Even though I’ve already made clear that I am less-than-overwhelmed by the thought of Mitt Romney in the White House, I worry that people will start to think I’m a GOP toady.

That’s because I’ve been spending a lot of time providing favorable analysis and commentary on the relative merits of the Ryan budget (particularly proposed reforms to Medicare and Medicaid) compared to President Obama’s statist agenda of class warfare and bigger government.

I’ve already done a couple of TV interviews on Ryanomics vs Obamanomics and the Wall Street Journal this morning published my column explaining the key features of the Ryan budget.

Here are some highlights.

In one of my early paragraphs, I give Ryan credit for steering the GOP back in the right direction after the fiscal recklessness of the Bush years.

…the era of bipartisan big government may have come to an end. Largely thanks to Rep. Paul Ryan and the fiscal blueprint he prepared as chairman of the House Budget Committee earlier this year, the GOP has begun climbing back on the wagon of fiscal sobriety and has shown at least some willingness to restrain the growth of government.

I probably should have also credited the Tea Party, but I’ll try to make up for that omission in the future.

These next couple of sentences are the main point of my column.

The most important headline about the Ryan budget is that it limits the growth rate of federal spending, with outlays increasing by an average of 3.1% annually over the next 10 years. …limiting spending so it grows by 3.1% per year, as Mr. Ryan proposes, quickly leads to less red ink. This is because federal tax revenues are projected by the House Budget Committee to increase 6.6% annually over the next 10 years if the House budget is approved (and this assumes the Bush tax cuts are made permanent).

Some conservatives complain that the Ryan budget doesn’t balance the budget in 10 years. I explain how that could happen, but I then emphasize that what really matters is shrinking the burden of government spending.

To balance the budget within 10 years would require that outlays grow by about 2% each year. …There are many who would prefer that the deficit come down more quickly, but from a jobs and growth perspective, it isn’t the deficit that matters. Rather, what matters for prosperity and living standards is the degree to which labor and capital are used productively. This is why policy makers should focus on reducing the burden of government spending as a share of GDP—leaving more resources in the private economy. The simple way of making this happen is to follow what I’ve been calling the golden rule of good fiscal policy: The private sector should grow faster than the government.

Actually, I’ve been calling it Mitchell’s Golden Rule, but I couldn’t bring myself to be that narcissistic and self-aggrandizing on the nation’s most important and influential editorial page.

One final point from the column that’s worth emphasizing is that Ryan does the right kind of entitlement reform.

One of the best features of the Ryan budget is that he reforms the two big health entitlements instead of simply trying to save money. Medicaid gets block-granted to the states, building on the success of welfare reform in the 1990s. And Medicare is modernized by creating a premium-support option for people retiring in 2022 and beyond. This is much better than the traditional Beltway approach of trying to save money with price controls on health-care providers and means testing on health-care consumers. …But good entitlement policy also is a godsend for taxpayers, particularly in the long run. Without reform, the burden of federal spending will jump to 35% of GDP by 2040, compared to 18.75% of output under the Ryan budget.

The last sentence of the excerpt is critical. If the Golden Rule of fiscal policy is to have the private sector grow faster than government, then the Golden Goal is to reduce government spending as a share of GDP.

I’ve commented before how America will become Greece in the absence of reform. Well, that’s basically the Obama fiscal plan, as illustrated by this amusing cartoon.

What makes the Ryan budget so impressive is that it includes the reforms that are needed to avoid this fate.

No, it doesn’t bring the federal government back down to 3 percent of GDP, so it’s not libertarian Nirvana.

But we manage to stay out of fiscal hell, so that counts for something.

Here are some of my views on Paul’s Ryan’s fiscal proposals.

His 10/25 tax plan:

https://​www​.cato​.org/​p​u​b​l​i​c​a​t​i​o​n​s​/​c​o​m​m​e​n​t​a​r​y​/​t​r​u​t​h​-​a​b​o​u​t​-​p​a​u​l​-​r​y​a​n​s​-​t​a​x​-plan

His proposed spending reforms:

https://​www​.cato​.org/​p​a​u​l​-​r​y​a​n​s​-​s​p​e​n​d​i​n​g​-​plan/

His budget plan discussed at a Cato forum

https://​www​.cato​.org/​m​u​l​t​i​m​e​d​i​a​/​c​a​t​o​-​v​i​d​e​o​/​c​a​t​o​s​-​c​h​r​i​s​-​e​d​w​a​r​d​s​-​e​v​a​l​u​a​t​e​s​-​o​b​a​m​a​s​-​2​0​1​3​-​b​udget

A Politico article on Paul Ryan’s views on the Pentagon’s budget concludes:

A key question for the coming weeks will be how Ryan, one of Washington’s biggest budget wonks, interprets and explains the Romney campaign’s positions on defense spending. That could be a clue as to how realistic he actually believes they are.

