A Fed President says there is no Inflation while the Price of the Big Mac says Otherwise

Posted by PITHOCRATES - April 13th, 2014

Week in Review

Inflation is bad according to Rep. Chris Van Hollen.  And, therefore, we need baseline budgeting (taking last years’ spending and automatically adding more to it to arrive at the budget for the following year) to overcome the corrosive effect of inflation on government spending.  And he illustrated this by showing how inflation has increased the price of a Big Mac over the years (see Members of Congress debate budget with Big Macs by Eric Pfeiffer posted 4/8/2014 on Yahoo! News).

On Tuesday, two members of Congress got into a detailed discussion over inflation, with Rep. Chris Van Hollen using pictures of hamburgers  to argue that inflation estimates are necessary to undercut future budgets.

Holding up a chart that showed the average cost of a McDonald’s Big Mac in 2004 ($2.71) compared with its cost today ($4.62), Maryland Democrat Van Hollen argued that not adjusting budget numbers for inflation equates to a net cut.

But while arguing that we need baseline budgeting to counter rampant inflation we have someone whose job is to keep inflation from rearing its ugly head in the economy saying quite another thing (see Fed’s Evans ‘exasperated’ by inflation warnings by Greg Robb posted 4/9/2014 on MarketWatch).

Many people who argue that inflation is just around the corner have been repeating the same warning for the past five years, said Charles Evans, the president of the Chicago Federal Reserve Bank, on Wednesday. “I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation,” Evan said in a speech at an economic policy conference in Washington D.C. Evans said he still sees the economic environment pointing to below-target inflation “for several years.” Evans debunked current arguments that inflation is just over the horizon. He said that there is “substantial room” for stronger wage growth without inflation pressures building and added the Fed’s large balance sheet is not a “classic warning sign” of inflation. Commodity prices also seem to be an unlikely propellent of inflation at the moment, he said.

So while Rep. Chris Van Hollen is wringing his hands over the rampant inflation everywhere that we can only counter with baseline budgeting the president of the Chicago Federal Reserve Bank gets exasperated by people like Rep. Chris Van Hollen.  Because there is no inflation that he can see.  And it’s his job to find inflation.  So he can stop it.  So who’s right?  They can’t both be right.  Of course, the price of the Big Mac has gone up through the years.  But there is only one problem with Rep. Chris Van Hollen presentation in Congress (see the Yahoo! News article linked to previously).

Regardless of which side of the debate you fall on, there was one falsehood on display at the House committee hearing on Tuesday. As The Washington Post noted, those hamburgers used in Van Hollen’s charts weren’t actually Big Macs.

That’s right.  With all the resources our representatives have at their disposal they could not even take the time to get a picture of the right hamburger.  Perhaps because the only beef our representatives eat is the tenderloin and wouldn’t be caught dead ‘slumming’ it at a McDonald’s.  Food the vast majority of Americans find delicious.  But then again, we’re not a bunch of pompous, arrogant, condescending prima donnas like our representatives, are we?

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FT158: “Journalists are more partisan than wise.” —Old Pithy

Posted by PITHOCRATES - February 22nd, 2013

Fundamental Truth

The Mainstream Media sacrifice their Journalistic Integrity to help the Obama Administration Advance their Agenda

The president has warned that the $85 billion in spending cuts of the sequester will gut government programs leaving Americans at great peril.  This despite baseline budgeting automatically increases spending every year.  From 1974 (after Nixon decoupled the dollar from gold and the government adopted baseline budgeting) through 2008 (before the spending orgy of the Obama administration) federal spending increased approximately 7.5% each year.  Crunching the numbers for the spending increase from 2012 to 2013 we get $284.7 billion.  Applying the cuts of the sequester reduces this increase in spending to $199.7 billion.  We will spend more in 2013 than we did in 2012.  Even AFTER the sequester cuts.  So all the peril the president is warning us about is not real.  He’s lying for political gain.

Yet the mainstream media is discussing this issue as if there are real cuts in spending.  That we will reduce spending in the numerous government programs the president warns about if we let the sequester happen.  Less food inspection.  Less airport security.  Fewer police officers.  Fewer firefighters.  Fewer teachers.  Fewer flu vaccinations.  And less childcare.  In their reports they discuss these as a matter of fact.  When they are just not true.  And it’s no secret.  Anyone can do what we did and look at federal outlays and see the automatic spending increases each year.  And see that we will still spend more in 2013 after the sequester cuts than we did in 2012.  You’d think a journalist would study the facts.  The historical record.  And then question the president and his administration.  Ask them why they are lying.  But they don’t.  Why?

Because they are partisan.  Committed to the leftist agenda the president is trying to pass.  So they either help spread the lie.  Being complicit in the lie.  Or they spread the lie because they are victims of the lie.  They are so committed to the leftist agenda that they don’t question anything coming from the liberal left.  Because they want to believe.  They sacrifice their journalistic integrity to help the administration advance their agenda.  More a propaganda arm of the administration than a free press.  The kind of journalism they practice in Venezuela.  Cuba.  China.  North Korea.  And the kind of journalism they practiced in East Germany.  The Soviet Union.  And Nazi Germany.  Where there was no free press.  Only state propaganda.  Propaganda in a totalitarian regime is one thing.  They already oppress their people and their news is more for the benefit of outsiders.  Where they lie about record harvests.  And record gains in industrial production.  Things their people have long stopped believing as they suffer through the misery of the reality.  But it’s different in a free country.  For it lends legitimacy for illegitimate actions of government.  And allows them to overstep the restraints of their constitutional authority.

The Mainstream Media helped Downplay the Resurgent al Qaeda in Benghazi to help President Obama win Reelection

In 2010 the greatest cause of accidental deaths for children age 5-15 was motor vehicle accidents.  In 2010 there were 806 deaths.  Representing 49.1% of all deaths.  The number two cause was drowning with 251 deaths.  Or 15.3% of the total.  Next came fire/burn at 135 deaths.  Then death by suffocation at 79 deaths.  Then death by other land transportation at 68 deaths.  Then poisoning at 54 deaths.  Then came firearms at 37 deaths.  Yet many in the mainstream media actively support the Obama administration in their push for gun control.  Especially a ban on assault weapons.  Even if (as they say so often) it saves only one child.  But guns aren’t the leading cause of death for children.  In fact, as horrific as scenes like the Newtown shooting are they are very rare occurrences.  Far more children die in automobile accidents each year.  No doubt because we are driving smaller cars to save the planet (lighter cars means greater gas mileage and less pollution).  But the journalists don’t report this fact.  Because they endorse the leftist agenda of saving the planet.  And more gun control.  Even if saving the planet means the death of more children from driving in smaller and less safe cars.  While more gun control probably won’t save a single child.

The Obama administration’s foreign policy record has been a poor one.  The greatest threat to peace and stability in the Mideast and North Africa is Iran.  Yet the Obama administration did not support the Green Revolution protesting the 2009 Iranian election results that most felt were unfair.  There are few bigger enemies of the United States.  The Iranian supported insurgency killed or wounded a lot of U.S. military in Iraq.  Our strongest allies in the region (Israel, Egypt and Saudi Arabia) all feared growing Iranian influence in the region.  But given an opportunity to support an uprising that could overthrow a great enemy to peace and stability the Obama administration did nothing.  But when the Arab Spring swept through Egypt the president abandoned one of America’s most stalwart allies and the anchor to stability in the region.  Hosni Mubarak.  Now the Iranian influence in Egypt is stronger than ever.  When the Arab Spring spread to Libya the Obama administration supported that movement, too.  Despite Colonel Muammar Gaddafi having denounced terrorism and supported the Americans in the war against al Qaeda.  When the Arab Spring spread to Syria the president did not support that protest.  Despite Syria being Iran’s strongest ally in the region.  A sponsor of terrorism.  And a nation with a chemical arsenal likely manufactured by Iraq (those weapons of mass destruction that Saddam Hussein had used on his people but had disappeared when the Americans arrived on the scene, likely having skedaddled across the border into Syria).  As bad as the ruling regime was in Syria we did nothing to help Syrians overthrow their oppressor.

