Debt Limit Talks showing the problem with “Heritage Conservatism”

The last few weeks, along with the next two, have been pretty exciting here in D.C.  Both sides are trying to haggle their way into getting what they want.  The Democrats (and some Republicans) want to raise taxes and “cut” spending (yeah right), the Republicans want to cut spending and pass Cut, Cap and Balance (which, in theory, includes passage of the balanced budget amendment).  A lot of my fellow libertarians have been very vocal about not liking Cut, Cap and Balance and saying that we cannot under any circumstance, raise the debt limit.  While this sounds great in theory, it falls a tad bit short in reality.  The truth is that the debt limit is going to have to go up, BUT we also need to get something for it and that is where Cut, Cap and Balance comes in.

So far, Republicans (the ones not in the Gang of Six) have held up well against the idea of tax increases and minimal cuts, but they also are still stuck in the mode of no cuts to defense.  This is simply not acceptable.  Recently, the Heritage Foundation released a Web Memo titled, “Cut, Cap and Balance Makes Sense – So Does Providing Adequate Support for Defense.”  By “adequate support” they mean a minimum of $720 billion a year.  WOW!!! If that’s what adequate is, damn! 

In the Web Memo, Heritage states:

"Thomas Jefferson once said that “the price of freedom is eternal vigilance.” Today, as has always been the case, the cause of liberty is under assault. Internationally, authoritarian states and the supporters of Islamist extremism in non-state groups seek to use violent coercion to extinguish liberty everywhere. Failing to prepare for these threats would not only weaken U.S. national security but undermine the international security of world commerce and trade if the U.S. is unable to defend the open seas and maintain a global military presence."

This suggests that it is the job of the United States to defend liberty everywhere, no matter the cost in dollars or lives of our troops.  This is exactly the problem with modern conservative movement, it has been hijacked by this “Heritage Conservatism.”  The very fact that they dare use a quote by Thomas Jefferson to justify spending 100s of billions a year on a massive empire defies all common sense and logic. 

To get back to the debt limit talks, it is vital that Republicans realize that spending “adequately” on defense is not quite adequate.  Republicans must put every kind of spending on the chopping block including defense spending.  Cut, Cap and Balance is a good plan and our best chance at a Balanced Budget Amendment and real spending cuts, but it needs to include defense cuts.

Liberty = Prosperity

The United States Chamber of Commerce recently released a report titled “The Impact of State Employment Policies on Job Growth,” looking at variance in state employment regulations and its effect on economic growth. The Chamber report places states into 3 tiers: good, fair, and poor.  Americans for Tax Reform took a look at a number of other policies to see if there was any corollary relationship with economic performance. Area of analysis include: tax burden, spending restraint, labor policy, and partisan control.

Tax Burden

When comparing states placed in the top and bottom tiers by the Chamber, one will find a substantial difference in marginal tax rates for both individuals and corporations.  Top tier states have an average marginal income tax rate 25.3% lower than bottom tier states.  Top tier states also have lower corporate rates – 27% lower on average than bottom tier states. When it comes to overall tax burden, states rated as bottom performers by the Chamber have a state and local tax burden that is 12.8% higher on average than the top tier states. .

Top Tier-Bottom Tier	Top Tier	Bottom Tier	Difference
Top Marginal Income Tax Rate	4.86%	6.09%	25.3%
Top Corporate Income Tax Rate	5.29%	6.72%	27%
State/Local Tax Burden	8.90%	10.04%	12.8%

Spending Restraint

As was the case with level of taxation, when comparing state spending, we once again find significant variance between top tier states and bottom tier states.  Prior to recession, in 2007, the Chamber’s top tier states spent an average of 9.6% of state GDP compared to the 10.6% for bottom tier states spent; a difference of 10.4%.  In 2009, top tier states spent 9.9% of GDP compared to the bottom tier’s 11.1%; an increased difference of 12%.  It is clear that the top performing states in the Chamber’ report spend a significant amount more as share of their economy.  

It should also be noted that bottom performing increased spending at a rate 66% great than top performing states during the recession.

Top Tier-Bottom Tier	Top Tier	Bottom Tier	Difference
2007 State Government Spending as Percentage of GDP	9.6%	10.6%	10.6%
2009 State Government Spending as Percentage of GDP	9.9%	11.1%	12%
Percent Change in Government Spending	0.3%	0.5%	66%

Right-to-work and Collective bargaining restraints for Public Sector Employees

Right-to-work along with scope of public sector collective bargaining rights appears to be another factor in how state’s faired in the report.  Of the states that the Chamber placed in the top tier, all are right-to-work states. Four of the TK top tier states (Georgia, North Carolina, Texas, and Virginia) outlaw public sector collective bargaining completely and three states (Alabama, Mississippi, and Utah) that allow some form of collective bargaining for certain public sector employees.  While roughly half of the top tier states restrain government sector collective bargaining, all bottom tier states allow full collective bargaining for their public employee. Only one bottom tier state, Nevada, is a right to work state.  Not unexpectedly, Nevada also has the lowest spending and lowest tax burden of the bottom tier states.

