With the Proposition 103 tax increase heavily defeated this November, what comes next for Coloradans for low taxes and limited government? Senior fellow Penn Pfiffner was a guest on The Tax Foundation’s podcast show recently to discuss Prop 103’s resounding defeat, the nature of our state budget, government’s role in our lives, and the ongoing battle against tax hikes in our state.
Listen to the iVoices.org audio here.
On Wednesday March 2nd, the Independence Institute held a panel event at the University Club in Denver to discuss the solutions presented in the Citizens’ Budget project. Presenters included project director Penn Pfiffner, Education Center policy analyst Ben DeGrow, Health Care Policy Center director Linda Gorman, and Fiscal Policy Center senior fellow Barry Poulson. Each presented for around 10 to 15 minutes, with a questions and answers period at the end of the event. All presentations, including the introduction, closing remarks, and Q & A have been recorded.
For those of you unable to make it, we’ve compiled the presentations by each speaker in individual podcasts. Feel free to download these podcasts and share them with others who might be interested.
- Introduction from Citizens’ Budget project director Penn Pfiffner: AUDIO here.
- Ben DeGrow on K-12 education spending policy: AUDIO here.
- Linda Gorman on health care policy: AUDIO here.
- Barry Poulson on higher education spending policy and PERA: AUDIO here.
- Closing remarks from Penn Pfiffner and Q & A: AUDIO here.
This episode of Jon Caldara’s TV show the Devils Advocate first appeared on Colorado Public Television – Channel 12 on Friday, December 17th, 2010. It features a 30 minute discussion about the Citizens’ Budget and features Independence Institute Fiscal Policy Center director Penn Pfiffner – director of the Citizens’ Budget project.
The report provides an overview of the structure, timing and size of the State budget. We speak to how the problems originated and how things have gone wrong in recent years. The Citizens’ Budget includes legislative, constitutional, and policy recommendations to close the looming state budget gap – without raising taxes – and move Colorado towards sustainable government for good. Use this Citizens’ Budget link for the full document.
Thanks to our friends at the Independent Institute out in Oakland, California, regular folks like us can figure out just how much the government is costing us in direct payments and in lost earnings over our lifetime. From the About Page on the MyGovCost website,
The Government Cost Calculator is a unique service from The Independent Institute that enables any American to clearly understand three aspects of federal government spending.First, the Government Cost Calculator helps you determine how much you will pay for various federal programs now and over the course of a lifetime. Second, it compares those tax payments to the forgone earnings that would have been possible if such funds were kept and invested in private, market accounts. Finally, the Government Cost Calculator enables you to see the difference between government expenditures and your tax payments, clearly illustrating the growing debt obligations you face in the future.
All you have to do is input your education, age, and income into the Government Cost Calculator and you will get results that accurately reflect how much our overbearing government costs YOU!
A good friend of the Fiscal Policy Center and Free People, Free Markets alumnus Tom Ryan has a wonderfully informative organization and website called Reclaiming Moral Government. Tom has created a slide show that displays the changing role of government from 1850 to present day. The viewer gets to see governments expansion into our lives through a beautifully color coordinated time lapse. It is truly well done. Tom was also kind enough to sit down with Fiscal Policy Center director Penn Pfiffner for an iVoices.org podcast. They discuss Tom’s new Reclaiming Moral Government venture and what Tom hopes to achieve through it. Please take a few minutes and see for yourself how government has managed to stick its nose into every aspect of our lives over the last 150 years.
IP-3-2010 (August 2010)
Author: Barry W. Poulson
PDF of full Issue Paper
Sribd version of full Issue Paper
This study focuses on the retiree health plan administered by the Colorado Public Employees’ Retirement Association (PERA). The PERA Health Care Program is a cost sharing multiple-employer plan. The “employers” in this context are the various governments that hire most public employees, such as public school teachers, fire fighters, police officers and state employees. Under this program, PERA subsidizes a portion of the premium for health care coverage, and the retiree pays any remaining amount of that premium. The Colorado legislature created the Health Care Trust Fund in 1999 to provide state subsidies to the Health Care Program.
The 10th Amendment in the Era of Due Process
The Tenth Amendment to the Constitution provides: “The powers not delegated to the United States by the Constitution nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
Over the first century of our nation’s history the 10th Amendment was an important part of the Constitutional rules constraining the growth of the federal government. This was the era of due process when the courts challenged incursions by the federal government on the powers reserved to the states and the people. Economic liberties, protected under the 5th and 14th Amendments, were subject to the same standard of judicial review and protection as personal liberties.
