CEI Report Proposes Legislation to Stop Future Congresses from Exploiting National Crises to Grow Government

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WASHINGTON—The United States has been rocked by three major economic crises so far in the 21st century—the 9/11 terror attacks, the 2008 financial crash, and the COVID-19 pandemic. Each time, Congress reacted with “flash policy” – aggressive emergency federal spending accompanied by intrusive government regulations undertaken in haste in order to be seen to “do something.”

In “The Case for Letting Crises Go to Waste: How an ‘Abuse-of-Crisis Prevention Act’ Can Help Rein in Runaway Government Growth,” Competitive Enterprise Institute Vice President for Policy Wayne Crews  argues that reflexive spending and government intervention in response to crises is destabilizing and manipulative.

For example, the COVID-19 pandemic exposed a serious lack of preparation at both the state and federal levels, while the policy responses that did occur ushered in new types of financial and banking intervention, federal allocation of credit, and calls for new investment in science and infrastructure.

“Washington’s addiction to meeting crisis with massive government intervention into the lives of families and the businesses artificially redirects the economy, redistributes private resources, and advances collectivist aims,” said Crews. “Congress should restore boundaries on what lawmakers can do in the name of crisis and take steps against political predation and the abuse of authority.”

Along with a call for drastic downsizing of the federal government and limiting federal emergency declarations, Crews lays out a detailed roadmap of legislative measures for Congress to preemptively curtail flash policy, including:

  • Change the federal tax code to allow households to amass up to five years of median income that could be accessed in future crises. Ideally, Washington should impose no personal income taxes until taxpayers have several years of liquid-but-invested savings. Those funds could be used during emergencies and eventually put toward retirement.
  • Deregulate and liberalize insurance markets to encourage private insurance options alongside enhanced savings or self-insurance cushions, and claw back government policies that aggravate risk or put taxpayers on the hook.
  • Empower businesses to build their own wealth reserves by allowing companies to expand accumulation of retained earnings beyond current IRS caps and limitations. This could entail encouraging emergency funds of six months or more of a firm’s highest operating expenses as a shock fund to tap or to use for investment or operating expenses when necessary.
  • Encourage states to act quickly in future crises by eliminating the overuse of federal grants and leaving taxpayer dollars at the state level to bolster rainy-day funds, build state strategic stockpiles, and limit the reliance on federal emergency declaration.

“Congress should recognize that reflexive spending and government intervention in response to crises is destabilizing and manipulative. It is imperative to stop future Congresses from recklessly pursuing irresponsible policies in response to economic shocks,” said Crews. “It is long past time for policy makers to let crises go to waste.”

Read the whole report on CEI.org.