• The Issue
• Power Phrases

Agricultural policy does not merely affect farmers. It affects everyone because, after all, everyone eats. It is a broad, sweeping issue that affects Americans buying food for their families, and businesses that produce and distribute the food to consumers. Unfortunately, federal government intervention in the food and agricultural sector is far too prevalent.

One of the primary issues in agricultural policy is federal farm subsidies. There is a misconception that these subsidies primarily exist to help farmers when they experience crop losses—a “safety net” for major losses connected to natural disasters. Yet, the subsidies are instead an out-of-control corporate welfare system that primarily insulates a small number of large agricultural producers from competing in the marketplace. It is easy to see that agricultural producers can flourish without such harmful government intervention: Most U.S. agricultural producers, just like other businesses, do not receive special taxpayer handouts to help them compete.

Excessive federal intervention affecting food and agriculture does not end with farm subsidies. Recent trade disputes, such as those with China, have led to significant retaliatory tariffs on agricultural goods. This makes it more difficult for farmers to export their goods and reduces the selection of high-quality and low-cost food options for consumers.

Major environmental regulations trample on the property rights of farmers and ranchers and continue to hamper their ability to produce food (see the Environment chapter for more on these regulations). These regulations often reflect federal agency overreach that can block ordinary farming activities or discourage farmers from even trying to engage in such activities out of fear of civil and criminal penalties.

Increasing federal control over the food that people eat (even to the extent of hindering food innovation that would better meet consumer demand) is an alarming trend. Federal policymakers have taken steps to unduly influence or restrict personal dietary decisions, failing to respect the basic individual freedom of choosing what foods to eat. These harmful efforts reflect an arrogant assumption that federal bureaucrats know what people should eat, without regard for the complexity of diets and respect for individual choices, not bureaucratic preferences.

Too many policymakers simply defer agricultural policy to legislators serving on agriculture committees or to those with large farming constituencies. If the country is going to reduce this federal intervention, which distorts markets, wastes taxpayer dollars, and limits freedom, then all policymakers should take a proactive stand to promote the principles of free enterprise and limited government in agriculture.

Stop paying farmers twice for revenue and price losses in the same year. Agricultural producers can receive support from the Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC) programs and the federal crop insurance program to cover price declines and revenue shortfalls in the same year. In years in which farmers receive a crop insurance indemnity to help with revenue, the U.S. Department of Agriculture (USDA) should not also provide them an ARC or PLC payment. It is duplicative, unnecessary, and wasteful to force taxpayers to also provide those same producers with more than one federal revenue-related payment in the same year.

Reduce the premium subsidy rate for crop insurance from an average of 62 percent to 50 percent or lower. Taxpayers should not be paying more for the cost of premiums than the farmers who actually benefit from the crop insurance policies. Both the Trump Administration and the Obama Administration, as well as the Government Accountability Office, have all recommended reducing the premium subsidy. The Congressional Budget Office has identified reducing the premium subsidy to as low as 40 percent as an option to reduce the federal deficit. When analyzing a 47 percent premium subsidy, the Congressional Budget Office found that it would save taxpayers $8.1 billion over 10 years. It also would have very little impact on crop insurance participation. There would be a reduction in insured acres of just one-half of 1 percent and only 1.5 percent of acres would have lower coverage levels.

Eliminate the sugar program. The federal sugar program intentionally drives up food prices by limiting the sugar supply. As would be expected, American sugar prices are consistently higher than world prices, hurting American consumers and workers in industries that use sugar to manufacture goods. The program costs consumers about $3.7 billion a year, and there is a disproportionate impact on the poor because a greater share of their income goes to meeting food needs compared to higher income households. Sugar producers and processors should compete in a free market, as other businesses do, without price guarantees, supply restrictions, import quotas, and other government intervention.

Separate food stamps from agricultural programs. For decades, Congress has passed farm bills by combining food stamps with agricultural programs. This unholy alliance has existed entirely for political purposes to help push through legislation. The presumption is that rural legislators will push for farm subsidies and that urban legislators will push for food stamps. Separation is the prerequisite for real reform of agricultural policy because, like food stamps, agricultural policy needs to be addressed on its own merits. Congress should consider food stamps and agricultural programs in two separate bills, and the programs should be authorized on staggered schedules so that there is no potential for overlap in the future.

Free agricultural trade from government intervention. Trade is often discussed in connection with how it affects countries, but trade as a general matter is about the freedom of individuals and businesses to voluntarily exchange goods and services with customers. American farmers and ranchers, like other businesses, should be free to sell to customers all over the world. Further, consumers should be free to purchase goods and services that best meet their needs, regardless of national origin. Government-imposed barriers, such as tariffs, undermine these freedoms. To address unfair practices, the United States should use the World Trade Organization (WTO) dispute-settlement system instead of relying on tariffs. In fact, one of the most important benefits of the WTO is having a legal venue to challenge foreign trade barriers.

Stop federal efforts to control or change individual dietary choices. From Obamacare’s mandatory menu- labeling requirements to the U.S. Food and Drug Administration’s (FDA) de facto ban on artificial trans fats, federal government intrusion into the dietary choices of Americans is growing. Underlying these mandates is the arrogant presumption that individuals make misinformed choices, and that the government must therefore guide, or even compel, the public to make the “right” choices. Congress should respect that most basic and private aspect of Americans’ lives: food choices. This should include, for example, repealing the menu-labeling law, or at a minimum stopping the FDA’s overreach in its implementation. Even though the law applies to “restaurants and similar retail food establishments,” the FDA is using it to regulate grocery stores, convenience stores, movie theaters, and other businesses that no reasonable person would think are similar to restaurants. Congress should also clarify that the FDA’s role in food safety should not be conflated to mean that the agency’s safety responsibilities include nutrition.

Do not block innovation in the food and agricultural sector. Congress ignored the science when it mandated misleading food labels that suggest that food using genetically engineered crops is somehow less safe than non-genetically engineered counterparts. Efforts on both the state and the federal level (including at the FDA) are making it difficult for producers of new products such as plant-based alternatives to dairy products, and plant-based and cell-based alternatives to slaughtered meat, to accurately convey the nature of their products to consumers. For example, products such as almond milk, which have long used the term “milk” in the name to help inform consumers (and have had no problems with consumer confusion), might no longer be able to utilize the dairy-related term. Congress needs to repeal the genetically engineered food labeling law and should ensure that the government is not creating protectionist schemes, such as name restrictions, to hinder the sale and development of food products that appeal to consumers.

• Daren Bakst, ed., Farms and Free Enterprise: A Blueprint for Agricultural Policy, Heritage Foundation Mandate for Leadership Series, 2016.
• Daren Bakst, “What You Should Know About Who Receives Farm Subsidies,” Heritage Foundation Backgrounder No. 3306, April 16, 2018.
• Daren Bakst, “Significant—and Necessary—Farm Subsidy Reforms for the Next Farm Bill,” Heritage Foundation Issue Brief No. 4839, April 17, 2018.
• Daren Bakst, “Congress Should Separate Food Stamps from Agricultural Programs,” Heritage Foundation Issue Brief No. 4375, April 7, 2015.
• Daren Bakst, Gabriella Beaumont-Smith, and Riley Walters, “How the U.S–China Trade Dispute Affects U.S. Agriculture: What You Should Know,” Heritage Foundation Backgrounder No. 3391, February 28, 2019.
• Daren Bakst and Gabriella Beaumont-Smith, “Agricultural Trade with China: What’s at Stake for American Farmers, Ranchers, and Families,” The Heritage Foundation Backgrounder No. 3340, August, 29, 2018.
• Daren Bakst, “NAFTA Renegotiations: What’s at Stake for American Farmers, Ranchers, and Families,” Heritage Foundation Backgrounder No. 3277, January 11, 2018.
• Daren Bakst, “Government Control of Your Diet: Threats to ‘Freedom to Eat’,” Heritage Foundation Issue Brief No. 4033, September 3, 2013.
• Daren Bakst, “The FDA Must Stop Its Overreach and Start Respecting Consumer Freedom,” Heritage Foundation Issue Brief No. 4914, October 29, 2018.
• Daren Bakst, “A Q & A on the Mandatory Labeling of Genetically Engineered Foods,” Heritage Foundation Issue Brief No. 4440, July 22, 2015.
• Daren Bakst, “Federal and State Governments Should Not Require Mandatory Labeling of Genetically Engineered Food,” Heritage Foundation Issue Brief No. 4567, May 20, 2016.
• Daren Bakst, “FDA’s Artificial Trans Fat ‘Ban’: A Dangerous Step to Control Personal Dietary Choices,” Heritage Foundation Issue Brief No. 4246, July 10, 2014.
• Daren Bakst and Jeremy Dalrymple, “The FDA Needs to End Its Improper One-Size-Fits-All Approach to Produce Safety,” Heritage Foundation Issue Brief No. 4959, May 15, 2019.

• The Issue
• Power Phrases

Human activity plays a role in a changing climate, as do a number of naturally occurring factors, but global warming is neither a planetary emergency nor does it necessitate massive, costly government programs to curtail energy use. The Intergovernmental Panel on Climate Change (IPCC) does not, for example, conclude that the world has until 2030 to avoid catastrophic global warming.1 Distinguishing what climatologists know, do not know, and might know is necessary so that objective, transparent science can inform public policy.

In fact, mainstream climate science does not comport with climate change alarmism. For instance, with regard to extreme weather events, the IPCC report and other published studies do not show trends for increased frequency or intensity of natural disasters. The IPCC notes in its most recent scientific assessment that “[n]o robust trends in annual numbers of tropical storms, hurricanes and major hurricanes counts have been identified over the past 100 years in the North Atlantic basin,” and that there are “no significant observed trends in global tropical cyclone frequency.” Further, “confidence in large scale changes in the intensity of extreme extratropical cyclones [such as “Superstorm” Sandy] since 1900 is low.”2 The National Oceanic and Atmospheric Administration clearly states that “[i]n terms of detection and attribution, much less is known about hurricane/tropical cyclone activity changes, compared to global temperature.”3

Moreover, the IPCC found evidence for increases, decreases, and no trend at all in flood activity or severity.4 Trends in local events like hail and thunderstorms were also inconclusive.5 Data for tornado activity in the U.S. show tornadoes occur no more frequently now than in the past and that the number of strong tornadoes (F3 and above) has actually decreased6 (after accounting for the apparent increase in tornado counts due to improved identifying technology). As for droughts, the IPCC overstated previous conclusions about increasing trends and stated that “the compelling arguments both for and against a significant increase in the land area experiencing drought has [sic] hampered global assessment.”7

Objective, transparent science should be an important tool to inform public policy. This is especially important as significant areas of disagreement remain among scientists about the nature and pace of warming. Independent efforts to more accurately determine the severity of climate change would help policymakers take any necessary cost-effective, verifiable, and effectual actions.

It is important to note that, regardless of the degree of urgency of combating climate change, proposed federal policies like cap and trade, a carbon tax, or regulations on power plants would be ineffective tools for doing so. According to the climatologists’ own models, the U.S. could completely eliminate its carbon dioxide emissions and still not abate much warming. Because the United States represents only a portion of global greenhouse gas emissions, the entire world would have to fundamentally change how it consumes energy to make any impact on global temperatures. But it would be pure fantasy to expect that developing countries would be willing to forego inexpensive and abundant carbon dioxide–emitting energy in favor of more expensive, intermittent sources. Developing countries are expanding their use of renewable power sources, but not to the extent that doing so will have any meaningful impact on global temperatures.

The costs of such aggressive policies would be significant and would leave Americans with fewer resources to combat current and future environmental challenges, whether climate related or otherwise. The goal of climate policies is to raise energy prices so that families and businesses use less energy and, consequently, reduce emissions. The direct impact of higher energy costs is just a small part of the story. Energy is a necessary input for nearly all goods and services. Consequently, Americans would pay more for food, health care, education, clothes—and every other good or service that requires energy to make and transport.

Climate policies also result in more government control over the lives of businesses and families. For instance, the Green New Deal proposes monumental changes to America’s electricity, transportation, manufacturing, and agricultural sectors to reduce greenhouse gas emissions. If enacted, the proposal would fundamentally change how people produce and consume energy, harvest crops, raise livestock, build homes, drive cars, and manufacture goods. Washington would make decisions on behalf of consumers and producers, and the costs would be borne by taxpayers. These policies would not only be incredibly costly, they would also have no impact on the climate and would strip freedoms from the American people.

Stop the regulation of greenhouse gases. The Obama Administration implemented a suite of greenhouse gas emissions regulations and executive orders that have unnecessarily driven up energy prices and eliminated choices, while having no meaningful climate impact. President Trump rightly directed agencies to reconsider and withdraw some of these rules. However, lasting leadership and change must come from Congress. Congress should prohibit the federal government from regulating greenhouse gas emissions and clarify that the Clean Air Act never intended to regulate greenhouse gases.

End the use of social cost of carbon in government cost-benefit analyses. Federal agencies perform cost–benefit analyses for a wide range of regulatory and permitting decisions. Under the Obama Administration, agencies began to incorporate a “social cost of carbon” in these analyses to assess the alleged social costs of an activity emitting carbon dioxide. The statistical models upon which the federal government relies offer significantly different results using other reasonable inputs, such that values are essentially arbitrary and are not credible tools for policymaking. Congress should prevent any agency from using regulatory analysis metrics with the “social cost of carbon” and the “social cost” of other greenhouse gas emissions in any cost–benefit analysis or environmental review. If federal courts force regulators into estimating the costs of climate change, they should assess climate impacts in terms of global temperature change as a result of the proposed project, using a tool like the Model for the Assessment of Greenhouse Gas Induced Climate Change rather than using the social cost of carbon.

Withdraw the endangerment finding and address the uncertainties in climate science. The Environmental Protection Agency (EPA) should reconsider its endangerment finding on greenhouse gas emissions, recognizing that greenhouse gas emissions are affecting the climate but that no credible evidence suggests that the Earth is heading toward catastrophic warming. Physicist Steven Koonin, former undersecretary of energy for science in the Obama Administration, proposed having a climate “Red Team/Blue Team.” Inspired by the national security community’s Red Team exercise to challenge assumptions, reduce risks and uncertainties, and correct for biases, a Red Team/Blue Team would provide a public, transparent exchange on major issues surrounding climate science.