This era of due process was reflected in our fiscal policies. At the end of the 19th century all government spending was less than 10 percent of total output. Federal taxes and spending were less than total combined state and local taxes and spending. The federal debt was about the same level at the end of the century as at the beginning. The role for the federal government in the economy was not that much different than it was at the founding of the Republic.
The 10th Amendment in the Era of Judicial Abdication
It is fair to say that today the 10th Amendment has become meaningless as a constraint on the power exercised by the federal government. The purpose of this paper is to examine this erosion of the 10th Amendment, and how we can restore federalism and state sovereignty.
Over the past century the 10th Amendment and other Constitutional constraints on the growth of the federal government have been eroded to the point that they are almost meaningless. This era of judicial abdication was launched during the Great Depression when the Supreme Court reinterpreted the Constitution to subject economic liberties to a lower standard of judicial review than personal liberties. The courts have since sanctioned a greatly expanded role for the federal government to tax, spend, and regulate economic activity.
Unconstrained Growth in Federal Spending is Eroding the Federalist System and State Sovereignty
The era of judicial abdication has been accompanied by unconstrained growth in federal taxes and spending, culminating with unprecedented growth in federal spending under the Obama Administration. This week the Congressional Budget Office (CBO) projected that federal spending will average in excess of 24 percent of total output over the next decade, far above the average over the past century. Federal deficits will increase to 5.6 percent of output by the end of the decade. The federal debt will increase to $20.3 trillion, double the level of debt at the beginning of this administration.
The rapid growth in federal spending is eroding fiscal discipline at the state and local level. Federal stimulus dollars are funding higher levels of state spending in the short run. When these one-time moneys disappear state budgets will fall off a cliff; states will have to increase taxes or cut spending.
Unconstrained growth in the federal government also is undermining our federalist system. In return for federal stimulus dollars the states have abdicated their role in administering these funds. The federal government essentially has commandeered the taxing, spending, and regulatory powers of the states. Increased federal funding for welfare, Medicaid, and other federal programs will be accompanied by increased federal control over how those dollars are spent. Many of the successful welfare and Medicaid reforms that the states have enacted will be negated by federal rules and regulations.
It is fair to say that the nation has reached a tipping point in the expansion of the federal government and erosion of our federalist system. The CBO projects that unconstrained growth in federal spending is not sustainable. It does not matter how the federal government attempts to finance the growing deficits and debt. The result will be retardation and stagnation in economic growth. Tax revenues would have to double to finance the deficits. If the deficits are financed through borrowing, interest rates would have to increase to levels that crowd out private investment. Printing money to finance the deficits would result in crippling rates of inflation. The CBO concludes that there is only one way to reform our fiscal policies and sustain our economic growth, and that is to reduce the rate of growth in federal spending.
Ineffective Constraints on the Growth in Federal Spending
Unfortunately Congress has not had much success in constraining the growth in federal spending under either Republican or Democratic administrations. Over the years Congress has imposed a variety of budgetary rules that have had temporary, but no lasting effects in limiting spending. The current rule, known as “paygo,” lends the appearance of prudent fiscal policy, but is largely ignored.
Nor have the states had much success in constraining this growth in the federal government and erosion of our federalist system. Thirty-eight states, including Colorado, have introduced resolutions to reaffirm the principle of delegated powers under the Constitution. These resolutions recognize that many federal mandates are in direct violation of the Tenth Amendment. A resolution introduced in New Jersey goes further, noting that in New York v. United States, the United States Supreme Court ruled that Congress may not simply commandeer the legislative and regulatory processes of the state. The New Jersey resolution claims sovereignty under the Tenth Amendment over all powers not otherwise enumerated and granted by the Constitution to the Federal government, and serves as notice and demand to the federal government to cease and desist mandates that are beyond the scope of its Constitutionally-delegated powers.
These non-binding “state sovereignty resolutions” do not carry the force of law, but are statements of intent by state legislatures. Even though the courts have provided some support for the resolutions, the states have not been successful in using the 10th Amendment to challenge the broad range of powers now wielded by the federal government. Indeed, some refer to the resolutions as feel-good measures because they do little to constrain the federal government.
