'76 Blog

('76 Contributor) As Americans, for the third year running, hold Tax Day Tea Parties, it’s worth setting down a few thoughts on the tax code itself. 1) It’s too progressive The US has the most progressive tax structure in the developed world. More progressive than the Japan, more progressive than the UK, more progressive than Sweden, for crying out loud. You make it big with Ikea, you’re better off going back to HQ than staying here. This is a result of generations of structuring the code based on “who can afford” rather than “who has a stake.” Well, of course if you make more you can afford more. But it also means you can afford more shoes, maybe a nicer car, possibly a boat. It also means you can afford – if you choose – to indulge in hobbies or possibly lead charitable efforts. The question “who can afford” answers itself, but it notably fails to ask, “afford what?” Pretty much every activity except stuffing cash under the mattress helps create more wealth, and in a society with a rule of law and secure property rights, even – perhaps especially – the poor get to participate in that wealth, too. So when the government says that it “needs” more of your money, it really “needs” to be sure that the least important thing it’s going to do with that dollar is more important than the most important thing its owner can do with it. That’s a high bar to get over. As it should be. 2) It picks favorites Any tax system is going to do this sort of thing. Sales taxes will exempt food or clothing. But the possibilities for rent-seeking seem almost endless with out current tax system. Regulations may raise barriers to entry, but the Aristocrats of Pull are really made through the tax code, rewarding political allies and misdirecting massive amounts of resources in the process. The income tax, since it’s stated as a percentage of some known amount – what you made last year – also encourages the government’s delusion that it’s really all their money, except for what they let you keep. It’s only with a tax code susceptible to endless manipulation that a President could talk about “reducing spending in the tax code.” When it gets to that point, there’s really nowhere left to go. 3) It encourages debt This used to be worse. It used to be that all interest was deductible, but that was phased out a couple of decades ago, so now for individuals, we’re down to the mortgage interest deduction. But for businesses, most interest is still deductible, and while this encourages capital formation, it also leads to a debt-heavy capital structure. We’ve all seen what excess leverage can do, but other decisions get distorted as well. Successful mergers tend not to be financed with debt, but with cash, and it’s likely that a whole lot of bad M&A activity – doomed deals – wouldn’t happen if that interest weren’t deductible. 4) It can’t be complied with Not, “it’s hard to comply with.” It can’t be complied with. We all know about the NTU studies asking IRS employees to work a difficult tax question, and having each of them come up with a different answer. The fact that an average citizen has to spend hundreds of dollars to file taxes every year, and still could end up getting hauled into tax court because he got the wrong one of twenty different right answers is an offense against everything we expect from the rule of law. 5) Business taxes are too high Right now, the US not only has the most progressive tax system in the western world, we also have the highest business taxes in the industrialized world. Inidividually, either of these would be enough to start chasing wealth production out of the country. Together, they virtually guarantee it, particularly because we also tax dividend income. Dividends, of course, are just a distribution of profits to the owners. Profits which have already been taxed. Not all countries do this. Some allow a tax credit against dividends, and some just don’t tax them at all. So as we go to our Tax Day Tea Parties, remember, it’s not just how much they’re taking. It’s the way they’re taking it.

