Archive for June, 2011

President’s Budget Can’t Be Scored

Friday, June 24th, 2011

As the President’s latest budget commission falls apart, it’s important to understand the lack of leadership we’re getting in Washington. Here’s a very quick video of an exchange between Paul Ryan and CBO Director Doug Elmendorf concerning President Obama’s budget framework.

YouTube Preview Image

In 2010, Democrats in the House and in the Senate failed to introduce or pass a budget. They seem to have forgotten that passing a budget is part of their job. In February of this year the President released a budget proposal that was so bad that even HE came out two months later to discuss a new budget framework. The problem is that all he did was issue a speech, not a new budget. Democrats have refused to release a budget proposal in either the Senate or the House. Republicans in the House have passed a budget. It’s time for the Democrats to step up and provide their own budget that can be scored by the CBO and scrutinized by the American people.

President ObamaBut you want to hear something funny? Let’s look back on how we got here. Instead of tackling the budget, the debt and the deficits, the President put together his bipartisan debt commission led by Erskine Bowles and Alan Simpson to study the problem, and recommend solutions. When the President introduced his budget earlier this year he ignored just about every recommendation from his own commission. And what does he do when it becomes clear that his budget proposal is a complete flop? He creates a new commission led by Vice President Biden.

Now for the funny part. In 2008, candidate Obama had this to say about John McCain’s suggestion to put together a commission to study a problem (found on Politico):

Just today, Senator McCain offered up the oldest Washington stunt in the book – you pass the buck to a commission to study the problem. But here’s the thing – this isn’t 9/11. We know how we got into this mess. What we need now is leadership that gets us out. I’ll provide it, John McCain won’t, and that’s the choice for the American people in this election.

You couldn’t make this stuff up if you tried.

Why Liberals Love Keynesian Economics

Tuesday, June 21st, 2011

I was visiting with a relative a few years ago. He was a self-described liberal at the time. I asked him what he believed the primary function of government should be. His response: “The redistribution of wealth.”

Do you know a single liberal who would not advocate for increasing taxes on the rich?

I am a fiscal conservative and a social liberal. A man without a party. I have many friends who consider themselves to be liberals, meaning that they’re fiscally liberal as well as socially liberal, though most of them would probably not make a differentiation between the two. Some of them are environmentalists. Some advocate for women’s rights. Others focus on gay rights, or education, or poverty, or minority rights, or health care. These are all issues I have a great deal of compassion for. But the tie that binds liberals is the belief that we should raise taxes on the rich in order to expand government programs to fix social issues. Redistribution of wealth.

John Maynard KeynesSo how does this relate to Keynesian Economics?

I wrote two articles about Keynesian Economics back in March (Keynesian Economics Insufficient and The Stimulus and the CBO). I won’t rehash what we’ve already covered, but there is a core belief among Keynesians that is relevant to this discussion. Keynesians believe that for every dollar that is spent by the government, GDP will increase by more than a dollar. They call it a multiplier effect. Keynesian Economists have developed a series of formulas and multipliers they use to predict the growth of GDP from government expenditures. The government can “spend” money in many different ways, and these economists assign different multiplier values to each of these. And these economists believe that as GDP increases, jobs are created. They have a formula for that, too. So using these multipliers and formulas, they can predict the number of jobs that will be created as the government spends more money. (This is how the CBO has concluded that the Obama stimulus created jobs despite all evidence to the contrary.)

Redistribution of wealth is a political agenda. Keynesian Economics is a view of economics that states that when the government spends money, GDP rises, and jobs are created. It is my belief that many on the left gravitate to Keynesian Economics for just this reason. When you can justify endless government expenditures under the belief that we can solve our social issues while improving the economy, then what possible reason could there be to limit the growth of government? All we have to do is continue to raise taxes on the rich, increase funding to government programs, and we solve our problems. If you read Paul Krugman, the economist and writer for the New York Times, this is certainly what he has advocated for years.

Well, the problem is that Keynesian Economics has been found lacking. The expansion in the federal government did not create jobs, and did not fix the economy.

The Obama Stimulus
So does that mean that the Obama stimulus plan failed? If your measurement is what we were told by its supporters before the bill was passed, then yes, the stimulus failed. The economy has continued to struggle, and unemployment has far surpassed the administration’s original predictions.

But it would be a huge oversimplification to blame the stimulus for the current condition of the economy. In many ways, it would be just as dishonest as the Keynesians who continue to say that the stimulus created millions of jobs and kept us from a depression. The stimulus does not live in a vacuum. And to pretend that it does is illogical at best, and dishonest by those who should know better.

