Bush Tax Cuts Did Not Cause Budget Deficits

As Congress begins their hand-wringing exercise about whether to extend the so-called Bush tax cuts, there has been a lot of chatter about how doing so would harm our economy.

Vice President Biden has been among the most opinionated.

"Doing so, he said, would cost $700 billion, worsen the nation's already dire financial situation and, in his words, is "just bad economic policy."

It must be true then that federal tax receipts dropped off a cliff in the years following the enactment of the Bush tax cuts because, you know, no one paid any tax, right?

Well, not exactly.

Federal tax receipts in 2001 were $1,991 billion. By 2009 (when federal tax receipts collapsed due to the recession), federal tax receipts were up to $2,105 billion.

What this demonstrates is that the budget deficit the country faces today is NOT due to a shortfall in revenue, but rather to overspending by the federal government.

Therefore, any "fix" to this problem that addresses the revenue side will prove to be a short-lived solution, unless and until government spending is addressed.

Federal Government to Prevent "Improper Payments"

In yet another sign that the federal government is an over funded, grotesquely wasteful bureaucracy, President Obama announced that he has signed legislation which has the aim of reducing the $100 billion plus of "improper" payments made each year.

"Federal agencies would have to redouble their efforts to identify and recover billions of dollars lost annually to wasteful spending under a bill President Barack Obama was signing into law Thursday.

He also was expected to announce a goal of reducing improper payments by $50 billion by 2012.

With the federal debt and people's worries about government red ink mounting, the bill marked the latest effort by the Obama administration to get a tighter handle on Washington spending.

Improper payments — from outright fraud to checks issued to the wrong person or for the wrong amount because of a typo — reached a high of nearly $110 billion last year, according to the White House. Federal auditors found that millions of dollars in benefits went to dead people, fugitives or others not eligible for them.

Key elements of the bill will require more agencies to report waste and to produce audited, corrective action plans with targets to reduce the errors that lead to such improper payments. The bill also requires all agencies that spend more than $1 million to conduct recovery audits on their programs."

How much more of a sign do we need that the government simply wastes the money it extracts from the populace? This bill doesn't even address wasteful payments made by the government, just payments made in error.

And by seeking to reduce the amount of annual improper payments only by roughly half, the federal government is signaling that it is either ok with the remaining amount of waste or is acknowledging that it is powerless to prevent a staggering amount of waste from occurring.

Is it possible that at least some of these apparently unauditable and unknown "improper payments" are knowingly made by federal employees to their friends or cronies? I think so.

How many for-profit businesses have a problem with "improper payments" on a scale of anything remotely like this? None that I'm aware of. Even if they did, they would fix this issue post-haste, and not settle for resolving only 50% of the problem.

This is simply another reason to de-fund the federal government, since the funds it claims from ordinary citizens as tax revenue are either wasted on programs that shouldn't exist in the first place, are otherwise improperly paid to people that aren't owed what they receive, or are simply being stolen outright.

China Gives Pass To Congress

China recently passed up a "golden" opportunity to browbeat the US Congress in to reigning in federal spending and in effect stop forcing the Federal Reserve to monetize the US debt.

"China on Wednesday ruled out the "nuclear" option of dumping its vast holdings of U.S. Treasury securities but called on Washington to be a responsible guardian of the dollar.

In the third in a series of statements explaining its work to the Chinese public, the State Administration of Foreign Exchange sought to allay concerns in the outside world that arise whenever Beijing shifts its holdings of U.S. government debt.

"Any increase or decrease in our holdings of U.S. Treasuries is a normal investment operation," SAFE, the arm of the central bank that manages China's official currency reserves, said.

It said it constantly adjusts its portfolio to maximimise returns, and any changes to its U.S. Treasury portfolio should be seen in that light and not interpreted politically.

In a series of questions and answers posted on its website, www.safe.gov.cn, SAFE asked rhetorically whether China would use its $2.45 trillion stockpile of reserves, the world's largest, as a "nuclear weapon".

SAFE said such concerns were completely unwarranted."

Exercising the "nuclear option" would probably do as much harm to China, at least in the short term, as it would to the US. That is because selling its enormous reserve of US Treasuries would flood the market, causing their overall value to plummet.

However, a plummeting value ultimately to zero is the long-term fate of US Treasuries anyway.

As a result, China would have been better served demanding that Congress get its fiscal house in order and stop running budget deficits, so as to protect its investment in the Treasuries that it currently holds.

City of Maywood Lays Off All Government Workers

Maywood, California, a small bedroom community just outside of Los Angeles, may soon be viewed as the poster child for how to deal with the budget deficits faced by states and municipalities across the country.