('76 Contributor) Question for those of you concerned about the size of federal debts and deficits: Would you endorse a plan which would add another five or six trillion dollars to the federal debt over the next decade while increasing Uncle Sam’s annual expenditures by $1.1 trillion? If so, you’re in luck. House Budget Committee Chairman Paul Ryan (R-WI) recently unveiled just such a plan. Naturally, Democrats immediately denounced Ryan’s plan as “radical.” They think the increases in spending and debt should be much larger. It shows how far the goalposts have been moved in American politics that adding multi-trillion-dollars of debt is the most conservative proposal anyone in government has made. How would you like your government debt, Mr. or Ms. Citizen—gargantuan or astronomical? The Ryan Plan, if implemented (more on that in a moment), would cut $179 billion from President Obama’s planned spending in 2012 and another $241 billion in 2013. Why is it not “radical” to raise spending by $787 billion in one year, like Obama did in 2009, but “radical” to propose a decrease of $179 billion? Ryan proposes to reform Medicare and Medicaid so that they don’t bankrupt the country. Why is that demonized as “war on the elderly and poor” (the phraseology of Illinois Democrat Jan Schakovsky), but nobody talks about waging “war on the young” by saddling the rising generation with trillions of dollars of debt? Ryan’s plan is bold in comparison to the status quo in Washington, but it isn’t radical. You want “radical?” How about getting government out of the medical field entirely? Since the creation of Medicare and Medicaid in the 1960s, medical costs have soared far beyond the rate of inflation. More than that, market competition has been diminished and fraud and inefficiency have ballooned apace with the growth of these two medical bureaucracies. (Why do liberals rant and rave about the Pentagon’s inefficiencies, but remain silent about the similar inefficiencies of Medicare and Medicaid?) Ryan’s plan is statist to the core, promising seniors large government subsidies with which to choose from a slate of government-regulated health care plans. At this stage, Ryan’s plan is academic. Its combination of spending cuts, tax cuts, and devolution of administration of government programs from the federal to the state level—while a significant improvement over the fiscal insanity of recent years—is dead in the water until at least 2013. If you doubt that, look at the recently concluded “government shutdown” soap opera. The government is going broke, the Republicans were asking for a giveback of less than 10 percent of the Obama/Pelosi/Reid spending increases, but the Democrats—famous for extolling bipartisanship—threatened to shut down the government rather than make such a modest compromise. It will be interesting to see how long Ryan’s fellow Republicans in the House stand by his proposals. The coming vote is largely symbolic. The real test will be when Republicans have to face the voters in close re-election races next year. A majority of Americans may say that they favor reduced federal spending and smaller deficits, but when push comes to shove, how many will vote for a legislator who actually shrinks programs from which voters benefit? Even if Ryan’s plan, by some miracle, were to be enacted, nothing fundamental would change. Uncle Sam will remain a gigantic, meddling nanny, interfering with our lives and progressively eroding our liberty, entangling us in a corrupt network of special privileges that murder justice and bury the rule of law. Ryan’s plan is a futile attempt to square the circle. He is trying to find a way to preserve an inherently flawed system—a democratic transfer society—whereby government somehow takes care of all of us without eventually spending itself into bankruptcy. The Ryan Plan is not radical; that is, it doesn’t get to the root of the problem. It never questions the legitimacy of government redistribution of wealth. The mechanisms, rationale, and justification for Big Government remain unchallenged. Although a significant step in the right direction (i.e., less federal spending), Paul Ryan’s plan ultimately is not a cure for what ails us. Mark Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with the Center for Vision & Values at Grove City College.