Withdraw from the United Nations Framework Convention on Climate Change (UNFCCC). President Trump kept his campaign promise to withdraw from the Paris climate agreement, but has yet to outline details as to how the Administration will implement the withdrawal. The fastest and most effective way to withdraw from the Paris agreement is to withdraw from the entire UNFCCC, the treaty underlying the Paris agreement. Under the terms of the Paris agreement, any government withdrawing from the UNFCCC “shall be considered as also having withdrawn from this [Paris] Agreement.” The process for withdrawing from the UNFCCC requires one year, which accelerates the process considerably. Moreover, departure from the UNFCCC would prevent future Administrations from using that framework to avoid obtaining the Senate’s advice and consent in the treaty process. Congress should urge the Administration to withdraw from the UNFCCC.

Reject carbon taxes. Over 80 percent of energy resources used by Americans come from carbon-based resources. A carbon tax is a tax on energy and, in effect, on the entire economy. Levying a price on carbon dioxide would directly raise the cost of electricity, transportation, manufacturing, and nearly every good and service Americans engage in, and consequently would be regressive, hurting poor Americans—who spend a larger share of their income on energy—the most. Even if Congress were to implement a plan to give the revenue back to the people and avoid carving out revenue for special interests, which is unlikely, Americans stand to lose much more for all of the higher costs they would incur. Like every other regulatory or subsidy scheme to reduce carbon dioxide emissions, a carbon tax is by no means a free-market solution, nor would it provide any meaningful impact on global temperatures.

Make targeted spending decisions to build resilient infrastructure. Whether carbon dioxide levels rise, fall, or stay the same, the United States and the rest of the world will experience extreme weather events. Climate and land will continue to change for a wide variety of reasons. Without question, extreme weather and long-term climate changes can adversely affect communities and infrastructure. The federal government (when applicable), state and local governments, and the private sector should address climate-related infrastructure vulnerabilities through site- and situation-specific analysis and spending. Federal, state, and local policymakers should use the best available science to better prepare—before storms inflict damage—to maximize resiliency and preparedness.

• Nicolas Loris, “Climate Change, Part I: The History of a Consensus and the Causes of Inaction,” testimony before the Subcommittee on Environment, Committee on Oversight and Reform, U.S. House of Representatives, April 9, 2019.
• Kevin D. Dayaratna and Nicolas D. Loris, “Assessing the Costs and Benefits of the Green New Deal’s Energy Policies,” Heritage Foundation Backgrounder No. 3427, July 24, 2019.
• Kevin D. Dayaratna, “An Analysis of the Obama Administration’s Social Cost of Carbon,” testimony before the Committee on Natural Resources, U.S. House of Representatives, July 23, 2015.
• Nicolas Loris, “Ensuring Resiliency of Military Installations and Operations in Response to Climate Changes,” testimony before the Subcommittee on Readiness, Committee on Armed Services, U.S. House of Representatives, March 13, 2019.
• Nicolas D. Loris and Brett D. Schaefer, “Withdraw from Paris by Withdrawing from the U.N. Framework Convention on Climate Change,” Heritage Foundation Backgrounder No. 3220, May 25, 2017.
• Nicolas D. Loris and Brett D. Schaefer, “The Kigali Amendment Offers Little Benefit to the Climate, Great Cost to the U.S. Economy,” Heritage Foundation Backgrounder No. 3309, April 30, 2018.
• David Kreutzer, Nicolas D. Loris, Katie Tubb, and Kevin Dayaratna, “The State of Climate Science: No Justification for Extreme Policies,” Heritage Foundation Backgrounder No. 3119, April 26, 2016.

• The Issue
• Power Phrases

The gross federal debt at more than $22 trillion dollars at the end of fiscal year 2019 exceeded the total size of the U.S. economy, gross domestic product (GDP), by 7 percent. Debt held by the public (that is, not including debt held in government trust funds such as Social Security and Medicare) was 79 percent of GDP at the end of 2019. In March 2020, the Congressional Budget Office (CBO) projected that debt held by the public would be 81 percent before September. Meanwhile, CBO also estimated that the debt would increase by over $14.4 trillion over the next 10 years.

However, a highly infectious and novel coronavirus, SARS-CoV-2, had spread to the United States from China. The first US case was detected in Washington State in late-January. By the middle of March, the virus was spreading to almost every state and, based on the advice of public health officials, businesses and individuals began to dramatically change their behavior. Around the same time, state and local governments began to implement public health tactics, such as stay-at-home orders and mandatory closures of non-essential businesses, intended to stop the spread of the virus. These actions had significant effects on the economy including a reduction in hours worked and business closures.

Congress passed a series of bills that significantly increased the deficit over a very short period of time in response to the increased demand for public health resources and economic fallout of the virus. At the same time, the administration released $50 billion in emergency funds. Furthermore, federal and state safety-net program spending increased as people have lost income by becoming unemployed or having their hours significantly reduced in response to the dramatic reduction in economic activity.

In April, CBO released an update to their March analysis projecting that the federal budget deficit will be $3.7 trillion in 2020. If no other legislative actions occur, debt held by the public is projected to exceed 100 percent of the economy by September.

Such high levels of debt are unprecedented. The immediate aftermath of World War II is the only time in American history that the debt has been this high. As the nation recovered from the war, so too did debt levels, which quickly stabilized and declined as a share of the economy for much of the next three decades.

However, current levels of debt are insufficient measures of whether a government’s fiscal policy is sustainable. This is because governments have a number of options for dealing with short-term debt increases including issuing new debt to pay for the interest on the existing debt. This is especially advantageous when the real interest rate on government debt is less than the rate of economic growth. In essence, the federal government can continue to rollover debt for some period of time without significantly increasing welfare costs associated with debt accumulation.

The point at which debt becomes so large that the federal government begins running out of tools to manage it is ultimately associated with whether the underlying fiscal policy is sustainable. Determining whether a particular fiscal policy is sustainable requires analyzing the extent to which the growth in spending will exceed the growth rate in the economy over a sustained period of time absent structural reforms. The problem with the US budget is that prior to the current novel coronavirus crisis there were a small subset of programs that were growing at unsustainable levels. However, these programs are also large and comprise more than 60 percent of total spending. The most significant challenges to the budget’s sustainability are the government funded health care programs, including Medicare, Medicaid, and spending on Obamacare. However, other entitlement programs also pose significant challenges absent reforms that align spending growth with that of the economy over the business cycle.

It is also possible that high levels of debt can result in a number of other adverse economic conditions. These include slower growth as well as the possibility for higher interest rates and inflation. Slower growth means less take-home pay for workers, fewer opportunities for Americans to improve their economic well-being and attain financial security, and lower revenue. Lower-income workers, minorities, and the elderly are hurt disproportionately in a weak economy. Inflation would affect Americans through higher prices on everyday goods and services. Higher interest rates would make obtaining a loan to start a business, purchase a car, or buy a house more expensive, putting dreams of homeownership and self-employment out of reach for many Americans.

In other words, high levels of debt could stifle economic opportunity and prosperity, making it harder for many Americans to live their version of the American dream.

Monetary policy enacted by the Federal Reserve has also been effective in blunting the real costs of debt. However, that does not reduce the threat. Rather, because people are less likely to experience the real costs of debt, they are also less likely to demand any structural reforms that would improve the government’s fiscal position. This will potentially increase the risk associated with high levels of debt making the eventual reforms that will be required much more significant.

It is past time for lawmakers to take the national debt and ever worsening fiscal situation seriously. The good news is that there is still time to make reforms. However, if Congress continues to ignore the problem, the negative effects of out-of-control spending will undermine financial security and economic opportunity for many Americans, and especially those of modest means.

Restrain spending with targeted reforms. Spending on Social Security, Medicare, Medicaid, and other health care programs is driving the federal budget to the edge of a cliff. CBO projects that spending for these programs will grow by an average of 2.7 percentage points faster than economy through 2030. There is no revenue-generating system in the world that would, in the long run, that would be able to finance entitlement programs that are by their design growing faster than the economy.

By 2041, CBO projects that spending on Social Security, healthcare, and interest payments on the debt will consume all federal revenues, necessitating massive tax increases to fund any other federal priorities such as national defense, absent reforms.

It will be impossible for America to dig out of this budget mess without addressing entitlement spending. There are reasonable policy options available that would modernize Social Security and healthcare programs to return control to Americans and expand their choices over health care and retirement decisions, while saving money. Lawmakers should make entitlement programs more affordable and fiscally sustainable by returning control over health and retirement decisions to the people.

Devolve inappropriate domestic programs to states, local governments, and the private sector. For at least the past 100 years, the federal government’s reach has expanded well beyond its constitutional requirements, leading to a more centralized government, stifling the creativity of states and localities, and pushing federal spending to unsustainable heights. In 2018 alone, state and local governments received more than $275 billion in grants from the federal government for programs unrelated to health care.

When Washington does allow states to administer their own programs, it acts as a pass-through, absorbing monies in the process and adding layers of bureaucracy. The federal government taxes families, takes a substantial administrative cut, and burdens the remaining revenues sent back to state and local governments with rules dictating how the money can be spent.

Rather than trying to be all things to all people, and not doing it very well, Congress should prioritize spending on the limited set of functions enumerated by America’s Founding Fathers within the Constitution. Mission creep and an overly expansive scope of federal activity undermines congressional and executive focus on performing core federal functions well. The COVID-19 crisis revealed core weaknesses including in public health agencies, such as the Centers for Disease Control, where program focus was diverted from protecting the nation against infectious diseases to the agency meddling in tangential areas, including obesity, smoking, alcohol consumption, and gun control, driven by political considerations.

Congress should cede most spending on highway, education, justice, and other domestic programs. Private entities and state and local governments are best able to manage such activities effectively and efficiently. Effective management requires having the freedom to target local programs to specific local needs and to serve those who need and value these services most. Government control of business activities also crowds out private sector funding and innovation and increases the likelihood that shielded entities will take unnecessary risks. After promising a healthy return on investment, government-owned and -subsidized businesses are frequently in the red, calling on taxpayers to repeatedly bail them out by way of more deficit spending.

Any government function that can easily be provided by state and local jurisdictions or businesses should be privatized, saving taxpayers’ money and providing Americans with better, more responsive, and more innovative services.

Reject tax increases. Some lawmakers have been quick to blame the Tax Cuts and Jobs Act of 2017 for the nation’s trillion-dollar deficits and mounting debt levels. To be clear, the unsustainable fiscal outlook currently facing America was created by unfunded spending promises put into law, in some cases, decades ago; not by too little taxes.

Lawmakers should reject attempts to raise taxes as a way to get out of the mounting debt crisis and focus on spending reforms instead. Over the next decade, the Congressional Budget Office projects revenues to be slightly above the 50-year average. However, CBO projects spending to be 2.5 percent of GDP higher than average, and to outpace revenues by more than 5 percent of GDP.

Closing the gap between revenue and spending would mean a significant tax increase on many Americans, but it is unlikely that higher tax rates on the highest income earners would significantly increase receipts. Instead, Americans could be faced with broad tax increases on middle- and lower-income earners. New taxes, especially on working and investing, would stifle the economic growth seen over the past several years and could make the debt crisis worse, not better.

Adopt an accountable, responsible, and transparent budget process. The 1974 Budget Act provides a timeline to guide completion of the congressional budget process and lays out clear deadlines to ensure that Congress enacts appropriations bills before October 1st of each fiscal year. The budget process allows Congress to evaluate priorities carefully and perform critical oversight over how agencies are spending taxpayer dollars.

However, Congress has no will and little incentive to follow the budget process. The last time that Congress actually completed each required step in the budget process on time was in 1996. The rules intended to keep the process running smoothly are weak and are all but ignored by both parties. This has led to a cycle of continuing resolutions, massive omnibus spending bills, and periodic lapses in appropriations. The budget and appropriations process has morphed from what was intended to be an orderly exercise into a continuing series of funding fights as Congress lurches from one crisis to the next. Amid this chaos, any semblance of fiscal restraint has been lost.

Furthermore, the budget process is weighed down by too many policy disagreements. The Presidents’ budgets and congressional budgets have evolved from governing fiscal plans into political messaging documents. They are rarely taken very seriously even though the federal bureaucracy spends a great deal of time on their preparation. As Alice Rivlin, the former director of both the Office of Management and Budget and the Congressional Budget Office, once wrote, “No government in the world devotes so much time, energy, and talent to budget decision making as our’s does.” And yet, what do taxpayers get from all of that budget preparation and evaluation?

The budget process cannot resolve every issue. And neither can the budget process adequately determine how the overall fiscal choices fit within the larger economic policy goals of the country. These goals should be established up front and debated in a similar manner to other policy. Fortunately, Congress and the administration already have a general process in place to conduct such an exercise through the annual preparation and consideration of the Economic Report of the President. That same infrastructure that was initially created by the Employment Act of 1946, including the US Congress Joint Economic Committee and President’s Council of Economic Advisors, should be used to formulate economic policy for the federal government. Once transparently established, that economic policy can be used to inform the development of the fiscal policy reflected within the budget documents.

Stop unauthorized appropriations. Congress should stop providing funding to unauthorized programs and agencies once and for all. Funding unauthorized programs is already prohibited through budget points of orders, but Congress does little to enforce these provisions. In FY 2019, Congress provided more than $340 billion to agencies and programs that had a lapsed authorization or had never been authorized at all. One potential solution would be to implement a sunset schedule for programs and agencies, as proposed by Rep. Cathy McMorris Rodgers (R–WA). The first year that a program continues unauthorized spending, it would be reduced by 10 percent of the previous year’s appropriation. For the next two years, it would be reduced by 15 percent. If Congress still failed to reauthorize the program by the end of the third year, the program would cease.

Eliminate budget gimmicks. Budget gimmicks promote wasteful spending and thrive on a lack of transparency. They should be eliminated from the budget process. One blatant gimmick, known as Changes in Mandatory Programs, creates false savings that Congress then uses to increase discretionary spending by billions of dollars. On top of Changes in Mandatory Programs, lawmakers allow adjustments for war and other spending that falls outside of statutory budget caps and is often diverted away from intended purposes, adding tens of billions of dollars in uncapped spending each year. Congress should budget for recurring expenses related to military and disaster aid within agencies’ base budgets. If additional spending is required, it should be reserved for truly unpredictable and widespread events. Americans deserve a full accounting of how much Congress is truly spending.

