The UK is Burning because they have too much Socialism and Class Warfare

Posted by PITHOCRATES - August 10th, 2011

You Simply can’t Keep Increasing the Burden on the Productive Class Forever 

The UK is burning.  Thanks to socialism.  And class warfare.  For people are rioting because they’re not getting enough stuff.  So they’re correcting that inequity by stealing stuff from others (see As rioting spreads UK’s Cameron vows crackdown by Stefano Ambrogi and Angus MacSwan posted 8/10/2011 on Reuters).

Youths fought running battles with police in the northern cities of Manchester and Liverpool as well as in the Midlands.

They smashed shop windows, carted off televisions and designer clothes, and torched buildings as police armed with shields and batons struggled to maintain control…

Gangs of youths in hooded tops battled police in Manchester, smashing windows and looting shops, and setting fire to a clothes shop.

In nearby Salford, rioters threw bricks at police and set fire to buildings. TV pictures showed flames leaping from shops and cars, and plumes of black smoke billowing across roads…

In Liverpool’s Toxteth district, rioters attacked two fire engines and a fire officer’s car, police said. Earlier, some 200 youths throwing missiles wrecked and looted shops…

Cars were burned and stores looted in West Bromwich and Wolverhampton in central England; and in Nottingham a gang of young men set fire to a police station. There were also disturbances in Birmingham and Leicester in central England, and Milton Keynes north of London…

In Birmingham, police launched a murder inquiry after three Muslim men died after being run over by a car in the mayhem there. A friend of the men told BBC radio they had been part of a group of British Asians protecting their area from looters after attending Ramadan prayers at a mosque.

“The car swerved toward them. It was cold-blooded murder,” the friend said. The father of one of the men tried to save his dying son with CPR.

They’re not doing this in the US.  Yet.  Because the US is not quite the social welfare state the UK is.  Yet. 

These UK riots illustrate the problem with socialism.  ‘From those according to ability to those according to need’.  The youths rioting have no ability.  And have shown no effort to learn any ability.  Content to remain on the dole.  And it’s a very generous dole in the UK.  Well, it used to be.  Hence the rioting. 

The rioters have needs.  Great needs.  Widescreen televisions.  Designer clothes.  Seeing buildings and cars burn.  So they attended to their own needs.  Took from those having ability.  And burned the mother up.  Destroyed the property of the very people who pay taxes and fund the welfare state.  And provide jobs.  So it looks like the rioters haven’t helped their employment prospects in the community.

Getting a permanent underclass dependent on government benefits provides loyal voters at election time.  But it comes with a price.  The spending required to maintain this underclass eventually becomes unsustainable.  Because you simply can’t keep increasing the burden on the productive class forever.  They may just say screw this and go on the dole, too.  And let someone else put up with the high taxes.  And the looters.

“This disturbing phenomenon has to be understood as a conflagration of aggression from a socially and economically excluded underclass,” the liberal Independent newspaper said.

“These youths live in the heart of British cities but they do not feel part of them. Far too little has been done by successive generations of politicians and public servants to integrate these individuals into normal society. The fuse for this explosion has been burning down for many years.”

Oh, society’s to blame.  Not the people smashing windows and stealing stuff.  Or the people setting fires.  It’s the people who have been living by the rules, the law-abiding people, who are to blame.

Critics say government policies of chopping public spending and raising taxes to cut a huge budget deficit have aggravated the plight of urban youth as the economy struggles to grow and unemployment rises.

The awarding of huge bonuses to bankers has become emblematic of a culture of flashy consumption for the elite.

Corruption scandals within London’s police force and a 2009 scandal over parliamentarians’ expenses have also fueled the notion that greed is a motivating factor across the spectrum of British society.

“Everyone’s heard about the police taking bribes, the members of parliament stealing thousands with their expenses. They set the example. It’s time to loot,” a youth in the riot-torn London district of Hackney told Reuters.

“It’s time to loot.”  That says it all.  They don’t want to sit down and discuss socioeconomic issues.  They just want to get stuff while the getting is good.  I mean, there are protests.  And there is theft.  Labor standing in a picket line is a protest.  Smashing windows and stealing stuff is theft.

Is State Welfare so Generous that People don’t want to get off of State Benefits? 

Of course, some are politicizing this violence.  To make the case for more social spending.  Because if you don’t pay these thugs off they’ll come and smash your windows and take your stuff (see Do Budget Cuts Cause More Riots? by Bouree Lam posted 8/10/2011 on Freakonomics).

A couple weeks ago, Jacopo Ponticelli and Hans-Joachim Voth put out their working paper “Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009.” It uses cross-country data in the 90-year period to examine whether riots and civil unrest increase as governments cut spending. They found a positive correlation between social instability and budget cuts.

I think the real question is this.  Is state welfare too generous?  Is it so generous that people don’t want to get off of state benefits?  And when said benefits are cut they riot?  Are they so lazy and have such a state-induced entitlement mentality that the thought of having to provide for themselves is so disagreeable that they prefer burning their own neighborhoods? 

And so they riot.  They torch their oppressors.  Probably drive these stores out of their neighborhoods.  And discourage anyone from opening a new store in such a violent and riot-prone neighborhood.  Now what?  Where are they going to shop with no stores?  Who will they riot against then?

The Balance of Power has always Determined whether there will be Peace or War 

As bad as all of this is, some are saying the US should follow the UK’s example.  Stop being a world superpower.  And enjoy harmonious bliss at home.  Like they have in the UK.  When they’re not rioting and burning the place down (see Three Cheers for Decline by Charles Kenny posted 8/9/2011 on Foreign Policy).

Of course, the United States still possesses greater military strength than any other country in the world. But what good has being the world’s policeman done for Americans? Wielding that might meant the United States saw more combat deaths overseas last year than any other country, according to data from Uppsala University. Beyond the blood is the treasure: U.S. military spending increased 81 percent between 2001 and 2010 and now accounts for 43 percent of the global total — six times its nearest rival, China. The U.S. military burden is equivalent to 4.8 percent of GDP, the largest economic burden of any OECD country.

Everyone attacks U.S. defense spending.  Something, by the way, called for in the Constitution.  Unlike entitlements.  Now 4.8% of GDP is too high and should be cut.  Whereas entitlement spending is twice that amount and yet no one calls for any spending cuts there.  So it’s not a money thing.  It’s a ‘let’s weaken the U.S. thing’.

Freed from the distractions of colonial oversight and global leadership, it could retire its planet-spanning chain of military bases, shrink the Royal Navy, and devalue the pound without fears that the world would come to an end. And the country learned to collaborate without feeling equal status was a slight to its dignity — joining the European Union, for example, and signing the Kyoto Protocol.

Could the United States go down the same track toward contented (well, most of the time), pretty-good-power status?

But let’s not forget something.  When the sun never set on the British Empire the world was a more peaceful place.  We call it Pax Britannica.  Latin for British peace.  The British Empire was a benign one as far as empires go.  There was prosperity and peace.  And little war.  Something only a powerful military can give you.  When in British or American hands, at least.

The world is a dangerous place.  Always has been.  And the balance of power has always determined whether there will be peace.  Or war.  When the Nazis had it there was war.  When the British had it during the Pax Britannica there was peace.  Yes, the US and UK have made some mistakes.  But ask yourself this.  Who would you feel more comfortable having the kind of military might the US has?  China?  Iran?  Russia?  I think not.

So the US should give up its national security interests.  And take that money and spend it on more state benefits.  Like the UK did following the end of her empire.  So the permanent underclass can grow larger.  And more restive.  Demanding ever more benefits.  And rioting when they don’t get what they want.  Not a very good tradeoff for living in a less safe world if you ask me.

People Dependent on Government Benefits tend to vote for Candidates who Promise more of the Same

The rise of the welfare state has created a permanent underclass dependent on government.  Because overly generous benefits made it attractive to remain in the underclass.  Happy not to be productive.  Living off the labors of those who are.  It’s good politics.  People dependent on government benefits tend to vote for candidates who promise more of the same.

But there is a limit to how much wealth you can transfer from the productive class to the nonproductive.  If you take too much away the productive class may just join the ranks of the nonproductive.  Because that’s where the incentive is.  So the government can only tax up to a certain point.  Then they have to start borrowing.  Until the borrowing creates deficits too great to borrow anymore.  So then the spending cuts begin.  And, of course, the rioting.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,

A Neutered American Lapdog is Advancing Agenda, not Reporting News

Posted by PITHOCRATES - July 22nd, 2011

Dirty Journalists keep Politicians Clean

Poor Rupert Murdoch.  He’s getting no love from the British Establishment over the phone hacking scandal.  Those who once courted the “feral beast” (British tabloids) are turning against it.  Probably because the other political party wooed them more successfully.  And if you’re in politics, you want them on your side.  Because they’re good at their jobs (see In Defense of Hacks by Toby Harnden posted 7/21/2011 on Foreign Policy).

Whereas our American counterparts have long viewed themselves as comparable to lawyers and doctors, we British hacks still see ourselves as practitioners of a grubbing craft rather than members of an upstanding profession. (The public, which views us as on a par with real estate agents, prostitutes and perhaps even criminals, tends to agree.)

Yes, they’re less Walter Cronkite and more Louie De Palma (a character on the American sitcom Taxi).  For a good journalist knows how to get dirty.  Like Louie, a good journalist is born dirty.