(Denver Post, March 27) A useful new verb was coined the other day when Republicans joined Democrats to propose higher pension contributions by public employees and a union boss called it a “blatant attempt to Wisconsinize the Colorado budget process.”  What a great idea, thought many a tired and worried taxpayer.  Wisconsinize away, legislators – what took you so long? Statewide unemployment is record-awful, and metro Denver unemployment worse still.  Why shouldn’t these job-secure teachers and state workers kick in a little more toward their comfy (but now shaky) retirement plans?  As recession maintains its grip despite cheery official statistics, the dirty secret is out:  Government employees at all levels across the land are better compensated than you and me in the private sector. So, yes, by all means. Colorado should not only Wisconsinize downward its public pay and benefit packages, along with the union bargaining leverage that drives them.  It should also New Jersey-ize transportation, Florida-ize health care, Utah-ize the schools, and Texas-ize the tax system.  Other states are making hard choices for fiscal survival and economic revival – and doing it on the spending side, not with revenue grabs.  We can too. “Colorado cannot expect to grow its way out of its budget problems,” warned Charlie Brown, veteran of decades on the legislative staff and now head of DU’s fiscal think tank, in a much-noticed report last month.  Our state has a revenue problem as well as a spending problem, agrees Henry Sobanet, budget director for Gov. John Hickenlooper.  But do we really?  It depends on your assumptions. Former state Rep. Penn Pfiffner starts his fiscal slide show with a chart showing that total state spending from taxes, fees, and federal funds has never decreased in modern times.  Never.  Pfiffner is now with the Independence Institute, and he directed their Citizens Budget project, which published a “road map for sustainable government in Colorado” several weeks ago.  Working from a projected $1 billion gap between the trend lines for revenue and spending, his citizen budgeteers identified specific, realistic savings in K-12 education, health care, corrections, higher education, transportation, and pensions that would more than balance the budget – and bend the spending curve down in future years, so the structural deficit identified in DU’s study wouldn’t persist. The resulting 168-page book (of which I peer-reviewed a chapter) plows through grainy detail in department after department until your eyes ache.  No rosy generalities or unspecified “waste, fraud, and abuse” cuts for this corps of academicians and experts.  No throwing grandma out in the snow, either.  Their roadmap could actually get us home, provided we’re grown up enough to follow it.  “To assume,” says a bad pun and good proverb, “can make an ass of U and me.” Pfiffner and company reject the assumed inevitability of Sobanet’s revenue deficiency and Brown’s grimly rising graphs for spending on schools, prisons, and Medicaid out to 2025.  They assume instead that we control our own destiny, in the problem of over-government as in every other area of political life – and all history is on their side. Liberals such as Sen. Rollie Heath are so sure revenue is the problem that they want to raise income taxes and sales taxes.  Conservatives such as Jon Caldara, who funded the Pfiffner counter-budget, are so sure it’s not that they’re proposing a tax cut.  Reduce income taxes in the face of a doomsday deficit?  How Reaganistically visionary. How Wisconsinish.  But then, Texas has no income tax at all, and it’s booming.  Utah schools outperform Colorado with much larger classes.  Florida Gov. Rick Scott turned down big money from Obama for a health-insurance exchange (which some Republicans here seem to want).  New Jersey Gov. Chris Christie nixed that expensive tunnel.  Grownups can do this stuff.  Now is the time.  

('76 Contributor) Much attention has been given to the generally acknowledged fact that public union members enjoy higher wages and more generous benefits compared to their  private sector counterparts.  But this disparity is even greater when viewed from the perspective of net, after-tax income. Compare the percent of total compensation including benefits that is taxable for the average Wisconsin school teacher compared to private sector employees.  Based on average Wisconsin teacher average compensation figures cited on the Dennis Miller Show last week: · Taxable wage average  is about $58k (annualized to 12 months that’s about $77K, before a health holidays, sick days, personal day allowance) · Total Comp Package is about $105k  (that’s $47k in compensation that is not taxed) · Therefore, the Taxable portion of total comp package is only 55% As a small business owner who provides health insurance and matches tax deferred savings, I observe that  my PRIVATE sector employees pay tax on about 75-80% of their total comp package.   While my comparison maybe anecdotal, it point to an unfairness. Most of our “public servants” pay dramatically less tax (as a percentage of total comp) than private sector employees. We dumb private sector employees and employers have limits on 401(k)s and SEPs.  Most of us cannot hit the maximum contribution limits; yet, our “public servants” get nearly half of their comp on a tax-free basis!  So when you hear stories of low salaries for public union members, a closer look at net, after tax value of total comp, especially when divided by the number of work days, tells a dramatically different story.  