There is a larger narrative here. The stimulus bill was flawed, but certainly contained some tax cuts and business incentives that many would agree are good for the economy. And there’s a case to be made that under certain conditions, some government expenditures do benefit the economy. But the larger issue is that for everything that was done right, and there were a few, there were many more that were done wrong that have stifled economic growth. Unprecedented federal deficits and a huge expansion of the federal debt. The looming threat of increasing tax rates. An incoherent energy policy. The implementation of ObamaCare. New federal regulations, many from the EPA and the  banking reforms, that will cost businesses billions of dollars to implement. The projected growth and insolvency of entitlement programs including social security, Medicare and Medicaid. Unfunded liabilities to government employee pension plans. The list goes on and on. The administration has earned its reputation of being unfriendly to the business community. And the business community has responded by running for cover.

So did the stimulus fail? What if the stimulus had been accompanied by reductions in needless regulations, permanent reductions in tax rates and real tax reform, a free market approach to health care reform, entitlement reform, a legitimate plan to tackle our debts and deficits, and fiscal discipline from Congress? Do you believe that our economy would be better off today? Worse? The answer to that question is what separates fiscal conservatives from fiscal liberals.

A Final Note
Dishonesty is a primary reason that I don’t like most politicians and members of the media. I continue to hear from the administration how the stimulus kept us from a depression, despite a complete lack of evidence to support their conclusion. Nobody was predicting a depression before the stimulus bill was passed. And it’s revisionist history now to say that we would have gone into a depression without the bill. Here’s an article from IBD that explains how the data shows that the recession had already leveled off BEFORE the stimulus bill went into effect. Here’s a short piece from the article:

The conclusion is that in claiming to have staved off a Depression, the White House and its supporters seem to be engaging in a bit of historical revisionism.

Economists weren’t predicting a Depression.

White House economists forecast in January 2009 that, even without a stimulus, unemployment would top out at just 8.8% — well below the 10.8% peak during the 1981-82 recession, and nowhere near Depression-era unemployment levels.

The same month, the Congressional Budget Office predicted that, absent any stimulus, the recession would end in “the second half of 2009.” The recession officially ended in June 2009, suggesting that the stimulus did not have anything to do with it.

This and That on Politics — 06-17-2011

Friday, June 17th, 2011

Lots going on around the country. Just a few thoughts for a Friday morning.

Mitt RomneyGOP Contenders and Pretenders
It’s way too early to get hung up on the polls showing support, and lack of support, for many of the Republican presidential hopefuls. We’re still about a year and a half out from the election. An eternity in political years. At this same point in time in prior elections, we wouldn’t have found strong and cohesive support for eventual winners such as Jimmy Carter, Ronald Reagan or Bill Clinton, so it would be a mistake to conclude what will happen during the Republican nomination process based off of the early polls.

For the last year the media has talked about the big four: Mitt Romney, Sarah Palin, Mike Huckabee and Newt Gingrich. Two aren’t running, and Gingrich will be a non-factor. He had no chance before a series of missteps sabotaged his campaign. I’ve always felt like it was Romney’s race to lose, and that he would do just that. Lose.

If you had asked me a couple months ago, my prediction would have been that the eventual nominee would come from a handful of governors such as Mitch Daniels, Chris Christie, Haley Barbour or Tim Pawlenty. But this dynamic changed significantly when three of the four decided not to run, and Pawlenty has failed to gain any traction towards the nomination. It’s still too early to know for sure, but Pawlenty just doesn’t look like he can excite either the Republican establishment or the Tea Party activists. Most of the rest of the field looks unelectable, but I would again issue the warning that it’s far too early to draw such conclusions.

Dick Morris has an interesting analysis of the nomination process. He describes that the Republicans are currently in the quarter finals where they will narrow it down to one establishment candidate, and one more conservative candidate. Morris lists Romney, Pawlenty and Jon Huntsman (who has informally announced his intention to enter the race) as the likely establishment candidates, with Romney as the most likely winner from this group. He also lists Michele Bachmann or Herman Cain, and to a smaller degree Gingrich, as the most likely to emerge as the main opposition to Romney. Dick’s analysis only considers those who are currently running.

Personally, I believe that Bachmann, Cain and Gingrich are all unelectable. But I’ve been wrong before. I wasn’t convinced that Americans were ready to elect a black president, and am glad to admit that I underestimated the American people.

My prediction? I think it’s incredibly likely that somebody else is going to enter and impact the race, with the most likely being Rick Perry, the governor of Texas. The Tea Party activists will like his track record of creating jobs in Texas. And he could appeal to many in the Republican establishment. Truthfully, I know little about Rick Perry, and am not endorsing him, and won’t bother spending any time researching him until he officially declares his intentions. But if I was a betting man? I think Perry has a very strong chance to win the nomination given what we know about the current field.

So now I’ve ignored my own warnings about coming to conclusions this early in the process.