While the American press has certainly had its share of similar disgraces, it is true that American newspaper articles are in the main more accurate and better-researched than British ones; the Rupert Murdoch-owned Wall Street Journal was not wrong when it ventured that Fleet Street has “long had a well-earned global reputation for the blind-quote, single-sourced story that may or may not be true.” But stories in the American press also tend to be tedious, overly long, and academic, written for the benefit of po-faced editors and Pulitzer panels rather than readers. There’s a reason a country with a population one-fifth the size of that of the United States buys millions more newspapers each week.

For all their faults, British “rags” are more vibrant, entertaining, opinionated, and competitive than American newspapers. We break more stories, upset more people, and have greater political impact.

That’s the way American journalism was before the Political Class co-opted it.  And why ordinary Americans once read newspapers.  To keep an eye on the scoundrels we put into elected office.  It was one of the few things that kept our elected officials somewhat honest.  Or, at least, honest enough not to lose the next election.

In fact, for the British press, the most damaging revelation of the phone-hacking scandal is the degree to which it shows that journalists — or, to be more precise, News International executives — breached the inner sanctums of the British Establishment. A breed that had always taken pride in being made up of grubby outsiders was allowed in and made the most of the opportunity.

In the United States, journalists are already on the inside: Witness President Barack Obama’s private chats with op-ed columnists, the Washington Post and Time magazine types who effortlessly segue into White House press secretaries and the cozy consensus of Washington’s political-journalism-industrial complex. All too often, American editors, perhaps mindful of their future cocktail party invitations, would prefer their reporters stroke rather than stick it to authority. British journalistic excesses can rightly be condemned, but the American media could use a few more of them. It took the National Enquirer to bring Senator John Edwards to book — and Fleet Street would not have stood for the credulous U.S. reporting on the Bush administration that characterized the run-up to the Iraq war.

That’s the last thing you want.  Your journalists getting all warm and cozy with the people they’re supposed to keep honest.  You don’t want the media to be an adjunct of one party, following orders to advance an agenda while launching personal attacks on the other party.  A good journalist should hate all political authority equally.  And show no favoritism when destroying political careers.  

It is the very politicians who used every opportunity to ingratiate themselves with Murdoch and his acolytes who are now those calling for News International to be broken up — and for the media as a whole to be called to account. Their aim? A regulation system — probably headed up by new a government-appointed “independent” body — that produces a neutered press close to the American model. Having visited Washington and seen reporters stand up when the American president enters the room (British hacks do no such thing for the prime minister) and ask respectful, earnest three-part questions, no wonder our politicians would want more of the same.

The danger of the fevered atmosphere in Britain — where justified outrage over tabloid tactics is fast leading to a hasty public inquisition, with 10 official inquiries or investigations underway at last count — is that what Prime Minister Tony Blair once termed the “feral beast” of the media might be tamed and muzzled. Perhaps the worst outcome of all would be for it to be turned into an American-style lapdog.

If you want to learn about American politics (or journalism) read a British newspaper.  The British Establishment hates and fears them.  Because they do their job.  Whereas in America, the Political Class only hates and fears FOX NEWS and talk radio (Rush Limbaugh, Sean Hannity, etc.).  Which tells you where to go to get your news.  Because if you want objective reporting, you have to go where they dare to be unflattering.  Unlike the sycophants in the ‘mainstream’ media.  For an unneutered feral beast is the only thing that will go for the political jugular.  And restrain the excess of our elected scoundrels.  I mean representatives.

And sometimes you need to get dirty.  Because getting dirty is sometimes the only way to keep politicians clean.

Good Journalism is more Reporting and less Stroke

If you watch FOX NEWS or listen to talk radio you’ll hear a different ‘version’ of the news than that on the mainstream media.  For example, the mainstream media has reported repeatedly polls citing that Americans want the Republicans to stop being intransigent and raise taxes already so the budget deal to raise the debt limit can move ahead.  Interesting how that ‘report’ meshes perfectly with the Obama administration policy agenda.  And yet Rasmussen reports a completely contrary poll finding (see Most Voters Fear Debt Deal Will Raise Taxes Too Much, Cut Spending Too Little posted 7/22/2011 on Rasmussen Reports).

The latest Rasmussen Reports national telephone survey finds that 62% of Likely U.S. Voters are worried more that Congress and President Obama will raise taxes too much rather than too little in any deal to end the debt ceiling debate. Just 26% fear they’ll raise taxes too little. Twelve percent (12%) aren’t sure. (To see survey question wording, click here…)

There’s a wide difference of opinion, however, between the Political Class and Mainstream voters. Fifty-nine percent (59%) of the Political Class is worried the deal will cut spending too much, while 63% of Mainstream voters fear it won’t cut spending enough. Those in the Mainstream worry more than Political Class voters by a near two-to-one margin – 70% to 37% – that the debt deal also will raise taxes too much.

It sounds like ordinary Americans don’t want higher taxes and more spending.  In fact, they are worried that any deal may raise taxes too much or cut spending too little.  Now this opposes the Obama administration policy agenda.  So I wonder which journalism is more reporting and less stroke?  And which is truer?

Entitlement Spending is the Cause of all our Budget Woes

Americans should be worried about raising taxes instead of cutting spending.  Because there is a much bigger problem out there (see Missing the Debt by Yuval Levin posted 7/21/2011 on The Corner).

…starting in the 2050s, CBO projects that health-care spending will be greater than all other non-interest spending combined, and the federal government will basically be a health insurer with some unusual side ventures like an army and a navy.

…health-care entitlement spending is basically 100 percent of our medium and long-term debt problem.

That thing that Obama and the Democrats refuse to put on the table?  Entitlement reform?  Especially all the health care programs (Medicare, Medicaid and now Obamacare)?  They’re the cause of all our budget woes.  Ignoring this fact makes the budget debate pointless.  It’s just political theatre.  Fiddling while America burns.  Pity we don’t have an unneutered feral beast to put this issue front and center.  Besides FOX NEWS and talk radio, that is.

FOX NEWS will Report what the Political Class rather you not Hear

Interestingly, FOX NEWS is part of the Rupert Murdoch Empire.  And those on the left viciously belittle it as not being ‘real’ news.  But they sure incur the wrath of the Political Class.  Which should tell you a thing or two.  Because when it comes to news organizations, they only hate those who report things they’d rather you not hear.

Of course there is a chance that the FOX NEWS isn’t a legitimate news organization.  And that they are only reporting inflammatory pieces to make a buck.  And that the Political Class is pure and innocent as the winter’s snow.  That everything they do is for our own best interests.  Being the honest public servants that they are.

Yeah, right.  Pull the other.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Debt Crises are Far Greater than Many choose to Believe

Posted by PITHOCRATES - June 17th, 2011

Was it the Plan to Bankrupt the Nation?

The IMF is worried about a technical default on U.S. debt.  But it’s the budget deficits that really concerns the IMF.  In the U.S.  And in Europe.  For the entitlement spending of these welfare states has proven to be beyond unsustainable.  They’re downright dangerous.  And if unchecked, it will destroy these nations (see IMF cuts U.S. growth forecast, warns of crisis by Luciana Lopez posted 6/17/2011 on Reuters).

The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.

They’re not saying that the U.S. had better raise their debt limit.  They’re saying that they better reduce their deficit.  Either by raising taxes.  Or cutting spending.  And with the IMF cutting their forecast for U.S. economic growth, that pretty much means they’re leaning towards cutting spending.  Because higher taxes don’t stimulate economic growth.  And the U.S., and all countries with huge budget deficits, needs as much economic growth as possible.  For ‘economic growth’ means ‘tax revenue’ growth.  And that’s what they need.  Tax revenue.  Add to that spending cuts and you start making headway in reducing those deficits. 

Meanwhile, Greece has edged closer to default as euro zone officials disagree on a possible second aid package for the indebted country. With strikes and protests around the country, political turmoil has added to uncertainty, stoking fears that the government will not be able to tighten its belt enough to reduce crippling deficits.

“If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” Vinals said.

With strikes and protests over austerity measures to reduce their deficit, it doesn’t look good in Greece.  They’re getting closer and closer to a default on their debt.  And not a technical default as in being late on an interest payment.  But an all out default as in making their bonds worthless.  What’s worse is that the U.S. made it to the short list of nations with the absolute worst public finances.  And that’s before Obamacare adds another trillion dollars or so of federal spending.

You know this didn’t happen overnight.  We knew about the crushing weight of U.S. entitlement spending for decades.  Even Ronald Reagan raised taxes to save these programs.  So it wasn’t a secret.  And for the Obama administration to spend to the tune of a $1.4 trillion deficit was ill advised to say the least.  Unless the plan was to bankrupt the nation.  If that was the plan then kudos to them.  They may actually have something work as planned yet.

Overheating Economies are a Bitch on the Downside

Greece may be beyond saving.  Worse, when she goes under she may drag others with her (see IMF warns of increased risks to the world economy posted 6/17/2011 on the BBC).

Many analysts believe Greece will not be able to pay back all the money it has borrowed.

“I don’t think there is a question over whether Greece is going to default, it is just a question of whether it is an orderly or disorderly one,” says George Magnus, senior economic adviser at UBS.

The IMF warned that if Greece was unable to pay its debts, other countries such as Spain or Portugal may also be affected.

A cascading electrical blackout is a lot like bank failures.  The North American electrical grid is interconnected.  Power plants attach locally but their power can be sent almost anywhere on the grid depending on demand.  Back in the Northeast Blackout of 2003, downed high voltage power lines triggered a sequence of events.  With some power disconnected from the grid, more power flowed from other sources to make up for the loss.  Higher currents caused these lines to sag and eventually they, too, failed.  Other lines then surged with higher currents to make up for the loss supply and then they failed.  As lines failed power plants disconnected from the grid.  Those still attached tried to make up for the lost supply.  Until they exceeded their safe limits and then disconnected from the grid to protect themselves.  And this continued until a large part of Northeast North America lost all electrical power.