Remove baseline bias towards higher spending. Under current CBO scorekeeping rules, the baseline used to score discretionary spending proposals assumes that spending will increase at the rate of inflation each year. This creates two problems: First, it creates a bias toward higher spending levels. The CBO assumes that spending will increase based arbitrarily on inflation, not on actual agency needs or proposals. Second, it allows lawmakers to claim spending cuts relative to the baseline when spending is actually increasing when compared to levels that have not been adjusted for inflation. In other words, spending may still be increasing, just not at the same pace, as assumed inflation would otherwise have increased it.

Congress should reverse the bias toward higher spending and direct the CBO to remove the assumption that discretionary spending will increase with inflation from its baseline. Removing inflation from the discretionary baseline would eliminate one accounting gimmick from the budget process and make federal spending more transparent.

Provide fair-value estimates. In an effort to more accurately and comprehensively represent the costs and risks, Congress should incorporate market risk in subsidy cost estimates for federal credit and loan guarantee programs. Currently, only the estimated net costs of federal credit programs on an accrual basis, rather than the annual cash flows that happen during the period of a loan term, are accounted for in the budget baseline and for scorekeeping purposes. This downplays the tangible risk associated with certain loan guarantees, which is especially concerning during economic downturns.

Fair-value accounting more accurately presents the risks that Congress assumes through the subsidies that credit and loan guarantee programs provide. Providing fair-value estimates for these programs would allow lawmakers to make better informed cost-benefit decisions.

These modest reforms combined with a comprehensive framework for fiscal restraint would not only help America avoid a budget breakdown, they would also create a better, more transparent, and more accountable budget process.

• Paul Winfree, “Causes of the Federal Government’s Unsustainable Spending,” Heritage Foundation Backgrounder No. 3133, July 7, 2016.
• Adam N. Michel, “A New Measure of Tax Expenditures to Support Pro-Growth Tax Policy,” Heritage Foundation Issue Brief No. 4951, April 9, 2019.
• Rachel Greszler, Drew Gonshorowski, and Romina Boccia, “16 Reforms to Improve the Solvency and Integrity of Social Security Disability Insurance,” Heritage Foundation Backgrounder No. 3396, March 17, 2019.
• Justin Bogie and Romina Boccia, “Latest CBO Projections Show Why Congress Must Stop Delaying Spending Reforms,” Heritage Foundation Commentary, January 29, 2019.
• Romina Boccia, “Needed: An Effective Fiscal Framework to Restrain Spending and Control Debt in the United States,” Heritage Foundation Backgrounder No. 3374, December 19, 2018.
• Romina Boccia, “The High Cost of Refusing to Confront the Exploding National Debt,” Heritage Foundation Commentary, December 6, 2018.
• Romina Boccia, Justin Bogie, and David Ditch, “Joint Select Committee on Budget and Appropriations Process Reform: Pursues Biennial Budgeting, Neglects Reforms,” Heritage Foundation Issue Brief No. 4922, November 26, 2018.
• Justin Bogie, “Earmarks Won’t Fix the Broken Budget and Appropriations Process,” Heritage Foundation Backgrounder No. 3353, September 20, 2018.
• Kevin Dayaratna, Rachel Greszler, and Patrick Tyrrell, “Is Social Security Worth Its Cost?” Heritage Foundation Backgrounder No. 3324, July 10, 2018.
• David Burton, “It Is Arithmetically Impossible to Fund the Progressive Agenda by Taxing the Rich,” Heritage Foundation Backgrounder No. 3430, August 19, 2019.
• Paul Winfree, Nobert Michel, Doug Badger, “Potential Long-Term Economic Consequences of the Federal Response to Social Distancing,” Heritage Foundation Backgrounder forthcoming.
• Paul Winfree, A History (and Future) of the Budget Process in the United States: Budget by Fire, New York: Palgrave Macmillan, 2019.

• The Issue
• Power Phrases

Thousands of federal regulations have been eased as a result of the COVID-19 crisis to speed production of protective gear and development of treatment tools. This deregulatory sweep represents explicit acknowledgement that unnecessary regulation undermines public health and well-being. Economic recovery post-COVID-19 likewise requires Congress and the White House to lighten the regulatory burden on employers and investors.

President Donald Trump’s executive order of May 19, 2020, directs federal agencies to exercise regulatory restraint. But it will require action by Congress as well to ensure that meaningful reform outlasts the current Administration. Conventional wisdom has long held that government regulation is the only way to protect the public interest. We now know better: Forty years of command-and-control regulatory schemes have led to massive, ineffective, and unaccountable bureaucracies and a raft of costly unintended consequences.

Most regulatory intervention embodies the Progressive conceit that government knows what is best for us all. But even well-intentioned central planners cannot possibly possess the vast and ever-shifting knowledge necessary to determine the optimal course of action—especially when global markets are involved.

The self-interest of entrepreneurs and investors increases the likelihood of success. Consumers and competitors impose penalties for errors in judgment swiftly and stringently. In contrast, political imperatives trigger government action, which is largely insulated from consumer demand, competition, and financial discipline.

Government remedies are inherently weak because political concessions are necessary for them to gain acceptance. As economist Richard Stroup noted, “A political solution cannot be purchased—only rented.” Regulatory schemes are also unreliable because neither Congress nor the White House is bound by the actions of its predecessors, except in the granting or sale of private rights.

Regulations also shift labor and capital away from productive activities, such as innovation and job creation, to compliance activities. The burden falls heaviest on new businesses, which inhibits job creation, undermines competition, and secures the dominance of incumbent firms. Unsupportable compliance costs also drive mergers, further consolidating markets.

Regulatory costs are not a problem just for business. Low-income families and fixed-income seniors are also hit hard by government edicts. The costs of compliance increase the prices of products and services across the economy, including soaring energy bills from renewable energy dictates, increased food bills from excessive production standards, restricted access to credit due to some 400 Dodd–Frank regulations, and higher medical costs as a result of the inaptly named Affordable Care Act—to name a few.

Conservatives rarely shape the debate on environmental policy, too often focusing on regulatory costs rather than on an alternative agenda. But green eyeshades cannot compete for public support against the seemingly selfless agenda of green activists. Americans care deeply about the environment and expect public officials to act. Conservatives must avoid merely opposing the green lobby’s agenda and must put forth a platform for responsible stewardship. As noted in a previous Heritage report, Protecting the Environment: A Free Market Strategy, “While the conservative critique is well known, the conservative agenda is not.”

Reform is hindered by the immensity, complexity, and lethargy of the federal regulatory apparatus. A simple repeal requires adherence to a ream of administrative procedures, such as analyzing alternatives and presenting justification for public notice and comment. Litigation is rampant and protracted.

The need for reform has never been greater. Regulation acts as a stealth tax on the American people and the U.S. economy, and exacts an incalculable toll on individual liberty.

It is not enough to repeal individual rules or tweak the rulemaking process. A more substantive national debate must address the extent to which it is appropriate for the federal government (or any level of government) to intervene in matters that can be managed by the states and, in many instances, by the private sector, more effectively.

Permanently eliminate regulations that were waived as unnecessary during the COVID-19 crisis. There is no need to maintain red tape that interferes with the delivery of medical care and the health of the economy. The Administration and Congress should prioritize the repeal of rules deemed unnecessary in combating COVID-19.

Require congressional approval of new major regulations issued by agencies. Congress, not regulators, should make the laws and be accountable to the American people for the results. No major regulation should be allowed to take effect unless and until Congress explicitly approves it. In addition, legislators should include requirements for congressional approval of rules in every bill that expands or reauthorizes regulation.

Congress should set sunset dates for all major regulations. Rules should expire automatically if not explicitly reaffirmed by the relevant agency through the formal rulemaking process. As with any such regulatory decision, this reaffirmation would be subject to review by the courts.

Codify regulatory impact analysis requirements. All executive branch agencies are currently required to conduct regulatory impact analyses (including cost-benefit calculations) when proposing any new major rules. Codifying these requirements would ensure that they cannot be rolled back without congressional action, and provide the basis for judicial review of agency compliance.

Subject independent agencies to executive branch regulatory review. Rulemaking is increasingly being conducted by independent agencies outside the direct control of the White House. Regulations issued by agencies such as the Federal Communications Commission, the Security and Exchange Commission, and the Consumer Financial Protection Bureau are not subject to review by the Office of Information and Regulatory Affairs (OIRA) or even required to undergo a cost-benefit analysis. This is a gaping loophole in the rulemaking process. These agencies should be fully subject to the same regulatory review requirements as those to which executive branch agencies are subject.

Increase professional staff levels within OIRA. OIRA is one of the only government entities in Washington that is charged with limiting, rather than producing, red tape. More resources should be focused on OIRA’s regulatory review function. This should be done at no additional cost to taxpayers: The necessary funding should come from cuts in the budgets of regulatory agencies.

Require agencies to base decisions on factual data, and to disclose any such data for public review. Federal agencies routinely mask politically driven regulations as scientifically based imperatives. The supposed science underlying these rules is often hidden from the public and unavailable for vetting by experts. Credible science and transparency are necessary elements of sound policy.

• Diane Katz, “A Regulatory Reform Agenda for the First 100 Days,” Heritage Foundation Issue Brief No. 4652, February 1, 2017.
• Diane Katz, “Red Tape Receding: Trump and the High-Water Mark of Regulation,” Heritage Foundation Issue Brief No. 3260, November 8, 2017.
• Nicholas D. Loris, “The Many Problems of the EPA’s Clean Power Plan and Climate Regulations: A Primer,” Heritage Foundation Backgrounder No. 3025, July 7, 2015.
• Robert Gordon and Diane Katz, “Environmental Policy Guide: 167 Recommendations for Environmental Policy Reform,” (Washington: The Heritage Foundation, 2015).
• Daren Bakst and Patrick Tyrrell, “Trump Administration Should Address Federal Policies that Limit Opportunity and Hurt the Poor,” Heritage Foundation Backgrounder No. 3228, June 30, 2017.

• The Issue
• Power Phrases

Energy is essential to nearly every product and service Americans use and to every activity in which they engage. Whether with electricity, energy technologies, or fuels, energy heats homes and meals, runs schools and hospitals, powers businesses that create jobs, and fuels vehicles that connect people with products that use energy resources as basic feedstock—products as wide-ranging as cosmetics, athletic equipment, pharmaceuticals, paints, and pipelines. Affordable, reliable energy is worth continuing to strive for and should be enjoyed unapologetically.

Perhaps because energy is so intertwined with the economy, politicians routinely meddle in energy markets to micromanage for preferred outcomes. Big government approaches to energy policy aim to centrally plan, actively manage, and pre-condition energy choices in order to serve political agendas. Unnecessarily burdensome laws and regulations have driven up energy costs, reduced those choices, and opened the door to cronyism.

Subsidies through the tax code, grants, guaranteed market share, loans and loan guarantees, and government-funded research and development have become popular ways to implement energy policy. This has wasted billions of taxpayer dollars and distorted private sector investments. Politicians, bureaucrats, and companies with effective lobbying arms not infrequently also use the regulatory process to block access to some resources and technologies or hedge out competitors.

While subsidies may appear to benefit the recipients, advantages are short term at best. When government insulates technologies or certain companies from the prospect of failure or competition, it removes healthy forces that drive creativity and solutions in the long term. Government subsidies also create barriers to entry for innovative, unsubsidized energy companies that must compete for customers against companies backed by the government and U.S. taxpayers. Further, although government experts might appear to know how best to plan energy resources and use for the future, they are often wrong, slow to adapt, and incapable of complete knowledge of a dynamic global sector. Indeed, almost no one anticipated the oil and gas boom in America created by hydraulic fracking, which has fundamentally transformed global energy markets.

Relying on free enterprise and the private sector’s ability to innovate to meet America’s diverse energy needs is a far better approach. Fuel and technology-neutral competitive markets allow prices to communicate accurate information to producers and customers about the value and cost of energy. This allows the endless creativity of people to anticipate and meet customer energy needs and preferences. Ultimately, competition to meet consumer preference in energy services empowers American families and businesses, rather than bureaucrats, lobbyists, and politicians, to make decisions. Congress should focus on reducing ineffective and economically harmful regulations, opening access to resource development, and eliminating subsidies for all energy resources.

Stop the regulation of greenhouse gases. The Obama Administration implemented a suite of greenhouse gas emissions executive orders and regulations under the Clean Air Act1 that have unnecessarily driven up energy prices and eliminated choices, while having no meaningful climate impact. President Trump rightly directed agencies to reconsider and withdraw some of these rules. However, lasting leadership and change must come from Congress. Congress should prohibit the federal government from regulating greenhouse gas emissions and clarify that the Clean Air Act never intended to regulate greenhouse gases.

End use of social cost of carbon in government cost–benefit analyses. Federal agencies perform cost–benefit analyses for a wide range of regulatory and permitting decisions. Under the Obama Administration, agencies began to incorporate a “social cost of carbon” in these analyses to assess the alleged social costs of an activity emitting carbon dioxide. The statistical models upon which the federal government relies offer significantly different results using other reasonable inputs, such that values are essentially arbitrary and are not credible tools for policymaking. Congress should prevent any agency from using regulatory analysis metrics with the “social cost of carbon” and the “social cost” of other greenhouse gas emissions in any cost–benefit analysis or environmental review. If federal courts force regulators into estimating the costs of climate change, they should assess climate impacts in terms of global temperature change as a result of the proposed project using a tool like the Model for the Assessment of Greenhouse-gas Induced Climate Change rather than using the social cost of carbon.

Eliminate subsidies for all energy resources and technologies. In 2015, Republicans and Democrats reached a compromise to extend wind and solar tax credits one more time and put them on a schedule to sunset. Congress should hold to that promise and wind down tax credits for all energy technologies. It should also reform the tax code to allow for immediate expensing for all capital investments. Relatedly, Congress should eliminate Department of Energy (DOE) subsidized research and development for commercial energy technologies. It is neither appropriate for taxpayers nor a necessary role of the federal government to fund or conduct such research. Furthermore, Congress should prohibit any further taxpayer-backed loans to private companies and eliminate the DOE’s loan-guarantee program.

