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Blog with Dr. G

Why Media Economic Reports Can Be Misleading

A Bad Budget Agreement

2/8/2018

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​Yesterday’s bi-partisan budget agreement represents a major failure in government policy.  It is an irresponsible move that reverses the positive impact of tax cuts with an orgy of spending.  Under the agreement, federal spending will increase by 7% this year and another 7% in 2019.
Having provided taxpayers with a major benefit through tax cuts, Congress will now take much of the benefit away.  The tax cuts will add about $200 billion to real growth this year.  The budget agreement adds about $130 billion to federal spending.  Hence, Congress has just agreed to spend two-thirds of the increase in growth.  The additional federal spending will raise both prices and interest rates as it bids resources away from the private sector.
The bi-partisan nature of the agreement means both parties will be responsible for blowing holes through their federal budget agreement.  However, the main blame will be on Republicans.  The inability of the Senate to end the filibuster rule means Republicans need Democrats’ votes to pass most spending bills. 
The easiest way for politicians to vote is always to simply give everyone what they want.  It is easier to do so since politicians aren’t spending their own money.  Rather, they are spending taxpayers’ money.  And taxpayers will be the ones who pay the bill for Congress’ latest abrogation of its responsibility.

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