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Wednesday, July 27, 2011

ok, wait a minute

Coming back to the government's job in a moment...
Boehner and Reid are touting plans that each call for about $1 Trillion/$2 Trillion or so in cuts over 10 years from discretionary spending, "cleaning up waste" and, for the Democrats, savings from pulling out of Iraq and Afghanistan. But no revenue changes.

1) In 10 years, who will in office in Washington DC? Right! We don't know.  But, whoever is in office is not bound to any deals made now, so that part of any plan falls under wishful thinking.

2) These proposals mean that about $100 Billion a year is cut from spending on the discretionary part of the budget, lowering it from oh, lets say $650 billion to $550 billion. (The Democrat's plan has a snowball's chance in hell in the House--the goal of the GOP is embarrass the President into not getting re-elected, so they won't consider it, thus rendering his party's plan moot.) Let's pretend for a moment that the prices of the various goods and services paid for by the US government won't change over 10 years (yeah right...but ok, just for kicks there's no inflation either...) So $100 billion will come off of the $1.2 Trillion budget shortfall. So we'll put that $100 billion toward reducing our $14 Trillion dollar gross national debt? Maybe we should all send them our pennies too, and help them pay that down quicker!

3) Social Security and the other Mandatory spending items will be reduced through streamlining Medicaid.  Aaaannnnd Social Security will continue to rise as more and more of our population ages.  Wanna bet that this increase in expenditures will off-set the mysterious waste that will be taken care of by these plans?

4) And hello, Democrats, are you actually foolish enough to imagine that in the next 10 years the US military will only be deployed here at home, that the US will not involve itself in any foreign conflicts, and we will magically be at peace, thus lowering our $680 Billion dollar defense commitment?  Get a grip!

5) All the while, no new revenues will be raised, meaning that unless the American public magically begins to earn higher wages from the imaginary jobs that are being created, we will continue to see a collection of around $2 Trillion in revenue...which will remain lower than spending levels under the best of circumstances.

6) All the while, our current examples of government incompetence is already resulting in lower confidence in the US to fix these problems.  This means that fewer investors will want to buy US bonds. Which means that interest rates on those bonds will need to be raised to make them more enticing to investors.  Which means that the US government will have to pay more money in interest payments to bond holders, which means that this portion of the budget rises...

Man, sure looks like that $100 billion a year (hell, even $200 Billion a year if we want to pretend that the Dems plan will get passed) will really fix the problems we have with the levels of national debt, won't it? Good work, you bunch of monkeys wearing suits....

Saturday, July 23, 2011

role of government part one

First of all a warm welcome to Smokey and Snickers to the family...Nice to have new energy around the home...
So the question I have rattling around in my brain is this: What exactly do we expect to get from our government?  What are we "owed" as participants in our social contract? what can our government do for us?
'Twould seem to be an easy question to answer.  Humans initially/naturally existed in a state of anarchy--no controlling authority.  There was nothing imposing order on their behavior toward one another.  Over time, as people switched to an agrarian way of living (as opposed to hunting and gathering their way through life) this anarchical society proved to be problematic.  Food being stolen means the grower can't eat.  So the choice is to spend all of one's time defending food from predators (which keeps the grower from growing and harvesting) or he can attempt to grow enough to feed predators enough to leave him alone, or he can organize with other growers to defend as a group.  I suppose he could also try reasoning with the predators and bring them around to his way of thinking...but I doubt that would work well...  So organizing together led to the first societies, which led to the first agreements on laws/rules and norms.
So at the core, we expect a government to impose laws/norms that have been commonly agreed to by the citizens, on those who might be less willing to follow them, while at the same time, arranging to protect those citizens from people outside the state who might not agree about the laws either.  So a government must arrange for a system of laws, a means to enforce those laws, a means to modify those laws, and some type of military to defend the nation.
That's the basis for government as we know it.  Now obviously it has evolved since then.
During the Enlightenment, the movement was to overthrow absolute monarchs, and return the power of governance to the general citizenship (though not everyone was a citizen, nor were they all enfranchised if they were), and they were pretty P.Od about the abuses that the monarchs had heaped upon them, so they wanted government to do more.  Laws were no longer just to protect property and life, but to protect abstract concepts like human and civil rights.  These were, at the time, largely contained to freedoms that the average American recognizes: Speech, Assembly, Press, Worship.  At the same time, they deepened laws of protection of property to include ideas like: a fair trial, facing accusers, the vague notions of innocent until proven guilty, and notions of due process leading to punishments that were neither cruel nor unusual.  Welcome to the Constitution.
As a backlash against the depredations of the absolute monarchs, this was very effective, and the goals are easily understandable as to why they were so necessary for the new governments of places like the US to hold on to its legitimacy.
This then evolves into a notion of a welfare state after the Civil War, and I'll see about that next post...