Now think of governments as power stations.  Government spending as high currents in power lines.  The economy as the electric grid.  And Greece as the first failure.  Right now the European Union and the European Central Bank are trying to minimize the cascading damage.  Before financial trouble spreads further and stresses other governments.  Causing additional stresses on the European banking system.  But it doesn’t look good.  All that spending has only overheated those ‘power lines’.  But the problem is still attached to the grid.  Greek spending.  Unable to stop their spending (i.e., commit to their austerity plans), that ‘power station’ will fail.  And then the cascading will begin.

Outside Europe, the fund said it expected economic growth in developing countries to remain strong.

This, in turn, presents a risk of overheating – where economies grow too fast leading to a rapid contraction later.

Like in Japan in the 1980s (Japan Inc).  The U.S. in the 1990s (the dot-com bubble).  And the U.S. again in 2007 (the housing bubble and the subprime mortgage crisis).  Overheating economies can be a whole lot of fun on the upside.  But they’re a bitch on the downside.  Not to mention the economic impact on the rest of the world economy.  And it’s the rest of this world economy that’s scaring the IMF.  For it’s these growing economies that are buying what little manufacturing there is in the older established economies.

It’s going to Suck Worse before it gets Better

There’s no relief for the American consumer.  But the stock market is doing well.  In a normal economic recovery this would benefit the consumer.  But this isn’t a normal economic recovery (see U.S. Confidence Out of Sync With Stock Gains by Bob Willis and Alex Tanzi posted 6/17/2011 on Bloomberg).

The Bloomberg Consumer Comfort Index has stalled near its recession average as the Dow Jones Industrial Average has risen 83 percent from a 12-year low in March 2009. A tight correlation between the index and Dow that lasted more than two decades has broken down as joblessness above 9 percent, stagnant wages and near $4-a-gallon gasoline outweigh the benefits of higher share prices, even after a 6.6 percent retreat in the Dow since the end of April.

“Consumers are fairly depressed, yet the stock market continues to improve,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview. “It’s foreign demand that is really pushing corporate profitability. Consumer confidence is pretty constrained by the labor market.”

U.S. manufacturers in particular have profited from faster growth in emerging economies, including Colombia and Indonesia, where expanding middle classes are demanding more roads and utilities, as well as higher-protein foods and more consumer goods. Deere & Co. (DE), the world’s largest farm-equipment maker, raised its fiscal 2011 earnings forecast on May 18 to $2.65 billion from $2.5 billion, citing increased demand for farm and construction machinery outside the U.S, along with growth in America.

If it wasn’t for these emerging economies there would probably be no corporate profitability.  High unemployment, stagnant wages and $4-a-gallon gasoline is leaving the American consumer little disposable cash to stimulate anything.  That’s why they’re depressed.  Because it sucks out there.

U.S. corporations have gotten “a pickup in sales growth, but they’re not responding with a big pickup in wages and labor growth,” said Rob Carnell, chief international economist at ING Bank in London. “This is helping them to keep their margins intact in the backdrop of rising commodity prices…”

The 18-month recession shaved 4.1 percentage points off gross domestic product before ending in June 2009, making it the deepest downturn since the 1930s. Growth has averaged about 2.8 percent since then, enough to restore only 1.8 million of the 8.8 million jobs lost as a result of the slump.

And now inflation is raising commodity prices.  That means corporations, small businesses and consumers all have less disposable cash.  Which means there will be no job creation.  Because there is no new demand they need to hire people to meet.  Which means it’s going to suck worse out there before it gets better.  Which makes it hard to believe that the recession ended in June of 2009.  High unemployment.  Low economic growth.  Stagnant wages.  If it looks like a duck, walks like a duck and quacks like a duck, we’re probably still in a recession.  The worst one since the Great Depression.  And if things continue as they are we may have to call the Great Depression the worst economic downturn before the Great Recession that started in 2007.

Making the easy Difficult

Things are looking bleak for Greece.  And the other three nations that have spending problems as bad as theirs.  Ireland, Japan and the United States.  Boy.  I’d sure hate to be in our shoes.

We know what caused their problems.  Excessive government spending.  So you’d think it’d be easy to fix their problems.  Just stop spending so much.  But when you get people used to that government spending.  And politicians get used to the votes that spending buys, it makes the easy difficult.  So they continue to spend.  Ask for bailouts.  And plead to Congress to raise the debt ceiling so they can spend some more.

The politicians either don’t believe in the magnitude of the problem.  Or they are counting on being dead before they have to pay the piper.  But someone will eventually pay the piper.  And it’s going to hurt.  And the longer we wait to pay the more it’s going to hurt.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

LESSONS LEARNED #67: “Free health care is very expensive.” -Old Pithy

Posted by PITHOCRATES - May 26th, 2011

Romneycare

In 2007 Romneycare took effect in Massachusetts.  A precursor to Obamacare.  Though not by design.  The new health care requirement included an individual mandate.  You either bought health insurance or they penalized you.  Ditto for employers.  They either provided health care or they penalized them.  It included subsidies to help the less wealthy pay for their mandated insurance.  And added a new and powerful health care regulatory board.  Finally, an example of what compassionate Big Government could do.  And how successful has Massachusetts been in providing free/affordable health care to everyone?  Well, as of 2011, not a single state has followed their example.

It has failed to provide universal coverage.  It has failed to control health care costs.  It has cost more in taxes than originally projected.  Health care has become more bureaucratic.  There is less choice.  Medical bankruptcies went up.  And there’s talk about implementing price controls.  And, of course, rationing.  Everything the critics warned about in a universal health care program.  And everything the proponents poo pooed.  Because those things only happen when everyone else tries universal health care.  But everyone else isn’t them.  They know how to do it right.  And their plan will not only not have those problems.  It will provide universal, quality health care at affordable prices while reining in health care costs without new and higher taxation.  Of course they were wrong.  And the critics were right.

Sound familiar?  The proponents of Obamacare have said the same thing.  In fact, Obamacare is pretty much Romneycare at the national level.  Interestingly, Mitt Romney, the architect of Romneycare, opposes Obamacare.  As a Republican candidate for the 2012 election, he promised to repeal Obamacare.  Probably because if they do at the national level what he did at the state level it would ruin the U.S. economy.  Because nothing went as planned in Massachusetts.  So there is no reason to believe that Obamacare will not be the train wreck Romneycare was.  Even if the ‘right’ people finally take a crack at it.

Medicare

In the U.S., federal tax revenue (i.e., federal income taxes) averaged about 18% of GDP between 1970 and 2010.  So if the government’s budget was balanced, federal spending would also equal 18% of GDP.  When it’s not balanced and they spend more than this 18% of GDP it results in deficits.  Which the government has to finance either by raising taxes, borrowing money or printing money.

In 1970, Medicare outlays were about 0.7% of GDP.  By 1980, that number increased to 1.2% (a 71.4% increase over the decade).  By 1990, it increased to 1.9% (a 58.3% increase over the decade).  By 2000, it increased to 2.2% (an increase of 15.8% over the decade).  Or a total increase of 214% in only 30 years of the program.  And that’s the good news.  The projections are far worse.  By 2020, it will be 3.6% of GDP (a 414.3% increase from 1970).  By 2030, it will be 4.9% of GDP (a 600% increase from 1970).  By 2050, it will be 6.7% of GDP (an 857.1% increase from 1970).  By 2075, it will be 9.6% of GDP (a 1,271.4% increase from 1970).  At which time it will consume more than half of all tax receipts.  And equal the size of the 2010 federal deficit.  And this is for Medicare alone.  It doesn’t include Social Security.  Defense.  Or interest on the debt.

These numbers are huge.  Growing.  And out of control.  It’s the biggest piece of all entitlement spending.    And it’s the biggest single item of the federal budget.  It is without a doubt some of the worse number crunching the federal government ever did.  Not only did actual costs exceed their estimates, they were three times higher in only 30 years.  One thing is clear.  The federal government doesn’t know the first thing about running a health care system.  And yet here they are.  With Obamacare.  Which will be a lot like Medicare.  Only bigger.  Because Obamacare won’t just be for the seniors.  It’ll be for everyone.

Cubacare

To borrow a medical term, Medicare is circling the drain.  It won’t be around for the kids of today.  Unless they enjoy paying a flat tax of 100% of their earnings to continue to fund it and the rest of government.  Of course, that won’t leave anything for food, utilities, rent or the other necessities of life.  In other words, they will work.  But they won’t get paid.  Reduced to involuntary servitude.  Life will be pretty bleak.  But there will be health care for everyone.  But not in the utopian way the government planners are promising.  It will be more like in Cuba.  Where it’s illegal to criticize the government.  So most don’t.  And they abort babies when it looks like they may not live through infancy.  Thus giving them a low infant mortality rate.  A sign of a first class health care system.  But the hospitals are dirty.  And filled with out of date equipment.  Much of which doesn’t work.  And there is a wholesale lack of medicine.  Because they are just too impoverished to buy any.

We have to fix Medicare.  If we want to keep having Medicare.  It can’t stay as it is.  It’s just too costly.  As all universal/free health care tends to be.  And a declining birthrate compounds the problem.  Baby boomers are retiring.  And making the system top-heavy.  The consumers of health care are growing faster than the payers of health care.  What’s worse is that it borrows from one generation to pay for another.  As they tax the young more for today’s retirees the young will have less to save for their own retirement.  So not only will they not have Medicare when they retire, they will have saved less than today’s retirees.  Making their retirement truly a bleak and impoverished picture.  How bleak?  Cuba bleak.

