John Stossel's Chainsaw Budget

Before I get to an interesting take on the budget, I wanted to briefly comment on the state of play on the debt ceiling. Looking at what little information that is available on the debt ceiling deal proposed by McConnell, I am pretty certain that no one will be happy. Failing to make structural reforms to medicare and social security will be a long term disaster, along with back loading the budget cuts. From the AP:

Big cuts in government spending would be phased in over a decade. Thousands of programs — the Park Service, Internal Revenue Service and Labor Department accounts among them — could be trimmed to levels last seen years ago.

No Social Security or Medicare benefits would be cut, but the programs could be scoured for other savings. Taxes would be unlikely to rise.

Meanwhile John Stossel says that he can balance the budget next year. His proposals are too radical to pass, but I think they form a decent starting point to allow the tea party movement to point to specific things we would support. Here are some highlights from his web site along with specifics.

• Reduce Social Security outlays as follows ($85.7 billion per year)

- Price index initial benefits (the current CPI overstates inflation, increasing pay outs unnecessarily)
- Raise the normal retirement age
- Cut Social Security disability program by 10%

• Means test social security $170 billion per year
• Eliminate Department of Education $106 billion per year.
• Medicare/Medicaid reform $441 billion annually

- Increase deductibles for medicare services and increase Part B premiums
- Make medicaid a matching block grant program that caps the amount a state receives.

• Eliminate Dept of Transportation - $84.8 billion
• Cut defense spending by 2/3 - $475 billion (Yes, I am opposed to such a deep cut in defense, but in fairness, we should acknowledge that it is a big part of the budget.)
• Cut federal civilian compensation costs by 10% - $29.6 billion
• Eliminate Fannie/Freddie Subsidies - $14 billion

Stossel has many more cuts that would actually result in a surplus, but there is no way this would pass as a package. Still this is a worthwhile exercise to show that cutting spending will solve the deficit problem without tax increases. It doesn't mean that simplifying the tax code wouldn't produce more growth, just that we can actually manage this problem if we get the votes to rip out huge swaths of the federal government, especially those that are constitutionally suspect, like the Dept of Education.

Conservatism and the Debt Ceiling Debate

Two traditional conservative columnists have some decent quotes about why Boehner's approach to the debt limit was the correct one. But I think we need to tease out hidden assumptions about what the tea party supporters are thinking about the problem. Specifically, I don't think that we have thought through the consequences of failing to raise the debt ceiling. Those consequences are neither as severe as Democrats predict, nor as mild as some Republicans would state. I think the key issue is that we have collectively built a large part of the economy around the government re-distribution of income through social security, medicare, and other payments. These payments, along with interest on the debt, take up almost all of the current revenue of the federal government. While I intensely dislike this situation, one cannot deny that huge economic dislocation would occur if such transfers were to suddenly stop. Further, because they would affect so many voters, a ground swell of anger would cause enough of them to inundate the Congress with their outrage, that an increase in the debt ceiling with no spending cuts seems the most likely outcome. Further, such economic dislocation would be bad for the country's economy in the short term, even if salutary in the long run. In the long run, we'll all be dead, meaning we might not get there. Given this likely scenario, the Republicans are forcing the issue admirably well and defining the terms of the debate. But just as Obama was seriously wounded by his "victory" with Obamacare, so too will the tea party be hurt if we shut down the federal government over the debt ceiling debate. This is why I thought that all Republicans should get behind Boehner, to give him the maximum flexibility to deal with the Democrats and achieve what is possible.

On to the quotes. First, Peggy Noonan:

The [Republican] establishment was being conservative in the Burkean sense: acknowledge reality, respect it, and make the most progress possible within it. This has not always been true of them. They spent the first decade of this century backing things a truly conservative party would not have dreamed of—careless wars, huge spending and, most scandalously, a dreamy and unconservative assumption that it would all work out because life is sweet and the best thing always happens. They were mostly led by men and women who had never been foreclosed on and who assumed good luck, especially unearned good luck, would continue. They were fools, and they lost control of their party when the tea party rose up, rebuking and embarrassing them. Then the tea party saved them by not going third party in 2009-10. And now the establishment has come forward to save the tea party, by inching it away from the cliff and reminding it the true battles are in 2012, and after.

Charles Krauthammer.

We’re only at the midpoint. Obama won a great victory in 2008 that he took as a mandate to transform America toward European-style social democracy. The subsequent counterrevolution delivered to that project a staggering rebuke in November 2010. Under our incremental system, however, a rebuke delivered is not a mandate conferred. That awaits definitive resolution, the rubber match of November 2012.

I have every sympathy with the conservative counterrevolutionaries. Their containment of the Obama experiment has been remarkable. But reversal — rollback, in Cold War parlance — is simply not achievable until conservatives receive a mandate to govern from the White House.

While we have made great strides and indeed are changing not just America, but the entire world's view of the role of government, we simply cannot overplay our hands without more elections. It is the nature of our republic to prevent radical change without sufficient election cycles to allow a party or cause to consolidate power. Unfortunately, the current leftist version of the Democratic party did just that in 2006 and 2008. To undo that harm, we need to win more victories in 2012. In my view, shutting down the government does not advance that cause. What will advance the cause is a compromise that continues to move us in the right direction, but keeps the issue alive for the next election cycle and forces the President to held accountable for his lack of leadership.

Root Causes of the Ballooning Debt Crisis

Robert J. Samuelson, who I respect, but do not always agree with, reminded me of the fact that the political leaders refuse to talk openly about the real source of the debt problem. In an article partly titled "It's the Elderly, Stupid" he makes the case that source of the trouble is that over the last half century the changing social contract has made

". . .the federal government’s main task into transferring income from workers to retirees. In 1960, national defense was the government’s main job; it constituted 52 percent of federal outlays. In 2011 — even with two wars — it is 20 percent and falling. Meanwhile, Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

These transfers have become so huge that, unless checked, they will sabotage America’s future."

