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Posts Tagged ‘deficit’

Obama’s budget insanity

Posted by Richard on February 14, 2012

The Fiscal Year 2008 Bush budget (the year before Hank Paulson panicked Bush into bailout mode with warnings of impending economic collapse):

  • Spending: $2.9 trillion (that’s $2,900 billion)
  • Deficit: $455 billion
  • New taxes: None
  • Federal debt: $9.99 trillion

February 23, 2009 Obama speech to the National Governors Association:

“Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to next budget, the next administration, or the next generation,” he said. “That’s why today I’m pledging to cut the deficit we inherited by half by the end of my first term in office.”

Obama said he would reinstate the pay-as-you-go rule requiring any new expenditure to be set off by a cut in spending.

The Fiscal Year 2013 Obama budget:

  • Spending: $3.8 trillion (that’s $3,800 billion) in FY2013; $5.8 trillion in 2022; $47 trillion over 10 years
  • Deficit: $901 billion in 2013 (but AFP says “if we strip out the budget’s unrealistic assumptions, yet another trillion-dollar-plus deficit is nearly certain. … The past three years the nonpartisan Congressional Budget Office issued an analysis of the President’s budget.  They found the deficits were actually 20 percent higher than the President claimed.)
  • New taxes: $1.9 trillion over 10 years
  • Federal debt: $16.2+ trillion for 2013; over $25 trillion by 2021, according to ALG’s Bill Wilson

So how can the administration claim to be cutting the deficit by $4 trillion over 10 years and yet have annual spending grow from $3.8 trillion to $5.8 trillion (a 53% increase)? There’s the double-counting of last year’s “cuts” and a good helping of what AFP calls tricks and gimmicks. But mainly it’s the baseline budgeting scam, which I explained last August. ALG’s Bill Wilson has some numbers (emphasis added):

The Office of Management and Budget’s (OMB) baseline for 2013-2022 says outlays will total $47.053 trillion. Obama’s proposed budget takes that to $46.959 trillion. Since spending actually increases every year under Obama’s proposal, the only cut is off of the baseline — and that’s just $94 billion of so-called “cuts”.

Meanwhile, OMB says revenues over the next ten years will total $38.391 trillion. Under Obama’s proposal, that goes up to $40.274 trillion — an increase of $1.883 trillion in taxes, mostly on job creators.

By our count, that’s about $20 of tax increases for every dollar of “cuts,” and those are not even real cuts to the actual budget.  Spending would still increase every single year under Obama’s proposal. Meanwhile, the tax hikes are real.

The latest Obama budget would be laughable if the numbers weren’t so sobering and the consequences of continuing down this path weren’t so dire.

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Happy Dysfunctional New Year?

Posted by Richard on December 31, 2011

Mark Steyn doesn’t think much of how the U.S. spent 2011, and he’s less than optimistic about 2012:

… The year began with a tea-powered Republican caucus taking control of the House of Representatives and pledging to rein in spendaholic government. It ended with President Obama making a pro forma request for a mere $1.2 trillion increase in the debt ceiling. This will raise government debt to $16.4 trillion — a new world record! If only until he demands the next debt-ceiling increase in three months’ time.

At the end of 2011, America, like much of the rest of the western world, has dug deeper into a cocoon of denial. Tens of millions of Americans remain unaware that this nation is broke — broker than any nation has ever been.

Public debt has increased by 67% over the last three years, and too many Americans refuse even to see it as a problem. For most of us, “$16.4 trillion” has no real meaning, any more than “$17.9 trillion” or “$28.3 trillion” or “$147.8 bazillion.” It doesn’t even have much meaning for the guys spending the dough.

Look into the eyes of Barack Obama or Harry Reid or Barney Frank, and you realize that, even as they’re borrowing all this money, they have no serious intention of paying any of it back. That’s to say, there is no politically plausible scenario under which the $16.4 trillion is reduced to $13.7 trillion, and then $7.9 trillion, and eventually 173 dollars and 48 cents.

At the deepest levels within our governing structures, we are committed to living beyond our means on a scale no civilization has ever done. Our most enlightened citizens think it’s rather vulgar and boorish to obsess about debt. The urbane, educated, Western progressive would rather “save the planet,” a cause which offers the grandiose narcissism that, say, reforming Medicare lacks.