I certainly hope so.

I was among the first to comment on Romney’s plan to spend at least four percent of GDP on the Pentagon’s base budget (war costs would be extra), and have revisited the question several times since. I have separately looked at Paul Ryan’s budget (here and here), and pointed out how military spending increased under his plan, just not as much as Romney.

During a series of lectures over the past several months, and with help from Charles Zakaib and Andy Stravers, I’ve included a variation on the chart at bottom, showing Romney’s four percent plan (achieved within four and eight years); projected Pentagon spending under the Ryan plan; the current baseline per OMB; and the levels called for under sequestration, per CBO’s latest (.pdf). I’ve adjusted these for inflation from DoD’s 2012 Green Book (.pdf) for 2012–2016, and extrapolated over the out years. I’ve estimated Romney’s totals using CBO’s GDP estimates (Romney’s own projections assume higher GDP, and therefore more military spending than shown here).

Here is how the totals shake out relative to the current baseline over the ten-year period, 2013–2022, in constant dollars:

• Romney 4 percent in four years: $1,852 billion in additional spending
• Romney 4 percent in eight years: $1,704 billion in additional spending
• Ryan plan: $409 billion in additional spending
• Sequestration: $504 billion in savings

By pledging to increase the military’s budget above the rate of inflation, Ryan’s basic argument is that the Pentagon’s budget should remain near historic highs in real, inflation-adjusted terms. That would mean spending more than we did during much of the Cold War, and much more than we did in the 1990s. I think we are safer now than when we were confronting the Soviet Union, and that we could and should spend less. I hope that reporters and prospective voters will ask Paul Ryan if he thinks we are safer. His budget implies that we are not.

Still, Ryan has not (yet) endorsed the kinds of massive military spending increases that Romney champions. What’s more, the Ryan plan spelled out specific proposals for cutting domestic spending, both discretionary programs and entitlements, that would allow the Pentagon’s budget to grow above the current baseline. Mitt Romney has not.

So how will Paul Ryan help Mitt Romney make up the difference? What additional spending will be cut, taxes raised, or debt increased?

As I explain in today’s Cato Daily Podcast, I anxiously await the answer.

The burden of federal spending in the United States was down to 18.2 percent of gross domestic product when Bill Clinton left office.

But this progress didn’t last long. Thanks to George Bush’s reckless spending policies, the federal budget grew about twice as fast as the economy, jumping by nearly 90 percent in just eight years This pushed federal spending up to about 25 percent of GDP.

President Obama promised hope and change, but he has kept spending at this high level rather than undoing the mistakes of his predecessor.

This new video from the Center for Freedom and Prosperity Foundation uses examples of waste, fraud, and abuse to highlight President Obama’s failed fiscal policy.

Good stuff, though the video actually understates the indictment against Obama. There is no mention, for instance, about all the new spending for Obamacare that will begin to take effect over the next few years.

But not everything can be covered in a 5‑minute video. And I suspect the video is more effective because it closes instead with some discussion of the corrupt insider dealing of Obama’s so-called green energy programs.

The honest answer is that it probably means nothing. I don’t think there’s been an election in my lifetime that was impacted by the second person on a presidential ticket.

And a quick look at Intrade​.com shows that Ryan’s selection hasn’t (at least yet) moved the needle. Obama is still in the high 50s.

Moreover, the person who becomes Vice President usually plays only a minor role in Administration policy.

With those caveats out of the way, the Ryan pick is mostly good news.

Here are the reasons why I’m happy.

• I think Ryan genuinely believes in small government, low tax rates, and free markets. Heck, he’s even read Ayn Rand, and is willing to admit that he likes her writings.
• Ryan put together a good budget and got the Republican Party to rally around the plan – a remarkable achievement considering that the same GOPers had just spent 8 years supporting the irresponsible fiscal policies of the Bush Administration.
• He understands that not all entitlement reform is created equal. Instead of supporting means-testing (which produces implicit higher marginal tax rates) and unsustainable price controls, Ryan got his colleagues to support Medicaid block grants and premium support (or vouchers) for Medicare.
• Ryan is a proponent of the flat tax and can competently discuss not only the importance of low tax rates, but also why double taxation is misguided and why it’s wrong to use the tax code to pick winners and losers.