Unfortunately, right now, there are no votes and zero leadership to start cuts to medicare and social security right now. If we are to stop borrowing, that would have to happen. I need to ask my fellow tea partyers whether we want to explicitly state that we have a goal of cutting social security payments immediately and whether we think that works politically. Samuelson goes on to state:

What he [Obama] hasn’t done is to ask — in language that is clear and comprehensible to ordinary people — whether many healthy, reasonably well-off seniors deserve all the subsidies they receive. That would be leadership. Obama is having none of it. But the shunning is bipartisan. Tea Party advocates broadly deplore government spending without acknowledging that most of it goes for popular Social Security and Medicare.

Is the critique correct? If so, what do we want to do about it? My answer is that entitlements must be means tested, if there costs are to be brought under control. The other part of the equation is the percentage of the population that is over 65, which is set to double by 2035. This has been taken as a given, but I think that if we set out to massively increase immigration of skilled younger workers, we can overcome that issue as well. Right now, I know of no one else advocating this position.

So how about it, fellow SLOBs and fellow tea partyers? What do you want to do about social security and medicare?

Weekend Music Chill

Since we've got a 1970s economy, why can't we have some 1970s music? Little of the pop today can match this, IMHO.

Carbon Conservatism in British Columbia

I have been pilloried in the comments section of this blog before for my support for a carbon tax. It is not because I believe in catastrophic AGW that I support a carbon tax, but because it would help reduce air pollution and could be used to lower income tax rates. Turns out that British Columbia has already gone this route. As opposed to disastrous cap and trade schemes proposed by Democrats or California's horrendous AB32 that targets specific sources of power, this tax is technology agnostic, allowing the free market to influence the best way to reduce carbon based power consumption, whether through conservation, shifting to natural gas or some other means. But best of all the economy has not been harmed, because our northern neighbors on the left coast have used the proceeds to, drum roll please, reduce income taxes for individuals and corporations. I believe that the burning of carbon based fuels is the primary source of air pollution in the world and reducing those emissions is a worthy goal.

The effects on the British Columbia economy of the Carbon tax, implemented in 2008, appear to have been minimal. I believe this is because it was used to offset income taxes. The tax is simple and easy to administer, and has been implemented in a predictable manner; unlike recent tax code changes in the United States. The U.S. income tax is a nightmare of complexity and pork barrel politics. Reducing our federal government's dependency on it, by replacing it with what is essentially a consumption tax also seems like a worthy outcome.

Coffee Party Silliness

Got an email from the supposedly centrist and civil Coffee Party asking me to send an email to my Congress critter. Here is what they suggested on their website. (Have to click a few links to get there.)

We do not consent to the world's first Great Depression On-Purpose. We demand a balanced approach to solving our fiscal problems that will not put the entire burden on the poor and middle class. We see through the ransom demands from radical extremists and representatives in Congress who have pledged their loyalty to a rigid ideology instead of the American people.

We will not stand by quietly and bear the entire burden of solving problems that were caused by irresponsibility in Washington and on Wall Street. If you ignore our phone calls and emails, expect to see us in your local offices and at your town halls. One way or another we will be heard and our nation's interest will be served, or, you will lose the privilege of representing us.

Here is what I sent (they let you edit your letter, probably a bad move on their part.)

We do not consent to the world's first Great Depression On-Purpose. We demand a balanced budget to solve our fiscal problems. We see through the ransom demands from radical extremists and Democrats in Congress who have pledged their loyalty to a rigid ideology instead of the American people. Stop the spending madness.

We will not stand by quietly and bear the entire burden of solving problems that were caused by irresponsibility in Washington and on Wall Street. If you ignore our phone calls and emails, expect to see us in your local offices and at your town halls. One way or another we will be heard and our nation's interest will be served, or, you will lose the privilege of representing us.

We demand that you get some serious budget cutting equal to the amount the debt ceiling will be raised.


Regards, B

Why I Like Boehner's Plan - My Tea Party Perspective

Hero of the Republic?

John Boehner's plan to cut the deficit by $915 billion while raising the debt ceiling is going to underwhelm many tea party types. But I like it a lot. Here's why; Obama won't dare veto it, because that would be irresponsible, and more importantly, he would appear irresponsible. However, it will keep the issue alive into 2012 and continue to make the growing debt a campaign issue. As I have said before, the public needs to make a decision on our fiscal direction through elections.

The issue is sure loser for Obama. If he backs big tax increases to close the gap, he plays into the narrative that he is just a tax and spend liberal. However, if he gets serious about entitlement reform, he further alienates his base, whose energy he needs to overcome the younger and unaffiliated voters who are deserting him. Ending his Presidency has got to be a big priority. I am not advocating doing anything irresponsible to do so. Indeed an incremental approach to curtailing deficit spending is the only responsible thing to do, because in a republic, these issues deserve a full airing.

Further, Boehner's plan calls the Senate's bluff. HotAir is reporting that Senate Democrats have objected to his plan as "too short term." My response, tough, your party spent us into this mess, albeit with Republican help, are you really going to vote to shut down the government? The people of the United States will see who the irresponsible party really is.

Back to my original point. It has become clear that a second term for Barack Obama is the chief threat to the liberty and prosperity of our nation. He has shown no compunction about trampling the rights of citizens, expanding the reach of the federal government, and seeking ever more spending as a means of re-distributing wealth. Only his defeat for re-election will allow us to repeal the excesses of his term in office. His re-election will cement them.

We are engaged in a historic struggle over conflicting visions of the nature of our nation. On the left is the view that we are a mature country that needs an ever expanding social safety net as we slowly fade into oblivion as a great power. The opposite view, including most in the tea party movement, is that America is likely to be the greatest nation on earth for a long time, if we just get government out of the way and let people go to work solving our nation's economic and technical problems and that the social safety net's costs must be reduced.

Short Comment on David Wu

I normally don't comment on political sex scandals, but I can't help myself this time. David Wu (D-ORk) has resigned from the House after news of an "unwanted and aggressive" sexual encounter with the 18 year old daughter of a major donor surfaced. Where the hell are the girl's parents, the supposed major donor? If it was my daughter, Wu would have resigned shortly after I found out about what happened. Maybe the parents went to the papers, I don't know, but that is a weak play. Where is the threat of criminal charges, where is the threat of a lawsuit, where is the threat of. . . well I probably shouldn't print what I would really want to do this scum. Great that he resigned, but how about upholding the rule of law. Unwanted and aggressive? Sounds like sexual assault to me.

