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Tags: Fiscal Armageddon

What To Do After the Election



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A challenge to the Class of 2010:

The Brits cut spending.

The Romanians cut spending.

Spain cut spending.

The Czechs cut spending.

The Irish cut spending.

South Africa is cutting its deficit.

Even the French are cutting some spending.

Who’s not cutting the deficit?

Mexico’s deficit probably will get bigger: 0.5 percent of GDP, rather than 0.3 percent. Our deficit is bigger than Mexico’s entire economy.

Greece’s deficit is getting bigger. Who wants to be Greece?

And there there is us.

Obama’s deficit panel does not seem to be packing the gear to get the job done: It has focused mostly on tax increases, in the form of eliminating tax breaks such as the mortgage-interest deduction and the use of pre-tax dollars to pay for health-insurance benefits. As Vero has argued persuasively, the problem is not really revenue, it’s spending. I’m no fan of the mortgage-interest deduction, which distorts the housing market, and there’s probably a good case to be made on the pre-tax health-insurance spending — but neither of those measures is going to do a lot of good unless it is part of an overall rationalization of the U.S. tax system, which is a national disgrace. GAO estimates of the efficiency costs of our tax code — meaning the economic loss our tax regime imposes on the economy above and beyond the revenue collected by Uncle — run as high as 5 percent of GDP, i.e., roughly the cost of all U.S. national-defense spending combined. Federal tax-compliance costs alone run 1 percent of GDP. That is insanely wasteful.

We aren’t going to close the gap by working on the unholy trinity of “waste, fraud, and abuse.” By all means, cut waste, fraud, and abuse — but that isn’t enough. NPR and foreign aid? Sure, but that’s chickenfeed. Until you start tackling the hard stuff — which means entitlements and defense spending, among other things — you aren’t getting serious.

Here are some things to do:

First, reduce the federal head-count, even if that means paying a few federal employees higher salaries than we’d like. (Yes, first.) The nasty long-term costs are in benefits and pensions: Here’s the tradeoff: We don’t cut the bureaucrats’ pay, or cut it all that much, but we have a lot fewer of them, and we don’t put as much up for health-care and pension costs. This works even better at the state and local levels, where bureaucrats’ pensions tend to be defined-benefit plans rather than defined-contribution plans.

Second, see if Sarkozy will lend Republicans the necessary gear to raise the Social Security retirement age and start means-testing all of the major entitlements. How severely should we means-test? Enough to put them on a stable financial footing without a payroll-tax hike. Enough to remind people that they are welfare programs, not a retirement plan. Enough to make replacing them with private retirement plans, private disability insurance, and the like in a decade or two more palatable. You want to head off Fiscal Armageddon, then the total government payroll, its pension obligations, and the major entitlements are the place to start.

Third, just savage the hell out of discretionary spending. That’s the fun part, and Republicans  should enjoy themselves. It’s also a chance for Republicans to reclaim their party’s reforming soul and throw some of their own favorites on the fire — farm subsidies, the scam that is the Small Business Administration, etc. I like the idea of butchering one Democratic sacred cow and one Republican sacred cow in pairs: two by two they go down — public broadcasting and farm subsidies, Amtrak and foreign-military financing.

Fourth, straighten out the tax system, preferably with a broad-based single-rate tax. The level of taxation ultimately will be set by the level of spending, but there’s plenty of room for improvement in the tax code. If Congress got really ambitious about putting a flat tax on all income — salaries, dividends, capital gains, inheritances, whatever — then there’s no reason to maintain a special carried-interest carve-out for the Wall Street weasels who funded the Obama campaign. (Hey, just sayin’.) That wouldn’t be terrible politics, and it would add tens of billions to tax revenues, too. Democrats will whine that it’s regressive. Republicans should respond that under a flat tax a guy who makes $200,000 a year pays twice as much as a guy who makes $100,000 a year, who pays twice as much as a guy who makes $50,000 a year. That’s progressive enough, and it’s a winnable debate.

And we’d save ourselves a lot of tax-compliance expenditures, lawyers’ fees, and grief by taxing all income at the same level. You know who was a fan of taxing capital gains at the same rate as ordinary income? The Reagan administration. Not a bad idea.

Fifth, develop a better plan for defense spending. Unlike practically everything else in government, fiscal considerations should take a back seat when it comes to national security — but not too far in the back. We need to fundamentally rethink our military priorities and our commitments around the world — rediscovering what is really essential to our national interest — and then redirect spending accordingly. A return to pre-2000 military spending seems to me a reasonable goal, and it is possible that further reductions are possible.

Also, a little politics: Step 1 (fewer bureaucrats) plus Step 4 (everybody pays the same tax rate) means a smaller permanent constituency for Big Government and Big Spending.

I’m not married to any of this. Got a better idea? Let me know in the comments.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Republicans

Your Tax Dollars at Work



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A very nice catch from J. P. Freire at the D.C. Examiner: Treasury is looking for FOIA help — to frustrate FOIA filers, specifically somebody schooled in the:

“Use of FOIA/PA exemptions to withhold information from release to the public.

What are they up to over at Treasury?

Tags: Debt , Despair , Fiscal Armageddon , General Shenanigans , Government Jobs

News Flash: Inflation Is on the Way



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Uncle Stupid is dumping $109 billion in new debt on the bond market this week. This week alone, taxpaying chumps. And everybody has his eye on the new issue of inflation-protected bonds, which hit the market at 1 p.m. today. And what an interesting development it is:

The government bond market this week will also have to contend with $109 billion in new debt. Auctions kick off at 1 p.m. Monday with a $10 billion sale of five-year Treasury Inflation-Protected Securities. The notes are likely to be auctioned at a negative yield, the first ever negative yield for the issue. TIPS yields have declined as buyers have stepped into the market on the belief that more QE could stoke inflation down the road. TIPS return real yield plus inflation, and provide protection from rising prices.

Inflation fears are now sufficient that investors are prepared to take a less-than-zero yield on government bonds, calculating that the inflation bonus will be more profitable than the next-to-nothing yields everything else is paying in our present loosey-goosey cheap-money environment. Inflation is a cruel and rapacious tax on the people who make the economy go — savers, who provide the capital for real investment. With an economy in dire need of a lot of new saving and investment, Washington is getting ready to put the screws to the people best positioned to help turn us around. To what end? More dubious stimulus? Fiscal stimulus is not working and monetary-policy stimulus is not working, because the problem is not lack of consumer appetite. The problem is a broken banking system, a trillion dollars or more in dead or devalued capital, and a national commitment to sustaining the ragged remains of the real-estate bubble that helped to cause this mess.

