Freedom Line Blog

After originally pledging to cut $100 billion in spending this year the House GOP leadership settled for a cut of $30 billion.  Then, the Tea Party-backed freshman caucus weighed in and forced a rethink.  Early this morning, the House voted to cut $60 billion in this year’s budget.

That’s real, measureable progress.  Getting 60% of a loaf may not satisfy everyone’s hunger for budget cuts, but it is still a victory for fiscal conservatives.  Well done.

A funny thing happened when House Republicans opened up the process to allow amendments to spending bills: a bipartisan coalition voted overwhelmingly to cancel a $3 billion boondoggle.

Interestingly, the project killed was the F-35 Joint Strike Fighter’s alternative engine.  Following a well-trodden path to budgetary immortality, contractors General Electric and Rolls Royce spread the work around many states hoping enough Congress members would vote to keep the money flowing to their districts.

No more.  Both the Bush and Obama administrations have called for the termination of the alternative engine program as a way to cut waste in the Pentagon’s budget.  After years of work and billions in spending everyone involved anticipates billions more in appropriations before the engine becomes operational.

With yesterday’s vote to stem the tide of red ink on the books, let’s hope there are more chances for an open budget process that saves taxpayers money.

Last month, we noted with alarm that the Congressional Budget Office forecast a record $1.5 trillion federal budget deficit for fiscal 2011.

It’s apparently even worse than that.  Today, the Obama Administration unveils its proposed budget, projecting that this year’s deficit will actually reach $1.6 trillion.  So after telling Americans during his 2008 campaign that he was going to go through the budget “line-by-line” and reduce the deficit, Obama has given us deficits of $1.4 trillion, $1.3 trillion and now a record $1.6 trillion.  And what to show for it?  Unemployment remains at or above 9% for a post-World War II record 21st consecutive month, despite Obama’s promises that it would top out at 8% in October 2009 and decline to between 6% and 7% today.

As for those who continue their mindless “Blame Bush” rationalization crusade, they must explain how three years into the Age of Obama, the deficit is increasing, not decreasing, from $1.3 trillion to $1.6 trillion (an almost 25% increase).

Recently, Senator Mark Udall (D-CO) signed on as a co-sponsor to Senator Richard Shelby’s (R-AL) balanced budget amendment bill, marking the first time a Democratic senator has supported such a measure since Zell Miller (D-GA) did eight years ago.

While Shelby’s version differs in some ways from the framework promoted by CFIF’s “One More Vote” initiative, Udall’s surprise support is welcome news.  Getting bipartisan consensus on the need to rein in federal spending is the sine qua non of real budget reform.

My hat is off to Udall for putting himself on the record in favor of spending restraint.  Now, it’s time to convert his Democratic brethren.

H/T: U.S. News & World Report

Since a majority of the smart people in Washington, D.C., agree that the nation’s astronomically high $14.3 trillion debt ceiling, chattering class consensus says all the “sane” members of Congress will stand together and once again extend America’s line of credit.  With that in mind, GOP budget cutters are proposing to get deep spending cuts in return for raising the debt ceiling.

Not so fast, says Federal Reserve Chairman Ben Bernanke.  Playing his faux apolitical persona to the hilt yesterday, Bernanke said House Republicans should “not play around” with the debt ceiling vote to extract any spending concessions.  That would make a fiscal issue too political.  Instead, they should treat spending and tax issues separately; exactly the unconditional debt raising approach espoused by the Obama Administration.

But the logic of the Republicans’ negotiating tactic is clear: get spending cuts now so that the debt limit becomes a true ceiling once more instead of a temporary marker.  Having a limit on one’s credit card does not require the user to treat it as a goal.  It’s an emergency option, not a default.  Because fiscally conservative House and Senate members are the only public officials actually trying to get control of the budget, demanding concessions from the debt ceiling vote may be the only way to make progress in a fractured government.

If Bernanke is too partisan to see that, he should at least recognize that politics isn’t just an exercise in means; it’s the attainment of principled ends as well.