Read the whole thing.

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Dr. Doom educates Congress

Posted by Richard on September 20, 2011

Peter Schiff (a.k.a. Dr. Doom), who predicted the sub-prime mortgage crisis and the collapse of the housing bubble and auto industry, has wrapped up his testimony before the House Subcommittee on Government Reform and Stimulus Oversight. I strongly urge you to watch this 22-minute video of some of the highlights of his testimony last week. If you’re familiar with Austrian economics or Frederic Bastiat, some of what he says may ring a bell.

[YouTube link]

Schiff is the CEO of Euro Pacific Capital and the son of famed tax protestor Irwin Schiff. He has a blog* and an internet radio show, and is a frequent guest on cable news shows. I really like this Schiff quote, which channels Bastiat:

You can always see the jobs that government creates. What you don’t see are the jobs that they destroy.

Ryan Swift has a nice post about Schiff’s testimony, along with a couple of alternative video excerpts of his testimony (there’s a fair amount of overlap with the video above, which I found at Zero Hedge).

There’s a compelling 5-minute interview with Schiff here.

* This post originally linked to an unofficial blog that’s not Peter Schiff’s. Thanks to Anthony Nelson of, I’ve corrected the link so that it points to Peter Schiff’s actual blog.

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“Not part of the deal”

Posted by Richard on August 9, 2011

Jimmy Kimmel, commenting on Monday's precipitous stock market plunge:

For years, we've been told that our kids and grandkids would have to pay for our out-of-control spending. Now we're being told that we have to pay for it?? That was not part of the deal!

There's a lot of painful truth in that joke. In response to concerns about the long-run consequences of his economic policy recommendations, Lord Keynes famously sneered, "In the long run, we are all dead." The long run has arrived. And we're not dead yet.

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The baseline budgeting scam

Posted by Richard on August 5, 2011

A new CNN/Gallup poll shows most Americans disapprove of the debt ceiling deal, and CNN claims it's because of the process. Nonsense. It's the substance. An earlier CNN poll found that 2/3 of Americans favored the much tougher Cut, Cap and Balance Act, including a majority of every single demographic surveyed, even liberals.

Most Americans recognize a failure to honestly address the spending and debt crisis when they see it. If they knew just how the baseline budgeting scam works, they'd be even more disgusted by this sham "debt control" deal, which will increase the federal debt by at least $7 trillion (that's $7,000 billion) in the next 10 years. And that's assuming some pretty rosy projections for economic growth. 

Baseline budgeting proponents began with a seemingly reasonable suggestion: "Instead of starting each budgeting process from scratch [zero-based budgeting], why don't we use the previous budget as our starting point and make adjustments from there?" Then they added, "Of course, we'll need to adjust the previous budget numbers to account for inflation, population growth, increased demand for services, and a big fat dollop of 'What the heck, we can get away with it!' to create the baseline for next year." And they've been getting away with it for years.

The result of this process is that the starting point for each new federal budget — the baseline, which by bipartisan ruling class consensus represents "no spending increase" — is about 7-8% higher than the previous year's spending. Fiscal year 2011 spending is going to be about $3,800 billion. So, under baseline budgeting, if FY 2012 spending increases only to $4,066 billion, that's no increase at all! "Look how fiscally responsible we are! We held spending to the current level!" 

Of course, a 7% annual increase means the budget will double in 10 years to about $7,600 billion. But the baseline budgeters call that a 10-year spending freeze!

So let's put this "historic" Congressional compromise into perspective. They've agreed to $900 billion in "cuts" over 10 years, and their bipartisan committee is supposed to come up with $1,500 billion more in "cuts" this fall. If they really do (and Obama, Reid, et al, are already clamoring for the $1,500 billion to be mostly "revenue enhancements," i.e., tax increases), then the 2022 budget will be "cut" from its $7,600 billion baseline to a mere $5,200 billion. 

That's a 37% increase over 2011. They call that a massive cut. The establishment, ruling class Republicans are congratulating themselves for this monumental achievement. They're telling the Tea Party that they've won, that they've "changed the terms of the debate" and "turned things around."