"Tiny Maywood, Calif., laid off every single one of its city employees on Wednesday.

But that doesn't mean the city is closing up shop. City Hall will still be open, as will Maywood's park and recreation center. Police will continue to patrol the streets.

They just won't be staffed by Maywood employees. The city can't have any staff because it can't get liability or worker's compensation insurance for them. Maywood's carrier, the California Joint Powers Insurance Authority, dropped it earlier this month in part because of several police-related claims.

Instead of declaring bankruptcy, Maywood officials decided to outsource all city functions. The Los Angeles County Sheriff's Department will patrol the streets, while the neighboring city of Bell will cover other city functions, such as staffing City Hall.

Maywood already relies on contract workers and outsources many city services. The director of parks and recreation, for instance, is a contractor, and the city's lights, landscaping and street sweeping are handled by private companies. Los Angeles County maintains the library and fire department."

It is notable that Maywood is making this change not necessarily to slash costs but rather due to its inability to obtain insurance coverage at an agreeable price. Seems that the local police force has been a little, ahem, overzealous in enforcing the law.

The massive budget deficits that have occurred at the state level are largely due to excessive pay and benefits that have been lavished on state workers. And it's no surprise why this has been the case. Public employee unions tend to vote as a block, so any state lawmaker who wants to be reelected knows he or she has to make nice with the union.

The big upside for state governments across the nation is that fixing the pay scale and the cost of service they provide goes a long way towards fixing the budget deficits.

From my perspective, there does not seem to be a reasonable objection to Maywood's move.

Public employees across the country have so completely overreached in recent years in demanding significant pay increases and outsized pensions, that any cries about the dislocation this wholesale change will cause should fall on deaf ears.

To the extent that society has an interest in ensuring a particular service is provided, it does not follow then that the government itself has to perform that service. Contracted labor is just another means of providing the service, and because the labor can be purchased in a competitive process from potentially multiple providers, as opposed to a single entrenched bureaucracy, it should reduce the overall costs and in effect give a tax cut to the citizens that ultimately have to fund these costs.

President Obama Open to Spending Cuts?

President Obama yesterday announced his intention to call the Republican's "bluff" on out-of-control deficit spending.

"President Barack Obama held a press conference at the conclusion of the G 20 Summit in Toronto this evening, and the highlight came at the very end when he called out the GOP rhetoric on the deficit. Obama said, “I hope some of these folks hollering about deficit and debt step up, because I am calling their bluff.

The President continued and later blasted the Republicans and called out the GOP rhetoric, “I’m doing because I said I was going to do it and it’s the right thing to do, and people should learn that lesson about me, because next year when I start presenting some very difficult choices to the country, I hope people who are hollering about deficits and debt start stepping up, because I’m calling their bluff and we’ll see how much of that, how much of the political arguments they’re making right now are real and how much of it was just policies.”

If he's being honest, well then I can't wait for that debate to fire up!

There's practically no spending cut the President can propose that any person worried about exploding federal deficits and ridiculous amounts of public debt should object to.

Social security? Among the potential solutions are to raise the retirement age, means-test, and decrease promised future benefits.

Military? Slash it. Big-time. This might be the opportunity to pull US troops out of most of the 140-odd countries that we find ourselves today. Return it to its original mission of protecting the US proper, not our trade partners.

Medicare? This is a tough one. Any reasonable forecast of future spending associated with Medicare demonstrates that its costs will very soon completely dwarf the taxes paid in to it. I'm open to any and all ideas on this, but my initial thinking is colored by the idea that at some point medical care that Person A desires but expects Person B to pay for has to be rationed in a very meaningful manner.

President Obama signaling that he's open to spending cuts presents an outstanding lead-in for deficit hawks to shape the debate and provide their own ideas on how spending should be cut in a way that enables us to not only balance our budget as a nation, but begin to repay the debt that we foolishly took on over the past 40 years.

Free Health Care a Recipe for Insolvency

Although President Obama and his lackeys in Congress recently jammed through a Health Care bill that will nominally require all Americans to purchase health care insurance, the reality is that the federal government will continue to subsidize the premiums for a substantial percentage of the "insured" and the overall costs to the insurance companies and those that are paying their own premiums will skyrocket.

The problem, of course, is that people who have a medical ailment of any kind, will expect that all treatments and prescriptions are explored to return their health to a more optimal condition. These treatments and prescriptions obviously will be very expensive, and will lead to all sorts of fiscal issues for our country.

