OMB 2011 Long term Outlook - Page ix (Summary)

Today the Office of Management and Budget (OMB) released it's 2011 long term outlook for the United States Federal Budget.  In it we find that according to the accountants and actuaries that the governement depends on to interpret our overall budgetary positioning.  To be fair this is an outlook based on assumptions that are certain to change. 
Following the logic of any governement document you'll note that page ix starts on page 11 which is the Summary of the budget.  Here are some interesting quotes:
"...At the end of 2008 the debt equaled 40% of our gross domestic product (GDP) (a little above the 40 year average of 37%).  Since then the figure has shot upward: by the end of this year the congressional budget office (CBO) projects, federal debt will reach roughly 70% of GDP -- the highest percentage since shortly after World War II..."

"...As the economy continues to recover and the policies adopted to counteract the recession phase out, budget deficits will probably decline markedly in the next few years.  But the budget outlook, for both the coming decade and beyond, is daunting...."

"...baby boom generation portends a significant and sustained increase in the share of the population receiving benefits..."

"...per captita spending for health care is likely to continue to rise faster than spending per person on other goods and services..."

The remainder of page ix explains that their are 2 scenerios that were used to explain what our Long Term scenerio debt picture looks like.

 
As a point of comparison the US national debt was around 120% after the end of World War II.  When put into that perspective debt equivalent to 70% of GDP doesn't sound so bad does it.    This increase in spending in the 1940's is what makes the likes of Paul Krugman and other Keynsian economists believe that we should be spending even more dollars as a government in order to bring our nation out of recession.  Their belief is that while in the early 1940's we spent on wars as a percentage of our GDP we should spend likewise in wars, and spending programs in order to create a positive economic environment.  An interesting argument but begs the question; if the governement is spending the money on social programs, bailouts, what is being produced that will result in a sustained and profitable (prosperous) recovery? 

We will find out - one way or the other. 

Tax Cut + War = Deficit

Tax Cut + War = Deficit

This subject line on an email greeted me this morning from my friends at MoveOn.org.  It really bothers me.  Not because I am a "hawk" and am very satisfied with the status of our offensives in the Middle east.   (I'm not.)  Not because it makes a very powerful argument.  (It does.) What really bothers me is the presupposition that one is required to make in order to agree that it is true.  Now, if they had said, "Medicare+War+Funding female Jello wrestling in Antarctica= Deficit".  Alright.  Or I'm even OK with "Food stamps + Shrimp on a Treadmill Studies + War =   Deficit".  But please, please, please...if you're interested in Truth, stop telling us that Tax Cuts are a COST to government.   

That statement is wrong on so many levels.  To hold that view presupposes that the government owns all of our money -- all of it -- and simply allows us to keep a certain amount of it.  It presumes that anything that it "gives back" to us "costs" it something.  That is the only assumption that can be made if allowing us to keep what we think is our hard earned money "costs" the government something.  This is why so many people from the right and, to a lessor extent, the independent side of the political spectrum think that our President leans toward socialism.    

The only way to assume a tax cut a cost, is if you start from the view point that all resources are owned by the government.  Then, anything that you give to people becomes a "cost".  Only then can you can say that a Tax Cut "costs" the government something.  However, understand the importance of personal property and John Locke's argument of ownership: that we own our production and the results of that productivity.  This is ownership.  If you agree then you will also agree that the government takes from what "we the people" own.  It takes for many reasons, some of which are well intentioned and some reasons of which are necessary.  I'm OK with that...in balance.  To live in a free, (relatively) just society, it is good for the federal government to take funds to assure certain things are accomplished.  That must be balanced however, with the idea that government does not have the authority, much less the obligation to borrow beyond our ability to repay, in order to provide these services.  And we are dangerously close to that position in 2011.  When you cut taxes on the means (owners) of production, productivity increases.  When productivity increases, taxes increase: even if the tax rate goes down!  It's a proven fact with which even President Obama apparently agrees.    

Recall the debate between then Senator Obama and Hillary Clinton that Charlie Gibson moderated?  This was the Gibson debate that was "fair" according to the pundits.  Senator Obama tells in so many words that he doesn't really want to raise taxes because it will increase our revenues in the Treasury (Apparently he knows that it won't.)  He wants to raise taxes out of "fairness".

GIBSON:  You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent.

Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair.

Breath taking.  He wants to raise taxes, not because it will increase revenue in the treasury which we desperately need, but because it's not "fair" that other people get to make lots of money.  Is it fair that the money that is taken from the wealthy can no longer be invested in assets that will require people to run (jobs) and new business for people to own? (jobs)  Is it fair that we are actually going to have less money in the treasury to pay our bills because the government would rather play to some intellectual notion of fairness? The reality that the President and Charlies Gibson agreed upon is that revenue in the government treasury GROWS when taxes are lower.  It's not fair to raise taxes, when lower taxes improve all of our lives. 

This is what brings us back to our original notion. Barack Obama and his  wing of the Democratic Party (and yes, some Republicans) want to control as much of our assets as they can, even if it is counterproductive to increasing our revenues.  Plans in place are well on their way to a maximum tax rate over 60%.  This isn't imaginative, congress works on this as we speak.  These tax rates rival the rates of the Jimmy Carter era.    Is it any wonder that one might suspect that it's not really about fairness - that contradiction smacks of control.  Controlling as much of the assets and dollars as possible and giving to "each according to his need".  Thereby explaining why MoveOn considers a tax cut - a "cost".

War + A whole host of Other things we Can't Afford = Deficit. 