That sound you hear? That is the sound of future generations cursing us for the tax we are levying on them today.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Bonds , Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans , Inflation

Obama’s Tax Cut for Rich Oil Companies



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Tom Vilsack, secretary of agriculture, came out Thursday with an announcement sure to warm the cockles of progressive hearts all across the fruited plains: The Obama administration backs the indefinite extension of massive tax cuts for multinational oil corporations and protectionist trade measures to enrich U.S. corporate giants such as Archer Daniels Midland, Monsanto, and ConAgra.

Ethanol: Is there anything it can’t do? It won’t save the environment, slow global warming, or achieve the phantom of U.S. “energy independence,” but it has made the Obama administration come out in favor of tax cuts for the rich and politically connected oil companies. It’s sort of magical that way.

Critics of the massive corporate-welfare program known as U.S. ethanol policy have jokingly referred to Archer Daniels Midland as the “Exxon of ethanol.” But you know who the real Exxon of ethanol is? Exxon. Just as BP gets subsidized to the tune of some $600 million a year through the ethanol tax credit, Exxon and the other oil giants collect millions of dollars in taxpayer subsidies: 45 cents for every gallon of ethanol they blend into their gasoline. “It’s not just a reduction in somebody’s tax rate — it’s an actual check that’s made out to these oil companies,” says Marlo Lewis, who keeps an eye on ethanol shenanigans for the Competitive Enterprise Institute. “They get a check from the general fund of the Treasury — from us, the taxpayers.”

It’s a big stack of money, to be sure, but even Exxon does not think the program is a great idea. Exxon would just as soon forgo the subsidy, provided that its competitors didn’t collect it, either.

So, if even the suits at Big Oil are a little bit ashamed of a program that dumps hundreds of millions of dollars a year into their lap, who is in favor? “It’s the makers and the corn growers who are screaming that we have to keep doing this,” Mr. Lewis says. Only the blenders actually receive the refund checks, but corn growers and ethanol processors benefit because the demand for their products increases.

Vilsack said Thursday that the administration is in favor of a temporary and “fiscally responsible” continuation of the ethanol tax credit and the associated tariffs that keep cheaper, sugarcane-based ethanol off the market in the United States. When pressed by a reporter to define “temporary,” Vilsack demurred. When pressed by the same reporter to define “fiscally responsible,” he again declined to answer. Meaning: status quo ad infinitum. Vilsack, as Mr. Lewis points out, has been talking that same temporary-and-fiscally-responsible jive since he was a governor. (Either that, or he literally does not know what “fiscally responsible” means, which is possible.)

Two bills were floated in the last Congress to extend the tax credit and the tariff: one introduced by Sen. Chuck Grassley and one introduced by Rep. Earl Pomeroy. Neither made much progress. The danger is that while those bills have foundered, their essential provisions — extending the tariff and the tax credit — could be sneaked into a tax or energy bill during the lame-duck session. Look for some green-jobs camouflage to be attached to it, but keep in mind: If it quacks like corporate welfare, it’s corporate welfare.

But this is federal spending we’re talking about, so it could always be worse. “The good news,” Mr. Lewis says, “is that Vilsack did not call for a Marshall Plan for biofuels or a Manhattan Project for biofuels. And that’s what the ethanol lobby has been pushing for.” There’s a split in the ethanol lobby at the moment, with one camp focused on protecting the current basket of goodies and another arguing for a massive new federally subsidized infrastructure project, with 200,000 new ethanol pumps serving up E85, a sprawling new pipeline system to keep those pumps pumping, and a mandate that automakers deliver 120 million flex-fuel vehicles a year to the U.S. market. That’s not on the agenda — for now.

Keep ethanol in mind when Obama, Al Gore, and the Wall Street guys who are positioned to benefit from “green energy” programs talk about “temporary” measures to protect a fledgling start-up industry. The day never comes when these industries can stand on their own — because they never were economically viable in the first place. They’re selling a product nobody wants at a price nobody wants to pay. “We’re still waiting for Godot here,” Mr. Lewis says. “Ethanol will always be an ‘infant industry,’ no matter how big it gets. The U.S. industry is the biggest in the world by far — twice as big as Brazil’s. If it had to compete, it might actually become innovative. But it’s easier to have entitlements.”

The Obama administration is dead-set on raising the taxes of thousands of small-business owners, the so-called rich who benefited from the Bush tax cuts. And, at the same time, his administration is arguing for a massive tax cut for some of the most profitable multinational corporations in the world, some of which don’t even want it. Which is what you get when a president brought to you by Goldman Sachs promises to take on the fat cats.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Corporate Welfare , Debt , Deficits , Democrats , Despair , Ethanol , Fiscal Armageddon , General Shenanigans

The State Pension Implosion: A Chronology



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Business Insider checks in with Prof. Joshua Ruah, Exchequer’s favorite source for data on state-government pension shenanigans, and draws up a list of which states are going down in what order. My only beef with this analysis is that I think it relies on assumptions about investment returns that are slightly over-rosy, meaning that the pensions funds are liable to go toes-up sooner than projected.

No. 1 on the list is perennial fiscal offender and Obama career incubator Illinois, followed by Connecticut (no surprise), Indiana (uh, governor?), New Jersey (uh, governor?), Hawaii, Louisiana (uh, governor?), Oklahoma, Colorado, Kansas, Kentucky, and New Hampshire.

I count three states with Republican governors who are positioned to be national bigwigs and possible presidential contenders. The legislatures, of course, are the real problem, but state bankruptcy can be a real career-ender for a governor.

I like Hawaii’s odds: Surely there is some way to leverage the unquenchable interest in Barack Obama’s birth certificate and make some money. You know, a kook tax. As for the rest of these states — it looks grim. They cannot tax their way into solvency (the expenses are simply too heavy), they cannot borrow, and many of them, including Illinois, are constitutionally forbidden to reduce pension payments.

I think the odds are slightly better than even that we’re looking at a $1 trillion plus federal bailout of the state pension systems.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Pensions , Unions

Britain Cuts Its Military Budget -- Should We?