In its monthly report this morning, the Labor Department announced that unemployment has now remained at or above 9% for a post-World War II record 21st consecutive month.  Additionally, it reported just 36,000 new jobs, well short of the expected 140,000 number.

On the eve of the 100th anniversary of Ronald Reagan’s birth, these numbers contrast the results of a big government agenda versus a free market agenda.  In the 23 months since Obama’s massive $1 trillion “stimulus” passage, unemployment has increased from 8.2% to 9%.  One would expect better results in exchange for deficits of $1.4 trillion in 2009, $1.3 trillion in 2010 and an expected record $1.5 trillion this year.  Keep in mind that Obama projected that if we followed his big government agenda, unemployment would be down between 6% – 7% by now.  In contrast, the 23 months following the effective date of Reagan’s tax cuts in January 1983 saw unemployment plummet from 10.4% to 7.2%.

The facts speak for themselves.  Inexplicably, Obama nevertheless called for even more federal “stimulus” in his State of the Union address.  As we celebrate the Gipper’s 100th birthday, we should remember the timeless lesson taught by his freedom agenda’s success.

Newt versus The Wall Street Journal editorial board – the unofficial 2012 Republican campaign is off to a very lively start.

On January 22, the Journal ran a commentary entitled “Amber Waves of Ethanol” in which it criticized federal ethanol subsidies.  It noted that, “Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed,” which does nothing to improve the environment or our reliance on foreign oil, but wastes billions in taxpayer dollars and drives food price inflation.  Likely 2012 candidate Newt Gingrich responded in Iowa last Tuesday, repeatedly referring to himself “as an historian” and accusing the Journal as part of a sinister cabal, saying, “Obviously big urban newspapers want to kill it because it’s working, and you wonder, ‘What are their values?'”

This morning, the Journal responds in its lead commentary entitled “Professor Cornpone.” This dispute, it says, symbolizes the larger fight “between the House Republicans now trying to rationalize the federal fisc and the kind of corporate welfare that President Obama advanced in his State of the Union”:

Given that Mr. Gingrich aspires to be President, his ethanol lobbying raises larger questions about his convictions and judgment.  The Georgian has been campaigning in the Tea Party age as a fierce critic of spending and government, but his record on that score is, well, mixed…  Now Republicans have another chance to reform government, and a limited window of opportunity in which to do it…  So along comes Mr. Gingrich to offer his support for Mr. Obama’s brand of green-energy welfare, undermining House Republicans in the process.”

Regardless of one’s views toward Mr. Gingrich as a potential candidate, the fact that the race is already lively with substantive policy debate is a healthy sign.

Barack Obama assured Americans throughout his campaign that if we hired him, he’d reduce the deficit.  Here is Obama in his own words from his closing infomercial of October 29, 2008:

I believe we need to usher in a new era of responsibility.  Across the country, families are tightening their belts, and so should Washington.  That’s why, for my energy plan, my economic plan and the other proposals you’ll hear tonight, I’ve offered spending cuts above and beyond their cost.  I’ll also go through the federal budget, line by line, eliminating programs that don’t work … and making the ones we do need work better and cost less.”

Here’s the ugly reality, over two years later:  The Congressional Budget Office (CBO) announced this week that the 2011 budget deficit will reach a record $1.5 trillion.  That follows $1.4 trillion and $1.3 trillion deficits in his first two years.  The 2008 deficit, for purposes of comparison, was $455 billion.

Something to consider when assessing Obama’s latest State of the Union address, and his upcoming promises over the next two years.

The nation’s capital is abuzz today over President Obama’s Wall Street Journal commentary, “Toward a 21st Century Regulatory System.” Astonishingly, Obama actually praises America’s free market system as “the greatest force for prosperity the world has ever known” while promising regulatory reform:

I am signing an executive order that makes clear that this is the operating principle of our government.  This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth.  And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive.  It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.”