(Centennial Fellow) In arguably the most colossal political blunder of the 20th century Adolf Hitler declared war on the United States three days after Pearl Harbor based on his fatal underestimation of America’s prodigious capacity for war production. A dozen years later Dwight Eisenhower wrote that “the greatness of America and its capacity for doing good in the world is inseparably linked to the might of the U. S. economy.” Thirty years later Ronald Reagan launched a massive military build-up believing correctly that he could win the Cold War by breaking the back of a Soviet economy that had no chance of successfully competing with the American economic juggernaut. Since the Second World War Americans have viewed their country’s global dominance and concomitant economic primacy as a constant in world affairs.  They have also seen that economy as a mighty engine that would endlessly elevate the quality of life for each successive generation of Americans. Now in less than three years that mindset has been definitively shattered.  Today- however unwillingly- we must actually contemplate the possibility that our country could go bankrupt and our economy collapse under the weight of heretofore unthinkable debt and deficits.  Perhaps ever more damaging to our collective psyche is the thought that we are ushering in a new Gray Age of American history in which our children and grandchildren will look back on our time as a moment of national fecklessness that led to the death of the American Dream. This bleak scenario arises from a perfect storm of global events most notably the world’s worst economic shocks since 1945 and a new American Administration at once economically clueless and blindly driven by a redistributionist ideology. At a moment when all of Europe is beginning to turn away from the destructive consequences of socialist economics the Obama administration is racing hell bent to embrace it. Just when these baleful trends appeared irreversible there occurred an extraordinary and leaderless popular uprising among the American people.  Some defined it narrowly as the “Tea Party Movement” but it was actually much broader than that as was demonstrated last November in the most stunning mid-term elections in seventy years. The most remarkable aspect of that election occurred not at the national level, but at the base of the American political pyramid.  There Republicans gained nearly 700 state legislative seats- the most they have held since 1928.  The consequences of this startling shift are now being seen in statehouses across the nation – nowhere more visibly than in Madison, Wisconsin. Pundits and Parties alike are yet divided on the meaning of this political earthquake but one truth seems emergent: virtually every American adult understands the relationship between income and expenditure, and that when the latter consistently outpaces the former it is a bad thing.  They also know that just as excessive debt can crush a family, so too it can ruin a nation. At present the two political parties are engaged in a contest to determine which can more skillfully respond to the American people’s convictions regarding income and expenditure. The Democrats- at least those in Washington- are at a disadvantage in defending a President loudly advocating the need for more spending and rhetoric aside showing almost no interest in cutting spending. Republicans who have no history of ever cutting spending are gripped by uncertainty and divided between those determined to make the leap to real spending cuts- including entitlements- and those terrified of being politically savaged by demagoguing Democrats. Though they are most disingenuous in articulating it the Democrats as the historic party of more government believe that large tax increases will at once fix the economy and banish the entitlement nightmare. Though tongue-tied about what and how much to cut- particularly entitlements- Republicans as the party of less government see tax increases as anathema to recovery and believe only dramatic spending cuts can re-energize those market forces that have historically  been the mighty engine of American growth and prosperity. The bet here is that just as governors like Wisconsin’s Tommy Thompson, and Michigan’s John Engler built the state laboratories that helped shape the resurgent economy of the Eighties and Nineties, so too will it be Republican governors from the Heartland like, Walker, Daniels, and Kasich who will boldly go where a timid Washington establishment has feared to tread and thereby show the way to rescuing an American economy trembling on the brink of catastrophe.   All Americans should wish them well, for if they and their states fail, it is hard to imagine how our country can succeed. William Moloney’s columns have appeared in the Wall St. Journal, USA Today, Washington Post , and many other outlets.  He is a Fellow of the Centennial Institute. 