Reform offshore energy leasing. America keeps the vast majority of its territorial waters off-limits to energy production, but that has not always been the case. Congress should open America’s coasts for offshore oil, gas, wind, and other energy resource exploration and development. It should eliminate the Department of Interior’s five-year leasing plans and authorize the Department of the Interior (DOI) to conduct lease sales, if interest for development exists, while considering the interests of states that would be most impacted by that development. Such a reform would allow the safe development of energy off America’s coasts and replace the lengthy and unnecessary planning process for a system that is more responsive both to price changes and to the needs and interests of states. Bidding on the leases would not be exclusive to energy companies but open to all parties, including those interested in environmental preservation rather than resource development. Reform should also include transferring environmental review and permitting process to the states, along with at least 50 percent of the revenues generated by onshore oil and natural gas production on federal lands.

Eliminate government energy efficiency mandates. Federal efficiency mandates, rebate programs, and spending initiatives too often assume either that all Americans use energy the same way, or that the government knows better how Americans should use energy. Congress should affirm the ability and freedom of Americans and businesses to make decisions that best meet their needs by eliminating all mandatory efficiency regulations and subsidies for vehicles, appliances, and buildings. At a minimum, mandates should be restructured as voluntary standards under which businesses and consumers can choose their level of participation.

Overhaul nuclear energy regulation. The regulatory system that licenses and permits nuclear reactors failed to keep up with technological innovations and overregulates existing nuclear technologies. Instead of addressing underlying government-imposed problems, policymakers have focused on mitigating the cost of those policies through subsidies, leading to a predictable path of failure: While such an approach may spur some commercial activity, that commercial activity is limited only to what is subsidized. Nuclear plants in America today continue to exhibit superior safety performance. Policy and regulations should reflect that track record. Congress should instill regulatory discipline at the Nuclear Regulatory Commission (NRC), direct the Environmental Protection Agency to right-size radiation-exposure standards, review foreign ownership caps, reform the NRC’s cost-recovery structure, and address the convoluted export regulatory regime.

Complete the review of Yucca Mountain, and introduce market forces into nuclear waste management. Congress has failed either to change current law or appropriate the funds necessary for the NRC to review the DOE’s permit for a nuclear waste repository at Yucca Mountain. This unnecessary limbo has been costly to taxpayers and has created problematic uncertainty for the current and future nuclear industry. Congress should provide enough funding to complete the license review to allow contentions to be adjudicated, and all of the information should be brought together for Congress, the State of Nevada, and the nuclear industry to make prudent decisions about next steps. Ultimately, Congress must introduce market forces in nuclear waste management for it to be a successful, dynamic part of the fuel cycle and nuclear industry. Nuclear waste management should be primarily a business activity, not an inherently governmental activity.

Encourage choice in electricity markets. Competitive electricity markets have served customers well. Some states have accomplished the transition from monopolies to competition more successfully than others, and additional free-market reforms are necessary to spur more entrepreneurial activity in electricity markets. However, when the underlying structure of competition is sound, the benefits to energy consumers are unambiguously positive. Competition in electricity services allows greater customer choice through the power of the consumers’ own dollars rather than through the disconnected votes of a small panel of public utility commissioners. Consumer choice comes not only in the form of resource choice (renewables, conventional fuels, or a mix) but also in the form of financial choices (e.g., fixed rates, risk preferences, indexed rates, or short-term or long-term contracts).

In the end, because electricity providers have to work for their customers, prices are competitive and quality improves. States should fix anti-competitive energy policies like renewable energy mandates, which have wreaked havoc in the electricity sector by putting politics and special interests over customers. Similarly, the Federal Energy Regulatory Commission should work vigorously to uphold fuel and technology neutral competition in electricity markets.

Repeal the Renewable Fuel Standard (RFS). There is near universal agreement among energy, agriculture, food industry, and environmental groups that the RFS is bad policy and that it has had negative unintended consequences. Despite nearing the goal of the mandate to use 36 billion gallons of ethanol by 2022, this policy has proved unworkable. Tinkering around the edges will not rescue it. Moreover, the federal government should not mandate what type of fuel drivers use in the first place. Instead of attempting to reform the RFS, or continually calling on the EPA to waive or negotiate annual mandates, Congress should repeal the RFS to protect Americans from artificially higher food and energy prices, and eliminate unfair subsidies that go to a small set of special interests that benefit from the mandate.

• Kevin D. Dayaratna and Nicolas D. Loris, “Assessing the Costs and Benefits of the Green New Deal’s Energy Policies,” Heritage Foundation Backgrounder No. 3427, July 24, 2019.
• Nicolas D. Loris, “No More Energy Subsidies: Prevent the New, Repeal the Old,” Heritage Foundation Backgrounder No. 2587, July 26, 2011.
• Katie Tubb, Nicolas Loris, and Rachel Zissimos, “Taking the Long View: How to Empower the Coal and Nuclear Industries to Compete and Innovate,” Heritage Foundation Backgrounder No. 3341, September 5, 2018.
• Nicolas D. Loris, “Right Reforms for Accessing U.S. Outer Continental Shelf Resources and Unleashing U.S. Energy Production,” Heritage Foundation Backgrounder No. 3297, March 26, 2018.
• Katie Tubb, Nicolas D. Loris, and Paul Larkin, Jr., “The Energy Efficiency Free Market Act: A Step Toward Real Energy Efficiency,” Heritage Foundation Backgrounder No. 3144, August 17, 2016.
• Nicolas D. Loris, “Examining the Renewable Fuel Standard,” testimony before the Subcommittee on the Interior and the Subcommittee on Healthcare, Benefits, and Administrative Rules, Committee on Oversight and Government Reform, U.S. House of Representatives, March 16, 2016.
• Dean Cheng, Nicolas D. Loris, and Klon Kitchen, “China Is a Paper Tiger on Rare Earth Minerals,” Heritage Foundation Issue Brief No. 4968, June 13, 2019.
• Katie Tubb and Jack Spencer, “Real Consent for Nuclear Waste Management Starts with a Free Market,” Heritage Foundation Backgrounder No. 3107, March 22, 2016.

• The Issue
• Power Phrases

America’s major entitlement programs—Social Security, Medicare, Medicaid, and Obamacare—provide income and health care benefits to older Americans as well as middle- and lower-income individuals and families. Those benefits come at an extreme cost, however, to current and future Americans and their families because these entitlement programs strip people of opportunity and autonomy, cost more than is necessary or prudent, and shift current costs onto younger and future workers—and in the case of Medicaid and Obamacare, lock beneficiaries into government-dictated care that too often has much too limited options for the sick.

Entitlement programs take money from taxpayers that they could otherwise use or save according to what works best for them and their families. Instead, that money goes to programs that provide restricted, government-prescribed benefits. For example, Social Security’s Disability Insurance program requires workers to spend more than a year, on average, navigating a burdensome application process before receiving a final approval or denial of benefits. In Medicare, Medicaid, and Obamacare, the financing schemes limit choices and access by dictating government-approved benefits and blocking alternative coverage arrangements. Meanwhile, Social Security’s taxes prevent workers from maximizing their savings over their lifetime for purposes like buying a home, saving for a child’s college education, or paying for living expenses during a period of unemployment. And Obamacare gives more taxpayer money to insurance companies—dollar for dollar—every time they raise prices, a recipe for higher costs.

In addition to limiting choices, entitlement programs drive up costs. Pay-as-you-go entitlement programs, like Social Security, that use current workers’ payroll taxes to fund retirees’ benefits strip workers of the opportunity to earn a positive return on their savings. Consequently, the average retiree could receive two to three times as much by saving on their own versus having their money go into Social Security.

One of the reasons America’s entitlements are so popular is because recipients receive far more from them than they pay in—about 2.5 times as much, on average. If workers had to pay the true cost of the benefits they receive, few would be willing to sacrifice nearly 40 cents of every dollar they earn.1 (The nearly 40 percent suggested payroll tax comes from multiplying the current 15.3 percent tax times the 2.5 ratio of taxes paid to benefits received to get a 38.25 percent, or “nearly 40 percent,” tax rate.) Instead, all those extra costs have been piling up, creating a $445,000 debt (including just Social Security and Medicare) to be unloaded on every worker when America’s day of debt reckoning comes.2

America’s entitlement programs have value as social safety nets, but they have grown far beyond that purpose by providing excess benefits to individuals who are capable of providing for their own health care and retirement needs. America’s entitlement systems should return to their original intent of protecting America’s most vulnerable while giving individuals greater control and ownership of their health care and financial well-being.

Preserve Social Security for the most vulnerable while restoring to workers more control over their own money. Social Security started out as an old-age social insurance program intended to protect a relatively small number of elderly individuals from living in poverty. Over the decades, however, it has massively expanded in size, scope, and cost, to the point that two out of every three Americans pay more in Social Security taxes than they do in income taxes,3 and 42 percent of Americans rely on Social Security for at least half of their retirement income.4

Social Security’s more than five-fold increase in taxes and its dominant role in Americans’ plans for retirement income leave workers with less control and lower incomes than they otherwise would have. Moreover, the program’s insolvency—resulting in significant benefit cuts beginning in 2035—threatens workers’ retirement security.

To ensure that Social Security is there for workers who need it and to increase workers’ incomes both before and during retirement, the program should have an eligibility age that reflects rising life expectancies and increased work capabilities. Benefits should better target workers’ needs by shifting to a predictable, poverty-prevention, and modernized benefit structure. And Social Security should apply a more accurate inflation measure to annual benefit increases. These changes would make the program solvent over the long run, and would allow for a significant reduction in workers’ payroll taxes, enabling workers to spend, save, and invest more of their own money.

Improve Social Security’s Disability Insurance (SSDI) program to better serve individuals with disabilities while ensuring efficiency and integrity for taxpayers. The SSDI program has served as a lifeline for certain individuals with disabilities, but its ten-fold expansion in size and scope between 1970 and 2015 produced inefficiencies and inadequacies such that it fails to meet workers’ basic needs on a timely basis.5 Due to inefficient and flawed government policies, individuals who receive SSDI benefits wait well over a year, on average, to learn if they qualify to receive SSDI benefits and receive no support to help them remain at work or get back to work. Those who do receive SSDI benefits face a lifetime of inactivity and government dependence (leading to lower physical, mental, and financial well-being than if they had pursued meaningful work); and nearly a third of SSDI beneficiaries receive lower than poverty-level benefits.

A rehabilitated and modernized SSDI system would promote independence and physical and mental well-being by helping individuals with disabilities receive the assistance they need when they need it, and with less stigma and cynicism associated with receiving SSDI benefits. This type of system could be achieved by implementing a predictable, poverty-prevention benefit; providing a needs-based benefit period; eliminating non-medical vocational grid factors; providing an optional private disability insurance component; ending direct payment of SSDI representatives; correcting unintended payments; and improving program integrity and efficiency.

These changes would improve the SSDI program for individuals with disabilities, and they would save taxpayer costs by significantly reducing the payroll tax rate, enabling workers to buy more generous private insurance to better meet their needs and to spend, save, and invest more of their own earnings.

Improve Medicare’s quality of care for a rapidly aging senior population while retargeting taxpayer subsidies to those most in need. Medicare, created in 1965, provides seniors and some people with disabilities a guaranteed health care benefit. Over the past 50 years, although it has delivered hospital and physician services and some financial security, Medicare spending routinely has outpaced inflation, growth in the general economy, and growth in the federal budget. Meanwhile, the addition of new benefits and services has been accompanied by increasingly detailed conditions of reimbursement that have led to more intrusive bureaucracy and costly red tape for doctors, hospitals, and other medical professionals. These changing dynamics in Medicare leave seniors, health care providers, and taxpayers at risk.

To improve the delivery of care in Medicare, ensure seniors have access to quality care, and protect taxpayers from bankrupting costs, a number of changes should be made: Simplify the traditional Medicare program, harmonize eligibility with Social Security, update premiums and cost sharing arrangements, expand on the success of the competitive and integrated Medicare Advantage plans, and finally, transition to a defined contribution, premium support model for long-term sustainability.

Restore Medicaid’s strong healthcare safety net to the most vulnerable while ensuring financial sustainability. Enacted alongside Medicare in 1965, the Medicaid program began as a safety net to provide certain vulnerable low-income populations with heath care. Like Medicare, the program has expanded beyond its original core functions, providing additional benefits to larger populations at a significant cost to federal and state taxpayers. The joint federal–state design of the program further complicates the administration and oversight of the program, creating new and disparate sets of incentives and outcomes. Changing demographic, structural, and fiscal challenges undermine this critical safety net program.

Restoring Medicaid to a functioning safety net would require a major overhaul of its financing structure in order to realign and reset priorities and incentives for those who need the program the most. Specifically, the financing of the program should be sustainable and realistic, and it should be based on the needs of different populations, while greater flexibility should be granted to states to better manage the delivery of care to those in need.

Replace Obamacare in order to expand health care choices and access, while lowering cost. The 2010 Affordable Care Act put in place two new federal health care entitlements and a massive federal regulatory infrastructure, financed by an unrealistic set of new taxes and payment cuts to providers in other health care programs. Since its enactment, premiums have climbed, coverage options have dropped, provider networks have narrowed, and many people are left with higher costs, less access, and fewer choices. Moreover, the open-ended ACA subsidies scheme and the ACA Medicaid expansion encourage more spending rather than demanding better value.

To turn the tide, fundamental changes need to be made to restore choice, improve access, and lower costs. Under a new framework, existing federal funding for Obamacare would be replaced with a fixed grant to the states with the regulatory flexibility to reverse the harmful effects to the insurance markets. Rather than receive government assigned coverage, individuals would have the choice of a wider range of private coverage options to best meet their needs and the needs of their families.