Whether Obama speaks honestly, or simply seeks to deceive the electorate in anticipation of 2012, lies beyond our powers of divination.  The available evidence, however, justifies extreme skepticism.

One cause for doubt stands out immediately.  In identifying examples of the federal regulatory state run amok, the best Obama can do is point to saccharine, saying that the Food and Drug Administration (FDA) permits it for consumption in coffee while his Environmental Protection Agency (EPA) labels it a “dangerous chemical.”  That’s it?  That’s the best example he can cite?

Just one month ago, Obama’s own Federal Communications Commission (FCC) flagrantly defied two-to-one public opposition, a unanimous Court of Appeals and a bipartisan group of 300 members of Congress by voting to regulate the Internet via “Net Neutrality.” Obama claims in his column that he aims to prevent “regulations that stifle job creation and make our economy less competitive,” but that’s exactly what “Net Neutrality” will do.  The FCC seeks to regulate an Internet sector that has thrived over the past two decades precisely because the federal government has refrained from interfering with regulations such as this.  The result will be fewer incentives for continued Internet investment, expansion and innovation, as well as declining service as capacity fails to keep pace with demand.

Additionally, Obama’s Labor Department seeks to impose “card check,” which will end secret ballot voting in union elections, and his EPA seeks to impose global warming carbon cap-and-tax regulations.  Both of those agenda items failed miserably in Congress even when controlled by Democratic supermajorities, but Obama’s regulatory agencies now seek to impose them anyway.

So Obama talks a good game in today’s op/ed.  But unless he issues an immediate cease-and-desist order on “Net Neutrality,” card check and cap-and-tax, his words will prove just as meaningless as his other broken promises.

This week, the Heritage Foundation and The Wall Street Journal released the 2011 edition of their Index of Economic Freedom.

Once again, the facts speak for themselves:  Economic freedom means not only more prosperity, but also greater overall wellbeing.  In calculating economic freedom and ranking the world’s economies, the Index examines 10 criteria:  business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labor freedom.  The correlation between economic freedom and living standards is once again made clear:

Despite varying degrees of economic freedom across the regions, the relationship between economic freedom and prosperity remains constant within the regions.  Per capita incomes are much higher in countries that are economically free.  Not surprisingly, overall human development also thrives in an environment that is economically free…  Higher economic freedom induces greater overall human development as measured by the United Nations Human Development Index, which assesses the combined progress of life expectancy, literacy, education, and the standard of living.”

The good news is that 117 of the world’s economies improved over the past year, whereas only 58 declined.  For Americans, the bad news is that we fell from 8th to 9th.  On that front, note the Index’s comments about the  importance of reducing government spending:

Countries that reduced government spending had economic growth rates almost two percentage points higher in 2009 than countries whose government spending scores worsened, and countries with the highest rates of government spending had gross domestic product (GDP) growth rates 4.5 percentage points lower on average than countries where government spending was best contained.”

Will the new 112th Congress help reverse that decline?  As we approach the 2012 elections, that will prove a critical question.

According to a blogger at the Huffington Post California just inaugurated a “Right-Wing Republican” as governor.  He’s referring to Jerry Brown, aka ‘Governor Moonbeam’ and the man proposing sharp cuts, tax increases, and budget raids to balance the state’s deficit-ridden balance sheet.   In HuffPo world, that combination merits being tarred and feathered as the second coming of another rock-ribbed fiscal conservative, outgoing governor Arnold Schwarzenegger.

Please.  If Brown’s budget proposal looks suspiciously similar to Schwarzenegger’s it’s because there are precious few options for governors of any party to try.  Sure, nobody thinks they’ll actually solve the problems, but that’s because actually solving California’s budget woes will take some serious undoing of cherished political prizes.

Republicans want to hang onto the 2/3 requirement for passing a budget and maintaining Prop. 13’s cap on property taxes, while Democrats act as though rich (i.e. working) people will pay any price to live within a 100 miles of a beach and subsidize a green welfare state.  Neither party is serious about making investments in the state’s infrastructure (e.g. road, power, and water grids), a precondition for economic and social improvement.