The high-stakes battle to determine whether the people will serve government or government will serve the people is unfolding in state capitols. Wisconsin is the tip of the iceberg.  Though not as fiscally imperiled as California or Illinois, Wisconsin is symbolic — the birthplace of government employee unions, once considered illegitimate even by liberal icons like FDR and the AFL-CIO. “All government employees should realize that the process of collective bargaining . . . cannot be transplanted into public service,” Roosevelt said. In the private sector, unions bargain for a share of profits.  If management agrees to conditions that are too expensive, the market punishes both sides with lost profits and lost jobs and rewards competitors. Today, unions would be dinosaurs without government employees, who constitute more than half of all union membership. “Unions are government organized as an interest group to lobby itself to do what (government) always wants to do anyway – grow,” writes George Will.  “Governments, not disciplined by the need to make a profit, extract government employees’ salaries from taxpayers.” With political contributions, unions reward politicians for making expensive promises at the expense of taxpayers – including future generations of taxpayers who cannot vote today but will be stuck with the bill tomorrow. So, ask yourself, Mr. or Mrs. Taxpayer, do you think you have more clout with government than government employees’ unions? Wisconsin Gov. Scott Walker grasps the stakes of the battle.  He wants union members to make reasonable contributions toward their pensions — they currently pay less than 1% of salary — and health care.  By limiting unions’ bargaining authority to wages, Walker would remove the temptation of unions and their legislator puppets to make pension promises that will be paid by future generations of taxpayers and government workers. Walker is not alone.  Ohio is set to pass similar legislation, and Indiana and Missouri governors curtailed government unions’ bargaining power through executive orders about the same time former Colorado Gov. Bill Ritter did just the opposite. Here in Colorado, taxpayers and government workers are already paying dearly to bail out the government pension plan, PERA, from an unfunded liability of $27 billion – equivalent to four full years of state income and sales taxes. When the latest bailout is fully implemented, state and local governments, including school districts, will pay more than $700 million a year in perpetuity – taken from worker wages, school classrooms and other budget priorities – solely to pay down PERA’s deficit.  In addition, workers and employers contribute another $1.5 billion annually to support PERA’s existing benefit structure. At a time when the state is pondering a $375 million reduction in K-12 education spending, PERA’s costly benefit structure can be ignored no longer. In fact, the New York Times recently called the state pension plan the most expensive in the nation.  Another inescapable problem is the relentless growth of entitlement spending and the cost of federal mandates – most recently ObamaCare, which locks in minimum levels of Medicare and Medicaid spending. From 2000 to 2010, Colorado’s general fund budget increased by 47% or $2.4 billion.  Health care and welfare grew by 61% ($856 million); K-12 spending by 59% ($998 million); corrections, 75% ($436 million).  That left $90 million over 10 years for all other programs. Although tax revenues haven’t grown in the past three years, “fees” increased by $756 million and 3,400 state workers were added to the payroll. Now Colorado Senate Democrats want to raise taxes by $500 million a year.  Senate Minority Leader Mike Kopp counters, “Colorado government has a revenue shortfall because Colorado’s families and businesses have a revenue shortfall.” Winston Churchill reminded that governments that seek to tax themselves into prosperity are “like a man standing in a bucket trying to lift himself up by the handle.” Government, after all, is supported by the private-sector economy – not vice versa. Mark Hillman served as Colorado Senate majority Leader and State Treasurer.  He is now the Republican National Committeeman for Colorado, and a Centennial Institute Fellow.  To read more or comment, go to www.MarkHillman.com.

