There’s a well-defined budget process that members of Congress are supposed to follow each year to debate how much the federal government will spend and how much money the government will collect in taxes or borrow from credit markets. That’s not happening. “Protecting America’s Economic Security,” the fiscal year 2024 budget plan introduced by Republican Study Committee chairman Kevin Hern (R‑OK) and its Budget and Spending Task Force chairman Ben Cline (R‑VA), proposes several reforms to revive and improve the federal budget process.

Here are five ideas in the RSC budget worth considering:

Adopt a Balanced Budget Amendment or Similar Statutory Spending Limits. “The RSC Budget supports the adoption of a federal Balanced Budget Amendment (BBA), and other long-term fiscal controls, to limit tax collection and balance the budget,” write the proposals’ authors. Taxpayers benefit from fiscal rules that bind legislators. Well-designed fiscal rules limit the propensity of government to expand and protect future taxpayers from harmful debt. The current approach of ever-expanding debt and growing deficit spending is highly unsustainable and unfair toward younger generations.

As detailed by my Cato colleague Chris Edwards, balanced budgets used to be the norm for more than 100 years of federal history. Not anymore: “From 1791 to 1930, federal politicians balanced the budget 68 percent of the years, but since 1931 they have balanced it only 13 percent of the years. Furthermore, deficits have become larger over time relative to the size of the economy.” To address rising spending and debt head-on, I am a fan of Kurt Couchman’s unified budget idea paired with a Swiss-style debt brake to establish and enforce rules toward sustainable federal budgeting.

Account for Interest Costs. “This budget would adopt Rep. Michael Cloud’s (R‑TX) bill, the Cost Estimates Improvement Act, to require the CBO to include the projected debt service costs in its legislative cost estimates,” write the RSC proposals’ authors. Including interest costs in legislative cost estimates would improve accuracy in congressional scorekeeping and should be a bipartisan priority. Cost estimates confront Congress with the fiscal impact of proposed legislation prior to the passage of a bill. Cost estimates also aid in the enforcement of budgetary rules and targets. With interest costs now making up one of the fastest-growing budget categories, it is especially important that Congress fully account for interest in legislative cost estimates.

Reform Emergency Spending. “The RSC Budget would… require legislation containing emergency spending to be accompanied by a statement explaining why an emergency designation is necessary and require a three-fifths majority vote to approve such legislation. Moreover, emergency funding should be timely and targeted. Thus, the RSC Budget would create a separate point of order against emergency spending legislation that would produce outlays beyond two fiscal years.” I commend the RSC for proposing to make it more difficult to abuse emergency spending to prop up other spending. The RSC should go a step further and require Congress to account and pay for emergency spending with lower discretionary spending limits and mandatory spending reductions in future years. I explain this emergency accounting concept in greater detail in my latest Cato policy brief, titled “A Better Budget Control Act.”

Stop Unauthorized Spending. In 2022 alone, Congress spent $461 billion on federal programs whose authorizations had expired. More than half of this spending went to programs that expired more than 10 years ago. Congress wastes money on myriad programs that aren’t even authorized. Unauthorized appropriations should be a prime target for cuts. Rep. Cathy McMorris Rodgers (R‑WA) champions legislation with the goal of ending unauthorized appropriations. The Unauthorized Spending Accountability Act (H.R.2056) would sunset unauthorized spending and create a commission to review all discretionary programs. The RSC budget endorses this approach.

Reveal Spending and Gimmicks in Appropriations. “The RSC Budget would require CBO [the Congressional Budget Office] to release a report estimating the fiscal impact of appropriations bills as well as information on changes in mandatory programs contained in appropriations bills, to each member of Congress and to the public,” write the proposals’ authors. Changes in mandatory programs are a recurring budget gimmick in congressional appropriations. Most CHIMPs provide no real savings. Instead, they facilitate increases in discretionary spending without running afoul of current spending limits. It’s a start for the RSC to require CBO to reveal the size and scope of CHIMPS to the public as Congress is debating appropriations bills. Even better would be prohibiting the use of fake savings to prop up discretionary spending.

