A highly illuminating article in Monday’s Wall Street Journal by Stephen Moore explained the newly transformed federal budget realities, and the reasons for them. Bottom line: the Republican House Majority elected in a New Deal sized landslide in 2010 has been successful in doing what the voters elected it to do — turn around the explosive Obama Democrat runaway spending spree of 2009-2010. But this is just a first step in restoring American prosperity, and averting national bankruptcy still threatened by a ticking time bomb of explosive federal entitlements.
Actual federal spending peaked in fiscal year 2011 (which started in October 2010), at $3.6 trillion. As Moore reports, “After President Obama’s first two years in office, many in Washington expected that number to hit $4 trillion by 2014.” But instead federal spending actually declined (which almost never happens) to $3.537 trillion in fiscal 2012. Moore adds that federal spending is on pace to decline again in this 2013 fiscal year (which ends September 30), to less than $3.45 trillion. Moore adds that this “$150 billion budget decline of 4% is the first time that federal expenditures have fallen for two consecutive years since the end of the Korean War.”
Moore explained how this happened:
This reversal from the spending binge in 2009 and 2010 began with the debt-ceiling agreement between Mr. Obama and House Speaker John Boehner in 2011. The agreement set $2 trillion in tight caps on spending over a decade and created this year’s budget sequester, which will save more than $50 billion in fiscal 2013.
As Moore further explains the spending victories, “Discretionary spending soared to $1.347 billion in fiscal 2011, according to the CBO, but then was cut by $62 billion in 2012 and another $72 billion this year. That’s an impressive shrinkage. And these are real cuts, not pixie dust reductions off some sham baseline.”
As a percent of GDP, federal spending has plummeted from “a post-World War II high of 25.2%” in 2009, likely to 21.5% by the end of this 2013 fiscal year. (That needs to continue to 20% at least, and if we are smart politically, to 15%, instead of on track to 30% or 40% or more, which is where we were just a few years ago). This is why the federal deficit has plummeted as well, “from its Mount Everest peak of 10.2% of gross domestic product in 2009, to about 4% this year. That’s a bullish six percentage points less of the GDP in new federal debt each year.” In actual, nominal dollars, the deficit has been slashed by nearly 40% this year alone.
Just Don’t Blow It Now
Conservatives have been slow to recognize these new budget realities, and so they have been slow to engage Obama and the Democrats on their new budget agenda and arguments. Obama and the Democrats have been preparing for this fall’s continuing resolution (CR) and debt limit fights by demanding that all this progress be reversed by repealing the harmless sequester cuts with tax increases to finance renewed, massive spending increases instead. Their code word is to call their plan “a balanced approach” to the budget, balanced meaning still more tax increases to finance renewed, explosive federal spending. They call federal spending “investment,” which is idiot talk, because investment increases production, thereby financing its own returns, while increasing taxes to finance increased spending reduces production.
The top priority for Republicans now should be not to lose these important victories they have already won, outmaneuvered by Democrats into snatching defeat from the jaws of victory. Republicans need to stand firm in keeping the harmless sequester cuts, not touching the spending caps, and rejecting still more tax increases, as Obama and the Democratic Party are now demanding. And they need to keep the upcoming CR fight simple and focused on these issues. If Obama and the Democrats try to shut down the government because the Republicans won’t give them still more tax increases to finance renewed, runaway federal spending, the public will blame them for it, not the GOP. Republicans need to stay focused on making that clear.
The best way to reverse Obamacare is through the original rallying cry of “Repeal and REPLACE.” We can’t expect to beat something with nothing, and for Republicans to respond at this late date to the question “What is your plan?” with “We are working on it” shows an embarrassing lack of leadership. What House Republicans need to do is pass through the entire House an actual complete replacement for Obamacare, fixing the real problems of our health care system pre-Obama, with free market, Patient Power health policies.
NCPA President John Goodman and I have already written up precisely such a plan. It involves universal health care for all, with no individual mandate and no employer mandate, while further reducing federal spending by $2 trillion over the next 10 years alone, as already indicated by CBO scores. (See: John Goodman and Peter Ferrara, Health Care for All Without the Affordable Care Act, NCPA Issue Brief No. 116, October, 2012; John Goodman and Peter Ferrara, A Healthcare Contract with America, Issue Brief No. 110, July, 2012.)
Obamacare, by contrast, does not achieve universal coverage, despite its fundamental promise to the contrary. CBO scores it as leaving 30 million uninsured after 10 years of implementation! What is emerging now is that Obamacare is more likely to increase the number of uninsured, rather than decrease them, as employers dump coverage for tens of millions of workers, rather than upgrade costs to meet Obamacare’s standards, and as the labor market reorganizes around part time workers and independent contractors to legally escape all Obamacare costs, with individuals scrambling to evade the individual mandate as well.
The alternative is based on a universal health insurance tax credit of around $2,500 per person that expands the tax benefits for employer provided health insurance to everyone, providing equal tax treatment for everybody. Workers directly or through their employers decide what their health insurance coverage will be, not the government. Workers can use that universal credit to buy into Medicaid if they want, as it is roughly equal to the official estimate of the average cost of expanding Medicaid coverage to additional individuals. That eliminates all concerns over pre-existing conditions. But private health insurance provides a much better deal.