Um, no. They've slowed the rate at which we're approaching the apocalypse. They've bought themselves another year or two (and maybe helped Obama buy another term) before the US turns into Greece. They've once again kicked the can down the road. And a significant proportion of the American people — far more than ever before — recognize this deal as the irresponsible charade that it is.

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Bloodbath on Wall Street

Posted by Richard on August 5, 2011

A few minutes before market close, the Dow is down over 450 points (nearly 4%) and the S&P 500 is down 55 points (over 4.25%). 

With apologies to Instapundit: They told us Tea Party people that if we opposed raising the debt ceiling the stock market would plummet … and they were right!

UPDATE: The Dow closed down 512 points (-4.31%) and the S&P 500 was down 60 (-4.78%). The broader Russell 3000 lost over 5%. And this evening comes news that Asian markets are tumbling.

ABC Nightline's Bill Weir had the line of the day: "President Obama picked a hell of a day to turn 50."

"As ye sow, so shall ye reap." 

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It’s the spending, stupid!

Posted by Richard on July 11, 2011

So far, John Boehner is hanging tough on his "no new taxes" pledge. But can we count on him and the GOP establishment to continue to do so? I certainly hope so, but I think it depends on people like you and me keeping the pressure on.

The President is arguing that trillions of dollars in tax increases must be part of a "compromise" solution to the deficit problem, along with a significant bump in the debt ceiling. So he's basically arguing that the government must be allowed to borrow more, tax more, and spend more. That's irresponsible, immoral, and outrageous. 

The Fiscal Year 2007 budget (the last budget before the Democrats took over Congress, and subsequently stopped passing actual budgets at all) was about $2.7 trillion. FY 2011 spending will be about $3.8 trillion, with a deficit of about $1.6 trillion. So about $1.1 trillion of this year's deficit is due to the massive spending increase, and about $0.5 trillion is due to the drop in revenue. 

Or to put it another way, for more than 50 years, with rare exceptions and regardless of tax rates, federal revenue has remained around 17-19% of Gross Domestic Product, and spending has been about 18-20% of GDP (see here for historical data). But the Obama administration (with a kick-start from Bush, when his Treasury secretary, former Goldman Sachs CEO Hank Paulson, threw him into a panic in late 2008) has exploded federal spending to more than 25% of GDP. And he now wants to claim that that's the new normal, and raise revenues to match. 

It will never happen. The 17-19% of GDP revenue number has persisted regardless of whether the top marginal tax rate was 28%, 39%, 50%, or 70%. Contrary to the wishful thinking of the left, tax rates affect people's behavior, and if tax rates go up, they just adjust their affairs to reduce the bite.

Right now, due to the recession, the revenue rate is unusually low, at around 15%. Personally, as a libertarian, I think that's more than enough (the Christian God only asks for 10%). So I signed on to WorldNetDaily's No More Red Ink campaign, which opposes any increase in the debt limit. That wouldn't cause a default or world-wide crisis, as the MSM would have you believe. It would simply require the federal government to reduce expenditures to match its revenues. I think that's a good start. 🙂

But in the spirit of compromise, I'd settle (for now) for this: cut federal spending back to its historical average of 19% of GDP in return for increasing the debt limit by enough to accommodate the difference between that and expected revenue (at current tax rates) for the next two years. As long as it's coupled with a significant roll-back of all the new federal regulations, which (along with the burden of massive federal borrowing) are one of the reasons the economy is so sluggish (and thus revenue is so far below the historical norm). 

So here's what you do, Speaker Boehner: Pass a bill that (1) caps federal spending at 19% of GDP and raises the debt ceiling by however many hundreds of billions that amount is above the projected revenues for FY 2012-2013, and (2) rescinds significant portions of the economy-stifling regulations the Obama administration has enacted in the past 2.5 years. Then dare the Senate to reject it or the President to veto it. Make it clear to both that there is no Plan B — it's a take it or leave it proposition. 

My friends, we can't continue on our current path. And we can't allow federal spending of 25-26% of GDP to become the new "baseline." At a minimum, we have to go back to the historical norm of 18-19% of GDP.

Preferably, we should simply refuse to increase the debt ceiling and force the federal government to cut expenditures to match current revenues (as a first step to fiscal sanity). That's really all that not increasing the debt ceiling does: it imposes a "balanced budget amendment" (which lots of Republicans claim to favor) immediately. No need for a Senate super-majority or ratification by the states. All it takes is for the House of Representatives to not increase the debt ceiling.