(Centennial Fellow) The next two years will almost certainly determine whether Americans possess the resolve and courage necessary to save our country from fiscal disaster.      If we do not, then the Americans will likely succumb to the European mindset that work is not a source of accomplishment or satisfaction but merely a way to bide time between vacations and weekends while relying on government for health care and retirement.      Most European young people recognize that their opportunity to pursue happiness is lost – squandered by unsustainable entitlements to which their parents and grandparents have become addicted.      Because so few of us have known personal or financial sacrifice, it’s reasonable to fear that we will not realize the urgency of our predicament until, like the French, the Brits and the Germans, we are irretrievably mired in the consequences of our fiscal irresponsibility.      Both political parties – and voters in general – share the blame for our $14 trillion in federal debt and some $100 trillion in unfunded Social Security and Medicare entitlements.      Today, however, the attitudes of the two major parties couldn’t be more different.      While Republicans, like budget committee chairman Rep. Paul Ryan, are proposing serious spending cuts and long-term entitlement reform, President Obama and the Democrats are cynically betting their political fortunes that Americans will flinch – rejecting spending cuts that hit close to home.      We’ve arrived at a crucial fork in the road, and the 2012 election will determine our fate.  The Wall Street Journal recently opined, “If Obama wins a second term, his health-care (bill) won’t be repealed and will set the U.S. on Europe’s path of excessive debt and shrunken destiny, perhaps irretrievably.”      President Obama came into office talking about the necessity of reforming entitlements and “free(ing) ourselves from the burden of historic deficits.”      Today, only fools believe he meant it.      In just two years, non-defense spending has increased 24% – triple that if you include stimulus spending.  Obama’s new budget triples the debt he “inherited” and ensconces even more unaffordable entitlements and higher taxes.  He proposes to cut defense and homeland security by 21%, while Social Security grows by 27% and Medicare 32%.      Entitlements are killing us with complacency, jeopardizing our ability to defend our country.      To anyone who will notice, it is obvious that Obama’s stimulus – more than $1 trillion borrowed from the Chinese and billed to future generations – was never intended to bolster the economy but to permanently expand the size and scope of government.      As a candidate, Obama aspired to be a transformational president.  Since election, his focus has been transforming Americans’ relationship with the federal government into a pervasive, intrusive arrangement.      Our debt is the largest since World War II, but unlike that debt, incurred to protect freedom and democracy, this debt has been amassed largely to promote dependency and, absent swift action, will only grow worse.       Prior to 2008, we had never seen a deficit greater than $500 billion.  Now, we’re facing never-ending deficits $1 trillion a year and interest payments alone surpassing that mark before the end of Obama’s second term.      Ronald Reagan warned: “Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free.”      Unlike past generations, our calling isn’t to risk our lives for our country.  It’s simply to exercise self-discipline to live within our means.      Will we stop squandering our future and that of our children and grandchildren, so that they, too, can experience the freedom and opportunity that makes “the pursuit of happiness” a uniquely American dream?      We will soon know the answer. Mark Hillman served as Senate Majority Leader and State Treasurer. He is now the Republican National Committeeman for Colorado, and a Centennial Institute Fellow.  To read more or comment, go to www.MarkHillman.com.  

(Centennial Fellow) It’s a political reality: talking about how to govern is far easier than actually governing. Government, after all, is a reflection of the governed and nothing requires individual voters or “the people” in general to act responsibly.  That observation is not an indictment of the electorate but an acknowledgement that voters are never forced to confront tough choices about government spending. Consider the federal debt and deficit.  The deficit is the annual difference between revenue and spending; debt is the accumulated total of deficits. Gallup says 84% of Americans believe that it is extremely or very important for Congress and the President to deal with the federal deficit.  By a 50% to 16% margin, Americans say the debt limit should be raised “only if Congress can agree ahead of time on measures to reduce the deficit in the future.” Take those sentiments at face value, and it appears that Congress – Republicans in particular – has a clear mandate to cut spending to balance the budget. Maybe. In January, Gallup asked for Americans’ opinion on cutting government spending in specific areas.  The most popular target for the carving knife was foreign aid — the only expenditure area in which more Americans supported cutting spending than opposed it, 59%-37%. Cutting funding for arts and sciences ranked second, but just 46% supported those cuts, compared to 52% who opposed.  Reducing aid to farmers found support from 44% but opposed by 53%. Next, Americans rank cuts to homeland security (42%-56%) and national defense (42%-57%).  Least popular are cuts to “anti-poverty programs” (39%-55%), Medicare (38%-61%), Social Security (34%-64%) and education (32%-67%). These numbers alone demonstrate that while balancing the budget is imperative, the path to doing so is a political minefield, demanding vision, determination and strategic messaging. The most popular cuts are those that affect the fewest Americans directly, illustrating that it’s always easiest to gore someone else’s ox. Foreign aid spending in fiscal year 2010 tallied just $42 billion or 1.2% of the $3.5 trillion budget.  