And continually raising taxes isn’t the answer.  Because there’s a limit to how high you can raise taxes.  Massachusetts has apparently reached that limit.  For they are now considering price controls and rationing.  Which will make things worse.  Not better.  The UK and Canada are in earlier stages of price controls and rationing.  Cuba is in a much later stage.  And you can see the progression of quality.  Of these four countries, which would you choose for your health care needs?  Most probably would choose the United States.  Many, though, no doubt, would choose Canada or the UK.  But one thing for sure.  No one would choose Cuba over the other three.  Sadly, based on the numbers, that’s where Medicare is heading.  Of course, it probably won’t ever be like Cuba.  For it probably will cease to exist long before it gets that bad.

Costs will Continue to Rise

If we learn anything in life it needs to be these two things.  Nothing is free.  And government is horrible at running things.  Providing quality yet affordable health care to everyone are two conflicting goals.  You can provide high quality health care.  But not to everyone.  And you can provide health care to everyone.  But it can’t be high quality.  Universal health care, because of its cost, has to make limited resources cover more people.  That is to say, they will have to ration resources. 

When the government is picking up the tab for health care, there will be no more private rooms in hospitals.  Or semiprivate.  There will be crowded wards.  So doctors and nurses can carry higher patient loads.  To keep costs down.  And to allow fewer resources cover more people.  They will ration high-cost treatments.  Not everyone will get dialysis.  Or chemotherapy.  There will be fewer machines.  And less medicine.  Because of costs.  Only the few meeting the government’s criteria will get these treatments.  Or those with pull.

Even then the costs will continue to rise.  And the more the government takes over, the more health care costs will be transferred to the taxpayers.  Who will pay ever higher taxes.  And get ever less in return.  But they will have universal health care.  It will just be horrible.  As their lives will grow to be.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , ,

A Limping U.S. Economy gets no help from WTO Ruling, Inflation or Entitlement Spending

Posted by PITHOCRATES - May 18th, 2011

The WTO Rules against the US/Boeing in favor of EU/Airbus

Government subsidies are costly.  In more ways than one (see WTO Airbus ruling leaves both sides claiming victory by the BBC posted 5/18/2011 on the BBC News Business).

“This report confirms for decades the European Union… [has] provided massive amounts of market-distorting launch aid and other subsidies that are inconsistent with WTO rules.”

However, Airbus’ Mr Enders claimed the decision meant Germany, France, the UK and Spain could continue providing funding for Airbus via public-private partnership arrangements…

Earlier this month in a separate case, Boeing was found guilty of receiving over $5bn of unlawful subsidies from Washington.

Ever price a Boeing 747?  If you’re looking to buy one today it’ll set you back some $300 million.  Each.  It’s a big plane with a big price tag.  But it’s a money maker.  Once upon a time she ruled the skies.  It was every airline’s long-haul choice.  Because it could carry more people than anything else out there.  And the more people you pack into an airplane the more money you make.  Economies of scale.  That’s why the Concorde is no longer in service.  It didn’t make money.  Seating only 100 people it couldn’t charge enough in ticket prices to offset the great costs of flying it and make a profit.  So it was only a prestige thing for British Air and Air France.  And a toy for the super rich.

The 747 soon faced competition from Airbus.  First the A330 and A340.  Then the double-decker A380Boeing lost sales to Airbus.  And not always fairly.  According to them.  The consortia that made up Airbus (Germany, France, the UK and Spain) subsidized Airbus.  Thus making Airbus planes more cost competitive than those from rival Boeing.  Why does this matter?  Look again at the price of a 747.  It’s the biggest U.S. export product.  And in a nation with a declining manufacturing base and an increasing trade deficit, anything that reduces sales of Boeing planes hits their balance of trade hard.  So much so that even the U.S. government tries to subsidize Boeing to help them compete against Airbus.

With the WTO ruling, Airbus subsidies will continue.  Cutting more into U.S. manufacturing.  And increasing the trade deficit.  Not good economic news for the Americans.  Among other bad news.

Unemployment and now Inflation

Ben Bernanke has been trying to resuscitate a flat-lining U.S. economy with free money.  Hasn’t improved the numbers much.  The unemployment rate just went up.  The economy isn’t looking good.  And now this (see Inflation concerns dominate April Fed meeting by the Associated Press posted 5/18/2011 on the Los Angeles Times).

The Federal Reserve last month began debating how it should start reversing policies that pumped billions of dollars into the economy during the recession. Some members said the Fed might need to start boosting interest rates this year to guard against inflation…

Some members thought the Fed would need to start signaling that record-low interest rates would need to rise. A few members believed the Fed might need to boost its key interest rate or start to sell some of the assets in its portfolio later this year. Both moves would lead to tighter credit and higher rates on consumer loans.

Inflation.  Like the Americans didn’t have enough to worry about with a declining manufacturing base, a growing trade deficit, high unemployment and a recession that doesn’t end.  And if that wasn’t bad enough, entitlement spending just keeps piling on the woe in large deficits.  That adds to the debt.  Forcing the Americans to borrow ever more.  So much so that Standard and Poor’s took notice and lowered their outlook for the U.S. economy.  Not a good thing when you’re trying to sell treasury bonds.  Things are getting a little difficult in the United States.

Entitlement Spending Heralding the end of the Republic?

Thankfully, America has a representative republic.  Where there are responsible, disinterested wise people between the people and the treasury.  Because the masses don’t understand public finance as well as these wise people, the wise can step in and protect the people from themselves.  For as Benjamin Franklin warned, once the people learn they can vote themselves the treasury it will herald the end of the republic.  So they, the wise, will step in and address the entitlement spending problem.  Per the responsible, disinterested Founding Fathers‘ design (see Healthcare ills infect 2012-bound Republicans by Patricia Zengerle posted 5/18/2011 on Reuters).

The Republican budget plan passed by the House of Representatives last month would repeal the Obama healthcare law, scale back spending on the state/federal Medicaid healthcare program for the poor and implement the plan from Ryan, chairman of the House Budget Committee.

With polls showing two-thirds of Americans prefer to keep Medicare in its current form, Democrats have been rushing to take political advantage…

“Candidates already are capitalizing on this issue and using it to say Republicans are outside the mainstream,” said Darrell West of the Brookings Institution think tank.

Or not.  Some will take the low road.  And politicize the crisis for personal gain.  Even knowing full well that today’s gains could very well destroy Social Security, Medicare and Medicaid for future recipients.  This would be the polar opposite of the selfless Founding Fathers.  Who tried to build a nation that would stand the test of time.  Unlike the selfish of today who are just looking out for themselves.

The Here and Now versus Tomorrow

Everyone knows there is an entitlement spending problem.  And some are more than willing to trade a hard future for an easier today (see FEULNER: Saving the American dream by Ed Feulner posted 5/16/2011 on The Washington Times).

America is on the verge of becoming a country in decline – economically stagnant and permanently debt-bound, heavily regulated and bureaucratic, less self-governing and less free…

To get our fiscal house in order, we must address Social Security, Medicare and Medicaid, the three so-called “entitlement” programs that together account for 43 percent of federal spending…

Almost half of the federal budget is entitlement spending.  And it’s growing.  Baby boomers are now retiring.  Living far longer into retirement than anyone guessed.  And because they’re living longer into retirement they’ve consuming far more health care than anyone guessed.  They cannot sustain this spending.  It’s why GM went bankrupt.  It was those generous union contracts that did her in.  Pensions and health care.  Spent on people no longer working.  Now America is GM writ large.  And anyone who thinks it can end differently is in denial.

Edmund Burke reminds us to think of our time on this earth not as an individual and temporary event, but rather as a partnership “between those who are living, those who are dead and those who are yet to be born.”

Those in Washington are not looking to the past or the future.  Apparently, all they care about is the here and now.  And as long as they get theirs they don’t care about tomorrow.  If you listen closely, that sound you hear is the tears of the Founding Fathers.  Or the cursing.  For I understand that George Washington had quite the temper.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , ,

It’s Entitlement Reform or Bust. Literally.

Posted by PITHOCRATES - April 27th, 2011

Boehner not Wedded to Ryan’s plan to Reform Medicare

Just when you thought someone was getting serious about addressing the 800 pound gorilla in the room.  That thing that is driving this car into the ditch.  Entitlement spending.  Unsustainable entitlement spending.  The young guns laid down a bold plan.  But the old guard is now backing away from it (see Boehner: ‘Not Wedded’ to Ryan Plan for Medicare by Danny Yadron posted 4/26/2011 on The Wall Street Journal).

House Speaker John Boehner (R., Ohio) said he is “not wedded” to Mr. Ryan’s plan to redo Medicare. “Paul Ryan has an idea that’s certainly worth consideration,” Mr. Boehner said in an interview with ABC News. “I’m for it. It’s our idea. It’s Paul [Ryan]’s idea. Now other people have other ideas. I’m not wedded to one single idea.”

For crying out loud, who do you gotta sleep with to get some entitlement reform around here?

This is why the Founding Fathers did not include Entitlements in the Constitution

Somebody needs to do something with Medicare and fast.  Because the current entitlement spending (the biggest chunk of which is Medicare) is going to bankrupt the United States.  The Heritage Foundation has published a new book chock full of charts (some of which they crunched from 2008 tax data).  If you’re looking for a good book to curl up with on a rainy night, this isn’t it.  But if you want to make some sense out of all these numbers being thrown around out there, this is a must read. 