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So David Cameron wants Barack Obama to know that Britain is still America’s “wingman,” as he put it. The reassurance was necessitated by Cameron’s announcement that the United Kingdom will be cutting its military budget by about 8 percent — a steep but endurable reduction in defense outlays.

Among the items lost to the budgeteers’ scalpel: MHS Ark Royal, the flagship of the Royal Navy, and the fleet of Harriers attached to it. The new, downsized British military would not be able to carry off its current supporting role in Iraq.

Some wingman: one who reduces his beer budget by 8 percent but assures you he’ll still be available to go out on the weekends — just so long as you buy an extra round. It is frustrating, to be sure, but we Americans really have no one to blame but ourselves: With our monster military budget, it is only natural that the nations residing safe (if occasionally resentful — we’re lookin’ at you, Canada) under our abundantly fortified security umbrella should choose military spending as the first target of opportunity when it comes to budget reductions. There are upsides to America’s overgrown national-security apparatus, to be sure, but the downsides, in addition to the walloping direct expense of the thing, is the indirect expense: Our over-large military is a shadow subsidy for the over-large welfare states of Europe, Canada, and our other allies around the world, including their protectionist corporate-welfare measures. American military protection helps to make South Korea, Germany, and Japan more effective global competitors — and also forces the United States to carry most of the political baggage for looking out after the West’s security interests around the world.

Why do we do this? Mostly because we regret what happened the last time we left the Europeans in charge of anything more consequential than Nokia.

Hypothetical: What happens if Atlas shrugs off his global military commitments? What if the United States decides that we’ve got Hitler and Stalin whipped and do not need all those troops in Germany? What if we decide that it’s too expensive to send American soldiers to do sentry duty just as easily performed by landmines in South Korea? (Seriously, I doubt the Norks could afford to buy enough diesel to get their army to the DMZ, much less to invade a civilized country like the Republic of Korea.) What if we take the Okinawans at their word that they want us out, and we get the hell out?

I do not pretend to be ready to analyze the military implications of a general (if minor) retrenchment of the global military presence of the United States. But it seems to me that it would carry with it some distinct political benefits — and save us a hell of a lot of money. If we followed Britain’s lead and reduced military spending by 8 percent, that’s $67 billion a year off the deficit, or . . . 4.7 percent off of the 2011 deficit, estimated to hit $1.4 trillion.

Okay, so tell your peacenik friends: Pentagon cuts won’t balance the budget. In fact, our deficit currently is running at about twice the size of the entire national-security budget. Trimming the military will do the Brits’ balance sheet a world of good — and will cost them very little other than a piece of their already diminished national self-respect — so why not? But it is going to take more radical moves to bring the American fiscal house into order.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Debt , Defense Spending , Deficits , Despair , Europeans , Fiscal Armageddon

David Limbaugh, contra VAT



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Over at Ricochet, David Limbaugh has a wise response to my post yesterday on Grover Norquist, VATs, Mitch Daniels, etc.

While I am a supply sider I agree that we should not allow our exuberance for pro-growth tax policies to intoxicate us into believing that spending doesn’t matter. While some starry-eyed supply-siders might have been irresponsibly negligent in their inattention to the spending side of the equation, it’s not fair or accurate to place all supply-siders in that quasi-utopian category. It’s a false choice. That is, there is nothing inconsistent between supply-side advocacy and relative spending austerity. That’s the best of both worlds. But an insidious VAT tax might be the worst of all worlds.

Praise to David Limbaugh for striking the right balance on the supply-side question: growth matters, spending matters. For the record, I do not think all supply-siders are crazy utopians: not Laffer, not Reagan, not Kemp. That is why I use the term “naïve supply siders” to distinguish those dealing in unreality.

I myself am more of a flat-income-tax guy than a VAT guy, though Andrew Stuttaford argues that we’d have to make the flat rate so high to make the numbers work out, even with some pretty ambitious spending cuts, that it would not fly. (He also thinks that consumption should carry some of the load.) I’m going to do the arithmetic on it here in a bit and see what it adds up to. I doubt very much that anything will cause me to conclude that the current system is defensible, wise, just, or the best way to fund the level of government spending that Americans seem (inexplicably!) to want.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans , Republicans , Taxes

San Diego Is America in Miniature



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The City of San Diego has an enormous deficit for a city its size — $73 million — and on Monday held a town-hall meeting to discuss it. The city went through all the usual steps, which are: 1. threatening to cut police and fire services first, as though there were no other opportunities for savings; 2. demanding a tax increase. (Do read the story here.)

Being a masochist, I took a peek at the City of San Diego’s budget. Here’s an example of the austerity under which poor San Diegan municipal authorities labor: The Office of the Mayor and COO in FY2010 made due with a mere $551,681 in compensation for its employees. In FY2011, that figure will increase by $115,911, to a total of $667,592. Here’s the kicker: The department has only three employees, meaning that each is compensated to the mean tune of $222,530 and change.

But, hey, a mayor-and-COO’s office with only three employees? A tight ship! That’s not too bad, right? Wrong: The mayor’s staff is part of another department, the Department of Community and Legislative Services, which for budget purposes is lumped in with the Commission for Arts and Culture (because, God knows, no city can get by without one of those). That’s another 46 employees, at an average total cost of $123,913. And there’s an assistant COO’s office with 116 employees at $100,000 a copy.

And non-personnel spending has climbed significantly: The city’s cost for “special consulting services,” whatever that means, climbed by nearly $1 million this year. The city hadn’t budgeted any additional money for increased costs of administering its property taxes, but spent nearly $5 million. Why should property-tax collection be getting more expensive? San Diegans might want to know. (Bear in mind: Lots of non-personnel spending probably ends up being in truth personnel spending, too, as it does in most cities: Certain benefits and retirees’ costs often are separated. It is not clear from San Diego’s budget statement whether that is the case here.)

One city councilman has a nose for what really drives city budgets, and demanded to know how taxpayers could be sure that a tax hike would actually go to funding police and fire services, rather than toward selling the already bloated pension-benefits system for city retirees:

City Councilmember Carl DeMaio called the proposition a “blank check tax increase.”  He said if passed, the revenue raised from Prop D [the tax increase bill] may not end up going to police and fire.

“Where we do know the money has been going is the city’s pension system to pay outlandish and unsustainable payouts for retired city employees,” DeMaio told NBCSanDiego.