I have little hope that the Republicans have enough stones to go that far. But maybe if we keep the pressure on, they'll at least pass a bill along the lines of my compromise proposal. 

Sign onto the No More Red Ink campaign. And go to AFP's to get your free "Cut Spending Now" bumpersticker. Membeship is free, but if you make a donation, you can choose to have the corresponding number of bumperstickers distributed on your behalf or sent to you to distribute. 

I know you've heard this before (and with far less justification), but it really is for the children. And the grandchildren.

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Happy Tax Day?

Posted by Richard on April 19, 2011

Tax Day is an unpleasant event for some of us, irrelevant for many, and a happy occasion for others. Nearly half of all households (45% this year, down from 47% last year) pay no income taxes.

About 40% of households profit from the income tax system. The earned income credit and other "refundable" tax credits far exceed what little they owe in taxes, so the government sends them a check for everything they had withheld and a bunch extra — a Happy Tax Day!

Today, more than a third of what's called "salaries and wages" is actually government transfer payments, a.k.a. handouts. Meanwhile, the more productive members of society are paying a far larger share of income taxes than their share of income. The top 10% of income earners, who receive 45% of the total adjusted gross income, pay 70% of all income taxes.

Still, our Socialist Democrat in Chief and his leftist friends continue to scream "tax the rich!" The Wall Street Journal pointed out what nonsense it is to claim we can put our financial house in order by making the rich pay, in the President's words, "a little more": 

Consider the Internal Revenue Service's income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the "millionaires and billionaires" Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.

If the IRS confiscated 100% of the income of everyone earning more than $100,000 a year, it wouldn't cover the Obama budget. And it's not like you can keep coming back and taking 100% of someone's income year after year. They wise up. 

They can preach class warfare and chant "tax the rich" all they want — the only way to balance the federal budget at today's insanely high level (26% of GDP) is to stick it to the middle class. That's where the bulk of the people are, and thus where the bulk of the money is. 

The Heritage Foundation figured out how much tax rates would have to go up to balance the budget without cutting spending. And they did it assuming there were no other tax law changes, so the relative share of revenue from each tax bracket remained the same:

To collect the additional revenue necessary to close the 2010 deficit, income tax rates would have to have been considerably higher than their current levels. Without altering other aspects of the tax code, if Congress collected the extra revenue by simply hiking each income bracket based on its portion of current tax collections, every tax rate would need to more than double.

For a family of four earning $50,000 that takes the standard deduction, its current tax bill of $766 would increase by almost $4,000. A similar family of four that earned $75,000 a year would see its tax liability of $4,500 increase by over $9,000 a year. If the same family earned $100,000, it would pay more than $15,600 above the $8,800 it actually paid in 2010.

The top rate in this scenario would be 85 percent. A top rate at that level would grind economic activity to a halt. Businesses would stop investing and creating new jobs because the tax-diminished returns would not be worth the risk. Many workers would cut back the hours they spend on the job. The end result would be a poorer nation with a bleaker future.

Today's 10% bracket would jump to 24%, the 15% bracket would become 37%, and the 25% bracket would need to be 61%. I don't know about you, but I'd make sure I never entered that 61% bracket. 

Then, just for grins, Heritage calculated what it would take to balance the budget at today's level if Obama kept his promise of not increasing income taxes on anyone earning under $250,000:

If, instead of raising taxes at all income levels, Congress collected it from just those making $250,000 or more per year, their rates would have to rise to levels that are not even possible. The top two rates would need to rise to 132 percent and 142 percent.

Of course, it is impossible to tax at a rate over 100 percent. Doing so would require confiscating savings, investment, or even other assets. Moreover, as a practical matter, it is impossible to get even close to 100 percent and still raise revenue because businesses, workers, and investors would simply stop producing, working, and investing as the government came close to confiscating almost every additional dollar they earned. Much of their economic activity would be driven underground.

As a practical matter, it's impossible to raise middle-class tax rates to 61% in a country with such widespread gun ownership. And a good thing, too.