One way that the states have attempted to fulfill the legislative intent of the resolutions is through nullification. A state nullifies a federal law when it proclaims the law in question is void and inoperative, or non-effective, within the boundaries of the state. Enacted by the states from the early years of the Republic, nullification laws have challenged a wide range of federal laws from the Alien and Sedition Acts, to federal taxes.
A modern nullification movement has challenged new federal laws perceived to be in conflict with the Constitution and state laws. Thirteen states have enacted medical marijuana laws that contravene federal laws which declare marijuana to be illegal. Twenty states have enacted legislation to prevent the implementation of the federal Real ID Act of 2005. Two states have passed laws nullifying federal gun laws and regulations within their states.
When states pass nullification laws they simply refuse to enforce the federal laws perceived to be in conflict with the Tenth Amendment and state law. In some cases the response of Congress and the President has been to stop implementing and enforcing the federal law. The Obama administration has stated it would no longer prioritize enforcement against those acting in compliance with state medical marijuana laws. They also have stated that they propose to repeal and replace the controversial Real ID Act. However, these nullification laws are challenged in the courts, where they founder on preemption of federal law over state law.
A Constitutional Path to Prosperity
Citizens also have been unsuccessful in constraining the growth of federal spending. Over the past century citizens have made a number of attempts to incorporate fiscal rules in the U.S. Constitution. Article V provides two routes to amending the Constitution. Congress, with a two-thirds vote, can place a proposed amendment on the ballot, at which point the proposed amendment must be ratified in three-fourths of the states. Or, with two-thirds of state legislatures concurring, the states can request Congress to convene a constitutional convention for the purpose of amending the Constitution.
Thus far, only the first route to amending the Constitution has been successful. Citizens have not been successful in garnering the requisite two-thirds of state legislature required to propose a constitutional convention. The proposed amendments include measures to repeal the income tax, prohibit federal unfunded mandates, and to balance the federal budget. The recent effort to call a constitutional convention to balance the federal budget was effectively blocked by interest groups who argued that the result would be a runaway convention.
Given previous failed efforts to incorporate fiscal rules in the Constitution some would argue that we can only hope to elect a better group of legislators committed to fiscal discipline. This approach would seem to be a counsel of despair. The folly of relying on Congress to impose fiscal discipline is revealed by the record of fiscal profligacy under both Republican and Democratic administrations.
We can’t afford to wait while federal fiscal policies bring retardation in economic growth and undermine the federalist system. There is a growing recognition that unconstrained growth in government spending can lead to a tipping point and a failed state. The precedent for such failure is emerging in California. The California legislature recognizes that its fiscal policies are not sustainable, but lawmakers do not seem to be able to change course. The growing reliance of states, such as California, on federal bailouts is eroding what little fiscal discipline is left.
There also is a growing recognition in Congress that the failed fiscal policies are not sustainable. In his “Roadmap for America,” Congressman Paul Ryan (R-WI) makes the case for incorporating new fiscal rules in the Constitution. The Republican Study Committee has endorsed the “Roadmap” and drafted new legislation to amend the Constitution. House Joint Resolution 1 proposes a Balanced Budget Amendment. House Joint resolution 79 proposes a spending limit equal to one-fifth of total output.
The states are not waiting for Congress to enact this legislation. State legislators are proposing their own amendments to incorporate fiscal rules in the U.S. Constitution. In Florida Senate President Jeffrey Atwater has introduced a bill calling for a statewide referendum on a federal balanced budget amendment. He and his colleagues also have introduced a Senate Concurrent Resolution calling for a convention to amend the U.S. Constitution. These amendments propose to do the following:
The American Legislative Exchange Council (ALEC) has endorsed a number of proposed amendments incorporating fiscal rules in the U.S. Constitution. ALEC has formed a working group on federalism and state sovereignty to draft new resolutions and model legislation. These measures include similar amendments to do as follows:
There is a better way to constrain the federal government than capping federal spending at 20 percent of total output. ALEC proposes to limit the annual growth in federal spending to the sum of inflation and population growth. There are several reasons why this type of spending limit is preferred.
First, there is not agreement among economists regarding the optimum size of government. For example, CATO Institute president Bill Niskanen, President of the, argues that the size of the federal government should be about half the current size, which would put federal spending as a share of output well below 20 percent.