Economy is in Bad Shape
According to DNC party chairwoman Debbie Wasserman Schultz: “We own the economy. We own the beginning of the turnaround and we want to make sure that we continue that pace of recovery, not go back to the policies of the past under the Bush administration that put us in the ditch in the first place.”

This pace of recovery? You mean the 1.8% economic growth this last quarter and the rise in the unemployment numbers?

This does seem to fly in the face of President Obama’s continued assertion that the current economic conditions remain Bush’s fault. I’m glad to see one Democrat stand up and admit that their party owns the economy. They do. Expect to see the Republicans use this repeatedly against the Democrats for the next year and a half.

For some strong analysis on the current state of the economy, read this from Martin Feldstein in the WSJ. I don’t completely agree with his comments on the stimulus, but overall he’s right on the money. The strongest paragraph:

The economy will continue to suffer until there is a coherent and favorable economic policy. That means bringing long-term deficits under control without raising marginal tax rates—by cutting government outlays and by limiting the tax expenditures that substitute for direct government spending. It means lower tax rates on businesses and individuals to spur entrepreneurship and investment. And it means reforming Social Security and Medicare to protect the living standards of future retirees while limiting the cost to future taxpayers.

Feldstein was the chairman of the Council of Economic Advisers under President Reagan, and is a professor at Harvard.

Weiner-Gate is Over, We Think
Yesterday afternoon, Anthony Weiner announced his resignation from the House of Representatives. I don’t want to spend a lot of time rehashing what happened. As long as we have politicians, we will have political scandals. It happens in both parties. It’s happened before. And it will happen again.

But there are a couple things we should learn from this:

1. Don’t take on the media. Gary Hart was the front-runner for the Democratic in 1988. When reports started to leak about his infidelity, Hart dared the media to follow him. And follow him they did. What was Hart thinking? Who knows. But the media quickly got pictures of Hart with Donna Rice, and Hart’s political career was over.

Weiner thought that he was smarter than the media, and could lie his way out of his mess. What was he thinking? Who knows. He basically dared the media to dig up the truth with his ongoing press conferences and interviews. You can’t sit there and blatantly lie to the media and expect even the most liberal of media outlets to ignore you forever.

2. Tell the truth. Isn’t this something we were all taught as children? The lesson should be simple. Tell the truth and throw yourself on the mercy of the American people. Overall, we’re a forgiving people. I suspect that Weiner could have weathered the storm if on that first day he had just said “I screwed up. I have told my wife what I’ve done, and we will work through this. I apologize to everybody…” The mainstream media would have been happy to brush this story aside. Some rightwing bloggers would have hung on for a week or two, but it likely would have gone away.

3. Moral leadership from our politicians is rare. And I struggle with this a bit. We should hold our elected officials to high standards. Yet I’m tired of career politicians, and would like to see term limits placed on Congress. And if we want to elect the best people to these offices, we will need to overlook a few skeletons in their closets. I could have overlooked this behavior in Weiner if he hadn’t so brazenly come out and lied about it.

Just ask Richard “I am not a crook” Nixon. The truth will come out, and you better be on the right side of it.

President and Media Say Tax Rates Too Low

Saturday, June 4th, 2011

President Obama“I say that, at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.” — President Obama, April 13, 2011

A few weeks ago I posted an article about tax revenues as a percentage of GDP. My point at the time was to explain how tax rates have had little effect on tax revenues generated. Whether tax rates have been high or low, we have typically generated about the same tax revenues as a proportion of GDP. The great truth is that it’s the economy that drives tax revenues, NOT tax rates. The higher the GDP, the higher the tax revenues.

The President and his partners in the media are making the claim that, as Jake Tapper from ABC News puts it, “the U.S. has the lowest tax rate as a percentage of GDP since the 1950s.” This claim in not only inaccurate, it’s intentionally misleading. The message is that our tax rates are too low, and that’s why we are now collecting less tax revenue as a percentage of GDP.

The accurate statement would be that “tax revenues” as a percentage of GDP are at their lowest since 1950. This statement carries a different meaning than saying “tax rates”. But the truthful statement doesn’t fit the President’s agenda, or the media’s agenda, of raising taxes on the “rich”.

So let’s look at the facts.

The post-World War II average of tax revenues as a percentage of GDP is 17.8%. So given the comments made by the media and the President, you would expect during the Bush years that we must have been collecting less than this. Here are the numbers:

2001: 19.5%
2002: 17.6%
2003: 16.2%
2004: 16.1%
2005: 17.3%
2006: 18.2%
2007: 18.5%
2008: 17.5%
2009: 14.9%
2010: 14.9%

From 2001-08 (the Bush years), that’s an average of 17.6% of GDP, roughly equivalent to the 60 year average of 17.8%.