A Costly Budget Process Failure

The so-called federal budget process has disintegrated over the years. Congress regularly misses key budget deadlines and fails to live up to its fiscal responsibilities. Case in point: neither the House nor Senate have introduced budget resolutions this year. As reported by Peter Cohn in CQ-Roll Call: “Lawmakers have adopted a budget resolution before the April 15 deadline just four times in four decades.”

The consequences of Congress’ failure to budget responsibly are severe. Congressional fiscal neglect results in a less effective, more expensive government that wastes taxpayer dollars, drag down economic growth, and burdens current and future generations with increasingly unsustainable debt. The RSC budget contains some worthwhile ideas to revive congressional budgeting and enhance accountability and transparency for taxpayers. Unless members of Congress are willing to push these proposals when up against action-forcing fiscal deadlines such as the debt limit or the end of the fiscal year, it’s unlikely that they’ll be adopted.

This article appeared on Substack on June 19, 2023

A common view attributes economic inequality to the evils of markets—greed, corruption, family connections, luck, and so on—rather than to differences in economic productivity.

Some wealth is no doubt “ill-gotten,” or at least not directly related to one’s own contribution to the economic pie.

Yet many differences in economic success result from government interventions that create winners and losers, and in arbitrary or even perverse ways.

Government licenses to become a lawyer, doctor, hair braider, plumber, or other professional raise the income of those who obtain these licenses, regardless of whether more talented.

Zoning regulation protects the wealth of those lucky enough to have bought land before such restrictions existed.

Much regulation, of all kinds, imposes substantial fixed costs. Larger firms more easily absorb these, while small firms face a greater barrier to entry. Regulation also creates the opportunity for less principled businesses to game the system, implying honest firms lose out.

When governments build schools, roads, hospitals, office buildings, military equipment, and other infrastructure, they contract out with private firms. Ideally government chooses the most efficient firm, but in practice cronyism and corruption play substantial roles.

Restrictive immigration policies prevent people in poor countries from earning substantially higher wages.

Medicare reimbursement rules reward less scrupulous health care providers, who manipulate billing codes to maximize their revenues.

Taxpayer-funded universities transfer wealth to families with more college-bound children.

Government protections for unions raise member wages but cause others to be underemployed. Minimum wage laws have similar effects.

Rent controls discourage construction of new housing, raising costs for those who fail to secure controlled apartments.

The corporate income tax penalizes not just shareholders but customers and employees, who are often less well off.

Progressive or complicated tax codes create lucrative incomes for the lawyers and accountants who help individuals and businesses avoid or evade these features.

I could go on, but you get the point!

The fact that government causes these arbitrary redistributions is not, by itself, reason to avoid all intervention. If a policy generates large benefits, any resulting mal-distribution might be a necessary evil.

In a few cases, moreover, redistribution is the flip side of a potentially beneficial effect. Patents and copyright create monopoly profits that incentivize innovative or creative activity, perhaps benefitting society overall.

Nevertheless, policy evaluations should recognize the scope for arbitrary redistribution as one negative side effect of interfering with free markets.

Likewise, any discussion of redistribution should recognize that government, rather than the free market, is often the bigger offender.

As headlines have gotten the attention of parents and policymakers, a new Surgeon General’s report has raised concerns about children’s and teens’ time on social media. Some states, including Utah, Arkansas, and California, have introduced bills that claim to “protect children,” but these bills would carry significant consequences for speech and privacy. Many parents and policymakers are wondering what could be done to help keep kids safer online without taking such a restrictive —and likely unconstitutional — approach.

The issue of keeping children and teens safe online is as unique as each individual child and family. The best answers for these concerns are not one-size-fits-all and thus will emerge from a variety of market and civil society forces that can respond to these unique needs. In my latest policy brief, I highlight some ways that policymakers who want to support parents and families navigating these questions could do so without the problems for speech, privacy, and parental choice.