On a related note, an AP story this morning supports the idea that a lot of money spent on health care is currently being wasted.

"More medical care won't necessarily make you healthier — it may make you sicker. It's an idea that technology-loving Americans find hard to believe.

Anywhere from one-fifth to nearly one-third of the tests and treatments we get are estimated to be unnecessary, and avoidable care is costly in more ways than the bill: It may lead to dangerous side effects."

Practitioners preaching education for patients are quick to point out that they are not talking about limiting patient choices.

"This is not, I repeat not, rationing," said Dr. Steven Weinberger of the American College of Physicians, which this summer begins publishing recommendations on overused tests, starting with low back pain.

It's trying to strike a balance, to provide appropriate care rather than the most care. Rare are patients who recognize they've crossed that line.

There's no talk of watching one's diet and engaging in moderate, life-long exercise however, which are the two best things that people can do to maintain optimal health throughout their lives.

Forcing some people (through taxes, subsidies, etc.) to pay for another's health care is probably the main reason the US is quickly approaching fiscal doom.

Once people figure out that they can have all kinds of tests and medications prescribed for themselves and another person has to pay for it, expect demand for the former to increase substantially (even from its already-high level), and for the federal budget deficit and public debt to explode.

US Government Continues to Overspend

Reports today indicate that the federal budget deficit in April was the highest ever for the month, and demonstrate that clueless politicians in Washington DC continue to have no idea how to get the federal budget under control.

"The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department said on Wednesday.

It was more than twice the $40-billion deficit that Wall Street economists surveyed by Reuters had forecast and was striking since April marks the filing deadline for individual income taxes that are the main source of government revenue.

Department officials said that in prior years, there was a surplus during April in 43 out of the past 56 years."

What's it going to take to have our elected officials show some backbone and reduce spending so that all of this borrowing ceases?

It's absolutely ridiculous to continue borrowing money at this point, which will have to be paid back by future generations, only to spend it on frivolous federal programs.

Hopefully the American populace is paying attention and will take appropriate action at the Senate and House level in November by voting for candidates that promise to reduce spending in Washington.

Tax Cut Pledge Showdown in Texas

Taxpayers in Texas are left with two choices for governor in the upcoming election. One candidate, incumbent Republican Governor Rick Perry has signed an anti-tax-increase pledge, while his opponent, Democrat Bill White refuses to do so.

"White says he's not tax-happy and wants to scrub the budget of waste. But he won't take the tax issue off the table, recently telling a Texas Tribune forum that he needs to “look under the hood” before deciding how to approach the problem."

The choice in Texas is pretty stark, and should be easy for voters to decide on.

One does not need to "look under the hood" to know that spending in Texas can easily be cut in order to balance the state budget.

Saying that one needs more time, in effect a statement that taxpayers should "elect me first, and then I'll let you know!" shows that candidate White has not studied the budget and spending plans in sufficient detail and signals that he in fact intends to raise taxes if elected.

Taxpayers in Texas have been forewarned.

NY Lt. Governor - Let's Borrow Our Way Out Of Our Fiscal Mess!

New York Lt. Governor Richard Ravitch recently proposed that the state simply borrow its way out of its current budget predicament.

"Albany would sell bonds to cover operating expenses under one controversial cure being floated by Ravitch, who is working on a four-year long-term plan to stabilize the state's finances.

To avoid having to get voter approval for adding to the state's already staggering $60.4 billion debt load, Ravitch's plan would look to issue the bonds through a public authority."

First of all, 'kicking the can' down the road for future generations to deal with the economic implications of New York state's unwillingness to address their budget issues is cowardly and gutless.

Secondly, it's underhanded and devious to then subvert voters by undertaking the new borrowing through back channels (using a public authority).

Taxpayers in New York state should send a message to Albany that the state's fiscal issues need to be resolved now, through decreased state spending that is brought in-line with state tax revenues. To do anything less is a disservice to current and future taxpayers.

Illinois "Watchdog" Group Proposes Massive Tax Increase

The Civic Federation, a self-styled watchdog group whose includes business and professional leaders from a wide range of Chicago-area companies and institutions, recently proposed increasing the state income tax by 60%, among other tax-raising proposals.

"The group says it would support a state income tax increase from 3 percent to 5 percent. It also recommends the state tax retirees’ pension and Social Security checks be taxed for the first time at the same rate as workers’ paychecks. They want another $1 increase on a pack of cigarettes and to eliminate $181 million in corporate tax breaks."

One has to wonder how many of the individuals and companies that are expected to pay more tax under this plan will actually stick around, rather than moving to a state that's less hostile to their interests.