Friday, July 15, 2011

The death of the Republican Party?

So let's see if I've got this straight:

House Speaker John Boehner (Agent Orange) and Obama worked out a "Grand Plan" that called for $4 Trillion in cuts over 10 years, and tax increases on oil companies, corporations, and the top 2% of wage earners in this country.  Boehner took the plan to the House, and the freshmen members of his party said "no deal." So he backed off.  The Speaker of the House doesn't have the ability to line up his party members in the House.  So he has no power.

Senator Mitch McConnell (the Cowardly Lion), minority leader of the Senate, has come up with a plan that essentially says that the Congress will hand over its authority to regulate the financial debts of the USA (A prerogative clearly delineated in the Constitution, Article I, section 8) to the President of the United States, so Republicans can go back to their constituents and say: "We didn't raise the debt limit."  Apparently because he doesn't believe that he can get his party members to line up in support of another deal.  So the minority leader of the Senate has no power to influence his members. And he's willing to remove a constitutional prerogative from the entire legislature rather than do something politically unpopular/risky/dangerous.  Coward. He has a six year term precisely to insulate him from this pressure so that he can do what is right, rather than what is popular.

House Majority leader, Congressman Eric Cantor, rapidly emerging as the "Dr No." of all of this, appears to believe that the freshmen representatives in the House have a better view of how budgets should be balanced.  Thus, he is blowing up the spot of the Speaker, arguing disrespectfully with the President, and is generally pitching a fit about not getting his way.  The idea he is advancing is basically shrinking government to the point of non-existence, while cutting taxes, and thus not needing to raise the debt ceiling. He apparently forgets that the Articles of Confederation failed precisely because it could not generate revenue, and the US nearly defaulted on its debt to France and Holland. Thus, the consensus for the last 200 years has been to have a strong federal government, funded by the citizens...

Meanwhile, the Republican candidates are advancing all kinds of different plans ranging from Michelle Bachman's "only pay the soldiers" debacle to Romney's carefully defined plan that does and says nothing...

I don't think the GOP has been this fractured since TR became a Bull Moose.

Unmentioned by the press are the divisions in the Democratic Party over the issues of cuts to the entitlement programs.  It seems that despite their other faults, Nancy Pelosi and Harry Reid are smart enough to stay out of the spotlight with their party's disfunction while the Republican "leadership" proves that they are actually not leaders at all, but are squabbling high school students.  Still, when the vote happens, it will be interesting to see who in the Democratic Party does what...

I wonder when/if the GOP upperclassmen are going to start laying some hurt on the Freshmen for speaking out of turn...The Tea Party doesn't have a lock on the Republican population, either in terms of ideology or in terms of numbers, so their strangle-hold on policy-making leaves me baffled.  Never thought I'd say this, but the party of Reagan needs to return to their roots and be fiscally responsible, not held hostage to an ideological fringe of their party.  Or they could self-destruct and we'll see a total retrenchment of the nation's conservative wing.

Meanwhile, I'm gonna invest in gold...

Sunday, July 10, 2011

Budget numbers--Taxes!

As stated in the previous post, the government spent $3.4Trillion, and took in $2.2Trillion in revenue, leaving a $1.2Trillion gap.  So let's look at the revenue side, shall we?

