Pixel Tracker

Friday, February 22 , 2019, 3:19 am | Fair 46º

 
 
 
 

Veronique de Rugy: Making the Federal Government Lean Again

We are not in a full-scale war. We are not in a recession or fighting a high unemployment rate. But the federal government is spending as if we were a teenager with a parent's credit card.

Trillion-dollar deficits are coming back soon, so this is the perfect moment to start talking about government austerity.

According to the Congressional Budget Office, even before taking under consideration the budget impact of the Tax Cuts and Jobs Act and the added spending from the budget deals, we are about three years away from the next $1 trillion deficit.

Also, this year, the Department of the Treasury will inevitably have to borrow hundreds of billions of dollars to pile on top of our already eye-popping $20.6 trillion of gross debt, which is public debt plus the debt the federal government owes to other accounts, such as Social Security.

That's over 100 percent of our gross domestic product. It will also have to request yet another increase to its borrowing limit.

Strikingly, President Donald Trump made zero mention of the debt or the growing deficits during his State of the Union address.

However, he didn't fail to ask for new spending on infrastructure, another job training program to be added to the dozens of existing and inefficient ones, immigration enforcement, and a wall on the southern border. And he asked for more defense spending than he is currently allowed to have.

There was no mention of how we would pay for all of that stuff, and he even mentioned more tax cuts. (Obamacare taxes, I am looking at you.)

For those reasons, it's high time to ask that this administration and Congress make the federal budget lean again.

At this point, many of you may think I am delusional. Indeed, a look at budget numbers reveals that when Republicans are in control of Congress and the White House, special interests that feed at the teat of government have nothing to fear. Government continues to grow.

You get some tax cuts and a few military operations but no spending cuts or reforms to the entitlement state. In fact, you may get a new entitlement program, such as Medicare Part D or paid family leave.

Nonetheless, it is worth trying to fight for fiscal responsibility by reminding elected officials that debt and deficits aren't good.

They're expensive. They slow the economy over time. They make it more difficult to respond to true emergencies. And they make it likelier that tax cuts will be undone in the future.

They are also unfair to the future generations that will pay for them with lower growth, fewer jobs and higher taxes.

The great news is that if lawmakers decided to do the right thing, we would know what to do. There is not only a large amount of literature but also a consensus among economists about what fiscal adjustment packages are the most effective at reducing the debt-to-GDP ratio with the lowest level of short-term costs.

First, based on past experiences in developing countries, we know that spending-based adjustments are more successful than tax-based adjustments at reducing the debt-to-GDP ratio. They also last longer.

Second, consolidations based on spending cuts are more effective if they focus on reforming entitlement programs. Spending-based adjustments, unlike tax-based ones, also lead to long-term growth.

Third, spending-based packages can sometimes encourage economic growth in the short term. Tax-based ones never do.

Even the International Monetary Fund recognizes in its research that when spending-based adjustments impose a short-term slowdown, the declines in consumption and GDP are three or four times smaller than tax-based fiscal consolidations.

These findings were confirmed in a recent paper by Harvard economist Alberto Alesina and his co-authors.

Now, the more depressing part of this body of research is that a vast majority of the fiscal adjustment experiences end up as failures because politicians choose to raise taxes rather than cut spending.

Maybe that's because they continue to be more committed to the special interests benefiting from the government programs — e.g., seniors — than to the long-term health of their country.

Whom are American politicians loyal to? Let's hope they decide to pick fiscal sustainability over special interests.

— Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University, a columnist for Reason magazine and the Washington Examiner, and blogs about ecomomics for National Review. Click here to contact her, and follow her on Twitter: @veroderugy. Click here to read previous columns. The opinions expressed are her own.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made using a credit card, Apple Pay or Google Pay, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Email
Select your monthly membership
Or choose an annual membership
×

Payment Information

Membership Subscription

You are enrolling in . Thank you for joining the Hawks Club.

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.
You may cancel your membership at any time by sending an email to .(JavaScript must be enabled to view this email address).

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >