Tag: obama

American Education, From Camelot to Obamaville

The president has relentlessly called for a more extensive—and expensive—federal role in education. Here’s just one example:

The human mind is our fundamental resource. A balanced Federal program must go well beyond incentives for investment in plant and equipment. It must include equally determined measures to invest in human beings—both in their basic education and training and in their more advanced preparation…. Without such measures, the Federal Government will not be carrying out its responsibilities for expanding the base of our economic… strength.

And if we spend all those new federal dollars on k-12 education, the president promised that “it will pay rich dividends in the years ahead.”

But here’s the strange part: in that same speech, the president made this seemingly ridiculous claim:

Our progress in education over the last generation has been substantial. We are educating a greater proportion of our youth to a higher degree of competency than any other country on earth.

It’s actually not so ridiculous when you learn that the president who said it was John F. Kennedy, in February of 1961. Back then, we really had been making educational progress.

Aside from the ill-fated National Defense Education Act of 1958, the federal government had made no attempt to improve k-12 academic achievement or attainment in the four decades before JFK… and yet, as he noted, American education did in fact improve during that period.

But within a couple of years of JFK’s assassination, Congress passed the Elementary and Secondary Education Act, now known as the No Child Left Behind Act. And in the four plus decades since, the feds have spent roughly $2 trillion trying to improve outcomes and attainment. Over that course of years, both graduation rates and academic achievement at the end of high school have been flat or declining.

Perhaps it could be argued that JFK couldn’t have known better. There was no history showing him what an expensive failure U.S. federal education spending would turn out to be. But the same cannot be said of President Obama, or of those in Congress who continue to tell the public, and presumably themselves, that fed ed. spending is a useful “investment.”

Today, we can look back at a half-century of failed federal education programs. We can think about how much better off the U.S. economy and our children would be if we hadn’t thrown $2 trillion at a calcified school monopoly that cannot spend money efficiently.

And reflecting on that history, perhaps we’ll find the wisdom not to repeat it.

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Little Student Loan Relief, and Never for Taxpayers

Today’s big news is that the Obama administration – thanks to those crisis-ignorin’ creeps in Congress – is going off on its own to reduce purportedly devastating student loan burdens. Well, that’s the message. The reality is that the proposals just tinker around the edges, meaning debtors are getting little relief while the notion that it’s okay to stick taxpayers with other people’s obligations is advanced.

What would the administration’s proposals do? There are several little wrinkles, but basically this: New, income-based repayment rules will be hurried a bit so that borrowers’ payments are capped at 10 percent of discretionary income (likely meaning income above 150 percent of the poverty line) rather than 15 percent, and remaining debt would be forgiven after 20 years rather than 25. In addition, borrowers with loans from both the now-defunct guaranteed loan program – loans through banks that are almost completely backed with federal money – and loans that come directly from Uncle Sam can consolidate those loans and get an interest rate reduction. In point of fact they could do the same thing before, only the administration is offering a .25 point interest reduction in addition to the .25 points that were previously offered.

Here, though, is the really miraculous part: According to the U.S. Department of Education, “these changes carry no additional cost to taxpayers.” Don’t ask how that can be – they don’t say – just rest assured!

For what it’s worth, these changes probably won’t cost taxpayers a whole lot, at least in Washington spending terms. Many borrowers don’t have both guaranteed and direct loans, and a normal federal loan has a ten-year term, meaning most borrowers probably aren’t still paying back twenty years down the line. Finally, while college prices are without question out of control, the average debt for a student graduating with any debt is still only around $27,000. That’s a heck of a lot closer to a car loan than a mortgage.

That said, the idea that any of this won’t cost taxpayers is bunk. They ultimately back all federal student loans, so unless Washington intends to send in the 82nd Airborne to force lenders with remaining guaranteed loans to write them off – which maybe I shouldn’t put past the feds – lenders will get paid. And any direct loans that get less money returned are immediate taxpayer losses. And yes, direct loans probably do make money for the federal government, but those receipts were pledged to Obamacare and deficit reduction when the Student Aid and Fiscal Responsibility Act was rolled into the health care bill to make the CBO numbers come out right. Change the revenue, and it means you’ve saddled taxpayers  with more health care costs, or less supposed deficit reduction, than had been promised with Obamacare. And don’t even get me started on how any reduction or forgiveness of debt encourages students to borrow more and pay even higher tuition prices.

In light of all this, it looks like everyone is being sold a bill of goods by the administration: borrowers won’t get much relief, and taxpayers will indeed get saddled with additional costs.

As You’ll See, Student Loans Hurt Us All

Suddenly, student loans are nearing the top of the nation’s public policy debate. Indeed, President Obama is expected to make a big speech about them on Wednesday. Why the sudden ascendance? Probably because the burden of student loans is one of the few things OWSers are clearly angry about, and that has raised questions ranging from whether such loans should be dischargable in bankruptcy, to whether they help fuel the Saturn V rocket of college price inflation. And last Sunday GOP presidential contender Ron Paul jumped into the fray, suggesting we eliminate the federal student loan program entirely.

Paul is right about phasing out federal student loans. Unfortunately, that’s likely the last thing President Obama will propose.

The first reaction to hearing such a proposal is that it’s Grinch-level heartlessness, stealing a better future from low-income kids. That is almost certainly what the president would say, and such a reaction would likely poll well. That’s why he’s expected to propose lowering interest rates, easing repayment, and other borrower-friendly measures. But as I lay out in a Cato Policy Analysis to be released imminently, by most indications federal student aid and other taxpayer-fueled subsidies aren’t good for anyone. (Well, anyone not employed by a college or university, the ultimate receiving end of all the forced largesse). By artificially—and hugely—boosting consumption, they ultimately lead to massive tuition inflation, encourage millions of unprepared people to take on studies they never finish, and pour H2O into already watered-down degrees. In other words, student aid—including federal lending—is likely a net loss to both students and society.

But I’ve already said too much. If you want to get a lot more on this—and more on the many unintended evils of federal college policies—stand by for the release of my study. And if you’re in DC, come to Capitol Hill Thursday for a briefing on the subject with me and Rep. Virginia Foxx (R-NC). It should give OWSers, libertarians, conservatives, liberals, and anyone else lots to think about.

Obama-Reid ‘Jobs’ Bill Soaked in Greece

A stated aim of the Obama-Reid jobs bill is to preserve the “competitive edge” that our “world-class” education system purportedly gives us. In an attempt to do that it would throw tens of billions of extra taxpayer dollars at public school employees.

A few problems with that: we’re not educationally world-class; we don’t have a competitive edge in k-12 education; and this bill would actually push the U.S. economy closer to a Greek-style economic disaster.

First, the belief that increasing public school employment helps students learn is demonstrably false. Over the past forty years, public school employment has grown 10 times faster than enrollment. If more teachers union jobs were going to boost student achievement, we’d have seen it by now. We haven’t. Achievement at the end of high school has been flat in reading and math and has declined in science over this period. I documented these facts the last time Democrats decided to stimulate their teachers union base, just one year and $10 billion ago.

So what has our public school hiring binge done for us? Since 1980, it has raised the cost of sending a child from Kindergarten through the 12th grade by $75,000 – doubling it to around $150,000, in 2009 dollars.

And what would going back to the staff-to-student ratio of 1980 do? It would save taxpayers over $140 billion annually.

But don’t those school employees need jobs? Of course they do. But we can’t afford to keep paying for millions of phony-baloney state jobs that have no impact on student learning. We need these men and women working in the productive sector of the economy – the free enterprise sector – so that they contribute to economic growth instead of being a fiscal anchor that drags us ever closer to the bottom of the Aegean. Freeing up the $140 billion currently squandered by the state schools would provide the resources to create those productive private sector jobs.

Continuing to tax the American people to sustain or even expand the current bloat, as Obama and Reid want to do, cripples our economic growth prospects by warehousing millions of potentially productive workers in unproductive jobs. The longer we do that, the slimmer our chances of economic recovery become. This Obama-Reid bill is such an incredibly bad idea, so obviously bad, that it is hard to imagine any remotely well-informed policymaker supporting it… unless, of course, they think the short term good will of public school employee unions is more important than the long-term prosperity of the American people.

New Video Shows the War on Poverty Is a Failure

The Center for Freedom and Prosperity has released another “Economics 101” video, and this one has a very powerful message about the federal government’s so-called War on Poverty.

As explained by Hadley Heath of the Independent Women’s Forum, the various income redistribution schemes being imposed by Washington are bad for taxpayers – and bad for poor people.

The video has a plethora of useful information, but the data on the poverty rate is particularly compelling. Prior to the War on Poverty, the United States was getting more prosperous with each passing year and there were dramatic reductions in the level of destitution.

But once the federal government got involved in the mid-1960s, the good news evaporated. Indeed, the poverty rate has basically stagnated for the past 40-plus years, usually hovering around 13 percent depending on economic conditions.

Another remarkable finding in the video is that poor people in America rarely suffer from material deprivation. Indeed, they have wide access to consumer goods that used to be considered luxuries - and they also have more housing space than the average European (and with Europe falling apart, the comparisons presumably will become even more noteworthy).

The most important message of the video, however, is that small government and economic freedom are the best answers for poverty. As Hadley explains, poor people can be liberated to live meaningful, self-reliant lives if we can reduce the heavy burden of the federal government.

Last but not least, the video doesn’t address every issue in great detail, and there are three additional points that should be added to any discussion of poverty.

  1. The biggest beneficiaries of the current system are the army of bureaucrats that receive very comfortable salaries administering various programs.
  2. The Obama Administration is looking to re-define poverty in a way that would expand the welfare state and increase the burden of redistribution programs.
  3. The welfare reform legislation of the 1990s was a small step in the right direction because it eliminated a federal entitlement and shifted responsibility back to the state level. This success story should be replicated for programs such as Medicaid.

This last point is worth emphasizing because it is also one of the core messages of the video. The federal government has done a terrible job dealing with poverty. The time has come to get Washington out of the racket of income redistribution.

Happy Fiscal New Year (with an Unhappy Obama Hangover)

Today, October 1, is the first day of the 2012 fiscal year.

And if you’re wondering why America’s economy seems to have a hangover (this cartoon is a perfect illustration), it’s because politicians had a huge party with our money in FY2011.

We don’t have final numbers for the fiscal year that just ended, but let’s look at the CBO Monthly Budget Report, the CBO Economic and Budget Update, and the OMB Historical Tables, and see whether there’s anything worth celebrating.

  • The federal government spent about $3.6 trillion in FY2011, more money than any government has ever spent in a 12-month period in the history of the world.
  • The FY2011 budget is nearly double the burden of federal spending just 10 years earlier, when federal outlays consumed “only” $1.86 trillion.
  • The federal budget in FY2011 consumed about 24 percent of national output, up sharply compared to a spending burden in FY2001 of “just” 18.2 percent of GDP.
  • Defense spending is too high, and has increased by about $400 billion since 2001, but the vast majority of the additional spending is for domestic spending programs.
  • Federal tax revenue in FY2011 will be about $2.25 trillion, an increase of 7-8 percent over FY2010 levels.
  • Economic stagnation has affected tax revenues, which are lower than the $2.6 trillion level from FY2007.
  • Federal receipts amount to about 15.3 percent of GDP, below the long-run average of 18 percent of GDP.
  • The Congressional Budget Office does predict that revenues will rise above the 18-percent average - without any tax increases - by the end of the decade.
  • Record levels of government spending, combined with low revenues caused by a weak economy, will result in a $1.3 trillion deficit.
  • This is the third consecutive deficit of more than $1 trillion.
  • The publicly-held national debt (the amount borrowed from the private sector) is now more than $10 trillion.

With budget numbers like these, no wonder America has a fiscal hangover.

And let’s be blunt about assigning blame. Yes, Obama has been a reckless big spender, but he is merely continuing the irresponsible statist policies of his predecessor.