Answer: Take our word for it.

And the city’s retirement system is one big kahuna indeed, a $43 million-a-year beast requiring 62 employees at an average cost of $113,000 each to administer it. Interestingly, the biggest chunk of its budget, more than $33 million, is dedicated to something simply described as “contracts.” Whether those are contracts to pay out retirement benefits or something else is not clear. A little detail, people! It’s $33 million!

Notice none of this even touches on the police and fire departments. I’ve seen a lot of city budgets in my life, and I’ve rarely seen a police or fire department that could not be trimmed. But there’s a lot of administrative fat in our cities, counties, states, school districts, and federal government. We are not going to balance the aggregate of the nation’s governmental books with cuts directed toward the usual cowardly trio of “waste, fraud, and abuse,” but there is a lot of waste, fraud, and abuse that can be cut, and a whole parasite class of political hacks in lifetime sinecures with fat benefits and pensions who need to be encouraged to find productive work.  

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Cities , Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans

Grover Norquist Is Living in Candyland



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So it turns out that the cure for “epistemic closure” is great quantities of crystal meth. The things you learn from Grover Norquist.

In case you missed it, Norquist came down like a runaway gravel truck on Indiana governor Mitch Daniels, a favorite around these parts. Governor Daniels’s offense was declaring himself open to the possibility that a value-added tax might be an acceptable part of a wide-ranging reform of the federal tax system. Norquist replied, in a Politico interview:

“This is outside the bounds of acceptable modern Republican thought, and it is only the zone of extremely left-wing Democrats who publicly talk about those things because all Democrats pretending to be moderates wouldn’t touch it with a 10-foot poll. Absent some explanation, such as large quantities of crystal meth, this is disqualifying. This is beyond the pale.”

Here’s the problem: The deficit is, by my always-suspect English-major math, about 36.3 percent of federal spending ($1.29 trillion deficit out of $3.55 trillion spending). For comparison: Defense accounts for about 18 percent of federal spending. So you could cut out the entire national-security budget, and another Pentagon-sized chunk of non-military spending, and not quite close that deficit. You could cut the Pentagon to $0.00 and eliminate Social Security entirely and just barely get there.

Even great heaping quantities of crystal meth would not be enough to convince me that is going to happen.

Don’t get me wrong: In a perfect world, Exchequer would love to see the budget balanced and some tax cuts enabled through spending reductions alone. Exchequer would also like to be dating Marisa Miller, driving a Morgan Aero, and running a four-minute mile,  developments that are about as plausible as Congress’s cutting 36.3 percent of federal spending. Not going to happen.

So, our choices are this: 1. Hold out for the best-case scenario, in which a newly elected Speaker Boehner gives President Obama the complete works of Milton Friedman and everybody agrees to cutting federal spending by more than a third. 2. Keep running deficits and piling up debt. 3. Raise taxes. My preferences, in order, go: 1,  3, 2. And No. 2 is not really acceptable.

Like it or not, taxes are going up: If not today, then in the near future. Even once the deficit is under control, that debt is still going to have to be paid down, lest debt service alone overwhelm the federal budget, necessitating even more tax hikes. If Grover Norquist thinks there’s a tax-free way out of this mess that is both politically and economically realistic, he is living in a fantasy. There’s an old joke that goes: Neurotics build castles in the sky; psychotics live in them. And Grover Norquist seeks tax protection for them.

Norquist’s outfit, Americans for Tax Reform, does a lot of good things. (And so has Grover Norquist, over the years.) But here’s how it describes itself:

Americans for Tax Reform (ATR) opposes all tax increases as a matter of principle.

That’s not a campaign against Big Government — it’s a campaign against math. As ye spend, so shall ye tax. Denying that is not a principle — it’s a tantrum. ATR’s pledge reads:

“I _____ pledge to the taxpayers of the __________ district, of the state of __________, and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes.”

And here is how it should read:

“I _____ pledge to the taxpayers of the __________ district, of the state of __________, and to all the people of this state, that I will oppose and vote against any and all efforts to increase spending.”

Spending is the issue, not taxes. Spending is the virus, taxes are the symptom. Norquistism, by focusing on the taxing side of the ledger rather than on the spending side, has for decades enabled Republican spending shenanigans of the sort that helped put the party in the minority and ruined its reputation for fiscal sobriety; it is of a piece with naïve supply-siderism. The Bush-era deficits, and the subsequent discrediting of Republicans’ fiscal conservatism, are the product.

Give me the grown-up despair of Mitch Daniels any day over the happy-talk daydream that says we’re getting out of this mess without  paying for it.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Mitch Daniels , Republicans , Taxes

Put that Helicopter in Reverse, Mr. Chairman



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I suspect that, given a fighting chance and full political immunity, the Obama-Reid-Pelosi (ORP) machine would like to try some more fiscal stimulus. ORP rarely encounters a spending measure it does not like (except for a few military ones, from time to time). But the Elected Powers that Be are terrified, at the moment, of touching anything that smells like Stimulus VI. So they are making a hand-off to the Unelected Powers that Be, who are more than willing to run with that ball. Helicopter Ben laid it out this morning:

Treasurys are mixed after Federal Reserve Chairman Ben Bernanke said the central bank was ready to buy bonds to boost the economy.

In a speech Friday morning, Bernanke said the Fed has yet to figure out how the bond purchases would be paced. The effort would be aimed at lowering interest rates to stimulate spending and prevent prices from falling.

Exactly how much more of this does Chairman Ben intend to try? We’ve already had a 13-figure spending campaign for stimulus, and umpteen  rounds of “quantitative easing,” i.e. slowly debasing our money in the hopes that people will want to be quickly rid of their devalued dollars, thereby stimulating economic activity. (When you put it like that . . . ) To what end? Growth and jobs are a joke, and low interest rates have only encouraged government to borrow and spend even more recklessly than it usually does, sinking money into projects of negligible real economic value. We just basically set a $1 trillion pile of money on fire and roasted marshmallows over the flames. That is why Nancy Pelosi is about to become the first female ex-speaker of the House.