Our permanent Unemployment

The Washington Post today spent some time discussing whether our system of unemployment has become a welfare system.  The longest can receive 99 weeks of unemployment compensation.  Let's just say that you are no week 85 of unemployment.  85 weeks of looking for work.  In that time youhave had countless interviews, a couple of rejections based on "better" fit...and a whole host of companies that simply change their mind about hiring.  Would you be here to complain about unemployment compensation?  Or argue against it?  Even as you diligently sit each day looking for what will hopefully the next opportunity that pays you "what you're worth" I wonder about what would be so wrong with "under-employment"?  Inconvenient, for sure.    If there weren't the unemployment compensation system, wouldn't you be under-employed right now?  You are a hard worker.  You are generally competent. On the face of it you'd rather work than not work.  But there is this problem.  You have a home, a family of 4, rent of one form or another to pay and mouths to feed.  Under the government system that we have in the United States here is what is available.  $388 per week in unemployment compensation,  $688 per month for food and medical care that is pretty good.  Let's put a monetary value upon it of $300 per month.  (Even though it would probably be closer to $800.)  Let's see what this means.  This translates into almost $36,000 a year for an individual to remain unemployed.  (OK, you do the math.)

Now this assistance, while we can all appreciated in the sense that there might be something, rather than nothing coming in, has unintended consequences.  This assistance creates an artificial floor under which it does not make economic sense for one to take employment.  That is if you come from working  within organizations where target compensation is over $150,000 annually, why settle for a 30,000 "reset". 

So, under what circumstances does it make sense for this individual, since he's "...worth $150k..." according to the market, to take a position for say $40,000?  After this individual has begged, borrowed and pleaded with creditors, family, friends, his savings account and is now struggling to keep the bills paid, does it make sense for him to take a job for $40k when the elusive 6 figure job is just around the economic bend?  How does this guy communicate to his wife that he is going to take this position?  Of course, faithful always, she knows that his six figure job is just around the bend.  Why 40k?  Take taxes and health care out of that and he can make the same amount of money by sitting home and looking for something more. 

Will he ever find it?  In this economy, we may never know. 

Road Map toward sustaining our American Way

The congressman to the 1st district in Wisconsin - my congressional district - has offered a plan that by all counts should be taken seriously.  Ryan, a quiet guy, rarely seeming to peek his head into the media glare much less the stratosphere that get's ideas on the table - has thought long and hard about the threat to our future.  Will anyone address the plan with seriousness or will it be criticized with hyperbole?  Hopefully this can be a start toward sanity as it relates to our spending.  We shall see.  This post from The American Mind seems to cover it well. 

By Sean Hackbarth
Today at the Conservative Bloggers Briefing Rep. Paul Ryan (R-WI) talked to us about his “roadmap” that addresses out-of-control spending, entitlement reform, and tax reform in a comprehensive way. He told us the federal government is on a path to taking 40 cents out of every dollar just to pay for all programs. Echoing Fred Thompson during his Presidential run he said that path is unsustainable. It’s a “stagnant path.”


Ryan proposes health care reform with a $2500 refundable tax credit ($5000 for families) to empower people to shop around for the best health insurance value they can find. It would also make health insurance portable no longer forcing people to stay in jobs simply because of the company’s health plan.

Ryan’s plan would establish price data and quality transparency so consumers can make better insurance choices. Ryan also wants Medical Savings Accounts expanded.

For Medicaid users Ryan proposes high-risk pools and letting states have plenty of flexibility in finding their own solutions. For Medicare users 55 and older nothing would change. For those under 55 when they become Medicare-eligible they would receive a base payment of $9500. That payment would be means tested and risk-adjusted.

Like with Medicare, those 55 and older would see no changes to their Social Security. Those under 55 would have the choice to invest a third of their SS contributions into a fund like the Thrift Savings Plan. Individuals would have property rights to these personal accounts allowing them to pass them onto their children after they die. Changes in the growth of SS’s initial benefits along with increasing the retirement age would make the program solvent.

Ryan’s ideas on tax reform appear to be the most controversial especially in a Democratically-controlled Congress. Ryan would ax taxing capital gains, interest, and dividends. To further encourage economic growth the corporate income tax would be replaced with a “border-adjustable business consumption tax” of 8.5%. The Alternative Minimum Tax would go away along with the death tax. As for income taxes Ryan proposes giving Americans an option. They can either stick with the current, complex, bloated tax code or choose to file using a tax return the size of a postcard with two tax rates: 10% and 25%.

Ryan told us government actuaries and analysts have run the numbers for his plan. They would make both Social Security and Medicare solvent while keeping federal taxes to 18.5% of GDP.

I asked Rep. Ryan how his plan can be sold during an economic downturn and increased economic anxiety. Ryan mentioned he lived near the Janesville, WI GM that will be closing. He understands the hard times many Americans are going through with a slowed economy and increased global competition. He said his comprehensive plan that includes fiscal along with tax reform can reward companies for staying in the U.S. Transforming the corporate income tax into a “border-adjustable business consumption tax” will make U.S. companies more competitive and encourage foreign firms to move to the U.S.

The legislation has been written, and the numbers have been crunched (assuming the vagueness of peering so far into the future). All that’s needed are ways to sell the plan. Ryan understands something so comprehensive will need bipartisan support. He told us he took ideas from Democrats and is talking with some (unnamed) to get their support.

The plan is bold. Bob Novak says it’s broader than Kemp-Roth. He also thinks Sen. McCain should seriously look at it to inject some policy excitement into his campaign. Maybe McCain could get Ryan’s roadmap into the national debate.