Fortunately, there is a solution. All we need to do is restrain the growth of federal spending, as explained in this video.

But we also know that it is difficult to convince politicians to do what’s right for the nation. And if they don’t change the course of fiscal policy, and we leave the federal government on autopilot, then America is doomed to become another Greece.

The combination of poorly designed entitlement programs (mostly Medicare and Medicaid) and an aging population will lead to America’s fiscal collapse.

One Simple Reason (and Two Easy Steps) to Show Why Obama’s Soak-the-Rich Tax Hikes Won’t Work

It’s hard to keep track of all the tax hikes that President Obama is proposing, but it’s very simple to recognize his main target – the evil, nasty, awful people known as the rich.

Or, as Obama identifies them, the “millionaires and billionaires” who happen to have yearly incomes of more than $200,000.

Whether the President is talking about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting money, the goal is to have these people foot the bill for a never-ending expansion of the welfare state.

This sounds like a pretty good scam, at least if you’re a vote-buying politician, but there is one little detail that sometimes gets forgotten. Raising the tax burden is not the same as raising revenue.

That may not matter if you’re trying to win an election by stoking resentment with the politics of hate and envy. But it is a problem if you actually want to collect more money to finance a growing welfare state.

Unfortunately (at least from the perspective of the class-warfare crowd), the rich are not some sort of helpless pinata that can be pilfered at will.

The most important thing to understand is that the rich are different from the rest of us (or at least they’re unlike me, but feel free to send me a check if you’re in that category).

Ordinary slobs like me get the overwhelming share of our income from wages and salaries. The means we are somewhat easy victims when the politicians feel like raping and plundering. If my tax rate goes up, I don’t really have much opportunity to protect myself by altering my income.

Sure, I can choose not to give a speech in the middle of nowhere for $500 because the after-tax benefit shrinks. Or I can decide not to write an article for some magazine because the $300 payment shrinks to less than $200 after tax. But my “supply-side” responses don’t have much of an effect.

For rich people, however, the world is vastly different. As the chart shows, people with more than $1 million of adjusted gross income get only 33 percent of their income from wages and salaries. And the same IRS data shows that the super-rich, those with income above $10 million, rely on wages and salaries for only 19 percent of their income.

This means that they – unlike me and (presumably) you – have tremendous ability to control the timing, level, and composition of their income.

Indeed, here are two completely legal and very easy things that rich people already do to minimize their taxes - but will do much more frequently if they are targeted for more punitive tax treatment.

  1. They will shift their investments to stocks that are perceived to appreciate in value. This means they can reduce their exposure to the double tax on dividends and postpone indefinitely taxes on capital gains.  They get wealthier and the IRS collects less revenue.
  2. They will shift their investments to municipal bonds, which are exempt from federal tax. They probably won’t risk their money on debt from basket-case states such as California and Illinois (the Greece and Portugal of America), but there are many well-run states that issue bonds. The rich will get steady income and, while the return won’t be very high, they don’t have to give one penny of their interest payments to the IRS.

For every simple idea I can envision, it goes without saying that clever lawyers, lobbyists, accountants, and financial planners can probably think of 100 ways to utilize deductions, credits, preferences, exemptions, shelters, exclusions, and loopholes. This is why class-warfare tax policy is so self-defeating.

And all of this analysis doesn’t even touch upon the other sure-fire way to escape high taxes - and that’s to simply decide to be less productive. Most high-income people are hard-charging types who are investing money, building businesses, and otherwise engaging in behavior that is very good for them - but also very good for the economy.

But you don’t have to be an Ayn Rand devotee to realize that many people, to varying degrees, choose to “go Galt” when they feel that the government has excessively undermined the critical link between effort and reward.

Indeed, if Obama really wants to “soak the rich,” he might want to abandon his current approach and endorse a simple and fair flat tax. As explained in this video, this pro-growth reform does lead to substantial “Laffer Curve” effects.

But you don’t have to believe the video. You can check out this data, straight from the IRS website, showing how those evil rich people paid much more to the IRS after Reagan cut their tax rate from 70 percent to 28 percent in the 1980s.