Eliminating foreign aid entirely would reduce the 2010 deficit by 3.2%. Funding for “arts and sciences” is even more paltry.  Combined funding for the National Endowment for the Arts, National Endowment of the Humanities, and the Commission on Fine Arts totals $283 million.  Add the National Science Foundation and the total surpasses $8 billion — 0.6% of the deficit. Farm income stabilization payments total $18 billion for 2010.  All other agriculture research, education and loan programs contribute another $7 billion.  Eliminate the entire $25 billion and the deficit is reduced by 1.9%. Homeland security ($49 billion) has potential for limited reductions, but national defense ($760 billion, not including operations in Iraq and Afghanistan) is already well below the historic average for non-wartime spending and at levels many feel are inadequate to maintain the security of a free nation.  As President Washington said, the “most effectual means of preserving peace” is “to be prepared for war.” Eliminating the U.S. Department of Education — while perhaps unpopular — would cut spending by $92 billion with a negligible impact on classrooms.  Yet our hypothetical exercise has narrowed the deficit by just 13%. The remaining $1.1 trillion deficit demands significant reforms to Medicare, Social Security entitlements and to welfare and health care programs that combine for more than $2.2 trillion annually. Interest on the debt costs $448 billion — projected to surpass $1 trillion annually in just six years. Think about that.  Just three years ago, the deficit had never approached $1 trillion, but if President Obama serves two terms, his own budget office says interest payments alone will surpass $1 trillion by his final year. Balancing the budget is not an easy task, but it absolutely must be done.  Otherwise, our generation will leave our children and grandchildren with mountains of debt, a stagnant economy, and a worthless dollar — all because we selfishly lived beyond our means and stuck them with the bill. Mark Hillman served as Colorado Senate Majority Leader and State Treasurer. He is now Colorado's Republican National Committeeman, and a Centennial Institute Fellow. To read more or comment, go to www.MarkHillman.com.

(Centennial Fellow) President Barack Obama, in his State of the Union speech, praised deficit reduction while pledging deficit enlargement, coming across like a phony dieter sneaking ice cream. Only he wasn't sneaking it. He was as much as licking the spoon in front of the nation as he said implausibly that we've got to have splurges of the kind that got us in trouble. It won't work, least of all a splurge like a national high-speed rail system, which Obama called for and which may sound like fun except that we cannot afford to build it and certainly cannot afford to sustain it. Europe's smart and Europe does it, right? If you call $42 billion in annual government train subsidies smart, yeah, sure, but the benefits we would derive do not equal the price we would pay. Not even close. We also need to get less dependent on oil, Obama said while pointing as an answer to biofuels, one of which, ethanol, is a mandated, subsidized, special interest scam making your food prices go up while doing zip to give us a cleaner environment. Biofuels of the future might be better, but let's let them prove themselves in the market. You want jobs, maybe? We're going to get them, says Obama, by government interventions that will put past ones to shame – in energy, for instance. Let me turn society green and watch the jobs grow, he says, only they won't because, as any number of economists have pointed out, government-foisted energy jobs would come at the expense of government-negated energy jobs. As Obama confessed, the government doesn't know what's going to work in many energy fields, and here's the answer he did not agree to. Let the private sector figure it out through capitalist trial and error. That's a solution that does work, and mightily, as Obama seemed to understand when he told the story of Brandon Fisher, a remarkable young man who started his own company in drilling technology and made the equipment that enabled the rescue of 33 men who might otherwise have died after a mine collapse in Chile. The lesson here is the power of entrepreneurial energy and how it can do one great thing after another if government does not dampen it with too many regulations and uncertainties, taxes that are too high or the threat of economic calamity caused by deficits and debt. Prior to the speech, Obama had given some hints he was closing in on this reality, as opposed to remaining lost in statist dreams, and in the speech he also had some kind words for cutting back on spending, though not, I am afraid, very meaningful ones. He talked about a freeze on discretionary spending, which is a tiny piece of the budget and a place that needs serious cuts after the additions he has piled on in just two years. And he talked about a deficit commission's compromise proposal while rejecting one of the most significant parts of it, a recommendation on how to restructure Social Security. His language on this was the language of an uncomprehending demagogue even if it's a known fact that some of his top advisors have agreed with commission points. What's needed more than money in some of the areas he talked about is reform, if not by the federal government, by the states or localities: Get the tenure out of teaching and get the frills and pork out of publicly financed infrastructure, for instance. Obama needs to get past this notion that it is primarily the federal government that can accomplish anything and understand that its intrusions can in fact have massively disastrous consequences. He needs to lay off the ice cream.  