Incredibly, the group attributes Illinois' fiscal woes to the states' historic under-spending on public employee pensions!

"“Illinois’ fiscal crisis has been many years in the making. It was caused by more than 30 years of pension underfunding and many years of spending unfettered by the state’s shrinking revenue resources,” said Msall."

I think the good folks at the Civic Federation know what the real solution is to Illinois massive budget deficit. The solution is for politicians simply to stop overspending the allowance given to them by taxpayers. Get spending back in line with the money given to them by taxpayers, and the problem goes away.

Oregon Candidate for Governor Threatens Fiscal Doomsday on State

Bill Bradbury, running for Governor of Oregon, recently made campaign-related promises that should send chills down the spine of every tax-paying citizen of Oregon.

"Bradbury delivered a fiery, emotion-packed speech, promising to add $2 billion to public school budgets by trimming 5 percent off the tax credits and deductions the state offers.

“It is time to stop making excuses and to start fully funding education in this state,” Bradbury said. He criticized Kitzhaber for failing to support a plan that would give schools an immediate and dramatic infusion of cash.

“My opponent says fully funding education is just a slogan,” Bradbury said, referring to himself as the sole optimist in the race. “I gotta tell you, I categorically reject that cynicism.”"

Oregon has a projected multi-billion budget deficit, which will not be fixed with new taxes. Candidates for office in Oregon need to disclose how they plan to fix that problem and not propose new spending that will only add to the fiscal woes.

Voters in Oregon would be wise to reject Mr. Bradbury and his plan to bury them with even more taxes. But if they don't, they will be getting exactly what they deserve.

PA Governor Challenges Call for Budget Cuts

Pennsylvania Governor Ed Rendell, who will leave office this fall after elections upon being term limited, launched into the Republican candidate for governor, Tom Corbett, about the latest call for budget cuts to eliminate the multi-billion dollar budget deficit.

“When you hear the political candidates — both Democrats and Republicans — say, ‘We don’t have to raise taxes. We can do it by cutting the budget,’ there’s no way they can do it by cutting the budget,” Rendell said."

Of course you can eliminate the deficit by cutting spending Ed. You have just been unwilling to do it because budget cuts would directly affect the non-tax-paying class of citizens that originally voted you into state office 8 years ago.

Governor Rendell challenged the Republican candidates to specifically mention what items would be reduced or eliminated in the state budget.

“One of the things I think the media should do is, when someone says that, say, ‘Where? Tell us where you’re going to cut and what the consequences of that should be. If you’re going to cut the Department of Conservation and Natural Resources 20 percent, what parks are you going to close? The citizen have the right to know. What museums and what scenic outposts are you going to close?’”

That's a fair question. Candidates for office that are proposing to reduce spending as a means of addressing budget deficits should be prepared to discuss where and to what extent items already within the budget would be cut.

But with all the fat that's built up in these budgets over the past couple of decades, that should not be a difficult challenge at all.

New Jersey Governor Off to an Impressive Start

New Jersey Governor Chris Christie is off to an impressive start in his first few months in office. He's attacking spending, considering targeted tax cuts and generally has the left-wing in an uproar.

"In nine days, Gov. Chris Christie will present a budget that attempts to reverse everything from the Corzine years.

Working families will be thrown off health care programs. Bus and train fares will go up by 25 percent. School aid will likely be slashed, a blow that will land hardest on lower-income districts that depend on Trenton most. Even unemployment checks will get the squeeze. And all that won’t get him even halfway to a balanced budget."

Notice the loaded language: that people will be "thrown off" various health care programs. Yep, I'd say the formerly powerful left-wing is getting more and more upset that their carefully crafted socialist programs are being discarded or at least not fully funded.

And why shouldn't they be? New Jersey is one of the highest tax states in the Union. Taxpayers in that state are already being taxed to death.

Just because politicians, in a bid to be reelected, made outlandish promises of money they didn't have to people looking to be subsidized by others, doesn't mean that those promises must be kept.

Politicians should keep in mind that taxpayers are not willing to follow through on all of their grand plans, especially if doing so will send said taxpayer to the poor house.

Chicago Tribune Editorial: No New Taxes!

The Chicago Tribune recently published an editorial that discusses ways that the state of Illinois should try to balance their budget without resorting to tax increases.

"Gov. Pat Quinn is 10 days away from a budget address in which he'll reassert that you should pay higher taxes. He'll say the State of Illinois cannot eliminate a $12.8 billion shortfall that's been years in the making without more of your money.