Many great resources exist already, from parental controls to resources for having conversations about technology with children and teens, but parents are often unsure of what parental controls are available, how to have conversations with their children about technology, or where to look for guidance. Policymakers could help empower parents by collating existing resources or engaging in other educational opportunities so families can choose the right solutions for their concerns. These resources need not be developed by the government, as a wide array of both industry and civil society groups have already developed such resources.

Second, further research is needed to understand the underlying concerns around issues like teenage mental health and social media. It should not be presumed that technology is always to blame, and how technology can help with these same issues should also be explored. Not only should further research and conversations include scientific and social science research, but policymakers and trusted adults like parents, caregivers, and teachers should also ask children and teenagers why they prefer to spend time online and discuss the value they find in online communities.

Finally, many states already have a digital or computer literacy component in their curriculums. However, many of these curriculums and standards were developed before social media gained popularity. This year, Florida passed a law to include updated online safety and media literacy around social media in a way that allows schools and parents to be aware of and choose the curriculum. This flexible approach does not dictate to children and teenagers what choices they should make, but instead prepares them to both make responsible choices and understand the risks and benefits of using technology.

In short, it is understandable that many parents are concerned about what they hear about children, teenagers, and social media. It is not uncommon for these concerns to arise with technology or in popular culture. Similar concerns have played out over everything from the novel to video games.

Despite these concerns, many children and teens have found valuable online communities, educational opportunities, or new passions online. Rather than rushing to regulate or take away technology from teenagers, parents, and policymakers should look at the tools available to empower and educate all users on how to have a beneficial online experience.

We don’t know the day he was born, but Adam Smith was baptized on this date 300 years ago. Since then, the ideas of the man widely considered the father of modern economics have changed the world and remain as relevant as ever.

As a central figure of the Scottish enlightenment, Smith is best known for The Wealth of Nations, a work in which he challenged the world’s prevailing economic system. Smith opposed privileges imposed by law, including trade protectionism. He further called mercantilism—a doctrine that argued that to accumulate wealth, countries must export more than they import—“absurd.”

A keen observer of reality, Smith explained that “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them with some part of the produce of our own industry, employed in a way in which we have some advantage.” For instance, Smith asserted that good wine could be produced in Scotland, but he calculated that its cost would be 30 times that of good wines that could be imported from other countries.

Smith took a dim view not just of protectionism, but most any attempt on the part of the authorities to direct the economy. The true origin of wealth is explained by a counterintuitive concept based on another of Smith’s observations: The pursuit of self-interest in the marketplace, not mere benevolence or a plan imposed by rulers, ultimately produces prosperity and improves the welfare of others.

But Smith, a professor of moral philosophy, understood that people are complex and not just materialistic.

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”

So he wrote in his first book, The Theory of Moral Sentiments. According to Smith, empathy arises from interacting in society, which also makes people want to be loved and want to deserve it. Experience, not intellectual reasoning, gives rise to moral sentiments and attitudes such as benevolence.

How do we reconcile self-interest with sympathy for others? For Smith, there is no contradiction. In the free market, one can only act with the interests of others in mind since exchanges are voluntary.

As Smith tells us in his “Lectures on Jurisprudence,” such exchange is based on “the natural inclination everyone has to persuade.” He adds, “The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest.”

Smith believed justice is a pillar that is essential to the functioning of society. Where justice exists, even the impersonal exchanges of an ever-expanding marketplace are characterized by collaboration and respectful treatment of the other. These exchanges also encourage benevolence; according to Professor Smith, even a beggar who receives monetary charity ultimately depends on the market.

In his writings, Smith was concerned for the happiness of the poor, who at the time comprised almost the entire population of Scotland and the world. He opposed empires, slavery, and the mistreatment of indigenous people overseas. Since his death, as the world has liberalized, global poverty has plummeted, wealth has soared, empires have fallen, chattel slavery has been officially abolished, and human rights have been extended to a growing portion of the global population.

