Garrett Jones on EconTalk

I enjoyed the recent EconTalk podcast with guest Garrett Jones.

Here are some of his observations. On the changing role of government:

Jones: And after a crisis hits, it just changes the kind of government we have. We now have a government whose job it is to repay this enormous amount of debts. Of explicit and implicit liabilities. That is now what our government is for.

The challenge for government:

Jones: I would love to see the United States tackle its long-term entitlement crisis. In some way it makes it clear to people that the Fed government is not on the hook for everybody’s health care forever. These incredibly open-ended commitments really have to be–they are going to get curtailed one way or the other. I’m certainly in the camp of thinking that the U.S. government is not going to default, either explicitly or through inflation. But sooner rather than later would be really nice.

‘Open-ended commitments,’ is a great way to put it. It’s easy as politicians to promise these open-ended commitments because it costs them nothing. It’s easy for voters to vote for these open-ended commitments because they sounds really good.

And, the political behavior that I believe every voter should be tired of:

Jones: I think these one-year fiscal fixes are appalling. And I don’t just mean that because it’s fun to complain about it. But I think it really does hurt the government’s planning–makes that inefficient–and I think it hurts the private sector’s planning. It makes that inefficient. This is both–whether you are a Keynesian or a supply-sider, you should be appalled by this. And it’s only the politicians who need re-election, of both parties, who really don’t want to just take a hit and sign something that lasts for 5, 10, 15 years.

No joke. One of the worst things that could have happened in politics was the Budget Act and Byrd Rule modified in 1990.

As usual with government actions, the intent of these were good, but they have generated disastrous unintended consequences. This one being setting up a government that is in never-ending kicking the can down the road mode.

These rules require that a change in law and tax code that does not have a sunset provision (a time when it automatically expires and goes away with 10 years, for example), must have 60 votes in the Senate. Any law change with a sunset provision only requires a simple majority.

The intent was to make sure that any costly legislation would either need a super majority approval (meaning it’s something a lot of people want done) or an automatic expiration date that will cause a future Congress to re-evaluate the law to see if it’s something they would like to extend.

But, from my understanding, this has had two negative consequences. First, many big changes are made with a sunset provision in order to meet the simple majority requirement. Since it’s difficult for either party to get a super majority control in the Senate they settle for using sunset provisions to a law in order to pass it on a simple majority.

This is a recipe for kicking the can down the road. Since many laws in the past 15-20 years have been passed with a sunset provision, Congress now spends a good deal of time and energy determining whether to extend these things when they come up for expiration. The “Bush Tax Cuts” are a perfect example.

Politicians love these, because they can use these expiring laws as leverage to get their new changes done, which leads to endless and unproductive (for citizens) back-scratching. Want me to vote to extend the Bush Tax Cuts? Okay, vote for my  health care proposal. Or some such.

Second, this sunset provision applies to tax law changes and treats reduction in tax rates as a ‘cost’, even if the reduction helps invigorate the economy generating more government revenue in the future.

The result is we get tax law changes with sunset provisions that guarantee political drama every time they are set to expire. Instead of having Congress debating only incremental changes to an underlying stable tax code, we have debates for incremental changes on top of the ever shifting sands of the expiring provisions and folks who are even more uncertain of what their tax situation will look like a year from now.

 

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