Purity vs Practicality Issue on Ballot Measures

What if a ballot measure accomplishes something that you believe, but in the process reaffirms an existing regulation that you find odious, but at least doesn't make it worse? Do you support it? This is my quandary with the proposed ballot initiative I regretted signing in yesterday's post regarding Prohibits Political Contributions by Payroll Deductions initiative. Here is what Richard Rider, taxfighter extraordinaire, had to say on my cross-post in the sdrostra comments:

In particular I disagree on the “payroll deduction” prop’s analysis. B-Daddy is concerned about 1st Amendment issues hobbling corporations and unions funding favored candidates. But in reality — if the measure passes – both unions and corporations are still free to give money to IE (Independent Expenditure) campaigns to support or oppose candidates — as long as these funds are not run or influenced by the candidates.

I’m no expert in this area, but I believe unions are CURRENTLY denied the ability to DIRECTLY give money to candidates. I think that currently corporations can directly fund state candidates, but are often prohibited from funding local candidates for office.

Richard makes some great points. At least I have fewer regrets signing the petition. The purist in me wants to say, tough, I don't support any of these limits and believe that sunshine is the best anticeptic. Unions and corporations should be allowed to contribute but it should be made public. But the realist looks for advancing our goals, without betraying core principles. The question is does support for such an initiative betray core principles. I look forward to reading your opinion in the comments.

Current Ballot Initiative Petitions - My Tea Party Perspective - UPDATE

It's that time in the election cycle where we are seeing a big push to get petitions signed to qualify ballot measures. I signed four petitions over the weekend, and thought I would share what I consider the tea party perspective. (Following Dean's lead, I am going to start using small case for tea party to emphasize that it is a social movement, not a political party.)


"Fair and Open Competition in Construction" initiative
This measure would enjoin the city of San Diego from entering into Project Labor Agreements (PLAs). PLAs generally require agreed upon rules about union participation, prevailing wage rates and other working conditions for each city construction project. There purported (look it up, great word to describe most leftist schemes) rationale is to ensure "fair" working conditions and labor peace on construction projects. Apologists claim that it prevents a "race to the bottom" in construction bidding leading to employment of illegal aliens and other dubious practices. However, as someone with experience in contracting for services to be supplied to the government, I can tell you that lowest bid is only one part of the bidding process. Generally, government can make a judgement on the "best value." That means contractor past performance, variance to independent government estimates, low or high, can be considered and one can even ask for the bona fides of the key employees who will work the project. The real purpose of the PLA is to ensure that union shops, with their higher wage base, can compete with non-union shops. That's a bad deal for the taxpayer. Why would we want to guarantee higher costs on city contracts, when we can still apply a best value criteria?

San Diego Pension Reform
This measure, co-sponsored by Mayor Sanders and Councilmen DeMaio and Faulconer, would put new employees, except police, into a 401(k) style pension, rather than a defined benefits package, bringing the city in line with the private sector, and indeed even the federal government has partially gone this route. The U-T, continuing their drift left, has an article about all of the dangers of 401(k) plans. I agree that there are pitfalls, and we are seeing them in the private sector, but the article misses the point of the measure. The taxpayers shouldn't be on the hook for the risk of pension funding, that risk should go to the employees. People just have to get more informed about managing their own money, starting with the view that their 401(k) contribution should be maximized, and their lifestyle reduced to live on the rest of their income. If that doesn't leave enough spending money, then find more lucrative work, get a promotion, cut back on spending, or something, but don't expect taxpayers to foot the bill and the future risk. This is a huge culture change in America, but twenty years from now, people will look back and wonder what all the fuss was about.

Internet Sales Tax aka Referendum to Overturn Law Requiring Internet Retailers to Collect Same Sales or Use Taxes as Other Retailers
This is the so called Amazon sales tax repeal. I am against this because I believe that the state unlawfully is applying the case law and what the term "nexus" means. The Economist has a nice summary of the issues. California is claiming that because Amazon contracts with local retailers who use the Amazon platform to sell their wares, they have a "nexus" in California. This is just a tax grab of course, smoke and mirrors to try and balance the California budget with new taxes. Why have the courts ruled against such taxes in the past? From the Economist:

. . .Supreme Court ruled in 1992 that states cannot force retailers without an in-state presence, or “nexus”, to collect sales tax; it would lead to chaos in interstate commerce, since America has some 8,000 different sales-tax jurisdictions that are constantly changing their rules and are not even aligned with zip codes. But there was ambiguity in that awkward word, nexus.

It is up to the Congress to normalize sales tax collection on cross border sales among the states, because that actually is a proper regulation of interstate commerce envisioned by the founders, unlike say, forcing individuals to buy a product just because they are alive. That said, I'm not sure how this circle can be squared, because too many states have no sales tax. Regardless, California's new law will actually decrease tax revenue as retailers associated with Amazon flee the state or shut down. Certainly, they won't be able to use Amazon as their platform any longer, as Amazon has given them the boot. Mrs. Daddy can't even earn a paltry few bucks by recommending products on her blog any more, this is a crappy law.

Prohibits Political Contributions by Payroll Deductions
I might have made a mistake on this one. What caught my eye was that it would prohibit unions from collecting dues through payroll deductions that could be used for political purposes and required an in writing requirement, to be certified annually. Here is the language from the Secretary of State web site:

Restricts union political fundraising by prohibiting use of payroll-deducted funds for political purposes. Same use restriction would apply to payroll deductions, if any,by corporations or government contractors. Permits voluntary employee contributions to employer or union committees if authorized yearly, in writing. Prohibits unions and corporations from contributing directly or indirectly to candidates and candidate-controlled committees.

Stop the presses, that last sentence bothers me. As much as I dislike unions, I dislike the thought of trampling First Amendment rights even more. I don't think the last sentence would withstand court scrutiny, but I am now sorry I signed this petition.

Here is one I passed on.

Americans Elect petition to be a political party.
This one is a little odd. This organization is trying to set up a political party for the purpose of having a single nationwide primary to determine who would be the Presidential and Vice Presidential nominees, outside of the existing political parties. To make their plan work, they have to qualify as a political party themselves. I haven't given this enough thought, nor do I know anything about the organization, but it looks suspicious. Irregular Times blog has more.

That's a wrap on the weekend's political activity. When you go shopping, you're likely to be accosted by a petition gatherer, so let's be careful out there.

UPDATE

I changed the title of this article slightly adding the word "My" to respond to criticism that I was somehow representing the full tea party position. I am not, because there is no such thing, but I like to avoid confusion.

Second there were some questions about Fair and Open Competition, so here is the language from the petition.

Except as required by state or federal law as a contracting or procurement obligation, or as a condition of the receipt of state or federal funds, the City shall not require a Contractor on a Construction Project to execute or otherwise become a party to a Project Labor Agreement as a condition of bidding, negotiating, awarding or the performing of a contract.

Finally, my post on July 26 re-examines the payroll deduction issue.

Union Tribune's Lack of Diversity on "Community" Editorial Board

Today's U-T introduced a "Community" Editorial board. They picked twenty people who are supposedly representative of the community, read the list here and judge for yourself. Here is what I noticed. Seven of the people were selected for prior or current government positions (including some SDSU professors). Four more of the members are activists promoting causes requiring greater government. Another two are USD professors. Two lawyers, Valerie Jacobs, wife of the head of Qualcomm and Bill Walton are included. Walton, great guy that he is, still isn't representative of the community, but at least he isn't tainted by close ties to the established order. Some others with ties to philanthropies round out the group. Not a single entrepreneur, private sector manager or even private sector employee in the sense we think of in the group, except the lawyers. Since this is the thinking of the editors of the U-T as to what constitutes a representative community group, we can expect hostility on their pages to the likes of the Tea Party, since we are the great unwashed.

UPDATE

Richard Rider scooped me on this one. Read his exposition on sdrostra.

Ignoring This Morning's Headlines on Debt Talks

Both the WSJ and the UT had headlines on the collapse of the debt ceiling talks. I'm glad that I have learned not to accept the headlines as the real news anymore. Temple of Mut has a great summary of how it has been Obama who sabotaged the talks by suddenly demanding more revenue out of the deal. HotAir provides similar analysis.

Bottom line, Obama is posturing because he is nervous that his base will be deeply disillusioned with the direction he was taking, and he needed an excuse to ask for more. In the end, both sides are still talking. Obama has more to lose than Boehner, because even if something disastrous happened, both sides will get blamed, even if the blame tilts more to Republicans. Boehner has a far better chance to still be Speaker in 2o13 than Obama is of being President that year, if a deal isn't reached. That Obama is pulling childish maneuvers is a sign that he is actually negotiating poorly. The joker in the deck is Reid. He is unlikely to be Senate Majority leader under any scenario. However, what gives him the best shot, might be a deal that takes a way Republican ability to nationalize Senate races next year. This is why I am pretty sure something will get done.

I think that we should take a moment to bask in the media blame of the tea party for this crisis. Two years ago, their seemed to be a consensus of Keynesian business as usual, just pile on more debt and spending to get out of the recession. In just two years our movement has completely changed the nature of the dialog about government. The size of spending cuts, not the amount of government growth are now the topic of debate. Reforming government pensions is on the table from sea to shining sea. (Sign the San Diego pension reform petition today at 10675 Scripps Poway Pkwy from 11-3.) Pretty good work for a movement with no official leaders, no official organizations, no political party, and not even an official ideologist.

Weekend Music Chill

This weekend is the unofficial summer holiday of San Diego known as Comic-Con or the Con for short. Work schedules are re-arranged, summer studies interrupted for the true fans who attned. I wanted to put up some themed music in honor of the annual event, but I am told that Superman themed activities are among the least popular among this weekend's attendees. Too bad, I really like these two songs, which both have a superman theme.

First, here is 3 Doors Down performing Kryptonite. At least the video is more in keeping with the Con's theme.



And here is Jimmy Olson's Blues from the Spin Doctors.

Why We Are Bound to be Disappointed

I was listening to Rush Limbaugh this morning and he made a great point about the debt ceiling negotiations. He said that any ten year deal can be undone by next year's Congress. That should be obvious to all of us following the debate. Examining the data in my previous post, it is obvious that we are not going to balance the budget this year. This is going to disappoint many tea partyers, but we have to face the facts about the situation.

On what basis should we judge any deal? I think only two criteria need be applied:

1. Does the plan cut current spending significantly? By which I mean cuts measured in hundreds of billions in discretionary spending.

2. Does the plan change the structure of an entitlement to reduce its cost. For example, if medicare is cut by proposing reductions in reimbursement rates to doctors, an Obamacare tactical lie, then the structure of the entitlement is not changed, because the benefit is unchanged. But if the age at which individuals become eligible for medicare is raised to 67 from 65, then that is real structural reform, because it reduces the entitlement itself.

It would be a side benefit to get tax code simplification out of the deal, but that is really icing, not the main goal of cutting the size of government.

Chart of the Year

This is self explanatory, H/T Coyote Blog. (Ed. note, not clear whether Coyote Blog or Heritage first uncovered this trend.)

We Don't Need More Taxes, We Need More Taxpayers One Tea Party Plan for the Deficit

No one can deny that growth of the federal debt is exploding under Obama's Presidency, and indeed started to climb after Democrats took control of Congress in 2006. The question before us, with the debt limit about to be reached, is what spending could be cut as part of a deal to increase the debt limit. Michele Bachmann, who is well like by many tea partyers, has said that she would vote against increasing the debt ceiling no matter what deal was cut.

I have to respectfully state that her position is folly, because there is not enough current spending cuts available to balance the budget instantaneously without vast cuts to social security, medicare, unemployment and defense spending. One might desire such cuts, but immediate and massive cuts in these areas are such political suicide as to be beyond reasonable expectation. This is why most tea partyers are going to be disappointed with whatever deal gets cut. A little about the numbers. Total federal receipts are estimated at $2,170 billion for fiscal year 2011. Medicare, Social Security (including their costs of operations) and income security account for $1,870 billion. Income security includes civil service retirement and disability, railroad retirement, unemployment insurance, food stamps, and other public assistance programs. Defense is the next big ticket items at $770 billion, which does not include another $180 billion or so for the ongoing costs of war. The current budget deficit is about $1,500 billion, with total outlays projected at $3,800 billion. Defense and entitlements more than eat up all current spending. This information comes from my analysis of spreadsheets at the government's budget website. A graph that shows this from 2010 follows, the pattern is not very different in 2011.


This hole is too deep to get out of with short term gimmicks. But long term solutions need teeth to ensure that future politicians can't easily revert to form. Spending must be cut, and that is a long term problem that absolutely must be addressed. But what about revenue? It seems clear to me from these facts, heresy that it may be, that federal revenue needs to increase. How do we increase revenue without damaging economic growth?

The first and most important observation is that any policy change must be permanent and stable to be effective. For example, the temporary reduction of social security withholding rates has been a disaster. It was intended to provide a hiring incentive, but because it was not permanent, businesses discounted the future social security tax into their current plans and haven't hired. Further, it has deprived the federal treasury of much needed revenue.

The secret to increasing revenue was discovered by Ronald Reagan in the 1980s, lower tax rates with fewer deductions, and hence a simpler tax code. This concept applies to both individual income taxes and corporate income taxes. This is where the money really comes from to fund the federal government. I created this chart from the same federal budget site:





Unless you increase the payroll tax for social security and medicare, individual and corporate income taxes are where the money comes from. But increasing the tax rate for zillionaires doesn't really raise more revenue, despite the President's rhetoric. Nor will taxing corporate jets. The public knows this. The problem with both the corporate and individual tax codes is the complexity results in huge disparities. Most large companies pay nowhere near the published 35% tax rate. The tax attorneys at these large companies are considered a "profit center," seeking ways to legally game the system and allow companies to retain more profits through tax avoidance strategies. Individuals are also affected. The tax advantage of owning a home provides an additional incentive that leads people in to home ownership who perhaps shouldn't make such a decision. Wouldn't we all be better off the tax code were simple and didn't distort economic decisions. Simplifying the tax code would increase revenue by stimulating the economy. Further, lower marginal tax rates would encourage more people to enter the work force. Here is one example, a married couple where the husband earns enough to be in 33% bracket, but the wife stayed home as the kids grew up. Re-entering the work force, she can not initially earn a big salary. But her marginal tax rate will include the 33% income tax, California tax of 9.55%, FICA tax of 7.65%, SDI of 1.2% for a grand total of 51.4%. If she went to work full time at a relatively low wage of $15 an hour working full time, she might increase the family take home by only 10%. Why bother?

But what about those Social Security taxes? Can we increase that revenue item without harming the economy? Of course we can. Any number of Obama's policies, from Obamacare to the NLRB suing Boeing to prevent the hiring workers in South Carolina are damaging businesses' ability to hire workers. Additionally, the tax code is in continuous flux, with Bush era tax cuts only temporarily extended. How can business gauge the profitability of investments when future tax rates are unknown? Growing the economy will grow social security revenue.

But wait, there's more. The other way in which we can both grow the economy and increase the number paying social security taxes is through legal immigration of a skilled workforce. I have discussed this before, but doesn't our fiscal crisis deserve fresh thinking. Look at these demographic curves, because I consider India a possible source of large numbers of skilled immigrants:

Note the U.S. baby boomer bulge moving into retirement causing strain on the economy. India, by contrast has a large, young population, facing no such challenge.

So here is what is needed to increase revenue, and what I meant by the title.

• Simplify the individual tax code, eliminate deductions and lower marginal rates. This will increase the number of taxpayers in the three ways. More people will enter the work force. Rising economic conditions will bring taxpayers who do not pay income taxes now to levels of income where they do. As the unemployed enter the workforce, they will pay FICA taxes.
• Simplify the corporate tax code by lower marginal rates to and eliminating loopholes. This will increase the number of corporations paying taxes and actually bring in more revenue as corporations change behavior. Profits will increase, even if tax attorneys are laid off, which will also generate revenue.
• Vastly increase legal immigration of skilled workers and professionals. This will grow the economy, while at the same time add new taxpayers to the rolls, increasing revenue from social security and income taxes. It is important that they be skilled workers, because there is a question as to whether unskilled workers don't consume more in public services than they pay in taxes.
  

Spending cuts are still needed, because these supply side reforms aren't going to solve all of the problems, and if we don't cut spending, politicians will just find new ways to devour the revenue we might get from these reforms. Here are some quick hitters of both a short and long term nature that I find attractive. Many of these have been discussed by Boehner, the President or others.

• Repeal Obamacare, the cost estimate of which, just keeps rising. Ok, so that's a non-starter until 2013.
• Across the board cuts to all federal agency budgets back to 2008 levels.
• Cut farm subsidies.
• Cut medicaid.
  
• Increase eligibility ages for Medicare and Social Security.
• Means test social security and medicare.
• End Libyan operations.

That is one tea party proposal to deal with the deficit. I hope some of this catches on.

Use of the Debt Ceiling to Force Debate

I have seen some commentary questioning the temerity of Republicans in holding out for spending cuts through the debt limit ceiling debate. The argument goes like this, the Congress passed the entitlement laws, budgets and tax code that led to this mess, how dare they withhold funding for these items. The obvious problem with this argument is that the debt limit acts as a constitutional prerogative of the Congress to limit the cumulative effects of such budget decisions on the balance of the Treasury of the United States. One might question the constitutionality of the "debt limit ceiling" as the means of the Congress expressing its will regarding the debt, but the fact of its authority is clear. Article 2, Section 8 grants to Congress these powers:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

So that seems fairly clear.

The other objection is that Republicans are "hostage takers," and that entitlements are somehow solemn obligations that cannot be changed. Again, this is not so, in Fleming vs. Nestor, the Supremes ruled that

"To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands." The Court went on to say, "It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments."

Since increasing the debt ceiling is a piece of legislation, then that same legislation can cut entitlements or any other spending, with the possible exception of interest on the national debt, by amending entitlement law. The real problem today is that these entitlements are sacrosanct monuments in the Democratic party's pantheon of heroes, primarily FDR. Reforming them undermines the very meaning of the party in the eyes of most of its core supporters and office holders.

However, in the din of the news on the negotiations, what is being cut has not been specified in the news. For the life of me, I can' t find a decent summary of where the cuts are coming from. This is why it looks like kabuki to me as well as W.C and Leslie.

In the meantime, what's to be done? Obama himself called for means testing Medicare, which his lefty base opposes. That's why I have been warming to the idea of means testing all entitlement programs. Jared Bernstein (H/T DailyKos), left side pundit, makes my case:

I understand the appeal and it certainly makes sense to ask for more for a program facing a tight budget from those who can afford it. But the history of social policy leads me to worry about this: once you shift a program from universal coverage to means testing, it’s increasingly vulnerable to deeper means testing until it eventually becomes a poverty program which everyone wants to get rid of.

Thank you for the clarity, except, that medicare and social security as currently enacted are actually poverty programs in stealth mode when one dives into the actual details. Conservatives oppose these changes because means testing will initially harm the elderly of the middle class, and it isn't a very conservative idea. But we need to get creative, think long term, because as entitlements grow out of control pretty much the world over, they have the power to destabilize the national government, much like Greece. (Joke I heard: What's a Grecian Urn? I didn't know they worked.) Since these programs are already poverty programs, conservatives and libertarians should get behind making that explicit.

By the way, search for this: what are republican "specific budget cuts" debt ceiling debate and see if you get results like this in a news search.

Weekend Music Chill

I missed the 12th of July, but still wanted to get this song up on the blog, posting twice with two different groups doing the same traditional tune from Northern Ireland.





Which traditional Irish band does this "Orange" song the best?

Irish, you can comment too.

Presidential Temperament?

Yes.

No.

The big headline on the Drudgereport is that the President walked out of a meeting with Eric Cantor regarding debt limit negotiations. The President is wrapping himself in the flag, claiming that the Republicans are refusing to compromise. Nothing could be further from the truth. Republicans are willing to increase the debt limit by the exact amount of spending cuts that the President and the Democrats are willing to cut spending by. Seems reasonable to me. From Politico:

Obama told Cantor that he would either have to agree to tax increases or give up on his demand that the debt hike be matched dollar-to-dollar to the cuts — that is, $2.5 trillion in deficit-reduction over 10 years in exchange for a $2.5 trillion hike in the debt ceiling.

Problem is, the GOP’s vowed not to raise the debt ceiling by more than the amount in total cuts and a $1.5 trillion debt-ceiling hike won’t get us past the election next year. That makes The Perpetual Campaigner unhappy, so either the GOP will have to step back from its vow or O will have to agree to deal with the debt ceiling again — just a few months before election day, when the incentives on both sides to hold out will be even greater than they are now.

So despite the President's rhetoric that he will sacrifice his presidency over this, one can only hope, the real issue is that he doesn't want this as a campaign issue in 2012, so he won't go for any deal that doesn't push the next debt ceiling debate beyond November, 2012, with cushion to spare. It has been widely reported that Obama said that "Ronald Reagan wouldn't sit here and take this." How true; in the 1980s, Reagan reached out to Dan Rostenkowski to cut deals on tax code simplification and rate reductions that led to real growth in the economy. He didn't sit back and wait to the eleventh hour to jump into the fray with politically charged rhetoric designed to deflect criticism. William Daley, an old Chicago pol, who probably knew Rosty, should get Obama to refrain from comparing himself to Reagan, its too easy a target.

Obama was elected in no small part because of his supposed bipartisan tone suggested a willingness to independents that he would work in good faith with Republicans on pressing issues in trying times. He has certainly lost whatever good will he may have had by his consistently nasty tone, whether towards the opposition or the "fat cats with corporate jets." As Lexington points out in The Economist:

Why is bashing the rich such an unpopular form of populism in America? The normal answer falls back on culture. Bill Galston of the Brookings Institution notes that Americans are repelled by the notion of inequality in worth or status. That men are created equal is, after all, “self-evident”. They are, however, far less perturbed by unequal wealth, a form of inequality that is the inevitable product of the free-market system in which most still profess an abiding faith.

Obama has shown himself to be a captive to his left wing base on issues where it was most important for him to be open to negotiation. How a man could ignore the base and his campaign promises regarding overseas wars, but never cross them on anything domestic, at first boggles the imagination. But then consider this, Obama never actually does anything which reduces the size of the government, not even something like cutting military spending.

Programming note. Sorry for the dearth of posts lately, continued health problems are slowing me down.

Deficit Reduction - The Voters Will Need to Speak Clearly

The collapse of talks between Boehner and Obama on a "grand bargain" on the debt ceiling and future deficit reduction can be blamed on many things, but ultimately, the perceived self-interest of all parties makes such a deal impossible. There is no solution that will get enough Republican votes to pass the House that would also get enough Democratic votes to pass the Senate. To do so, would require months of preparation of public opinion the way that Ronald Reagan was capable of, to put pressure on legislators to accept a deal. A big part of the problem is that the President was so late to the game in proposing such a deal. The public has had no time to digest the implications. Republicans who were recently elected to reduce the size of government and resist tax hikes didn't see how this was in their or the country's best interests. Interestingly, it was only at the eleventh hour that the President put entitlement reform on the table, but given the structure of the Senate under Democrat control, I am certain he lacked the votes needed from his own party.

This is the result of divided government. Divided government is usually good, because it forces parties to compromise and means that only incremental change occurs. Two of the most execrable pieces of legislation from the last decade, Obamacare and the Medicare Part D drug entitlement, were passed during periods in which one party in control of the Senate, House and White House. However, we are now faced with an extreme problem of rapidly rising debt whose solution goes to the core of what we believe is the proper role of the federal government. The left believes we must increase the share of wealth consumed by government in the name of "fairness," with that wealth is redistributed through various entitlement schemes paid for by "taxes on the rich." Libertarians and conservatives, and notably tea party types believe that government has grown far beyond its constitutional limits and we must not only reign in its growth, but shrink the federal government for the sake of our liberty and prosperity.

These choices are stark. The Republican party and its Presidential candidate need to make the 2012 election a referendum on the issues of government size, constitutional scope and entitlement reform. The people of the United States, given a clear choice, will make the right call. But if Republicans lie, and say that this can be solved without pain to any group, especially those receiving entitlements, they will have failed the republic. We are at a tipping point, the choice will be ours to make. I look forward to participating in the debate.

Weak Jobs - Obama Blames Republicans

Not the certainty we hoped for, not the change in unemployment we expected.

Except that it was true to form, I could barely believe that the President had this to say in response to miserable jobs news.

"The sooner we get this done [a deal on the debt ceiling], the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that will need in order to make additional investments to grow and hire,"

I am again astounded by the President's inability to grasp economics. For the past two and a half years, businesses have been worried that a debt ceiling deal wouldn't be reached in mid-2011, therefore they haven't been hiring and prolonged the recession? No, Mr. President the certainty they need is that your spending binge won't require the Fed to inflate the money supply. The certainty they need is to know how they can provide health insurance without running afoul of your amazingly complex Obamacare act. The certainty they need is that the EPA, the DOJ, the NLRB or some other agency of your administration won't declare unlawful, previously normal business practices. The certainty they need is what their long term tax structure will look like, since you keep preventing a permanent deal on taxes. The certainty they need is that the government won't keep intervening in one sector of the economy after another, autos, housing, and banking to name a few prolonging the pain of recession by refusing to let market forces re-balance resources. The certainty they need is that the government of the United States will keep its debt at a level that it can be repaid and not go the way of Greece or some banana republic. Mr. President, the certainty they need is that you won't be re-elected in 2012.

Weekend Music Chill

This weekend's music comes from on of France's most popular entertainers, Jacques Dutronc. I know I am sure to take some gas over my weird tastes in music, but I really like these two songs.

The End for Ethanol?

Proof that democracy can work:

Senate negotiators on Thursday announced a final deal that would end a 45-cent-per-gallon tax credit for ethanol.

I have railed against ethanol subsidies on this blog for some time, even considering somewhat of a litmus test for Republican Presidential hopefuls. However, the news isn't all good:

[the agreement] uses $668 million to support renewable energy efforts such as blender pumps that distribute ethanol, storage tanks for ethanol, plug-ins for electric cars, natural gas development and efforts to produce ethanol from sources other than corn.

News flash senators, far more efficient ways to produce ethanol include switchgrass and sugar cane. But those forms of production don't benefit farmers in Iowa. However, if this gets into law, and its looking good, this is a great day for democracy, where we start to role back subsidies based solely on political expediency.

The WSJ opined yesterday that the Republicans should cave on "corporate tax breaks" like corporate jets in return for a lower tax on business profits. I happen to agree. A simplified tax code has the following beneficial effects:

• Reduces spending on lobbying efforts.
• Stimulates growth by removing government from directing investment.
• Removes tax attorneys as a profit center in big businesses, increasing profits for real, and again stimulating growth.
• Actually raises more revenue due to fewer loopholes.

Fighting the Good Fight in Minnesota

You may have seen the news that the Minnesota government has been shut down over the lack of a budget. Democrat-Farm-Labor (DFL) governor Mark Dayton (pouty-faced) has rejected the budget from the Republican run legislature, calling it draconian. The dispute is pretty simple. The Republicans want to hold the line on the budget and the governor does not. The cause of most of the budget woes come from increases in the Health and Human Services budget, which was previously papered over.

“We were given about $1.5 billion in stimulus dollars last time to help us weather the storm,” said Sen. Kathy Sheran, a Mankato Democrat who serves on the Senate Health and Human Services Committee.

Good to know the stimulus dollars were going to productive ends, like putting off the day of reckoning for state budgets. Meanwhile, the health care costs that make up 79% of the HHS budget in Minnesota are going up. The Republicans are right to come to grips with this reality, or it will consume future budgets with nothing but tax increases forever. From the same article:

Under current policies, the spending just for Medical Assistance would increase to $9.7 billion and would consume 79 percent of the HHS budget.

About half of the jump in costs is due to the aging population, which is creating an ever-growing number of elderly citizens in need of care, and growth in the number of low-income Minnesotans eligible for state-provided medical insurance, according to a nonpartisan legislative fiscal analyst. The other half of the skyrocketing price of Medical Assistance is inflation in the cost of medical services.

If Republicans wanted to be really bold, they might propose an insurance voucher plan to reign in these costs. Between rising costs to carry on business as usual, and the weight of increased pension obligations, we can anticipate more such fights in other states.

Interestingly, even some Democrats seem to be taking the issue of state spending seriously, even as their union supporters grumble about being betrayed. The math is inexorable. States that have kept government in check like Texas and Indiana are going to grow as businesses relocate. Reminds you a little of Atlas Shrugged, perhaps? (Shane, that's for you.)

Economics Literacy Link - Effects of Minimum Wage Law in Samoa

Prof. Mark J. Perry's blog Carpe Diem is a great source of wisdom on economic policy. Day after day, he explains examples of failed interventionist policies by government that have led to calamity. Undeterred the left continues to argue for more intervention. On Saturday, he blogged about American Samoa, which is under a Congressional mandate to gradually increase its minimum wage to that of the United States over the next few years. This has eroded its competitive advantage and caused huge economic impact. In studying the situation, the Government Accountability Office, not known for being a secret shelter of libertarians and conservatives had this to say.

1. In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available.

2. GAO questionnaire responses show that tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Private sector officials said the minimum wage was one of a number of factors making business difficult.

The money quote comes from the Governor of American Samoa:

4. Application of the U.S. minimum wage to American Samoa, pursuant to the scheduled increases mandated by Congress, continues to have devastating effects on American Samoa's economy. It is causing severe distortions in American Samoa's labor market. It has driven up labor costs such that businesses are being forced to cut employment, close or relocate.

Leftists in Congress, attempting to mandate prosperity through legislative action only cause increased poverty. This is all you need to know about government's attempts to run the economy.

Independence Day

I want to wish everyone a great 4th of July. We've got some great weather for the weekend here in San Diego, for my out of town readers. I previously expressed my thoughts on our past and future. We are looking forward to great fireworks if the EPA or coastal commission doesn't shut us down.
Hopefully, this will be the view, filled with right wing patriotism no doubt.

Impeach the President?

