Category: Congress

The Debt Deal

CNN reported today on the compromise bill to raise the Federal debt ceiling agreed between Biden and McCarty, saying that:” The Congressional Budget Office estimates the bill would reduce budget deficits by $1.5 trillion over the next 10 years, and reduce discretionary spending by a projected $1.3 trillion from 2024 to 2033.”

Language can be tricky. Debt and deficit are not the same.  Reducing projected spending need not mean a reduction in actual spending. In fact, the package agree to by Biden and McCarthy will continue to increase the Federal debt (though at a slower rate than was proposed initially by Biden) and all categories of spending will continue to grow.  Not only will they continue to grow, they will be growing from the abnormally high levels reached during the COVID pandemic.

If we really want all of these expenditures, we should, and will ultimately need to, raise taxes to pay for them.  But do all of them pass the cost benefit test? Do all of them contribute to American wellbeing?

One Republican blind spot is defense spending (which, by the way does not include foreign aid to, for example, Ukraine). The defense budget for 2023 is 9.8% higher than in 2022 and is projected in the Biden/McCarthy package to continue to grow over the next two years covered by that deal. Our huge defense budget has resulted from (or encouraged?) American military adventurism that does not contribute to our security.

The District of Columbia

A foreigner dropping into “The District” from wherever, would be flabbergasted by the local debate over Statehood, home rule, etc. for the District.

The powers of Congress enumerated in Article 1, Section 8, of the U.S. Constitution include the power to govern a federal district:

  • “Clause 17: To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;”

The Residence Act passed by Congress on July 17, 1790, established what is now called the District of Columbia, or Washington D.C., as the capital of the United States. Maryland and Virginia ceded between them 100 square miles of their territory for this purpose.  Congress moved from its first capital in Philadelphia to Washington in December 1800. On February 27, 1801, 212 years ago today, the so-called Organic Act was approved giving control of the District to Congress “and took away the right of residents to vote in federal elections.” District of Columbia retrocession – Wikipedia

And in 1812 our British friends burned down the White House forcing James Madison to live in what is now the Arts Club of Washington (of which Ito and I are members).

In March 1847, Congress and Virginia’s General Assembly approved the return (“retrocession”) of Virginia’s contribution to the District of Columbia but the retrocession of Maryland’s contribution failed to pass Congress. Turning Maryland’s part of the district into a new state makes no sense to me at all. But neither does Congress’s continued control over all of Maryland’s portion of the District.

The provisions of the Constitution giving Congress legislative power over the lands needed for and occupied by its facilities would be fully met by returning most of the District to Maryland (thus restoring full voting and other citizen rights to its residents). Virginia did it and so can (and should) Maryland.

Fair Tax Act of 2023

While I will not hold my breath, I am thrilled to see the introduction of H.R.25 – FairTax Act of 2023 in the House of Representatives by Rep. Carter Earl L. “Buddy” (R-GA-1) on January 9.

“This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions.

Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.” “Fair Tax Act of 2023”

I have written a great deal about taxation, a necessary feature of government spending, and how to make it fair and economically neutral (minimal distortion of the allocation of resources in our economy). Income taxation—especially corporate income taxation—fail these tests. A universal consumption tax passes them. It is especially suitable for our globalized world where companies produce and sell in many countries. “Tax reform and the press”   “The corporate income tax”

But the issue of fairness is somewhat in the eyes of the beholder. I have also supported a Universal Basic Income (UBI), in place of our many safety net transfers including Social Security. “Our social safety net”  Not only does a UBI better fit American’s strong commitment to individual liberty and choice, but when combined with a flat consumption tax it produces a progressive impact on income that satisfies my notion of fairness. “Replacing social security with a universal basic income”

As I understand the new (actually a return to the old) and improved House rules, after consideration by the House Ways and Means Committee, the bill will be debated on the floor of the full House. This is a giant step in a very good direction.  

Restoring Regular Order to Congress

In my “Hopes for the New Year” blog last week I listed among my hopes: “Restore Congressional Leadership. Enforce the War Powers Act. Restore regular order and cross aisle cooperation to address real problems. “Our dysfunctional Congress”

The promises made by Kevin McCarthy to gain the required majority support for his Speakership of the House, largely deliver my wish. They weaken the power of the overly powerful Speaker and increased the power of your and my Congressman or Congresswoman. Each appropriation will be properly and separately considered (first by the relevant committee) rather than the all in one rush package no one has time to read in the final minutes before the government must shut down. The issues and proposed remedies were presented a few days ago by Bruce Fein “Deliverance from the Republican House”

OK guys, please get on with addressing the issues and needs of the country that depend on law. The term “guys” here is a standard reference to both men and women. It reminds me of the many meetings we had in 2000 in Istanbul with the new head of the new Turkish Banking Supervision body created to manage Turkey’s exchange rate and banking crises. We (our IMF team) met with him and his team daily and often well into the night and he often referred to us as “girls” or in his better moods “ladies.”