Now civil war engulfs Syria.  Elements of al Qaeda have joined the opposition.  Making sure Iran wins however things turn out there.  And the Iranian influence is stronger than ever in Libya.  When al Qaeda killed the American diplomat in Benghazi the Obama administration made up a story about a YouTube video causing spontaneous protests that led to the ambassador’s death along with three other Americans.  To downplay a resurgent al Qaeda during the 2012 election campaign.  As they had refused to beef up security in Benghazi as the ambassador requested.  Because it would look bad in the 2012 election.  Yet the mainstream media did not question these very poor decisions the Obama administration made for political reasons.  Instead accepting their position that there was nothing newsworthy in Benghazi.  Which they wholeheartedly reported.  Refusing to even ask questions.  Such as why did they refuse the ambassador’s request for more security?  Who edited the talking points for Ambassador Rice used for the Sunday morning shows?  Or why is al Qaeda now stronger in the Middle East, North Africa and West Africa after 4 years of the Obama administration that they were during 8 years of the Bush administration?  No.  They showed no journalistic curiosity.  Or integrity.  Simply accepting the administration’s statements as fact.  While the Middle East and Africa become more dangerous places.

The Mainstream Media is no longer a Free Press for the People but a Propaganda Arm of the Obama Administration

Obamacare is the most sweeping change to the American economy since LBJ’s Great Society.  Which was the most sweeping change since FDR’s New Deal.  The American Left has always wanted a national health care system.  Just like what they have in the United Kingdom.  The Left likes to point to their National Health Service (NHS) as the right way to do health care.  As does the mainstream media.  Yet if you read the British papers their NHS is not all the American Left says it is.  Britain’s aging population has caused health care spending to explode.  The UK is in the midst of massive budget cuts to bring down health care spending.  While the NHS has long tried to deal with chronic problems of long wait times.  Rationing.  A shortage of doctors and nurses.  Even ambulances.  Their emergency rooms are overflowing with people with non-emergencies as the NHS closed their neighborhood clinics to reduce costs.  And the quality of care has been falling in their hospitals.  The problems in the NHS are no secret.  All you have to do is pick up a British paper and read about them.  For they are ongoing.  Yet the mainstream media never reported these problems during the Obamacare debate.  Or what passed for a debate.  No.  They never asked how Obamacare was going to avoid all the problems they were having in the NHS.  Which they should have.  As the US has an aging population, too.  Worse, they have about five times the population the UK has.  Guaranteeing any problems they have will be five times worse in the US.  Serious questions a good journalist should have asked.  But no.  They didn’t.  Because they support the liberal agenda more than they believe in journalistic integrity.  So they only report what helps the administration.  While avoiding anything that is critical of them.  Or their agenda.

When it comes to economics the mainstream media are all supporters of Keynesian economics.  Despite their record of failure.  When Nixon decoupled the dollar from gold in 1971 it allowed the government to go all in with Keynesian economics.  And they did.  Printing so much money that it led to excessive inflation, high unemployment and economic stagnation.  Ronald Reagan reversed those Keynesian policies.  His administration stopped printing money.  And got the government out of the private sector economy.  Cutting regulations.  As well as tax rates.  And economic activity exploded.  There was so much economic activity that tax revenue nearly doubled.  Even at those lower tax rates.  But the mainstream media doesn’t report this.  Instead, they revise history.  Always supporting Keynesian economic policies as they allow government to expand.  So they can implement their leftist agenda.  Which is anti-business.  Pushing higher regulations.  And higher taxes.  And whenever anyone talks about Reaganomics they say those cuts in tax rates only increased the deficit.  When the historical record clearly shows tax receipts increased.  Which they could easily look up (see Table 2.1—RECEIPTS BY SOURCE: 1934–2017).  But they don’t.  Or chose not to.  Preferring to support the liberal agenda.  Instead of having journalistic integrity.

The mainstream media today is no longer a free press for the people.  They are an extension of the Democrat Party.  At least the liberal wing of the Democrat Party.  More of a propaganda arm of the Obama administration.  That is more interested in changing the country than keeping our politicians honest.  Or reporting the facts.  They are fiercely partisan.  Or they are just not very smart.  Either woefully ignorant of the material they report on.  Or so in the bag for the Obama administration that they will report falsehoods as truth.  The kind of thing that isn’t a big deal in a totalitarian regime.  But a pretty big deal in a free country with a government that continues to try to exceed its constitutional authority.  For a free press is the vanguard of a free country.  Keeping the politicians honest so they can’t exceed their constitutional authority.  And if the journalists aren’t going to do their job by the time we find out what our politicians are doing it will be too late.  As we now have Obamacare as law.  Which passed on partisan lines.  With enough moderates and independents voting for Obamacare as few in America knew of all the problems the British were having with their national health care.  Today it’s Obamacare.  Tomorrow it may be gun control.  Or a war in the Middle East thanks to a resurgent al Qaeda.  And a growing Iranian influence.  Thanks to such a poor job in foreign policy that if the mainstream media had reported it honestly President Obama may not have won reelection.  And four Americans may not have died in Benghazi.

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Baseline Budgeting, Sequestration and Lies

Posted by PITHOCRATES - February 21st, 2013

Politics 101

The Sequester Automatic Spending Cuts equal about 2% of Current Federal Spending

If you heard the president speak recently we’re all doomed.  The automatic spending cuts in the sequestration he proposed and signed into law will take food away from children.  And lead to the collapse of society as we know it.  Ushering in the end of the world.  For he warned…

Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find child care for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.

President Obama gave this speech in front of some first responders.  Police officers.  And firefighters.  Always the first they threaten with layoffs when the government can’t raise taxes.

Amazing what $85 billion can buy today.  And if it can buy all that you’d think we wouldn’t have to spend $3.8 trillion at the federal level.  For if we can get all of that for a little over 2% of all federal spending it makes you wonder what else that 98% is buying.  What’s even more remarkable is that the federal government doesn’t even pay police officers, fire fighters or teachers.  We pay for these with property taxes.  At the city and county level.  Which the federal government cannot cut.  Because they don’t pay for these.  Yet the president says the sequester will even cut these.  Remarkable.

The Important Thing to understand about Baseline Budgeting is that Spending Cuts don’t Cut Spending

To understand sequestration you have to first understand baseline budgeting.  Which goes back to the Congressional Budget Act of 1974.  When we stopped being responsible.  And set government outlays to forever increase.  The baseline is the starting point for the following year’s budget.  And the baseline is last year’s outlays.  This year’s spending will be last year’s spending plus an additional amount based on inflation and population growth.

So spending always increases from year to year.  Automatically.  No one has to request an increase in appropriations.  And no one has to cut spending elsewhere for new spending someplace else.  Because all of last year’s spending is approved.  No matter how wasteful and pointless it may have been.  And on top of that spending there is new spending.  Always.  Guaranteeing that federal spending will always grow greater.  There will always be deficits.  And always a growing federal debt.

Now the important thing to understand about baseline budgeting is the meaning of ‘spending cuts’.  In a household if a family decides to cancel the family vacation because things are a little tight that is a spending cut in the real world.  Because it results in less spending.  But a cut in baseline budgeting doesn’t result in less spending.  For the only thing they cut is the amount they will increase future spending by.  For example, if spending for ‘X’ is scheduled to increase by $100 million but will only increase by $75 million that is a $25 million spending cut.  Even though spending will still increase by $75 million.

The President’s Sole Objective now is to destroy the Republican Party

President Nixon decoupled the dollar from gold in 1971.  Taking American off the gold standard.  Unleashing the inflation monster.  Allowing government to spend more.  As they paid for that additional spending by printing money.  And with the addition of baseline budgeting added in 1974 they spent more.  A lot more.  Total federal outlays from 1974 to 2008 increased on average 7.5% each year.  Total federal outlays in 2012 were approximately $3.8 trillion.  So the scheduled increase in spending (thanks to baseline budgeting) for 2013 is approximately $284.7 billion.

The spending cuts of the sequester are $85 billion.  Which President Obama says will usher in the end of the world as we know it.  But these ‘cuts’ are not cuts per se.  They are not like the cuts a household makes when they cancel the family vacation.  These are cuts that reduce the increase in future spending.  So instead of increasing future spending by $284.7 billion they will only increase by $199.7 billion.  Which is 2.3 times greater than the amount of the sequester.  Now President Obama said the sequester cuts would be the end of the world as we know it.  Even though total federal outlays will actually increase by an amount 2.3 times the sequester.  So one cannot but ask the question how will this sequester usher in the end of the world as we know it when we are actually increasing spending?