While there may not be agreement among economists regarding the optimum size of the federal government, there is a large body of evidence showing that current and projected federal spending is well above the levels that will maximize economic growth.
A cap on the growth of federal spending at the sum of inflation and population growth will reduce the rate of spending growth. By the end of this decade, it would eliminate deficits and balance the federal budget, while additional revenue would be used to reduce the national debt. Economic growth would be maximized, with output growing more quickly than the national debt. The nation would return to the long-run sustainable rate of economic growth achieved for the last two centuries.
Such a cap on the growth federal spending growth equal to inflation would reduce federal spending as a share of output, possibly below 20 percent. Congress would have to learn to live with a hard budget constraint–something they have failed to do in the past–and would have to prioritize spending on all federal programs, including entitlements. This reality would force Congress to rethink the proper role of the federal government in the economy. It would provide an opportunity to identify programs consistent with the powers enumerated in the Constitution, and an opportunity to restore the federalist system envisioned in the 10th Amendment.
There is a growing consensus that we must incorporate new fiscal rules in the Constitution to constrain the growth in federal spending. However, it is not clear what those rules will be, or how to go about amending the Constitution. A number of different fiscal rules have been proposed as amendments, including: balancing the federal budget, limiting federal taxes and spending, and prohibiting federal unfunded mandates. It is not clear whether these initiatives will be proposed as separate, stand-alone amendments or as an omnibus amendment.
It is possible that Congress will ultimately reach the two-thirds vote required to place the proposed amendments on the ballot. Yet a more likely scenario is one in which two-thirds of the states vote to call for a constitutional convention. There is still concern that a runaway convention could result. However, some proposed amendments, such as the Florida legislation, include safeguards to prevent a runaway convention.
Former U.S. Attorney General Edwin Meese has proposed a third route to amending the U.S. Constitution. Under his proposal, a uniformly worded amendment would first have to be enacted through a constitutional convention under Article V. That action would set the stage for state legislatures to propose uniformly worded amendments, such as the fiscal measures already discussed, and place them directly on the ballot.
Whichever approach is taken, the task of amending the Constitution is essential. Now, more than ever, keeping America on a path of economic prosperity will require constraining the growth of the federal government, and restoring our federalist system.
Isn’t economics the “dismal science”; that thing you had to suffer through in college with graphs and equations, none of which seemed to make sense?
Economics is actually very simple. Human beings, by their nature, must be free to take action to achieve their goals. We don’t have fur, claws and instincts like lower animals. We must apply our minds to goal-directed action to satisfy our needs. Freedom works because it is consistent with our nature — our requirement to be free to take action to survive and flourish. Political liberty, in turn, is designed to protect that requirement.
Un-perverted by false incentives, people will always work and save based on their actual needs and priorities. It’s in our nature to do so in the quest for economic security, because we don’t want to starve today or tomorrow.
The quest for economic security starts with production, not consumption. Consumption is a given. It’s automatic. People have limitless desires and will consume if they can consume. Yet one hears constantly that consumption comes first, that we must “stimulate” the economy by inducing people to borrow and spend.
Putting consumption first in the equation turns good economics on its head, however. Consumption is the end of the process, not the beginning. Borrowing and spending in a struggling economy based on the false notion that consumption is king simply depletes already strained resources, erodes genuine capital formation required for recovery, and makes both individuals and the greater economy more fragile. More work is then required to dig out of the hole created by borrowing and spending beyond our limits.
Government policy does have a role in creating the conditions for prosperity, but that role does not include creating false incentives for over-consumption or seeking to penalize productive behavior. Contracts must be enforced, fraud prosecuted, and the product of our effort protected with property rights. These measures secure our fundamental right to take action to secure our lives.
Government planning is the opposite of freedom and goes beyond these essential protections. At the highest level, you see the devastating effects of central planning with the housing boom and bust. The Federal Reserve artificially suppressed interest rates while expanding the supply of money and credit. These false incentives resulted in artificial, unsustainable booms in borrowing and spending on all sorts of goods, including housing.
Government’s reaction has been more of the same, which prevents the economy from shedding distorted investment patterns. This delays resumption of normal patterns of production, savings and investment that would quickly set the foundation for genuine recovery.