Here are two reasons why I’m worried.

• Both Romney and Ryan are somewhat sympathetic to a value-added tax. My worst-case scenario is they win the election, but then can’t get a good budget approved because of some squishy Republican senators who put self interest above national interest. Romney and Ryan then decide that this European-style national sales tax is the only way – on paper – of making the budget balance. In reality, of course, we’ll suffer the same fate as Europe since the VAT revenues will be used to finance ever-larger government.
• Ryan has some very bad votes in his past, including support for TARP, the auto bailout, the no-bureaucrat-left-behind education legislation, and the reckless Medicare prescription drug entitlement. Everyone says to ignore those votes because Ryan knew he was voting the wrong way, but if he’s already made some deliberately bad decisions for political reasons, what’s to stop him from making more deliberately bad decisions for political reasons?

But as I said above, don’t read too much into Ryan’s selection. if Republicans win, Romney will be the one calling the shots.

Though this does give Ryan a big advantage the next time there’s an open contest for the GOP nomination – either 2016 or 2020.

Paul Ryan is an excellent choice as running mate for Mitt Romney. He understands federal spending and tax policies in enormous detail. He has said that he started reading federal budgets when he was in high school. He’s also read Global Tax Revolution, my book with Dan Mitchell about the implications of globalization and tax competition. He knows that the American economy will not thrive with high tax rates, especially on business income and capital. He shares Mitt Romney’s goal of chopping the corporate tax rate to revive investment and job creation.

Ryan is an articulate defender of free enterprise, and he consistently argues not just for the practical advantages of smaller government but also about the moral imperative to cut. America will face giant fiscal and economic emergencies unless we make major reforms to the government. Mitt Romney, of course, has had a rather mixed record regarding free markets and limited government. And Ryan–as a good politician–has compromised many times as well. But if the next administration is Republican, and if it decides it wants to push major reforms, Paul Ryan is uniquely qualified to lead the charge.

This blogpost was co-authored by Cato legal associate Matt Gilliam.

An American energy company called PPL bought one of many state-owned British utilities privatized in the 1980s. In 1997, PPL thus became subject to the UK’s new “windfall tax,” which was based in part on “profit-making value”—the utility’s average annual profit multiplied by an imputed price-to-earnings ratio.

Various American energy companies subject to this tax filed claims with the IRS for a “foreign income tax” credit, which the IRS denied in 2007, asserting that the British tax was not a creditable one under the “foreign income tax” provision of the Internal Revenue Code (Section 901). The IRS claimed that the windfall tax did not satisfy the “predominant character” standard (was not predominantly an income tax) because the British statute used the term “profit-making value” instead of “net income” and “gross receipts,” and the tax rate was defined “as a percentage of an imputed value … rather than directly as a percentage of net income.”

After the federal tax court held that PPL was entitled to the foreign tax credit, the U.S. Court of Appeals for the Third Circuit reversed. Explaining that a tax exemption is a privilege extended by legislative grace, the appellate court held the tax not to be creditable because it reached beyond realized profit and did not tax actual gross revenue. In a different case last year, however, the U.S. Court of Appeals for the Fifth Circuit held that the British windfall tax was indeed creditable because (1) it reached realized income and (2) gross revenue was an inherent part of the calculation. The Fifth Circuit explained that the form and label of the foreign tax are not determinative and that the predominant character standard requires the IRS to analyze the history and intent of a tax to assess whether it tries to reach some net gain.

Cato now joins Southeastern Legal Foundation and Goldwater Institute on an amicus brief in urging the Supreme Court to take PPL’s case because it implicates fundamental issues of property rights, free markets, and the arbitrary exercise of government power—and the circuit split creates uncertainty for American businesses overseas. We argue that taxpayers have the right to be free from double taxation and that here the IRS and Third Circuit improperly disregarded the substance of the windfall tax and applied an overly rigid construction of its terms.

Ultimately, a foreign tax’s form or label cannot mask its substantive character and intent for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court will decide this fall whether to hear PPL Corp. v. Commissioner of Internal Revenue.