Because it is not the end of the world.  The president is lying.  Everything that we can pay for today we can still have after the sequester.  Because there are no real spending cuts.  We’re just increasing spending less than the original baseline projection.  Which means all the jobs we will lose will be future jobs.  But talking about losing future jobs doesn’t put the fear of God into people like telling them they won’t have any police or fire protection anymore.  Or telling them that their children’s teachers will lose their jobs.  You see, the president’s sole objective now is to destroy the Republican Party.  The only thing standing between the country and the liberal agenda he wants to impose on the country is the Republican opposition.  Which is why the sequester that he proposed and signed into law is now the fault of the Republicans.  This is the reason for all of this theater.  To get people to hate Republicans.  For why else would the president call a spending increase a spending cut?  If it wasn’t to demonize the people who keep demanding spending cuts?

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The Politics of Tax Rates

Posted by PITHOCRATES - December 19th, 2012

Politics 101

Cash Starved Small Businesses cannot Afford to pay a Dime more in New Taxes

America is staring at a fiscal cliff.  Thanks to the budget debt limit debate in 2011.  The US was in danger of running out of money and defaulting on their sovereign debt.  The Republicans controlled the House of Representatives.  And the House is in charge of the money.  Before increasing the debt limit the Republicans wanted to get some spending cuts to reduce the federal deficit.  The Democrats wanted to raise tax rates (letting the Bush tax cuts expire, returning to the Clinton tax rates) to reduce the deficit.  They couldn’t reach an agreement.  So they did what politicians always do when they want to run away from a problem.  Create a committee.

The so-called super-committee.  Tasked to come up with $1.2 trillion in spending cuts (over ten years) by the end of 2012.  Or else.  With the ‘or else’ being sequestration.  Automatic budget cuts in defense and entitlement spending to the tune of $1.2 trillion.  The politicians knowing how unpleasant sequestration would be were full of confidence that the super-committee would overcome hell and high water to complete their task.  Because sequestration would be so very, very unpleasant.  Of course, politicians being politicians, kept running away from that problem.  And now we’re staring into the face of sequestration.  Taxmageddon.  The fiscal cliff.  Because the Democrats want to raise taxes on everyone earning over $200,000 (single) or $250,000 (married filing jointly).  But Republicans don’t want to because that will raise taxes on the job creators.  Something that won’t make an anemic economic recovery any better.  So let’s look at the numbers and see what kind of damage we’re looking at.

President Obama’s proposal for new tax rates leaves everything at the 28% marginal rate and below the same.  He proposes increasing the 33% rate to 36%.  And the 35% rate to 39.6%.  The new rates kick in at earnings of $250,000 (all the examples here are calculated for a married couple filing jointly).  Which raises the top income band at the 28% rate.  Holding the net tax increase to only $1,115 for a small business owner with a net income of $350,000.  Which doesn’t seem that bad.  But a small business owner with a net income of $350,000 isn’t exactly rich.  Despite paying income taxes like they are rich.  For most small business owners are S corporations or LLCs.  With their net income passing through to their personal income tax return.  So if the business owner lives on enough to equal two incomes (say $75,000 X 2 = $150,000) so his or her spouse can be a stay-at-home spouse that $1,115 comes out of $107,045 ($350,000 – $92,955 – $150,000).  Which is all they can put back into the business.  To pay for new equipment (which isn’t enough for most purchases forcing them to borrow more money and go further into debt).  To repay debt.  To cover unpaid accounts receivable.  To pay for customer write-offs for an employee error on a project.  To pay for a production run that failed to meet specifications that they couldn’t sell.  To pay for inventory shrinkage (damaged, lost and stolen goods).  To pay for employee raises.  Bonuses.  To hire new employees.  Or to pay for the newly mandated Obamacare.  When you factor in all these cost issues a small business owner may face $107,045 of retained earnings is not a lot of money and leaves a very small cash cushion.  Which is why Republicans do not want to raise taxes on small business owners.

Taxing the Rich more will do nothing to Lower the Deficit

Then presidential candidate John McCain opposed then presidential candidate Barack Obama’s proposed tax rate increases in the 2008 campaign.  Saying it would raise taxes on 23 million small business owners.  FactCheck.org debunked this number saying the actual number is closer to 6 million.  So using their number the additional tax revenue from small businesses would equal about $6.7 billion.  Approximately 0.48% of the federal deficit.  Which will do nothing to reduce the deficit.  But it will take more money away from cash-starved small businesses.  So what about millionaires?  What’s their damage?  And how much will they reduce the deficit?

The proposed tax rates will increase a millionaire’s tax by $30,549.  According to the IRS there were about 119,810 tax returns filed by people earning a million dollars in 2010.  Meaning the proposed increase in tax rates would raise another $3.7 billion in tax revenue from those earning a million dollars.  Which is only 54.7% of the new tax revenue from small business owners generated by those same new tax rates.  And only 0.26% of the federal deficit.  Which will do nothing to reduce the deficit.  So what about richer people?  Will taxing richer people do anything to reduce the deficit?  Let’s look at the numbers for someone earning $5 million.

Someone earning $5 million will pay an additional $214,549 in taxes.  Which is a huge increase.  But according to the IRS there were only 16,574 people who earned $5 million.  Which brings the total increase in tax revenue to only $3.6 billion.  Which is a $100 million less than the millionaires.  And only 0.25% of the federal deficit.  Meaning it will do nothing to reduce the deficit.  Even though they are taking an additional $214,549 away from each person earning $5 million.  That’s a lot of money from each person that results in no significant deficit reduction.  Which is the purpose of the higher proposed tax rates.

We’re simply Spending More than our Tax Revenue can ever Hope to Pay For

Crunching these numbers further we find that the proposed higher tax rates will increase tax revenue by $38.2 billion for everyone earning a million dollars and more based on 2010 IRS tax information.  Which is only 2.7% of the federal deficit.  Which is less than the automatic increases included in baseline budgeting.  Which means these proposed tax increases won’t do anything to reduce the deficit.  In fact the deficit will still grow larger.  Thanks to baseline budgeting.

The problem is that there aren’t enough rich people to tax.  The top 10% of earners are already paying 70% of all federal income taxes.  To raise new tax revenue you have to go to the middle class.  Based on the IRS there were 44,637,653 people filing income tax returns who earned between $50,000 and $200,000.  If each of these people paid an additional $1,115 like those small business owners that would raise an additional $49.8 billion in tax revenue.  Which is 3.6% of the federal deficit.  If you increased their taxes by $2,500 that would increase tax revenue by $111.6 billion.  Or 8% of the federal deficit.  Which may actually keep the deficit from growing.  But it won’t pay it down.

To get serious deficit reduction from the rich you have to take very large sums of money from them because there are so few rich people.  And even then it’s probably not possible to raise tax revenue enough to offset the automatic spending increases included in baseline budgeting.  But it’s a different story with the middle class.  Because there are so many more people in the middle class than there are rich people.  You can keep the deficit from growing by taking a far smaller amount from each of them than you would have to take from the rich.  You could even take enough to overcome the automatic spending increases of baseline budgeting to keep the deficit from growing.  But even the middle class doesn’t have enough people in it to wipe out a $1.4 trillion deficit.  Or make a dent in the federal debt.

No.  The only way to make any significant deficit reduction is with spending cuts.  Which the Democrats are steadfast against.  Because spending is their power.  It’s why people vote for them.  Which is why they will fight for increasing tax rates to the bitter end.  And never negotiate them away.  To continue the facade that new revenue can reduce the deficit.  Even though no amount of new revenue can.  Only spending cuts can.  For our spending has long since passed the Rubicon.  We’re simply spending more than our tax revenue can ever hope to pay for.  And any further increases in tax rates only reduce economic activity.  Causing the small business owners to stand fast on expanding and hiring.  Because economic growth is rewarded with punitive taxation.  So they will grow less with every increase in tax rates.  And with every increase in tax rates tax revenues will fall.  Which will lead to a downward spiral of deficits, debt, lowered credit ratings and possible default.  But anything is better to Democrats than admitting they are wrong.