Bernanke is a scholar of the Great Depression, and he sees that inflation is currently at about  0.8 percent, which is basically nothing in the Fed’s view, and he fears the deflationary spiral above all things. That fear may be overblown, or at least in need of qualification. Deflation is a real risk, to be sure, but so is unexpected inflation. In fact, we’ve already had inflation, properly understood: Inflation is not a general rise in prices; inflation is an increase in the money supply (an inflation of the money supply) which often makes itself felt through higher general prices — but not always. Asset bubbles (dot-bomb, housing, etc.) are a particularly noxious expression of inflation. Since we are teetering on the precipice of Mortgage Meltdown 2.0, as $1 trillion or so in mortgage-backed securities are at risk of unraveling or experiencing radical revaluations, lots of money is looking for snug harbor. Meaning Treasuries.

The flight to U.S. government debt has enabled Washington to borrow tons of money (literally, tons: Put the Obama deficits in hundred-dollar bills stacked on pallets, and you’re talking tons and tons and tons of money) on easy terms at low, low interest rates. Big debt, easy terms, low rates, for now –  sound familiar? Welcome to subprime government. And just as the housing market came crashing down when interest rates inched up and all those variable-rate mortgages began to reset, the fact is that the world is not going to be in a financial crisis forever, and U.S. government debt is not always going to enjoy the implicit subsidy that comes from being the world’s safe haven in troubled financial times. When your balance sheet starts to look more Greek than Japanese, the market is going to start demanding Greek rates (about 10 percent, at the moment) to finance your fiscal shenanigans. And that is what Fiscal Armageddon means: The bills are due, the cupboard is bare, and all the money in the world won’t save you, even if you could borrow it, which you can’t.

So here’s a contrarian take: The Fed should stop trying to drive down interest rates. It should instead work to raise them. Why? Our economy needs savings and investment — but why save when interest rates are effectively zero? And where can funds for investment be had if not from savings? Answer: from borrowing — and more debt the last thing American businesses, American households, or American government needs right now. Interest rates are going to go up eventually, anyway, so we may as well get started now in order to avoid an especially disruptive transition when the time comes. Higher interest rates would encourage savings, encourage investment, discourage wanton borrowing, and help rebuild  the value of the dollar. Sure, we’d lose the value of the allegedly stimulative effects of zero interest rates — and a lot of good they’ve been doing us so far: 10 percent unemployment, growth that is as dynamic as molasses in February.

The United States should start acting like a dollar is worth something if it expects a dollar to be worth something. Otherwise, to borrow from a wise man, we are left with Barack Obama as the devalued head of a devalued government.

Tags: Debt , Deficits , Deflation , Despair , Fiscal Armageddon , General Shenanigans , Inflation , Stimulus

New York: ‘Impossible’ Budget Cuts Now Possible



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The story of budgetary politics: The necessary is the impossible, until it isn’t — then the impossible is the only alternative.

In the case of the state of New York, the impossible is the billions of dollars in spending cuts that Carl Paladino wants to make in the state,  which, among other excesses, spends 40 percent more per government-school student than the national average. Can the impossible be done? Governor Paterson has some unusually insightful words:

“Everybody talks about what they’re going to do when they get into the executive branch, then when they get there the Legislature shuts them down,” said Governor David Paterson, 56, a Democrat and 20-year senator who isn’t on the Nov. 2 ballot.

In politics, the impossible is what you do when the money runs out.

Tags: Debt , Deficits , Fiscal Armageddon , Politics , States

Cutting Food Stamps



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A thought to add to today’s editorial on Michelle Obama’s child-nutrition program, which has stalled in the House because it would be funded, in part, by cuts to the food-stamp program. I’m no fan of the welfare state, but food stamps are not at the top of my list of things to cut. (Hey, vouchers work! I wonder to what other areas of government spending we might apply that model?) Cutting basic food stamps in order to put more tofu on cafeteria trays in the suburbs doesn’t seem like the right thing to do.

To their credit, 106 Democrats in the House protested this move in a letter to Speaker Pelosi; to their discredit, each and every one of those 106 Democrats already had voted for a bill that cut not $2 billion but $12 billion from the same food-stamp program to support a bailout for spendthrift public schools and relieve pressure for reducing spending on teachers’ and administrators’ salaries and lavish benefits. Which is to say: House Democrats are unwilling to raid the pantries of food-stamp recipients to put more kale in the Pleasantville cafeteria, but they are willing to take bread from the mouths of the poor to fatten an already overfed public-school bureaucracy.

People who still believe, against all evidence, that the Democrats are the party dedicated to looking after the interests of the poor should keep Mrs. Obama in mind.

Tags: Debt , Despair , Fiscal Armageddon , Michelle Obama , Spending , Welfare

I See a Field Trip in Exchequer’s Future



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Welcome to the U.S. Bureau of Public Debt. The fact that our liabilities are piling up in a hideous institutional cube in Robert Byrd territory seems eminently appropriate to me:

Also: Looking for a $60,000-$80,000-a-year job with great benefits? Guess who’s hiring? Somebody has to keep the printers running!

Tags: Architecture Criticism , Debt , Despair , Field Trips , Fiscal Armageddon , Unemployment

European Central Banks Halt Gold Sales



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70 Percent: The Myth of the Consumer Economy



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Thomas Aquinas warned against homo unius libri — the “man of one book.” Harvard president Edward Everett followed that up, warning against “not only to the man of one book, but also to the man of one idea, in whom the sense of proportion is lacking, and who sees only that for which he looks.”

God defend us from man of one datum, particularly if that man is an economist, and particularly if the datum is wrong.

Exhibit A is the constantly repeated but entirely untrue statement that consumer spending represents 70 percent of the U.S. economy, and that it is therefore imperative that we give consumers some stimulus, in the form of tax rebates, more generous unemployment checks, or cocaine-monkey research grants, in order to put some schmundo in Joe Consumer’s hip pocket, the better for him to carry that seven-tenths of the economy he allegedly holds upon his shoulders like some debt-ridden Atlas chained to Mount Wal-Mart, his liver pecked by a winged and deathless Visa bill.

Who is guilty of repeating this? My occasional sparring partner Robert Reich, for one, who recently sent my head spinning all the way around by writing: “The problem is consumers, who are 70 percent of the economy. They can’t and won’t buy.” This is a problem, Reich argued, because Americans need to be driven further into debt: “Without consumers, businesses have no reason to borrow more. Except to speculate by buying back their own stock and doing mergers and acquisitions, which is exactly what they’re doing.”