Of the $2.2Trillion, the vast majority of it came from personal income taxes and social insurance taxes (Social Security and Medicare taxes) 42% from the former and 40% from the latter. (Again, I'm using the Congressional Budget Office's figures here.) So US citizens paid out of their pockets $1.8 Trillion in taxes in 2010.  Corporations' paid taxes too; about 9% of government revenues came from corporations, or $198 Billion, and the remaining 9% came from "Other sources," and I'm not sure what that is/where that comes from...I'm assuming capital gains tax and inheritance taxes among others...

(As a side note, that means that Social Insurance programs took in about $880 Billion, but spent $1.4 Trillion...there's $400 Billion of our budget deficit right there...)

The CBO website has a fascinating graph that is part of a presentation made by Douglas Elmendorf, Director of the CBO which you can see here.  I'll convert one of the graphs to a chart for reference here. (So actual numbers are the product of eyeballing the graph...there may be some +/-...)

Quintile                                  Tax rate, % 1989                 %1999                   % 2007        
Highest                                           25+                                  27                           25
Fourth                                             20                                    20                        17/18
Middle                                            17                                    16                           15
Second                                            14                                    13                        12/11
First (lowest)                                   8                                      6                             4

So a few things I take from this. 1) There is a difference in terms of income levels and the rate of taxation, and personally I find that appropriate. The graph doesn't say what the cut-off levels are for quintiles, and I'm curious about that. 2) Revenues have averaged 18% of GDP since 1971 (but with no real trend), and dropped to 15% in 2007.  Our expenditures have steadily risen in that period, and jumped massively in 2006/7 and beyond.

Common sense would indicate that returning tax rates to their 1999 levels would be a smart move to make as a way to increase revenues and help to resolve the budget deficit.  Or a compromise would be to return half-way to the 1999 level, so a 1 or 2% increase in taxation rates for each quintile, which would spread the pain around somewhat.  Either generates needed revenue! This is looking solely at the numbers, and indeed, is a statement that doesn't take the current recession into account. It would also hit the lowest quintile the hardest, and I'm not sure that that would be a socially responsible thing to do.  Maybe the highest two quintiles go back to 1999 fully, the lower goes to the halfway point...

Given that there appears to be a linkage in joblessness and taxation rates in the minds of Dim Tim and his Republican cohort, is there a correlation between the two? According to http://www.miseryindex.us (which pulled its numbers from the US Department of Labor), in 1989 the unemployment rate stood at 5.26%. By the end of George H.W. Bush's term it was 7.49%. Under Clinton it dropped to 3.97% by 2000. Under Bush II it climbed to 5.99% in 2003, bounced a bit until hitting 5.79% in Bush II's last year. Under Obama, it skyrocketed to 9.2% in his first year, and last year sat at 9.6%. (And yes, I'm well aware that there are all kinds of problems with how we calculate unemployment statistics.  It doesn't matter here; any adjustment made causes all numbers to rise, so the trends remain the same...)

Democrats and Republicans can make whatever arguments that they want to about which party did what.  BUT, if you overlay the above information about tax rates on top of unemployment rates, it seems that a strong argument could be made that there is not a real linkage between the two.  We'd need a larger data set to really show causality.  However, I feel comfortable in saying that by implementing the Bush II tax cuts, Congress apparently did not make a difference in the creation of jobs; indeed, jobs continued to be lost as taxes went down and stayed down.

Moreover, corporations are sitting on massive amounts of profit (according to the New York Times, 3rd Quarter profits sat at $1.6Trillion) yet yearly revenues of $168Billion (indicated above) is less than a 10% taxation rate, a far cry from the posted 35% corporate tax rate.  As corporations are getting by with such low taxes and aren't hiring workers, it would appear that an argument can be made that there is no linkage between lower taxes and higher employment rates.  If that 3rd quarter alone were taxed at 35%, that would generate about $560 Billion in revenue, which would go a long way toward closing the budget deficit without sacrificing spending...(And yes, I'm aware that all those profits are not made in America, so there are some problems with how to determine what to tax.  Still, there be money to be made in them thar hills...)

