with less,” she told The Hill.

A noble sentiment. And one that would save $8700 per member. With 535 members of the House and Senate, the total savings are $4.65 million.

The federal government is on track to spend about $3.8 trillion this year. Trimming $4.65 million means that for every $816,502 the federal government spends, it would save one dollar.

Rep. Kirkpatrick is proposing a 0.00122 percent spending cut. That’s not even a rounding error.

I do not intend to mock Rep. Kirkpatrick. Her spending cut is better than nothing, and I am glad she is proposing it. But placed in proper context, it is very, very small. It is a largely symbolic proposal, and should be treated as such. A 5 percent pay cut for Congress is no austerity measure.

More fundamental solutions would involve fundamental entitlement reform paired with a deregulatory stimulus. Cato’s Chris Edwards has some other spending cut ideas that deserve a serious look. They total $380 billion, or ten percent of federal spending.

Tax Freedom Day

Today, April 9, is Tax Freedom Day. The good folks at the Tax Foundation calculated how much money local, state, and federal governments harvested last year from taxpayers ($3,469,000,000,000), and compared that to national income ($12,901,000,000,000). At 26.89 percent of national income, you basically work until April 9 just to pay off your taxes.

April 9 is the national average; different states have different tax burdens, so Tax Freedom Day actually varies from state to state. If you live in Alaska, you already celebrated Tax Freedom Day on March 26. But if you live in Connecticut, you have to keep the champagne on ice until April 27.

That isn’t the whole picture, though. The federal government spends far more than it taxes. $1,414,000,000,000 more, last year alone. The burden of federal deficit spending adds another 40 days. Not even counting state and local deficit spending, that puts us out to May 19 by my calculations (May 17 by the Tax Foundation’s).

Even that’s not all. The hidden tax of federal regulation cost businesses and consumers an additional $1,187,000,000,000 last year, according to Wayne Crews’ soon-to-be-released 2010 edition of Ten Thousand Commandments (previous editions are online here). None of that extra trillion-plus actually shows up in the federal budget. Regulation eats up an additional 9.2 percent of national income, or 8.3 percent of GDP. So you have to work an additional 34 days until you pay off the federal regulatory burden.

It’s tempting to brush off regulatory costs, since most of them are borne by businesses. But remember, businesses pass on their costs to consumers. You pay for the regulatory state. Its costs are real.

Adding together total taxes, plus federal deficit spending, plus federal regulations pushes us out to June 22 by calculations, or June 20 by the Tax Foundation’s.

And remember, that’s leaving out state and local deficit spending. Nor does it count state and local regulations. I don’t have the data handy for that. But if they add up to at least $460,000,000,000 then we’re past the half-way mark of the year. Just to pay for government.

Even using the larger number of GDP ($14,253,000,000,000 in 2009), and leaving state and local deficit spending and regulation, we’re still talking 42.9 percent of the economy going to pay for government. That’s 157 days out of the year. You’re not free until June 6 even by that generous measure.

I’d argue that government has grown too big, but the data have already done that for me.

Regulation of the Day 118: Unlicensed Dogs

In Los Angeles, it is illegal to own a dog without a license. The city government employees eight people whose full-time job is to make sure that people are complying. But they aren’t doing a very good job of it; roughly two thirds of Los Angeles’ dog population is unlicensed.

This epidemic of unlicensed dogs is easily the most pressing issue facing America’s second-largest city. Packs of wild, unlicensed dogs roam the streets at night. People are scared to go out after dark. An entire city huddles in fear.

Or not. Maybe unlicensed dogs don’t really matter. Most places do just fine without dog licensing regulations. So why is the city government clamping down on enforcement all of a sudden?

The answer is simple: money. LA is looking at a $400 million budget deficit this year. At $15 per license, the city estimates it will make $3.6 million from full compliance. Hopefully it will spend somewhat less than that getting there.

Los Angeles is hardly the only city having revenue troubles. One wonders what other obscure regulations are being used for money grabs across the country.

Basic Irony

From yesterday’s WSJ.com Political Diary (subscription required):

The same day President Obama called for another $50 billion to $100 billion stimulus plan (and concomitant increase in the deficit), he also appointed the chairmen of his Deficit Reduction Commission. It says a lot about Washington that almost no one got the irony of those paired announcements.

Indeed it does. Fortunately, the Commission’s job is pretty simple. There are only two ways to cut the deficit. One is to cut spending. The other is to raise taxes. Cutting spending is the right thing to do. But it is also politically difficult. There is a lot of fat to trim from the budget. But government has little incentive to put itself on a diet.

That’s why the Commission is expected to recommend a tax increase, probably in the form of a VAT. A prestigious bipartisan Commission can provide the political cover that Congress and the administration need to avoid the embarrassment of backtracking on their policies.

Wayne Crews and I recently warned why a VAT is a bad idea in Investors’ Business Daily. Hopefully some of the arguments will find themselves into the debate.

Against a Value Added Tax


Over at Investor’s Business Daily, Wayne Crews and I make the case against a Value Added Tax. Policy makers have been flirting with the idea as a way to reduce the $1,400,000,000,000 budget deficit.

We argue that a VAT is:

-Complex; it would require roughly doubling the size of the IRS.

-Untransparent; most VATs don’t show up on receipts the way sales taxes do. Taxpayers are clueless as to how much tax they actually pay.

-Vulnerable to special-interest tinkering; politically incorrect goods are routinely penalized with higher rates. Politically favored goods are granted exemptions.

-Prone to increases; 20 out of 29 OECD countries with a VAT have increased their rates since implementing a VAT.

A point we didn’t make is that VATs affect industrial organization. VATs are applied at each stage of the production process. That gives companies an incentive to reduce the number of taxable steps. That means more vertical integration than would otherwise occur. This can decrease the efficiency of the manufacturing process. Which means higher prices and fewer goods. Plus the tax.

Deficit Hits $1,400,000,000,000

bush-obama
President Bush’s $400 billion budget deficits were the largest in history. He deserved every bit of criticism he got for his big-spending ways.

Now comes news that the budget gap is up to $1.4 trillion. President Obama has broken Bush’s record by a trillion dollars. It took him less than a year.

A trillion.

Wow.