Based on current projections, by 2049 spending on Social Security, Medicaid, Obama Subsidy Program and Medicare will consume all tax receipts, leaving nothing else to pay for military spending or interest on the debt (see Entitlements Will Consume All Tax Revenues by 2049 from The Heritage Foundation 2011 Budget Chart Book).

If the average historical level of tax revenue is extended, spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security will consume all revenues by 2049. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other government spending, including constitutional functions such as defense.

Sure, some may not care that the military will be completely defunded.  But at the rate of growth of this entitlement spending on ‘autopilot’, we won’t be able to pay that other great expense.  Interest on the federal debt.  And that’s a big deal.  For it’s what everyone is talking about right now.  Now that we’re fast approaching the legal debt ceiling.  If we don’t raise it, the Obama administration claims, we’ll destroy the credit worthiness of the nation (see Treasury quietly plans for failure to raise debt ceiling by Lori Montgomery and Brady Dennis posted 4/26/2011 on The Washington Post).

The White House is warning that catastrophe will strike if Congress fails to raise the limit on the national debt: With too little cash to pay creditors, the U.S. government would default. Interest rates would skyrocket. And the economic recovery would collapse.

So, yeah, this entitlement spending is pretty serious.  If unchecked, its growth will make it impossible to pay for defense and interest on our debt.  And continuous deficit spending adds more and more to the debt.  Other than a spike during World War II, the national debt as a percentage of GDP was at or below 50%.  Obama has taken that above 50% for the first time since FDR.  And then it just soars after that.  By 2050 they project it to be 344% of GDP (see National Debt Set to Skyrocket from The Heritage Foundation 2011 Budget Chart Book).

In the past, wars and the Great Depression contributed to rapid but temporary increases in the national debt. Over the next few decades, runaway spending on Medicare, Medicaid, and Social Security will drive the debt to unsustainable levels.

Of course, a trillion dollar stimulus or two and a national health care program only compounds the problem.  Even Obama is now saying we can’t spend more than we have, implying that we’re just not taxing the people enough for the current level of spending.  But it’s not a lack of taxing that caused the problem.  It’s the orgy of spending that is (see Runaway Spending, Not Inadequate Tax Revenue, Is Responsible for Future Deficits from The Heritage Foundation 2011 Budget Chart Book).

The main driver behind long-term deficits is government spending[,] not low revenues. While revenue will surpass its historical average of 18.0 percent of GDP by 2021, spending will shoot past its historical average of 20.3 percent, reaching 26.4 percent in the same year.

But didn’t we cause the deficit by letting the rich not pay their fair share of taxes?  George W. Bush gave the rich unfair tax breaks.  And President Obama renewed the tax breaks for the rich.  It seems to me that if we would only stop the free ride of the rich we could solve a lot of our fiscal problems.  I mean, just how much are these cheap bastards paying anyway? 

Well, funny you should ask.  Because they’re paying a lot.  The top 1%, the richest of the rich (those earning $380,354+ annually)?  These cheap bastards are paying 38.02% of all federal income taxes.  The top 10% (those earning $113,799+ annually)?  These cheap bastards pay 69.94% of all federal income taxes.  It appears that these cheap bastards aren’t all that cheap after all.  The rich are paying the lion’s share of all federal income taxes.  While the bottom 50% (those earning $33,048 or less annually) are only paying 2.7% of all federal income taxes (see The Top 10 Percent of Earners Paid 70 Percent of Federal Income Taxes from The Heritage Foundation 2011 Budget Chart Book).

Top earners are the target for new tax increases, but the U.S. tax system is already highly progressive. The top 1 percent of income earners paid 38 percent of all federal income taxes in 2008, while the bottom 50 percent paid only 3 percent. Forty-nine percent of U.S. households paid no federal income tax at all.

It’s the entitlements, stupid.  They’re breaking the bank.  When the Founding Fathers wrote the Constitution there wasn’t any entitlement spending in it.  Why?  Because they didn’t want them in the Constitution.  It wasn’t in their plan for the federal government.  Why?  Because they all feared what would happen when people started voting themselves money from the federal treasury.  Franklin warned that it would be the end of the republic.  You see, he said if we started doing that we would eventually end up exactly where we are.  Wise man, that Franklin.  As were all the Founding Fathers.  They knew better than to give us a democracy.  They wanted people who knew better (or should know better) between the people and the treasury.  So that some demagogue couldn’t come along and promise federal benefits in exchange for votes.  Like they do today.  And plan to do until the country spends itself into the ground.  Obama’s 2012 budget calls for entitlement spending that consume 58% of the entire budget (see More Than Half of the President’s Budget Would Be Spent on Entitlement Programs from The Heritage Foundation 2011 Budget Chart Book).

In combination with other entitlements, Medicare, Medicaid, and Social Security constitute the lion’s share of President Obama’s 2012 budget. In contrast, spending on foreign aid represents 2 percent.

That’s an infinity percent increase ((58%-0%)/0%) since 1787.   For something the Founding Fathers didn’t want the federal government to do.  And trying to pay for this is forcing the nation into a “catastrophe.”  If they were alive today they’d probably say, “See, I told you so, you stupid sons of bitches.  And, by the way, thanks for taking our gift to you and destroying it in a little over 200 years.  Makes those 8 years of the Revolution all the more worth it.  You should have listened to us.  But no!  What do we know?  The English Civil War, the Enlightenment, the Magna Carta…what are these?  Sure, they influenced us.  But what do they mean to you?  Probably about as much as our constitution.  Whatever the hell you want it to mean.  Because it’s a ‘living document’.  “Sure, the Founding Fathers wrote this but they meant something completely different.”  Oh, did we?  How interesting.  We were so stupid we didn’t even know how stupid we were.  Gee, thanks for pointing that out to us.  You ungrateful sons of bitches.”

Or something like that.

American Civil War II

Everyone knows we have a problem with entitlement spending.  It will eventually bankrupt the United States.  We all know it has to be reformed.  But no one wants to because it may cost votes.  You see, you don’t buy votes by taking money back.  You buy votes by giving money away.  So everyone just kicks the can down the road.  All the while the cost of reform grows ever higher.  Much like it did in the first half of the 19th century.  When we kept kicking another can down the road.  Always trying to find a compromise to fix things for today.  And letting someone else worry about tomorrow.  I’m sure you know what I’m talking about.  If you don’t, here’s a hint.  That problem ended about 150 years ago.  At the conclusion of the American Civil War.

We have a growing underclass that pays no income taxes that is now half of the population.  We have a small middle class/rich that is paying most of the taxes.  And a ruling elite.  Kind of reminds me of another civil war.  The French Revolution.  So it is not inconceivable that our class warfare could turn into actual warfare.  There was civil strife in Greece when they went bankrupt.  But the European Union bailed them out.  The question here is who will bail out the United States?  Or, rather, who can bail out the United States?  For, at the moment, it doesn’t look like anyone can.

Speaking in worst case scenarios, it may become necessary to rewrite our history books.  We will have to revise the American Civil War to the American Civil War I (1861-1865).  To differentiate it from the American Civil War II.  Whose start and end dates have yet to be determined.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , ,

The Obama Budget: High Taxes, Reckless Spending and Lies

Posted by PITHOCRATES - April 18th, 2011

Is it how Much we Give or how Much we Could Give that Counts?

Imagine, if you would, two people standing in front of an orphanage.  There’s a donation box there.  And we can see these caring people actually count out their money before placing it in the donation box.  One counts out $20.  The other counts out $100.  Who is more generous?

Is this a trick question, you ask?  Well, yes, I guess it is.  You see, normal people, like you and me, are inclined to say the person donating the $100 is more generous.  I mean, $100 is more than $20.  $100 buys more than $20.  $100 will do more for orphans than $20.  So it sure looks like to us, the normal people, that the $100 donation is the more generous donation.  But that’s not the way government would see it.  For I left out one important piece of information.  I didn’t say how wealthy these people are.  So let’s do that now.  The $20 donation is from a UAW line worker.  The $100 donation is from a rich business owner.  Now who is more generous?

$100 will still buy more than the $20 for the orphans, but $100 is a smaller percentage of the business owner’s salary.  The $20 donation is a larger percentage of the UAW line worker’s salary.  So, people in government, and those on the Left, will say the $20 donation is the more generous donation.  Even though it will buy less for the orphans.

We Pay Tax Dollars, not Tax Rates

This is a big problem clouding the debate over ‘fair’ taxation.  Devious politicians point to tax rates and cry that the rich aren’t paying their fair share.  When, in fact, they are paying far more tax dollars than those less rich.  Even in an attack on these rich bastards shows this (see Only Little People Pay Taxes by Dave Gilson posted 4/18/2011 on Mother Jones).

Leona Helmsley’s distaste for paying taxes eventually landed her in federal prison. But the rich have little need to break the law to avoid the tax collector. As Martin A. Sullivan of Tax.com recently calculated, a New York janitor making slightly more than $33,000 a year pays an effective tax rate of nearly 25%. And the effective tax rate for a resident of the Park Avenue building named after Helmsley, earning an average of $1.2 million annually? A cool 14.7%.

And the chart following this shows the income and taxes of the Janitor and the millionaire.  And even though the millionaire pays only 14.7% in taxes, the actual tax dollars paid in income taxes is $159,515.  And how much did that janitor pay?  Just $3,168.  The cheap bastard, the millionaire, paid $156,347 more in income taxes.  That’s 4,935% more than the janitor paid in income taxes.  Yes, 14.7% is a smaller percentage than 25%, but there’s no math in the world that says the janitor paid more in income taxes than the millionaire.