The only way California heals its self-inflicted budget wounds is if it repeals all of the constitutional amendments mandating budget appropriations.   To do that, Republicans will likely have to agree to end Prop. 13’s property cap, a move that would likely increase property taxes.  Though unpalatable to many, removing the cap would return discretion to counties and cities (historically better than Sacramento at balancing budgets) while giving voters an outlet for their displeasure with the next Election Day.

None of this will be easy or popular.  Then again, neither is California politics.

According to the U.S. Treasury, on December 31 the National Debt stood at a whopping $14,025,215,218,708.52, breaking the $14 trillion mark for the first time in our nation’s history.  As CBSNews.com reported yesterday: 

It took just 7 months for the National Debt to increase from $13 trillion on June 1, 2010 to $14 trillion on Dec. 31. It also means the debt is fast approaching the statutory ceiling [of] $14.294 trillion set by Congress and signed into law by President Obama last February.

Congress must get serious about implementing significant across-the-board spending cuts and it should use the pending vote on the debt ceiling to ensure that happens.  Furthermore, we need to stop the bleeding by forcing Congress and the president, via a constitutional amendment, to present and pass a balanced federal budget annually without raising taxes.

In October 2003, tough-talking optimist Arnold Schwarzenegger unseated bland public union yes-man Gray Davis as Governor of California in a revolutionary special recall election.  Today, Schwarzenegger departs with a depressed 22% approval rating that serves as a warning for Republican newcomers in Congress and across the 50 states against the perils of go-along-to-get-along “bipartisanship.”

During his first two years in office, Schwarzenegger maintained a confrontational demeanor that California desperately needed as it hurtled toward its current disastrous state.  In March 2004, for instance, he famously ridiculed California’s milquetoast political class as “girlie-men.”

Unfortunately, four common-sense and ultimately necessary ballot initiatives that he supported failed in November 2005.  Instead of sticking to principles, Schwarzenegger opted for “bipartisan” political expediency and personal survival.  What followed was a shameful litany of global warming bills, ObamaCare-like proposals, lack of leadership and tax hikes.  His capitulation provided a short-term payoff via reelection in 2006, but ultimately proved disastrous for himself and the state.  Today, despite Schwarzenegger’s early promise, California is in even worse shape than when he entered office.  And jaded voters witnessed yet another sad example of a politician who promised to change the political culture, only to allow the political culture to change him.

Schwarzenegger’s failure, however, provides a helpful cautionary guide for incoming Republicans this new year.  Namely, sacrificing the principles that got you elected at the tempting altar of “bipartisanship” will only deepen our nation’s current difficulties and eventually doom you politically.

Sign of the times from today’s New York Daily News:  “Federal Workers Rage Over President Obama’s Two-Year Wage Freeze.”

Let’s see…  Federal employment has grown 17% since 2007, and federal employees’ total compensation has risen 37% in the past decade (compared to 9% for private sector employees), according to The Wall Street Journal and USA Today.  Further, average federal employee compensation reached $123,000 in 2009, more than twice the $61,000 earned by the average private employee.

So in what moral universe are federal workers justified in reacting to a very modest two-year wage freeze proposal with “rage” and by labeling it a “slap” when they haven’t faced the brutal layoffs, salary reductions and cuts in health coverage their private counterparts must endure?  A majority of Americans surveyed favor federal workforce reductions and salary cuts, so perhaps they should behave less like spoiled Greek, French and English rioters and instead express gratitude to American taxpayers who continue to subsidize their relative good fortune.

A survey of Democratic 2010 campaign operatives shows 64% of those polled said the Tea Party was a source of enthusiasm for the GOP, not division.  Perhaps now the politicians and pundits trying to blame tea partiers for everything from falling short of a GOP Senate majority to racism will now find a new hobby.

The limited government movement continues to pick up steam as the newly empowered congressional Republicans aim to rein in federal spending.  But while Tea Party members may favor GOP candidates, don’t be surprised if failing to make progress on spending reform leads to more contested GOP primaries in 2012.