The New York Times repeated the same idea in Sunday’s editorial denouncing the Republicans’ new Pledge. The Times’ editorialists probably heard it from Robert Reich, and they framed their argument similarly: “The pledge asserts that letting the high-end tax cuts expire would kill job creation. With the economy weak, letting all the tax cuts expire would be a big hit to consumer spending and, by extension, job growth. But richer Americans tend to save, not spend, their tax cuts.”

Reuters repeats this canard. Martin Crutsinger, the clueless economy reporter for the Associated Press, publishes it all the time. Fareed Zakaria and Pauly K. sing from this hymnal. Practically everybody saying the stimulus should have been bigger (and, for those of you outside New York and Washington: yes, such creatures walk among us) cites that datum.

It is not true.

As Michael Mandel documents copiously in his Bloomberg Businessweek column, what government statistics call “consumer spending” is not — get this! — consumer spending. Most of it isn’t, anyway. Lots of that so-called consumer spending is in fact government spending; Medicare and Medicaid, for instance, are lumped in there, as is most health-care spending, which amounts to, oh, $2 trillion a year, which might tend to throw the consumer-spending numbers off a bit. Health-care spending isn’t really driven by consumers (which is why our health-care market is so messed up, incidentally!), but by insurance companies, government, and other non-consumer enterprises. Something on the order of 15 percent of health-care spending actually comes out of consumers’ pockets. Chickenfeed, in the vulgate.

All sorts of other stuff is dumped into that category: the money spent by nonprofits, for instance, along with political parties and campaigns. Never mind, for the moment, that a big chunk of that actual consumer spending goes to things like clothes and electronics and shoes made abroad (and the consumption of which therefore has little direct impact on domestic economic activity), the truth is that consumer spending, in reality, represents less than half of U.S. economic activity, probably around 40 percent.

That’s a specific kind of error to make. But let’s take a step back from the specific to the categorical: Whatever fraction of our economy is represented by household consumption, 100 percent of our economy — and every economy — is represented by production. We cannot consume that which has not been produced. Consumption is not really the problem: People like to consume. Americans consume eagerly, even to excess. In fact, when the economy is good, these same liberal scolds fretting at present about our momentarily lean consumption will lecture us about the evils of over-consumption, which makes Americans obesely face-stuffing SUV-ridden despoilers of pristine rainforests and Makes Them Hate Us, etc.

The problem of economic policy is not getting people to consume. It is getting them to produce. You can train a monkey to consume. (In fact, he requires no training, especially once you get him coked up on the taxpayers’ dime.) Americans are extraordinarily productive people, but our economy has taken a hit because we have a couple of trillion dollars’ worth of capital locked up in dead real estate, dead securities, and the swelling sovereign debt upon which our pet Leviathan battens. If you have a trillion dollars locked up in residential real estate that still is over-valued — its inflated price being sustained by hook and by crook by the geniuses in Washington — that capital can’t be put to real productive uses. (Also, people who could otherwise buy or rent cheap real estate will be paying too much for housing, taking yet more potentially productive capital out of the markets.)

It’s worth revisiting the sage words of the New York Times and its horror of the fact that “richer Americans tend to save, not spend, their tax cuts.” But jobs don’t come from consumption; jobs come from production. People have jobs because they make useful things and provide useful services, which people want, in any event (but not at any price). You want people to produce, you need capital. You need investments.

And you know where investment capital comes from? Savings, geniuses. Real savings, i.e. the savings that come from consuming less than you produce. Reich, the Times, Krugman, and every stimulus-happy pundit on the Democratic side of the aisle is arguing for an economic policy specifically and particularly designed to discourage saving and discourage investment, while encouraging consumption and encouraging borrowing. That’s the ultimate in magical thinking: We’ll just borrow another few trillion dollars and consume our way out of what ails us! You want fries with that?

I’ve got some bad news for you, Sunshine, some ancient and unalterable and inescapable bad news: As ye sow, so shall ye reap. We’re presently sowing jack, and the Obama administration, the Pelosi-Reid Congress, the Krugmans and Reichs of the world are working hard to make sure that we sow even less. Real prosperity only comes from real productivity, which means real savings and real investment. Everything else is a Beltway full-employment program for social engineers, unicorn wranglers, and fairie-dust sprinklers.

I might point out that Robert Reich was secretary of labor, is presently a chancellor’s professor at Berkeley’s Goldman School of Public Policy, is a former Harvard professor, and a former Brandeis professor, and apparently does not know what is in the U.S. Bureau of Economic Analysis data. But he wants a government composed of wise men such as himself to spend your money on your behalf, because you are too stupid to invest it yourself. Hell, a rube like you — you might even save it, much to the horror of the New York Times.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans , Paul Krugman , Robert Reich

The Entitlement Bubble: The Bust Is Going to Be a Nightmare



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In the course of arguing that our real national debt is around $130 trillion — as opposed to the official number of $14.7 trillion — I have frequently encountered the argument that I’m wrong to include unfunded entitlement liabilities in the total. Here’s a typical example from the comments to this post:

Kevin Williamson, expected spending 75 years in the future, based on current policies and projects that are certain to change anyway, is NOT debt. No amount of calling it “debt” or calling it “our REAL debt” changes that fact. Project funding gaps are not debt. DEBT is debt.

About that, a few things.

The first and most obvious thing is that in much of the real world, liabilities of that type are defined as debt, as your favorite corporate accountant will tell you. One of the reasons that American companies started filing all those unhappy financial restatements after the passage of Obamacare was that they had a whole lot of new, measurable, real-world financial liabilities, and they are obliged to include those in their disclosures. As one of our commentators answered the above criticism:

Many promises to pay are categorized as debt according to GAAP and accounting body authorities. If government were required to report like public companies a lot of the promises would show as debt. So if you don’t believe that GAAP correctly classifies debt and that the thousands of SEC filings are wrong it’s your prerogative, but you’d better keep your day job and not become a CPA or one responsible to produce SEC financials.

Maybe you object to the word “debt,” but it’s still $100 trillion or so on the wrong side of the balance sheet.

But there is a more important reason to worry about the entitlement shortfall. To understand it, it’s helpful to take a look back at the housing meltdown and its effect on the current economy. While it is true that a shocking number of homeowners currently are upside down on their mortgages, it’s also true that a lot of homeowners experienced only “paper losses” — they bought houses for $100,000, saw the value rise to $200,000, and then watched as it fell back down to $100,000 (to take a simplified example). People often pretend that these paper losses are meaningless: If the money never hit your checking account, the argument goes, you haven’t really lost anything. (And it’s not just households; I recently heard the same argument made about the Harvard endowment fund and its “pretend losses.”)