There’s a difference between tax dollars and tax rates.  And tax rates don’t pay the bills.  Tax dollars do.  And the rich pay more of them by far.  Anyway saying otherwise is fostering class warfare for political purposes.  Because if it was about tax dollars to pay for federal spending, $159,515 pays for a lot more spending than $3,168. 

Low- and Middle-Income Families don’t Pay their Fair Share of Taxes

So if the rich aren’t paying their fair share of taxes, who is?  And are there others, too, not paying their fair share?  Of course, that can’t be.  Because only the rich can get away with cheating the…  Hello, what’s this?  Low- and middle-income families aren’t paying any federal income taxes?  Really?  How can that be?  Wasn’t it the rich blankity blanks that were screwing the poor?  Not the other way around (see Nearly half of US households escape fed income tax by Stephen Ohlemacher, Associated Press Writer, posted 4/7/2011 on Yahoo! Finance)?

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization…

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Really?  They’ve told us that people flipping burgers for minimum wage were poor, but even people earning $50,000 are poor?  No wonder we have so many people in poverty.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment…

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

No wonder the Democrats win elections.  You know there are a lot of Democrats in that 49% not paying federal income taxes.  That makes the Democrats a modern day Robin Hood.  Stealing from the rich.  And giving to the low- and middle-income.  And when you’re on the receiving end of this bounty, you’re all for class warfare.  Screw the rich, you’ll shout.  Until, God forbid, you become rich.  Just ask Nicholas CageSinbadWesley Snipes.  Or Willie Nelson.  And anyone who won the lotto.  Or a car.  Who did not realize that their bounty came with a hefty tax obligation (there’s no tax withholding for these people.  They have to write a check for all the taxes they owe).  People are stunned to learn the amount of their money the government wants.  And that isn’t fair.  But before they were rich, that was a different story.  Then nothing was fairer than sticking it to the rich.

The Rich aren’t Rich Enough to Pay all our Taxes

If the poorest half of all Americans aren’t paying any taxes, then who, exactly, is?  I mean, if the rich aren’t paying their fair share and the poor aren’t paying anything, who does that leave (see Where the Tax Money Is posted 4/17/2011 on The Wall Street Journal)?

Consider the Internal Revenue Service’s income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.

That’s funny.  I thought the rich weren’t paying their fair share.  And in 2008 the top 1% paid 38% of all taxes.  I don’t know, but 38% sounds like a lot more than the 0% paid by the poorest 50%.  So the rich are paying a lot.  Can they pay more?  Can they pay all of our taxes?  Well, even if you confiscate all of the top 1%’s income, no.  They can’t.  They simply aren’t rich enough.

Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.

The richest 10% of all Americans, including everyone making $100,000 or more, won’t do it either.  At least, they can’t fund a $4 trillion budget.  Which means there’s no way no how you can pay for government by taxing the rich.  Even if you tax them at 100%.  You see, these rich simply aren’t rich enough.  You know who is, though?  The middle class.

So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.

This is politically risky, however, so Mr. Obama’s game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it…

Keep in mind that the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class. These include the deductions for state and local tax payments (especially property taxes), mortgage interest, employer-sponsored health insurance, 401(k) contributions and charitable donations. The irony is that even as Mr. Obama says he merely wants the rich to pay a little bit more, his proposals would make the tax code less progressive than it is today.

The $100-200 thousand earners are the largest group of earners in the country.  They may each make less than each of the top 1%, but their numbers are far greater.  And it adds up.  If you drop that low end to $50 thousand and the total pot of income is close to $3 trillion dollars.  That’s a lot of money to tax.  And a lot of tax deductions to disallow.  That’s the sweet spot.  The $50-200 thousand earners.  They’re just one plump, stuffed, cash piñata.  And oh how they want to whack it open.  But how to do it?  And blame the Republicans?  That is the question that faces them.

Only the Middle Class can Fund a $4 Trillion Budget

And you do this, of course, by lying.  In his speech to offer his ‘budget’ in a response to the Ryan budget, Obama said he would cut the deficit by $4 trillion over the next 12 years.  How?  In part with $2 trillion in spending cuts.  Which aren’t exactly all spending cuts.  They’re actually tax increases.  You see, he sees tax breaks and credits as federal spending.  Because it costs government by not having that money collected as a tax.  So he will cut that ‘spending’.  By eliminating those tax breaks and credits.  Resulting in you paying higher taxes.  And that additional money the government is ‘taking back from you’ will lower the deficit.  Confused?  You should be.  This is about as devious as it gets.

And he also said he would save $1 trillion by not renewing the Bush tax cuts.  So that’s another $1 trillion in new taxes (see Obama’s $2 trillion stealth tax hike by James Pethokoukis posted 4/17/2011 on Reuters).

If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years. That means total debt reduction, not counting interest, would be $4 trillion, 50 percent of which would come from higher taxes. The econ team at Goldman Sachs ran a similar analysis and found that 56 percent of Obama savings over ten years could come from higher tax revenue.

So that’s $2 trillion in new taxes.  And where do you think that will come from?  Not the 1%, that’s for sure.  If you took all of their money it would only get you half way there.  To raise that kind of money, you have to go to the sweet spot.  The middle class.  Including those making far less than $200,000.  You have to tax everyone making $50,000 or more.  And take away their tax breaks and credits.  Where it will really hurt.  And be political suicide.  So why promise to do just that?  Simple.  He’s not. 

The Obama plan is a non-plan.  It’s just a political tool for the 2012 election.  To show that it is the Republicans that want to cut Social Security, Medicare and Medicaid.  Not him.  He’ll say he fought like a dog to save these entitlements.  Because he cares for you.  Unlike those nasty mean Republicans.  And entitlement spending will continue to grow unchecked.  Making it that much harder to save these programs down the road.  But this is what politicians do.  Kick the can down the road.  For someone else to worry about.  For by that time, many of the Democrats will be dead.  And won’t care anymore.

It’s not the Taxes, Stupid.  It’s the Spending.

There’s a difference between tax rates and tax dollars.  And it’s the tax dollars that are important, not the tax rates.  The rich may have a lower effective tax rate but they pay an awful lot in tax dollars.  And as tax dollars go, they’re paying more than anyone else.  Far more than half of all Americans.  Who pay $0.00 in federal income taxes.  If anyone is screwing anyone, it’s the lower 50% screwing the top 10%.  And the top 10% probably wouldn’t mind so much if we weren’t constantly demonizing them despite their generosity.

When you can’t pay for your spending by taxing everyone making $100,000 or more at 100%, you’re spending too much.  This is a spending problem pure and simple.  It’s not that the rich aren’t paying their fair share in taxes.  They are.  And then some.  It’s that government is just trying to buy too many votes.  If there is any greed here it is in Washington.  Their spending is out of control.  Even Standard & Poor’s Ratings Service thinks so.  They just lowered our rating from “stable” to “negative” because of the “ballooning deficit.”   Because our out of control spending threatens our future ability to service our debt.

But the Democrats have other pressing concerns on their minds.  Like winning elections.  And you win elections by spending.  Not living within your means.  And if they play it just right, the day of reckoning will come conveniently in the future.  When they’re dead.  Problem solved.  For them, at least.  Their children and grand children?  Guess they just don’t care about them.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

FUNDAMENTAL TRUTH #51: “The longer you wait to balance your books the harder it will be to balance them.” -Old Pithy

Posted by PITHOCRATES - February 1st, 2011

Compound Interest and ‘Usury’ Rates Keep Credit Card Balances High

You ever get those checks from your credit card companies?  Write yourself a check at 0% interest for 6 months?  And then in the fine print they note that if you don’t repay the money within that 6 month period you will be charged interest from the day you cashed that check at something like 30% APR.  Compounded monthly.  So if you write yourself a $5,000 check and pay it back the day after that 6 month period ends, you’ll find that you’ll have to pay back close to $15,000 for that $5,000 loan.  That’s the miracle of compound interest.  Working against you.

So, in 6 months time, it will be much harder to balance your books than it would have been before you borrowed that money.  This is the worst thing about credit card debt.  High interest charges that are rolled into your outstanding principal.  This makes the outstanding balance grow faster than a lot of people can pay them off.  Car and house payments, on the other hand, have fixed balances and lower interest rates.  We usually can pay those off.

People will say that credit card companies are charging usury interest rates.  They think that we should have laws to force them to lower their interest rates.  If car and house loans can be under 10%, why can credit cards charge interest rates as high as 30%?  Well, in a word, collateral.  If you fail to pay your house or car payments, the bank will take your house or car.  They will then sell them to try and get their money back.  Credit card debt is unsecured.  It’s pretty hard to take back restaurant dinners and hotel stays and sell them to get your money back.  So when people default, the credit card companies get nothing.  So they have to charge higher interest rates to cover these losses.

Living beyond our Means Despite our Parents’ Wise Advice

So using credit cards to make up for a spending deficit is not a good thing.  Granted, there are emergencies where some have no choice.  But a lot of us just seem to spend more than we earn.  Or take bigger debt risks.  We may like the bigger house better than the more affordable one.  We may like a new car better than a good used one.  Of course, those things come with bigger monthly payments.  And we may have no problem paying for these things.  Unless a spouse loses their overtime.  Or their job.  Or the ARM on your mortgage resets to a higher interest rate.  All of a sudden, then, those monthly payments begin to hurt.

But not everyone gets into trouble because of a change in income or interest rates.  For some it just happens.  Gradually.  Money’s good.  You take some vacations.  Eat out a few times.  Buy some nice things for the house.  A home theater.  A nice patio with a twin BBQ and some nice furniture.  Next thing you know you’re living beyond your means.  You notice that your credit card balances are growing larger.  And your monthly payments are growing smaller.  Which in turn makers your balances grow larger.  All of a sudden, you have trouble paying your bills.  And you can’t understand this because you were making such good money.