Perhaps a deal could be offered.  The government will agree to a) declare profits to be the corporate equivalent of income, not capital gains, and b) lower the 35% rate to the highest individual quintile's tax rate if, and only if, corporations hire American workers.  Those who create jobs become eligible for the lower rate.  Those that don't, stay at 35%.  And I'm only talking about the Multi-National Corporations, I'm not talking about small business owners making below the $250,000 profit levels.  Leave them alone.

So the bottom line on taxation as a means to solve the budget deficit is that there is a way to reconfigure taxes to generate more revenue, and the government needs to generate more revenue.  It appears that the more people who are working, the more income is made, which means more taxation can be brought in. Corporations appear to be getting a nearly free ride, so I'd be much more in favor of going after them in a manner that links their tax status to their hiring practices.  Thus, revenue doesn't have to directly come on the backs of the citizenry.  Of course, since corporate profits are generated from consumer spending, we end up paying the money one way or another, right?

My conclusion is that combined with across the board, reasonable spending cuts, raising taxes in a fair and balanced way on the American public, coupled with doing better than a 10% rate of collection from corporations is a sensible way of bringing the budget into balance.

Again, all this serves to close the budget deficit, but it doesn't address the National Debt...it just keeps it from growing larger....

Budget numbers--Feeling Spendy...

OK, I'm going to take a swing at figuring out the budget deficit that is causing such trouble...I'm gonna take information from the Congressional Budget Office, since that is supposed to be a non-partisan organization, and any errors of mathematics are likely going to be mine, not theirs...
Sooo...the CBO reports the following are the breakdowns of the US Budget for 2010:
  • The US Government spent $3.4 Trillion
  • The US Government took in $2.2 Trillion in revenue
Thus, we have a budget deficit of $1.2 Trillion.

In order to get the money to make up that difference, the US sold Treasury instruments (bonds, bills, etc.) to investors--other countries, corporations, mutual funds, hedge funds, private individuals.... (The US then promises to pay an interest rate on those bonds to the holders of that debt for a period of either 10 or 30 years, and then return the original principal...that will come back later on...) The accumulation of that debt incurred over the years to cover that budget deficit is the gross national debt, which is now over $14 Trillion, and approaching the upper limit of the US ability to borrow. (Like we're hitting the credit limit on our credit card...)  Congress has to authorize raising that cap, or we lose the ability to borrow more money, and thus we can't spend any more, as we've already spent what we took in earlier in the year.

Yikes.

Our "leaders" are debating/bargaining over whether or not to raise this cap.  Actually, that doesn't seem to be quite right.  Instead it seems that one faction of the government is pushing to raise the cap if spending is cut, while the other faction of government is pushing to raise the cap if taxes are raised.  It doesn't seem as though there is debate about whether or not this cap should be raised...so let the bargaining commence....

To spending then.  According to the CBO, the budget of $3.4 Trillion in expenditures broke down as follows:
55% of it went to "Mandatory Spending Items." These include:
  • Social Security (37%)
  • Medicare (23%)
  • Medicaid and other health programs (15%) These "Big 3" add up to about $1.4 Trillion, or more than the total amount of our budget shortfall...
  • Other (16%) (I don't know what these are yet...)
  • Unemployment/jobless benefits (5%)
All of those are amounts mandated by laws passed by Congress, and cannot be changed unless Congress passes a subsequent law altering the amounts. It amounts to roughly $1.9 Trillion total. To be truthful, though, those amounts can and will go up as the population ages and more and more people sign into these entitlement programs...Thanks Boomers! Though a longer-term view would indicate that once that segment of the population begins to die off, those numbers will go down...it is a bubble, if you will.  Nonetheless, the amounts and percentages will continue to climb for the next decade or so.

The rest of spending breaks down thusly:
  • Defense 20% ($680 Billion)
  • Non-Defense Discretionary 19% ($650-ish Billion) This is everything from Pell Grants, to bridges and roads, to PBS funding, veteran's services, bridges to nowhere, etc.
  • Interest payments on already incurred debt 6% ($200-ish Billion) *Interesting to hear the Treasury Secretary say today that without more borrowing we can't continue to make our interest payments, thus if we don't continue to borrow we default on our loans...So we are borrowing from one credit card to pay down another...that just seems like lunacy...Defaulting on our debt is generally regarded as pretty much the end of the economic life that we have, so cutting interest payments is not even near the bargaining table for anyone who is remotely rational...