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FT147: “The politician that plays with the meaning of words most is the politician that is lying the most.” —Old Pithy

Posted by PITHOCRATES - December 7th, 2012

Fundamental Truth

When you start Playing with the Meaning of Words it’s usually because you’re Trying to Lie

When President Clinton committed perjury when denying having sexual relations with Monica Lewinsky he tried to play with the meaning of words.  Saying it depended on what the meaning of ‘is’ is.  Clinton was a lawyer.  Like most politicians.  Who like to parse their words.  To twist their meanings.  So they can say one thing.  While they mean the complete opposite.  Clinton said he did not have sex with Lewinsky even though he had.  But the words he used could be parsed to both say he did and did not have sex with that woman.  Monica Lewinsky.  Lewinsky’s blue dress with Clinton’s semen on it, though, proved he was lying despite his nimble linguistic gymnastics.  And the House of Representatives impeached Clinton.  But the Senate didn’t have the votes to remove him from office for his perjury.  Nor did he resign as Richard Nixon did after he was caught in his perjury.

In George Orwell’s Nineteen Eighty-Four the oppressive socialist state did the same thing.  Play with the meaning of words.  To make lying easier.  The Ministry of Love was like the Gestapo in Nazi Germany or the Stasi in East Germany.  Institutions that tortured and instilled fear into the people.  Which was for the people’s own good.  For the state loved the people.  At least that’s what the state said while they were torturing and abusing the people.  The Ministry of Plenty was responsible for the empty store shelves and the constant hunger gnawing in the people’s bellies.  The Ministry of Peace waged perpetual war.  And the Ministry of Truth was the state’s propaganda arm in charge of state censorship.  Advancing the state’s lies.  Like Joseph Goebbels did in Nazi Germany.

Words mean things.  And when you start playing with the meaning of words it’s usually because you’re trying to lie.  Trying to advance an unpopular agenda by disguising that agenda in a cloak of disarming words.  You can trust anything coming from the Ministry of Truth as the word ‘truth’ is in its name.  And you have nothing to fear from the secret police as the branch of government they work under is all about love.  And when the state tells you over and over again that it is a moneyed upper-class that is the cause of everything that is wrong in your life you start believing it.  Whether that moneyed upper-class are rich capitalists and bankers.  Or Jews in 1930s Germany.

The Ronald Reagan and George W. Bush Tax Rate Cuts brought in Record Tax Revenues into the Treasury

Liberal democrats like to tax and spend.  They believe in big government.  They like it big like it is in Europe.  Where they have socialism-light.  Social democracy, they call it.  A big, expansive welfare state funded by high tax rates.  When taxes can’t pay for all their spending they borrow money.  When they can’t borrow any more they start printing money.  As a result of this excessive state spending most of Europe is mired in a sovereign debt crisis.  Many nations are so broke that they have no choice but to cut back their spending.  Which is sending people into the streets rioting.

This is where the U.S. is heading.  Most people who understand economic fundamentals know this.  And vote against going further down this European road.  But there are a lot of people who don’t understand economic fundamentals.  They listen to their Ministry of Truth.  The Democrats, the public schools, college professors, mainstream media and the entertainment establishment.  Who all lean left.  And who all say the only problem we have is a moneyed upper-class who aren’t paying their fair share.  Though the top 10% of income earners pay about 70% of all federal income taxes.  Something the state doesn’t mention when they say they aren’t paying their fair share.  So the people don’t know that they pay 70% of all federal income taxes.  And they are more willing to believe their Ministry of Truth.

The public schools, college professors, mainstream media and the entertainment establishment do their part, too.  By revising history.  They note the deficits of Ronald Reagan in the Eighties.  And blame those deficits on the Reagan tax rate cuts.  But what they don’t tell the people is that after those cuts in tax rates the amount of tax revenue (money coming to Washington from taxpayers) nearly doubled.  President Obama and his Ministry of Truth blame all of our economic woes on George W. Bush’s tax rate cuts.  But what they don’t tell the people is that the treasury collected a record high in tax revenue under George W. Bush.  Proving that cuts in the tax rates did not cause any fiscal harm.  It was the greater increases in spending that caused all of the harm.

Democrats want to Raise Taxes on Everyone because they are Tax and Spend Liberal Democrats

Under baseline budgeting increases in spending amounts are automatic.  Every year they go up.  And they never go down.  So when the politicians decry proposed draconian spending cuts there are no real cuts in spending per se.  What they are proposing to cut is the rate at which to increase spending.  Say, instead of an automatic 7% spending increase they will only increase spending 5%.  Spending will increase 5%.  But those in government call it a 2% spending cut.  Which is why despite all of the spending cuts ever enacted (and there hasn’t been a lot of them) the federal debt has never gotten any smaller.

So an increase in spending can be a spending cut.  But the Orwellian doublespeak doesn’t stop there.  Those on the Left call tax cuts increases in government spending.  (Interestingly, the only kind of spending the government can never afford.)  Here’s why.  Excessive spending causes deficits.  And if they cut tax rates they believe less money will flow into the treasury.  Thus increasing the size of the deficit.  Ergo, spending and tax cuts are the same because both increase the deficit.  Of course that’s a fallacy.  As proven by Reagan and Bush.  Who actually increased tax revenues by cutting tax rates.  How?  Lower tax rates encourages more economic activity.  More people are working and paying taxes.  Resulting in a higher tax revenue overall.

Currently President Obama and his Ministry of Truth are saying that the Republicans are fighting against a middle class tax cut to give the richest 2% a tax cut.  Which isn’t exactly true.  There are no tax cuts on the table.  The George W. Bush tax cuts are expiring.  If they expire everyone’s taxes will go up.  The president wants to extend these tax cuts.  But only for the middle class.  Unfortunately, there are many small business owners whose business earnings flow to their personal tax returns.  Which puts them into the richest 2%.  But most of that money never comes out of their business.  They may be taxed as rich people.  But they live middle class lives.  Because they reinvest their earnings into their business.  To buy new equipment.  To expand their business.  And to hire new people.  This is why Republicans don’t want to raise taxes on these small business owners.  For it’s these small business owners who provide the majority of jobs in the economy.  And increasing their taxes will only hurt the economic recovery.

The Republicans offered to increase tax revenues by revising the tax code to eliminate certain deductions.  Providing the amount of revenue the president was asking for.  But the president refused.  For he wants those increases in the tax rates.  To complete the revision of history by ‘righting the wrongs’ of the Reagan and the Bush administrations.  To further the lie about the Reagan and Bush tax cuts.  But there’s another reason.  The amount of revenue he’s asking for now (whether it’s from eliminating deductions or increasing tax rates) won’t make a dent in the deficit.  Or the debt.  The only way they will be able to do that is by increasing taxes on the middle class.  Which will be a lot easier to do after they raised taxes on the rich.  Which is what they want to do.  Raise taxes on everyone.  Because they are tax and spend liberal Democrats.  But as most people don’t vote for people that want to raise their taxes, they lie.  And play with the meaning of words.  As liars do.  And the politician that plays with the meaning of words most is the politician that is lying the most.

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Obama’s Millionaire Tax won’t Provide Serious Deficit Reduction

Posted by PITHOCRATES - September 18th, 2011

Deficit Reduction is Important Enough to Raise Taxes but not Important Enough to Cut Spending

Hmmm, a Democrat deficit reduction package.  I wonder what that could mean. Spending cuts?  Or tax hikes?  Well liberal Democrats like to tax and spend.  And Barack Obama is a liberal Democrat.  So it must be tax hikes (see Obama to offer his own debt reduction package by Jim Kuhnhenn, Associated Press, posted 9/18/2011 on Yahoo! News).

Administration officials see the task of attending to deficits as necessary but not necessarily urgent, compared with the need to revive the economy and increase employment.

What do you know about that?  It’s tax hikes.  What a surprise.

Translation?  It’s important enough to raise taxes to cut the deficit.  But not important enough to cut spending.  In other words, it will be government as usual.  More Keynesian ‘stimulus’ spending.  Which is code for rewarding political friends and allies.  With taxpayer money.  And more class warfare.  Blaming the Obama recession on Republican tactics.  Namely, responsible governance.

The White House signaled its approach Saturday by highlighting a proposal in the president’s plan that would set a minimum tax rate for taxpayers earning more than $1 million.

The measure — Obama is going to call it the “Buffett Rule” for billionaire investor Warren Buffett — is designed to prevent millionaires from using tax-avoidance schemes to pay lower rates than middle-income taxpayers. Buffett has complained that he and other wealthy people have been “coddled long enough” and shouldn’t be paying a smaller share of their income in federal taxes than middle-class taxpayers.