The plan also includes sending Medicaid block grants to the states, which would then be free to each restructure the program to best serve the needs of their differing states. Preferably that would involve Medicaid vouchers empowering the poor to each choose their own health plan. Those block grant funds would be used as well to fund state High Risk pools, where the uninsured who became very sick would be able to get coverage they could afford.
The poor on Medicaid, seniors on Medicare, and workers with or without health insurance would all be free to choose Health Savings Accounts, which have been proven to involve highly effective incentives to control health costs. Obamacare, by contrast, will only increase costs, with no effective incentives for cost control.
If Republicans would pass a plan like this through the House, it could no longer be ignored, and the public would embrace it as vastly preferable to Obamacare. Think of the enormous political implications of that, even beyond health care policy.
President Obama is essentially admitting to the entire nation that Obamacare is unworkable as written, with daily announcements of another delay for another part of the legislation. Doesn’t something seem grossly wrong with that to you? What is wrong is that Obama is now actually ruling by decree, which effectively amounts to a coup d’état.
America is not an authoritarian Third World dictatorship. But under Obama today, that is how America is operating. The President has zero authority to rewrite the Obamacare law on his own, without legislation. His constitutional obligation and duty is “to take care that the laws are faithfully executed.” What Obama is doing today with his Obamacare train wreck is brazenly unconstitutional. This is just further paving the way for replacement of Obamacare by the Republican alternative.
What Republicans need to do is hold the Democratic Party accountable for their authoritarian coup. They have effectively become today Democrats Against Democracy. This would ultimately discredit the whole so-called Democratic Party.
Restoring Prosperity and the American Dream
Obama has been barnstorming the country with idiot talk about how still more tax increases to finance renewed massive spending increases is essential for restoring economic growth and bolstering the middle class. He and the far Left are arguing that the spending restraint that Republicans have won is “austerity,” which is responsible for the weak recovery.
But increasing government spending does not promote recovery, economic growth, and prosperity, as it has failed to deliver, ever. That is because taking money out of the private economy through higher taxes or borrowing does nothing to increase the economy on net. To the contrary, it is a net drag on the economy
The continuing weak recovery is due to the sweeping tax rate increases that went into effect in January. Personal income tax rates rose by nearly 20%, capital gains tax rates and tax rates for dividend income rose by roughly 60%, and the death tax was permanently restored. This is all on top of corporate income tax rates which today under Obama are the highest in the world (except for Cameroon). Then there are the oppressive Obama regulatory burdens, on health care, energy, finance, employment, and elsewhere. The Fed destabilizing the dollar, with near zero interest rates with complete Obama support further reduces investment, jobs creation, wages and incomes, and economic growth.
These anti-growth policies all explain why President Obama has suffered the worst recovery from a recession of any president since the Great Depression, 75 years ago! What is needed to restore booming American economic growth and prosperity is to reverse all of these policies with pro-growth policies.
That would involve tax reform closing loopholes in return for lower tax rates. Paul Ryan has proposed individual tax reform that would be quite popular with a 10% rate for families earning less than $100,000 a year, and 25% for those earning more, and corporate tax reform with a 25% rate as well. Tax reform should also address the multiple taxation of capital, which taxes the same investment income four times, through the individual income tax, the corporate income tax, the capital gains tax, and the tax on dividends. This reduces investment, job creation, wage and income growth, and economic growth overall.
Liberating energy production would further promote booming prosperity, by stopping Obama’s war on coal, EPA’s developing, costly, and unnecessary global warming regulation, Obama’s threat to harmless fracking, which offers the promise of a world-leading oil and gas boom for America, and freeing true infrastructure projects like the Keystone pipeline. Repealing and replacing Obamacare as above would reduce health costs and promote job growth by removing counterproductive regulation. Fundamental reform of the Fed would also promote investment and growth through a stable dollar and an end to the boom and bust cycles caused by Fed policies.
Entitlement Reform Victory
Finally, what is necessary is completing the job on spending through fundamental, structural entitlement reforms. Such reforms properly done can actually benefit the poor and seniors, while drastically reducing government.
That would include the freedom for workers to choose personal savings, investment, and insurance accounts for Social Security and Medicare. Those accounts would produce the greatest reduction in government spending in world history, by shifting all those benefits to payment through the private sector rather than through government taxes and spending. This replaces the negative politics of benefit cuts and government dictated later retirement with the positive politics of personal ownership of savings and wealth, freedom of choice, and higher rather than lower retirement benefits through lifetimes of savings and investment returns.
It would include extending the enormously successful 1996 block grant welfare reforms of just one means tested, federal welfare program, the old, New Deal, AFDC program to all federal, means tested welfare programs. Just like the 1996 reforms, that would benefit the poor with higher, working incomes, while saving taxpayers $5 trillion or so over 10 years. And it would include repealing and replacing Obamacare as described above, which would result in health care for all, with truly reduced costs, unlike Obamacare.
The end result would be a federal government half the size of where it is headed today, with freedom and prosperity for all, which used to be what America was all about, before Obama and his fascist Progressives.