• Rachel Greszler, Robert E. Moffit, Ph.D, and Nina Owcharenko Schaefer, “Social Security and Health Care Entitlement Reform,” in Blueprint for Balance: A Federal Budget for Fiscal Year 2020, (Washington, DC: The Heritage Foundation, 2019).
• Kevin Dayaratna, PhD, Rachel Greszler, and Patrick Tyrrell, “Is Social Security Worth Its Cost?” Heritage Foundation Backgrounder No. 3324, July 10, 2018.
• Rachel Greszler, “Raising the Social Security Payroll Tax Cap: Solving Nothing, Harming Much,” Heritage Foundation Background No. 2923, August 1, 2014.
• Rachel Greszler, “Rescuing Entitlements and Pensions: Study Shows Americans Can Work Longer,” Heritage Foundation Issue Brief No. 4539, April 6, 2016.
• Romina Boccia and Rachel Greszler, “Social Security Benefits and the Impact of the Chained CPI,” Heritage Foundation Issue Brief No. 2799, May 21, 2013.
• Rachel Greszler, Drew Gonshorowski, and Romina Boccia, “16 Reforms to Improve the Solvency and Integrity of Social Security Disability Insurance,” Heritage Foundation Backgrounder No. 3396, March 27, 2019.
• Rachel Greszler and Drew Gonshorowski, “The Personal and Fiscal Impact of the Social Security 2100 Act,” Heritage Foundation Backgrounder No. 3410, June 11, 2019.
• Rachel Greszler, “Private Disability Insurance Option Could Help Save SSDI and Improve Individual Well-being,” Heritage Foundation Backgrounder No. 3037, July 20, 2015.
• Rachel Greszler, “Improving Social Security Disability Insurance with a Flat Benefit,” Heritage Foundation Backgrounder No. 3068, October 23, 2015.
• Robert E. Moffit, PhD, “Medicare: How Timely Reforms Can Prevent Painful Consequences,” Heritage Foundation Backgrounder No. 3336, August 1, 2018, p. 4.
• Robert E. Moffit, PhD, “Medicare’s Next 50 Years: Preserving the Program for Future Retirees,” Heritage Foundation Special Report No. 185, July 29, 2016.
• Nina Owcharenko, “Medicaid At 50: Reform Is Needed to Better Serve Low-Income Health Care Needs,” Heritage Foundation Issue Brief No. 4447, July 29, 2015.
• Nina Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed,” Heritage Foundation Issue Brief No. 3590, May 4, 2012.
• Edmund F. Haislmaier, Robert E. Moffit, Nina Owcharenko Schaefer, “The Health Care Choices Proposal: Charting a New Path to a Down Payment on Patient-Centered, Consumer-Driven Health Care Reform,” Heritage Foundation Backgrounder No. 3330, July 11, 2018.
• Doug Badger and Edmund F. Haislmaier, “State Innovation: The Key to Affordable Health Care Coverage Choices,” Heritage Foundation Backgrounder No. 3354, September 27, 2018.

• The Issue
• Power Phrases

Americans, regardless of ideology, want a clean environment. However, the path to achieving environmental objectives leads to disagreement. While some look to the federal government to promote command and control policies, the best approach to environmental policy is to recognize the importance of private property rights, state and local innovation, and free markets.

Command and control advocates invariably point to federal laws, such as the Clean Air Act, as examples of success. While the Clean Air Act has certainly played an important role in the drastic improvements seen in air quality over the past 40 years, the improvements could have been accomplished at far less cost—both economic and social—had lawmakers foregone centralized government control in favor of the transformative power of market incentives and private property rights.

Touting the Clean Air Act as an example of the success of command and control policy also ignores other foundational environmental statutes from the 1970s that have failed miserably, including the Endangered Species Act. In addition, the state of our air and water has improved by leaps and bounds over the past several decades through innovation and investment in new technologies. For policymakers, the question should not be what laws such as the Clean Air Act have done in the past, but whether these laws are sound policy for the future.

Unfortunately, federal environmental law is comprised of environmental statutes that are overly broad, unclear, or woefully outdated, failing to reflect current conditions. In addition, close to 50 years of agency implementation of these laws has led to government overreach inconsistent with the statutes themselves.

The federal government’s role in environmental management has grown in size and scope well beyond what was envisioned with these statutes, even as the federal government has become increasingly unaccountable to the people and their representatives in Congress. Congress delegated much of its power to set environmental policy to executive agencies, which they do through standards, regulations, permitting requirements, and multi-decade management plans. And while Congress envisioned a cooperative role for states in many of these laws, that role has been eroded over time. Consequently, federal bureaucrats often function as economic planners and local zoning boards.

The result is sweeping decisions to nuanced issues and increasingly stringent standards that achieve marginal benefits at great cost. Often these decisions are defended by scientific analyses that present an incomplete picture, are biased toward regulatory action, ignore evidence that contradicts regulatory agendas, and are inaccessible to the public. While regulators argue they are merely “following the science,” they are actually making policy decisions that reflect their own value judgments.

Even in areas where most Americans would support some measure of continued federal management, current policies are problematic when divorced from principles of limited government, individual freedom, and free market incentives. National parks are discouraged from employing innovative solutions to raise park revenue, address catastrophic wildfires, and manage invasive species and overpopulation of native species. Laws like the Endangered Species Act disincentivize solutions and partnerships with private property owners. Perhaps the greatest environmental liability still to be addressed in America—government nuclear weapons research and development sites that helped the U.S. win WWII and the Cold War—has yet to be cleaned up as a result of bureaucratic and legislative mismanagement.

The need to reform the nation’s environmental laws has never been greater. The foundational federal environmental statutes should be changed to apply the lessons learned over the past half-century. The statutes should be modernized to reflect the current environment and to rein in the agency overreach that has expanded its scope beyond the plain language of the statutes and the will of Congress.

In general, to the extent that there is a federal role, it should be to ensure that environmental gains achieved over the years are not lost. The responsibilities and the rewards of environmental stewardship belong with property owners and the states, which are more knowledgeable about local conditions than federal bureaucrats.

A true commitment to the environment means advancing policies that achieve measurable, positive outcomes. The best way to achieve these outcomes is by respecting American values of federalism, the rule of law, and economic freedom. Ultimately, policymakers should never lose sight of the fact that people are the most important, unique, and precious natural resource.

Devolve more responsibility for environmental regulation and federal lands management to the states and the private sector. Congress should allow state programs to function in place of federal leasing, permitting, management, and regulatory programs. Doing so would employ local knowledge and relieve federal budgets of the burden of managing permitting requests and regulatory responsibilities, freeing up federal resources for issues more federal in nature. Further, America benefits from experimentation and innovation that could be cultivated with a more decentralized approach. Some states would make mistakes in their management, by being either too restrictive or too lax, but such mistakes would provide lessons to guide future policy decisions and would have far less adverse impact on the nation than if the same mistakes were made by the federal government.

Prohibit the EPA from abusing cost–benefit analysis to justify costly air regulations (ancillary or secondary benefits abuse). When the EPA issues a rule to reduce emissions of a certain air pollutant, the direct benefits of reducing those emissions should exceed the costs. However, for years, the EPA has used an improper end run around this commonsense requirement. Even when the rule’s stated objective has massive costs and few to no benefits, the EPA points to the ancillary benefits of reducing particulate matter as justification for the rule. This overreliance on ancillary benefits allows the EPA to regulate a pollutant without making the case that reducing emissions of that pollutant is warranted. This abuse has become so egregious that the EPA has issued major rules without quantifying whether there are benefits associated with their regulatory objectives, instead relying solely or primarily on ancillary benefits from reducing particulate matter.

Clean up facilities used to manufacture and test nuclear weapons. Perhaps the greatest remaining environmental liability in America is those facilities remaining from World War II and the Cold War that were used to manufacture and test nuclear weapons. The Department of Energy (DOE) is chiefly responsible for cleaning up these sites, which is currently expected to cost taxpayers $377 billion. While the DOE recently took steps to address some unnecessarily burdensome bureaucracy, it has not met annual progress- and cost-reporting requirements to Congress. Cleanup of these sites should not be treated as an everlasting jobs program. The federal government has a legal and moral obligation to clean up these sites, a mission which should have the commensurate level of attention from Congress.

Define the waters covered under the Clean Water Act. Congress should clarify in statute the regulatory reach of the Clean Water Act. The statute currently prohibits discharge, without a federal permit, of pollutants into “navigable waters.” It further clarifies that “navigable waters” include “the waters of the United States, including the territorial seas.” However, the Environmental Protection Agency (EPA) and the Army Corps of Engineers have failed to follow the plain language of the law and tried to expand their regulatory reach by broadly defining “waters of the United States.” They have also adopted subjective and vague definitions, while inconsistently enforcing the law. While these agencies, to their credit, recently proposed a narrower definition, Congress should provide the definition of what waters are covered under the Clean Water Act, recognizing the important role states play in regulating lakes, rivers, and streams. This definition should be narrow in scope and generally consistent with Justice Scalia’s plurality opinion in Rapanos v. United States (2006).

Eliminate the Land and Water Conservation Fund. The Land and Water Conservation Fund (LWCF), established by Congress in 1965 and part of the U.S. Department of the Interior, allows the federal government to use royalties from offshore energy development to buy private land and turn it into public parks and other public recreation areas. It is the primary vehicle for land purchases by the four major federal land-management agencies: the Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, and the National Park Service. Congress also uses the fund for a matching state grant program, although in practice the LWCF has chiefly funded federal objectives. The federal government cannot effectively manage the lands it already owns, and Congress should not enable further land acquisition. Of the $40 billion credited to the fund, less than half ($18.4 billion) has been spent, leaving a credit of $21.6 billion. Congress should rescind the remaining balance.

Improve the Endangered Species Act. The Endangered Species Act (ESA) is failing at its fundamental purpose to protect endangered or threatened species, and, making matters worse, this failure is exacerbated by blocking important projects and trampling on property rights. To better help conserve species under the ESA, Congress should codify the regulatory clarification (consistent with the statute) that threatened and endangered species are to be treated differently when it comes to the take prohibition. The listing process should be a distinct process that is separate from whether any regulatory requirements should be triggered. States should be allowed to play a greater role in protecting species, in large part because they are closer than the federal government to any situation that needs to be addressed. Improvements to the statute should ensure that the costs of the ESA are not borne by individual property owners, but by society as a whole.

Require Congress to make any changes to the National Ambient Air Quality Standards. The EPA regularly sets standards for six principal air pollutants: carbon monoxide, lead, nitrogen dioxide, ground level ozone, particulate matter, and sulfur dioxide. Under the Clean Air Act, the EPA is required to review the standards every five years and make changes, if necessary, disregarding costs in the development of the standards. The EPA continues to develop stricter standards even as states and metropolitan areas have yet to meet older standards (for example, in the case of ground level ozone). New standards are also becoming extremely expensive to meet while yielding smaller margins of tangible benefits; in fact, some standards are close to or at background levels. Congress should reconsider the mandatory review process. Congress, not the EPA, should make any decision to tighten standards, given the scope of their impact and the magnitude of success that has already been achieved in improving air quality.

Repeal or limit the scope of the National Environmental Policy Act. The National Environmental Policy Act (NEPA) is a 50-year old procedural law that requires federal agencies to assess the potential environmental impacts of their actions, including permitting for infrastructure projects. NEPA has evolved to serve more as a tool to delay and obstruct projects unpopular with special interest groups or politicians than as a way to properly consider environmental impacts. Major problems contributing to NEPA delays include: differing interpretations of NEPA requirements, nuisance litigation, failed interagency coordination, administrative bottlenecks, and outdated requirements that fail to take into account a dynamic environment.

Far from compromising environmental stewardship, repealing NEPA would provide an opportunity to remove duplication of state and federal environmental requirements. NEPA was the first major federal environmental law in the United States and was passed before the numerous federal environmental statutes that now exist. It seems unlikely that NEPA would even be enacted today given that environmental issues are constantly being considered independent of NEPA through other federal environmental laws.

Short of full repeal, reforms to NEPA should include narrowing the review to only major environmental issues, mandating time limits and requiring a lead agency on projects, eliminating greenhouse gas emissions analysis from the review process, and allowing agencies to consider environmental impact analyses conducted under other federal statutes as the functional equivalent of a NEPA analysis.

Compensate property owners for regulatory “takings.” When the government seizes private property for a public use, it must provide just compensation to property owners. However, there is little to no protection for property owners when the government imposes regulations that restrict the use and enjoyment of property, even if most of the property’s value has been lost. These restrictions on property use, while not a physical seizure of property, are still a “taking” of a specific use of the property. Compensation mechanisms should be created within individual federal environmental statutes or in broad-based legislation that offset the costs borne by property owners as a result of federal environmental regulation. This change would not only start to provide better protection of private property rights, but it would also require agencies to be transparent about the true costs of their regulations and to take those costs into account when establishing agency priorities.

• Daren Bakst, “Three Key Reforms for Federal Water Policy,” Heritage Foundation, Issue Brief No. 4633, November 23, 2016.
• Daren Bakst, et al., “Restoring Meaningful Limits to ‘Waters of the United States,’” Regulatory Transparency Project of the Federalist Society, September 26, 2017.
• Daren Bakst, “The State of the Nation’s Water and Power Infrastructure,” testimony before the Subcommittee on Water, Power, and Oceans, House Committee on Natural Resources, U.S. House of Representatives, February 14, 2018.
• Comment submitted to the Environmental Protection Agency for Proposed Rule: National Emission Standards for Hazardous Air Pollutants: Coal- and Oil-Fired Electric Utility Steam Generating Units—Reconsideration of Supplemental Finding and Residual Risk and Technology Review, April 17, 2019.
• Robert Gordon, ed., and Diane Katz, assoc. ed., “Environmental Policy Guide: 167 Recommendations for Environmental Policy Reform” (Washington: The Heritage Foundation, 2015).
• Diane Katz, “An Examination of Federal Permitting Processes,” testimony before the Subcommittee on Interior, Energy, and Environment, Committee on Oversight and Government Reform, U.S. House of Representatives, March 15, 2018.
• Jack Spencer, ed., “Environmental Conservation: Eight Principles of the American Conservation Ethic” (Washington: The Heritage Foundation, 2012).
• Katie Tubb and Nicolas D. Loris, “The Federal Lands Freedom Act: Empowering States to Control Their Own Energy Futures,” Heritage Foundation Backgrounder No. 2992, February 18, 2015.
• Nicolas D. Loris and Katie Tubb, “Permanent Reauthorization of Land and Water Conservation Fund Opens Door to Permanent Land Grabs,” Heritage Foundation Issue Brief No. 4934, January 22, 2019.