As long as humans celebrate moral and material progress, so should they celebrate Adam Smith.

Note: This article is based on a version that was originally published in El Comercio (Peru) on June 13, 2023.

The House and Senate both have budget committees. And yet, neither chamber has released a budget this year. Against this backdrop, it’s refreshing to see the Republican Study Committee (RSC) continue its nearly 30-year tradition of producing an alternative conservative budget proposal. Titled “Protecting America’s Economic Security,” the RSC under chairman Kevin Hern (R‑OK) and Budget and Spending Task Force chairman Ben Cline (R‑VA) proposes to balance the federal budget, cut taxes, slash red tape, and boost work.

The growth in the federal debt is directly tied to increases in spending for entitlement programs and interest on the debt. Major entitlement programs, namely federal health care and Social Security, combined with interest on the debt will be responsible for 82 percent of projected spending growth over the next 10 years. Congress will also be confronted with two major deadlines within the 10-year budget window, the period Congress considers when developing budget proposals. Both Social Security’s and Medicare’s trust funds, accounting mechanisms that authorize Treasury to borrow funds to pay benefits that exceed incoming payroll tax revenues, are projected to be depleted before the end of this decade.

Here’s how the RSC budget proposes to address the main drivers of federal spending and debt growth:

Modest Social Security Reforms. The RSC budget emphasizes that Social Security reform will require bipartisan support and highlights past examples of Republicans and Democrats working together to prevent indiscriminate benefit cuts while tweaking aspects of what’s now the federal government’s single largest program. While short on details, the RSC Budget proposes tweaks to the retirement age as well as reducing benefits for the highest income earners. While this detail is not included in the actual budget document, task force chair Rep. Cline has reportedly shared that “the retirement age would be increased at a rate of three months per year—but not for current or near-retirees—starting in 2026, until the retirement age reaches 69 for those turning 62 in 2033.”

Medicare Premium Support. In addition to championing smaller tweaks to Medicare to reduce costs, such as site-neutrality in payments and ending coverage of bad hospital debt, the RSC proposal would adopt a premium support model, structured to save both taxpayers and beneficiaries money. Premium support relies on market forces and competition to achieve cost savings, which is a more reliable way than the federal government tinkering around the edges of health care policy. Noticeably, this iteration of the RSC budget does not include an increase in the Medicare eligibility age, nor does it mention reducing subsidies for higher-earning beneficiaries (though premium support might offer a pathway to different levels of subsidization based on income). Those are disappointing omissions as Medicare eligibility policy should more closely align with Social Security’s eligibility policy since both programs target roughly the same population.

Singles out Old-age Entitlement Programs from inflation adjustment improvement. The RSC budget acknowledges that there is a more accurate inflation measure available than what most federal spending programs use to adjust benefits. Shifting to this measure also happens to save taxpayers’ money by avoiding inflated spending that goes beyond compensating for how inflation affects purchasing power. The RSC proposes to adopt the more accurate chained CPI, except for two of the largest federal government programs: Social Security and Medicare. Chained CPI has already been adopted to adjust policies in the tax code and it’s overdue to shift to this measure across federal spending programs. It’s unfortunate that the RSC excluded this policy from affecting Social Security and Medicare as there’s no good policy reason to do so (albeit obvious political reasons exist).

Expands health care choices for small businesses and their employees. The RSC budget correctly identifies that “the exclusion for employer sponsored insurance (ESI)…is the primary reason why the United States has developed its unique health care system, in which the government has artificially made it cheaper for employers…to lock people in their present jobs and…handle health care negotiations for individuals, instead of increasing wages and giving people increased freedom.” The RSC proposes to allow employers of small businesses to provide their employees with a cash contribution toward the purchase of a health care plan of the employees’ choice. This proposal should go much further and allow all workers to choose their own health plans, regardless of whether their employer sponsors a particular plan. Individuals should be able to decide how to make the most of their tax-advantaged benefit dollars. The proposal would also expand access to health savings accounts (HSAs) and address several regulations driving up the cost of health care.

