Tag: taxpayer

Postal Service Announces $8.5 Billion Loss

The U.S. Postal service has announced a net loss of $8.5 billion for fiscal 2010. Since 2006, the USPS has lost $20 billion, and the organization is close to maxing out its $15 billion line of credit with the U.S. Treasury. Although the USPS has achieved some cost savings, they haven’t been enough to overcome a large drop in revenue due to the recession and the greater use of electronic alternatives by the public.

The USPS is required to make substantial annual payments to pre-fund retiree health care benefits. Last year, Congress allowed the USPS to postpone $4 billion of its fiscal 2009 into the future. However, Congress did not provide similar relief on this year’s required payment of $5.5 billion.

Critics of the retiree health care pre-funding requirement argue that no other federal agencies or private companies face such obligations. The argument is largely irrelevant for two reasons. First, the federal government’s financial practices are nothing to emulate. Second, very few private sector workers even receive retiree health care benefits.

In 2008, only 17 percent of private sector workers were employed at a business that offered health benefits to Medicare-eligible retirees, down from 28 percent in 1997. The actual number of private sector workers receiving these benefits is even lower as not all employees employed at the 17 percent of businesses that offers retiree health benefits are eligible to receive them.

The retiree health care benefit pre-funding requirement has become a rallying cry for the postal unions, as any threat to USPS solvency is a threat to the excessive compensation and benefits they’ve been able to extract from the postal service for their membership over the years.

Policymakers should properly view the retiree health care benefit as a symbol of postal labor excess, which continues to weigh the USPS down like an anchor. Therefore, they should avoid allowing the USPS to further postpone these payments into the future, which could lead to a taxpayer bailout. Instead, policymakers should recognize that the USPS’s financial woes require bolder action: privatization.

The GM ‘Turnaround’ in Bastiat’s View

GM’s long-rumored initial public stock offering will take place Thursday and self-anointed savior of the U.S. auto industry, Steven Rattner, is pretty bullish about the prospect of investors turning out in droves. 

I’ve been saying for a while that I thought the government’s exposure [euphemism for taxpayer losses] in the auto bailout was in the $10-billion to $20-billion range.

But since investor interest has pushed the initial price up from the $26-to-$29 per share range to the $32-$33 range, Rattner now believes:

[T]his exposure is in the single-digit billion range, and arguably potentially better.

I won’t argue with Rattner’s numbers.  After all, they affirm one of my many criticisms of the bailout: that taxpayers would never recoup the value of their “investment.”  My bigger problem is with Rattner’s cavalier disregard for the other enduring—and arguably more significant—costs of the auto bailouts.

Rattner is like the foil in Frederic Bastiat’s excellent, but not-famous-enough, 1850 parable, That Which is Seen and That Which is Unseen.    Rattner touts what is seen, namely that GM and Chrysler still exist.  And they exist because of his and his colleagues’ commitment to a plan to ensure their survival, along with the hundreds of thousands (if not millions, as some “estimates” had it) of jobs that were imperiled had those companies vanished.  (For starters, I very much question even what is seen here. I am skeptical of the counterfactual that GM and Chrysler would have disappeared and that there would have been significantly more job loss in the industry than there actually was during the recession and restructuring.  But I’ll grant his view of what is seen because, frankly, the specifics are irrelevant in the final analysis).

For what is seen, Rattner admirably admits of a cost.  And that cost is not insignificant.  It is anywhere from $65 billion to $82 billion (the range of the cost of the bailout) minus what is being paid back and what investors are willing to pay for GM shares—in the “single-digit billion range,” as Rattner says.  But Rattner is willing to stand by that trade-off, claiming his efforts and the billions in “government exposure” were a small price to pay for saving the U.S. auto industry, as it were.  It’s merely a difference in philosophy or compassion that animates bailout critics, according to this position.

No.  Not so fast.  All along (quite contemptuously in this op-ed, which I criticized here) Rattner has been unwilling to acknowledge the costs that are unseen.  Those unseen costs include:

  • the added uncertainty that pervades the private sector and assigns higher risks and thus higher costs to investing and hiring (whom might government favor or punish next?);
  • the diversion of resources from productive to political purposes in the business community (instead of buying that machinery to churn out better or more lawn mower engines, better to hire lobbyists to keep Washington apprised of how important we are or how this or that policy might be beneficial to the national employment picture!);
  • excessive risk-taking and other uneconomic behavior that falls under the rubric of moral hazard from entities that might consider themselves too-big-to-fail (perhaps, even, the New GM!);
  • growing aversion to—and rising cost of—corporate debt (don’t forget what happened to Chrysler’s “preferred” bondholders in the bankruptcy process!);
  • the sales and market share that should have gone to Ford or Honda or VW as part of the evolutionary market process;
  • the fruitful R&D expenditures of those more disciplined companies;
  • the expansion of job opportunities at those companies and their suppliers;
  • productivity gains passed on to workers in the form of higher wages or to consumers as lower prices;
  • the diminution of the credibility needed to discourage foreign governments from meddling in markets, often to the detriment of U.S. enterprises.