• The Issue
• Power Phrases

The dominant narrative regarding the cause of the 2008 financial crisis is that deregulation in the 1990s was responsible, but that story is dead wrong. In fact, even if Congress were to repeal the entire Dodd–Frank Act, which it should, a highly flawed regulatory structure would still remain. There has never been a substantial reduction in the scale or scope of financial regulations in the U.S., especially not in the 1990s, and the pre-Dodd–Frank system contributed mightily to the 2008 crash. For nearly all of U.S. history, financial regulations—not simply banking regulations—have increasingly focused on risk management conducted by regulatory agencies rather than on disclosure and fraud prevention. Simultaneously, monetary policy has been increasingly relied upon to fix an expansive list of economics problems, well beyond the scope of the original stated purpose of creating a central bank (to provide an elastic currency), and well beyond what can reasonably be expected of monetary policy.

Preventing problems at financial firms from turning into system-wide banking crises has been a main justification for this approach, but it has failed miserably. The U.S. has had 15 banking crises since 1837, one of the highest totals among developed countries. Of the severe economic contractions that occurred in six developed nations between 1870 and 1933, banking crises occurred only in the U.S., and the U.S. is one of only three developed countries to have had two or more banking crises between 1970 and 2010. Furthermore, the evidence shows that the Federal Reserve has not been as effective as was once thought in accomplishing its stabilization goals. The long-term purchasing power of the dollar has dramatically declined under the Federal Reserve’s watch, and the benign deflation that arises from improved productivity has all but disappeared in the U.S.

In addition to these shortcomings, the U.S. regulatory and monetary framework, for at least a century, has protected incumbent firms from new competition—the very market force that drives innovation, reduces prices, and prevents excessive risk-taking. As a result, entrepreneurs have suffered from fewer opportunities, and consumers have suffered from fewer choices, higher prices, and less knowledge regarding financial risks. Thus, the U.S.’s approach to regulating and stabilizing financial markets has made it more difficult to create and maintain jobs and businesses that benefit Americans.

Repeal the Dodd–Frank Act. The Dodd–Frank Act became law during the Obama presidency when Nancy Pelosi (D–CA) led the House of Representatives and Harry Reid (D–NV) presided over a near filibuster-proof Senate majority. It was a partisan bill that garnered no Republican votes in the House and just three in the Senate. Dodd–Frank was largely a progressive wish list of policies that failed to address, much less fix, what caused the 2008 financial crisis. The more than 800-page boondoggle expanded the failed regulatory approach that helped create the 2008 crisis in the first place, and increased the federal government’s involvement in planning for, protecting, and propping up the financial system, thus enshrining “too-big-to-fail” policy into law. Repealing Dodd–Frank would be a good first step—but only a first step—toward protecting taxpayers and allowing private firms to easily provide the financial services that consumers need. In June 2017, the House passed the Financial CHOICE Act, a comprehensive financial regulatory reform bill that would have replaced the core of Dodd–Frank. Key provisions in the Financial CHOICE Act would have helped to restore market discipline and reduce regulatory burdens, thus moving the nation’s financial markets in the right direction. The Senate, however, passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), a tremendously watered-down (compared to the CHOICE Act) bill that failed to repeal a single title of Dodd–Frank. (The bill did not even include those reforms that passed the House with strong bipartisan support.)

Rather than negotiate a compromise between the two approaches, the Senate forced the House to accept the Senate’s bill, and the President signed S. 2155 into law. The bill left all of Dodd–Frank in place, but provided special exemptions to various Dodd–Frank requirements for (mainly) smaller banks. While those banks were surely happy to have any regulatory relief, even the new exemptions came with the type of regulations that the CHOICE Act would have eliminated.

Provide an off-ramp style federal financial charter. Although banks are more heavily regulated than other financial firms, virtually all financial companies are subject to extensive restrictions on their activities, capital, and asset composition. Simultaneously, U.S. taxpayers have been forced to absorb more of these institutions’ financial losses in the name of ensuring stability. The result has been a massive substitution of government regulation for market competition, which culminated in the 2008 financial crisis. Fixing this framework requires rolling back both government regulation and taxpayer backing of financial losses, making it possible for private citizens to build a stronger financial system that efficiently directs capital to its most valued uses. Creating a new federal charter for financial institutions that relieves the regulatory burden for those who absorb more of their own financial risks and forgo government assistance would help achieve these goals.

Eliminate federal credit subsidies, guarantees, and insurance. Americans collectively shoulder approximately $20 trillion in debt exposure from loans, loan guarantees, and subsidized insurance provided by roughly 150 federal programs. This scheme erodes the nation’s entrepreneurial spirit, increases financial risk, and fosters cronyism and corruption. The programs and subsidies have given rise to powerful constituencies of beneficiaries because any losses are dispersed among millions of taxpayers. The government’s credit portfolio consists of direct loans and loan guarantees for housing, agriculture, energy, education, transportation, infrastructure, exporting, small businesses, and other purposes; federal insurance programs cover bank and credit union deposits, pensions, flood damage, declines in crop prices, and acts of terrorism. Capital for mortgage lending by banks (and non-banks) is provided by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, while federally-backed deposit insurance creates distortions and risks. Congress should immediately reduce federal deposit insurance coverage and ensure that coverage is provided on a per individual basis. Congress should also phase out government-backed deposit insurance along with all other credit subsidies, guarantees, and insurance.

Eliminate Fannie Mae and Freddie Mac, and shrink the role of the Federal Housing Administration (FHA). Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, should be shut down for good. Both enterprises remain wards of the federal government, and they distort the market by issuing mortgage-backed securities with subsidized government guarantees. If such guarantees are necessary, the private sector can issue them and price them appropriately. Congress should take steps to liquidate Fannie and Freddie’s mortgage portfolios, as well as the companies themselves, and to ensure that they are not simply replaced by a new government-sponsored agency. Federal policies implemented through these government-sponsored enterprises have made housing more expensive and increased Americans’ risky debt. To begin winding them down, the GSEs should be prohibited from purchasing mortgages for homes that are not owner-occupied homes or for “cash out” refinances. Congress should also ensure that the GSEs only purchase smaller loans and charge higher fees, and that bank capital requirements no longer favor the GSEs’ mortgage-backed securities. For decades, the Federal Housing Administration (FHA) has competed with the GSEs for the riskiest mortgage loans, and the scope of the FHA’s mortgage insurance program must be addressed at the same time the GSEs are eliminated. Otherwise, all the risky loans financed by the GSEs will simply be insured by the FHA. The solution is simple: Restrict the FHA to insuring only a fraction of each mortgage (instead of 100 percent coverage), and do so for creditworthy low-income, first-time home buyers only.

Reform and consolidate financial regulators. Financial regulators’ budgets should be entirely composed of money appropriated by Congress. A commission governing structure for all financial regulators should be considered. Congress should also consolidate related powers in one regulator; remove authorities from agencies ill-equipped to use them; and revamp processes to ensure appropriate accountability for, and public input in, rule-making. Ideally, Congress would merge existing agencies and create only one federal banking regulator and one capital markets regulator. In the process, Congress should remove the Federal Reserve entirely from regulation and supervision. Congress should also eliminate the (Dodd–Frank created) Consumer Financial Protection Bureau (CFPB). Most of the Bureau’s authority could easily be handled by the Federal Trade Commission (FTC), an agency whose mission is to protect consumers. These policy reforms would produce more effective financial regulation by making financial market participants, including regulators, more directly accountable for their actions.

Restrain the Federal Reserve with rules-based monetary policy and emergency lending restrictions. Congress can greatly improve monetary policy by replacing the Federal Reserve’s current legislative mandate to promote stable prices and maximum employment. In its place, Congress should give the Federal Reserve a mandate with the single goal of achieving monetary neutrality (supplying only the amount of money the economy needs to keep moving, no more and no less) by stabilizing overall spending in the economy. Maintaining a reasonable growth path for total spending—often referred to as nominal gross domestic product (NGDP) targeting—is the best way for the Federal Reserve to maintain monetary neutrality. Among other benefits, this new framework would allow the price level (overall prices) to decline as productivity improves, thus making it easier for people to enjoy the benefits of more goods for sale at lower prices. Congress should also limit the Federal Reserve so that it can only provide system-wide liquidity on an ongoing basis, rather than allocating credit to specific firms on an ad hoc basis. Emergency lending authority is unnecessary for conducting monetary policy, and Congress should replace the Federal Reserve’s existing primary dealer system with a single standing facility to meet extraordinary as well as ordinary liquidity needs. This change would make Fed lending to insolvent institutions—even during a crisis—unnecessary.

Reduce regulatory impediments to capital formation. Congress should remove regulatory impediments that limit entrepreneurs’ access to the capital necessary to launch and grow new businesses. Congress should preserve the existing thresholds for private offerings and expand the ability of sophisticated investors to invest in private offerings (usually Regulation D offerings). Current law allows large public companies to raise capital without having to deal with 50 different expensive and time-consuming state registration and qualification requirements (known as blue sky laws). Congress should allow smaller public companies and other smaller companies with extensive federal disclosure requirements to also be free of this burden. Congress should replace the 14-plus categories of securities-issuing firms (as described by the existing rules) with three disclosure regimes: public, quasi-public, and private. Just as important, Congress should replace the current complex and arbitrary federal disclosure system with a reasonable, coherent, and scaled disclosure system that imposes increasing requirements as companies grow and have more shareholders with more capital at risk. Congress, or the Securities and Exchange Commission (SEC), should clarify that entrepreneurs may use finders and private placement brokers to assist them in raising capital. Finally, it is time to create a micro-offering exemption allowing very small private companies to raise capital without having to comply with complex SEC rules.

Design an efficient securities-fraud deterrence regime. For capital markets to function well, investors need accurate information about securities. If investors do not trust firms’ disclosures, they will discount what they are willing to pay for securities. This increases the cost of capital and makes it more difficult, even for honest firms, to cost-effectively raise capital. Deterring fraud in the capital markets should be a government priority, but the current U.S. approach to securities-fraud deterrence falls far short of the ideal. Congress and the SEC should implement a system that: (1) places more emphasis on culpable individual and manager liability, (2) reduces the reliance on corporate criminal penalties borne by shareholders, and (3) limits private enforcement to traditional common law remedies or other compensatory remedies possessing similar safeguards against over-deterrence.

Reform the SEC. The U.S. Securities and Exchange Commission is the most important regulator of U.S. capital markets. Although its budget has increased by 82 percent over 10 years, its effectiveness remains in doubt. Resources have flowed into unnecessary management, “support,” and ancillary functions, while core functions have been neglected. Its organizational structure is unwieldy. The Commission needs to be better managed—it does not need (as has been proposed) more managers. The number of direct reports to the Chairman needs to be reduced. Its information technology programs appear to be poorly managed and are unnecessarily costly. The SEC bases its decisions on inadequate data. It does much less than most agencies to provide data to Commissioners, other policymakers, and the public. Its enforcement efforts directed at fraud and other malfeasance by managers of large financial institutions are inadequate. The Commission does little to remove unnecessary regulatory impediments to entrepreneurial capital formation. Reforms are necessary so that the SEC can better support well-functioning capital markets.

Reform FINRA. FINRA is the primary regulator of broker-dealers and their employees. It is neither a true self-regulatory organization nor a government agency. It is largely unaccountable to the industry and to the public. Due process, transparency, and regulatory-review protections normally associated with regulators are not present, and its arbitration process is flawed. Reforms are necessary. FINRA itself, the SEC, and Congress should reform FINRA to improve its rule-making and arbitration process.

Do not impose beneficial ownership reporting requirements. Congress is seriously considering imposing a beneficial ownership reporting regime on American businesses and other entities, including charities and churches. The most recent legislation, the Corporate Transparency Act (CTA) and the ILLICIT Cash Act, would create a large compliance burden on businesses with 20 or fewer employees (the only non-exempt category) and would create as many as one million inadvertent felons. Under the CTA, religious organizations, charities, and other exempt entities and their employees would be subject to fines and imprisonment unless they file the proper certification of exemption with the Financial Crimes Enforcement Network. The rules are easily and lawfully avoided by the sophisticated—and would do virtually nothing to achieve their stated aim of protecting society from terrorism or other forms of illicit finance. Furthermore, the vast majority of the information that the proposed reporting regime would obtain is already provided to the Internal Revenue Service (IRS). Allowing the IRS to share this information with the Treasury Department’s Financial Crimes Enforcement Network would better meet the needs of law enforcement by providing more comprehensive information and better enforcement than would the proposed reporting regime.