Block Grants Medicaid and related health care subsidies. The RSC budget proposes five federal block grants for state-based health care programs to provide subsidies and care for the diverse populations who are eligible for Medicaid, the Children’s Health Insurance Program, and Affordable Care Act subsidies. The current state-federal matching grants design undermines political accountability and cost-effective policy choices. Block granting Medicaid and related health care subsidies to ensure the most vulnerable beneficiaries have access to needed care while encouraging efficiencies in care provision makes sense.

A Worthwhile Effort

Even if the RSC budget has a small chance of becoming law, it’s very much worthwhile for members of Congress to go through a budgeting exercise with the goal of identifying what it would take to balance the budget over the next decade. This can be particularly educational for members of Congress and constituents who mistakenly believe that cuts to unpopular programs like foreign aid and so-called woke spending will suffice to eliminate deficits. Any serious effort at balancing the budget will involve reducing spending on the largest and fastest-growing federal programs: Medicare, Medicaid, and Social Security. I applaud the Republican Study Committee on their efforts to include the largest spending growth drivers in their budget proposal. This is a good start, and we can’t stop there. We still have a long way to go.

Denisha Merriweather Allen says her life would be very different today if not for school choice. She grew up in an impoverished community in Jacksonville, Florida. Her family had lived in poverty there for at least four generations. They were well-known in the community and in the local schools. “She’s a Merriweather,” teachers would say, with the implication being not to expect anything from her.

Not surprisingly, Denisha’s behavior reflected these expectations the adults had of her. “I remember days when I would walk into the classroom and everyone would sigh, including my teacher,” she shared with The 74. “I grew disheartened. To hide my hurt, I often lashed out in physical fights with my classmates. The principal’s office became my new classroom, and I got used to being suspended. D’s and F’s filled my report cards.” Denisha failed 3rd grade twice because she couldn’t read.

As she entered 6th grade, Denisha’s life changed. She began living with her godmother, who used a tax credit scholarship to send Denisha to Esprit de Corps Center for Learning, a private school her church had started. “The nurturing environment at Esprit de Corps made a huge difference,” says Denisha. “They didn’t just see me as a person who came to school with a lot of baggage and not the best outlook. I was a challenging student and spent a lot of time in in-school suspension. But they were so nurturing and consistent that it changed my attitude. They encouraged me to use my voice and gave me ways to channel my strengths. I went from making D’s and F’s to graduating with honors, going to college, and getting a master’s degree. I don’t think that would have been possible if I hadn’t been given a different opportunity.”

Denisha became a school choice advocate because she witnessed first-hand the tremendous impact it had on her own life. Fast forward to 2020. The country is in the midst of social unrest after the killing of George Floyd. “The entire country was looking at our systems and thinking about how we can become more equitable,” says Denisha. “But I was frustrated that there wasn’t enough focus on the inequities in our education system and the reforms that really could make a difference in the lives of students and especially Black students. The academic outcomes for Black students nationwide according to the National Assessment of Educational Progress are really dismal.”

But Denisha didn’t just complain about the situation or sit back and hope someone else would do something. She created Black Minds Matter, a national movement to celebrate black minds, support excellence, and promote the development of high-quality school options for black students. “There’s a lot of research that shows when Black students have choice in education, their academic outcomes improve drastically. And not just academics—even crime and teen pregnancy rates improve when students have school choice,” Denisha points out.

Black Minds Matter works to “encourage and empower elected officials, community members and families to be innovative, demand excellence in education, and increase the number of schools founded by Black individuals.” A key piece of this effort is a Black-Owned School directory, which is the first online directory to promote schools founded by African Americans and currently includes 416 schools.