Coddled?  You tell me if we’re coddling these people.

Compare the numbers.  A $60,000 middle class salary pays a current top marginal tax rate of 25%.  That’s somewhere around $11,000 in federal income taxes.  One of these coddled ‘Warren Buffet‘ millionaires may earn $40 million on a half billion dollar investment portfolio.  Taxed at 15% that’s a capital gains tax of $6 million dollars.  So one ‘coddled’ millionaire pays the equivalent of 3,636 middle class taxpayers.

If you look at it this way, rationally, without your head up your keister, you can only arrive at one conclusion.  You don’t want to raise tax rates on the wealthy.  You want to breed them.  With tax policy that encourages the making of more Warren Buffet-class millionaires.

For each new ‘coddled’ millionaire that’s another 3,636 middle class people that could receive significant tax relief.  How?  Lower tax rates across the board.  The middle class pay less.  And more millionaires pay more tax dollars.  The ultimate goal of tax policy.  If you’re not a liberal Democrat, that is.  Whose ultimate goal is, of course, class warfare.  So you can advance policy that is detrimental to the economy.  But beneficial to growing government.  And rewards political friends and allies.  With taxpayer money.

Business Owners Understand their Businesses and Fiscal Policy and are Tiring of being Cash Piñatas

If you’re of the older persuasion you’ve no doubt heard these arguments before.  And after hearing them all these years they don’t fool you anymore.  If you ever were in the first place.  Still, it doesn’t stop them from trying (see Sorry, But The Republican Arguments Against A “Millionaire’s Tax” Are Just Preposterous by Henry Blodget posted 9/18/2011 on Business Insider).

The rest of the Republican counter-arguments are just silly, self-serving, or obstructionist. Let’s take them one by one, ending with the one that seems most persuasive to reasonable people.

“Taxes are a form of theft.”  This is just ridiculous. It’s like arguing that paper money is illegal.

Government is a necessary evil.  Government takes money earned by others.  To pay for public goods.  Everyone understands this.  What people don’t understand is the bastardization of the meaning of public goods.

A public good is a thing that an individual can’t buy.  An individual can’t buy an army and navy to protect himself.  Or herself.  A private individual can’t buy a fresh water and sewage system for himself.  Or herself.  These are public goods.  We pay for these things with taxes.  Everyone pays a little to enjoy the benefits of these massive and costly things.

But we can feed ourselves.  Provide for our own retirement.  Pay for our own healthcare.  We can do these things.  It may be harder for some than others.  But it can be done.  So these things are not public goods.  But government today treats them as public goods.  Taxing us far more than they should.  So they can curry favor with voting groups.

So buying votes with tax dollars may be legal in the strictest sense.  But it is closer to theft than legitimate tax policy.  And printing paper money to fund even more of this spending is generational theft.  A millionaire tax just facilitates more government spending for things government shouldn’t be paying for.

Here is a list of the arguments Blodget says are typically made against raising taxes on millionaires.  Which he goes on to repute.  But I think the arguments speak for themselves.

  • Raising taxes on millionaires will kill their ambition and discourage them from working
  • Raising taxes on millionaires will punish successful people for being successful
  • Raising taxes is always a terrible idea–the problem is spending
  • Taxes are a form of theft: The government has no right to take our money away
  • Raising taxes in a weak economy will further weaken the economy

These are all true.  People like to point to that top marginal tax rate of 1950s when the economy was booming.  But no one paid it.  People hid their earnings in tax shelters to avoid that 90% rate.  Contrary to popular belief on the Left, they didn’t whistle a happy tune and pay it.  They fought it.  And won.  It was a joke.

High taxes do influence rich people.  They will redirect their wealth from income producing.  To wealth preservation.  When tax rates are high.  Just like middle class people do with their 401(k)s.  When they approach retirement.

If a small business earns $1+ million a year, and the owner “passes through” all this income and pays taxes on it, Obama’s “millionaire’s tax” will encourage this owner to do the following:

  • Pay him or herself less
  • Hire more people or otherwise reinvest the money in the business (so it won’t be taxed)

These moves, in turn, should do two things:

  • Help create new jobs (which will help the overall economy)
  • Help grow the owner’s business, thus increasing his or her net worth

Yeah, it could work out like that.  Or it could go another way.  The small business owner can look at this tax policy as a sign that government has no intention of cutting their irresponsible spending.  Which means deficits will only continue to grow.  Which means there will be more taxes in the future.  As there will have to be if they don’t cut spending.  And baseline budgeting keeps increasing that spending every year.  Not to mention all those off-budget spending obligations.

Now business owners live in the real world.  They have to pay payroll taxes with every payroll.  And deal with other taxes and regulatory costs on a daily basis.  They don’t have the luxury of sitting back and prognosticating how tax policy should make business owners behave.  Instead, they’re acting ahead of policy.  They’re listening to this debate and preparing for the worst.  Even before tax policy changes.  Because if they don’t it may be too late when it does.

So this kind of talk is already keeping them from hiring new people.  They are deleveraging left and right.  Because they, unlike government, understand their businesses.  And fiscal policy.  They see what they are to government.  Big, fat cash piñatas.  And they’re tired of being whacked.

They Need to Tax Millionaires because They’re Making Spending Commitments no Amount of Taxation can Sustain

A millionaire tax.  That’s where it starts.  But it’s not where it will end.

People need to understand why government ‘needs’ to tax millionaires.  It’s not because they haven’t been paying their fair share.  It’s because of record deficits.  And record debt.  Caused by record spending.  Just look at the numbers.

Adjusted for inflation, Ronald Reagan‘s largest deficit was $442.614 billion.  George W. Bush‘s largest deficit was $462.56 billion.  In Obama’s first year in office his deficit was $1,416 billion.  In his second year it was $1,294 billion.  They project it to be $1,650 billion in 2011.  And one thing we know about Barack Obama is that he’s not going into the history books as a tax cutter.  So these deficits aren’t from tax cuts.  They’re from spending.

Because of baseline budgeting this spending stays on the books.  And it will only grow.  And all those off-budget spending obligations are growing right along with it.  Such as the trillions the government owes to the Medicare and Social Security trust Funds.  And on top of all of that is Obamacare just waiting to add to our fiscal woes.  This is why they ‘need’ to tax millionaires.  Because the government is making spending commitments no amount of taxation can sustain.  So they will start with millionaires.  Work their way through the middle class.  Then they’ll have no choice but to start rationing benefits.  Followed by austerity.  Then the anarchy comes.  Like in Greece.

This is why we should not add a millionaire tax.  It will not address the spending problem.  And will only facilitate more spending.  Delaying the inevitable day of reckoning.  And making it ever more painful.

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Obama wants a Millionaire Tax to Pay for his Political Stimulus Bill and Shrink his Deficit

Posted by PITHOCRATES - September 17th, 2011

Going Green is Just Another Excuse to Raise Taxes, Grow Government and Transfer more Wealth from the Private to the Public Sector

Big government has big ideas.  And big taxes to pay for them (see Crippling energy bills are YOUR fault, says Huhne as he claims families could treat themselves to a mini-break if they shopped around by Glen Owen and Jonathan Petre posted 9/17/2011 on the Daily Mail).

Utility price rises have pushed the average household energy bill to almost £1,300 a year, partly driven – as critics pointed out yesterday – by ‘green’ taxes imposed by Mr Huhne’s [Energy Secretary] department.

The stealth levies, introduced to fund Britain’s investment in wind and solar power, are costing families an average of £200 a year…

This represents an increase of between 15 and 20 per cent on the average domestic power bill. The money is being used to help fund the building of 10,000 wind turbines and the proposed installation of £7 billion worth of smart meters in homes.

To make your tomorrow better we will make your today worse.  You’re welcome.

Green energy may be good for the planet.  To combat ‘global warming’.  But it’s not good for your wallet.  Or purse.  And the kicker is this.  What kind of science is global warming based on?  Fraudulent science.  And if this doesn’t tell you why governments are pushing for green energy nothing will.

It’s about the money.  It always is.  And always was.  It’s another excuse to raise taxes.  To grow government.  And transfer more wealth from the private to the public sector.  So politicians can play god.  Which is something narcissists are wont to do.