• David R. Burton, “Reforming the Securities and Exchange Commission,” Heritage Foundation Backgrounder No. 3378, January 30, 2019.
• David R. Burton, “The Corporate Transparency Act and the ILLICIT CASH Act,” Heritage Foundation Backgrounder No. 3449, November 7, 2019.
• David R. Burton, “Let Entrepreneurs Raise Capital Using Finders and Private Placement Brokers,” Heritage Foundation Backgrounder No. 3328, July 10, 2018.
• David R. Burton, “Congress Should Increase Access to Private Securities Offerings,” Heritage Foundation Backgrounder No. 4899, August 29, 2018.
• David R. Burton, “Reforming FINRA,” Heritage Foundation Backgrounder No. 3181, February 1, 2017.
• David R. Burton, “Securities Disclosure Reform,” Heritage Foundation Backgrounder No. 3178, February 13, 2017.
• David R. Burton, “Improving Entrepreneurs’ Access to Capital: Vital for Economic Growth,” Heritage Foundation Backgrounder No. 3182, February 14, 2017.
• David R. Burton, “Building an Opportunity Economy: The State of Small Business and Entrepreneurship,” testimony before the United States House Committee on Small Business, U.S. House of Representatives, March 4, 2015.
• David R. Burton and Norbert J. Michel, “Removing Tax Barriers to Competitive Currencies,” Heritage Foundation Issue Brief No. 4761, September 13, 2017.
• David R. Burton and Norbert J. Michel, “Financial Privacy in a Free Society,” Heritage Foundation Backgrounder No. 3157, September 23, 2016.
• David R. Burton and Norbert J. Michel, “Financial Institutions: Necessary for Prosperity,” Heritage Foundation Backgrounder No. 3108, April 14, 2016.
• Joel Griffith and Norbert J. Michel, “Housing Finance Reform Possibilities Abound for 2019,” Heritage Foundation Backgrounder No. 3382, February 4, 2019.
• Diane Katz, “The CFPB in Action: Consumer Bureau Harms Those It Claims to Protect,” Heritage Foundation Backgrounder No. 2760, January 22, 2013.
• Diane Katz, “Dodd–Frank at Year Three: Onerous and Costly,” Heritage Foundation Issue Brief No. 3993, July 19, 2013.
• Norbert J. Michel, “Give the Fed a Single Mandate: Monetary Neutrality,” Heritage Foundation Backgrounder No. 3367, April 24, 2019.
• Norbert J. Michel, “The Crisis is Over: It Is Time to End Experimental Monetary Policy,” Heritage Foundation Backgrounder No. 3265, November 9, 2017.
• Norbert J. Michel, “Improving Money Through Competition,” Heritage Foundation Issue Brief No. 4730, July 7, 2017.
• Norbert J. Michel, “Monetary Policy Reforms for Main Street,” Heritage Foundation Backgrounder No. 3237, July 27, 2017.
• Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• Norbert J. Michel, ed., The Case Against Dodd–Frank: How the ‘Consumer Protection’ Law Endangers Americans (Washington: The Heritage Foundation, 2016).
• Norbert J. Michel, “The Myth of Financial Market Deregulation,” Heritage Foundation Backgrounder No. 3094, April 26, 2016.
• Norbert J. Michel, “Fixing the Dodd–Frank Derivatives Mess: Repeal Titles VII and VIII,” Heritage Foundation Backgrounder No. 3076, November 16, 2015.
• Norbert J. Michel, “The Fed’s Failure as a Lender of Last Resort: What to Do About It,” Heritage Foundation Backgrounder No. 2943, August 20, 2014.
• Norbert J. Michel, “Repealing Dodd–Frank and Ending ‘Too Big to Fail,’” Heritage Foundation Backgrounder No. 2973, November 3, 2014.
• Selected References from Prosperity Unleashed.
• Mark A. Calabria, Norbert J. Michel, and Hester Peirce, “Reforming the Financial Regulators,” chap. 9 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• Rutherford B. Campbell, Jr., “The Case for Federal Pre-Emption of State Blue Sky Laws,” chap. 6 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• Gerald P. Dwyer and Norbert J. Michel, “A New Federal Charter for Financial Institutions,” chap. 23 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• Diane Katz, “The Massive Federal Credit Racket,” chap. 12 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• John L. Ligon, “A Pathway to Shutting Down the Federal Housing Finance Enterprises,” chap. 15 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• Amanda M. Rose, “Designing an Efficient Securities-Fraud Deterrence Regime,” chap. 17 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).
• George Selgin, “Reforming Last-Resort Lending: The Flexible Open-Market Alternative,” chap. 13 in Norbert J. Michel, ed., Prosperity Unleashed: Smarter Financial Regulation (Washington: The Heritage Foundation, 2017).

• The Issue
• Power Phrases

Transportation infrastructure is necessary for both a functioning economy and the public’s quality of life. The ability of Americans to move their families and products from town to town, city to city, coast to coast, and border to border is dependent upon functional roads, rails, bridges, airports, and waterways.

The vast majority of transportation infrastructure assets are owned, operated, and maintained by state and local governments, businesses, and individuals. Despite this, there has long been a tendency to look to Washington for financial resources to start new projects. Excessive federal involvement has led to inefficiencies, delays, and waste, rather than superior infrastructure for the nation. What should be a limited federal role in overseeing nationally significant infrastructure has morphed into a vast system of intergovernmental transfers designed primarily for political benefit instead of the public good.

Rather than focusing on the highways and byways that the vast majority of citizens use on a daily basis, would-be central planners force motorists to subsidize other modes of transportation. As a result, Congress diverts Highway Trust Fund spending derived from gas taxes toward programs unrelated to highways. This goes against the long-standing “users pay, users benefit” principle of infrastructure spending. Motorists and truckers are thus subsidizing urban transit, bike paths, and ferryboats.

Political leaders regularly promise that ever-increasing federal infrastructure spending will generate jobs, economic growth, and luxurious public transportation. However, such projects—often focused on transit—are unrealistic, economically unsustainable, and incompatible with the day-to-day lives of most Americans. Federal efforts to promote long-distance high-speed rail and urban mass transit have consumed hundreds of billions of dollars in recent decades, with consistently disappointing results in terms of ridership and cost-effectiveness.

The core debate should not be whether America seeks to improve the value of its infrastructure or not. Instead, the consideration should be how to do so efficiently and who will be in charge of making infrastructure decisions. In the overwhelming majority of instances, this should be done at the local and state level or by the private sector. Since local and state governments, and private businesses, are more accountable to the public than Washington, and since they know their transportation needs better as well, they are in a better position to address those needs and, indeed, already generate most of their own transportation funding. The federal government discourages such initiative through mandates and burdensome regulations, and crowds out effective private and local investments with federal dollars.

Given that infrastructure projects are rarely national in scope, Congress and the Administration should seek to empower states and the private sector by reducing the role of the federal government in transportation.

Limit the highway program to highways. As long as the federal government has a role in transportation policy, it should focus on programs that are truly national in nature, and work toward goals such as enhancing mobility, reducing congestion, and improving safety, all in a cost-effective manner. Currently, more than 25 percent of Highway Trust Fund (HTF) spending is for programs that have little to do with the federal highway program or national priorities. Although HTF spending on highways roughly matches revenues from the gas tax, additional non-highway spending has made the fund unsustainable without regular bailouts. Refocusing HTF spending would put the trust fund on a path toward solvency. Diversions that Congress should eliminate include:

• Mass Transit. Nearly two-thirds of diversion spending goes toward urban transit, which suffers from bloated labor costs and falling ridership shares, and has utterly failed to deliver on promises of reduced congestion and environmental improvements.
• Congestion Mitigation and Air Quality. Also focused on urban projects such as transit and bike sharing, this spending has provided minimal benefit to the public and even less to drivers.
• Transportation Alternatives Program. The most blatant example of wasted infrastructure spending, this program diverts highway dollars to local projects such as sidewalks, recreational trails, landscaping projects, and historical renovations. Not only do these projects provide little to no benefit for drivers, but they also lead to inequities, as taxpayers in a handful of jurisdictions reap benefits from taxes paid by taxpayers in all of the others.
• Other Non-Priorities. Political pet projects such as ferryboats, the federal lands access programs, scenic byways, and education programs each get an unjustified cut of gas tax revenue.

The needs and preferences of voters vary widely from state to state, and today’s one-size-fits-all, federally focused approach to both taxing and spending creates imbalances and inefficiencies. Devolving most federal responsibility for highway-related taxing, spending, and regulating to states would enhance the value of infrastructure spending by allowing local leaders more flexibility to implement solutions that best fit their areas.

Reduce the federal role in transit funding. Unnecessarily high operating costs plague transit systems across the country, facilitated in part by federal subsidies that remove incentives for transit agencies to cut costs and operate efficiently. Federal subsidies distort inherently local transit decisions made by state and local governments, as the subsidized programs are given priority over more imminent local needs that Congress does not favor. Without these costly federal subsidies, local and state governments would better gauge the funding and operating feasibility of transit systems.

Congress should phase out federal transit programs and their funding over a five-year period, thus refocusing the Highway Trust Fund on its core mission and restoring the integrity of the “user pays, user benefits” model. Likewise, lawmakers should eliminate discretionary competitive grants such as the “New Starts” program, which provides perverse incentives for localities to build new, unnecessary transit systems while ignoring the maintenance of existing infrastructure.

Finally, the federal government should devolve control for most of the National Highway System to the states and lower the federal gas tax. State governments would have more autonomy to make spending and revenue decisions that fit their transit needs.

Unburden infrastructure from mandates and regulations. While some amount of oversight is appropriate to ensure proper stewardship of federal taxpayer dollars, far too much infrastructure regulation is politically driven micromanagement. The Davis–Bacon Act,1 which mandates the use of union pay rates, increases project costs by roughly 10 percent. Project Labor Agreements dictate union-style work rules. Protectionist “Buy American” provisions further inflate costs by banning the purchase of imported physical inputs. Similarly, the Foreign Dredge Act2 and the Jones Act3 are archaic, protectionist barriers affecting seaports and shippers.

All of these rules serve to reduce the efficiency and flexibility of the private sector contractors who perform infrastructure work. Congress should eliminate these constricting rules.

Streamline the environmental review process. Currently, all major infrastructure construction projects are subject to federal permitting and environmental review processes. The federal government administers 59 different permits through 12 different agencies. Environmental reviews alone take an average of five years and can cost millions of dollars. Many major projects take a decade or longer to obtain a complete set of permits.

Allowing states to certify that projects meet federal requirements would accelerate the permitting process by removing it from the slow, centralized Washington bureaucracies. Repealing the outdated National Environmental Policy Act4 would greatly reduce red tape without damaging the environment.

Liberate airports by grounding regulations and cancelling the airport improvement program. In contrast to most developed nations, major U.S. airports are owned and operated by local governments rather than by the private sector. A leading cause of this is the long-outdated federal approach of heavy regulation and counterproductive subsidies.

The Airport Improvement Program (AIP) levies taxes on airfare and aviation services. The AIP then distributes those funds to airports for use in capital projects such as runways. Funding is based on a formula that heavily favors small and non-commercial airports. Large, successful airports pay full AIP taxes for every passenger served, but receive much smaller amounts of AIP funding per passenger above the 50,000 threshold. Thus, AIP penalizes large airports for the benefit of smaller ones, creating perverse incentives regarding passenger service and terminal quality.

The Passenger Facility Charge system, another federal rule that hampers the improvement of airport terminals, denies airports the ability to charge customers based on the needs of the airport. Instead, the Federal Aviation Administration determines how much airports can charge. With the amount capped at $4.50 per passenger in 2000, with no adjustment for inflation, airports often struggle to finance expansions and improvements. This benefits major airlines at the expense of small and startup companies, since big carriers control most existing gates and would face more competition if airports had capital on hand for expansion.

Passengers would benefit immensely if Congress were to eliminate the AIP, reduce or eliminate airfare taxes, and further pro-market regulatory reform. These actions would encourage private investment in the industry, heighten competition for passengers (and in turn lower ticket prices), and enhance the quality of airports.

Privatize many federal transportation services. The federal infrastructure portfolio includes worthwhile assets and services. However, in many cases a shift from federal provision and operation to overseeing private-sector actors would serve the public good by bringing market incentives and better management. Congress should privatize the following federally owned and operated endeavors:

Amtrak. As the American public shifted away from passenger rail over the course of the 20th century, many regional railroads went out of business. The federal government started Amtrak in 1971 to continue passenger rail service across the country. In the nearly five decades since, billions of dollars in taxpayer subsidies have not brought the public back for most Amtrak lines. While the Northeast Corridor is currently financially viable, the system as a whole requires comprehensive reform.

Privatizing Amtrak and ending federal subsidies would allow profit-based incentives to improve service on popular routes, while finally admitting that some little-used regional lines are no longer a national priority. States would have the option to continue these lines themselves. Alternately, Congress could use public-private partnerships as an intermediary step, allowing private service improvements while maintaining public ownership.

Air Traffic Control. The Federal Aviation Administration’s (FAA) Air Traffic Organization (ATO) provides air traffic control services for the flight industry. Worldwide, it is one of the only air navigation providers still operated by an aviation safety regulatory agency. The ATO’s bureaucracy has allowed it to become woefully outdated and inefficient, especially when compared to privatized counterparts in nations such as Canada and the United Kingdom. Rather than having the FAA attempt to make the ATO effective by continuing to pour money into it, Congress should fully privatize ATO, which can be done by turning it into a nonprofit entity. This would liberate ATO from the many problems endemic to government bureaucracy.

St. Lawrence Seaway Development Corporation. Congress and the Administration should privatize the St. Lawrence Seaway Development Corporation (SLSDC), which maintains and operates the U.S. portion of the Saint Lawrence Seaway. Canada privatized its portion of the seaway in 1998, which eliminated the need for taxpayer funds.

Inland Waterways. A network of 12,000 miles of inland waterways spans the country. This infrastructure has been poorly maintained by the Army Corps of Engineers, reducing capacity for ships and causing needless delays. A fuel tax has proven insufficient to fund capital improvements. Meanwhile, all federal taxpayers pay for operations, resulting in massive subsidization of the system.

Reforming waterways through the implementation of user fees would improve service for users and be fairer for taxpayers. Both the Trump and Obama Administrations have embraced this course of action. Additionally, much of the waterway system could be fully or partially privatized, allowing for greater efficiency of operation and providing incentive for investment that does not rely on taxpayer dollars.

• Wendell Cox, “America Needs a Rational Transit Policy,” Heritage Foundation Issue Brief No. 4368, March 24, 2015.
• David A. Ditch, Nicolas D. Loris, Adam N. Michel, and Kevin D. Dayaratna, “Paying for Surface Transportation Infrastructure: Four Wrong Routes, Four Good Paths,” Heritage Foundation Backgrounder No. 3422, July 17, 2019.
• Matthew Grinney and Emily J. Goff, “Bringing Transportation Decisions Closer to the People: Why States and Localities Should Have More Control,” Heritage Foundation Backgrounder No. 2902, April 9, 2014.
• Michael Sargent, “Highway Trust Fund Basics: A Primer on Federal Surface Transportation Spending,” Heritage Foundation Backgrounder No. 3014, May 11, 2015.
• Michael Sargent, “End of the Runway: Rethinking the Airport Improvement Program and the Federal Role in Airport Funding,” Heritage Foundation Backgrounder No. 3170, November 23, 2016.
• Michael Sargent and Nicolas D. Loris, “Driving Investment, Fueling Growth: How Strategic Reforms Can Generate $1.1 Trillion in Infrastructure Investment,” Heritage Foundation Backgrounder No. 3209, revised and updated May 8, 2017.

• The Issue
• Power Phrases

Taxes directly affect the well-being of every American. While taxes are a necessary evil to fund a limited constitutional government, a well-designed revenue system minimizes the damage caused to individuals and to businesses’ ability to innovate and create new jobs. Taxes that are too high or poorly designed can destroy wealth, discourage investment, and stifle economic opportunity. Following the most sweeping update to the U.S. tax code in more than 30 years, Americans are no longer suffering under its most burdensome features.