We haven't voted yes or no on this. For 13 months, though, we've published editorials such as "Before you raise taxes," "First, spend smarter" and "12 steps before a tax hike." Last week the Civic Federation of Chicago struck a similar chord in its state salvage plan: The Federation said that only if Illinois enacts changes to retirement benefits and rolls back much spending to 2007 levels, the group then would support raising income taxes on workers and employers. "Desperate times," says Federation President Laurence Msall, "demand reasonable approaches."

Clearly all that ills Illinois can be fixed with budget cuts.

Yes, there will be spending cuts for education (and rightfully so since state spending on education has grown 67% to $26b over the past 10 fat years), unionized state workers might lose some of their retirement benefits, etc.

In fact, there are so many places to look for savings that the entire budget "crisis" could and should be solved in a manner of days.

Nevada Looks at 6.9% Cut to Education Spending

In an interesting compromise that could see the state of Nevada reduce its spending on education by 6.9%, lawmakers continue to try to make progress in addressing a nearly $900m state budget deficit.

"On education, Gibbons had proposed a 10 percent cut in state spending on kindergarten through 12th grade and higher education for a potential savings of $250 million. Democrats were pushing for a 5 percent reduction."

Of course, the usual critics of decreased state spending will emerge with their typical alarmist hand-wringing about "the children".

It's laughable to think that educational results in the state of Nevada will be negatively affected with such a small reduction in spending. The Nevada Policy Research Institute already addressed that issue last year in an interesting report.

There is simply no correlation to spending money and results. If anything, they are most likely inversely related (i.e., if one goes up, the other goes down, etc.).

What would improve educational results is increased parental involvement in the lives of their kids - nothing more, nothing less.

Having the government tax and spend more and more of the hard-earned money of Nevada workers is not the solution to poor educational results. So the proposal here to reduce spending should be applauded.

The only remaining question is to ask why the state should stop at 6.9%?

Illinois Still Sorting Out Options on Deficit

Illinois politicians are still considering their options for the projected $12b deficit. For now, they seem to be leaning towards some combination of tax hikes and spending decreases.

"Mr. Quinn, a Democrat running for re-election in November, proposed cutting $2 billion in general-fund spending for the fiscal year, including $1.3 billion from education and $380 million from human services. The governor is also reviving his proposal to increase income-tax and corporate-tax rates to boost revenue. Last year, he pushed unsuccessfully to raise the individual income-tax rate to 4.5% from 3%."

A predictable but nonetheless interesting fallout of this debate is the fact that more than a thousand people rallied at the Capitol last week for tax increases at the state level!

Why do I have the sneaking suspicion that proponents of tax increases know that they themselves will have to pay more, but rather that others will have to do so.

As unpalatable as tax increases may seem to some, this type of discussion is being held exactly where it should be - at the state level. Any taxpayer in Illinois who is ultimately unhappy with seeing his (or her) taxes rise is then free to move to another state that is not so generous with other people's money.

Illinois Ready to Explode

The state of Illinois is facing a $11b budget deficit as politicians on the left and right debate whether spending cuts or tax hikes, or some combination of the two, are the way to go.

"A powerful civic group in Chicago is calling for an increase in the state income tax and some budget cuts from Springfield.

The Civic Federation says there is no other way to fix the state's finances than to raise taxes. The business organization blames the state's fiscal mess on years, if not decades, of mismanagement by Springfield politicians."

Wow, "no other way"?!? Sorry, that seems like a lame attempt to take both sides of this issue.

At least some politicians realize that tax hikes are not the way this issue will be fixed.

"House Speaker Michael Madigan, who is trying to hold on to his party's majority in the fall election, now questions the need for a tax increase. And Republican leaders, including Senate minority leader Christine Radogno, are not impressed by the Civic Federation report.

"I most certainly don't subscribe to the notion that the first line of defense is to raise taxes. I think that's entirely counter-productive," said Radogno.

For the past year, Gov. Pat Quinn has advocated for an income tax increase. His likely Republican opponent in the fall, Senator Bill Brady said,"the state cannot afford to raise taxes. Every time you do it, you lose businesses and jobs. We need to lower taxes."

Raising taxes to continue to feed an over-stuffed governmental bureaucracy is not the way out of the budgetary mess. The state of Illinois needs to show that it is serious in reigning in its chronic overspending before they even think of approaching residents about a potential tax increase.

Let's open the books to have an honest look at state contracts, union salaries and benefits, and the results of the misguided overspending on 'education', before deciding that giving even more money to the government is the "only way".