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The wheels are coming off

Posted by Richard on April 19, 2011

Herb Stein famously said, "If something cannot go on forever, it will stop." Today, Standard & Poor's sent Washington the message that the borrowing has to stop soon:

The ratings agency Standard & Poor’s warned the United States on Monday that it could lose its coveted status as the world’s most secure economy if lawmakers don’t rein in the nation’s nearly $14.3 trillion debt. 

The finding, the first of its kind in the 60 years that S&P has been judging the country’s credit quality, sent a jolt through the markets and injected a new sense of urgency into the debate gripping Washington over whether to allow the Treasury to keep borrowing.

S&P changed its outlook on the United States from “stable” to “negative” and said the federal government could lose its AAA rating if officials fail to bring spending in line with revenue. 

The negative outlook means that the US might lose its AAA credit rating within the next year or two.

If you think the deficit problem can be solved by taxing the rich a little bit more, please see my previous post

If you think the Chinese, Arabs, and private investors won't let a downgrade dampen their demand for US debt, note that PIMCO, the world's largest bond manager, is now shorting Treasuries — that is, betting that they'll lose value. 

But not to worry! The Federal Reserve is already buying 70% of US Treasury notes with money it creates out of thin air. Geithner can just crank up the printing presses and buy even more. Look how well that worked for Zimbabwe!

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Tons of debt

Posted by Richard on April 16, 2011

The brilliant satirist Iowahawk has created a video that offers a unique perspective on the American government's debt and spending levels. It's at the same time entertaining and quite sobering. Please watch. And hit the Like button at the YouTube link. 

[Iowahawk link]
[YouTube link]

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America’s message to GOP: don’t cave!

Posted by Richard on April 7, 2011

The President’s meeting with John Boehner and Harry Reid ended a short time ago with no agreement, but all three claimed they were getting closer to averting a government shutdown. That concerns me, because if past history is any indication, getting closer to an agreement means the Republicans are giving ground.

Before they indulge in their natural inclination to cave and compromise, I hope Boehner and the GOP leadership take a deep breath and consider some recent poll results. For instance, this Rasmussen poll released Tuesday (emphasis added):

In the ongoing budget-cutting debate in Washington, some congressional Democrats have accused their Republican opponents of being held captive by the Tea Party movement, but voters like the Tea Party more than Congress.

The latest Rasmussen Reports national telephone survey finds that 48% of Likely U.S. Voters say when it comes to the major issues facing the country, their views are closer to the average Tea Party member as opposed to the average member of Congress.  Just 22% say their views are closest to those of the average congressman. Even more (30%) aren’t sure. (To see survey question wording, click here.)

This shows little change from a survey in late March of last year.

Forty-nine percent (49%) of voters think the Tea Party movement is good for the country, consistent with findings since May 2010. Twenty-six percent (26%) disagree and say the grassroots, small government movement is bad for America. Sixteen percent (16%) say neither.

Or this one from last Friday (emphasis added):

A majority of voters are fine with a partial shutdown of the federal government if that’s what it takes to get deeper cuts in federal government spending.

A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters think making deeper spending cuts in the federal budget for 2011 is more important than avoiding a partial government shutdown. Thirty-one percent (31%) disagree and say avoiding a shutdown is more important. Twelve percent (12%) are not sure. (To see survey question wording, click here.)

Or this Fox News poll from today (emphasis added):

American voters would rather shut down the government than raise the debt limit, even though most believe a shutdown would have a dramatic effect on everyday Americans.

A Fox News poll released Wednesday asked voters to imagine being a lawmaker in Washington who had to decide whether to increase the debt ceiling. The poll found 62 percent would vote against raising it — even at the risk of shutting down the government.

About one-in-four voters (26 percent) would raise the limit to allow the government to spend more.

Or this Tarrance Group poll from a couple of days ago (underlines in original):

Voters have turned the corner and have made clear their support for deep cuts to the budget. Nearly three quarters of voters (73%) say it is very important that the budget include “significant” spending cuts.  When it comes to $100 billion in cuts, only 23% say this percentage is too high, while a majority (63%) says $100 billion is too low (34%) or about right (29%). This is virtually unchanged from February, when 21% said $60 billion was too high, and a majority (67%) said the figure was too low (36%) or about right (31%).
Supporting $100 billion in cuts would result in a net positive political impact for members of Congress.  A majority (55%) are more likely to support their member of Congress if he or she supports these cuts, while only 24% are less likely.  This is also similar to February, when 52% were more likely to re-elect their member if he or she supports $61 billion in cuts.…

When presented with three arguments about raising the debt ceiling, less than a quarter of voters most agree with the argument that the debt ceiling needs to be raised in order to avoid things like a shutdown and Social Security checks not being mailed.  In fact, a plurality chooses to NOT raise the debt ceiling at all:

30%:  Some people say that Congress should only raise the debt ceiling if it can also guarantee real, significant spending cuts starting this year.  We will never balance the budget until we drastically cut the amount of money we spend.