During much of the last decade December has greeted Colorado legislators with gloomy revenue forecasts that confirm there won’t be enough money to pay for the spending they budgeted in April.  Drastic budget reductions ensue in order to balance the budget in final few months of the fiscal year. Generally, legislators respond as if trapped in the Bill Murray comedy Groundhog Day.  Year-after-year they pass budgets in April based on revenue estimates that they surely know will require severe pruning come December.  (Unlike Congress, the Colorado legislature is constitutionally required to balance its budget.) This week, House Republicans — back in the majority after six years in the cheap seats — signaled that this practice will change, arguing for a spending target nearly $200 million below the more conservative of two forecasts by government economists. “Making the decision now to spend less will allow us to craft a responsible state budget,” said Speaker Frank McNulty, R-Highlands Ranch.  “It also allows the governor and the legislature to avoid the harmful last-minute cuts experienced over the last several years because of a lack of planning.” Typically, legislators choose between forecasts from their own Legislative Council economists and the Governor’s Office of State Planning and Budget.  Those forecasts often differ drastically.  Such is the case with the most recent forecast.  The legislature’s economists project a $30 million reduction in general fund spending while economists for outgoing Gov. Bill Ritter incredibly anticipate a $561 million increase. McNulty and Republican budget leaders point to recent history and argue that the legislature should learn from the past, not blindly repeat it:  In 2008-09, actual revenues were 17 percent lower than projected the previous December.  In 2009-10, actual revenues were 11 percent lower than December projections. Not since Gov. Bill Owens used his veto pen to trim $228 million from the 2002-03 budget have lawmakers seen the type of proactive budgeting that Republicans are advocating.  Instead, the Ritter administration’s budget office was routinely “a day late and a dollar short.”  Never were they more embarrassingly clueless than in September 2008.  As the stock market tanked and the economy faltered, Ritter actually chided the legislature’s economists as “pretty significantly wrong” for predicting that revenues would fall. For the next two years, minority Republicans argued for budgets that spent less than projected revenues, but majority Democrats preferred the Thelma and Louise approach, throttling the engines even as they headed for a cliff.  And each year, the legislature and governor slammed on the brakes at the last minute with spending cuts and budget gimmicks because they had rejected more prudent choices earlier. The good news is that Republicans aren’t standing alone this time.  In the House, six Democrats joined Republicans to vote for the lower spending target, passing it by a healthy 39-26 margin. In the Democrat-controlled Senate, the Finance Committee passed the resolution unanimously without amendments.  However, Senate Majority Leader John Morse (D-Colorado Springs) then issued a smarmy letter to McNulty – simultaneously releasing it to the press – essentially demanding that he identify $195 million in cuts. Morse’s cynical ploy is the same tired game played by those perpetually addicted to big government: demand that Republicans take unilateral responsibility for passing a balanced budget while those Democrats who still choose to ignore the last election continue to make promises to children and seniors that they know they cannot keep. Passing a balanced budget is the responsibility of the entire legislature and governor in a deliberative process that unfolds over several months — not the sole responsibility of House Republicans, much less the Speaker, to perform on command like a trained dog. House Republicans have acknowledged the obvious fact that it’s more prudent – although perhaps not politically expedient – to budget conservatively and hope to be pleasantly surprised by a budget surplus than to make foolish promises and be forced into severe cuts and budget shell games later. Mark Hillman served as Senate Majority Leader and State Treasurer. He is now Republican National Committeeman for Colorado, and a Centennial Institute Fellow.  To read more or comment, go to www.MarkHillman.com.