That was the left's cri de guerre when George W. Bush, who did have Congressional authorization, was conducting lawful wartime operations in Iraq and Afghanistan. Thursday's Air Force Times claims that U.S. piloted aircraft are conducting strike sorties in Libya, despite White House claims that our role is merely supportive. This is the fig leaf used by the administration to claim that we are not "at war." The State Department's top lawyer (pictured) was questioned by the Senate Foreign Relations Committee:

That view was echoed by the State Department’s top legal advisor, Harold Koh, who testified before the committee.

“We are far from the core case that most members of Congress had in mind when they passed the [War Powers R]esolution in 1973. They were concerned then about no more Vietnams. But we do not believe that the 1973 Congress intended that its resolution should be construed so rigidly to stop the president from directing supporting action in a NATO-led, [U.N.] Security Council-authorized operation [in Libya] with international approval," he said.

Note the use of the term "supporting action." However, the Air Force Times article discusses the fact that Air Force F-16's have been deployed in theater. F-16 are fighters are primarily used in air-to-air combat and but also in air-to-surface strikes. Further, here is what the AFRICOM had to say through it's public affairs office:

“U.S. aircraft continue to fly support [ISR and refueling] missions, as well as strike sorties under NATO tasking,” AFRICOM spokeswoman Nicole Dalrymple said in an emailed statement. “As of today, and since 31 March, the U.S. has flown a total of 3,475 sorties in support of OUP. Of those, 801 were strike sorties, 132 of which actually dropped ordnance.”

F-16CJ Falcon taking off for a "supporting mission."

Over 800 strike sorties, 132 bombing runs, but we're not at war Mr. Koh? If the President is going to blatantly ignore the war powers resolution and the constitution, what practical limit is there on his power?

Betting on America

This 4th of July weekend it is appropriate to take stock of the future of our nation, even as we celebrate its founding. Walter Russell Mead has an excellent opinion piece in today's WSJ titled "The Future Belongs to America." He argues that America is uniquely positioned to be the dominant nation of the 21st century. I couldn't agree more. This might surprise some of my readers who have read my analysis on the depths of our problems. They are in fact deep, but many other competitor nations face similar problems. Americans have a history of overcoming every adversity. We were the principle force in the world that defeated slavery, fascism and communism, all of which threatened to halt the spread of global freedom. Each victory took its toll in blood and national treasure, but our ideals, which most accord with the innate God-given spirit that resides in mankind, have prevailed. Further, when faced with a government that has obviously spent too much and made promises it could not keep, America spawned a movement that demanded less, not more government spending; that demanded less, not more government intervention in the economy. Meanwhile, in Europe, proposed cuts have been greeted with mass protests and violence. Our determination to deal with our problems head on, along with our dedication to freedom, including free markets, separates us from the rest of the world.

Mr. Mead's article sizes up the competition and finds it wanting, as well. A summary of his theses.

• China is not the threat we believe. Its Asian competitors are strong and rising and have no intention of falling under its hegemony. I would add that I believe India is the Asian nation that has the most promising future. They speak English, are improving their educational system and moving increasingly towards full capitalism.
  
• We have no other real rivals. No one seriously believes the EU will overtake us.
• The philosophy of Al-Qaeda and the Muslim Brotherhood is not a real long term threat. Their lack of belief in real democracy is increasingly opposed in the Arab world.
• In Latin America Chavez and Castro are jokes. Chilean and Brazillian moves towards ever greater capitalism and prosperity undermine the appeal of Caudillism.
  
• Scientific and technological driven change continues to accelerate. America is all about change, "it's our home court." I would add that our culture of freedom as well as our deeply rooted democracy enables us to negotiate technological change better than other nations.
  

Back to the subject of India, I think its success will only be good for the United States. As it renounces its socialist past, as it embraces democracy and as it population is tied together and to the world by the English language, they are a natural ally of the United States. I could eventually see a special relationship in Asia between our two countries, as our interests coincide so closely.

So have a happy 4th of July weekend. Celebrate our country's rich heritage and its founding on principles of freedom that have endured to sweep the world. And be optimistic about our future, because we have so much to be proud of in our past.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.

The Debt Limit and the Constitution

In order to stampede a deal on the debt ceiling, various Democrats have cited the constitution (at their convenience) regarding the debt of the United States. Here is the specific language, from the 14th Amendment, section 4.

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The language was intended to ensure that the victorious side, the Union did not repudiate its debt and reward its creditors and punish creditors who supported the rebellious South. So if the Congress fails to raise the debt ceiling, aren't they violating the constitution? Of course not. First, tax receipts are still flowing into the federal treasury. And there is plenty of revenue to cover the interest on the debt that has already been issued. In fact, tax receipts stand at 55 percent of expenditures. It would be up to the President to halt expenditures that required the issuing of fresh debt and ensure that interest on the debt is paid. The real question would be what would be cut. Obama could play with fire and cut social security payments for example, and blame the Republicans for not passing a tax on corporate jets. I would love to see how his re-election chances would fare then.

Further, the federal government holds considerable assets it could sell to pay down the debt. This is similar to an idea I saw floated for the Greek situation. In that scenario, the Greeks would issue bonds backed by real assets, islands, their airline, that bondholders could seize if the Greeks defaulted. Eventually, the United States is probably going to have to deal with its debts by selling off assets as well. The federal government sits on vast mineral deposits, national parks and other assets that will eventually be needed to deal with our own overhang of debt, just the way a family going through hard times might hold garage sales and auctions on eBay.

The federal government owns about 800 million acres of land. Could that yield $1000 per acre? Maybe, so there is an asset that might be worth $800 billion. Some of the land might fetch considerably more. The submarine base in Point Loma comes to mind as particularly pricey. The 1981 value of mineral rights held by the feds was once estimated at $800 billion in a 1986 research paper. Using the U.S. inflation calculator, that would be almost $2 trillion in today's dollars. The point is that the feds hold assets that might have to be sold to get the debt reduced.

Of course, the smart money will bet that we will inflate our way out of the debt, which help the well connected and harms the average American, but spreads the pain over time.

Weekend Music Chill

This weekend's music is from one of all time favorite bands. I bought many of their albums in the day.



And just because we like covers, here is Five Iron Frenzy with the music set to clips from the movie Thumbelina.