22%:  Other people say that Congress must act to raise the debt ceiling regardless of whether it includes spending cuts, or else the United States government will shut down and will default on its obligations, such as not being able to make Social Security checks and salaries for police and teachers.

 42%:  Still other people say that we should NOT raise the debt ceiling even if spending cuts are made because the nation must eliminate the trillion dollar debt we face instead of adding to it.

The message to the GOP leadership is clear. The American people (at least those most likely to vote) have recognized the utter seriousness of this nation’s fiscal crisis and want bold action, even if it involves temporary pain. The Democrats are in complete denial, whistling past the graveyard. If the GOP wants to be taken seriously as the party willing to address our fiscal problems seriously, they must resist the urge to compromise, wheel, and deal. Stand firm for once, you bastards!

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It’s called the stupid party for a reason

Posted by Richard on March 31, 2011

The Republicans have been pushing for $61 billion in spending cuts for FY2011 (significantly less than the $100 billion they promised before the election), and the Democrats have been denouncing even that modest cut as "draconian" and "extreme."

You'd think this would be a challenge the GOP would be eager to take on. If you have even a modicum of communication skills and public relations savvy, how hard can it be to ridicule the absurd argument that cutting $61 billion — 1.6% — out of a budget of $3,700 billion is "draconian" and "extreme"? It barely puts a tiny dent in the $1,600 billion deficit. Do they really fear that the average American can't grasp that point?

Let's put the federal fiscal crisis into comparable (approximate) household numbers that people can relate to: Let's say your household income is about $42,000 ($3500/month). But you're spending about $74,000 ($6167/month). And you're putting the $32,000 difference on your credit cards (on which you already owe over $300,000). Would cutting your spending by less than $100 a month really be "draconian"? Does it even seriously address the terrible financial situation you're in?

To me, this seems like an argument that's a slam-dunk win, especially in the political climate that gave us the Tea Party movement and resulting electoral tsunami of last November. And yet, the Republican leadership seems terrified of taking a hard stand and drawing a line in the sand. According to the Washington Post, they're ready to cave — settling for $30 billion in cuts and giving up on defunding anything — and Dan Mitchell isn't pleased: 

Yesterday, I analyzed how the GOP should fight the budget battle, but I may have made a big mistake. I assumed the Republican leadership actually wanted to do the right thing. I thought they learned the right lessons from the disastrous Bush years, and that the GOP no longer would be handmaidens for big government. And I naively assumed that the Republican leadership would not betray the base and stab the Tea Party in the back.

I thought the GOP leadership would fight and get a decent deal rather than unilaterally surrender. If the Washington Post report is true and Republicans act like the French army, it will discourage the base and cause a rift with the Tea Party. So it’s dumb politics and dumb policy.

And that display of cowardice by House Republican leaders follows on the heels of the report that Senate Republicans are going to agree to support a debt limit increase if the Democrats merely allow a symbolic vote on a balanced budget amendment. No, Democrats don't have to support it — they just have to allow a vote, which the Republicans are guaranteed to lose. A repeat of a vote they've already had (and lost), a vote that they could force by parliamentary means in any case. In other words, they're giving up their biggest leverage in return for … nothing.

Stupid party seems like such a mild and inadequate term.

There are a few shiny gems amidst the steaming pile of cow-flop that is the GOP. Sen. Marco Rubio won't vote for a debt limit increase unless it comes with a whole bunch of serious conditions: 

"Raising America's debt limit is a sign of leadership failure." So said then-Sen. Obama in 2006, when he voted against raising the debt ceiling by less than $800 billion to a new limit of $8.965 trillion. As America's debt now approaches its current $14.29 trillion limit, we are witnessing leadership failure of epic proportions.