In Colorado every effort is being made to thwart and undermine healthy production, savings, and investment. The package of new taxes and fees colloquially known as the “Dirty Baker’s Dozen” recently passed by the Democrat controlled legislature and signed by Governor Ritter will have the effect of driving companies out of Colorado, because some of them penalize the productive actions of specific businesses like software companies. They also reallocate precious resources from the productive private sector to the unproductive public sector.
When you penalize something, you get less of it. People who are highly productive, and the jobs they create, can simply move out of Colorado, or opt not to re-locate here in the first place.
Colorado also piles mandates on health insurance companies causing dramatic increases in premiums. The increases are effectively hidden taxes that turn insurance companies into expensive, outsourced welfare programs. This intervention distorts the way these companies function, raises costs, and interferes with our freedom of contract with predictably bad results.
Examples abound of government policy harming production, savings, and investment in favor of foolish, consumption-driven economics and self-serving political agendas. Each instance denies the fundamental truth that freedom works because it is an essential requirement of our nature. When little or no value is placed on the individual and the necessity of freedom, there are no perceived constraints on the controls and burdens political leaders will place upon us.
The unfortunate result is a lower standard of living and a greater struggle to survive, let alone prosper.
Don Beezley is a business consultant and guest writer for the Independence Institute.
First, you should apologize to your children.
You should apologize to them because, if you’re my age, you came into the world when the national debt was about $100 billion. That was a lot of money back then, more than any generation had ever owed. But when your children came into the world, they inherited a national debt of around $3 trillion. That’s 30 times more, and it happened on your watch.
So the least you could do is apologize.
And it’s only getting worse. Democrats recently approved raising the debt ceiling yet again, to more than $12 trillion. It’s a burden future generations will shoulder for decades.
Your descendants may have had plans for their money that didn’t involve paying off Chinese and Japanese investors in US government securities, but too bad. They just had the rotten luck to be born after a few decades of unconscionable budgetary recklessness by their elders. Hey, nobody said life was fair.
How did this happen? Good parents know the risks of debt. They work hard to send their children into the adult world free and clear of financial obligations.
No one wants their son or daughter to start out in life deep in debt. And yet, that’s what’s happened.
Part of the problem is the difference between private debt, incurred between consenting adults, and public debt, incurred through the political process. We use the same word to describe them, but they are as different as night from day.
When a private citizen goes into debt, the money must come from someone else. Terms must be agreed upon, along with the “discount rate”: The premium required because a dollar today is worth more than a promised dollar tomorrow. People who loan money may also ask for something in temporary exchange, to guard against the risk they won’t be paid back. That’s called “collateral”, and it serves the important purpose of reducing the possibility that people will borrow more than they can afford.
None of this happens in public debt. There is no agreement between consenting adults, no discussion of terms, no collateral to guard against risk. Instead, there are simply people who enjoy the benefits (those of us who are alive now), and people who will pay the costs (those who will be alive later).
It doesn’t have to be this way. Our borrowing is driven by mandatory entitlement spending. But laws of man aren’t laws of nature. What man has made, man can undo. We just have to let political candidates know that they can win if they make cutting spending and cutting the debt an issue in their campaign. To do this, they will have to go for the sacred cows of federal spending: Social Security, Medicare, Veteran’s Benefits, and pretty much every other area currently off limits in the federal budget.
For all our talk of children being America’s future, we sure don’t walk the walk. The tragedy of public debt is its ultimate demonstration of what economists call “rent seeking”: The transfer of wealth from the politically weak to the politically powerful. In this case, those who benefit are the most politically organized class in America: Voters. Public debt bestows benefits on people who are privileged with voting rights, at the expense of those too young to wield them. It may not be exactly like child abuse, but it’s darn close.
If this bothers you, and you’ve got kids, go apologize to them now.
We taught them to clean up their messes, while making an awful mess of things ourselves. But if you want to do more than apologize, write your elected officials. Tell them that you’re willing to accept cuts in your favorite entitlement programs, even ones that benefit you directly, if it will help reduce the crushing debt on your kids.
Tell them you’ll vote them out of office if they don’t.
Then show your kids the letter. That way, after you’ve gone, they’ll know you tried. And maybe, instead of perpetuating the debt burden on the next generation, they’ll take the problem a little more seriously than you did and leave your grandchildren with a little less debt than you left them. That’d be even better than an apology.
This article was originally published in the Colorado Springs Gazette, February 17th, 2010.