Today POLITICO Arena asks:

Will congressional dysfunction boost President Obama’s campaign against a do-nothing Congress, or will it push voters to wipe the slate clean and push for GOP leadership?

My response:

Congressional dysfunction will boost Obama’s reelection chances only if Republicans fail to frame the issue accurately. There’s no do-nothing Congress, only a do-nothing Senate. After the 2010 mid-term elections the new Republican House passed numerous measures aimed at addressing our deficits and debt — none terribly far-reaching, unfortunately — but they’ve all died in Harry Reid’s do-nothing Democratic Senate, which has shown itself incapable of cutting anything.

That means, understandably, that we’re in a holding pattern until next year. As we’re seeing with the extension of the payroll tax holiday, House Republicans are no longer willing to pass responsible rollbacks of government — however parsimonious — only to be demagoged by the president and his party. That game is over. The only questions, as we roll toward November, are whether Republicans can frame the issue for what it is — don’t hold your breath — and whether enough voters will see through the other side’s demagoguery to elect a president and a Congress that will begin to seriously address the out-of-control government we have today. That was done in many of the states in our last elections. It can be done at the national level too, but only with the right messages.

The president’s fiscal 2013 budget includes a 213 page document that contains 210 proposed cuts, consolidations, and other savings. That sounds like a lot until one finds out that the alleged savings would only amount to $24 billion in a $3.8 trillion budget. Not only would the cuts do little to reduce the size of government, they would do nothing to reign in the scope of government.

The following are a few examples of what I’m talking about:

• The administration proposes to eliminate the Environmental Protection Agency’s Clean Automotive Technology program for savings of $16 million. However, the proposed cut doesn’t reflect a sudden desire to end federal “green” subsidies to car manufacturers. Instead, the administration says “other Federal programs are better positioned to research, develop, demonstrate, and deploy a broad suite of advanced vehicle technologies.”

• The administration proposes to cut funding for the Department of Health and Human Service’s Community Services Block Grant program from $679 million to $350 million. The administration cites reports from the HHS inspector general and the Government Accountability Office that “have documented failures in program oversight and accountability.” However, instead of proposing to completely terminate it, the administration says it’s going to fix the program and basically apologizes for having to cut it to meet discretionary spending caps.

• The administration proposes to cut funding by $226 million for fossil fuel subsidies administered by the Department of Energy. These subsidies should be eliminated. But they should be eliminated along with all energy subsidies because the federal government should stop trying to pick winners and losers in the energy market. Unfortunately, it appears that the administration is really only interested in scoring political points with the “green” crowd.

• The administration proposes to save a whopping $3 million by terminating the U.S. Department of Agriculture’s public broadcasting grant program. The administration correctly points out that the program is duplicative of the Corporation for Public Broadcasting. However, the CPB would get another $1 million in funding for an overall budget of $445 million. In other words, the proposed cut would have practically no effect on the federal government’s subsidization of PBS and NPR.

I could go on and on with examples but there’s no point. A glass-half-full type might say, “Well, at least the administration is proposing to cut something.” Unfortunately, the glass is nowhere close to being half full – it’s empty. The administration’s relatively paltry savings would still leave the budget with a projected deficit of $901 billion for fiscal 2013. And the deficit would only be smaller than last year because the government is projected to take in more revenue – not because the government would spend less. Worse, the federal government under this budget would continue to be an intrusive, metastasizing cancer on individual liberty and the economy.

The Washington Post did a great job last week comparing spending earmarks by members of Congress with the locations of property they own in their states. Some members are apparently using our tax dollars to expand infrastructure near their homes and businesses, thus gaining a personal benefit from federal spending.

Washington Post reporters usually do great research on the spending behaviors of politicians, but they often don’t ask the big-picture questions. The Post has uncovered waste and corruption in earmarking, housing programs, and other federal activities, but the paper usually only suggests superficial reforms such as better ethics rules.

When you read the Post story on earmarks, the obvious problem with all the projects identified is that they are properly state, local, and private activities. The story summarized questionable earmarks for 30 members of Congress, and the spending activities included repaving roads, expanding highways, building parking lots, replenishing beaches, dredging harbors, improving traffic signals, and building light rail projects.

States, cities, and private businesses can and should finance these sorts of activities by themselves. There is no economic or technical reason why the federal government needs to be involved. Indeed, there are many disadvantages of federal involvement—including the pork barrel politics that the Post does a great job researching.

Today in the Post, I see the same problem with Walter Pincus’s interesting article on port dredging, which is carried out by the Corps of Engineers. Members of Congress have been battling to secure Corps’ projects in their districts for 150 years, and it’s always been a wasteful process. (Watch for my forthcoming essay on DG).

Pincus hints that port dredging is a subsidy to the “multibillion-dollar import-export business,” and he is right. But he doesn’t then proceed to address the obvious big-picture question: Can businesses support these activities by themselves without subsidies?

The answer is yes. Seaports and seaport dredging can be privatized. Hong Kong has the world’s best seaport according to the World Economic Forum (p. 391), and it is privately financed and operated. By contrast, U.S. seaports—which are generally government-owned—ranked just 23rd in the world, according to the WEF.

So let me suggest that when reporters are investigating problems with federal programs they ask a few big-picture questions. Is the program really needed? Can state governments or the private sector do it? What can we learn from reforms in other countries? After all, the federal government is running ongoing trillion-dollar deficits. To solve its giant fiscal problems, it will need much more than ethics and earmark reforms.

For background, see essays on privatization, fiscal federalism, and transportation.