I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.

Bravo. Read the whole thing

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A SOTU worth missing

Posted by Richard on January 26, 2011

I'm glad I passed on the SOTU speech last night. Based on Steve's drunkblogging, the WSJ summary, and the commentaries and analyses I've seen, it was well worth passing up. Besides, a good portion of it seems to have been recycled from last year, with some bits from 2009 thrown in, too. 

Is this the second or third year that President Obama has solemnly declared that, like a family, the federal government must live within its means? No matter. It's not what the Prez says, it's what he does. And here's what he does (courtesy of The Captain's Comments): 

 Obama Tripled Deficit

This president has a lot of nerve talking about fiscal responsibility. How fiscally responsible is proposing a dozen or so massive new "investments" while annual deficits are well over $1 trillion? How fiscally responsible is proposing to freeze discretionary spending at its current stratospheric level?

The Republicans are talking about rolling it back to the 2008 level, and even that's far too timid. 

In his response to the SOTU, Sen. Rand Paul said he's introduced a bill to cut spending by $500 billion this year. That's more like it! Take a look: 

[YouTube link]

Check out Rep. Michele Bachmann's SOTU response, too: 

[YouTube link ]


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Deficit reduction chicanery

Posted by Richard on November 11, 2010

The "bipartisan" deficit-reduction commission has released its preliminary plan, and as many suspected, it spares government profligacy and sticks it to the taxpayers. Rush Limbaugh noted that the 50-page report uses the word "tax" 62 times. Americans for Tax Reform said, "The plan ignores every suggestion submitted by ATR President Grover Norquist to the Commission that would have balanced the budget without raising taxes. In fact, the Commission Co-Chairs refuse to acknowledge the role overspending has played in the economic climate, setting spending at the exorbitant FY2010 levels."

Not so, said commission member and Sen. Judd Gregg (RINO-NH): 

Sen. Gregg said that overall, federal spending takes a bigger hit in the plan than taxpayers do. The plan's goal is to reduce federal spending and federal revenues to 21% of gross domestic product. Federal revenues currently are projected to be about 19% of GDP in 2015, and outlays about 23%.

It would seek to achieve the pullbacks through a mix of spending cuts and increasing tax revenues—about 75% in spending reductions and about 25% from the tax side.

So it's 75% spending cuts and 25% tax increases? Three times as much in spending cuts as in tax increases? Really? Mind you, I'm not a math whiz like my friend David, who can do calculations in his head that would take me an hour with a calculator and a textbook. But something seems way off with Sen. Gregg's math.

He says the plan will cut spending from 23% of GDP to 21% of GDP. OK, according to the Commerce Dept., GDP is about $14.7 trillion now, so let's just use that number and get out the calculator.

23% − 21% = 2%
2% × $14730.2 billion = $294.604 billion

So the plan cuts spending by about $295 billion (plus 2% of whatever GDP increase there is). Now lets crunch the revenue increase, where they want to go from 19% to 21% (BTW, in the 70+ years of OMB data, revenues have never been as high as 21% of GDP).

21% − 19% of GDP = 2%
2% × $14730.2 billion = $294.604 billion

Hmm, that number looks familiar… Why, it's the same number by which their plan cuts spending! So, taxes go up about $295 billion, and revenues go up about $295 billion (adjusted upward, in both cases, for GDP growth) — yet, somehow, according to Sen. Gregg, the plan is 75% spending cuts and 25% tax increases! How is that possible? Have they magically discovered vast new sources of revenue that don't involve taxing people?

Of course not. This is the statist scam of counting it as a "spending cut" when they reduce your mortgage interest deduction, charitable deductions, and other so-called "loopholes." Just like the 9th Circuit Court in Wynn v. Garriott, the statists on the commission believe that all your income belongs to the government. So a tax deduction or credit is an "expenditure," and reducing or eliminating a tax deduction or credit — that is, letting you keep less of your money — is a "spending cut."