Higher Tax Rates Discourage Growth, Deter Investment, Kill Jobs and Prolong Recessions

That was in the UK.  Over in the USA their government is going green, too.  Because there’s big money in going green.  They recently invested a half billion dollars in Solyndra.  President Obama visited the plant.  Vice President Joe Biden made a video clip praising those 1,000 new jobs.  That were permanent jobs.  And they were.  Right up to that mass layoff.  As the company went belly up this month.

But it was good while it lasted.  Throwing around such massive amounts of money.  Having the power to pick winners and losers.  It really strokes a narcissist’s ego.  Even if their winners turn out to be losers.  I mean, it’s not like they have to repay that half billion dollars.  They’ll just turn to the taxpayers for more taxes.  And blame the rich for not paying their fair share (see Obama Tax Plan Would Ask More of Millionaires by Jackie Calmes posted 9/17/2011 on The New York Times).

President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials…

Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.

We should note, though, that it’s not the size of the rate that matters.  But the pile of money that it taxes.  Someone earning $60,000 a year with a top marginal tax rate of 25% may pay a puny $11,000 in taxes.  But someone with a 15% tax rate on an investment return of $40 million will pay an obscene $6 million in taxes.

Now, in case you’re not good with math.  Or you are a liberal Democrat.  Let me help.  $6 million is more than $11 thousand.  A lot more.  About 54,000% more.  The rich person may pay a lower tax rate.  But he or she pays more tax dollars.  Way more.

The rich pay more.  The less-rich pay less.  The rich pay for benefits.  The less-rich consume benefits.  We take money from the rich.  And give to the less-rich.  Sounds like redistribution of wealth, doesn’t it?  So you can see this is less about paying your fair share of taxes then it is about redistributing wealth.  To garner more votes come election time.

The Obama proposal has little chance of becoming law unless Republican lawmakers bend. But by focusing on the wealthiest Americans, the president is sharpening the contrast between Republicans and Democrats with a theme he can carry into his bid for re-election in 2012…

Mr. Obama’s proposed Buffett Rule puts a new spin on that pitch, as he tries to put Republicans in Congress and in the presidential race on the defensive for their rigid stand against higher taxes.

Using class warfare for the 2012 election.  Why?  Because he sure can’t run on his record.  For his record sucks.  His economic policies have been a disaster.  And are on track to put us back into recession.

So he will employ this ploy.  To make the Republicans look like heartless bastards.  Protecting their rich patrons.  While the rest of the nation suffers the ravishes of the Obama recession.  A recession Obama blames, of course, on George W. Bush.  That rich Texan oilman.  Despite that Recovery Summer in 2010.  When he, Barack Obama, ended the Bush recession.

Mr. Obama has been citing Mr. Buffett as he promotes his $447 billion job-creation plan. He proposes to offset the cost of that plan and reduce future budget deficits through higher taxes on the wealthy and on corporations after 2013, when the economy will presumably be healthier.

Ah, yes, his political stimulus bill.  That thing he calls the American Jobs Act.  Which no Congress person has yet to introduce into the House of Representatives.  Including no Democrat.  Which is telling.  Next year is an election year.  And the way this bill reeks of politics they want nothing to do with it.

Rich people invest their wealth.  They may buy corporate bonds.  Which will allow a business to grow.  Create jobs.  And you know nothing helps that process more than higher taxes.  You know, if you’re living in insanity land.

Higher tax rates don’t make economies healthier.  They make them sicker.  They discourage growth.  They deter investment.  They kill jobs.  And prolong recessions.  The economy will not be healthier in 2013.  Not with higher tax rates on the very people that can make it healthier.

Even Mr. Buffett probably paid a higher effective rate than he claimed, Mr. Mankiw [an economics professor at Harvard] added, because much of his income came from corporate income that had been taxed before it was paid out to individuals.

That’s right.  The money Mr. Buffet earns on his investment?  Uncle Sam already taxed it.  At the corporate income tax rate.  His tax is the second tax paid on those earnings.  Which begs the question how much is enough?  How much of our money is enough for the government?  And the answer is no matter what we pay it will never be enough.

The Danger of Raising Taxes on the Rich is that it doesn’t Address the Problem of Excessive Spending

We pay enough in taxes.  In fact, we pay too much.  The government is just spending too much.

The problem is baseline budgeting.  And tax and spend liberalism.  Not only are they spending a lot today but they will be spending even more tomorrow.  More programs.  More benefits.  Guaranteed.  At least they’re guaranteed as long as we continue to use baseline budgeting.  Where this year’s budget is last year’s budget plus more.  Automatically.

And this is the danger of raising taxes on the rich.  It doesn’t address the problem.  This excessive spending.  In fact it facilitates it.  Like an addiction.  Which means they will make this argument forever.  As they have forever.  The problem is this.  There will never be enough taxes.  Not to sustain continuous increases in spending.  Which we will always have.  As long as we continue to use baseline budgeting.  And continue to elect liberal Democrats.

If the current system favors the rich then here’s a novel idea.  Tax the less-rich at the rich tax rates.  Then everyone pays their ‘fair’ share.  But what about government you may ask.  How will they get by on less?  Well, that’s easy.  They can ask any one of us.  Because we’ve been doing it for years.

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LESSONS LEARNED #82: “Too much debt is always a bad thing.” – Old Pithy

Posted by PITHOCRATES - September 8th, 2011

Thomas Jefferson hated Alexander Hamilton for his Assumption and Funding Plans 

Thomas Jefferson hated Alexander Hamilton.  For a variety of reasons.  He thought he was too cozy with the British.  And too anti-French.  He also thought Hamilton was too cozy with the merchant class and bankers.  Jefferson hated them, too.  For he thought honest Americans farmed.  Not buy and sell things other people made.  Or loaned money.

But Hamilton was not a bad guy.  And he was right.  George Washington, too.  America’s future was tied to the British.  Trade within their empire benefited the fledging American economy.  And the Royal Navy protected that trade.  For they ruled the seas.  They couldn’t get that from France.  Especially with a France waging war against everyone.

But there was something especially that Jefferson hated Hamilton for.  Assumption.  And funding.  The new nation’s finances were a mess.  No one could figure them out.  There was pre-war debt.  And war debt.  State debt.  And national debt.  The Americans owed their allies.  Neutral nations.  And the former enemy they just won their independence from.  Getting their hands around what they owed was difficult.  But important.  Because they needed to borrow more.  And without getting their finances in order, that wasn’t going to happen.

Thomas Jefferson Understood that a Permanent Debt gave a Government Power 

Hamilton was good with numbers.  And he put America’s financial house in order.  A little too well for Jefferson.  The new federal government assumed the states’ debts (assumption).  And serviced it (funding).  Giving great money and power to the federal government.  Far more than Jefferson believed the Constitution granted.  And this really stuck in his craw.  Because this was the source of all the mischief in the Old World.  Money and power.  The Old World capitals were both the seats of political power.  And the centers of commerce and banking.

Jefferson understood that a permanent debt gave a government a lot of power.  Because debt had to be serviced.  And you serviced debt with taxes.  The bigger the debt the greater the taxes.  Which didn’t sit well with this revolutionary.  I mean, excessive taxation was the cause for rebellion.  Taxes are bad.  And lead to political corruption.  Because the more taxes the government collects the more it can spend on political favors.  Patronage (good paying government jobs for political allies).  Giving rise to a politically-connected ruling class.  Like the Old World aristocracies.  Government grows.  As does their control over the private sector economy.

It’s a process that once started moves in only one direction.  Greater and greater debts.  Paid for by greater and greater taxes.  Until the debt becomes unsustainable.  Like in Revolutionary France.  In present day Greece.  And even in the United States.  Who, in 2011, saw its sovereign debt rating downgraded for the first time in American history.  Because of record deficits.  And record debt.  Caused by excessive spending.  Everything that Jefferson feared would happen.  If government had a permanent debt.

Baseline Budgeting guarantees Permanent Growth in Government Spending

Big Government spending took off in America in the Sixties.  Historically government receipts averaged 17.8% of GDP.  During the Fifties and the Sixties, GDP grew while debt remained flat.  Of course, if GDP grew then so did tax dollars coming into Washington.  For 17.8% of an expanding GDP produced an expanding pile of cash in the government’s coffers.