So what do these numbers show us? That during a time of lower tax rates compared to our historical average, we have still been collecting the same percentage of tax revenues compared to GDP that we have collected for the past 60 years.

Also, when you look at these numbers, you see how the numbers decline during and following the last recession (the one that Bush inherited in the early 2000s), and then grow as our economy continues to recover and expand. By 2007 under the Bush tax rates, we were well above the post-World War II average collecting 18.5% of GDP in tax revenues. Then as we head into this latest recession, the numbers begin to decline again. But this time they fall more dramatically. Why? Because the economy fell more dramatically.

The changing tax revenues over time are the result of fluctuations in the economy, not tax rates. Raising or lowering the tax rates will not have a substantial effect on tax revenues generated as a percentage of GDP. Want to increase tax revenues? Fix the economy.

Taxing the Rich Makes Tax Revenues More Volatile
I had already been thinking about writing this post (I have a long list of potential posts rattling around in my brain that I never get around to writing), but this morning I read an interesting article on IBD about this very subject. (Read the article here.) They expand on these facts, and explain how shifting more of the tax burden to the rich and to business only makes tax revenues more volatile during a recession. Here’s what I found most interesting in the article:

It’s not that we’re taxed too little, but that the tax burden is heavily skewed toward an increasingly narrow, volatile tax base — businesses and the “rich.”

Together, income taxes paid by corporations and the wealthiest 5% of Americans account for a stunning 41% of all federal revenues. At the other end of the spectrum, almost half of Americans pay no federal income tax at all.

As a result, federal revenues now swing more wildly between boom and bust. Here’s why:

Although liberals will never admit it, the rich typically suffer big income losses during recessions.

An IBD analysis of Internal Revenue Service data shows that the total adjusted gross income of the top 5% of taxpayers fell 11% from 2007 to 2008 (the most recent year for which the IRS has data), while the bottom half of taxpayers saw their AGI decline just 0.3%.

As a result, tax payments from the top 5% plunged $70.6 billion — accounting for 84% of the revenue loss over those two years, the IRS data show.

And as corporate profits dry up in a downturn, so do corporate tax payments.

Broadening the tax base would minimize this whipsaw effect, as evidenced by the fact that even as income tax revenues plunged, the far more broad-based payroll taxes — paid by every worker — climbed slightly.

If Democrats have their way, the federal tax burden will be even more skewed toward the “rich,” which will, in turn, make federal revenues still more volatile.

The moral of the story? We badly need tax reform, not increases in tax rates on the wealthy and on business. Both the Obama debt commission and Paul Ryan have suggested lowering the tax rates and eliminating deductions in order to broaden the base of tax payers. Personally, I don’t think that goes nearly far enough. Our tax system needs to be completely overhauled. But don’t hold your breath.

Note: Tax facts found here.

Congress Votes on Budgets and Debt Limit

Wednesday, June 1st, 2011

CongressA couple interesting tidbits from Washington this last week.

The Budget Vote
In the Senate, four different budgets came to the floor and were voted on by senators. All were defeated. I did some googling over the weekend to read the coverage from the press. Virtually every story detailed how the “controversial” Paul Ryan budget had been defeated 40-57. And at least half of the stories I read from the major media outlets completely ignored that President Obama’s budget had been voted down 0-97.

Here’s one sample article from ABC News. The headline is “Senate Shoots Down Controversial Ryan Budget & President Obama’s Plan, Too”. At least ABC News mentioned Obama’s budget, which they must not consider controversial at all. The explanation from ABC News, which echoed the rest of the mainstream media when the Obama budget was mentioned, was that the Democrats were “voting against it because they believe it is outdated”.

I have a problem with this explanation. The President gave a speech outlining some different priorities than the budget proposal he had released just a couple months ago, but has never actually released an updated budget. His original budget proposal is still displayed on the White House website. And for that matter, the democrats in the Senate have not proposed a budget in more than 750 days. So the President’s budget proposal IS the most recent budget proposed by Democrats.

The Debt Ceiling Vote
In another vote that was purely political, the House voted on a “clean” bill to raise the debt ceiling by about $2 trillion. The President has been requesting a clean bill on a debt ceiling increase, meaning that there are no budget cuts or other proposals tied to the bill. There were 114 Democrats in the House who had signed a pledge in support of President Obama’s preference for a clean bill. But when the vote came to the floor, it went down 318-97 with 7 Democrats voting “present”. Nearly half of the Democrats voted against the bill. Of the 114 Democrats who had signed the pledge for a clean bill, 29 ended up voting AGAINST the clean debt ceiling bill.

This bill was expected to fail, and was intended to fail. The only question was which Democrats would vote for or against the bill. And who would cowardly vote “present”.