Parents are often critical of their children’s spending.  Go back some 20-30 years and they were very critical.  Those parents who grew up during the Great Depression and went without during World War II know the value of not buying anything until you saved the money for the purchase.  A lot of kids got tired of hearing this.  “You shouldn’t be spending your money on that.  You should be saving it.”  But a lot of us wouldn’t listen.  Because we wanted things and we didn’t want to wait.  So we bought them. Spent our money.  Ran up our credit cards.  Got ourselves into trouble.  And went back to Mom and Dad for help.  Why?  Because they saved their money.  Lived well within their means.  Were able to retire comfortably.  And can now afford to help bail you out of your troubles.

Rising Immigration and Birth Rates Encourages Entitlement Spending

What’s true for people is true for governments.  Earlier governments knew the value of not spending money they didn’t have.  Thomas Jefferson slashed the federal budget when he became president.  He feared that a perpetual federal debt only empowered a federal government.  If the debt became permanent, then so must the government.  Alexander Hamilton liked debt for that very reason.  Not Jefferson.  Hamilton wanted to create an American Empire to give the British Empire a run for her money.  Jefferson just wanted people to own and farm land.

So in the beginning, and through the middle, Washington operated on a shoestring budget.  Kept its spending manageable.  And it’s debt minimal.  Lincoln exploded spending to pay for the Civil War.  And subsequent presidents did likewise for the two world wars.  But things really started to change in the 20th Century.  First with Wilson’s Progressives.  Then FDR’s New Deal.  Then Johnson’s Great Society.  Federal spending grew at an alarming rate.  Because America came into her own in the later 19th/early 20th century.  We became a rich nation.  A world leader.  And there was a lot of other people’s money to spend.

Thus the era of entitlement spending had begun.  Immigration was swelling the U.S. population.  We were having lots of kids.  All of us were working hard.  And paying our taxes.  America was like that 2-income couple working lots of overtime and buying lots of things.  The good times looked like they would just go on forever.  So America was ‘buying’ Social Security for everyone.  And Medicare.  Medicaid.  And lots of other stuff.  But then a strange thing happened.  Our population stopped growing.  We closed Ellis Island.  Immigration was down.  Birthrates plummeted.  Neighborhood families didn’t have 10 and 12 kids in their houses.  A Baby Bust followed the Baby Boom.  Or, more accurately, a taxpayer bust.  For the aging population was growing at a greater rate than the taxpaying population.  Which meant fewer and fewer people were paying for more and more people collecting Social Security, Medicare and Medicaid.

Are Social Security, Medicare and Medicaid Unfixable?

And this is a problem.  And the problem grows greater with every day that goes by.  Because with every day that goes by, more seniors start collecting Social Security, Medicare and Medicaid benefits.  While fewer new people enter the work force to pay for these programs.  And despite raising taxes and cutting benefits, costs continue to exceed revenue.  So the government takes out its ‘credit card’ to finance this deficit.

Of course, we call these programs ‘third rail’ programs.  That is, if a politician threatens to cut any of these programs they can kiss reelection goodbye.  So they don’t.  They just kick the can down the road.  And the problem grows ever more costly to fix.  Both monetarily.  And politically.  Which makes them just want to keep kicking that can down the road to let someone else worry about them.

But like our credit cards, we keep running up our outstanding debt.  The debt is so high now that the interest on the debt is a major budget item.  We have to fix this problem.  We can’t keep kicking it down the road.  Greece tried.  And look what happened to them.  The European Central Bank (ECB) had to bail them out.  And Greece is still not out of the woods.  Now Greece is a great nation.  A lot of history there.  But it’s not quite as big as the United States.  Being small has its advantages, though.  It’s easier for others to bail you out.  We don’t have that luxury.  There isn’t anyone big enough to bail us out.  Except, perhaps, an old enemy.  Communist China.  Imagine that.  One of the last communist nations in the world having to come to the rescue of the most powerful (and once most capitalistic) nation in the world.  If that ain’t a fine how do you do.

We should have listened to our Founding Fathers.  Because our parents always knew best.  Pity we don’t learn that until after we make a mess of things. 

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , ,

LESSONS LEARNED #48: “Government benefits aren’t from the government. They’re from the taxpayers.” -Old Pithy

Posted by PITHOCRATES - January 13th, 2011

Defense Spending is in the Constitution, Entitlements Aren’t – And it’s Entitlement Spending that’s Growing

People like to bitch about defense spending.  And I can understand why.  It’s a lot of money.  Just to kill people and break things.  People would rather see that money spent on education.  Health care.  Food assistance for the poor.  Entitlements.  Those nice, generous, government benefits.  The kinder, gentler side of government spending. 

People like the free stuff.  They want to get something for all those taxes other people are paying.  And it just kills them to see it spent on the military.  Because they’d rather see that money spent on them.  Of course if you read the Constitution, you’ll find defense spending in there.  It’s in the preamble (provide for the common defense).  You’ll find it in Article I.  In Article II, too.  Defense spending is pretty conspicuous in the Constitution.  Conspicuous by their absence, though, are entitlements.  Did the Founding Fathers overlook this?  No.  It was the whole point of federalism.  They designed the central government to do only those things that the states couldn’t.  To establish credit for the new nation, to treat with foreign nations, to coin money, etc.  And, of course, to provide and maintain a military force.  Alexander Hamilton wanted it to do more.  And he stretched the “necessary and proper” clause in Article I for some of the things he wanted the central government to do (to try and make the nation rich and powerful like Great Britain).  Pity, too.  For the Left has been stretching that clause ever since.

All right, defense spending is a constitutional requirement of the federal government.  Entitlements aren’t.  So how much are we spending on these?   In 1962, defense spending was 49% of all federal spending (see Federal Spending by the Numbers 2010).  Social Security and Medicare (the two biggest entitlements) were 13%.  Current baseline projections show that, in 2020, defense spending will drop to 14%.  And Social Security and Medicare will rise to 36%.  Medicare is the real cost driver here.  In the decade from 2000 to 2010, Medicare spending has jumped 81%.  It is outgrowing Social Security and Medicaid.  The runaway costs of Social Security, Medicare and Medicaid (the Big Three) are projected to equal total current tax revenues in the year 2020.  That means the total federal budget today will only pay for the Big Three in 2020.  Concerned?  You should be.  Especially if you’re a taxpayer.

You can pay Uncle Sam with the Overtime.  And will.

Taxpayer, beware.  The government is feeling especially generous.  With your money.  By 2020, Washington will be spending $35,604 per household.  That’ll take almost $5,000 in additional taxes per household for the Big Three alone.  That is projected to jump to $12,636 in 2050.  And that doesn’t include Obamacare.  When that is factored in, it’ll cost you as much as paying cash for a new car each and every year.  And a nice one, not a subcompact with a sewing machine for an engine.  Can you afford that?  I hope so.  Because you won’t have a choice.  You’ll be buying it.  But not for yourself.  No.  That nice beautiful car you’ll be buying each and every year?  You don’t get to drive it.  It will be for someone else.

The entitlement spending is getting so out of hand that we have record deficits.  Compounding this problem is the 2008 recession corresponding with a huge jump in entitlement spending.  It’s opened a rather large gap between revenue and spending.  And that gap isn’t going anywhere soon.  Unless they cut entitlements.  Or raise taxes.  And you know they won’t be cutting entitlements.  So, guess what?  You can pay Uncle Sam with the overtime.  Because that’s all you’ll get for your money (borrowed from Billy Joel’s Movin’ Out (Anthony’s Song)).  So get used to it.  Paying Uncle Sam.  Because Sam is going to raise your taxes.  He has no choice.  Because he won’t cut entitlements.

And they’ll have to raise taxes.  Because we’re running out of creditors to borrow from.  I mean, the Chinese only have so much money to lend.  And we can’t keep printing money.  They’ve been doing that.  Quantitative easing, they call it.  But they can’t keep doing it.  Anyone alive during the Seventies will know why.  Or anyone who has done some reading outside the public school curriculum.  In a word, stagflation.  That’s a phenomenon where you have both high inflation and high unemployment.  It’s usually one or the other.  The normal rules of economics don’t allow both to happen at the same time.  Unless you’re printing money like there’s no tomorrow.  Which they were in the late Sixties and Early Seventies.  To pay for the Vietnam War.  NASA’s Apollo program (to the moon and back).  And, of course, entitlement spending.  The biggest to date was a group of programs we called the Great Society.  Inflation was so bad that they joked about it on Saturday Night Live.  Dan Aykroyd played President Jimmy Carter, joking about the pleasure of owning a $400 suit.  And how easy it was to just call the treasury to have them print off another sheet of hundred dollar bills.  (Or something like that.)

The Reagan Deficits were Bad, but they Make the Obama Deficits look Good

The Seventies were a bad time.  Economically speaking.  Printing money was bad.  Quantitative easing was bad.  Easy money was bad.  So Paul Volcker started tightening monetary policy.  And Ronald Reagan cut taxes. And the Eighties were like a glorious spring following the bleakest of winters.  But you can’t teach an old dog new tricks.  The liberal Democrats weren’t going to roll over and cry ‘uncle’.  For they knew there was more spending left that they could do. 