 The list goes on.

 Yet, Rattner, seemingly oblivious to the fact that the economy remains stuck in the mire, speaks triumphantly of the successful auto bailout.  But nobody ever doubted that taxpayer resources in the hands of policymakers willing to push the bounds of legality could “rescue” GM from a fate it deserved.  The concern was that policymakers would do just that, leaving behind wreckage to our institutions not immediately discernible.  But anemic economic activity, 9.6 percent unemployment, and a private sector unwilling to invest is pretty darn discernible at this point.

Rattner should take off the tails, put down the champagne flute, and acknowledge what was originally unseen.

End ED — From the Left!

It’s no secret that expelling the U.S. Department of Education is something that a lot of libertarians, and conservatives who haven’t lost their way, would love to do. What’s not nearly so well known is that there are also people on the left who dislike ED. Now, they don’t dislike it because it and the programs it administers clearly exist in contravention of the Constitution, or because its massive dollar-redistribution programs have done no discernable good. They dislike it because, especially since the advent of No Child Left Behind, it strong-arms schools into doing things left-wing educators often disagree with or resent, like pushing phonics over whole language, or imposing standardized testing. Many also truly believe in local control of schools, though often with power consolidated in the hands of teachers.

Case in point is a guest blog post over at the webpage of the Washington Post’s Valerie Strauss. The entry is by George Wood, principal of Federal Hocking High School in Ohio and executive director of the Forum for Education and Democracy. He writes:

Everybody dislikes bureaucracies, but for different reasons. The “right” complains they are unresponsive, full of “feather-bedders,” and a waste of taxpayer money. The “left” complains they are unresponsive, full of people who are too busy pushing paper to see the real work, and too intrusive into local, democratic decision-making. Maybe we should unite all this new energy for making government more responsive and efficient around the idea of eliminating a bureaucracy that was probably a bad idea in the first place.

Remember that the Department of Education was a payoff by President Jimmy Carter to teacher unions for their support. Before that, education was part of the Department of Health, Education and Welfare.

That’s where I propose returning it. Here are several reasons why:

First, the current structure of the national Department of Education gives it inordinate control over local schools. The federal government provides only about 8% of education funding. But through through NCLB, Race to the Top, and innovation grants, they are driving about 100% of the agenda. Clearly this is a case of a tail wagging a very big dog.

Second, by separating education from health and welfare, we have separated departments that should be working very closely together. We all know, even if some folks are loath to admit it, that in order for a child to take full advantage of educational opportunities he or she needs to come to school healthy, with a full stomach, and from a safe place to live.

But the federal initiatives around education seldom take such a holistic approach; instead, competing departments engage in bureaucratic turf wars that, while fun within the Beltway, are tragic for children in our neighborhoods.

Third, whenever you create a large bureaucracy, it will find something to do, even if that something is less than helpful. After years of an “activist” DOE, we do not see student achievement improving or school innovation taking hold widely. We have lived through Reading First, What Works, and an alphabet soup of changing programs with little to show for it.

In fact, DOE has often been one of the more ideological departments, engaging in the battles such as phonics vs. whole language. Who needs it?

Who needs it, indeed!

As I have touched upon repeatedly since last week’s election, now is the time to launch a serious offensive against the U.S. Department of Education. I have largely concluded that because of the wave of generally conservative and libertarian legislators heading toward Washington, as well as the powerful tea-party spirit powering the tide. But this is a battle I have always thought could be fought with a temporary alliance of the libertarian right and educators of the progressive left who truly despise top-down, one-size-fits-all, dictates from Washington. There are big sticking points, of course — for instance, many progressives love federal money “for the poor” — but this morning, I have a little greater hope that an alliance can be forged.

Enough Community College PDA

Yesterday, President Obama hosted the White House Summit on Community Colleges, and in-your-face love was in the air. President Obama and Second Lady Jill Biden, a community college professor, couldn’t keep their hands off their signficant other, lavishing all sorts of praise on their favorite little schools.

Swooned Dr. Biden about the dreamy things community colleges do for their students:

They are students like the mother who shared her experience with us on the White House website of working towards a degree while raising three children and straddling financial challenges.  Now employed and the holder of a Bachelor’s and a Master’s degree, she wrote, “Community colleges didn’t just change my life, they gave me my life.”

Community colleges do that every day. 

Ick!

