Local Virtue Signals

Sigh!  One of the local mayors is virtue signaling as reported in the La Crosse Tribune recently:

La Crosse Mayor Tim Kabat supports La Crosse state legislators urging Gov. Scott Walker to commit Wisconsin to a state-based plan for combating climate change.

“It is essential that local and state legislators present a united front in the face of the president’s withdrawal from the Paris agreement,” Kabat said. “I commend these legislators for their dedication to the environment and join them in their commitment to combating climate change. In La Crosse, we have made substantial progress in reducing carbon dioxide emissions and will continue working toward our goals, regardless of the president’s actions.”

One of these things, the Paris agreement, has nothing to do with the other, local carbon emissions.  Should we be reducing carbon emissions in La Crosse?  Well we ought to reduce costs.  We certainly hope that the city is not increasing costs to battle carbon dioxide.  Why it would be essential for local and state legislators to present a united front is anybody’s guess.  If there happened to be a united front it would be nice to have debate about what it should be.  Our guess and hope is that he will have opposition for his next term.

 

The Growth Fairy

It is one of Kevin Williamson’s favorite topics but he is not the only one.  Check out this Internet search.  Kevin is not a fan but Stephen Moore is a big fan as he explains in the WSJ:

Growth of 3% [instead of 1.9%] would stop the debt-to-GDP ratio from skyrocketing. Instead it would start to fall almost immediately, eventually to about 50%, because the economy would be so much larger. Congress and the White House ought to understand that what matters most for heading off a fiscal crisis is making sure that the economy grows faster than the government. No other debt-reduction policy—certainly not a tax increase—comes close to having the fiscal effect that sustained prosperity does.

It is the impact of compound interest.  The same force that makes Medicare/Medicaid such a big problem makes economic growth a potential savior.  The issue is can the government or anyone else do things to make 3% growth in the US more likely than 1.9% growth over the next several decades?  Kevin thinks no and Stephen thinks yes.  Kevin is particularly worried about personal tax cuts while Stephen is enamored with them.  They both agree on the need for entitlement reform.

We are somewhere in-between.  We think that the government can take actions that will lead to more growth.  Regulation is one of those areas that has a zero or perhaps positive budget impact because less regulation costs the government less and leads to a more productive economy.  The Donald is off to a productive start in this area.  On the other hand, increasing tariffs is a terrible idea for growth.  So can The Donald do better than his predecessor at encouraging growth?  Even more troubling today is looking at the next Democrat president.  If it is Kamala or Cory we are in big budget trouble because growth isn’t on their minds.

We think the crucial tax cut andThe Donald seems to agree is business taxes.  It has less of a deficit impact and we hope it gets done.

So, yes, we think The Donald and the GOP can increase growth over the next seven plus years.  We think they should emphasize it because they need to develop the next JFK in the other party.  Pessimism is in order now but politics change quickly.

Then we can go on to entitlements.  It should take five minutes to decide whether we should raise Social Security taxes on professionals (mostly) or means test their payments.  Social Security decisions are about professionals because doctors, lawyers, professors (well in some disciplines), and related fields make their income in wages.  The really rich make it in capital gains that are not taxes by Social Security.  Everyone should agree that means testing is the way to go.  We think means testing should start now and include the retired MWG.  Medicare is a way bigger problem that will take more time.

We believe in the growth fairy but we see no need to blow open the deficit.  Regulation is really important.  Heather Mac Donald has some great ideas on how to increase efficiency in policing.  In addition we should reduce corporate taxes.  Then try not to do anything stupid like increase tariffs.  We shall watch the quasi-experiment with great interest.

 

An Additional Conservative Slice

Yesterday we disagreed with James Freeman about social and economic conservatives being the same folks.  Today, Kevin Williamson and George Will remind us that economic conservatives are subject to division between growth hawks like Larry Kudlow and deficit hawks like Kevin.  Kevin reminds us that there are choices and The Donald has not yet confronted those choices.

Our choices are for corporate tax reform, regulatory reform, (elimination is our first choice) and entitlement reform starting with Social Security.  We are not going to reduce everyone’s but means testing for Social Security should start today.  We believe in the growth fairy.  We oppose all tariffs.  Growth doesn’t solve all of our problems but it does help many of them.  Growth leads to optimism for the electorate and revenues for the government.  We are open to lots of other of trade-offs after that.  Any personal tax deal needs to be revenue neutral at worst because we see the best growth incentive opportunities on the corporate tax side.

 

Accounting Versus Arithmetic

At NRO George Will reminds us of the fiscal problems that we face by starting with pensions for states and municipalities:

Some American disasters come as bolts from the blue — the stock-market crash of October 1929, Pearl Harbor, the designated hitter, 9/11. Others are predictable because they arise from arithmetic that is neither hidden nor arcane. Now comes the tsunami of pension problems that will wash over many cities and states.

The WSJ reports on Illinois where the state has a $130 billion in unfunded pension liabilities.  The Democrats are trying to tax their way out.  Illinois is one of the few states with a decreasing population of less than 13 million.  We’d avoid it too.

Then George concludes with the entitlement crisis:

The problems of state and local pensions are cumulatively huge. The problems of Social Security and Medicare are each huge, but in 2016 neither candidate addressed them, and today’s White House chief of staff vows that the administration will not “meddle” with either program. Demography, however, is destiny for entitlements, so arithmetic will do the meddling.

We agree with George on the severity of the problem but we’d like to add a bit of explanation.  Pensions can be accounted for and the extent of the problem is an accounting result.  Pensions are very long term so they are very responsive to compound interest.  George notes that when Illinois went from an expected return of 7.5 percent to 7.0 percent it added $400 to $500 million to the annual bill.  George thinks 7.0 percent is still imprudent but gives no evidence to suggest why.

Entitlements like Social Security and Medicare are not pensions.  Pensions have assets that will grow and, hopefully, meet the obligations.  MWG’s pension from the state of Wisconsin is nicely funded and gives us great comfort.  Entitlements are paid on a cash basis.  MWG Social Security payment comes from the younger readers.  Thanks!  The probability of the coming disaster for Social Security is approaches 1.0 because only a plague among retirees can stop it unless Congress acts.  The extent of the Medicare disaster depends greatly on the rate of increase in medical costs.  Pensions could be fixed but Illinois shows us why it doesn’t happen in many states.

The clock is ticking.  Social Security needs to be means tested yesterday.  Start now with a small changes and get it right by the end of the decade.

The only current good news is that the GOP is trying to fix Medicare while eliminating the ironically named Affordable Care Act.  Let’s hope they get their sums right.