American Elephants


Confused by the Budget Control Act? Here’s Help! by The Elephant's Child

The Budget Control Act is a big victory for…? Who?  Depends on who you listen to. Republicans are troubled because the budget cuts are not big enough. Democrats are beside themselves. If you are confused, welcome to the club.  Keith Hennessey, who was senior economic adviser to George W. Bush, and is now teaching at Stanford has 3 brief analysis posts on the Budget Control Act. He’s a good explainer.

1. A Quick Summary of the Budget Control Act

2. Understanding the Budget Control Act

3.  Strategic Analysis of the Budget Control Act

— Democrats are deeply attached to Keynesian economics. They see the problems of the economy as a lack of demand by consumers, and the remedy is spending more money to put into the hands of consumers to revive demand.  They believe it worked for FDR, and consequently is the right remedy for this, the greatest crisis since the Great Recession.

The evidence casts doubt on their convictions, but evidence cited by Republicans is dismissed as false, evil, letters from Satan and so forth.They want more revenue, which means higher taxes.  Remember when Nancy Pelosi said that you revived the economy by giving the unemployed more unemployment benefits?  She thought that would increase demand.

— Republicans see that when business is sitting on their money and not hiring, the solution is to ease the burden on business. We have one of the highest corporate taxes in the world.  The effective tax rate on new investment is 34.6%, the highest rate in the OECD, and 5th highest among 33 countries.  Average OECD rate is 18.6%.

Regulation has vastly increased.  Uncertainty has increased as well with ObamaCare, EPA regulation and energy costs. Relieving business of some business taxes and a lot of  uncertainty by removing regulation and repealing ObamaCare would see the economy recover.  Evidence from the Coolidge administration, Kennedy administration, Reagan administration and the George W. Bush administration prove that it works. Raising tax rates particularly on the rich doesn’t necessarily bring in more revenue. The rich have many ways to avoid paying taxes if they choose.

Sorry, Senator Durbin.  Keynesian economics has been dead for a long, long time. You can’t keep digging up the corpse.




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