The President, too, couldn’t hide his affection:

So I think it’s clear why I asked Jill to travel the country visiting community colleges -– because, as she knows personally, these colleges are the unsung heroes of America’s education system.  They may not get the credit they deserve.  They may not get the same resources as other schools.  But they provide a gateway to millions of Americans to good jobs and a better life.

Like the guy with the locker next to Mr. and Mrs. Lovebird, all I can say is “oh, come on!”

Community colleges might be a good option for some people, but they are hardly paragons of educational success. Quite the opposite: According to the U.S. Department of Education, they have the worst graduation rates of any two-year sector of higher education. Only around 22 percent of public, two-year college students graduate within three years, versus roughly 49 percent of private, not-for-profit attendees and about 59 percent of private, for-profit students.

Wait! What’s that? Private, for-profit institutions outperform super-cute community colleges…by a lot? But they’re the ugliest, meanest, least popular kids in school!  Nobody likes them!

Oh, I know what’s going on here! For-profit schools cost a lot more than community colleges, right? That’s why they’re so disliked.

That’s true if you look at tuition prices. But community colleges get big subsidies from government, especially state and local taxpayers. So they might actually cost a lot, it’s just that they sneak the money out of your back pocket and then congratulate themselves for charging students so little.  

When you look at government expenditures per-pupil, including aid to schools and students, it becomes clear that community colleges are, in fact, just as mean and greedy as for-profits. Indeed, former Clinton administration economist Robert Shapiro has calculated that they are actually more costly to taxpayers than for-profit schools (see table 24). According to his calculations, two-year public schools cost taxpayers $6,919 per student, while private, for-profits cost just $3,628. 

No wonder the summit turned my stomach! At the same time the administration and its allies in Congress are bashing for-profit schools, the President has a love fest with community colleges that are generally much worse. Unfortunately, it leaves you concluding that for-profits could walk on water and it wouldn’t matter: As long as they’re honest about trying to make a buck, they’ll be beaten up in the parking lot and never invited to any of the cool summits.

Federal Employees and College Costs

For a long time now I’ve been writing about how student aid fuels explosive college costs, while Chris Edwards and Tad DeHaven have been highlighting the ever-cushier compensation of federal workers. Well, I’m pleased to have finally discovered a direct linkage between these topics: A new U.S. Office of Personnel  Management report on student loan repayment programs for federal workers.

According to the report, in calendar year 2009 “36 Federal agencies provided 8,454 employees with a total of more than $61.8 million in student loan repayment benefits.”

Now, 8,454 employees is a small chunk of the entire, roughly 2-million-person federal workforce. Still, $61.8 million isn’t anything to sniff at, and loan forgiveness is one more perk that needs to be considered when thinking of federal worker compensation. And then there’s the trajectory of forgiveness: According to the report, spending on student-loan forgiveness by federal agencies in 2009 was “more than 19 times” bigger than it was in 2002. Were things to continue at that rate, in 2017 the cost would be almost $1.2 billion, and then you’d almost be talking real money!

The important point from a student-aid perspective is to emphasize something that must never be forgotten: While many analyses of student aid will only count grants – because they don’t ever have to be paid back – as “aid,” the reality is that that hugely under counts the true cost of federal aid to taxpayers. In addition to grants, taxpayers fund all federal student loans (and eat them when they aren’t repaid), help finance work-study, and pay for federal expenses that people taking federal education tax credits don’t pay for. So when you look just at federal grants, the bill for taxpayers in the 2008-09 school year was about $24.8 billion (see table 1). Add in loans, credits, and work-study, however, and the bill suddenly balloons to nearly $116.8 billion.

“But wait,” will say the only-grants-are-aid crowd, “isn’t a lot of that $116.8 billion loan money that will be paid back?” Yup – it’s just that at least $61.8 million of that repayment is coming, once again, from beleaguered federal taxpayers. And that, to be sure, is just the tip of the federal loan-forgiveness iceberg.

Congress Begins Conference on Financial Regulation

Today begins the televised political theatre that Barney Frank has been waiting months for:  the first public meeting of the House and Senate conferees on the two financial regulation bills.  While there are a handful of important differences between the House and Senate bills, these differences are overshadowed by what the bills have in common.  The most important, and tragic, commonality is that both bills ignore the real causes of the financial crisis and focus on convenient political targets.

As our financial system was brought to its knees by an exploding housing bubble, fueled by government mandates and distortions, one would think, just maybe, that Congress would roll back these distortions.  Despite their role in contributing to the crisis and the size of their bailout, however, neither bill barely mentions Fannie Mae and Freddie Mac.   Except, of course, to continue their favored and privileged status, such as their exemption from a proposed new “consumer protection” agency.  What we really need is a new “taxpayer protection” agency.