I’ve been getting a few inquiries lately from folks interested in hearing more about my ideas on closing down the Export-Import Bank of the United States. This is encouraging: Ex-Im typically sails through Congress unchallenged. It is quote-unquote self funding, so is not target number one when it comes to deficit reduction. And it has some powerful backers, including the Chamber of Commerce and Boeing. But in the aftermath of Fannie, Freddie, and Solyndra, people are — finally — beginning to ask questions about just how safe Ex-Im’s activities are for taxpayers, and what the dangers might be of increasing the amount of loans made to risky companies, as the Obama administration is pushing [$]. That move seems to fly in the face of Ex-Im’s admittedly dubious mission of financing only safe transactions (while, and this makes it especially incredible, supposedly only financing transactions the private sector won’t touch). Similarly, while the administration argues that we need to increase funding for Ex-Im to match increased export credit activity by countries such as China, I would argue that allowing Beijing to set the terms and pace of export credit policy in the United States is foolhardy at best.

U.S. airliners have launched a legal case against Ex-Im, arguing that its subsidized loan guarantees to foreign state-owned airliners such as Air India put American carriers at a disadvantage (a possibility I warned about in my paper). This provides a real-world, commercially significant example of the long-standing and self-evident charge that Ex-Im picks winners and losers in the American economy with, unsurprisingly to anyone with even a cursory familiarity with public choice theory, the most politically connected getting the support.

The bottom line is this: either politicians are serious about reducing the size and scope of the federal government or they are not. If they are, shutting down the Ex-Im Bank should be a no-brainer, especially in a political age when “Don’t worry everybody — these loan guarantees are completely safe and pay for themselves” no longer convinces. And corporate welfare is distinctly on the nose.

As discussed yesterday, the most important number in Obama’s budget is that the burden of government spending will be at least $2 trillion higher in 10 years if the President’s plan is enacted.

But there are also some very unsightly warts in the revenue portion of the President’s budget. Americans for Tax Reform has a good summary of the various tax hikes, most of which are based on punitive, class-warfare ideology.

In this post, I want to focus on the President’s proposals to increase both the capital gains tax rate and the tax rate on dividends.

Most of the discussion is focusing on the big increase in tax rates for 2013, particularly when you include the 3.8 tax on investment income that was part of Obamacare. If the President is successful, the tax on capital gains will climb from 15 percent this year to 23.8 percent next year, and the tax on dividends will skyrocket from 15 percent to 43.4 percent.

But these numbers understate the true burden because they don’t include the impact of double taxation, which exists when the government cycles some income through the tax code more than one time. As this chart illustrates, this means a much higher tax burden on income that is saved and invested.

The accounting firm of Ernst and Young just produced a report looking at actual tax rates on capital gains and dividends, once other layers of tax are included. The results are very sobering. The United States already has one of the most punitive tax regimes for saving and investment.

Looking at this first chart, it seems quite certain that we would have the worst system for dividends if Obama’s budget is enacted.

The good news, so to speak, is that we probably wouldn’t have the worst capital gains tax system if the President’s plan is enacted. I’m just guessing, but it looks like Italy (gee, what a role model) would still be higher.

Let’s now contemplate the potential impact of the President’s tax plan. I am dumbfounded that anybody could look at these charts and decide that America will be in better shape with higher tax rates on dividends and capital gains.

This isn’t just some abstract issue about competitiveness. As I explain in this video, every single economic theory — even Marxism and socialism — agrees that saving and investment are key for long-run growth and higher living standards.

So why is he doing this? I periodically run into people who are convinced that the President is deliberately trying to ruin the nation. I tell them this is nonsense and that there’s no reason to believe elaborate conspiracies.

President Obama is simply doing the same thing that President Bush did: Making bad decisions because of perceived short-run political advantage.

Today POLITICO Arena asks:

Was the House GOP decision to unlink deficit reduction and an extension of the payroll tax holiday a smart move, or does it undermine their deficit reduction message?

My response:

The House Republicans’ move to unlink deficit reduction and an extension of the payroll tax holiday is simply a bow to reality. They’ve learned from the first session of the 112th “Tea Party” Congress that any deficit reduction measures they’d make will go nowhere in the do-nothing Senate. As William McGurn details in this morning’s Wall Street Journal, the Harry Reid Senate hasn’t passed a budget resolution in three years and has never voted to extend the payroll tax cut for a full year—the administration’s No. 1 economic priority according to Vice President Biden.

So what’s the point of House Republicans conditioning an extension of the payroll tax holiday on a spending cut, only to be blamed, when the Senate balks, for wanting to raise taxes on the middle class? As long as there’s a do-nothing Senate, our deficits and debt will only grow.

In his recent State of the Union address, President Obama said that he wanted an American economy that is “built to last.” Today’s release of his fiscal 2013 budget proposal shows that the president still thinks he can build economic prosperity with more spending, taxes, and debt. Those are the building materials for an economic time-bomb that will explode on future generations.

The following charts show that federal spending and debt as a share of the economy would remain at elevated levels under the president’s budget proposal:

Given that policymakers always seem to find an excuse to spend more money than was planned – and that there are virtually no limits on what the government can spend money on – these figures could prove to be optimistic.

So forget about the president’s cheap sloganeering about “investing in our future.” And ignore the double-talk about “re-establish[ing] fiscal responsibility.” The fact is the president is proposing to spend $47 trillion dollars over the next ten years – almost $6 trillion of which would go toward interest on the debt alone. This budget isn’t about creating an economy that’s built to last – it’s about keeping the president’s Democratic constituencies satisfied in November and selling voters on the impossible promise of more free lunches.