Liking the taste of this money, government kept spending.  So much so that they adopted baseline budgeting in 1974.  Where current spending is automatically added to for next year’s spending.  Guaranteeing permanent growth in government spending.  To pay for LBJ‘s Great Society.  The Vietnam WarApollo.  And other spending programs.  The spending was so out of control that the debt started to creep up.  And what they didn’t borrow they printed.  Leading to the Nixon Shock.

The Nixon Shock (ending the quasi gold standard) unleashed inflation.  Which Paul Volcker and Ronald Reagan defeated.  With inflation tamed and the Reagan tax cuts, the Eighties saw solid GDP growth.  And record deficits.  The Democrats liked all that cash coming into Washington.  And they spent it faster than it came in.  But to reduce the deficit they made a deal.  For each dollar in new taxes the Democrats would cut three dollars in spending.  Of course they lied.  Because Democrats don’t cut taxes.  They got their new taxes.  But Reagan didn’t get any spending cuts.  In fact, the deal went the other way.  For every dollar in new taxes there were three dollars in new spending.  The deficit grew bigger.  And for the first time the debt grew at a greater rate than GDP.  As shown here:

(Source:  GDP, Debt, Receipts)

The Obama Stimulus gave us Record Deficits and Record Debt

After the 1994 midterm elections, Bill Clinton and the new Republican House compromised.  They reined in spending.  Implemented welfare reform.  And rode the dot-com bubble on the good side.  Before it burst.  It was capital gains galore.  Put all of this together and GDP rose and flooded Washington with tax receipts.  While debt remained flat.  In fact, there were budget surpluses forecast.  But then that dot-com bubble burst.

George W. Bush started his presidency with recession.  A couple of tax cuts later and GDP was tracking up again.  But 9/11 changed things.  And gave us two costly wars (Iraq and Afghanistan).  On top of an expensive Medicare drug program.  Record deficits took debt to new heights.  Then the Housing Bubble burst.  Followed by the subprime mortgage crisis.  And President Obama used this crisis to advance a dormant Democrat agenda.

It was an $800 billion stimulus.  Something he promised would have no pork or earmarks.  Nothing but shovel-ready projects.  Of course, it was nothing but pork and earmarks.  And those shovel-ready projects?  There’s no such thing.  So the stimulus didn’t stimulate anything.  Other than record deficits (surpassing Bush’s).  And record debt.  Debt increasing at a greater rate than GDP.  And equal to or greater than GDP in dollars.  Not seen since World War II.

Hamilton and Jefferson would have United in Opposition against Barack Obama

Debt fell as a percentage of GDP following World War II.  It fell from above 90% to below 40% around the end of the Sixties.  GDP was rising during this period while debt remained flat.  So the flat debt became a smaller and smaller percentage of a growing GDP.  The ‘growing your way out of debt’ phenomenon.  But that process stopped and reversed itself during the Seventies.  When Congress spent with a fury.  As noted above.  Debt grew.  Back to the level of GDP it was during a world war.  Only now there is no world war.  And we’re not spending to save democracy.  We’re spending to end democracy.

(Source:  GDP, Debt $, Debt %)

It is what Jefferson feared most.  Out of control government spending.  Racking up massive debt.  The kind that is impossible to pay off.  And is permanent.  And it was being done not for a war to save democracy from fascism.  But to change America.  To make it a different kind of nation.  No longer one of limited government.  But Big Government.  One with a ruling class.  A ruling class that now has a claim on 100% of GDP.  To pay for everything they gave us.  Where there is no choice but fair-share sacrifice.  Where everyone pays their ‘fair share’ of taxes.  Which is government-speak for raising taxes on everyone.  To flood government coffers with more private sector wealth.

The country is not what it was.  And it will never be what it once was again.  Not with this level of spending.   This is the kind of spending nations see in their decline.  It’s what toppled Louis XVI.  It’s what roiled Greece in riots.  It’s what downgraded U.S. sovereign debt.  For the first time.  Even Alexander Hamilton wouldn’t approve of this.  For his Big Government idea was all about making the nation an economic superpower.  Not bringing back feudalism.

So if you’re not a fan of Barack Obama, here’s something you can credit him for.  His policies would have reconciled two of our most beloved Founding Fathers.  For Hamilton and Jefferson may have hated each other.  But they would have united in opposition against Barack Obama.

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LESSONS LEARNED #76: “You know they’re governing against the will of the people when they play with the meaning of words to fool the people.” -Old Pithy

Posted by PITHOCRATES - July 28th, 2011

When is a Spending Cut an Increase in Spending? 

I have a riddle for you.  When is a spending cut an increase in spending?  “Well, that’s when…, hey, wait minute,” you say.  “That’s not a riddle.  That’s a paradox.  It’s like saying draw a square circle.  Or a name an objective journalist.  You just can’t do these things.  Just as a ‘cut’ can’t be an ‘increase’.  They are the very opposite of each other.”

Yeah, you would think.  Not that much of a riddle, then, is it?  For a true riddle is solvable.  Or should be.  Like, say, I have two coins that add up to thirty cents.  One of them isn’t a nickel.  What are they?  You’re a bit stymied, aren’t you.  Because a quarter and a nickel are the only two coins that add up to thirty cents.  So what’s the answer?  A quarter and a nickel.  “But you said one of them wasn’t a nickel,” you say.  “Right,” I say.  “One of them isn’t a nickel.  But the other one is.”

Now that’s a riddle.  Clever.  But solvable.  So now back to my first riddle.  When is a spending cut an increase in spending?  The answer is when you use baseline budgeting.

The Power of Baseline Budgeting

Politicians lie.  And they love to spend our money.  Put the two together and what do you get?  Baseline budgeting.   Which in a nutshell is government spending on autopilot.  Next year’s spending is this year’s spending plus a little extra.  That ‘little extra’ is the amount in all budget negotiations. 

For example, let’s say there is an item in the budget with a billion dollar budget amount this year.  That’s the baseline.  That’s where we start budgeting for next year.  Next year’s budget will be one billion dollars plus or minus that ‘extra amount’.

Typically they set this ‘extra amount’ to be equal to or greater than the rate of inflation.  And/or changes in legislation for that budgetary item.  Let’s say there is no change in the program legislation.  And they set the program’s budget so that next year’s budget equals this year’s budget plus 10%.  So this budget item will be $1 billion this year.  And $1.1 billion next year.  Projecting this out for 10 years, this will automatically add $1.36 billion to this budgetary item.

In Baseline Budgeting a Spending Cut is an Increase in Spending

A couple of things should jump out at you.  For one you see why government programs never die.  Once they add them to the budget they stay in the budget.  And grow.  Always.  Forever.  And the bigger the starting budget amount the bigger the program will grow over time.  Again, automatically.  So you can see why baseline budgeting has been a godsend to Big Government.  It guarantees the growth of government.  Now.  And forever.

Now let’s look at a spending cut.  Let’s say spending is getting out of control.  Deficits are growing.  (As hard as that is to imagine.)  So there’s a budget deal to ‘cut’ the budget by 2%.  But this is a 2% cut in baseline budgeting.  So we’re not reducing the budget amount.  We’re only reducing the amount above the baseline.  Spending was going to increase 10% the following year.  But with this 2% cut, that 10% increase becomes only an 8% increase. 

This is where the language play comes in.  The budget is increased by 8%.  But in baseline budgeting it is a 2% decrease.  Instead of increasing the budget by $100 million, they only increase it by $80 million.  The budget is increased by $80 million but they count it as a $20 million cut.  Because future spending was cut $20 million.  So it’s a cut even though no spending was actually cut.  Spending still increases.  Just not as much as previously budgeted.  And that’s the wonderful world of baseline budgeting.  Where a spending cut increases spending.

The Government Shutdown of 1995 and 1996 

When CBO takes these projections out to 10 years it makes these spending ‘cuts’ look draconian.  As originally budgeted, this item would have been increased by $1.36 billion over 10 years.  Because of the reduction in the size of future spending, it will only increase $1 billion over 10 years.  But instead of calling this a $1 billion increase (which it is), they will call it a draconian cut of $359 million (which it isn’t).  Instead of saying this budget item will increase by 99.9% (which it will), they say it will be cut by 26.4% (which it obviously won’t).  Now politicians understand this baseline doublespeak.  But the average American doesn’t.  They hear ‘26.4%’ cut in some program for single mothers or hungry children and think what vicious, heartless bastards Republicans are.

