Archives: 02/2009

Obama’s $1.3 Trillion Tax Hike

Here are some notes on the tax proposals in the new federal budget:  (See Table S-6; All figures are 10-year totals)

  • There are $770 billion in “tax cuts for families and individuals.”  However, the fine print on page 129 shows that $326 billion of that is actually spending, or the “refundable” portion of the tax changes. That leaves a net $444 billion in tax cuts for individuals.
  • The budget would impose a $646 billion tax increase from new “climate revenues,” which would create a burden on families in the form of higher energy prices.  Thus, there is a net tax hike on “families” of about $202 billion, even aside from the income tax increases at the top end.
  • Income tax increases on those with higher incomes total $637 billion. Note that these hikes land on both individual filers and the huge number of small businesses that file through the individual system.
  • Other tax hikes on businesses total a net $183 billion.
  • Finally, Obama proposes to limit deductions for higher earners to raise $318 billion.
  • Thus, President Obama proposes to hike taxes by a net $1,340 billion, or about $1.3 trillion, over the next decade. That’s the last thing we need to recover from recession and to compete in the global economy in coming years.

Obama Budget Irresponsibility Inconsistency

Page 14 of the President’s FY2010 budget “blueprint” contains a section called “Fiscal Irresponsibility” that deserves scrutiny:

“Another manifestation of irresponsibility is the large budget deficits we are inheriting. These deficits, over time, will harm economic growth and impose burdens on our children and grandchildren.”

True.

“Between 2000 and 2008, real Government outlays increased at a 3.6 percent annual average rate, three times the 1.2 percent annual average rate between 1992 and 2000…Furthermore, the amount of debt held by the public has nearly doubled to $6.4 trillion from 2001 to 2008. We are now living with the fallout of this deep fiscal irresponsibility.”

True.

“Unfortunately, we are also inheriting the worst economic crisis since the Great Depression—which will force us to increase deficit spending temporarily as we try to jumpstart economic growth.”

Time-out.  The administration accurately states that federal spending and debt have increased at a detrimental pace this decade.  Then it says we’re in the worst economic crisis since the Great Depression. 

And the solution to the economic downturn caused in part by too much spending and debt is to increase deficit spending and further run up the national debt?  By the administration’s own logic, shouldn’t we be experiencing economic growth with all the deficit spending it “inherited?”

How to Spend a Trillion Dollars without Waste and Fraud

You can’t.

And the federal government knows it. On Tuesday,

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud….

Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”

With the government having already allocated $700 billion for TARP, and $787 billion for “stimulus,” and President Obama now calling for $635 billion for health care and a federal budget soaring to $3.6 trillion – well, you’d think two government reports on the likelihood of fraud and waste would be news. But this testimony didn’t make the New York Times or the Washington Post. There was a small inside story in the Wall Street Journal.

One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:

you cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Saying “nobody messes with Joe” is not a solution to the inevitability of waste and fraud when an unaccountable bureaucracy is spending trillions of other people’s dollars.

President Obama’s Budget: Higher Taxes & Bigger Government

“As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day… Not because I believe in bigger government – I don’t. Not because I’m not mindful of the massive debt we’ve inherited – I am.”
     –President Obama to congressional joint session, February 24

President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.

Americans have a fundamental choice to make in coming months: Do they want President Obama and Congress to impose huge increases in the size of government, perhaps as dramatic as occurred in the 1930s and 1960s?

Apart from defense, federal spending has hovered around 16.5 percent of the economy since 1980, through both Democratic and Republican administrations. But under President Obama, nondefense spending is soaring to 23 percent of the economy this year and will remain at historic high levels in the future.

Even after current stimulus spending is supposed to end, nondefense spending is expected to be more than 19 percent of the economy – or 25 percent more than the size of government during the later Clinton years.

Americans need to decide whether they want the European-sized government that President Obama is promising – with all its damaging effects on individual freedom and economic growth – or whether they want to return to the greater prosperity of the smaller-government Clinton years.

Whither the F-22?

I have been thinking for months about canceling my print subscription to the Washington Post, but I just can’t seem to pull the trigger. Now I have a new reason for holding onto the messy things just a little while longer: those full-page advertisements for the F-22.

They have appeared almost every day for the past few weeks – full-colored ads that boast “95,000 employed, 300 million protected.” They feature pictures of smiling workers who (presumably) would be thrown out of work if we were to stop building the planes. They claim that the F-22 keeps us all safe and secure, now and well into the future. The ads tell us that the F-22 is essential both to our physical security, and our economic security. It just wouldn’t be the same if all that happy talk were confined to flashing banners on my computer screen.

But while the Post is surely happy to keep taking both my subscription money and the revenue from the International Association of Machinists and Aerospace Workers and the 13 companies that paid for the ads, I’m still not convinced that the F-22 is worth the money (more than $350 million per plane).

Neither is Fred Kaplan (maybe he is reading the online version of the Post?)

It likely won’t be the last word in the debate, but Kaplan’s latest at Slate makes a pretty good case for what I’ve been saying for some time: If the plane cannot be justified on its strategic merits, then it is unfair for 299,105,000 Americans to pay merely to keep 95,000 employed. Our defense decisions should be driven by strategic necessity, not slick advertising campaigns and dubious claims about the economic harm that will come if some people have to switch jobs.

Fairfax County Schools to Fill Budget Gap by Cutting …um, Track?

Here’s a great example of a recurring problem in news coverage: reporters too often seem to think it’s their job to act as uncritical mouthpieces for government officials. This is a particularly grievous problem in reporting on education, where they think that covering both sides of the story means calling a school district rep and a teachers union spokesperson for a quote and then paraphrasing press releases from both.

From the Washington Post on the, as the headline screams, “Bitter Medicine In Fairfax Budget”:

[County Executive Anthony H.] Griffin suggested freezing school funding at $1.6 billion, the same level as the current year, despite a projected enrollment increase of 5,000 in the 169,000-student system. School officials, who had asked for a $57 million funding increase, must now trim programs or lobby supervisors for more money.

The reporting makes it sound as if Fairfax schools are spending a total of $1.6 billion on a projected 174,000 students. The reporters probably think that’s the case … per-pupil spending at just over $9,000. It may be double the national median private school tuition of $4,000, but hey, it’s the government.

If one happens to look at the actual school district budget, one would find that they plan to spend $3.05 billion… that’s about $17,500 per student! Oh well, only 91 percent higher than the implied cost.

Superintendent Jack D. Dale predicted in January that if the county did not increase school funding, the schools would have to raise average class size by two students, eliminate summer school and cut some popular after-school activities, including indoor track. Dale said it would take decades for the school system to recover.

Really? No fat in a budget of $17,500 per student besides summer school, track, and “popular after-school activities?” And track is their talking-point example? How much can track possibly cost; there isn’t any equipment!

Next time the Post might want to do some, you know, reporting.