The Tax Cuts and Jobs Act of 2017 (TCJA) simplified tax paying for many Americans, lowered taxes on individuals and businesses, and updated the business tax code so that American corporations and the people they employ can be globally competitive.

Many Americans are benefiting twice from the tax cuts: first, by paying less in taxes, and second from higher wages generated by a faster-growing economy. In the first quarter of 2019, the economy exceeded expectations and wages continued to grow, with low-income workers receiving the largest gains.1

In 2025 most of the individual and some of the business tax cuts will expire. The deadline gives Congress an opportunity to revisit the tax code, to make much of it permanent and address many remaining issues not included in the 2017 tax bill.

Federal taxes in America are paid in three main ways. First, the individual income tax raises 50.6 percent of federal revenue, including taxes paid on investments (capital gains and dividends) and taxes on business profits paid directly by the owners on their individual tax return. Second, payroll taxes make up 35.2 percent of federal revenues, and third, the corporate income tax makes up just over 6 percent. People—investors, workers, and consumers—ultimately pay business taxes, such as the corporate income tax. Workers shoulder the largest burden through lower wages.2

At its core, the U.S. tax code remains too complex and includes a fundamental bias against saving and investment. Myriad subsidies and carve-outs for the politically connected endure, adding to complexity and economic distortions. The biggest distortion is caused by the double-tax on savers, which levies a tax on wages and a second tax on any earnings if the wages are saved and invested. The return on savings and investment is simply compensation for waiting to use the income, so by taxing the investment earnings, the tax code makes saving more expensive relative to spending immediately. The lower tax rate on capital gains and dividends (with a top rate of 20 percent on long-term capital gains versus a 37 percent top marginal rate on income) helps move the income tax toward a more neutral treatment of saving.

Ultimately, the tax system should use the least economically destructive forms of taxation to raise the revenue necessary to fund a limited government that carries out its constitutionally delegated powers. Toward this aim, Congress can build on the success of the 2017 tax cuts by making them permanent, continuing to lower taxes on saving, and eliminating tax subsidies.

Make the Tax Cuts and Jobs Act permanent, and expand expensing. The 2017 tax cuts reduced federal income tax rates, increased the standard deduction, doubled the child tax credit, repealed the personal and dependent exemptions, and capped the SALT deduction, among many other reforms.3 Most of the law’s individual tax provisions expire in 2025, and Americans’ taxes are scheduled to increase in 2026.

Although the majority of media attention surrounding the TCJA has centered on lower tax rates for individuals and businesses, the TCJA’s adjustments to investment rules has equally important benefits for American workers, supporting higher wages and more jobs. The U.S. tax code generally imposes years of delay between the moment at which businesses pay for an investment and the point at which they can deduct the full cost of that investment on their taxes. This raises the cost of the investment, which slows gains to future worker productivity and thus shrinks incomes.

The tax cuts temporarily fixed this problem for some short-lived investments through “expensing,” allowing businesses to write off some new investments immediately. Buildings, such as new manufacturing floor space and storefronts, still have to use the costly and complicated pre-TCJA system, characterized by arbitrary depreciation schedules, concocted by federal bureaucrats often with little to no business experience. The budgetary cost of expanding expensing to all investments would be high in the first few years of the reform on account of transition costs, but the economic benefits of the new system would be well worth the short-term budget impact.

In addition to protecting Americans’ paychecks from higher taxes, a permanent version of the 2017 tax cuts could increase the size of the economy and further boost Americans’ paychecks. Permanent tax cuts and expanded expensing could boost the size of the economy by 4.3 percent over the pre–tax cuts baseline, according to an estimate from when the law was passed.4 That would more than double the economic benefits that are expected to result from the temporary provisions under current law.

Enact Universal Savings Accounts. The current tax code tells Americans to only save for retirement by not offering the same tax protections to other forms of saving that are available through 401(k)s and individual retirement arrangement (IRAs). Universal Savings Accounts (USAs) would reduce taxes on savings for all Americans and help families build their own financial security through a single, simple, and flexible account.

Unlike existing retirement savings accounts, USA holders would not be bound by limits on when savings can be withdrawn or for what purpose people may use their personal savings. Individuals would contribute post-tax earnings, and all withdrawals from a USA would be excluded from taxable income; any gains accrued would thus be tax-free. USAs would allow Americans at all income levels to save more of their earnings with fewer restrictions on where and when they can spend their own money.5

Cut tax subsidies. Each year, the tax code is used to hand out billions of dollars in subsidies to politically connected interests, picking winners and losers and distorting market outcomes. Tax code spending persists without systematic review or annual appropriation by lawmakers in Congress.

The tax code should not be used to pick winners and losers. That means the next round of tax reform should eliminate all individual and corporate deductions, credits, exclusions, and exemptions that are not economically justified. Some of the most egregious tax subsidies are the myriad tax breaks for the production and consumption of politically favored types of energy and energy-efficient products that distort energy markets, making them less efficient and dependent on government subsidies. Other examples include: tax credits for college expenses that contribute to the inflated cost of college for every American student, the research and development tax credit that is an inefficient subsidy for an activity most companies would do anyway, and the low-income housing tax credit that creates incentives for local government corruption and primarily subsidizes developers, not renters.6

The 2017 tax reform introduced new tax preferences which should be rolled back, like the temporary tax credit for paid family leave and the new 20 percent deduction for pass-through businesses. The bill also did not fully eliminate existing subsidies like the newly capped state and local tax (SALT) deduction, which should be zeroed out, as it is harmful for individuals and businesses. Each of these tax preferences and many others add unnecessary complexity to the tax code and reduce economic growth because individuals and businesses become reliant on government subsidies rather than on market signals when making decisions about where to live or what to produce.

Further simplify and lower taxes on wages and saving. Reforms should streamline retirement accounts so that more workers have access to a single, simple system that is not necessarily tied to individual employers. Most Americans are familiar with personal retirement savings accounts, such as 401(k)s and IRAs, but few take full advantage of their benefits. The main impediment to more widespread use of the accounts is their complexity, compliance cost, and the regulatory risk for smaller employers. Depending on employment status, American savers have access to dramatically different levels of retirement saving options across 16 different retirement accounts. The patchwork of rules discourages uptake and subdivides individual’s savings into multiple accounts, often stuck with past employers.

There is a long list of small but significant reforms to improve the efficiency of the tax system that any policymaker should be aware of. A few of the most important items:

• Congress should eliminate the estate tax. The estate and gift tax is an additional layer of tax on saving and investment that disproportionately falls on small- and medium-sized family-owned businesses.
• Congress should end the individual alternative minimum tax (AMT). The AMT is a duplicative and ineffective parallel tax system that does little more than make some high-income taxpayers calculate their taxes twice.
• Congress should stop taxing worldwide personal income and unwind the Foreign Account Tax Compliance Act (FATCA). The U.S. remains one of just a few countries that claim taxing rights on labor income earned abroad. FATCA is the reporting system that the IRS uses to enforce these tax collections. The system causes hardship for U.S. expatriates and hurts U.S. foreign relations.
• Congress should index the basis of capital gains to inflation. Indexing the purchase price of assets for inflation would protect savers from taxes on fictitious income.

If Congress can control spending, taxes should be cut further on personal income, capital gains, and business income. These pro-growth reforms would benefit American workers through higher wages and greater economic opportunity.

Reject new sources of revenue. If Congress is unwilling to address the growth rate of federal spending, the pressures of yearly deficits and mounting debt will eventually yield to the siren song of new taxes. There is already frequent talk of a federal value-added tax (VAT), a carbon tax, a border adjustment tax (BAT), wealth taxes, and financial transactions taxes, each designed to raise new and higher levels of revenue.

A new tax would increase complexity and allow the federal government to extract more money from American taxpayers. A VAT, for example, would raise taxes on the middle-class to the tune of trillions of dollars. The new revenue would enable an unprecedented expansion of the federal government, while making Americans poorer and more dependent on the government. In addition to expanding government in size and scope, carbon taxes would inflate energy costs, kill jobs, and shrink incomes. Spending reforms, not tax increases, are the only way to balance the budget while expanding free enterprise, limited government, and individual freedom.

• Adam N. Michel, “Tax Reform 2.0: Priorities After the Tax Cuts and Jobs Act of 2017,” Heritage Foundation Backgrounder No. 3296, March 22, 2018.
• Adam N. Michel and Parker Sheppard, “Simple Changes Could Double the Increase in GDP from Tax Reform,” Heritage Foundation Issue Brief No. 4852, May 14, 2018.
• Adam N. Michel, “Universal Savings Accounts Can Help All Americans Build Savings,” Heritage Foundation Backgrounder No. 3370, December 4, 2018.
• Kevin Dayaratna, Parker Sheppard, and Adam N. Michel, “Tax Cuts in Every Congressional District in Every State,” Heritage Foundation Backgrounder No. 3333, July 23, 2018.
• Adam N. Michel, “The High Price That American Workers Pay for Corporate Taxes,” Heritage Foundation Backgrounder No. 3243, September 11, 2017.
• Adam N. Michel, Kevin Dayaratna, and Parker Sheppard, “Taxes Will Go Up in Every Congressional District If the TCJA Is Repealed,” Heritage Foundation Issue Brief No. 4908, October 17, 2018.
• Katie Tubb and Nicolas D. Loris, “Tax Extenders Would Make Energy Companies Dependent, Not Dominant,” Heritage Foundation Backgrounder No. 3279, January 22, 2018.
• Adam N. Michel, “Analysis of the 2017 Tax Cuts and Jobs Act,” Heritage Foundation Issue Brief No. 4800, December 19, 2017.

• The Issue
• Power Phrases

Advances in technology have jolted economic, political, and social sectors around the world by upending business models, altering human interactions, and democratizing telecommunications. The benefits are incalculable, of course. But the disruption has also sown uncertainty and anxiety about online propaganda, content mismanagement, privacy and security lapses, and fake news. Thus, the United States now stands at a crossroads as calls for regulation mount.

The political narrative on Capitol Hill is largely based on the proposition that the public is defenseless against the tech titans and in need of government protection. That is a difficult assertion to prove or disprove given the billions of Internet users. It is likely that many people do understand the basic business model that enables free online services. There undoubtedly are a significant number of people who do not know that their online activity is tracked across accounts and devices or that the data are sold.

Whatever the level of consumer understanding, the salient issue is whether regulation is necessary, appropriate, or capable of addressing the issue effectively. In the current context, it is none of these, given the wealth of nongovernmental remedies available and the continuous development of new ones.

Perhaps more than any other economic sector, technology’s entrepreneurial spirit risks being crushed by regulation. Innovation is inhibited when government imposes standardized “solutions” rather than allowing technology to evolve through competition and consumer preference.

Regulators cannot possibly keep pace with the technology churn. Indeed, recent hearings in Congress revealed that few lawmakers have a firm grasp of Internet basics. That leaves lawmakers to substitute political considerations for market realities, masking the signals that would otherwise guide investment and innovation most efficiently. The likelihood of policy and regulatory blunders is very high, and the consequences grave, including solidifying the dominance of incumbents for years to come.

Government intervention in telecommunications has been a major factor in America trailing Asian and European nations in deploying the most advanced wireless and broadband technologies. Political and regulatory processes always trail the pace of technological change.

The magnitude of European regulatory burdens, along with the prospect of more in the pipeline, is prompting Google, Apple, Twitter, and others to pursue regulation in the U.S. in hopes of averting a patchwork of foreign, federal, state, and even local dictates. But it is important to recognize that the industry is embracing regulation for the sake of expedience rather than consumer benefit. Meanwhile, the costs of regulation fall disproportionately on small businesses and inhibit new entrants, which forestalls competition and secures the dominant incumbents. Cronyism—regulatory or otherwise—violates the fundamental principles of a free market.

Some conservatives are pursuing regulation as retribution for alleged online censorship. But aggrieved parties should instead put their conservative principles into action—that is, marshal resources in support of more neutral options or finance their own online services. Anecdotes abound about biased algorithms, but private enterprises are not obligated to abide by any sort of partisan fairness doctrine, were such a thing enforceable in any systematic way, which it would not be.

The greater the demand for privacy and data protection, the more incentive there is for research and development. Exploiting such demand is one of the principal means by which startups gain a foothold against dominant incumbents.

In the broadest terms, the role of government in technology policy is to protect and defend citizens’ voluntary transactions (e.g., contract, investment, acquisition, ownership) and settle disputes in matters of law.

The nation’s technological progress largely depends on upholding the fundamental principles of free enterprise, limited government, and property rights—and not on allegiance to regulatory schemes that will yield more harm than benefit.

Facebook, Google, and others do wield enormous influence, but big is not by definition bad, nor are consumers necessarily ill served by a small number of competitors in a given market. Anti-trust enforcement should be limited to actual instances of unlawful action intended to subvert competition (e.g., bid rigging and price fixing) rather than as a means to create a hypothetical ideal market.

Consumers are best equipped to punish commercial wrongdoing, and technology has vastly expanded their capacity to do so. Opinions can be broadcast around the world in seconds. Meanwhile, today’s dominant platform is just one upstart away from irrelevance: Remember Myspace?

Regulation shifts labor and capital away from productive activity and into compliance activity. The pace of technological change makes it virtually impossible for regulation to remain relevant. And, regulation imposes a disproportionate burden on new businesses, which undermines competition and secures the dominance of incumbent firms. Meanwhile, the costs of compliance drive mergers, further consolidating markets.

Political “solutions” are inherently unreliable because neither Congress nor the executive branch is bound by the actions of its predecessors, except in the granting or sale of private rights. Government remedies are also weak by virtue of the concessions necessary to gain approval.

Facebook, Twitter, and Google are private enterprises, not agents of government to whom Congress can dictate security functions. Responsibility for protecting the nation from foreign threats belongs first with national security and intelligence agencies, and those elected to oversee them.

• Diane Katz, “Why Government Shouldn’t Tell Facebook, Google, and Twitter What to Do,” Heritage Foundation Commentary, September 5, 2018.
• Diane Katz and Dean Cheng, “The Federal Government Shouldn’t Build a 5G Network,” Heritage Foundation Commentary, January 29, 2018.
• Kim R. Holmes, “The Origins of ‘Hate Speech,’” Heritage Foundation Commentary, October 22, 2018.