Here’s the problem: Those “paper losses” were preceded by “paper profits,” meaning people thought that they had an extra $100,000 in assets, and they made consumption, borrowing, investment, saving, and working decisions accordingly. The simplest illustration: Your $100,000 house, which is paid for, has gone up to $200,000 on the market at the top of the bubble. If you took out a $50,000 home-equity loan against 100 percent equity in your (at the time) $200,000 house, you still had $150,000 of equity, no mortgage, $50,000 in cash, and a $50,000 equity loan to pay off. If the market value of your house crashes back to $100,000, you still have no mortgage, $50,000 in cash, and a $50,000 loan to pay off, and the same house; you haven’t really lost anything (other than opportunity cost), since the house is still worth what you paid for it; and you only make your paper losses real if you sell the house while the market is down.

But anybody who thinks your financial situation hasn’t changed is nuts. Your equity debt has gone from 25 percent of the value of your house to 50 percent. Your credit profile has changed. Any other debts have just become significantly larger relative to the value of your biggest asset. (And your other assets, like your 401(k), probably are not in great shape, either.)

Whatever you’d planned to do with that $50,000, you probably are going to think twice about doing. If it was straight-up consumption, you’ll probably forgo the bass boat and pay back your loan. If it was for home improvements, why sink another $50,000 into a house that’s worth half of what it was, making a $150,000 investment in a $100,000 house? Your economic decisions will change.

But it’s not just you. The bigger problem — bigger because it’s harder to solve — is that somebody was planning to sell you that bass boat and those home improvements. You can buy one bass boat, but the guy at Bob’s Bass Boats doesn’t manufacture them one at a time. He’s counting on selling hundreds or thousands of bass boats to guys like you (that is, guys who are cashing in some of the gains from their residential real-estate investments). The suppliers and contractors and workers who stock and run Bob’s factory, the container ships that bring components from around the world, the people who service them — the whole system gets thrown into disarray. The capital Bob invested in factory tooling and whatnot is lost or radically devalued, and he has to make new investments to create whatever products he is going to sell in the new economic environment, e.g., less-fancy bass boats, or maybe paddle boats. (Or, if the Democrats continue to spend us into penury, those little inflatable floaty things for your arms.) The Austrian economists call that problem “malinvestment” — capital has been dedicated to uses that appeared productive but are not actually viable — and they blame them for recessions.

The problem with the business cycle under this analysis, you’ll notice, is not the bust — it’s the boom. That’s when the bad investment decisions are made, largely because political influence in the markets (housing policy, tax breaks, artificially cheap money and other interest-rate subsidies, risk subsidies, etc.) distorts economic calculation.

Which brings us back to the entitlements. It’s easy to say: Well, we’ll just raise the retirement age, or cut benefits, or means-test them, or raise taxes on the wealthy who receive them (which amounts to means-testing, but Democrats like that version better). And, yes, that probably is what we will do, eventually. But that does not get us out of the economic pickle: People have been making decisions for years and years — decisions about saving, investing, consuming, working, and retiring — based at least in some part on what are almost certainly faulty assumptions about what sort of Social Security, Medicare, and other benefits they will receive when they retire. When those disappear, a lot of consumption is going to have to be forgone — and a lot of capital dedicated to producing those goods and services for consumption will be massively devalued. Businesses will have to retrench, probably in a way that is more disruptive and more expensive than the housing-bubble recession necessitated.

This is the boom. The bust is going to be a nightmare.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Angst , Debt , Deficits , Despair , Entitlements , Fiscal Armageddon , Gloom , Spending

The Young Guns vs. the Deficit



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The “Young Guns” — Paul Ryan, Eric Cantor, and Kevin McCarthy — paid National Review a visit today, and they give every sign of being serious about the deficit: no nonsense about relying on cutting earmarks, waste, or redundancy to get the deficit down and the budget under control. I put the two questions to them that normally trip up alleged budget hawks: Entitlement reform? Yes, absolutely, they are serious about entitlement reform. Take a look at defense spending? Yes, everything is on the table.

Ryan, who has been one of the few sane voices on the debt for some time now, says he expects the new crop of Republicans expected to be sworn in come January to be a rowdy bunch, with little respect for the seniority system or traditional congressional politics. Cantor, too, made it clear that he knows they are in for a long-term fight — no magic-bullet solutions were under consideration. McCarthy was the surprise for me, though — I did not know much about him and was impressed by his command of the data, relating both to politics and policy.

I have been, and remain, skeptical of congressional Republicans’ ability to head off Fiscal Armageddon; the political incentives are all wrong, and it probably will take a major economic crisis to realign those incentives. But I am a little less skeptical today than I was yesterday — maybe 5 percent less. I think there is a non-trivial chance that non-entitlement spending could be scaled back to 2008 levels — not exactly raging austerity, but a start; combined with sane entitlement reform and tax reform, that could get us several steps back from the ledge we’re on. Something good seems to be afoot among Republicans.

Here’s what to worry about: Chances are, the economy is still going to stink in January 2011. It may be worse then than it is today — and it is possible that it will be significantly worse. Ryan is worried about the dollar, and he is right to be. If things get really hideous economically, then there is going to be tremendous political pressure on the GOP to do the dumb thing that Republicans always do: cut the taxes and let the spending grow. That could happen. We can’t let it.

And young guns eventually become old bulls — restoring fiscal sanity in our country is going to be a decade(s?)-long project, and one fresh class of hotheaded congressmen, welcome as it would be, is not going to do it alone.

Tags: Debt , Deficits , Entitlements , Fiscal Armageddon , Republicans

The Infrastructure Bank Is the FDA Is Fannie Is Lehman Bros.



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The New Republic on the “wildly important” infrastructure bank proposal:

A well-designed infrastructure bank’s benefits could go even farther, says [Brookings infrastructure expert Emilia] Istrate. “The current type of investment is … more like spreading peanut butter,” she says. “It’s not really based on strategic economic criteria.” She argues that, assuming the bank is truly independent and decisions are actually made by experts, it will lead to a projects being selected “based on a cost-benefit analysis,” and their “national and regional importance.”