Last week, Denisha hosted the second annual Black Minds Matter Summit. It gave parents, students, teachers, school leaders, education reformers, and lawmakers a chance to connect with and inspire each other in their efforts to transform education for black students. The participants included founders of homeschool co-ops, microschools, charter schools, and traditional private schools. Students from a local black-owned school surprised the audience with a lesson on financial literacy. And former school choice beneficiaries shared their stories along with ways to activate and engage communities.

Prior to this year’s summit, Black Minds Matter partnered with the State Policy Network to host a mini launchpad with black school founders who are looking to expand. It was a great opportunity for the founders to receive feedback and tips from a diverse group of entrepreneurs, innovators, and education reformers.

In her journey from school choice beneficiary to advocate, Denisha has been an inspiration to countless people. But she’s also been inspired herself—by the parents who are finding better options for their children, the students who are working to improve their futures, the school founders who are creating new opportunities for those students, and the lawmakers who are willing to face strong opposition when they pass school choice programs that help disadvantaged kids escape bad environments. Through Black Minds Matter, she’s created a way to help cultivate and sustain a growing movement centered around ensuring every black student has access to a high-quality education they’ve chosen.

On Wednesday the Fed decided to keep its rate target steady, in a range of 5.0 percent to 5.25 percent. On the heels of one of the steepest rate-increasing campaigns in its history (the target was near zero in February 2022), Fed officials are selling this choice as a pause. According to Fed Chairman Jay Powell:

We have raised our policy interest rate by five percentage points, and we’ve continued to reduce our security holdings at a brisk pace. We’ve covered a lot of ground and the full effects of our tightening have yet to be felt.

Given the recent inflation figures, it’s difficult to argue with Powell.

Since June 2022, the month-to-month change in the core CPI averaged 0.4 percent, and the last three months were perfectly flat (at 0.4 percent). Since reaching a high of 0.8 percent in April 2021, the month-to-month change has been on a slow and steady decline. In other words, inflation has been falling. (And as this post points out, it’s the recent inflation trend that matters most because the annual rate will remain elevated even if the monthly changes stay flat).

The full CPI rate, more volatile as usual, has also been on a mostly downward trend, with a 0.3 percent month-to-month average since June 2022. From April 2023 to May 2023, the full CPI increased 0.1 percent, a figure that represents a 1.2 percent annual inflation rate. The average for the previous three months is 0.2 percent, an annualized rate of 2.4 percent.

Given these recent figures, along with the speed and magnitude of the Fed’s rate hiking campaign, taking a pause to feel more of the “full effects” is certainly reasonable.

Besides, at least two major short-term market rates, the 4‑week Treasury rate and the 30-day average SOFR, have flattened out over the last 30 days. In fact, if the Fed were conducting policy by a Taylor rule, an equation that links the Fed’s target rate to inflation and unemployment, the Fed’s target would already be higher than the rule suggests. For example, a simplified Taylor rule suggests the Fed would calculate its target federal funds rate (FFR_t) as follows:

FFR_t = 0.8 x FFR_t‑1 + ( 1 — 0.8 ) x [ 1.5 x Inflation_t — 0.5 x ( Unemployment Rate_t — NAIRU_t ) ]

In May, the actual federal funds rate (FFR) was 5.06 percent. May to June inflation was 0.1 percent, which is 1.2 percent annually. Using May’s unemployment rate of 3.7 percent and a 4.42 percent natural rate (NAIRU), the implied FFR for June should be:

FFR_{June 2023} = 0.8 x (5.06%) + 0.2 x [ 1.5 x (1.2%) — 0.5 x (3.7% — 4.42%) ] = 4.48%

So, the Fed’s target rate may already be “too high,” and this standard policy rule suggests there is no reason to keep raising rates. If anything, a case could be made to marginally reduce rates, so the Fed’s actions seem rather prudent.

The danger of raising its rate target too much, too fast, of course, is that the Fed could unnecessarily slow economic activity down so much that it causes a recession. Or worse.

The recent inflation figures appear to be on the right track, with annualized rates getting closer to the Fed’s regular 2 percent target. Given the stakes, holding steady makes perfect sense.