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Restoring fiscal sanity in New Jersey

Posted by Richard on February 17, 2010

Newly elected New Jersey Governor Chris Christie addressed the legislature last week on the state's budget crisis, and I finally got around to reading the speech*. Wow. It's a humdinger — refreshingly honest, with no punches pulled and no shying away from the tough decisions. Christie quickly made clear just how dire the state's situation is:

New Jersey is in a state of financial crisis. … For the current fiscal year 2010, which has only four and one-half months left to go, the budget we have inherited has a two billion dollar gap. The budget passed less than eight months ago, in June of last year, contained all of the same worn out tricks of the trade that have become common place in Trenton, that have driven our citizens to anger and frustration and our wonderful state to the edge of bankruptcy.

What do I mean exactly? This year’s budget projected 5.1 % growth in sales tax revenue and flat growth in corporate business tax revenues. In June of 2009, was there anyone in New Jersey, other than in the department of treasury, who actually believed any revenues would grow in 2009-2010? With spiraling unemployment heading over 10%, with a financial system in crisis and with consumers petrified to spend, only Trenton treasury officials could certify that kind of growth. In fact, sales tax revenue is not up 5%, it is down 5.5 %; and corporate business tax revenue is not flat, it is down 8%. Any wonder why we are in such big trouble? Any question why the people don’t trust their government anymore and demanded change in November? Today, we must make a pact with each other to end this reckless conduct with the people’s government. Today, we come to terms with the fact that we cannot spend money on everything we want. Today, the days of Alice in Wonderland budgeting in Trenton end.

Our Constitution requires a balanced budget. Our commitment requires us to begin the next fiscal year with a prudent opening balance. Our conscience and common sense require us to fix the problem in a way that does not raise taxes on the most overtaxed citizens in America. Our love for our children requires that we do not shove today’s problems under the rug only to be discovered again tomorrow. Our sense of decency must require that we stop using tricks that will make next year’s budget problem even worse.

Christie cut spending in 375 state programs — practically everything he could legally cut by executive action — in order to close the $2 billion current-year shortfall. Then he took aim on the years to follow and made it clear that biggest problem is an absurdly generous pension and benefit program for the state's unionized workers: 

I am encouraged by the bi-partisan bills filed in the Senate this week to begin pension and benefit reform. … 

These bills must just mark the beginning, not the end, of our conversation and actions on pension and benefit reform. Because make no mistake about it, pensions and benefits are the major driver of our spending increases at all levels of government—state, county, municipal and school board. … 

Let’s tell our citizens the truth—today—right now—about what failing to do strong reforms costs them.

One state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 towards his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits — a total of $3.8m on a $120,000 investment. Is that fair?

A retired teacher paid $62,000 towards her pension and nothing, yes nothing, for full family medical, dental and vision coverage over her entire career. What will we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime. Is it “fair” for all of us and our children to have to pay for this excess?

The total unfunded pension and medical benefit costs are $90 billion. We would have to pay $7 billion per year to make them current. We don’t have that money—you know it and I know it. What has been done to our citizens by offering a pension system we cannot afford and health benefits that are 41% more expensive than the average fortune 500 company’s costs is the truly unfair part of this equation.

New Jersey isn't the only state being sunk by public employee unions and the politicians who buy their votes and support with future taxpayers' money. As Doug Ross pointed out, California, New York, Illinois, and Massachusetts, to name just a few, are in the same leaking boat. And those union workers who think they've got it made now are going to end up all wet.

Herb Stein famously said, "If something can't go on forever, it won't." Retirees collecting more than they ever earned while working, 50-year-olds retiring at 90% of their highest salary (indexed for inflation), employee pension and health plan contributions in the single digits (and declining in some places) while unfunded pension liabilities have grown into the trillions — these things simply can't go on forever. Taxes can't be raised high enough to let this continue. Something's going to have to change, and soon. 

In addition to a more balanced mix of employer and employee contributions and an actuarially sound schedule of benefits, I suggest one simple rule change for all government workers (heck, for everyone with a defined-benefit pension plan): Retire after 30 years if you want, but pension payments don't begin until age 65. If you're only 50, go get another job for the next 15 years (that's what many of them do anyway, collecting both a paycheck and a pension, and eventually getting two pensions). 

* In Firefox 3.5, this website doesn't lay out properly, and some of the text is cut off. It's fine in IE 7. Or you can click Print this page, which opens a new window containing the whole speech. Just cancel the Print dialog and start reading (that trick also saves you a lot of clicking, since otherwise the speech spans 9 rather short pages). 

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