And this was the stage for the government shutdown of 1995 and 1996Bill Clinton campaigned as a moderate in the 1992 presidential election.  After winning, though, he governed as a tax and spend liberal.  The people expressed their disapproval and gave both houses of Congress to the Republicans in the 1994 midterm electionsNewt Gingrich became Speaker of the House.  Gingrich and the Republicans saw their election as a mandate to stop the out of control government spending.  And that’s what they were trying to do in the budget battles beginning in 1995.

The Republicans were trying to reduce the rate of growth of government spending per the will of the people.  Spending would still increase.  But at a slower rate.  Clinton, though, fought against the will of the people.  Using baseline budgeting newspeak to mislead the people.  Clinton called these reductions in growth rates draconian spending cuts.  Even though there were no real cuts in spending.  But being a tax and spend liberal, he wasn’t about to cut the rate of growth.  So they squared off in budget battle.  It all came to a head when the government hit its borrowing limit.  The Republicans tried to get some spending cuts in exchange for increasing the debt ceiling.  Clinton refused.  Unable to pay its bills, the government shutdown.  And the United States collapsed.

Baseline Budgeting helps you Govern against the Will of the People

Not really.  Few people even noticed the shutdown.  Everyone still went to work.  Collected their pay (unless you worked in a national park).  And life went on.  Social Security checks went out.  Interest on the national debt was paid.  The credit rating on U.S. sovereign debt remained AAA.  So there was little damage.  Clinton came out okay from the crisis.  Newt Gingrich not so well.  Many believe that this helped Clinton’s reelection in 1996.  Of course a lot of that had to do with Dick Morris.  Who pulled Clinton to the center.  And became the moderate the people thought they elected.

Clinton may have won reelection, but he paid a price.   Republicans still held both houses of Congress.  Who ultimately won in the long-run.  Their Balanced Budget Act of 1997 did cut the growth rate of government spending.  And then the dot-com boom of the late Nineties produced a windfall of tax revenue that, with the ‘spending cuts’ of the Balanced Budget Act, actually balanced the budget.  For a few years.  But it turned out that the dot-com boom was actually a dot-com bubble.  Thanks to a lot of irrational exuberance.  And the bubble popped.  With the resulting recession tax revenue fell.  And those balanced budgets were no more.

Unwilling to concede to the will of the people, Clinton played with the meaning of words.  Called a spending increase a spending cut.  Because he knew the average American didn’t understand baseline budgeting.  And politicians continue to this day scaring people about draconian spending cuts where there are no spending cuts.  Not in the world of baseline budgeting.  Which makes it easy for them to continue to govern against the will of the people.  As they continue to do.  As they always have done.  Because nothing is more important than growing government.  And spending as much of our money as possible before we get a chance to spend it ourselves.

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President Obama Submits his 2012 Budget

Posted by PITHOCRATES - February 14th, 2011

Deficit Reduction without Touching Medicare, Medicaid or Social Security?

President submits his 2012 budget.  The president says it’ll cut the deficit.  Make America more competitive.  Create jobs.  Restore vigorous economic activity.  And make America dominant again.  Two years of his policy have failed to do any of this.  But it’ll be different this time.  Why?  I haven’t the foggiest idea.  I can only guess that the president is counting on a bunch of poor memories.

Deficit reduction.  Really?  Well, here’re the numbers (see Budget Plan Marks Start of Long Fight on Spending by Corey Boles posted 2/14/2011 on The Wall Street Journal).

Mr. Obama’s budget offers up more than $1 trillion in deficit reductions over a 10-year period—three-quarters coming from spending cuts and the balance from tax increases or the elimination of existing tax breaks.

That’s $100 billion per year.  That sounds like a lot.  But in the first year when we cut $100 billion from the deficit, we’re still adding another $900 billion to the national debt.  That’s more borrowing.  And more interest to pay.  Sort of like living on your credit cards.  And just like the balance on your credit cards never seems to get smaller, neither will our federal debt.

And the proposed Obama budget reductions don’t come close to the $4 trillion in savings recommended by a White House-appointed deficit commission. This is largely because the president’s budget shies away from pushing for any substantial changes to the entitlement programs Medicare, Medicaid or Social Security. Nor does it include a specific outline for overhauling either the corporate or individual tax codes.

Just under half of the federal budget covers the big three: Medicare, Medicaid or Social Security.  Add in interest on the debt and you’re at about half of the budget.  Defense spending is at about 20%.  Discretionary spending (the kind of spending that the law allows us to cut) is at about 20%.  In other words, we’re making small cuts in about 40% of the budget.  While the 50% that is currently growing out of control (Medicare, Medicaid, Social Security and interest on the debt) we’re not cutting at all.  In fact, this 50% is growing.  And Obama is increasing spending still.

“My budget makes investments that can help America win this competition and transform our economy, and it does so fully aware of the very difficult fiscal situation we face,” Mr. Obama said in his budget message.

His budget would boost funding for the Department of Education to $77 billion from the $64 billion it received in fiscal 2010. The money would be used to increase education competitiveness and increase the number of science, engineering and math teachers in schools by 100,000.

More of the same.  Tax and spend.  And for what?  The kind of spending he’s proposing has never paid the dividends promised.  If it has there would be no need to include it in the 2012 budget.  Because they would already have delivered those promised dividends.  But they haven’t.  Just like they never have.  And never will.  Government spending has never caused the great economic expansions in our history.  Cuts in the tax rates triggered those expansions.  And less government spending.

History doesn’t include any success stories of tax and spend Keynesian economics.  But that is exactly what this budget is.

Baseline Budgeting makes Spending Increases Spending Cuts

And what about that deficit reduction?  Is it real?  No (see President Obama’s Budget – Increased Spending and Taxes by Brian Darling posted 2/14/2011 on REDSTATE).

The fact of the matter is that the President is using fuzzy math to create an inflated budgetary baseline (in other words he has inflated projected spending over a 10 year period) so that he can claim cuts that don’t exist.  Today is the President’s day to pitch his plan, but the Obama Administration has to answer why his baseline is so inflated and why he is planning to raise taxes at a time of economic pain.

Baseline budgeting.  That’s the fuzzy math that says how we can count a spending increase as a spending cut.  Here’s how.  I project I’m going to spend $250,000 for a new house next year.  That’s $250,000 in new spending.  Then I change my mind.  Instead, I decide to spend only $175,000 on a new house.  In the real world, that’s new spending of $175,000.  In baseline budgeting, that’s a cut of $50,000.  Because I’m cutting the increase in the amount I’m going to spend.  And the 2012 budget is full of this stuff.

More Obama math.  Add in a $3.3 trillion in program adjustments and $642 billion in debt services on adjustments.  Add in all of these projections to the baseline and you have adjusted the baseline from $5.5 trillion to $9.39 trillion in debt from 2012-2021.  That is how you adjust debt upward to make it look like the President’s budget is cutting spending.  You inflate projected spending over the next 10 years then increase spending at a lower rate than the baseline, you can create a “cut.”

This is smoke and mirrors.  To count huge spending increases as spending cuts, you just say that spending was originally ‘baselined’ at some ridiculously higher number.  And then you sneak in a big tax increase.

On taxes, the President has hidden a massive increase in the gas tax.  There is a line item in the President’s budget summary tables titled “Bipartisan financing for Transportation Trust Fund” that adds up to $328 billion from 2012-2021.  In the President’s Bipartisan Debt Commission Report, they recommended a 15 cent increase in the gas tax.  The President’s budget seems to assume that his commission’s report is implemented by Congress and send to his desk.  This is an implicit endorsement of a massive increase in the price of gas at the pump in the form of increasing the federal gas tax from $18.4 cents.  If this idea does not pass, then you have a $328 billion shortfall in the projected transportation budget.

Hello $4/gallon gasoline.  And when Republicans try to prevent this tax increase from being implemented, the Democrats will call it an irresponsible tax cut.  For the rich, of course.

Tax and Spend, over Promise and under Deliver 

It gets old.  The same old politics.  Tax and spend.  Over promise.  And under deliver.  Banking on Americans having poor memories.  And that a lot of young new voters who haven’t heard the lies before show up at the polls.  Because the ‘get out the vote’ crowd will tell them “yes they can.”  And they will.  Breathe new life into failed, Keynesian economics.  And make the final reckoning ever worse.

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