Congress is essentially looking at $1.3 Trillion of expenses where they can find some trimmings without having to go through the process of actually voting to make changes to the budget in the Mandatory areas.  In the last budget negotiations in the spring, one faction was pushing a $60 Billion cut in spending, the other wanted $20 Billion, and I think they settled in the middle.  It is like arguing about pennies, from one perspective, as $40 Billion in cuts isn't even a drop in the $1.2 Trillion sea...

So really, if Congress wants to attempt to fix this problem through only spending cuts, with draconian measures they can affect the amount of the gap between spending and revenue.  But even cutting Defense in half won't make a significant dent in the budget deficit (sorry mom...), and doing away with the various social programming that many Tea Partiers want won't also make much of a difference either. Put together, they can do some lessening of the gap, though. But without including the Mandatory Spending Items in the conversation, spending cuts in Discretionary Expenditures alone can't make a difference.

OK, so the bottom line on spending cuts to fix the budget deficit--there has to be pain all around to erase the budget deficit using this side of the equation as the solution. This is just the numbers talking, this is not including a very important conversation about what it means to "protect" and "provide for the common good/individual happiness"...(see earlier postings...)

And even if they do share the pain, that still doesn't impact the $14 Trillion we currently owe as debt...it just keeps it from growing any more...

Oh, and TARP or the bail-out package was an extra-budgetary expense.  So that was $700 Billion worth of raw debt, not a part of the rest of the budget...as the stimulus package to mitigate the recession was also extra-budgetary; another $800 Billion of raw debt...either that or the government just printed the money and hoped we wouldn't notice...

"I have a plan"

Heard Tim Pawlenty on Meet the Press this morning.  Though David Gregory is a poor replacement for Tim Russert in that he generally lacks personality (trending toward douche-y), Dim Tim is about as exciting as a house painted white with black shutters, and about as intelligent as paint chips...

He did a nice job of hitting on one of my pet peeves, though, with his repeated use of the phrase, "but I have a plan."  Followed by less-than-zero amount of articulation of that plan.  If you have a plan, describe it, Dim Tim! Enlighten us with the details!
But he, and his brethren in both parties, can't talk about "Their Plan" because a) it isn't their plan, and they don't really understand it (minions wrote it and gave them talking points--can't stray from the script, now, can we?) and b) "Their Plan" isn't anything different or unique; it is just more of the same wine in a slightly different bottle. So they just allude to a plan and when pressed say, "It's on my website," and talk about something else.  Nice.

Dim Tim did raise the point of being in favor of a Constitutional Amendment to require a balanced budget as a way to fix the current problems with the debt ceiling.  Gregory dropped the ball by not pointing out that such an amendment is a colossally bad idea for lots of reasons. One is that you can't balance the US budget as it currently stands in one fiscal year, which such an amendment would necessitate. Another is that debt isn't a bad thing, and borrowing is how the world works now, so we could play ostrich, shove our heads in the sand and not do what every other nation and business and person does, relying only on tax revenues to provide the services our government is legally obligated to (like Social Security and Medicare) or we could play in the same park as everyone else (just more responsibly...)
One of my favorite reasons why balanced budget Amendments are bad is that such an amendment would hamstring the United States government's ability to be somewhat flexible with their money.  This is important in that when confronting a natural disaster like, I dunno, Katrina, such an amendment would severely limit the government's ability to steer needed aid to the disaster agencies trying to help people. ('cause do you budget for only one natural disaster a year? two? How big? What is a "disaster?" Tornadoes in Springfield? Forest fires near Los Alamos? Hurricane's larger than category 2 only in urban areas?)
"Gee folks," says President Dim Tim, "Love to help you, but see, I'm legally required to only spend what I take in, and I can't raise taxes, so, sorry.  No money to help you re-build vital infrastructure like hospitals and schools.  And no money to help pay the workers who FEMA has to send to the area to help do things like open up the roads and bury the dead. Families and charities will have to step up and shoulder the costs."
Or,
"Gosh citizens," says President Dim Tim, "I'm afraid that we can't respond to those nasty terrorists who [insert horrific event here].  In order to find them and retaliate, we'd have to spend more than our budget currently allows, and I'm obligated by law to make sure we don't do that.  But what I can do is try to juggle our already thin military with our sparse equipment (can't afford to buy more, you know!) and see if I can get more troops in harm's way....and can't pay their salary either...But I'm really fired up about this!"
Dim Tim's an Idiot (with a capital I).  Balanced budget amendments are stupid.  Balanced budgets are smart and good things on all levels of the economy, but even the best of budgets can't possibly respond to all contingencies that can arise. Flexibility is a necessity in this day and age, and Amendments to the Constitution aren't the solution to any economic problems.