Nor will either bill change the government’s meddling in what is probably the most important price in the economy:  the interest rate.  Given the overwhelming evidence that loose monetary policy was a direct cause of the housing bubble, one might expect Congress to spend time and effort preventing the Fed from creating another bubble.  Not only does Congress ignore the issue, the Senate won’t even allow GAO to look at the Fed’s conduct of monetary policy.

Instead of spending the next few weeks gazing into the camera, Congress should stop and gaze into the mirror.  This was a crisis conceived and born in Washington DC.  The Rayburn building serving as the proverbial back-seat of the housing bubble.

Robin Hood and the Tea Party Haters

What is it with modern American liberals and taxes? Apparently they don’t just see taxes as a necessary evil, they actually like ‘em; they think, as Gail Collins puts it in the New York Times, that in a better world “little kids would dream of growing up to be really big taxpayers.” But you really see liberals’ taxophilia coming out when you read the reviews of the new movie Robin Hood, starring Russell Crowe. If liberals don’t love taxes, they sure do hate tax protesters.

Carlo Rotella, director of American Studies at Boston College, writes in the Boston Globe that this Robin Hood is A big angry baby [who] fights back against taxes” and that the movie is “hamstrung by a shrill political agenda — endless fake-populist harping on the evils of taxation.” You wonder what Professor Rotella teaches his students about America, a country whose fundamental ideology has been described as “antistatism, laissez-faire, individualism, populism, and egalitarianism.”

At the Village Voice, Karina Longworth dismisses the movie as “a rousing love letter to the Tea Party movement” in which “Instead of robbing from the rich to give to the poor, this Robin Hood preaches about ‘liberty’ and the rights of the individual as he wanders a countryside populated chiefly by Englishpersons bled dry by government greed.” Gotta love those scare quotes around “liberty.” Uptown at the New York Times, A. O. Scott is sadly disappointed that “this Robin is no socialist bandit practicing freelance wealth redistribution, but rather a manly libertarian rebel striking out against high taxes and a big government scheme to trample the ancient liberties of property owners and provincial nobles. Don’t tread on him!” The movie, she laments, is “one big medieval tea party.”

Moving on down the East Coast establishment, again with the Tea Party hatin’ in Michael O’Sullivan’s Washington Post review:

Ridley Scott’s “Robin Hood” is less about a band of merry men than a whole country of really angry ones. At times, it feels like a political attack ad paid for by the tea party movement, circa 1199. Set in an England that has been bankrupted by years of war in the Middle East – in this case, the Crusades – it’s the story of a people who are being taxed to death by a corrupt government, under an upstart ruler who’s running the country into the ground.

Man, these liberals really don’t like Tea Parties, complaints about lost liberty, and Hollywood movies that don’t toe the ideological line. As Cathy Young notes at Reason:

Whatever one may think of Scott’s newest incarnation of the Robin Hood legend, it is more than a little troubling to see alleged liberals speak of liberty and individual rights in a tone of sarcastic dismissal. This is especially ironic since the Robin Hood of myth and folklore probably has much more in common with the “libertarian rebel” played by Russell Crowe than with the medieval socialist of the “rob from the rich, give to the poor” cliché. At heart, the noble-outlaw legend that has captured the human imagination for centuries is about freedom, not wealth redistribution….The Sheriff of Nottingham is Robin’s chief opponent; at the time, it was the sheriffs’ role as tax collectors in particular that made them objects of loathing by peasants and commoners. [In other books and movies] Robin Hood is also frequently shown helping men who face barbaric punishments for hunting in the royal forests, a pursuit permitted to nobles and strictly forbidden to the lower classes in medieval England; in other words, he is opposing privilege bestowed by political power, not earned wealth.

The reviewers are indeed tapping into a real theme of this Robin Hood, which is a prequel to the usual Robin Hood story; it imagines Robin’s life before he went into the forest. Marian tells the sheriff, “You have stripped our wealth to pay for foreign adventures.” (A version of the script can be found on Google Books and at Amazon, where Marian is called Marion.)  Robin tells the king the people want a charter to guarantee that every man be “safe from eviction without cause or prison without charge” and free “to work, eat, and live merry as he may on the sweat of his own brow.” The evil King John’s man Godfrey promises to “have merchants and landowners fill your coffers or their coffins….Loyalty means paying your share in the defense of the realm.” And Robin Hood tells the king, in the spirit of Braveheart’s William Wallace, “What we ask for is liberty, by law.”

Dangerous sentiments indeed. You can see what horrifies the liberal reviewers. If this sort of talk catches on, we might become a country based on antistatism, laissez-faire, individualism, populism, and egalitarianism and governed by a Constitution.