H/T: Politico

Join CFIF Corporate Counsel and Senior Vice President Renee Giachino today from 4:00 p.m. CST to 6:00 p.m. CST (that’s 5:00 p.m. to 7:00 p.m. EST) on Northwest Florida’s 1330 AM WEBY, as she hosts her show “Your Turn.”  Today’s star guest lineup includes:

4:00 pm (CST) Virginia Scharff, author of “The Women Jefferson Loved”

4:30 pm (CST) Susan Ferrechio, Chief Congressional Correspondent for The Washington Examiner, New Congress

5:00 pm (CST) Sheriff Larry Dever, Immigration

5:30 pm (CST) Timothy Lee, Center for Individual Freedom, Deficit/Economy/Judges

Please share your comments, thoughts and questions at (850) 623-1330, or listen via the Internet by clicking here.  You won’t want to miss this!

Our Liberty Update, CFIF’s weekly e-newsletter, this week includes the commentary “A Balanced Budget Amendment Doesn’t Have to Mean Higher Taxes – CFIF’s ‘One More Vote’ Proposal Doesn’t.” In that column, we note that the White House deficit commission’s fundamental flaw is that it takes for granted 2010 federal spending levels as its baseline:

The overriding problem with the commission’s plan is that it accepts the 2010 fiscal year as its spending base, thereby locking in the alarming spending increases of the Obama-Pelosi-Reid regime.  That includes the failed “stimulus” that attempted to spend our way to prosperity, the bailouts, the pet projects and everything else they’ve heaped into our budget.  Since 2008, federal spending has surged from approximately $25,000 per household to $30,000 per household, and jumped during that two-year span from its historical average of 20% of gross domestic product (GDP) to approximately 25% of GDP.  Richard Rahn points out that, “Federal government spending and revenues in 1968 as a percentage of gross domestic product (GDP) were almost identical to the levels in 2008.”

Unfortunately, it’s actually even worse than that.  The commission also leaves in place ObamaCare, which is already driving up healthcare costs and adding to the deficit (despite promises that it would have the opposite effect).  As James Capretta from National Review Online observes, we shouldn’t be surprised given the commission’s composition:

None of this is all that surprising, given how the commission was formulated.  It’s not really a bipartisan commission at all; it’s an Obama commission.  It was created by the president and stacked with Democratic appointees.  Two-thirds of the 18 members were picked by the president or Democratic congressional leaders. Only six were appointed by Rep. John Boehner and Sen. Mitch McConnell.  The president says the public doesn’t want to “re-litigate” the health care war.  He’s wrong.  As last Tuesday’s exit polls make clear, a strong plurality wants exactly that.  The American people know that the ill-advised law was railroaded through Congress and is a colossal mistake.   The fundamental problem here is that it is not possible build a bipartisan budget framework on a foundation that includes a partisan health-care plan with sweeping implications for future spending levels.

Americans cannot be asked to accept the commission’s findings when they take as a given current spending levels and an ObamaCare atrocity that must be replaced.

The Wall Street Journal is among the news sources carrying coverage of the preliminary recommendations being produced by President Obama’s much-feted debt reduction panel. According to the Journal’s synopsis:

Among the controversial proposals, the plan in its current form would end or cap a wide range of breaks relied on by the middle class, including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.

For businesses, the plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions. It would make permanent the research and development tax credit. Overall, the plan would cut the federal deficit by $3.8 trillion by 2020.

… On Social Security, the plan would gradually raise the retirement age to 68 around 2050 and 69 by 2075. It would combine a cut in benefits with a rise in taxes on wealthier people’s incomes. It would also seek to rein in federal spending on health care beyond what’s called for in the recently passed health-care overhaul. This would be achieved by introducing further changes, including reform of medical-malpractice law, and by seeking to slow the growth of the Medicare program.