As an aside, the historical record of states/governments that endure when they can't pay their armed forces well is: armed forces led-coups: 100, broke governments: 0. That's a lesson to pay attention to...

Friday, July 8, 2011

Thoughts from PT

Going to Physical Therapy helps on a number of levels...

Some thoughts on the US' deficit dilemma.  My PT (hiya Kipp!) is similar to many people who like to talk about the government as though it were a business, which echos the Republican view.  From this point of view, there are two columns that matter: Revenue and Expenditures.  So, when the business is in trouble, it can either generate more revenue, or it can cut back on expenses. 
  • Does our government spend too much? Yes.  
  • Does it spend more than it takes in? Yes again.  
  • So can cutting spending be a part of the solution? Yes a third time. 
Much work needs to be done to examine how our government spends its money, and there are many areas to target in the debate. I'll come back to that later.

On the Revenue side, when money becomes tight, the business needs to generate more revenue.  So it needs to sell more product, attract new clients, or raise prices on its goods/services.  From the standpoint of the government, revenue comes from four sources:  printing money; selling assets; borrowing money; and taxation.
  • Should the government print more money? No, (though it does anyway) because this leads to inflationary pressures. 
  • Should the government sell some assets? Sure, but this doesn't seem to even be a part of the conversation, though it could sell Amtrak, for example, thus raising money and doing away with an expense at the same time...
  • Should the government borrow money? Yes, as an alternative to printing money or raising taxes.  Borrowing is a globally accepted method (since it began in the mid-1400's) of raising money swiftly to meet spending needs, and done judiciously, it is fine. We don't borrow judiciously, either as individual citizens or as a government, so this is a problem for us.
  • Should the government raise taxes? Yes, given that the other alternatives aren't so great.  I'm not sure where I am with the idea of a flat tax, but I do think that, in general, if the American people felt their tax dollars were spent responsibly and in a way that directly benefited them, most people would pay their fair share without too much grumbling. What's a "fair share?" Good question, I'll think about that and get back to you later on. (And I'm not going to word-smith it as the Obama administration is setting up to do. "Closing loopholes."  Please...)

All that above, though, ignores a pretty simple fact: the government is not a business.  The very nature of the Social Contract articulated by the Enlightenment thinkers and adopted by those who helped to found the nation is that the government exists to protect and preserve the citizens so that they may pursue happiness. This is the classic, though poorly articulated, position of the Democrats, who appear to believe that this generally means allowing the citizen and corporation-hogs to feed at the government trough to their hearts' content. As a result, our spending isn't targeted, isn't helpful, and needs to be revised. Time to slaughter some pigs, Nancy!

How we define "protect" and "preserve"and "happiness"in the 21st century is the conversation that we need to have as a citizenry.  What is the role of the government today? What is the modern Social Contract? Answering this question will help to figure out a path to take into the future. The nation today is certainly a very different place with a population of 300+ million and stretching from sea to shining sea than it was in the 1790s, when the first census said about 3.8 million people called east of the Appalachians "home."  Can we reasonably expect the same from our government in the 21st century as it provided in the 18th, 19th and 20th centuries?


I doubt it...