Partisan Control

Perhaps the biggest factor when it comes to performance in the Chamber’s report is partisan control of state government.  Aside from North Carolina, all top tier states are all either Republican-controlled or have split control.  Of the bottom tier states, all are either under total Democrat control or split control.

Of the top tier states, those under Republican control are shown to have a more favorable business tax climate than split control top tier states, In top tier states with total Republican control, the average top marginal income tax rate is 26% less that split controlled top tier states; top corporate tax rates drop 9.1%, and state and local tax burdens drop 1%. 

The contrast between top tier Republican-controlled states and bottom tier Democrat-controlled states is even greater.  The top marginal income tax rate for Republican states drops 26.9%, the top corporate income tax drops 19.1% and the state and local tax burden difference grows from 1.14% to 1.45%. 2007 Republican state spending per GDP drops from 9.6% to 8.5% and 2009 Republican state spending per GDP drops 11.2%.  Once again, the differences between Republican and Democrat states also increases with 2007 spending differing from 1% to 2.1% and 2009 spending from 1.2% to 2.3%.

Republican-Democrat	GOP	DEM	Difference
2007 State Government Spending as Percentage of GDP	8.5%	10.6%	24.7%
2009 State Government Spending as Percentage of GDP	8.9%	11.2%	27.0%
Percent Change in Government Spending	0.4%	0.7%	75.0%
Percent Change in Real GDP Growth (08-09)	-1.05%	-2.40%	118.10%
Top Marginal Income Tax Rate	3.83%	6.33%	59.80%
Top Corporate Income Tax Rate	4.44%	7.06%	59.40%
State/Local Tax Burden	8.81%	10.26%	17.30%
Unemployment Averages 2007	3.8%	4.8%	26.3%
Unemployment Averages 2010	8.4%	9.3%	8.3%
Percent Change Unemployment 07-10	4.6%	4.3%	6.5%
Gain/Lose Congressional Seats	9	-3	133.0%

Results

When all of these factors are combined, a state’s economy fares better than a state with the opposite factors (higher taxes, more spending, and union and democrat controlled).  The GDP growth for top tier states is 1.73% higher than bottom tier states.  Unemployment was .6% lower in 2007 and 1.2% lower in 2009.  Unemployment growth during the recession was less in the top tier states (4.5%) than the bottom tier states (5.1%).  The states in the top tier are also among the states gaining congressional states with a net total 9 new seats while the bottom tier states are losing a net total of 4 seats.  All of these results point to one conclusion: More freedom from government = More prosperity.

Top Tier-Bottom Tier	Top Tier	Bottom Tier	Difference
Percent Change in Real GDP Growth (08-09)	-0.80%	-2.53%	216.30%
Unemployment Averages 2007	4.0%	4.6%	25.30%
Unemployment Averages 2010	8.5%	9.7%	27.00%
Percent Change Unemployment 07-10	4.5%	5.1%	12.80%
Gain/Lose Congressional Seats	9	-4	15.0%

Slash or Burn

Liberals these days like to accuse conservatives of "slash and burn" policies that "kill Old people and children."  The truth is that we MUST Slash and Burn our budget or our government will go bankrupt and default.  In about 24 hours, the time will run out on the Continuing Resolution is that is currently funding our government and the government will effectively shutdown (although government slowdown is a better term).

Currently House Republican leadership, Senate Democrat leadership and the White House are trying to work out a deal for another CR or a complete budget.  The Senate Democrats proposed a $33 billion budget that Speaker John Boehner rejected and the White House has promised to veto a one week $12 billion cut from the House.  But their is a major problem with all of these proposals . . . it is not near enough.  During the last campaign, House Republicans promised $100 billion in cuts and now Boehner is pushing $61 billion in cuts.  Note to Boehner and all Republicans: 61 is NOT the same as 100, you're about $39 billion off.  I propose that if House Republicans cave and cut less than the promised $100 billion we burn them by not voting for their re-election.  This budget is too important to only cut 33 or 61 billion, we must at the very least, cut the promised $100 billion. 

The truth is that $100 billion is not enough, radical and drastic cuts must be made NOW.  Several months ago, Senator Rand Paul proposed a $500 billion cut and the Cato Institute proposed a $1.06 trillion cut and Paul Ryan has a 2012 budget proposal that would cut between 4 and 6 trillion over 10 years.  These are real cuts, drastic cuts, needed cuts.  The Cato proposal would balance the budget by 2020, the Ryan proposal by 2050.


I would also like to propose a deal on the debt ceiling and the 2011 budget: No deal on either without the passage in the House and Senate, signing by the president and ratification by the states of the Balanced Budget Amendment as proposed by Senator Mike Lee.  This will force Congress to cut spending to 18% of GDP (currently hovering around 25%), make desperately needed reforms to Social Security, Medicaid and Medicare and start to pay down the national debt that is currently at a staggering $14 trillion.

The time to act is now, not 5 years from now, RIGHT NOW!  For years politicians from both sides of the isle have been kicking the can down the road on spending cuts, and now one more kick will result in that can and person kicking it to plunge down the massive hole at the end of the road.  If the cuts that were promised to us are not instituted, it's time to Slash and Burn anyone, including my own Congressmen, who voted for cuts less than the promised $100 billion.