The plan would make significant cuts on spending over which Congress has direct control, beyond entitlements such as Medicare. It identifies $410 billion in discretionary spending cuts by 2015. It proposes cutting the federal work force 10%, at a further savings of $13.2 billion by 2015.

Congressional earmarks—provisions inserted into legislation for lawmakers’ pet projects—would be banned permanently, saving $16 billion.

This a surprisingly market-friendly recommendation, much of which — though politically very tough — is admirable. Hopefully, low-tax advocates will train their fire on the unnecessary increases in capital gains and dividend rates, as well as what looks to be a proposed increase on Social Security and Medicare taxes for the wealthy. While we don’t know what deductions are on the chopping block, if the home mortgage example is representative there’s actually a strong free-market case to be made in favor of the eliminations. By giving economic preference to activities like home purchases, these deductions lead to economic inefficiency (they either direct consumers to make choices that wouldn’t be rational without the deduction or subsidize purchases that would have been made regardless).

Elsewhere in the WSJ piece, the authors refer to the fact that the current recommendations rely about 75 percent on spending cuts and 25 percent on tax increases. Good, but not great. A recognition that taxes always hamper economic activity means that tax increases should never be considered instead of spending cuts unless (A) government is only doing the things that are its rightful responsibility and (b) it is doing all those things at maximum efficiency. At some point, the exigencies of politics may require compromising short of that ideal, but I’d like to see a comprehensive examination of spending in the executive branch before tax hikes are even considered.

Let’s consider the cabinet departments. The Departments of Justice, Defense, Treasury, and State are the originals and unquestionably justified under our scheme of federal government. There are others that have probably grown into necessary organs in years since. We’ll need Health and Human Services as long as we have a federal welfare state, Interior as long as we have public lands and a National Park system, Transportation at least for the interstate highway system and air travel and, though its probably in need of some pruning, Homeland Security. Veterans Affairs seems like it could be folded into either Defense or HHS. As for the Departments of Education, Housing & Urban Development, Energy, Agriculture, Commerce, and Labor (apart from its statistical work), I’m at a loss for what useful purpose (or more importantly, results) justifies their existence. I’d be more than willing to scrap each of them, keep the few parts we still need, and re-check the ledger before considering higher taxes for even a single American.

Today, the Labor Department announced that the unemployment rate remained at 9.6% for the third consecutive month.  When President Obama signed his nearly $1 trillion “stimulus” in February 2009, the unemployment rate stood at 8.2%.  In the 20 months since that date, the rate has increased to 9.6% despite White House projections that it would top out at 8% fully one year ago.

Once again, a comparison to the Reagan recovery is profoundly instructive.  In the same 20 month span following the effective date of the Reagan tax cuts in January 1983, unemployment plummeted from 10.4% to 7.3%.  Also instructive is the following headline from today’s Wall Street Journal:  “European Central Bank Parts Ways With U.S. on More Stimulus.” It is a sad state of affairs when even the spendthrift Europeans are providing economic guidance to Obama.

Liberal Keynesians have had almost two years to prove the validity of their economic agenda.  It has failed, their rationalizations have grown stale, and their desperate efforts to resist corrective action will only prolong the nation’s misery.

In an interview with the Wall Street Journal’s John Fund, retiring Rep. Brian Baird (D-WA) shares some thoughtful insights about what went wrong for Democrats the last two years.  From appallingly bad advice from so-called strategists (e.g. “voters don’t care about deficits”) to an “authoritarian” leadership that demanded blind loyalty from members, Baird’s interview could be read as a warning to the incoming Republican majority.  Common sense in rules and policy is a non-partisan winner.

Most revealing are the ideas Baird has for tackling entitlements:

In his new book, “Character, Politics and Responsibility,” Mr. Baird argues that in order to afford caring for the needy, liberals will have to challenge “unsustainable entitlements.” “I would eliminate the concept of entitlements and move to needs-based social insurance,” he says. “The key is to both promote personal responsibility while lowering expenditures by not promising or giving money or other benefits to those who don’t need it.”

Too bad Baird won’t be around to make that case inside Congress.