That’s how the system’s supposed to work now, isn’t it? Well, yes, but that hasn’t been how things have actually turned out in Congress. Remember the infamous “bridge to nowhere” we almost funded or the even more senseless “road to nowhere” that got built with some of the money that had been intended for the bridge? They were a result of the appropriations process and pork-barrel politics run amok, not any kind of reasonable economic analysis.

A national infrastructure bank would, in theory, mean less money spent on these projects—and more spent on investments that actually make the country productive. Even Republicans can get behind that idea. Or so you would think.

About that, two thoughts:

First: Another way of saying this is: The bank will work better the more robustly and pitilessly undemocratic it is. The problem with the appropriations process is that it is too democratic, dominated, as it is, by the House, our most democratic organ of government. I do not disagree with that analysis. In fact, I’d like to extend that line of thinking to all sorts of other sectors of economic and national life, too: Really, why should the gentleman-scholars in Congress be making decisions about energy policy, what kind of jobs Americans should have, how we manage schools, the agriculture markets . . . management of banks, hedge funds, health insurance? If Alexander C. Hart of The New Republic believes that it is best to keep democracy’s grubby paws off of infrastructure decisions — and I’m with you, Hart! — why not these other areas as well?

Second: “Assuming the bank is truly independent and decisions are actually made by experts . . . .” Who wants to place a bet on whether that happens? How much of your own money, as opposed to the taxpayers’ money, would you wager on that being the outcome? And what if it isn’t? The SEC and Fannie and Freddie and the Fed and the banks and the hedge funds and the REITs and such were just chock flippin’ full of experts — including a lot of highly paid genius quants in the private sector — which did what, exactly, for the housing/CDO bubble? (Don’t worry, I’ll wait. Cue Jeopardy! theme: What is absolutely nothing, Alex?)

The FDA is full of experts who make extraordinarily stupid and destructive decisions on a regular basis. They don’t do it because they’re bad people or because they are being corrupted by corporate money or because they are closet Maoist revolutionaries. They do it because you cannot repeal the fatal conceit. Is there any reason — a single one — that makes us think that the infrastructure bank experts will be immune to the defects that plague experts on Wall Street, experts in Washington, experts in the federal agencies, experts in the states, the experts to which Congress has all the access it could possibly desire?

The answer to this question is not: In the ideal world, things work out ideally.

If only there were a process by which economic decisions could be made on economic criteria, by the parties with the most knowledge about the questions at hand and the strongest incentives to seek rational financial outcomes. What might such a process look like? Somebody should write a book about that. (Or, at least, a book about the opposite.)

Tags: Barack Obama , Debt , Deficits , Fatal Conceit , Fiscal Armageddon , General Shenanigans , Hayek

Our Debt Is More Than All the Money in the World



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Just a reminder: We are in trouble.

I have argued that the real national debt is about $130 trillion. Let’s say I’m being pessimistic. Forbes, in a 2008 article, came up with a lower number: $70 trillion. Let’s say the sunny optimists at Forbes got it right and I got it wrong.

For perspective: At the time that 2008 article was written, the entire supply of money in the world (“broad money,” i.e., global M3, meaning cash, consumer-account deposits, checkable accounts, CDs, long-term deposits, travelers’ checks, money-market funds, the whole enchilada) was estimated to be just under $60 trillion. Which is to say: The optimistic view is that our outstanding obligations amount to more than all of the money in the world.

Global GDP in 2008? Also about $60 trillion. Meaning that the optimistic view is that our federal obligations outpace the entire annual economic output of human civilization.

So, John Boehner wants to roll spending back to where it was in the last year of the Bush administration. Okay, great. Nice start.

Now, what else have you got?

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Gloom

Obamaism Eats Itself



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Rep. Gerry E. Connolly, a Northern Virginia Democrat facing a tough re-election challenge, has come out against letting the Bush tax cuts expire — even for the top brackets. This puts him right up in the teeth of the Obama administration and Nancy Pelosi. Why would a Democrat resist ORP’s (ORP = Obama-Reid-Pelosi) soak-the-rich agenda? Have a look at Connolly’s district: Fairfax County, part of the vast, soulless suburbs of Washington, D.C., is pretty high-income.

As our Battleground blogger Andrew Stiles reports today, the average household income in Connolly’s district is more than $100,000 a year. And there are a lot of families with incomes over $200,000 a year and over $250,000 a year. In Washington, it’s not that hard to end up with a family income over  $250,000 a year: Mr. $130,000 Bureaucrat  marries Miss  $130,000 Bureaucrat, and they join the ranks of “the rich.”

And under Obama, official Washington is getting a lot richer, with average federal compensation packages now worth about $120,000 a year — more than twice the going rate in the private sector. And it’s not just high salaries, pensions, and generous benefits: It’s private-sector-level bonuses, too:

Under the Obama administration, the government is doing such a good job that it’s decided to reward itself. Last year, Uncle Sam paid out $408 million in bonuses to 1.3 million federal workers, according to the Asbury Park Press, which obtained the information through a Freedom of Information Act request. That’s about $80 million more than the previous year. About one in four federal workers received a bonus, and awards ranged from $25 to, in the case of one lucky State Department worker, $94,500. . . .

Federal bonuses are being doled out liberally, even as federal salaries are exploding. From December 2007 through June 2009, the number of federal workers earning six figures increased from 14 to 19 percent. In 2008, average federal compensation, including pay and benefits, was $119,982 — considerably more than the $59,909 average in the private sector, according to the Commerce Department’s Bureau of Economic Analysis. In the midst of a brutal economic downturn that saw millions of jobs lost and unemployment soar above 10 percent, the Office of Personnel Management data shows the federal workforce actually added nearly 100,000 jobs from December 2008 to December 2009.

This is how Obamaism eats itself: Fattening the federal workers who are his natural constituency, Obama has helped to create a lobby for tax breaks for “the rich,” now defined as those who earn about the same income as a married couple consisting  of two federal middle managers. Federal workers already receive a big piece of their compensation tax free (through extraordinarily generous benefits that are not taxed as income) and they are not eager to pay the taxes that fund their own inflated salaries and those of their colleagues. Taxes are for you serfs in the private sector, and Rep. Connolly  is one Democrat who can be counted on to defend the tax preferences of the new ruling class in the Washington suburbs.

Tags: Debt , Deficits , Democrats , Despair , Fiscal Armageddon , General Shenanigans , Taxes

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