So the spending continued.  Reagan had a Democrat Congress.  They fought him tooth and nail.  But he spoke directly to the American people and got his tax cuts.  And Reagan’s tax cuts resulted in a windfall of revenue.  And the Dems in Congress couldn’t spend the money fast enough.  Actually, they could.  They spent it so fast that surpluses soon turned into deficits.  They blamed Reagan’s defense spending.  So he made a deal.  He agreed to increase taxes.  If they would cut some of their entitlement spending.  To get the deficits under control.  So they did.  Increased taxes.  But they never cut spending.  Which just goes to show you that you can’t trust liberal Democrats.

You youngsters probably have no memory of these times.  But Ronald Reagan was attacked more than George W. Bush.  Hell, he was attacked almost as much as Abraham Lincoln.  The Seventies were the high-water mark of liberalism.  Then it went head to head with Reagan’s limited government supply-side economics in the Eighties.  And lost.  The hatred for Reagan knew no bounds.  For he was the man that repudiated liberalism.  So they attacked him ruthlessly. Screamed about his defense spending.  And yet his deficits were only around $200 billion.  Obama’s, on the other hand, are around $1,500 billion.  But they’re okay with that.  It’s no big deal, they say.  Just raise the debt ceiling.

It’s Spending, not Tax Cuts, that’s Causing those Record Deficits

But they can’t just raise the debt ceiling to keep spending.  Because spending is the problem.  Our debt is approaching 100% of our GDP.  When you’re borrowing money at record levels, you’re doing this because you just can’t raise taxes anymore.  You put the two together and it’s destroying the economy.  Taxes kill economic activity.  And the interest on the debt is soaring.  It’s projected to be approximately $760 billion in 2020.   That’s more than 70% of the projected budget deficit.  That means that most of the money we’ll be borrowing will go to pay the interest on the money we’ll be borrowing.  At that rate we’ll never pay down our debt.

Revenue averaged 18.0% of GDP from 1960-2009.  During the same period, spending averaged 20.3% of GDP from 1960-2009.  Not good.  But not too bad.  That’s a small, somewhat manageable deficit.  But spending takes off in 2010.  It’s projected to rise to 26.5% of GDP.  Meanwhile, revenue is projected to rise only to 18.2% of GDP.  That’s a projected deficit of 8.3% of GDP.  That’s fricking huge.  And that’s all runaway spending causing this mammoth deficit.  It ain’t tax cuts causing this.  It’s those entitlements.  Those fat, generous government benefits.

By this time there won’t be anything left to cut from the defense budget.  So they will have to turn to the generosity of the taxpayers.  And hope they enjoy personal sacrifice.  Because they’re going to be doing a lot of that.  To pay for these generous benefits.  These benefits for other people.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Health Care and the Deficit: Government Bureaucracy vs. Market Forces

Posted by PITHOCRATES - December 12th, 2010

Birth Control and Abortion Bankrupting our Nation

Health care is expensive.  When it comes to the federal budget, nothing costs more.  And its cost will only increase (see Health Care and the Deficit editorial published 12/11/2010 on The New York Times).

This year, Medicare, Medicaid and a related children’s health insurance program will account for more than 20 percent of all federal spending — higher than Social Security or defense. Unless there are big changes, by 2035 federal health care spending — driven by rising medical costs and an aging population — is projected to account for almost 40 percent of the budget.

Politicians are whores who steal from the American people.  Earmarks, kickbacks, patronage, fat pay and benefit packages, uber generous pensions, whatever.  The bottom line is that they’re screwing us while they live a far better life than we ever will.  And as bad as their screwing of us is, their screwing of us ain’t the worse of it.  It’s the entitlement spending that’s gonna bankrupt us.  Especially healthcare spending for old people.

Thanks to birth control and abortion, the American people shrunk their family size starting with the boomer generation.  Instead of 10 kids in a family we started to have only 2 or 3 kids.  And it is this reduction in family size that will ultimately bankrupt our nation.

Cutting Medicare Because Nothing else is Big Enough to Cut

Thanks to birth control and abortion, we have an aging population.  The kids of families with 10+ kids are aging and reaching retirement.  But the kids of families with 2-3 kids are paying their Social Security and Medicare benefits.  More people are collecting benefits than are paying taxes to fund those benefits.  BIG problem.

When FDR implemented the great Ponzi scheme, Social Security, a bunch of people were supporting each beneficiary.  As the population ages, fewer and fewer people are supporting each beneficiary.  So they have to keep raising taxes on each individual.  But there is a limit.  Eventually, an individual will have to pay more in taxes to support a retiree than they spend on their own family.  And few people will whistle a happy tune when more of their hard-earned pay goes to someone else instead of their own family. 

If we’re not having more babies, then we gotta cut costs.  There’s no ifs, ands or buts about it.  So they’re talking about cutting costs.  By making us pay more for our benefits.

The White House commission, headed by Erskine Bowles and Alan Simpson, proposes to wring nearly $400 billion from health care spending between 2012 and 2020, of which the biggest single element — $110 billion — would come from increased cost-sharing by Medicare beneficiaries. The second commission, an independent panel headed by Pete Domenici and Alice Rivlin, seeks to save $137 billion from Medicare cost-sharing.

So even though Obama denied it over and over again, they’re going to cut Medicare.  Why?  It’s the 800 pound gorilla in the room.  To make any significant cost savings you gotta cut something big.  And few things are bigger than Medicare.

Taxing our Health Care Benefits

They’ll cut Medicare.  And raise taxes.

The Domenici-Rivlin panel, the more aggressive on health care, would also phase out the exclusion that exempts workers from paying taxes for employer-subsidized insurance, a benefit that also encourages excessive use of medical care. The long-term gain in tax revenue could be huge — more than $3 trillion between 2012 and 2030 and almost $10 trillion by 2040.

Few people don’t realize how much their employer pays for their health insurance.  They will now.  Though they won’t be getting a big pay raise, they will pay taxes as if they had.  That’s right, they will tax the total cost of your health care benefits as taxable income.  Even if you never see a doctor.

Wither on the Vine

You know things are bad when they propose something their enemy once proposed.

The Domenici-Rivlin panel has a far-reaching proposal to give Medicare enrollees vouchers to buy coverage from Medicare or a competing private plan offered on a Medicare exchange. The voucher would increase in value at roughly half the likely rate of medical inflation. If the cost of coverage rose faster than that, the beneficiary would have to pay an extra premium to cover the difference or seek a cheaper plan.

Sound familiar?  Newt Gingrich proposed this.  Back in the 1990s.  He said that as more people voluntarily enrolled in private insurance Medicare would wither on the vine.  Of course, the political opposition said Gingrich was just trying to kill senior citizens.  So his proposal was defeated.  And here we are.  Same problem.  Only more costly to solve now.

Competition Makes Everything Better

The big problem with health care is that there is no competition.  No market forces.

The commission believes that competition on the exchanges will cause insurance plans to find ways to lower premiums. It also believes beneficiaries will restrain their own spending. The panel projects savings from premium support and its near-term cuts and cost-shifting could be huge — more than $2 trillion through 2030 and more than $7 trillion through 2040.

Competition makes everything better.  And there’d be more competition now.  If the government didn’t forbid it.  For it is the government that forbids insurance companies from competing across state lines.

Can you Say Death Panels?

A spending cap is just another way to say rationing. 

The health care reform law already seeks to cap the growth in Medicare spending per beneficiary to roughly half the rate it has been increasing in recent decades. It empowers a new board to find savings should the target be breached, subject to Congressional veto. The Bowles-Simpson commission would expand that approach by placing a cap on total federal spending for health care — not just Medicare and Medicaid but the subsidies on new exchanges and tax exemptions. But the commission punts on what to do should the growth cap be exceeded, as many experts deem likely.

This board will have the power of life and death.  They will say who will live.  And who will die.  They can deny it but that’s what rationing is.  We have enough healthcare services for one person today.  Who will get it?  The 39 year old factory worker who has many taxpaying years left (so the government can recoup its ‘investment’)?  Or the old retired guy?  Hmm.   The old retired pain in the ass who won’t hurry up and die?  Or the young guy that we can squeeze more taxes out of for another 20 years or so?

Cut Out the Middle Man

They have big hopes for Obamacare.

The best way to lower health care spending is to reform the dysfunctional health care system whose costs seem unrelated to the quality of care delivered. The reform law makes a good start, sponsoring research to determine which treatments are effective and which are not, starting pilot projects to change the way care is delivered and paid for, and setting up new organizations to rush successful approaches into wide use in Medicare and ultimately the private sector.

The problem with health care is that we approach it from a cost standpoint rather than a quality of care standpoint.  No law or board will change that.  Real competition would.  Such as allowing insurance companies to compete across state lines.

One thing not mentioned by the New York Times is tort reform.  If we keep the jackals off of the doctors, they can spend more time administering health care instead of enriching ambulance chasers.

Perhaps the greatest cost control measure we can take is to cut out the middle man.  Have people pay for the services they receive.  Health care insurance is supposed to be insurance.  Not welfare.  It is to protect us from unexpected catastrophic medical expenses.  Like cancer.  Not to pay for a doctor appointment because we have the sniffles.

We Need more Market Forces.  Not more Government.

Increasing the size of a bureaucracy never made anything more efficient.  Price caps never made anything more plentiful.  And having someone else pay your bills never gives you the best quality.  That’s why we say beggars can’t be choosy.  Because we give beggars crap.

To fix our health care insurance woes we need to introduce market forces.  Not more government.  Medical savings accounts and tort reform would go a long way in fixing our problems.  As will competition across state lines.  And, of course, repealing Obamacare.

And we need to pay for our health care services.  For when we pay we seek the best value for our money.  Because we give a damn.  Unlike a disinterested government bureaucrat.

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,